Global Perspectives: Marvin E. Odum on the COVID-19 Fight, Energy Outlook
Marvin E. Odum was chairman and president of Shell Oil Co. from 2008 to 2016. In April, Houston Mayor Sylvester Turner named him the city’s COVID-19 relief and recovery czar. Odum previously led Houston’s recovery from Hurricane Harvey.
The Federal Reserve Bank of Dallas recently hosted Odum as part of the Bank’s Global Perspectives speaker series in conjunction with Dallas’ public radio and television outlet, KERA. This series was launched at the beginning of 2016 with the objective of bringing leaders from the worlds of business, academia and policymaking to the Dallas Fed to share their insights on global, national and regional developments. The Aug. 12 event was conducted as an online-only event as a result of the COVID-19 pandemic and social-distancing measures.Odum and Dallas Fed President Robert S. Kaplan participated in a moderated conversation with Krys Boyd of KERA and discussed the ongoing pandemic and how best to contain it. The following are excerpts from their conversation, edited for clarity, and presented by topic.
On Wearing Masks, Changing Behaviors to Control COVID-19:
Odum: I think the strong message around the mask mandate is, “This is very, very serious and we really need to follow these mandates, these guidelines, if we want to be successful in battling this disease.” I think any message, whether it’s coming from the governor or from the mayor or county officials, has to emphasize that the tools to fight this virus are actually pretty simple. It’s wearing a mask, it’s keeping a distance, it’s being smart about the idea that there could be virus in the atmosphere and just acting accordingly.
We just can’t say it enough times that those are the tools that we have to bring the disease back down to a level where we can effectively contain it. That’s how we win the marathon—working at that level of containment. And it’s likely to go on for a long time. What we’re seeing here in the city of Houston and in Harris County and the larger metropolitan area is a bending of the curve in terms of hospitalizations. We are seeing the number of COVID patients in the ICU come down.
Now, I will qualify that by saying that there is still a great number of daily cases: it’s still 10 times too high. So, we have some serious work ahead of us, but if you look at the data and you look at the timing, you almost want to tie the mask mandate to some of these changes because even though not everybody is wearing a mask, the compliance is much, much higher than it was before. I am starting to get more optimistic that we are actually seeing the effects of that.
I worry about giving the message that the curve is starting to bend, (that) it looks like we’re having an impact. Because that tends to make people want to relax far too early; that’s why the case numbers are still 10 times too high. We’re starting to do more of the right things, we just need to do a lot more of it.
On Lessons from Hurricane Harvey:
I think what I learned during Harvey—and I’ve learned again now—is how very important it is to start with a set of principles. The primary purpose of the response and recovery team is setting the priorities and allocating resources. To do that in a situation where you have more need than you have resources, you have to make some really tough choices. Getting those principles set out at the beginning was critical during Harvey and is critical here.
Three of those key principles for us are, first of all, prioritizing our vulnerable population and communities and being very specific about that. We have 22 neighborhoods and communities in Houston that are particularly vulnerable. That’s where the first priority goes—to make sure that we can take care of those people.
The second piece has to do with how you spend money. This was critical after Harvey, but I’m finding it is still very important here in responding to the virus. As you spend money and apply those resources, do it in the framework of resiliency, long-term resiliency. If you have the opportunity to spend a dollar, and it’s going to make you more resilient in the future to other pandemics, other disasters or what have you, then those dollars should get priority.
We were way short, as were most big communities, in terms of having all of our kids connected [online]. Over the next couple of months, my expectation after the response to this virus—what we’ve done in the region, with what the state is now doing in terms of funding—is that we will effectively accomplish that goal of having every student connected. That means a tremendous amount of equipment that has to be bought, internet connections that have to be secured, data plans and so forth. But we’re doing this in a way that will be resilient over time. Think about the ability of a school that had to go virtual again two years from now. That capability now exists. Think about that connectivity in a household. Now, that household is more resilient because it has access to information on the internet and otherwise—telehealth, [it’s] easier to search for a job, and so on.
And then the third principle has to do with coordination. Because of the breadth of the virus in this pandemic, everybody, of course, is affected. The city doesn’t work alone. The city works with the county, with the state, with our medical community, with our educational communities, with our business community, with faith-based communities, and so on. Finding effective mechanisms to pull those groups together and work in a coordinated fashion is a big part of this response. It was important during Harvey, and it’s critical now. Unlike Harvey, this is affecting everyone for a long period of time. Approaching it from that standpoint causes you to make different choices.
Another key difference is that because of the CARES Act (Coronavirus Aid, Relief and Economic Security Act) and federal legislation and appropriations, there was money that came to the city of Houston immediately. Disaster recovery is a long, very slow process and a lot of that is because of the time it takes to get funding on the ground where it’s really needed. When I came into this role in late April, there was already $405 million that had been allocated and delivered to the city of Houston to respond to this situation. Having those dollars there and being able to respond quickly made a big difference.
On the Effect on the Energy Industry:
I spent a lot of decades in the business, and it's a business that is accustomed to big swings in commodity prices. But this is clearly very devastating. You take a city like Houston. We’re seeing it very directly in terms of the tremendous amount of job loss. I think from the perspective of a business, you know, we're at a standpoint where cash is king. And depending on the strength of your balance sheet going into this downturn—caused largely by the pandemic—it will actually determine whether you survive as a company.
When I say cash is king, I mean virtually all discretionary spending is being cut. Costs are being cut everywhere possible, which means a lot of people are losing their jobs. It's basically a hunker-down holding pattern for most companies in the energy industry until you can see the light at the end of the tunnel.
Now, that does create a dynamic where some companies are in a much better position than others. I think the entire industry is looking at what it is going to take for this to get back to a more normal position. What should be the right moves in terms of consolidations and dealing with bankruptcies, both of which I think we will start to see more of. And if you think about it from the perspective of somebody like me who spent my career in a large, global integrated energy company, you know, it's not just this that we're dealing with—this one swing in commodity prices, with its significant impact on the balance sheet. It's that this is going on in combination with an energy transition, which will greatly affect what energy companies will look like and where they should be putting their money for the next couple of decades.
Those are very difficult challenges for these companies, and everybody's working through that. You also have to consider that we're going through a period of severe underinvestment, and this is not necessarily an industry that can turn on production quickly, despite all the conversation around shale. For the better part of half of the decade, we’ve been through a period of what I would call potentially underinvestment in the industry. And if the economy comes roaring back, whether that's in late ’21 or ’22 or whatever it is, we’re potentially dealing with a supply shortage that could cause some different types of disruptions.
About the Author
Mark A. Wynne
Wynne is vice president and associate director of research in the Research Department at the Federal Reserve Bank of Dallas.
The views expressed are those of the author and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.