James T. Hackett has spent nearly his entire career in the energy industry, with a particular focus on the oil and natural gas business. His resume includes stints at Dynegy, Pan Energy, Duke Energy, Ocean Energy and Devon Energy. In 2003, he left his job as president and COO of Devon to take the top job at Anadarko, where he is chairman, president, and CEO. During his tenure, Anadarko’s stock price has more than doubled in price. The company is now the second-largest US independent oil and natural gas company, after Devon. In addition to his job at Anadarko, he is a director of Fluor Corporation and Halliburton Company and serves as chairman of the Federal Reserve Bank of Dallas. A native of Chicago, he received a degree from the University of Illinois and an MBA from Harvard.

RB: A few days ago, I appeared on CNBC alongside you and Carl Pope of the Sierra Club to talk about “energy independence” and US energy policy. During that show, you said natural gas is “the answer.” What did you mean?

JH: Our country will need about 50 percent more energy by 2030 according to the U.S. Energy Information Administration (EIA). Meeting this ever-increasing energy demand will require all forms of energy, and natural gas must play a significant role. Natural gas is the best alternative for our energy future for a number of reasons. First, natural gas is the cleanest fossil fuel and a highly efficient form of energy, emitting about 50 percent less CO2 than coal on an energy-equivalent basis. Second, natural gas is abundant. With the emergence of extremely large shale resources in the U.S. like the Marcellus, Haynesville, Maverick and Barnett, it is estimated that we have over a 100-year supply of natural gas. Third, natural gas is reliable and the only practical back-up fuel source for renewables in electric power production, because current renewable energy sources lack sufficient energy storage capacity. Fourth, it’s incredibly versatile. It can heat or cool our homes, cook our food, generate electricity, power our vehicles and serve as a raw material in the production of fertilizer, paints, pharmaceuticals, medical devices, and many other uses in our daily lives. It is the only proven fuel source that can substitute for imported petroleum products in our transportation sector. It is also a wonderful answer for power generation and reducing GHG emissions. There is more gas-fired power generation in the U.S. than for any other fuel source. Yet, natural gas power generation is only utilized at 20 percent of its potential and is generally used only in times of peak demand, whereas coal runs at 70 percent. Finally, it is American. About 98 percent of the natural gas used in the U.S. comes from North America. This has a direct impact on the economic health of our nation through job creation, both directly and indirectly. Plus, this is energy we are producing at home, meaning we don’t have to import it from foreign countries that may or may not be friendly to America, greatly enhancing our national security.

RB: Are you advocating the use of nat gas in the transportation sector? If so, how do you propose to increase the use of the fuel for that purpose?

JH: I do believe natural gas is a good alternative for the transportation sector, if we have politically determined to reduce our dependence on imported oil. Natural gas vehicles are a proven and safe alternative and have been in use for decades. Utilizing compressed natural gas (CNG) can help reduce emissions produced by gasoline and diesel-powered vehicles. Also, by converting just 5 percent of the diesel-powered trucks in the U.S. to natural gas, we could save approximately a half a million barrels of imported oil each day. Worldwide there are more than 10 million natural gas vehicles on the road, while the U.S. only accounts for about 150,000 of them. I drove a natural gas vehicle 10 years ago and the technology has come a long way since then. In fact, I’m now in the process of purchasing a natural gas-powered Tahoe.

We do need to make compressed natural gas more widely available in order to handle increased demand. Natural gas vehicles are easily converted, require less engine maintenance, operate with tremendous efficiency and have the highest energy to carbon ratio of any fossil fuel. The infrastructure requirements for heavy truck conversion would involve much less investment than the incentives being proposed for wind and solar, which don’t displace a gallon of imported oil, contrary to popular belief.

RB: Anadarko has a broad base of assets. But it appears the company is betting big on shale gas in the Marcellus, Haynesville, and the Eagleford. At what nat gas price -- $4 per mcf?, $5? -- are those plays economic? A related question: what’s the biggest barrier to getting that shale gas – particularly in a new exploration region like the Marcellus – out of the ground?

JH: I can say that I was not always a supporter of natural gas vehicles, because I didn’t think it was wise to divert this limited resource to a transportation fuel; however, the emergence of the shale plays has changed my opinion. The Marcellus, Haynesville, Barnett and Maverick, to name a few, are estimated to hold massive resources that amount to more than a 100-year supply of clean burning natural gas, and unlike coal (another long-lived domestic resource), there is tremendous growth potential in natural gas production capability.

At Anadarko, we are very excited about the potential of our acreage in the Marcellus shale in north-central Pennsylvania and the economics this play offers. We estimate our Marcellus acreage may hold more than 30 trillion cubic feet of natural gas on a gross unrisked basis, which would be enough to more than double all of Anadarko’s current reserves. We’re also seeing excellent results from our exploration activity in the play, with estimated ultimate recoveries (EURs) of about 4 billion cubic feet per well and initial production rates of between 4.5 and 8 million cubic feet per day. Each well costs between $3 million and $4 million dollars, which means we can realize a 10-percent rate of return at $2.50 NYMEX natural gas prices –the equivalent of about $.35 per gallon—the impediments are simply the pace of drilling in today’s soft price environment and the infrastructure build-out. Both of these can be solved in a practical manner, given any reasonable amount of market demand and commodity-price environment. While the Marcellus likely has the lowest break-even today of any of the shale plays, many others have very attractive economics at $7/Dkth or less.

RB: The Waxman-Markey bill is now pending in Congress. If you had to pick one tax regime, which would it be: carbon tax or cap-and-trade? Why?

JH: If we must have a carbon tax policy, and if I had to choose between the two most commonly discussed approaches, I would prefer a carbon tax. It’s transparent and not as susceptible to manipulation as cap-and-trade. With a carbon tax, you are telling consumers exactly how much it is going to cost them, and they in turn can track, very clearly, where the dollars that are generated by the tax are being spent. A carbon tax is targeted at conservation and energy efficiency. Cap-and-trade is targeted at making production more costly, yet with offsets which don’t allow adequate price signaling to consumers. Cap-and-trade discourages production of energy, which is extremely harmful to our nation’s economic recovery. It also hides the tax from consumers, just as politicians are already proposing. Cap and trade allows central government to dole out free, or other subsidized, allowances as they choose from time to time. This is what happened in Europe and it is exactly what’s happening in Congress today, where free allowances are being proposed for the most polluting industries for up to 15 years, in order to garner needed votes for very flawed legislation. Cap and trade will be corrupted, manipulated, and not have its intended effects on climate change. Worse, it will be a major impediment to economic growth and result in much higher energy prices.

RB: Do you think carbon taxation will do any good – with regard to carbon emissions reductions or energy imports – or will it, as you recently said, only help make the US the “world’s cleanest Third World country”?

JH: When it comes to climate policy, science should lead the way, not politics. Allowing politics to lead the way gave us corn-based ethanol, which is a disaster in terms of energy efficiency and the environment. We allowed politics to lead the way in other areas as well--when DDT was banned as a pesticide. Countless people died of malaria as a result of that decision, and the World Health Organization later reversed the ban. Politics led the way when our nation imposed a windfall profits tax in the 1970s. That decision led to skyrocketing energy prices, crippling gasoline shortages and greater dependence on foreign oil. That decision was also reversed.

Rather than learn from these past failures, the current administration and the House of Representatives is on a track to repeat them. The policies being pursued risk plunging millions into poverty because they will no longer be able to afford energy. Many people in Europe today pay 20 percent more for electricity as a consequence of their failed efforts to sever the link between modern life and CO2 emissions. Here in America, these policies will hit the poorest the hardest, as they spend a larger percentage of their income on energy. And, if we protect the poor, the economy will be stagnated by higher taxes and fewer jobs.

We’ve heard the president discuss Spain’s success in moving forward with subsidized “green” energy; however, a recent study by a Spanish university demonstrates that for every “green job” that was created in Spain, 2.2 other jobs were destroyed. Translate that to the administration’s promise to create 3 to 5 million new “green jobs” in the U.S., and that means about 10 million other jobs will be destroyed.

On the other hand, pursuing an energy future that includes all forms of energy, especially clean-burning natural gas, provides the most benefit. It spurs non-government investment, creates sustainable jobs, produces more energy and keeps energy costs for all consumers in check. Wind, solar, and advanced bio-fuels should be pursued, but not instead of other fuel sources, rather in tandem. Government-created (or “green”) jobs are a cost, not an income source, and the current political apparatus is trying to tell us otherwise. We can only afford government-subsidized jobs if the private sector is paying for those jobs. If we crush conventional fuels in a mis-directed attempt to make America “green” too quickly, based on politics instead of science, we will suffer significantly versus the major economies of the world. Only then will we realize the politicians told us fairy tales. When we lose economic clout, we will lose moral and military clout as well. While America has made mistakes as a world leader, there is no other country I trust to take our place in that position … and certainly not those who are currently exempted from global climate regulation proposals.

RB: Your company is an aggressive driller in the deepwater. So how deep is “deep?” I ask because it seems that we need to get a better understanding of the changing terminology in the energy business. In 2008, 51% of the nat gas produced in the US was “unconventional.” Thus, what used to be unconventional gas is now conventional -- and what used to be deepwater, isn’t so deep anymore. So again, what’s “deep?”

JH: The industry tends to define deep water as anything over 1,000 feet. In 2007, Anadarko began producing natural gas at Independence Hub, the world’s deepest platform in 8,000 feet of water in the Gulf of Mexico. Working in waters this deep was not even possible a few years ago. One of the amazing things about our industry is, if you give us a challenge, we will generally find a solution. The technology we are using in deep water rivals that of NASA. The pressures and temperatures that exist up to two miles below the surface of the ocean are incredible and yet, we’re producing enough natural gas from this one facility to meet the daily demands of more than 5 million average American homes. The environmental footprint is about the size of an average office building—alternative fuels like wind and solar can’t touch this efficiency of energy delivery per unit of environmental footprint.

It’s technology like this that makes us scratch our heads as to why our government still holds so much of our natural resources off limits. We’ve proven we can develop these resources safely while protecting the environment, yet our government is preventing us from developing areas in the eastern Gulf of Mexico, Alaska, and off the East and West Coasts that potentially hold billions of barrels of oil and trillions of cubic feet of natural gas. Even Norway, which is often held up as one of the most environmentally sensitive nations in the world, develops all of its resources for the good of its people. We should be doing the same.

RB: What’s your take on peak oil? Are we at or near the limit of global oil production -- due to politics, technology or geology?

JH: In my opinion, the question of peak oil is heavily dependent upon commodity prices. We continue to find more oil in places like offshore Brazil, the deep waters of the Gulf of Mexico, in West Africa, and in the Canadian tar sands, but inclining oil prices have allowed us to make these new resources available. Alternative fuel and climate change “experts” should love this phenomenon, because it provides a non-subsidized way for their fuel “choice of the year” to compete … but only a few admit to this.

We can find more oil if market forces are allowed to work. We won’t find more oil if global governments (like the U.S.) mandate subsidized alternatives to oil, no matter the cost of subsidization, because uncertainty will be created for producers about what market may be available for their product. In conjunction, those same governments want to tax oil companies in numerous significant ways to “pay for” government-preferred fuels, leaving oil companies with less cash flow to fund new investments in supply growth. You and I as consumers will be the losers.

RB: If we are at or near peak oil, does it matter? By that I mean, won’t the high prices that follow peak oil production quell demand and therefore bring the market back into relative balance? (After the oil price spikes of the 1970s, US oil consumption hit 18.8 MMbbl/d in 1978. It stayed below that level until 1998, when it hit 18.9 MMbbl/d. And the latest EIA data shows that 2008 oil consumption was about 19.4 MMbbl/d – or about the same as it was back in 1999.)

JH: I believe we need to look at demand and supplies globally, not just in the U.S., since oil is a largely fungible world-traded commodity. Globally, demand will continue to grow with economic growth. I whole-heartedly believe in the free market to satisfy that demand. When left to work as it should, it is an amazing system that may spike and fall, but eventually will find balance – unless the government interferes too much. In the end, the free market, with proper environmental and regulatory regimes, will always produce the most efficient frontier of supplies and prices, regardless of the level of global demand.

RB: My first book, Pipe Dreams, was about the rise and fall of Enron. You used to be the head of Ocean Energy (which was bought by Devon in 2003). Ocean Energy was first known as Flores & Rucks, a company that got its start thanks to financing from Enron. You also worked at Dynegy, which, after you left, worked to emulate Enron’s business model. Looking back, how big was Enron’s impact on the US energy business? And on balance, was it positive or negative?

JH: Enron did influence many companies, but, while I was at each of the companies you mentioned, the management team in which I participated did not try to emulate Enron’s corporate culture or approach to risk-taking, even if we adopted some of their strategies. On balance, Enron brought a lot of talented people into the energy industry, but it destroyed a lot of personal savings, shareholder value, professional careers, and the image many people had of the energy industry. That outcome can’t possibly be viewed as anything but negative on balance.