Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Apple card Playing and Broud Auto with the
Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on.
Speaker 2: YouTube on Stock on the move is definitely Intel up
Speaker 2: over three percent. It had a big gap hire here
Speaker 2: on the end of close on Friday on the rumors
Speaker 2: that maybe Qualcom was looking at a possible deal for Intel.
Speaker 2: Then this morning we learn that Apollo was offered to
Speaker 2: have made a multi billion dollar investment in the company
Speaker 2: as well. Want to get more on this with Leanna Baker,
Speaker 2: Bloomberg News Managing director of the Deal team. She joins
Speaker 2: us here in studio. Leana, talk us through the Apollo part.
Speaker 2: What does that look like in your reporting? Sure, so
Speaker 2: this is a potential investment. Apollo has made this offer
Speaker 2: to Intel. It's unclear if Intel is going to take
Speaker 2: them up on this offer. Although Apollo is already a
Speaker 2: partner to Intel. They have a joint venture with them
Speaker 2: for their Irish plant, which was a really big project.
Speaker 2: So yeah, we're waiting to see how Intel decides to proceed.
Speaker 2: You mentioned there is an approach that came from Qualcomm.
Speaker 3: Late last week, so Intel has a lot to think about.
Speaker 3: Its board is meeting to decide which way to go.
Speaker 3: This Apollo investment could be an alternative potentially to the
Speaker 3: Qualcom merger, or it could be something that happens before
Speaker 3: any deal with Qualcomm would take a long time, according
Speaker 3: to analysts, just due to all the regulatory bodies around
Speaker 3: the world that would have to bless this deal.
Speaker 4: Now, was this expected and you're reporting were there any
Speaker 4: whispers about this prior to this?
Speaker 3: So we've been chasing for a long time what Intel
Speaker 3: is going to do. Since they are disastrous earnings report
Speaker 3: over the summer, they've kind of put themselves in play.
Speaker 3: At Bloomberg, we were the first to report that the
Speaker 3: company was thinking about M and A options, about a
Speaker 3: potential split, and then you might remember that late last week,
Speaker 3: you know, paq Elsinger put out a statement kind of
Speaker 3: laying out what would happen. We are watching to see
Speaker 3: what happens with the foundry business.
Speaker 2: Intel.
Speaker 3: Foundriies is something that Intel has spent a lot of
Speaker 3: money on over the years, and it's not making money.
Speaker 3: It doesn't have that many customers, and that is sort
Speaker 3: of sinking the company right now. Even though it's kind
Speaker 3: of the long term future play that the management is
Speaker 3: laid out for Intel, what is.
Speaker 2: In it for Apollo? Like, I know you said they
Speaker 2: have a doinventor, but like, why so?
Speaker 3: Apollo is a turnaround specialist. They love complicated situations, putting
Speaker 3: money to work where maybe other pockets of Wall Street
Speaker 3: doesn't go. This is a perfect example. They've already invested
Speaker 3: in Intel. Intel clearly needs some confidence capital. They need
Speaker 3: someone on Wall Street to say I believe in the
Speaker 3: future of this company under pau Elsinger. This is why,
Speaker 3: because you know, the stock slow. It has been really
Speaker 3: remarkable to even be at the point where it could
Speaker 3: be considered a takeover target for Qualcom, one of their competitors.
Speaker 4: So where does Wall Street think that they should go
Speaker 4: Qualcomm or Apollo?
Speaker 3: We don't know at this point, and there could also
Speaker 3: be other suitors or analysts are saying. We report it
Speaker 3: over the weekend that Broadcom, which some people speculate it
Speaker 3: could be interested that they're currently not evaluating an offer
Speaker 3: for Intel. So right now Broadcom's on the sidelines. Could
Speaker 3: that still change? We'll keep an eye on it, but
Speaker 3: Intel has a lot of options to consider. It's going
Speaker 3: to be an interesting few weeks to see where things go.
Speaker 5: Hey, can I answer a quick question, how does this
Speaker 5: impact the Chips Act? The investment from the Biden administration?
Speaker 5: Does that change at all in any of these scenarios.
Speaker 3: It's all related because the US government has a long
Speaker 3: term ban on Intel as a manufacturer that's in the
Speaker 3: US of chips, which are so critical. So the US
Speaker 3: government is watching this all really closely. They want Intel
Speaker 3: to survive, whether that's with Qualcomm, whether that with a
Speaker 3: capital in fusion from Apollo. So they want to be
Speaker 3: part of the solution. Since Intel it stands to gain
Speaker 3: a lot of cash from the government.
Speaker 5: They want them to combine. So they would tell Justice
Speaker 5: and the other regulators hands off this one.
Speaker 2: Huh. That would be interesting, wouldn't it right?
Speaker 3: And it sounds like a conspiracy theory, But you have
Speaker 3: to understand that any deal that Intel does would need
Speaker 3: the blessing from the government. So sure, could the US
Speaker 3: government tap qual come on the shoulder and say, hey,
Speaker 3: you know, do a solid for us and make an offer.
Speaker 3: I have no idea, but there's all these different theories
Speaker 3: that people are saying, and it's not that crazy to
Speaker 3: think people in DC might know more about this deal
Speaker 3: than we know right here.
Speaker 4: Right what's the most interesting thing that you found while
Speaker 4: you're reporting.
Speaker 3: I just love semiconductors. It's always interesting. And just to
Speaker 3: see an American icon like Intel face with these prospects
Speaker 3: and we're talking this could be the largest tech deal
Speaker 3: of all time if Intel is somehow sold. So it's
Speaker 3: just amazing to be following this situation because I've been
Speaker 3: reporting on on semis for you know, over a decade,
Speaker 3: and you just you never know how this is going
Speaker 3: to go.
Speaker 2: Well, also, just how fast this all deteriorated, Like I've
Speaker 2: read so many stories of sort of the decline and Intel
Speaker 2: and how fast it came on. And then we're talking
Speaker 2: about this moment where like Qualcom might need to step in,
Speaker 2: Apollo might need to step in, the government might need
Speaker 2: to step in in a particular fashion that to me
Speaker 2: is really striking.
Speaker 3: Is it also striking to you how quickly Nvidia kind
Speaker 3: of caught everyone's imagination. And so it's a semiconductors, it's
Speaker 3: you know, it's cyclical, it depends on trends and AI
Speaker 3: so it's so fast moving and it's just been a
Speaker 3: spectacular industry to follow.
Speaker 2: Yeah, all right, Lenna, thanks a lot, great reporting. Really
Speaker 2: appreciate Itly on a Baker Bloomberg News and managing editor
Speaker 2: for the Deal Team and joining us on that.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
Speaker 1: Auto with a Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: We get a bunch of CEO interviews the next two hours,
Speaker 2: and I say a bunch because it's nice to get
Speaker 2: perspective kind of on the ground on where the growth is,
Speaker 2: where the worry spots are, how hiring is, what inflation
Speaker 2: looks like. So let's kick it off now with Signet Jewelers.
Speaker 2: So they had earnings on the twelfth, and they did
Speaker 2: really well. They reported adjusted earnings and comparable sales for
Speaker 2: the second quarter of the top analyst expectations. The stocks
Speaker 2: and sent is up over eleven percent. Management set in
Speaker 2: the earning statement that comp sales are positive so far
Speaker 2: in the third quarter, some of the analysts are also saying, look,
Speaker 2: this was a better than feared quarter, especially when you
Speaker 2: look at the reiterated annual guidance. So we wanted to
Speaker 2: get an update from the CEO. Jenna Gudrosos is CEO
Speaker 2: of Signet, joining us now from Seattle. Jenna walk us
Speaker 2: through sort of the highlights, like what you think that
Speaker 2: it really impressed investors, and then we can go from there.
Speaker 6: Sure, well, good morning, great to be with you. Our
Speaker 6: team delivered a sequential improvement in same store sales. It
Speaker 6: was the fifth quarter in a row that we've seen
Speaker 6: a sequential improvement. As you said, comp sales have been
Speaker 6: positive in Q three to date. That's encouraging because in
Speaker 6: the jewelry category and especially engagements, COVID is actually just ending.
Speaker 6: So while for a lot of businesses COVID was in
Speaker 6: twenty twenty, people tend to get engaged about three years
Speaker 6: after they meet, and people weren't meeting during lockdown in
Speaker 6: twenty twenty, so we saw a twenty five percent drop
Speaker 6: in the average number of people getting engaged in twenty
Speaker 6: twenty three, and that's been slowly coming back in twenty
Speaker 6: twenty four, but we saw that turn positive as we've
Speaker 6: entered the third quarter, so that was encouraging.
Speaker 4: I wanted to know. Of course, a lot of consumer
Speaker 4: companies have talked about house shoppers are watching their spending carefully,
Speaker 4: they're being very nitpicky. Is that something that you all
Speaker 4: have noticed at all? What is it look like for
Speaker 4: your business?
Speaker 6: Yes? I think we've seen a cautious customer for most
Speaker 6: of this calendar year. An example of that is that
Speaker 6: we see customers coming to our websites fifteen percent more
Speaker 6: often before they make a purchase than we did a
Speaker 6: year ago. So people are being careful in an environment
Speaker 6: like this, but when it comes to getting engaged, they
Speaker 6: might delay a little bit just make sure they're getting
Speaker 6: the right value, which given our scale, we feel like
Speaker 6: we can very often offer. But they're still deciding to
Speaker 6: get engaged, and we expect that to pick up as
Speaker 6: we go through peak engagement season, which is during the holidays.
Speaker 5: Hey, it's John Tucker. Can I ask a quick question.
Speaker 5: I can see the price of Goal, by the way,
Speaker 5: was a record. How do you track diamonds because that's
Speaker 5: essentially a cartel that controls the supply and I guess
Speaker 5: the pricing there right? How does that work.
Speaker 6: No, Diamonds trade just like gold does. There commodity. Many
Speaker 6: many years ago, it was more of a monopoly situation,
Speaker 6: but that hasn't been true for a couple of decades.
Speaker 6: Now there are multiple miners that mind diamonds around the world.
Speaker 6: Signet is one of only five retailers in the world
Speaker 6: that are vertically integrated and actually buy diamonds directly from
Speaker 6: the miners. We own our own cutting and polishing facility
Speaker 6: in Botswana, so we have a really good I would say,
Speaker 6: a vertically integrated I into what diamonds should cost, what
Speaker 6: metal should cost, how much it should cost to cut
Speaker 6: and polish of stone, and that's how we're able to
Speaker 6: bring great value to our customers.
Speaker 5: Now, how do you control the sourcing or nowhere where
Speaker 5: it comes from.
Speaker 6: So that's really one of the places where Signet has
Speaker 6: shined and been a leader in the industry. Responsible sourcing
Speaker 6: is very important to our customers and to our company
Speaker 6: and I you know, and to my twenty something children,
Speaker 6: I should add, So we are pristine, we can guarantee
Speaker 6: to all of our customers. We have what's called the
Speaker 6: Signet Promise that we are confident that all of the
Speaker 6: metals and all of the gemstones, including diamonds that we
Speaker 6: source our conflict free and produced in a way that
Speaker 6: they would feel good about. So we trace that back
Speaker 6: to the origin of where the diamonds are, where the
Speaker 6: metals come from, so we can be confident.
Speaker 2: There's also the lab grown diamond phenomenon. And when I
Speaker 2: was doing you know, packages on diamonds fifteen years ago,
Speaker 2: that was like really taboo. Now I hear of younger
Speaker 2: people and this is what they do. They want to
Speaker 2: save a little money, but they still wanted to look pretty.
Speaker 2: What kind of market do you know is evolving here
Speaker 2: and kind of what the pricing is and what the
Speaker 2: demand is.
Speaker 6: Yeah, so lab created diamonds have been broadly available in
Speaker 6: jewelry since twenty nineteen, so about five years now. Of course,
Speaker 6: they've been available for a long time in drill bits
Speaker 6: and you know things like that that needed a hard
Speaker 6: substance to be part of it, but in jewelry about
Speaker 6: five years. Every year since they've been in the market,
Speaker 6: the price has fallen about five about fifteen to thirty
Speaker 6: percent actually, so they haven't really maintained their value over time,
Speaker 6: and that's because they're made in a machine and you know,
Speaker 6: about three weeks, whereas a natural diamond is precious. It's
Speaker 6: you know, made in the earth over a billion years,
Speaker 6: and so they're chemically the same but quite different. And
Speaker 6: what we've seen is that consumers, if they are on
Speaker 6: a tight budget and want to get a bigger stone,
Speaker 6: lab created can be a great choice for them in
Speaker 6: an engagement ring. But it's particularly a great choice in
Speaker 6: fashion jewelry, where maybe it's not quite as sentimental a piece.
Speaker 6: That's where we really see lab Created as having a
Speaker 6: bigger potential on over the long term.
Speaker 2: So just a tootle tootle, tell John Tucker. So a
Speaker 2: fashion jewelry is like, here's my super cool ring that
Speaker 2: I'm doing with my evening gown.
Speaker 4: Everyone look at it. It's it's really big.
Speaker 2: Maybe it has a good shape. That's kind of interesting.
Speaker 2: But I didn't have to break my bang for it.
Speaker 5: Now, Is there some Is there some planned by you
Speaker 5: guys to like trying to get people to get married.
Speaker 7: No, not.
Speaker 5: That, which is a plan. When you pipe in romantic
Speaker 5: music to you, it's got to be right.
Speaker 6: No, No, we don't. We don't plan. But I will
Speaker 6: say that we have a lot of consumer insight around that.
Speaker 6: Several years ago, we started tracking the milestones that couples
Speaker 6: typically go through between when they meet and when they
Speaker 6: get engaged. So, for example, they typically go to a
Speaker 6: movie or a concert before they say I love you,
Speaker 6: or move in together, or meet the parents or things
Speaker 6: like that. And so we with our partners at Google
Speaker 6: and Meta, have identified forty five trackable signs or milestones
Speaker 6: that couple couples typically go through. Once they've crossed over
Speaker 6: twenty six, they are statistically significantly more likely to get
Speaker 6: engaged in the next twelve months.
Speaker 2: One of the things I'm learning a lot, i'd be
Speaker 2: speaking right to north right as I'm thinking about the future.
Speaker 6: It's super interesting. And that's one of the things we
Speaker 6: said in our second quarter call is that there's a
Speaker 6: nine hundred basis point increase or twenty percent more couples
Speaker 6: that crossed over that milestone in the second quarter this
Speaker 6: year versus the second quarter last year. So we really
Speaker 6: are seeing this ramp back up to a normalized level
Speaker 6: of engagement.
Speaker 2: All so happy on it ten o'clock on a Tuesday
Speaker 2: and a Monday. All right, thanks so much, didn't address us.
Speaker 2: We really appreciate CEO of Signetic.
Speaker 1: You're listening to the Bloomberg Intelligence pot Catch us live
Speaker 1: weekdays at ten am Eastern on AFO, Cardplay and enroud
Speaker 1: Oto with the Bloomberg Business app. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: So natural gas prices are two dollars and fifty seven
Speaker 2: cents MMBT you. It's much better than we were before.
Speaker 2: We were under two dollars MMBT you. But still considering
Speaker 2: the amount of demand globally that we need, that price
Speaker 2: is a little bit low. So we wanted to check
Speaker 2: in with the largest independent natural gas producer right here
Speaker 2: in the United States. They have world class assets and
Speaker 2: appllation basin, and that is Toby Rice, CEO of natural
Speaker 2: gas producer EQT. He joins us in studio. Hey Toby,
Speaker 2: good to see you.
Speaker 5: Good morning.
Speaker 2: So do you like prices at two fifty eight?
Speaker 8: Well, we are unique in the sense that our company
Speaker 8: actually can generate free cash flow at a price as
Speaker 8: low as two dollars, but that is not the case
Speaker 8: for the other producers in the United States. Our view
Speaker 8: is that the marginal producer in the US requires about
Speaker 8: three dollars and fifty cents to justify activity levels and
Speaker 8: rigs up in the air.
Speaker 2: So when you look at prices, say then under three
Speaker 2: or actually under two, where do you sort of like
Speaker 2: just say, we're gonna just going to drill them, not
Speaker 2: complete them, and hang tight and then when you kind
Speaker 2: of release it, and what does your inventory right now
Speaker 2: look like?
Speaker 8: So right now, short term people are looking at curtailments, uh,
Speaker 8: and you have about two bcf a day of natural
Speaker 8: gas that's currently curtailed.
Speaker 9: This is as simple as just.
Speaker 8: Operators shutting in the chokes. That production could come back
Speaker 8: and you'll see that pressuring prices up until about three
Speaker 8: dollars range. But then after that there's some some short
Speaker 8: cycle activity that would come back requires about three fifty
Speaker 8: and again that's sort of the price that you'll see
Speaker 8: with activity levels. So these shorter price these shorter prices
Speaker 8: we're seeing right now are going to ultimately influence activity
Speaker 8: levels that are set. Is part of the twenty twenty
Speaker 8: five budget planning which will influence supply in the future,
Speaker 8: and we think is going to be pretty constructive towards
Speaker 8: the second half of twenty twenty five, where more energy
Speaker 8: demand picks up at some of these activity reductions will
Speaker 8: start hitting the front lines.
Speaker 4: Well, let's talk a little bit about AI. Natural gas
Speaker 4: is not, of course at top of mind as an
Speaker 4: artificial intelligence trade, but some people are saying that rising
Speaker 4: power demand for more natural gas demand. Are you drilling
Speaker 4: to meet that demand at all? How would you all
Speaker 4: boost production?
Speaker 8: Well, natural gas, about a third of it is used
Speaker 8: for power generation, so it is a very important dynamic
Speaker 8: to study and look at. EQT has an asset called
Speaker 8: Mountain Valley Pipeline, which is a very contested pipeline. Fortunately
Speaker 8: that was put in service this summer. That's going to
Speaker 8: send about two Bcfi day of natural gas down to
Speaker 8: the Southeastern markets. And we just announced some deals, one
Speaker 8: of the largest physical supply deals with two very large
Speaker 8: utilities in that market to deliver up to one point
Speaker 8: two Bcfi day of natural gas. Now, where is that
Speaker 8: natural gas going? Sure, it's going to help keep people's
Speaker 8: homes warm in the winter time, but a large portion
Speaker 8: of that is going to power gen and it's going
Speaker 8: to be replacing cold facility. Ye, that would be enough
Speaker 8: natural gas to power about eight gigawatts of power.
Speaker 2: Now, one of the biggest problems in this whole scenario
Speaker 2: is how you move the stuff, and that's a pipeline issue,
Speaker 2: and that's an infrastructure issue. Are where are those conversations
Speaker 2: now in that we're going to have to have data
Speaker 2: centers built near where you guys pump natural gas or
Speaker 2: we're actually going to be able to get the pipelines
Speaker 2: in the ground to move it to where those data
Speaker 2: centers can be built.
Speaker 8: Well, it always makes sense if you're an energy intensive
Speaker 8: business to build your facilities close to where the energy is,
Speaker 8: and that would put Appalachia as a really great place
Speaker 8: to be. But you know, just to step back at
Speaker 8: a very high level, what's happened in the United States
Speaker 8: over the last fifteen years, and it really understands the
Speaker 8: natural gas markets. Since twenty ten, demand has grown fifty
Speaker 8: percent for natural gas, but during that period of time,
Speaker 8: natural gas infrastructure pipelines has only grown twenty five percent,
Speaker 8: and most importantly, natural gas storage infrastructure has only grown
Speaker 8: twelve percent. What does that mean? That means we haven't
Speaker 8: built enough pipelines to keep up with demand, and our
Speaker 8: current pipeline system is maxed out. You're going to continue
Speaker 8: to see big disconnects between markets, like we're going to
Speaker 8: be selling our natural gas for four dollars in Appalachia,
Speaker 8: and people in Boston and New York are could be
Speaker 8: paying ten to twenty dollars to that natural gas. But
Speaker 8: the storage infrastructure is probably the most important dynamic. Simply put,
Speaker 8: natural gas storage is no longer sufficient to bounce supply
Speaker 8: and demand. And what that means is that price is
Speaker 8: going to bounce supply and demand. And so we would
Speaker 8: describe the natural gas markets going forward as being very volatile,
Speaker 8: and we think pricing could be as low as two
Speaker 8: dollars you see now, and you see sort of a
Speaker 8: natural floor where operators will actually curtail production volumes. But
Speaker 8: we also think gas price could be significantly higher than that.
Speaker 8: And the last structural piece of the puzzle has been
Speaker 8: the massive retirement of coal has traditionally been a replacement
Speaker 8: fuel when gas prices got high and coal gas to
Speaker 8: coal switching would occur when prices would run in that
Speaker 8: call it three to five dollar range. Well, with call gone,
Speaker 8: the lid on gas prices is significantly muted, and that
Speaker 8: means prices could run up closer to the eight to
Speaker 8: nine dollars range. Those are the prices you saw in
Speaker 8: twenty twenty two. And that is the price where industrial
Speaker 8: demand will start shutting off. That's not a great place
Speaker 8: to be. The solution is get more infrastructure built in
Speaker 8: this country, both pipelines and storage infrastructure. And if you
Speaker 8: have the opportunity, build your manufacturing in Appalachia.
Speaker 4: Interesting, I mean, we're right around the corner from the
Speaker 4: winter season. That's when I cry it's going to be
Speaker 4: called is the market oversupplied this winter?
Speaker 8: Right now, we have about three hundred about three hundred
Speaker 8: bcf of extra gas in stores. It's about eight percent
Speaker 8: higher than.
Speaker 4: Normal billion keep it feed, Yeah.
Speaker 8: And for perspective, the US market is about one hundred
Speaker 8: bcf a day. That's what the current supply is today.
Speaker 8: But this can be corrected very quickly in a winter
Speaker 8: period where natural gas demand in this country goes of
Speaker 8: one hundred and twenty bcf a day. So right now
Speaker 8: storage isn't a is a little bit oversupplied, but that
Speaker 8: goes away with just a normal winter. And when you
Speaker 8: think about the fact that we don't have the necessary
Speaker 8: pipeline infrastructure to deliver natural gas in that just in
Speaker 8: time scenario, it's going to put further pressure on prices. Hence,
Speaker 8: you know a lot of volatility towards the upside here.
Speaker 2: We have don't had that that much time. But you
Speaker 2: have a Southwestern and Chesapeake maybe merging up here, where
Speaker 2: would you be looking to add M and A. Is
Speaker 2: it going to be pipelines or is it going to
Speaker 2: be producers?
Speaker 8: So we just completed our transformation at EQT. Over the
Speaker 8: last five years, Alex, since taken over, we've been very
Speaker 8: purpose very purposely designing this business to be the energy
Speaker 8: company of the future for us. That means we wanted
Speaker 8: to create a business with a low cost structure in
Speaker 8: a commodity business that really is your only moat. We're
Speaker 8: really excited to say that EQT over the last five
Speaker 8: years has cut its costs by thirty percent. You now
Speaker 8: are looking at a two dollars cost structure. We've increased
Speaker 8: our productive capacity by fifty percent over that period of time,
Speaker 8: and show me the money to our investors. We've increased
Speaker 8: our free cashule per share by two times, so we've
Speaker 8: doubled that over. So we're in a great place right now.
Speaker 8: And you know, we're just going to continue harvesting the
Speaker 8: success of the transaction we've done in the past, all.
Speaker 2: Right, to be really good to catch up with you.
Speaker 2: It's been too long. Toby Rice, a CEO of EQT
Speaker 2: joining us. This is Bloomberg Intelligence. Happy Monday.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
Speaker 1: Auto with the Bloomberg Business. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station Just
Speaker 1: Say Alexa playing Bloomberg eleven thirty.
Speaker 2: One of the tough stories over the last couple of
Speaker 2: days has been that deal that energy Constellation Energy inked
Speaker 2: with Microsoft to help restart one of its nuclear power
Speaker 2: plans on three Mile Island, investment about one point six
Speaker 2: billion dollars. But Constellation Energy is not the only company
Speaker 2: doing stuff like this and talking to hyper scalers about
Speaker 2: how to provide energy for this massive demand for data
Speaker 2: centers and GPU chips. And one of the companies involved
Speaker 2: is also as it does a lot of different things.
Speaker 2: It sells renewable power to corporate customers, It deals with
Speaker 2: LERG infrastructure, It has two fast growing utilities. It does
Speaker 2: a lot of stuff, yet the stock has not performed.
Speaker 2: Like Constellation Energy and like Vistra, which are sort of
Speaker 2: the power plays on AI. So luckily the CEO of
Speaker 2: AES is in the studio right now with us Andres
Speaker 2: Gleski dress.
Speaker 7: Nice to see you, very nice to see you too.
Speaker 2: So why hasn't your stock gotten the same kind of
Speaker 2: credit that Vista and Constellation Energy have.
Speaker 7: Well, our stock recovered a little bit, let's say, in
Speaker 7: the last couple of weeks, yes, but I still think, yeah,
Speaker 7: it has long way to go. So we are the
Speaker 7: largest provider of actually renewable energy to hyperscalers in the world.
Speaker 9: So we have already eight.
Speaker 7: Gigawatts signed over history. So I think that you know,
Speaker 7: the nuclear has gotten a lot of attention. I do
Speaker 7: think nuclear is part of the solution. But we're really
Speaker 7: looking at a market that's short energy to really be
Speaker 7: able to implement the AI revolution and the amount of
Speaker 7: data centers that are needed.
Speaker 4: I know, just last month, you're all we're saying that
Speaker 4: you see demand at Midwest utilities rising fifty percent on
Speaker 4: data centers. So of course that's really been the conversation
Speaker 4: about AI. What is your expectation for how much more
Speaker 4: power demand you'll need to produce to meet data center demand?
Speaker 7: Well, the truth is right now, anything that you can
Speaker 7: get built on the renewable space in the right areas
Speaker 7: you can contract, so there's really a shortage in the
Speaker 7: case of the utilities. This is a very nice story
Speaker 7: because one of them is Dayton, Ohio. We call it
Speaker 7: as Ohio, and it was really a city that had
Speaker 7: suffered a lot, you know, with the the industrialization of
Speaker 7: the US. And what we're seeing is we contract did
Speaker 7: for about two gigawatts of new data centers coming into
Speaker 7: that area. But you also have an EV plant and
Speaker 7: a battery plant coming in. So it's great to see
Speaker 7: this area reindustrializing and you know, growing again. So it's
Speaker 7: an area that you know, it's population is probably half
Speaker 7: of what it was in the seventies, so there's a
Speaker 7: lot of you know, there's water available, there's interconnection, there's
Speaker 7: everything else. So it's it's really it was a it's
Speaker 7: a great spot to locate data centers.
Speaker 9: A couple don't.
Speaker 2: Questions for you when we talk about renewable power to
Speaker 2: some of the data centers, for example, or the hyperscalers,
Speaker 2: what does that actually mean for AEES and what kind
Speaker 2: of partnerships you currently have and who are you talking
Speaker 2: to h that's three questions, right, now.
Speaker 7: Yeah, well, let's see. Sometimes we're not able to say,
Speaker 7: you know how who exactly are the different partners. What
Speaker 7: I can say is that it's you know, pretty much
Speaker 7: all of the big ones.
Speaker 2: Okay.
Speaker 7: We do have the largest solar plus storage project in
Speaker 7: the country being built right now, and that's with Amazon
Speaker 7: Web Services AWS in California, and that's two gigawatts just
Speaker 7: that one facility. So we have a backlog of about
Speaker 7: twelve gigawatts that we have to build over the next
Speaker 7: maximum three years, all of it. And we're signing of
Speaker 7: about five gigawats a year. So to put it in perspective,
Speaker 7: something like let's say putting the unit on three mile
Speaker 7: aland back online, that's probably about eight hundred and fifty megawatts,
Speaker 7: and we were talking about, you know, five gigawatts a
Speaker 7: year that we're signing. So there's you know there. I
Speaker 7: see nuclear as part of the solution, but it's not
Speaker 7: going to displace renewables, certainly not in the next decade.
Speaker 4: And when we think about Microsoft striking that contract with
Speaker 4: Consolation Energy, do you feel like that positive sentiment has
Speaker 4: permeated through the market in terms of thinking about renewable
Speaker 4: energy utilities?
Speaker 7: No, I think the market's still thinking of it a
Speaker 7: little bit like a zero sum game, and it's not
Speaker 7: understanding sort of energy markets because what nuclear can do
Speaker 7: is really provide dispatchable energy, which is twenty four to seven.
Speaker 7: Renewables are intermittent, you know, clouds passed, sun goes down
Speaker 7: when stops blowing. So you can compliment that with batteries,
Speaker 7: but you can certainly complement it with nuclear, and you
Speaker 7: can complement it with gas. So rather than either or,
Speaker 7: it's both because per megawatt hour and actually the energy
Speaker 7: you produce, renewables are the cheapest, they just aren't twenty
Speaker 7: four to seven.
Speaker 2: So then to that point, the reliability one argument is
Speaker 2: nuclear and SMR small modular reactors are quote unquote better
Speaker 2: because they have more reliability, or natural gas has more
Speaker 2: reliability than for wind or solar. And you're mentioned you're
Speaker 2: building this largest solar plus storage with AWS in California.
Speaker 2: How hard slash easy is the storage world right now?
Speaker 4: For you?
Speaker 7: Storage is a little bit like a hammer. It has
Speaker 7: lots and lots of uses. Okay, the prices of batteries
Speaker 7: are coming down a lot, So as the prices of
Speaker 7: batteries come down, there are more uses that you can
Speaker 7: find for it. What's interesting about batteries is it can
Speaker 7: do stuff that for example, a gas plant or even
Speaker 7: a nuclear plant can too. They can go positive and
Speaker 7: they can go negative. So for example, we have found
Speaker 7: that when you have a hurricane, having batteries is great
Speaker 7: because as transmission lines fall down, they were able to
Speaker 7: suck up that energy and actually allow the fossil plants
Speaker 7: to gear down and not get damaged. So that's that's
Speaker 7: very important. If you compare it to a gas plant,
Speaker 7: they're online ninety nine percent of the time. A gas
Speaker 7: plant will be online ten percent of the time. So
Speaker 7: I think when there's a lot of excitement like SMRs,
Speaker 7: the great use I see of SMRs is putting them
Speaker 7: into retired coal plants because basically a big coal plant
Speaker 7: is just like a kettle. You just change the flame
Speaker 7: the heat, so instead of burning coal, you would be
Speaker 7: heating up the water with a nuclear so you get
Speaker 7: to reuse the steam, turbine's interconnection, all those things.
Speaker 9: The issue I have, you know with.
Speaker 7: SMRs today is tell me what they cost no one
Speaker 7: knows yet, and tell me when they're going to be ready.
Speaker 7: So I believe in the concept I think they'll be
Speaker 7: you know, they could be a game changer, but we
Speaker 7: really have to see how much they cost, how many
Speaker 7: we can build before we're going to say that, they're
Speaker 7: going to say significantly displaced renewals.
Speaker 4: Transport us to one of your boardroom meetings. What types
Speaker 4: of conversations are you all having right now, especially as
Speaker 4: we think about power demand.
Speaker 7: Well, I think I'm very lucky you have a great board.
Speaker 7: We do a lot of scenario planning, and we've been
Speaker 7: doing that for twenty five years, so we do scenario
Speaker 7: planning for regulatory changes, for demand changes. So I think,
Speaker 7: you know, basically they're quite pleased because about six years
Speaker 7: ago we really said, look, if you look at people's
Speaker 7: decarbonization goals, there's going to be a shortage of zero
Speaker 7: carbon energy. So we built up a pipeline, we bought
Speaker 7: rights to land, we did interconnection. So you know, we
Speaker 7: feel a little bit on the right side of history
Speaker 7: on these things. So I'd say generally the conversation is
Speaker 7: very good. So honestly, nuclear is not a main theme,
Speaker 7: for example, of my board of.
Speaker 2: Directors talking about sort of the different projects. What's the
Speaker 2: hardest part about building stuff right now? Is it labor
Speaker 2: and materials, is it getting the PPAs or the off
Speaker 2: take agreement. So basically your customer has to sign up
Speaker 2: and say, okay, I'll pay you this much to get
Speaker 2: this amount of solar from you. So that gives you
Speaker 2: clarity on then what you have on your books. What's
Speaker 2: the hardest part.
Speaker 7: The hardest part is getting permittal end.
Speaker 2: So none of the things I said, okay, none of
Speaker 2: the things.
Speaker 7: No, you know, the PPA would be simple. And look,
Speaker 7: we haven't postponed, not even forget abandon, not even postponed
Speaker 7: a significant project even during COVID, So I think, you know,
Speaker 7: we have a very robust supply chain and we will
Speaker 7: certainly move up everything that's in the US to domestic
Speaker 7: production by twenty six so that is not worrying me. Labor,
Speaker 7: we've also not had a problem because we've tended to
Speaker 7: work with a strategic contray actors in the sense that
Speaker 7: we don't give them one project, We'll give them a
Speaker 7: series of projects so they can move the crew from
Speaker 7: one spot to another.
Speaker 9: I see.
Speaker 2: And that's interesting when you think, do you think permitting
Speaker 2: is going to get fixed no matter who's in the
Speaker 2: White House? How do you fix it?
Speaker 7: Look, they say, all politics is local, all permitting is local.
Speaker 7: So you know, while they've made I say progress, let's
Speaker 7: say in the way they do interconnections in the states
Speaker 7: of batching it, of new ways of thinking about it.
Speaker 7: I do think that's going to be probably the biggest bottling.
Speaker 7: I think we have to, you know, move renewables to
Speaker 7: some extent outside of certain areas where there's more resistance.
Speaker 7: So there's definitely going to be a move to putting
Speaker 7: renewables where you know, the permitting is easier.
Speaker 9: But that's the most difficult.
Speaker 5: Can I answer you what kind of shape the grid
Speaker 5: is in? From your perspective?
Speaker 4: How much time do you have?
Speaker 7: Look, I think it's a great question, and I'll tell
Speaker 7: you for the following reason. I think there's a lot
Speaker 7: of talk about, you know, the shape of the grid,
Speaker 7: but what we're not doing is fully applying the new
Speaker 7: technologies we have. So for example, grids are probably used
Speaker 7: at fifty percent.
Speaker 9: Of their real capacity.
Speaker 7: We have a lot of copper sitting around most of
Speaker 7: the time, so we're we have the biggest what's called
Speaker 7: dynamic line reading project in the US. It's in Indiana.
Speaker 7: What is dynamic line ate very simply you put sensors
Speaker 7: on the lines to say what's the actual temperature, what's
Speaker 7: the actual sag in the lines, what's the wind, and
Speaker 7: so in some cases you can actually transmit fifty percent
Speaker 7: more energy over it. The second one is that the
Speaker 7: whole grid is built out for the peak time. The
Speaker 7: peak time could be one hour. The rest of the
Speaker 7: time it's underutilized. So by using batteries we have projects
Speaker 7: called grid Booster, you actually transmit the energy on the
Speaker 7: off peak hours. So that does I'm not saying it
Speaker 7: solves everything, but I think we have to think more
Speaker 7: about these new technologies to make better use of existing grid.
Speaker 2: Before I let you go, what's the one thing that
Speaker 2: you hope is that investors take away in terms of
Speaker 2: say your stock price, it's recovery, but for the last
Speaker 2: year it's still flattered down by one percent. What do
Speaker 2: you think it's going to take for you to finally
Speaker 2: get credit like Constellation Energy?
Speaker 7: Well, I think what people have liked very much about
Speaker 7: the pure ipp place, they think there's a little investment,
Speaker 7: so it's just using existing plants and just recontracting them.
Speaker 7: In our case, I think, look, we have met or
Speaker 7: beaten our guidance eight years in a row. We have
Speaker 7: grown our divid in ten years in a row. So
Speaker 7: I'm by training an economist, and I'm just kind of
Speaker 7: really surprised at some of the correlations in our stock.
Speaker 7: We're not sensitive to interest rates, so I think those
Speaker 7: things tend to work themselves out over time. So look,
Speaker 7: company's never been better. We're cripple investment grade. We have
Speaker 7: three years of construction in our backlog today and a
Speaker 7: lot of very cool new technologies coming on.
Speaker 2: All right, andres really appreciate it. It's always good to
Speaker 2: see you so thoughtful. Andris Kluski, CEO of AS joining
Speaker 2: us there.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station, Just say
Speaker 1: Alexa play Bloomberg eleven thirty.
Speaker 2: So around this time every day. On Monday, we talked
Speaker 2: to Bloomberg bn EF. They are the leading researchers and
Speaker 2: everything you need to know about the energy transition. They
Speaker 2: do work on commodities and power and transport industry ads.
Speaker 2: They also talk about finance and governments and so everyone
Speaker 2: can make informed decisions on this. And joining us now
Speaker 2: in studio is David Doherty, head of Oil and Renewable
Speaker 2: Fuels Research for Bloomberg b n EF. David, great to
Speaker 2: see you, Thanks for joining. This is Climate Week, So
Speaker 2: this is climate week, so it's all going to be
Speaker 2: about climate y friendly green things. Does that include your
Speaker 2: oil and gas?
Speaker 9: It's us.
Speaker 10: Yeah, you can call oil green things, I suppose if
Speaker 10: you want, I get exciting about it. You know, we've
Speaker 10: been talking about alcoholic free beer, so oil can feature
Speaker 10: in the climate change.
Speaker 2: So that was my way of kind of asking of
Speaker 2: how does oil and gas play in the energy transition
Speaker 2: and what are some of the trends that we've noticed
Speaker 2: over the last year.
Speaker 9: Yeah.
Speaker 10: I mean, if you think of the players in the
Speaker 10: oil market, they're the energy pros in the world, right
Speaker 10: They've got the balance sheet, they've got the skills, they've
Speaker 10: got the technology, and they're already established, right, so they've
Speaker 10: got interest in seeing how this develops, how fast it goes,
Speaker 10: how it impacts their bottom line.
Speaker 4: Basically, what are the main hold ups in terms of
Speaker 4: the transition. What are some of the headwinds.
Speaker 10: I mean, capital is obviously one raising capital. Smart people
Speaker 10: in the right jobs in the right place push back
Speaker 10: both political and from people.
Speaker 9: Right.
Speaker 10: People love the idea, but as soon as it costs money,
Speaker 10: that's quite a difficult to swallow, especially now in like
Speaker 10: inflationary times.
Speaker 2: Right, is the conversation that evs will eventually surplant internal
Speaker 2: combustion engines and get rid of gas demand. Is that
Speaker 2: still something that you guys are working with in modeling
Speaker 2: or has that conversation evolved?
Speaker 10: It's evolved, I mean that is kind of the trend though. Yeah,
Speaker 10: when you look at things when they're cheaper upfront, right,
Speaker 10: consumers tend to shift towards that.
Speaker 9: If it's cheaper day.
Speaker 10: One for buying an ev versus an internal combustion engine car,
Speaker 10: and all else is equally, you're probably going to see
Speaker 10: a shift towards that.
Speaker 9: Right.
Speaker 2: So we're really though US centric here and we don't
Speaker 2: see that in the same way. But elsewhere, is that
Speaker 2: truly what's happening?
Speaker 9: Yeah, you are.
Speaker 10: You're seeing a big uptick in Europe and in China
Speaker 10: for example, and even here in the US California for example,
Speaker 10: behave it's much more like a European economy. When we
Speaker 10: think about the transition to evs, we've seen really high
Speaker 10: rates of penetration there.
Speaker 4: What are some of the main themes in market dynamics
Speaker 4: that your team is focused on right now?
Speaker 10: Yeah, Like, the rate of this change is interesting. What's
Speaker 10: happening in different markets?
Speaker 9: What the response is.
Speaker 10: If you take the US for example, it's a it's
Speaker 10: a mature market. So when these evs come into the market,
Speaker 10: you're seeing a decline in gasoline sales versus saying in
Speaker 10: China where it's like what could have been doesn't necessarily manifest, right,
Speaker 10: So that turns into then power in your pocket. Right,
Speaker 10: You're seeing the cost of gasoline isn't coming down even
Speaker 10: though you're expecting it to a less gasoline being consumed.
Speaker 10: There's so many more dynamics in just a four wheels
Speaker 10: on the road situation, right.
Speaker 4: And how are all these things impacting the consumer?
Speaker 9: Yeah?
Speaker 10: I mean, if you think about costs in your pocket
Speaker 10: when it comes to driving your card, that's a big thing,
Speaker 10: particularly here in the US, particularly in an election year.
Speaker 10: You know, it trickles down into inflation. You get something
Speaker 10: delivered to your house. The cost of diesel impacts all
Speaker 10: of these things. So your consumers are super sensitive of
Speaker 10: anything to a cost at the moment, and probably the
Speaker 10: biggest development here in the US it's been interesting is
Speaker 10: less consumption of gasoline hasn't turned into less prices at
Speaker 10: the you know, a lower price at the pump.
Speaker 2: Why do you think that is?
Speaker 9: Well, this is key.
Speaker 10: This is something we have to think about as we
Speaker 10: go towards transition. If you pull supply in any scenario,
Speaker 10: you're going to see a price spike. In the US,
Speaker 10: we're seeing less refinery production than we have a few
Speaker 10: years ago. So you're seeing over a million barrools per
Speaker 10: day cut in the last two three years alone. And
Speaker 10: when you have a less supply of something, even if
Speaker 10: you have less demand, it really depends on which one
Speaker 10: goes first, on how speedy that changes.
Speaker 4: And so what are people thinking when will this all
Speaker 4: shake out?
Speaker 10: I mean it's shaking out already. It's already shaking out
Speaker 10: in the four court when people are buying the car.
Speaker 10: You're seeing the response from refiners. For example, some big
Speaker 10: refineries like P sixty six are switching some of their
Speaker 10: facilities to make things like renewable diesel or sustainable aviation
Speaker 10: fuel so people are posturing. Companies are postering for the
Speaker 10: next five, six, seven years, right.
Speaker 2: Which is such a great point because I guess the
Speaker 2: question then becomes, if we're posturing for the seven or
Speaker 2: eight years, what does the landscape in your world look
Speaker 2: like then? I mean everyone seems to say it's a yes,
Speaker 2: and we need everything above all And is that how
Speaker 2: you model it?
Speaker 9: That is how we model it.
Speaker 10: In our sort of standard out look twenty twenty nine,
Speaker 10: we see peak oil consumption globally.
Speaker 9: So that's still pretty far out. There's still a lot
Speaker 9: of growth left.
Speaker 2: Also, peak doesn't mean the then it goes to zero.
Speaker 2: I feel like that's something we need to also wrap
Speaker 2: ourmind around, Like just because it's not increasing, it doesn't
Speaker 2: mean it's rapidly decreasing.
Speaker 9: Yeah, you're totally right.
Speaker 10: Even in like a net zero world, in our modeling,
Speaker 10: you get about twenty five million boos per day of oil,
Speaker 10: so you net zero doesn't mean zero oil.
Speaker 4: So what does the growth outlook here?
Speaker 10: You're looking at about four or five million barrels per
Speaker 10: day upside in our inner base case scenario. But lots
Speaker 10: of things can change that, right. Policies are the main
Speaker 10: thing to look at particularly in big markets like the US.
Speaker 9: Right, the US consumers is about one.
Speaker 10: In every five barrels globally, so if something changes here,
Speaker 10: the whole market can change.
Speaker 9: The dynamic is really upended.
Speaker 2: When we take a look at say China and India,
Speaker 2: large consumers of energy, obviously, are they jumping from coal
Speaker 2: to what.
Speaker 10: You know, gases and transition fuel. We're seeing them shift
Speaker 10: towards I was just in Beijing last weekend. There's a
Speaker 10: very different way of looking at the oil market versus
Speaker 10: if you're down in Texas, Right, it's what's the displacement?
Speaker 10: Because they need more and more energy, right, they don't
Speaker 10: want to import that energy, So what can you do
Speaker 10: domestically In the case of power, that's coal. But we're
Speaker 10: also seeing in the case of evs, right, LNG trucks,
Speaker 10: even electric trucks. So we have a lot we can
Speaker 10: learn from them. But they're just different, very different markets.
Speaker 2: And how do they get there? How do they get there?
Speaker 2: Is it because of subsidies? Is it because they were
Speaker 2: so dependent on coal? Like what leads that transition there
Speaker 2: differently than say in the US.
Speaker 10: Yeah, I mean, I think it's dependency on imports. For
Speaker 10: one example, they've got a lot of national champions, and
Speaker 10: to be honest, when they say they're going to do something,
Speaker 10: they do it in Europe and in the US you
Speaker 10: got to get it through parliament, you got.
Speaker 9: To get it through votes. It's a lot slow.
Speaker 10: Over process, and there's less domestic manufacturers like Tesla's a big,
Speaker 10: big player here.
Speaker 9: But it's kind of it in China.
Speaker 10: You've got a lot of big producers, a lot of
Speaker 10: big industrial champions, right, and they're encouraged by.
Speaker 9: The States and by the city and by incentives.
Speaker 4: So how do we fit into the bigger international ecosystem.
Speaker 10: Well, for the US, one of the most important things
Speaker 10: is it's sort of gasoline production. Machines send a lot
Speaker 10: of gasoline abroad South America, Europe, even so there's a
Speaker 10: change coming along for your US refiners basically, and you're
Speaker 10: starting to see how they just they're positioning in a
Speaker 10: sort of a market leading way.
Speaker 2: I think, all right, David, we appreciate it.
Speaker 4: Thank you very much.
Speaker 2: David Doherty joining US head of Oil and Renewables Fuels Research.
Speaker 5: Before you go for you, have you ever had a
Speaker 5: non alcoholic beer?
Speaker 10: Oh, bring the Irish guy in. I like this and
Speaker 10: I have yet, and I'm also not a verse exhumation. Yeah,
Speaker 10: I think it's pretty good, especially if you're driving, you know, yeah, or.
Speaker 2: Just like because some of them you actually can feel
Speaker 2: the taste, like non alcoholic wine is basically like fruit juice,
Speaker 2: but not alcoholic beer does taste somewhat like beer.
Speaker 10: I agree, And you know what, it's stuffed people asking you, like,
Speaker 10: why ain't you drinking today because they have no idea.
Speaker 10: It looks exact same.
Speaker 2: Yeah. Well and the more you know, John Tucker.
Speaker 5: You just all disappointment.
Speaker 4: So sorry.
Speaker 2: The alcohol removed wine though, that's that's I try to
Speaker 2: get into that.
Speaker 4: And it was like, I have the hot wine. What's
Speaker 4: the word for that? Warm wine?
Speaker 2: But stuff? What mold stuff? But that's not wine?
Speaker 9: What is it?
Speaker 2: Okay, now we're going to research.
Speaker 4: This is what I back away.
Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com,
Speaker 1: the Ihard Radio app, tune In, and the Bloomberg Business App.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal