1 00:00:05,880 --> 00:00:07,680 Speaker 1: Welcome to Fear and Greed Q and A, where we 2 00:00:07,720 --> 00:00:11,400 Speaker 1: ask and answer questions about business, investing, economics, politics and more. 3 00:00:11,440 --> 00:00:13,840 Speaker 1: I'm Sean Almer. The crisis in the Middle East is 4 00:00:13,840 --> 00:00:16,920 Speaker 1: showing no real signs of abating and the local fuel 5 00:00:16,920 --> 00:00:20,120 Speaker 1: crisis is dominating the headlines. So what does it mean 6 00:00:20,239 --> 00:00:23,280 Speaker 1: for local energy companies? And if the war ends tomorrow, 7 00:00:23,720 --> 00:00:26,319 Speaker 1: how long before things return to normal? Remember this is 8 00:00:26,400 --> 00:00:29,520 Speaker 1: general information only, and you should always seek advice Taylor 9 00:00:29,560 --> 00:00:33,280 Speaker 1: to your circumstances before making investment decisions. Nick Burns is 10 00:00:33,320 --> 00:00:36,519 Speaker 1: head of Energy research at Garden. Nick, welcome back to 11 00:00:36,520 --> 00:00:37,440 Speaker 1: Fearing Greed Q and A. 12 00:00:38,120 --> 00:00:40,000 Speaker 2: Thank you so much for having me. Sean, appreciate being 13 00:00:40,000 --> 00:00:40,319 Speaker 2: on here. 14 00:00:40,760 --> 00:00:46,839 Speaker 1: Short term spike or fundamental change in change in our 15 00:00:47,040 --> 00:00:50,040 Speaker 1: parameters of how oil is going to be bought and 16 00:00:50,080 --> 00:00:50,920 Speaker 1: sold in the future. 17 00:00:51,960 --> 00:00:54,440 Speaker 2: Look, that's a million dollar question, Sean. I think from 18 00:00:54,440 --> 00:00:57,240 Speaker 2: our perspective, it's not just the short term spike. Its 19 00:00:57,240 --> 00:00:59,560 Speaker 2: so it's one of those things where I think, for 20 00:00:59,600 --> 00:01:02,120 Speaker 2: the last twenty or thirty years, every time there's a 21 00:01:02,160 --> 00:01:04,680 Speaker 2: slight risk of unrest in the Middle East or there 22 00:01:04,760 --> 00:01:08,160 Speaker 2: is unrest unrest, we always think this could be it 23 00:01:08,400 --> 00:01:10,959 Speaker 2: and that this is why we've always worried about all supply, 24 00:01:11,120 --> 00:01:15,600 Speaker 2: because it could be turned off and prices will go 25 00:01:15,680 --> 00:01:19,200 Speaker 2: up materially higher. And for the last twenty or thirty years, 26 00:01:19,400 --> 00:01:22,479 Speaker 2: all of those fears have been largely unfounded. We haven't 27 00:01:22,520 --> 00:01:26,920 Speaker 2: had any material, long term all supply impact until now. 28 00:01:27,000 --> 00:01:29,200 Speaker 2: And this is the big one. It's something that we've 29 00:01:29,200 --> 00:01:31,920 Speaker 2: been worried about for many, many years. No one thought 30 00:01:33,000 --> 00:01:36,800 Speaker 2: this eventuality would come through. But here we are finding 31 00:01:36,800 --> 00:01:40,039 Speaker 2: ourselves today, a month into this war, a month without 32 00:01:40,080 --> 00:01:42,800 Speaker 2: any flow through the strait of holl Moves, you know, 33 00:01:42,840 --> 00:01:45,440 Speaker 2: a month of around twenty million barrels a day of 34 00:01:45,480 --> 00:01:49,160 Speaker 2: supply being cut off from the market, And yeah, just 35 00:01:49,240 --> 00:01:51,720 Speaker 2: looking at how things can play out from here is 36 00:01:51,840 --> 00:01:54,360 Speaker 2: really the key thing. But we do think we're in 37 00:01:54,400 --> 00:01:56,440 Speaker 2: for a bit of a structural change here. 38 00:01:56,880 --> 00:02:00,360 Speaker 1: Okay, So that suggests you don't think there's going to 39 00:02:00,400 --> 00:02:03,360 Speaker 1: be much relief anytime soon, is that right? 40 00:02:03,680 --> 00:02:07,200 Speaker 2: Yeah, that's right, I think. I mean, ultimately, I'm just 41 00:02:07,200 --> 00:02:09,840 Speaker 2: conscious of the fact that, you know, the war is 42 00:02:10,040 --> 00:02:13,800 Speaker 2: quite a fluid and it's quite dynamic at the moment 43 00:02:13,800 --> 00:02:15,880 Speaker 2: in terms of what could happen. So I'm conscious the 44 00:02:15,880 --> 00:02:18,120 Speaker 2: fact that you know, even a few days time, whatever 45 00:02:18,160 --> 00:02:20,360 Speaker 2: I say here might be out of date pretty quickly. 46 00:02:20,480 --> 00:02:24,120 Speaker 2: But as we stand here today, it's looking more likely 47 00:02:24,240 --> 00:02:28,280 Speaker 2: we're still on the pathway to further escalation in this conflict, 48 00:02:28,919 --> 00:02:33,000 Speaker 2: and therefore the pathway to resolving this conflict. And then 49 00:02:33,040 --> 00:02:35,320 Speaker 2: what happens after that in terms of some sort of 50 00:02:35,840 --> 00:02:40,079 Speaker 2: resolution and eventual restart of flows through the straightuple moves 51 00:02:40,080 --> 00:02:42,400 Speaker 2: and getting back to some sort of normal sea feels 52 00:02:42,919 --> 00:02:45,440 Speaker 2: quite a long way away if you look at a 53 00:02:45,919 --> 00:02:48,280 Speaker 2: But let's just take a best case scenario here, where 54 00:02:48,800 --> 00:02:52,360 Speaker 2: we wake up tomorrow and everything Trump said was actually true, 55 00:02:52,400 --> 00:02:55,840 Speaker 2: and there has been negotiations and they're close to a 56 00:02:55,840 --> 00:02:59,400 Speaker 2: peace agreement, and Iran says sorry and opens up the 57 00:02:59,440 --> 00:03:03,240 Speaker 2: strait and flows start in the next few weeks. If 58 00:03:03,280 --> 00:03:05,480 Speaker 2: you look at the cumultive amount of oil that's been 59 00:03:05,520 --> 00:03:08,000 Speaker 2: taken out of the market to date, Shawn, you're looking 60 00:03:08,000 --> 00:03:10,880 Speaker 2: at already it's around three hundred million barrels that have 61 00:03:11,000 --> 00:03:13,840 Speaker 2: been lost. And then if you think it's going to 62 00:03:13,880 --> 00:03:16,359 Speaker 2: take a month or so before you even start getting 63 00:03:16,400 --> 00:03:18,560 Speaker 2: back to a type of normals, see there's probably another 64 00:03:19,120 --> 00:03:21,600 Speaker 2: two three hundred million barrels they're going to be taken 65 00:03:21,600 --> 00:03:25,400 Speaker 2: out again. And then of course there's been some pretty 66 00:03:26,080 --> 00:03:30,959 Speaker 2: effective damage that's been done in upstream Middle East facilities 67 00:03:31,000 --> 00:03:34,280 Speaker 2: such as Katar et cetera. So as those take a 68 00:03:34,360 --> 00:03:36,600 Speaker 2: lot more time to come back online, we've got a 69 00:03:36,720 --> 00:03:41,240 Speaker 2: fairly high level of supply disruption that will take quite 70 00:03:41,240 --> 00:03:44,600 Speaker 2: a long time to come to rectify. So if you've 71 00:03:44,640 --> 00:03:46,640 Speaker 2: sort of joined all that together, you're looking at best 72 00:03:46,640 --> 00:03:49,480 Speaker 2: case scenario six hundred million barrels that's been taken out 73 00:03:49,520 --> 00:03:53,480 Speaker 2: of the market entirely. Yes, you've had strategic patrolling reserves 74 00:03:53,520 --> 00:03:55,640 Speaker 2: come to the market four hundred odd million. You've had 75 00:03:55,720 --> 00:03:59,400 Speaker 2: Russian oil been unsanctioned, maybe one hundred and twenty million barrels, 76 00:03:59,560 --> 00:04:03,280 Speaker 2: Aranian oil surprisingly another one hundred and twenty. So totally 77 00:04:03,280 --> 00:04:05,360 Speaker 2: you've probably got around six hundred million bills that are 78 00:04:05,520 --> 00:04:08,240 Speaker 2: going to be delivered to the market. But after this 79 00:04:08,320 --> 00:04:10,680 Speaker 2: wall's over, you need to restock, and that restocking is 80 00:04:10,680 --> 00:04:11,600 Speaker 2: going to take some time. 81 00:04:12,360 --> 00:04:15,600 Speaker 1: Okay, So as an investor, how do you play it? 82 00:04:15,640 --> 00:04:20,560 Speaker 1: And we're talking about the local market primarily, So it 83 00:04:20,680 --> 00:04:23,120 Speaker 1: might not be good news for we at the bows er, 84 00:04:23,160 --> 00:04:25,719 Speaker 1: It may not be good for economic growth. Is it 85 00:04:25,760 --> 00:04:30,080 Speaker 1: good news for earnings the big guys Woodside and Santos primarily. 86 00:04:31,560 --> 00:04:35,920 Speaker 2: Yeah, it is. I guess there's some always some nuances 87 00:04:35,960 --> 00:04:38,800 Speaker 2: around for each stock in terms of how the level 88 00:04:38,880 --> 00:04:42,560 Speaker 2: of impact. If we break it down into oil and LNG, 89 00:04:42,760 --> 00:04:45,120 Speaker 2: obviously we're seeing them. The impact on the oil price, 90 00:04:45,160 --> 00:04:48,040 Speaker 2: it's something that everyone sees every day at the pump. 91 00:04:48,560 --> 00:04:50,560 Speaker 2: But on the L and G front, you know, given 92 00:04:50,600 --> 00:04:54,040 Speaker 2: the damage in Qatar, that damage is quite significant and 93 00:04:54,080 --> 00:04:56,640 Speaker 2: as the Katari said, it'll take three to five years 94 00:04:56,680 --> 00:04:59,000 Speaker 2: to fix that, so you're going to have a sustained 95 00:04:59,040 --> 00:05:01,359 Speaker 2: period of heightened and G prices we think for the 96 00:05:01,400 --> 00:05:04,120 Speaker 2: next two or three years. Oil, you know, we are 97 00:05:04,160 --> 00:05:06,479 Speaker 2: seeing that come through as well. If you break down 98 00:05:06,480 --> 00:05:10,040 Speaker 2: the stocks, you know you've got around sixty percent of 99 00:05:10,240 --> 00:05:13,400 Speaker 2: Santos and Woodside. They're not too far apart, but they're 100 00:05:13,440 --> 00:05:17,920 Speaker 2: earnings coming through from oil or linked lergy contract prices, 101 00:05:18,320 --> 00:05:21,520 Speaker 2: so they will benefit because of higher ore prices, and 102 00:05:21,560 --> 00:05:25,560 Speaker 2: then it's on the higher short term allergy price. Woodside 103 00:05:25,600 --> 00:05:28,640 Speaker 2: has a round of thirty percent price exposure from their 104 00:05:28,720 --> 00:05:33,000 Speaker 2: production base versus Santos around fifteen percent. So all in all, 105 00:05:33,240 --> 00:05:36,400 Speaker 2: from an earning suspective, you get slightly more leverage on 106 00:05:36,440 --> 00:05:38,920 Speaker 2: the woodside side of things, but both of them will 107 00:05:38,960 --> 00:05:39,600 Speaker 2: do quite well. 108 00:05:40,279 --> 00:05:42,440 Speaker 1: What about some of the smaller players, kind of an 109 00:05:42,520 --> 00:05:46,120 Speaker 1: energy Karun beach I fee. I mean, not that I 110 00:05:46,160 --> 00:05:47,719 Speaker 1: known a lot about these companies, but are any of 111 00:05:47,760 --> 00:05:52,680 Speaker 1: those particularly well placed from an investment Yeah, point, it's. 112 00:05:52,040 --> 00:05:55,440 Speaker 2: A good question, Sean. Look, I mean they're all impacted 113 00:05:55,480 --> 00:05:58,960 Speaker 2: to varying degrees. Just walking through them. I guess from 114 00:05:58,960 --> 00:06:03,240 Speaker 2: market cap down energy they sell less oil, but they 115 00:06:03,240 --> 00:06:07,360 Speaker 2: do sell lerng or they will be selling more energy 116 00:06:07,560 --> 00:06:11,360 Speaker 2: over the next three years. They haven't fully ramped up 117 00:06:11,400 --> 00:06:15,000 Speaker 2: their production from weightser yet, we're still seeing they've challenged 118 00:06:15,040 --> 00:06:19,520 Speaker 2: around getting that plant fully commissioned to produce allergy cargoes. 119 00:06:19,520 --> 00:06:23,239 Speaker 2: But in theory, higher oil price allergy prices should flow 120 00:06:23,320 --> 00:06:26,719 Speaker 2: through to them, so they should do ok in that front. 121 00:06:27,200 --> 00:06:30,039 Speaker 2: Karoon's probably the most leveraged oil price. They're primarily an 122 00:06:30,080 --> 00:06:33,839 Speaker 2: oil producer. They've got assets in Brazil and offshore US 123 00:06:34,120 --> 00:06:37,479 Speaker 2: Gulf Coast and they are enjoying higher prices there. But 124 00:06:38,200 --> 00:06:41,240 Speaker 2: in Brazil we're seeing one of the flip sides here 125 00:06:41,279 --> 00:06:43,760 Speaker 2: coming through where the Brazilian governments slapped on a twelve 126 00:06:43,800 --> 00:06:47,120 Speaker 2: percent oil export tax, and they're taking the money for 127 00:06:47,320 --> 00:06:49,479 Speaker 2: the higher profits that the oil companies are making and 128 00:06:49,600 --> 00:06:53,400 Speaker 2: using it to cut the cost of diesel sales for 129 00:06:55,279 --> 00:06:58,040 Speaker 2: people in Brazil. So there's always a risk and there's 130 00:06:58,120 --> 00:07:00,600 Speaker 2: some speculation still around the risk of a wind full 131 00:07:00,720 --> 00:07:03,599 Speaker 2: tax in Australia as well. We don't know if that's 132 00:07:03,600 --> 00:07:05,760 Speaker 2: something like that's going to come through, but that would 133 00:07:05,920 --> 00:07:09,560 Speaker 2: hurt at the margins on these stocks. But certainly if 134 00:07:09,640 --> 00:07:13,720 Speaker 2: you're quite bullish on oil with point investors to korn 135 00:07:13,920 --> 00:07:18,360 Speaker 2: Over Beach. From a small cap perspective, Canarvan doesn't produce 136 00:07:18,360 --> 00:07:22,000 Speaker 2: any oil, but they've got a small joint Baja partner 137 00:07:22,120 --> 00:07:27,000 Speaker 2: on an undeveloped oil and gas field called Dorado. Dorado 138 00:07:27,440 --> 00:07:30,720 Speaker 2: potentially as an asset which you'd think through the lens 139 00:07:30,720 --> 00:07:33,520 Speaker 2: of a higher roill price, would look a lot more 140 00:07:33,520 --> 00:07:36,120 Speaker 2: attractive to be built in, particularly it's an Australia, it's 141 00:07:36,160 --> 00:07:39,120 Speaker 2: oil one. I think one of the realizations that the 142 00:07:39,120 --> 00:07:42,000 Speaker 2: federal government will have over through this conflict is maybe 143 00:07:42,000 --> 00:07:45,280 Speaker 2: we should be producing more oil here and maybe we 144 00:07:45,320 --> 00:07:49,880 Speaker 2: should be encouraging new undeveloped oil projects to come to 145 00:07:50,040 --> 00:07:52,800 Speaker 2: the fore and that could be an opportunity there for 146 00:07:53,240 --> 00:07:54,440 Speaker 2: canarvan over time. 147 00:07:55,560 --> 00:07:57,800 Speaker 1: Pardon me for being totally in on this, and I'm 148 00:07:57,800 --> 00:08:02,080 Speaker 1: almost shamed to ask you this neat how easy it 149 00:08:02,160 --> 00:08:05,000 Speaker 1: is it to swap out oil and gas for other 150 00:08:05,360 --> 00:08:09,360 Speaker 1: energy supplies That might be coal at the dirty end, 151 00:08:09,360 --> 00:08:13,280 Speaker 1: it might be renewables at the other end. But is 152 00:08:13,320 --> 00:08:14,840 Speaker 1: it technical? I mean, I'm sure it can be done 153 00:08:14,880 --> 00:08:16,240 Speaker 1: in the long run, but is it something in the 154 00:08:16,240 --> 00:08:17,440 Speaker 1: short term that you just can't do. 155 00:08:19,440 --> 00:08:21,880 Speaker 2: It's really depending on the use Shorn. It depends on 156 00:08:22,200 --> 00:08:24,360 Speaker 2: what you're using for. If you're using it just to 157 00:08:24,360 --> 00:08:28,960 Speaker 2: burn to create heat. Some of these are interchangeable. You've 158 00:08:29,000 --> 00:08:32,200 Speaker 2: got gas plants, for example, that can switch to use diesel. 159 00:08:32,360 --> 00:08:35,360 Speaker 2: You can't usually switch from coal to others. So in 160 00:08:35,400 --> 00:08:37,839 Speaker 2: a power station, you typically build a coal power station, 161 00:08:37,920 --> 00:08:40,559 Speaker 2: you wouldn't have the necessarily the capacity to switch and 162 00:08:40,840 --> 00:08:45,959 Speaker 2: burn gas or diesel instead. Obviously, you know diesel liquid 163 00:08:45,960 --> 00:08:49,920 Speaker 2: fuels has certain advantages. It's a very energy dance, relatively 164 00:08:50,040 --> 00:08:53,960 Speaker 2: safe fuel that can be easily transported and that takes 165 00:08:53,960 --> 00:08:55,839 Speaker 2: a lot of boxes, and it can be transported at 166 00:08:55,920 --> 00:09:00,800 Speaker 2: room temperature and pressure, whereas gas doesn't have that characteristic. 167 00:09:00,880 --> 00:09:04,000 Speaker 2: If you like coal is obviously different again, but people 168 00:09:04,080 --> 00:09:06,120 Speaker 2: have been trying to phase out coal for a number 169 00:09:06,120 --> 00:09:09,960 Speaker 2: of years because of the carbon issues, etc. But really 170 00:09:10,080 --> 00:09:12,640 Speaker 2: that's been the trend over the last ten years. Obviously 171 00:09:12,679 --> 00:09:16,040 Speaker 2: we're seeing in Japan, for example, the lack of gas 172 00:09:16,040 --> 00:09:18,280 Speaker 2: coming into Japan. Now they've just made the decision last 173 00:09:18,320 --> 00:09:20,440 Speaker 2: week to turn on all the coal power stations for 174 00:09:20,440 --> 00:09:23,320 Speaker 2: a year to let them back on. So they've been 175 00:09:23,360 --> 00:09:27,000 Speaker 2: progressively mothballing they're coal power stations and turning into gas 176 00:09:27,000 --> 00:09:29,960 Speaker 2: and nuclear. Now they're realized in the lack of gas. 177 00:09:30,160 --> 00:09:33,040 Speaker 2: Luckily they've got this back up in place which they 178 00:09:33,040 --> 00:09:33,840 Speaker 2: can certainly turn to. 179 00:09:34,559 --> 00:09:38,160 Speaker 1: Is it just finally then, in terms of the energy 180 00:09:38,960 --> 00:09:43,120 Speaker 1: or the transition to renewable energies, does this do anything 181 00:09:43,920 --> 00:09:47,480 Speaker 1: on that, Will it slow it down, will it have 182 00:09:47,520 --> 00:09:49,400 Speaker 1: an impact or not really because this will just be 183 00:09:49,440 --> 00:09:51,200 Speaker 1: something that happens for a year or two and you 184 00:09:51,240 --> 00:09:55,600 Speaker 1: know the bigger pictures far broader. What's the answer to that? 185 00:09:56,440 --> 00:09:59,000 Speaker 2: Yes, good question, Sean, I think I guess you break 186 00:09:59,040 --> 00:10:02,640 Speaker 2: that down into two. One is what's happening to the grid, 187 00:10:02,760 --> 00:10:06,120 Speaker 2: like the electricity grid. That pathway is pretty set in 188 00:10:06,240 --> 00:10:11,360 Speaker 2: terms of the government's been supporting an aggressive transition to 189 00:10:11,720 --> 00:10:15,320 Speaker 2: renewables backed up with batteries primarily. There'll be a role 190 00:10:15,400 --> 00:10:18,040 Speaker 2: for gas still over time, but it's hard to see 191 00:10:18,040 --> 00:10:22,040 Speaker 2: that trajectory shifting through this crisis and then But it's 192 00:10:22,080 --> 00:10:25,440 Speaker 2: really on their transportation side, I think, Sean, that's where 193 00:10:25,559 --> 00:10:28,120 Speaker 2: probably the more interest. If you look at any chart 194 00:10:28,240 --> 00:10:30,800 Speaker 2: tracking EV sales over the last year or so, you'd 195 00:10:30,800 --> 00:10:34,800 Speaker 2: see it's in a pretty negative downward trajectory. As you know, 196 00:10:34,840 --> 00:10:37,840 Speaker 2: as a lot of it was getting harder for the 197 00:10:38,400 --> 00:10:41,559 Speaker 2: automotive companies to sell EV's. I'm sure that's going to 198 00:10:41,600 --> 00:10:43,880 Speaker 2: flip on a dime here and we're going to see 199 00:10:43,920 --> 00:10:46,640 Speaker 2: one of the consequences of this war is going to 200 00:10:46,640 --> 00:10:49,160 Speaker 2: see a massive uptick in EV sales. I think Elbow 201 00:10:49,200 --> 00:10:51,800 Speaker 2: said a couple of times and press conferences of the 202 00:10:51,920 --> 00:10:56,199 Speaker 2: last week. Yet to meet an EV owner who's unhappy 203 00:10:56,240 --> 00:10:59,880 Speaker 2: with their purchase, right, So I suspect that's going to 204 00:10:59,920 --> 00:11:03,720 Speaker 2: come through, maybe you know, offset by lower subsidies. But 205 00:11:04,120 --> 00:11:06,400 Speaker 2: at the end of the day, I think if people 206 00:11:06,400 --> 00:11:08,360 Speaker 2: are worried about the cost of fuel in the future, 207 00:11:08,400 --> 00:11:10,120 Speaker 2: that's probably going to be something that's going to be 208 00:11:10,120 --> 00:11:13,840 Speaker 2: a driver. It's obviously doesn't live in a vacuum. You know, 209 00:11:14,040 --> 00:11:17,000 Speaker 2: to build batteries, you need lithium. To get need lithium, 210 00:11:17,040 --> 00:11:19,480 Speaker 2: you need minds that gap minds, you need to big 211 00:11:19,520 --> 00:11:22,200 Speaker 2: trucks and a lot of diesel being used. So you know, 212 00:11:22,320 --> 00:11:27,640 Speaker 2: everything is unfortunately interconnected, so you will end up with 213 00:11:27,720 --> 00:11:31,160 Speaker 2: higher lithium prices coming through over time because of the 214 00:11:31,320 --> 00:11:32,600 Speaker 2: higher fuel cost impact. 215 00:11:33,200 --> 00:11:34,720 Speaker 1: Nick, thanks for talking to Fear and Greed. 216 00:11:35,120 --> 00:11:37,240 Speaker 2: Thank you so much for having Michel appreciate it. 217 00:11:37,200 --> 00:11:39,800 Speaker 1: As Nick Burns, head of Energy research at jard And 218 00:11:39,840 --> 00:11:42,200 Speaker 1: remember this is general information only, and you should always 219 00:11:42,200 --> 00:11:45,840 Speaker 1: think advice tailor to your circumstances before making investment decisions. 220 00:11:45,880 --> 00:11:48,400 Speaker 1: I'm Schanaema and this is fear and Greed, Q and A.