As CERAWeek continues, Yahoo Finance's Julie Hyman is joined by Oneok (OKE) CEO Pierce H. Norton to discuss the company's expansion and outlook on the energy market.
Norton highlights that Oneok is a "fee-based business," explaining that the company makes money by "transporting molecules to where they have the most value." He further elaborates that natural gas has to be processed and traded to get it into a "marketable form," which is a service Oneok provides.
Norton emphasizes that their acquisition of Magellan, which aimed to diversify Oneok's asset base, opened up many "organic opportunities." The expansion enabled Oneok to broaden its footprint, opening the door for them to move different products "with the same pieces of pipe" – a process called batching.
Regarding energy sources, Norton claims that the country has been experiencing an energy transition for over 200 years, with factors such as population and standard of living contributing to these changes. He suggests that there will be "continued growth," but the focus will shift from an "energy transition" to an "energy transformation," where different energy sources can be utilized in "a different way."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Angel Smith
Video Transcript
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JULIE HYMAN: Here at CERAWeek by S&P Global, I'm Julie Hyman of Yahoo Finance. And we are talking amongst other things about the energy transition. But of course, natural gas has become a big part of our energy system here in the United States, and I'm here with someone who is a big part of that in turn Pierce Norton who is CEO of ONEOK, one of the companies that is responsible not only for E&P but also for pipelines, getting natural gas around the country. Thanks so much for being here.
PIERCE NORTON: You're welcome. You're welcome. Thanks for having me.
JULIE HYMAN: So first of all, I want to talk a little bit about natural gas markets and what we've seen go on there because we've seen the price come down quite a bit down more than 20% or so over the last year. What effect does that have on your business?
PIERCE NORTON: It actually has a little effect on our business because we're primarily a fee-based business. So the way we make money for our shareholders is actually just moving the molecules from point A to B, and what we basically do is we're taking those molecules and transporting them to where they have the most value. So most people don't know that natural gas when it comes out of the ground. You actually have to process it and treat it to get it in a marketable form. That's what we do.
JULIE HYMAN: And so you all have made a big acquisition in Magellan that closed last September. When it comes to scale in the pipeline business, is bigger better? How do you think about the strategy behind that acquisition?
PIERCE NORTON: Well, actually, Julie, bigger is better. And the reason is because it provides a lot of organic opportunities for you. So you get some interlace between the systems. One of the things that we wanted to do with Magellan is diversify our asset base. So we were already in gathering and processing, transmission of natural gas, and the movement of natural gas liquids, but we didn't have refined products in the crude oil piece. And because if you overlay our assets, you can actually use some of the same pieces of pipe to move different products. So we've just expanded our footprint, and it's a tremendous opportunity for our company, our employees, and our shareholders.
JULIE HYMAN: So in other words, if you have one pipeline, you might have sub pipes within it running different types of product.
PIERCE NORTON: Actually what you can do is you can put different products down the same line. It's called batching.
JULIE HYMAN: Oh, is it because there are different weights?
PIERCE NORTON: No, it's because you can actually put two different kinds of products in the same line. And when you do, there's just a small interface in between it, and so you can see catch that at the other end and separate them into the tanks that they need to go into.
JULIE HYMAN: Interesting. As I mentioned, there's a lot of talk here at CERAWeek and in the general conversation in the energy industry about the so-called transition. But of course, recently, there's been a little bit of pushback against the notion that oil and gas is going anywhere anytime soon. How are you thinking about that and the role of the products that you transport?
PIERCE NORTON: We actually do a lot of studies on this, Julie. And what you really realize is that we've actually been in a transition for 200 years. The country started out actually using wood for its energy source. Then we added coal. We added natural gas. We added nuclear, and then, now, you've got geothermal. You've got the renewables, which is solar and the wind.
But we've actually built on it. And the reason is because the population increased and the demand because of your standard of living increased in the United States. The same thing is going to happen in the rest of the world. So there's going to be continued growth in those areas. But we believe it's more about energy addition than necessarily energy transition, and one more thought on that is, when you say transition, you're implying that you're moving from one energy source to another, and you're never going to go back. But if you really study it, it's more about transformation than it is transition.
JULIE HYMAN: Meaning what?
PIERCE NORTON: Well, meaning that you can use the same thing in maybe a different way. So you can use natural gas to form hydrogen or ammonia or those kinds of things. It's just a tremendous opportunity for, I think, our country as far as energy goes, and especially be the midstream aspects, which is the pipelines.
JULIE HYMAN: As you think about to-- you mentioned developing world, moving through different energy sources as well, do you think that you will end up exporting more of your product and not just piping it around the US, but piping it to an export terminal? And do you think demand will be greater even in other countries than in the US at some point?
PIERCE NORTON: Well, here's some statistics for you. Over the last 20 years, we've basically consumed around 100 quads of energy, which is just the way we measure the energy source in the United States. May, may fluctuate two or three quads a year based on weather. But what's going to be the interesting thing is to see how data centers use energy in the future and whether or not our domestic energy consumption actually starts to grow because of data centers, but then the rest of the world is going to continue. And we already export 12 to 15 Bcf a day, not us personally, but the industry does off shores of the United States to goes all over the world.
JULIE HYMAN: When you talk about our energy necessities, though, as a result of data centers, that's a really interesting topic. It's one that we've been talking a lot about recently. The question is, even if natural gas and other energy sources can provide that energy, can the grid have that capacity to meet the demand from data centers, for example?
PIERCE NORTON: The short answer is probably not. So that really gets into the conversation about infrastructure, whether or not it's pipelines, processing plants, fractionators, petrochemical plants, or even transmission lines, and the ability to build more electric generation in the United States. So I personally think we've got to think a little bit bigger.
JULIE HYMAN: And on the pipeline front, there has been some talk about reforming the permitting process for pipelines. How optimistic are you that that's going to get done? And would ONEOK-- where are you on? Would you consider putting in an application for a new pipeline, or do you think it's just we're too far away from that process being more [INAUDIBLE]?
PIERCE NORTON: Well, at ONEOK, we do this every day. I mean, that's what we do, is we permit pipelines, those kind of things. But what I am appreciative of is the dialogue because just a few years ago, we weren't talking about permit reform. We were talking about more regulation. So now you're talking about it, so which, in our opinion, it really focuses on the issues and not necessarily picking sides.
