WEBVTT - China Is Changing Its Coal Use, and It Affects the Whole World 0:00:10.880 --> 0:00:14.560 Hello, and welcome to another episode of the Odd Thoughts Podcast. 0:00:14.640 --> 0:00:19.400 I'm Tracy Alloway and I'm Joe. Wasn't so, Joe. We've 0:00:19.440 --> 0:00:23.400 been talking quite a bit about supply chains. That's correct 0:00:23.520 --> 0:00:26.000 for now, like pretty much like well over a year. 0:00:26.040 --> 0:00:29.800 But yes, absolutely it's not going away. Yeah, that's probably 0:00:29.880 --> 0:00:33.599 an understatement. So one of the things we have definitely 0:00:33.680 --> 0:00:35.959 learned over the past year or so is that when 0:00:36.080 --> 0:00:39.800 one part of the global supply chain I guess flaps 0:00:39.880 --> 0:00:44.360 its wings or experiences a disruption or whatever, it tends 0:00:44.400 --> 0:00:46.880 to ripple through a bunch of other things. And I 0:00:46.880 --> 0:00:50.559 think that's arguably what we've seen with energy prices and 0:00:50.600 --> 0:00:54.320 with the big surge in prices over the past few months. Yeah, 0:00:54.360 --> 0:00:58.040 I think like commodities, and of course commodities are very 0:00:58.080 --> 0:01:01.480 sort of heart you can't deal them from global industrial 0:01:01.520 --> 0:01:04.640 processes and supply change in general. Like it feels like 0:01:04.640 --> 0:01:07.920 what we talk commodities, that it's like a there is 0:01:07.959 --> 0:01:11.080 a very high level of demand the GDP around the world, 0:01:11.160 --> 0:01:15.400 growing very fast, particularly as economies returned to trend or 0:01:15.400 --> 0:01:19.600 in some cases maybe even overshoot the previous trend. And 0:01:19.640 --> 0:01:23.440 then there is also the sort of idiosyncratic factors that 0:01:23.480 --> 0:01:26.480 pop up that are not really macro. Maybe it's related 0:01:26.480 --> 0:01:30.759 to weather, maybe it's related to environmental changes that inhibit production. 0:01:30.800 --> 0:01:33.520 Maybe it's sort of something else, and it's like that policy. 0:01:33.680 --> 0:01:37.440 So it's like that combination of very tight, very strong 0:01:37.520 --> 0:01:40.639 demand and then any ripple or any speed bump anywhere, 0:01:40.720 --> 0:01:44.360 or any change on the supply side really gets magnified. Yeah. 0:01:44.400 --> 0:01:47.000 So this was something that Jeff Curry at Coleman Sacks 0:01:47.120 --> 0:01:51.600 brought up on one of our episodes last year when 0:01:51.600 --> 0:01:55.440 we were discussing high energy prices and the commodities rally. 0:01:55.720 --> 0:01:59.160 He I think he said that actually, what was happening 0:01:59.160 --> 0:02:03.400 in European gas actually began with a coal shortage in China. 0:02:03.880 --> 0:02:06.360 So there wasn't enough coal in China and they had 0:02:06.400 --> 0:02:09.360 to find a substitute energy source, and what they found 0:02:09.760 --> 0:02:13.040 was oil and gas, and that eventually fed through into 0:02:13.240 --> 0:02:17.160 European prices. So I guess what I'm saying is, if 0:02:17.200 --> 0:02:20.400 you think of China cole as ground zero for higher 0:02:20.480 --> 0:02:24.280 energy prices that rippled throughout the world, it seems like 0:02:24.320 --> 0:02:28.720 we should dig into that. Yes, I'm very curious what's 0:02:28.760 --> 0:02:31.600 going on with China and energy because there's lots of 0:02:31.600 --> 0:02:35.240 different things happening at once. There's the Olympics coming up, 0:02:35.280 --> 0:02:38.760 there's domestic policy changes, which we've talked about quite a bit. 0:02:39.400 --> 0:02:43.000 There's long term goals on changing the energy mix. I 0:02:43.040 --> 0:02:45.640 don't feel like I have much insight into it other 0:02:45.680 --> 0:02:50.119 than that is extremely important beyond China's borders. So yes, 0:02:50.160 --> 0:02:53.160 we need to dig it further. Okay, Well, I am 0:02:53.160 --> 0:02:55.760 pleased to say that we are going to do exactly that. 0:02:55.919 --> 0:02:59.240 We have Alex Turnbull of fund manager based in Singapore 0:02:59.600 --> 0:03:01.320 and some when he has done quite a bit of 0:03:01.360 --> 0:03:05.040 research into China's coal market. So Alex, welcome to the show, 0:03:06.000 --> 0:03:09.600 Thank you very much. So I guess my first question, 0:03:10.040 --> 0:03:13.680 just to lay the groundwork for this discussion, one of 0:03:13.720 --> 0:03:18.160 the unusual things about the China coal market, as I 0:03:18.240 --> 0:03:21.680 understand it, is that China does actually have a decent 0:03:21.720 --> 0:03:25.320 amount of coal within its borders, but it also imports 0:03:25.480 --> 0:03:28.400 a lot of its coal supplies. So I guess my 0:03:28.480 --> 0:03:31.240 question is why does that happen? Why do they do that? 0:03:31.280 --> 0:03:34.680 Why not just dig up what they have already? Sure, 0:03:35.160 --> 0:03:39.680 with any commodity which is reasonably lower dollar value per ton, 0:03:40.600 --> 0:03:42.520 it's best to think of it as not a price 0:03:43.120 --> 0:03:46.200 where if you want to buy ann ounce of gold 0:03:46.280 --> 0:03:50.280 from someone it's sufficiently high value, they can mail it 0:03:50.320 --> 0:03:53.360 to you or exported quite easily. With things that are 0:03:53.360 --> 0:03:57.480 relatively low value, per toime, transport costs are incredibly important 0:03:57.560 --> 0:04:02.240 and locational constraints are very important. So it's a little 0:04:02.240 --> 0:04:05.840 bit like gas pipelines where just because someone wants to 0:04:05.840 --> 0:04:07.760 buy gas somewhere, it doesn't mean you can actually deliver 0:04:07.800 --> 0:04:10.080 it to them, will deliver it to them an economical price. 0:04:10.680 --> 0:04:14.200 So with Cole, it's really these locational dynamics that make 0:04:14.240 --> 0:04:17.880 it quite a quirky market in some respects. Just like 0:04:18.040 --> 0:04:21.640 nine seconds into this discussion, I'm already finding that to 0:04:21.680 --> 0:04:24.640 be like very useful. So I want to step back 0:04:25.000 --> 0:04:28.200 and asking even zoom zoom out even further before we 0:04:28.240 --> 0:04:32.240 get into the details. But it's in your research, like 0:04:32.760 --> 0:04:37.479 outside of China specifically, why is this a question or 0:04:37.520 --> 0:04:40.120 why is this a topic that interests you? And why 0:04:40.120 --> 0:04:44.160 should say anyone outside of China care that much? Sure, so, 0:04:44.440 --> 0:04:50.400 my background is in distressed debt historically and convertible bonds 0:04:51.080 --> 0:04:54.920 and the call sector repeatedly blew up over the course 0:04:54.960 --> 0:04:58.240 of the financial crisis. A few names got into trouble. 0:04:59.080 --> 0:05:04.599 There was a large protracted downturn in sixteen, and over 0:05:04.640 --> 0:05:11.719 that period SEV simultaneously worked on Peabody Energy, which went bankrupt, 0:05:12.040 --> 0:05:14.880 and also Mongolian mining, which also went bankrupt around the 0:05:14.920 --> 0:05:19.359 same time, had to be restructured. And so by seeing 0:05:19.920 --> 0:05:23.719 how those two businesses were actually quite tightly coupled in 0:05:23.800 --> 0:05:28.200 weird ways via the Chinese coal market and the quirks 0:05:28.240 --> 0:05:31.599 within the Chinese coal market and regulatory actions there. At 0:05:31.640 --> 0:05:35.599 a time, this is essentially the biggest energy market in 0:05:35.600 --> 0:05:39.960 the world. It's almost a quarter of the world's carbon emissions, 0:05:40.360 --> 0:05:44.720 just col and China, and it's recentably poorly covered and understood. 0:05:44.839 --> 0:05:49.880 So and the course of tweeting about this in I 0:05:49.880 --> 0:05:53.240 think it was mid I got a reply back from 0:05:53.279 --> 0:05:56.720 a friend who's a professor at the Istraelia National University, 0:05:57.120 --> 0:05:59.239 who said, what's all this about? And then we spoke 0:05:59.240 --> 0:06:00.560 about it for an hour or so. He said, why 0:06:00.560 --> 0:06:03.240 don't we do a paper about this? And I thought, well, 0:06:03.920 --> 0:06:05.479 we can probably get the data, or at least we 0:06:05.520 --> 0:06:08.640 can try, and so hence we went through this exercise 0:06:08.720 --> 0:06:13.640 of modeling the entire Chinese logistics, power and steel market, 0:06:14.240 --> 0:06:18.480 transport and the minds and the imports in a big simulation. 0:06:19.160 --> 0:06:22.880 So maybe we should get into what has actually been 0:06:22.880 --> 0:06:25.719 happening with the coal market in China. And you know, 0:06:25.760 --> 0:06:28.200 I'm looking at a chart of prices, and there was 0:06:28.520 --> 0:06:31.480 that spike late last year, sort of at the beginning 0:06:31.520 --> 0:06:34.159 of the fourth quarter, I guess, and it started coming 0:06:34.160 --> 0:06:38.200 down since then. So what exactly happened? I guess? What 0:06:38.320 --> 0:06:41.720 was the shock to China's coal system that set that 0:06:41.920 --> 0:06:46.880 price action in motion? This price volatility. Sure, so the 0:06:46.880 --> 0:06:49.040 thermal cole you had a similar problem to a lot 0:06:49.040 --> 0:06:55.680 of other commodities, and demand collapsed. There was supply continued, 0:06:56.320 --> 0:06:59.120 and while coal did not try at negative prices like oil, 0:06:59.160 --> 0:07:03.000 it was pretty good regiously oversupplied. At the same time, 0:07:03.040 --> 0:07:05.839 there were weather dynamics. So in the Chinese power market, 0:07:06.760 --> 0:07:09.640 the second biggest source of power is hydro electric power. 0:07:09.880 --> 0:07:11.240 So if you get a lot of rain or a 0:07:11.280 --> 0:07:15.240 very wet summer and spring in China, you then suddenly 0:07:15.280 --> 0:07:17.679 have a lot of cheap hydro power, which then displaces cold. 0:07:17.760 --> 0:07:22.160 So by Q four they were just about giving it away, 0:07:22.480 --> 0:07:25.280 But then there was a cold winter and then over 0:07:25.320 --> 0:07:29.720 the course of say March to May, one key coal 0:07:29.800 --> 0:07:34.400 mining province massively underproduced to the tune of output was 0:07:34.440 --> 0:07:38.560 down at the same time demand was recovering. Like in 0:07:38.600 --> 0:07:40.920 a lot of other places in the world, you had 0:07:40.960 --> 0:07:43.840 a real upswing in power to man and then by 0:07:43.920 --> 0:07:48.880 September there were in this I think in Guangdong on 0:07:48.920 --> 0:07:51.680 the data we have, they had less than six or 0:07:51.720 --> 0:07:56.320 seven days of coal inventory to burn. So if there 0:07:56.360 --> 0:07:58.160 was a typhoon that came through Hong Kong and the 0:07:58.160 --> 0:08:00.480 port's got shut for a couple of days, that would 0:08:00.480 --> 0:08:03.160 have been lights out in Guangdong, and prices of course 0:08:03.200 --> 0:08:06.280 would flying at that point. Then the government stepped in 0:08:06.480 --> 0:08:08.320 tell everyone to turn the minds back on it into 0:08:08.360 --> 0:08:12.640 Mongalia and now looks quite well supplied again. But it's 0:08:12.640 --> 0:08:16.560 been quite a roll of chinastry. I would say, in general, 0:08:17.240 --> 0:08:20.680 what is the mix look like in terms of how 0:08:20.760 --> 0:08:24.560 much coal it powers the Chinese economy, how much is 0:08:25.040 --> 0:08:28.840 domestic versus imported? And then also like what is the goal, 0:08:28.920 --> 0:08:33.120 because China aspires to like many other countries, reduced its 0:08:33.480 --> 0:08:36.360 use of call for environmental reasons and so forth, like 0:08:36.640 --> 0:08:40.319 what are the what are the ambitions? So China is 0:08:40.320 --> 0:08:43.920 the world's biggest call consumer, by quite a large margin, 0:08:44.880 --> 0:08:47.360 consumes about three and a half billion tons per year 0:08:47.840 --> 0:08:51.400 a thermal call to billion tons goes into power, the 0:08:51.440 --> 0:08:54.360 rest goes into a bunch of industries cement and so forth. 0:08:54.880 --> 0:08:57.800 And I am poor in general for thermal hell some 0:08:57.920 --> 0:09:00.679 o between two d and three hundred tons of year, 0:09:01.160 --> 0:09:03.360 but that can be quite volatile, and most of that 0:09:03.559 --> 0:09:09.200 is important into southern provinces like Wigan, Guandong, and Guanti, 0:09:09.840 --> 0:09:11.680 which don't have their own coal mines, and which are 0:09:11.679 --> 0:09:14.760 actually quite a long way from where China's coal mines 0:09:14.800 --> 0:09:17.720 are in the interior of the country in Shashi and 0:09:17.720 --> 0:09:22.440 in the Mongolia, and so China's currently trying to a 0:09:22.440 --> 0:09:26.520 achieve two major objectives. One is to have a stable 0:09:26.640 --> 0:09:30.160 energy supply and some semblance of order, but then its 0:09:30.160 --> 0:09:34.040 power market, which is entirely understandable, and also reduce its 0:09:34.080 --> 0:09:37.959 carbon emissions, which is also very understandable. But the question 0:09:38.080 --> 0:09:43.040 is given most of its coal actually goes into either 0:09:43.120 --> 0:09:46.800 directly or indirectly into the written do heavy industry, which 0:09:46.840 --> 0:09:50.199 is very heavily driven by real estate demand. Can they 0:09:50.360 --> 0:09:53.000 manage a real estate slow down or a change in 0:09:53.040 --> 0:09:57.360 growth model? So, if you think about it, their carbon objectives, 0:09:57.840 --> 0:10:02.560 the energy security objectives, and their financial rebalance and objectives 0:10:02.559 --> 0:10:06.240 are all these incredibly tightly coupled systems, and that they're 0:10:06.280 --> 0:10:08.120 kind of the same system in many regards when you 0:10:08.160 --> 0:10:12.160 do the carbon account. That's really interesting. So one thing 0:10:12.200 --> 0:10:14.440 I was wondering just on the policy front. So we 0:10:14.520 --> 0:10:17.520 did see China shut down quite a few minds, and 0:10:17.559 --> 0:10:22.560 specifically the older, dirtier minds. I guess how easy are 0:10:22.600 --> 0:10:27.400 those to turn back on or how flexible is new 0:10:27.480 --> 0:10:32.960 supply in terms of bringing additional capacity on stream. So 0:10:33.120 --> 0:10:35.320 what when they initially had a big clean out of 0:10:35.320 --> 0:10:38.920 the sector in sixteen, they did shut down a lot 0:10:38.960 --> 0:10:42.240 of smaller private miners which had a reputation for not 0:10:42.320 --> 0:10:45.800 being very compliant with safety standards, are being well capitalized. 0:10:46.480 --> 0:10:50.000 Then coal price has got a bit high in eighteen nineteen, 0:10:50.080 --> 0:10:53.200 then increased their capex for coal mining, and they told 0:10:53.280 --> 0:10:57.480 the largest players to build bigger, more efficient, more mechanized minds. 0:10:57.960 --> 0:11:01.120 And so when things slowed down in Q two of 0:11:01.240 --> 0:11:06.040 twenty one, that happened quite abruptly. I was quite surprised 0:11:06.040 --> 0:11:08.719 to market participants. No one could really explain why it 0:11:08.800 --> 0:11:11.800 was happening as demand was going up. So it subsequently 0:11:11.800 --> 0:11:14.280 emerged later, but then it was actually very easy to 0:11:14.360 --> 0:11:17.480 turnental back on because they were very centralized set in enterprises. 0:11:18.080 --> 0:11:20.640 So as soon as I put the memo out for 0:11:20.679 --> 0:11:24.000 everyone to my law, get that on trains and get 0:11:24.040 --> 0:11:28.160 it out, you saw daily call output explode. It actually 0:11:28.160 --> 0:11:30.480 had quite a lot of control when pushed hand to 0:11:30.520 --> 0:11:49.800 shop on that market. I'm saying, can you go back 0:11:50.000 --> 0:11:52.800 and maybe talk a little bit further about the way 0:11:53.120 --> 0:11:56.520 these various policy priorities dovetail with each other, And we 0:11:56.559 --> 0:11:59.240 actually just did an episode on the real estate sector 0:11:59.480 --> 0:12:02.920 and the attempt to transition some of the quality of 0:12:03.360 --> 0:12:07.600 GDP growth in China away from real estate speculation and 0:12:07.720 --> 0:12:11.719 real estate development, and then the broader decarbonization. Can you 0:12:11.800 --> 0:12:14.560 talk a little bit about further about the common thread 0:12:14.559 --> 0:12:17.079 there and how coal itself sort of fits into all 0:12:17.080 --> 0:12:22.280 of it. So most of China's energy demand, at least 0:12:22.360 --> 0:12:28.599 electrical power demand, actually comes from heavy industry, and the 0:12:28.600 --> 0:12:33.480 biggest heavy industries are in order appairance ferrost metals, which 0:12:33.559 --> 0:12:37.000 is basically steel, nonferrest metal, so things like copper and 0:12:37.120 --> 0:12:40.520 zinc and tum and then kind of chemicals and the 0:12:40.640 --> 0:12:43.960 cident when you do the flow of materials, so you 0:12:44.000 --> 0:12:47.199 track where does all the steel go, actually very heavily 0:12:47.200 --> 0:12:50.640 goes into construction. Where the emissions from steel come from. 0:12:50.640 --> 0:12:54.600 It's all electrical power and cold for I'm smelting steel. 0:12:55.040 --> 0:12:58.840 You see that. Essentially, the Chinese real estate sector accounts 0:12:58.840 --> 0:13:04.080 for in the order of China's total emissions depends on 0:13:04.120 --> 0:13:07.400 whose account and you're looking at, but it's it's enormous 0:13:07.480 --> 0:13:11.160 so and then heavy industry and that's just residential and 0:13:11.160 --> 0:13:13.480 that's commercial in the rest of it, and so heavy 0:13:13.480 --> 0:13:17.079 industry accounts for sixty seven seven I think at the 0:13:17.160 --> 0:13:22.199 last stata of China's powder man so and then Chinese 0:13:22.240 --> 0:13:26.720 domestic construction in general is what drives China's emissions more 0:13:26.800 --> 0:13:30.000 than anything else. Essentially, if you are if you want 0:13:30.040 --> 0:13:34.760 to reduce your carbon emissions and improve your energy security 0:13:34.760 --> 0:13:39.120 by importing less coal, you can build those apartments. You 0:13:39.160 --> 0:13:41.679 can build a lot of renewables to replace the coal, 0:13:42.280 --> 0:13:45.199 or a bit of both. But these things that these 0:13:45.240 --> 0:13:49.120 two functions are very tightly integrated. You know. It's always 0:13:49.120 --> 0:13:52.360 been an observation when people do modeling that if China 0:13:52.400 --> 0:13:55.760 were to get through at construction rate more in line 0:13:55.800 --> 0:13:58.880 with level lawns. It would be very easy for China 0:13:58.960 --> 0:14:02.880 to achieve quiet remarkable carbon targets, but it's proven very 0:14:02.920 --> 0:14:06.760 hard for China to change its growth model and move 0:14:06.840 --> 0:14:10.960 from a essentially a construction paradigm in real estate and 0:14:11.000 --> 0:14:15.559 certainly residential real estate. So I mean, assuming that China 0:14:15.720 --> 0:14:19.040 is at some point able to make some progress in 0:14:19.160 --> 0:14:21.560 changing the mix of its growth, and we do see 0:14:21.560 --> 0:14:24.360 house prices start to come down what we've already seen, 0:14:24.520 --> 0:14:27.400 Chinese house prices start to come down, and maybe housing 0:14:27.400 --> 0:14:29.920 inventory starts to be cut and we don't get as 0:14:30.000 --> 0:14:33.720 much construction of new homes. Assuming all of that happens, 0:14:34.480 --> 0:14:38.040 what happens in the energy space in terms of funding 0:14:38.280 --> 0:14:41.200 and capital. Is capital going to be an issue for 0:14:41.280 --> 0:14:44.200 Chinese energy or does all of that come from the state. 0:14:46.080 --> 0:14:49.880 It's it's very heavily state timed, so they essentially have 0:14:49.960 --> 0:14:53.400 access to if government policy is that they are to 0:14:53.480 --> 0:14:55.880 build some things and there will be capital available for 0:14:55.880 --> 0:14:58.360 them to build certain things, is the best way to 0:14:58.400 --> 0:15:00.960 think about it. It's not like in the house signs 0:15:01.000 --> 0:15:03.440 off on every single lot among the capex flans, But 0:15:03.720 --> 0:15:07.520 is unit see a vision. Let's go back to like 0:15:07.680 --> 0:15:12.880 the the effect outside of China's borders and the other things. 0:15:12.960 --> 0:15:14.760 You know, we've seen these sort of knock on effects. 0:15:14.760 --> 0:15:19.240 We've seen surging energy prices in Europe. It's been a 0:15:19.360 --> 0:15:23.840 very stressful winter, massive surgeon electricity bills. Not only does 0:15:23.880 --> 0:15:26.200 that hit the household sector there, it's also hit some 0:15:26.240 --> 0:15:31.080 industrial sectors. Fertilizer companies shutting down or temporarily because it 0:15:31.200 --> 0:15:33.760 just doesn't make sense. They can't be running economically at 0:15:33.760 --> 0:15:37.640 these levels. We started this discussion talking about the ripple effects, 0:15:37.720 --> 0:15:41.520 and so what are the ripple effects from China and 0:15:41.560 --> 0:15:44.240 how do they relate to what we're seeing elsewhere in 0:15:44.240 --> 0:15:47.920 the world. Sure, so that the challenge for China is 0:15:47.960 --> 0:15:51.040 that if China has a shortage and energy, a province 0:15:51.080 --> 0:15:55.800 in in a Mongolia has an anti corruption campaign, mond 0:15:55.840 --> 0:15:59.120 in protles done happen with some hauled up in production. 0:15:59.800 --> 0:16:02.440 The problem is is that if China needs to import 0:16:02.520 --> 0:16:04.960 a large amount of cold very quickly at short notice, 0:16:05.640 --> 0:16:09.640 it's very hard for China now too source that kind 0:16:09.680 --> 0:16:13.760 of volume of coal that it needs in the international market. 0:16:13.800 --> 0:16:18.040 The reason it is that China consumes three billion tons 0:16:18.080 --> 0:16:23.880 a year, so the thermal between ower, cement and heating 0:16:24.400 --> 0:16:27.840 and then the US consumed six over there, so it's 0:16:27.840 --> 0:16:31.920 like five times the size of the United States and 0:16:32.200 --> 0:16:35.080 about the Indias about the same the slightly smaller than 0:16:35.080 --> 0:16:40.640 the US. So it's sort of swamps any viable supply 0:16:40.840 --> 0:16:43.080 that might get from elsewhere if they had a significant 0:16:43.120 --> 0:16:45.600 shortage in China. And so then where you saw in 0:16:45.680 --> 0:16:48.920 China was that as coal prices rose, they were switching 0:16:49.120 --> 0:16:53.320 from cola burning coal to get electricity to gas. So 0:16:53.480 --> 0:16:55.480 someone the China started buying a lot of cargoes of 0:16:55.640 --> 0:16:57.880 lergy and you saw that in the shipping down to 0:16:57.960 --> 0:17:01.040 just exploit over the summer and over said from my onboards, 0:17:01.040 --> 0:17:04.040 when the when the when the eventure started to get 0:17:04.080 --> 0:17:06.399 low and so, and that of course taught in the 0:17:06.400 --> 0:17:10.200 gas markets at a time when Europe is normally building 0:17:10.240 --> 0:17:14.960 inventories into winter, and led to partners one of the 0:17:15.000 --> 0:17:19.560 contributing factors to very tight gas markets over this winter. 0:17:20.640 --> 0:17:23.879 So the problem is China is essentially it's like having 0:17:23.880 --> 0:17:27.440 an adult on a trampline with small children. It just 0:17:27.800 --> 0:17:30.840 is so bit now it can kind of launch other 0:17:30.880 --> 0:17:36.040 markets without even trying to. So what happens when China 0:17:36.080 --> 0:17:41.360 actually builds out its energy independence or security because this 0:17:41.480 --> 0:17:44.960 is something that we've seen explicitly as a policy goal. 0:17:45.400 --> 0:17:48.880 They want to reduce imports, they want to rely more 0:17:48.960 --> 0:17:52.639 on mining within their borders. What happens to that ripple 0:17:52.640 --> 0:17:57.000 effect if they manage to succeed in doing that, does 0:17:57.080 --> 0:18:00.639 that ripple effects start to come down or is it 0:18:00.800 --> 0:18:04.879 just so big that it's really difficult to reduce it. 0:18:06.640 --> 0:18:09.879 I think the challenge with coal is the China burns 0:18:09.920 --> 0:18:12.440 about six million tons a day, six and a half 0:18:12.480 --> 0:18:15.200 million tons of day during winter. Coal has got about 0:18:15.240 --> 0:18:17.320 the same density is water, So you know I would 0:18:17.400 --> 0:18:20.440 give it met out. The water is a ton, and 0:18:20.520 --> 0:18:24.000 so you think of what that means and ship volumes 0:18:24.400 --> 0:18:27.560 if you want to store that much coal. You know, 0:18:27.800 --> 0:18:30.879 you can literally see this from space quite happily, and 0:18:31.320 --> 0:18:35.160 many commodity traders do. And so the problem is that 0:18:35.720 --> 0:18:40.440 China is now trying to enforce inventory levels on coal 0:18:40.560 --> 0:18:43.480 mines and power plants. And that can work up to 0:18:43.480 --> 0:18:48.320 a certain point, but realistically it will have to either 0:18:48.480 --> 0:18:53.160 gradually become slightly less energy intensively significant less energy intensive 0:18:53.200 --> 0:18:56.520 through changing growth model. All have to move to sources 0:18:56.520 --> 0:18:59.439 of power which where it's a bit easy to manage, 0:18:59.520 --> 0:19:03.000 or lot of energy that's build a lot more renwobles 0:19:03.040 --> 0:19:06.800 and having a lot more hotter power and hot re storage, 0:19:06.880 --> 0:19:10.280 or a lot of nuclear. And from the latest energy plan, 0:19:11.119 --> 0:19:12.920 it looks like that people in a lot of nuclear 0:19:12.960 --> 0:19:15.560 and that will be actually in those coastal provinces which 0:19:15.560 --> 0:19:23.120 have been you know, international coal imported provinces um bigen gloxy. 0:19:23.720 --> 0:19:26.720 So I think over time they will they will essentially 0:19:26.800 --> 0:19:30.480 easit call market, so that is certainly their intent and 0:19:30.600 --> 0:19:33.680 become more self sufficient. But I don't think it's I 0:19:33.720 --> 0:19:36.920 think trying to manage these inventories they're trying to say 0:19:37.000 --> 0:19:40.440 very heavily fossil arranted when they accidentally consuming this much 0:19:41.200 --> 0:19:44.560 is very challenging. You know. I'm thinking one of the 0:19:44.640 --> 0:19:48.479 storylines out of Europe and again were trying need to 0:19:48.560 --> 0:19:50.800 talk about it more, especially because it has long term 0:19:51.160 --> 0:19:55.239 ramifications for the energy transition, is like there's perception that 0:19:55.840 --> 0:20:01.600 Europe has tried to transition to renewable maybe too fast. 0:20:02.280 --> 0:20:04.960 In the case of Germany is still shutting down nuclear, 0:20:05.240 --> 0:20:09.480 not maintaining like a robust baseload even as it transitions. 0:20:09.920 --> 0:20:12.840 Does China's attempt to transition long term off call and 0:20:12.880 --> 0:20:15.840 you mentioned that it's going to be investing more in nuclear. 0:20:17.000 --> 0:20:21.679 Is that going to allow it to like achieve those goals, 0:20:21.720 --> 0:20:25.879 to achieve the decarbonization goals while also not running into 0:20:26.160 --> 0:20:30.199 short term volatility, not running into a mismatch. And is 0:20:30.320 --> 0:20:36.040 nuclear an important part of making a transition sustainable? I 0:20:36.040 --> 0:20:38.840 think you can. It's very important for those southern provinces 0:20:38.840 --> 0:20:43.760 where you don't have great solid resources or that particularly 0:20:43.800 --> 0:20:48.360 good win resources, so you're out too on that account 0:20:48.960 --> 0:20:52.080 limited toro and you want to reduce your calling bots 0:20:52.280 --> 0:20:55.639 is not really a process of elimination. That's that's probably 0:20:55.720 --> 0:20:57.880 the way they'll go, and that's certainly what's coming out 0:20:57.880 --> 0:21:01.600 of their energy plants. I think you're there's a it's 0:21:01.600 --> 0:21:04.359 certain what the problem with the power price piration is 0:21:04.400 --> 0:21:08.920 not day to day, it's this seasonal storage. So it's 0:21:08.920 --> 0:21:11.480 how do you store up the energy you need for 0:21:11.600 --> 0:21:14.480 winter in the in summer, And normally you do that 0:21:15.080 --> 0:21:19.960 through hydro power or through just storyline running your gas 0:21:20.000 --> 0:21:24.840 storadopting ninety percent and then running it down as they 0:21:24.880 --> 0:21:27.640 do normally in Europe around February and March. But if 0:21:27.680 --> 0:21:30.120 you have trying to lift in all the spot eldry 0:21:30.160 --> 0:21:33.919 cargoes for their own reasons, and then Vladomia Putin has 0:21:33.960 --> 0:21:37.920 other plans, then that kind of runs into trouble. So 0:21:37.960 --> 0:21:40.800 it's not the variability of renewables tends to be like 0:21:40.880 --> 0:21:42.280 you're not sure that it's going to be on or 0:21:42.359 --> 0:21:46.040 off an you've given one hour period, but over the 0:21:46.040 --> 0:21:50.080 possible week, it's reasonably predictable, especially if it's a blind 0:21:50.119 --> 0:21:53.119 of solid and went. But where you can't really hedge 0:21:53.160 --> 0:21:55.280 is how do you how do you build up massive 0:21:55.359 --> 0:21:58.520 storage over the summer and then keep it for winds 0:21:58.640 --> 0:22:02.040 like a squirrel? Basically, So can I ask a really 0:22:02.080 --> 0:22:05.880 basic question on the renewable energy front, which is there 0:22:05.960 --> 0:22:09.840 was always suspicion about how serious China actually is when 0:22:09.880 --> 0:22:14.159 it comes to decarbonization, as in, is it actually going 0:22:14.200 --> 0:22:16.720 to meet the quite lofty goals that it's set out 0:22:16.760 --> 0:22:19.879 for itself. And so I guess my question is one 0:22:20.240 --> 0:22:23.720 how serious are they on the green energy front and 0:22:23.880 --> 0:22:29.159 decarbonization and to why decarbonization at all? Why is it 0:22:29.200 --> 0:22:32.240 important to them? Is it genuinely a climate concern or 0:22:32.320 --> 0:22:36.000 is it more about efficiency and building out that self 0:22:36.000 --> 0:22:40.240 sufficiency When it comes to energy security, well, I think 0:22:40.400 --> 0:22:47.240 historically the power regulations until quite recently do not We're 0:22:47.280 --> 0:22:50.520 not particularly come here, and I would cite the incentives. 0:22:50.560 --> 0:22:54.040 Do you tell these to take renewable power? Like in 0:22:54.119 --> 0:22:58.240 twenty sixty that the level of curtailment essentially when farms 0:22:58.240 --> 0:23:00.119 have produced power and not be able to sell the 0:23:00.400 --> 0:23:03.000 market was very high and there are a lot of 0:23:03.119 --> 0:23:06.480 market design issues. I think what they've done recently is 0:23:06.480 --> 0:23:08.160 they fixed a lot some of a lot of these issues. 0:23:08.200 --> 0:23:11.239 There are there are still some, but more importantly, they 0:23:11.280 --> 0:23:14.959 seem to have been looking to fix coal prices significantly higher, 0:23:15.040 --> 0:23:18.520 so that renewables it can be very competitive, you know, 0:23:18.560 --> 0:23:21.480 without any subsidies whatsoever, and will be actually the preferred 0:23:21.520 --> 0:23:24.640 source of power dispatch. So I think the next couple 0:23:24.680 --> 0:23:27.640 of years are going to be will quiet will surprise 0:23:27.720 --> 0:23:30.040 people how much they will built in terms of renewables, 0:23:30.400 --> 0:23:34.320 because the market incentive is now very strong. Um, if 0:23:34.359 --> 0:23:38.320 you think simplistically, if there seems to be fixing coal 0:23:38.440 --> 0:23:41.479 contracts around seven hundred remitives, so it's under the ten 0:23:41.520 --> 0:23:44.639 U s dollars plus minus, there's about the third of 0:23:44.680 --> 0:23:47.600 a ton of coal that goes to make a you know, 0:23:47.640 --> 0:23:50.879 maybe what are a power There are lots and lots 0:23:51.000 --> 0:23:55.159 of renewable projects which will make money world below thirty 0:23:55.200 --> 0:23:58.200 dollars in China, and that will that's see ess secual. 0:23:58.200 --> 0:24:00.240 If you're a coal plan, you can't uncover with fuel 0:24:00.320 --> 0:24:02.840 costs for that kind of competition. So I think they 0:24:02.880 --> 0:24:06.640 have started to get the market design right in all fairness. 0:24:07.280 --> 0:24:10.919 In terms of their motivations, I think a lot of 0:24:10.960 --> 0:24:16.080 this is driven by guessing more tough look on their 0:24:16.960 --> 0:24:22.600 foreign policy and security environment, and there are realistic considerations 0:24:22.680 --> 0:24:26.440 that if you need to import a couple hundred million 0:24:26.480 --> 0:24:30.080 tons of your coastal provinces and you can't building vatteries 0:24:30.119 --> 0:24:33.840 more than thirty days there, and you have a marine 0:24:33.880 --> 0:24:37.280 conflict in your local neighborhood and you can't get a 0:24:37.280 --> 0:24:40.280 merchant marine through, then your power grid goes down in 0:24:40.359 --> 0:24:43.600 less than a month. That's obviously something they can't really 0:24:43.640 --> 0:24:46.000 tolerate given some of their ambitions in the region. So 0:24:46.800 --> 0:24:49.600 I think there is a strong security angle too, some 0:24:49.680 --> 0:24:55.399 of their new religion around decompanization. So who loses big 0:24:55.440 --> 0:25:01.240