Speaker 1: Hi it's akshat. There is now a ceasefire agreement between US,
Speaker 1: Israel and Iran for two weeks starting Tuesday. This week's episode,
Speaker 1: which was recorded before the ceasefire announcement, looks at the
Speaker 1: long term impacts that the war will likely have on
Speaker 1: the energy system. Even if traffic of oil and gas
Speaker 1: ships from the Strait of Hormos re starts, the effect
Speaker 1: on energy markets and policies will play out over months
Speaker 1: and years. Welcome to Zero I am Akshatrati this week
Speaker 1: the big energy pivot. When the US and Israel attacked
Speaker 1: Iran on February twenty eighth, energy markets panicked, but not
Speaker 1: a lot. There was an expectation that, even though Iran
Speaker 1: was attacking ships in the Persian Gulf and had effectively
Speaker 1: stopped traffic in the Strait of horm Moves, that things
Speaker 1: will calm down and the ships carrying twenty percent of
Speaker 1: the world's oil and gas will be back on the job.
Speaker 1: Thousands of people have been killed and dozens of ships
Speaker 1: have been attacked. When I wrote Climate Capitalism, which documented
Speaker 1: the solutions the world has deployed at scale two cut emissions,
Speaker 1: the stories typically had two major pivot points the oil
Speaker 1: crises of the nineteen seventies and the Paris Agreement of
Speaker 1: twenty fifteen. If a book about climate solutions is written
Speaker 1: in twenty fifty, I think there will be a third
Speaker 1: pivot point, the energy crises of the twenty twenties. So
Speaker 1: today I want to look at the kinds of long
Speaker 1: term changes that happen from energy shocks. The nineteen seventy
Speaker 1: three and nineteen seventy nine oil crises happened in short succession.
Speaker 1: It mostly affected rich countries that were prodigious consumers of
Speaker 1: imported oil from the Middle East. Those countries shifted their
Speaker 1: consumption of oil in power plants to natural gas and
Speaker 1: nuclear Major oil companies launched solar businesses and invested in
Speaker 1: energy research, which led to the invention of the lithium
Speaker 1: ion battery, and the International Energy Agency was born, creating
Speaker 1: the Strategic Petroleum Reserve to try and avoid such price shocks.
Speaker 1: There were also a slew of energy efficiency measures that
Speaker 1: were taken, including the Americans buying more efficient Japanese cars.
Speaker 1: The twenty twenty two energy shock hit Europe the most,
Speaker 1: but many gas importing countries also recoiled at the sky
Speaker 1: high prices. Of natural gas. The current shock is much bigger.
Speaker 1: It's both oil and gas, and it is bigger for
Speaker 1: countries in Asia and Oceania particularly. That means we are
Speaker 1: no doubt going to see long term changes, says Bloomberg
Speaker 1: opinion columnist David Fickling. I look forward to every column
Speaker 1: he writes, and right now, particularly his view on how
Speaker 1: the Asian energy market is going to evolve, is very useful.
Speaker 1: I hope you enjoyed this broad ranging conversation, David, welcome
Speaker 1: back to zero.
Speaker 2: Hey, thank you.
Speaker 1: So let's start in your home country to understand the
Speaker 1: myriad ways in which the closure of the Strait of
Speaker 1: Hormuz is having an impact on the energy world. Australia
Speaker 1: is one of the world's largest fossil fuel producers, so
Speaker 1: you would kind of hope maybe that Australia actually gets
Speaker 1: away more lightly in this energy shock than other countries.
Speaker 1: But Australia doesn't have much of its own oil and
Speaker 1: so it really relies on imports. And you wrote a
Speaker 1: column about the country's diesel imports and some of the
Speaker 1: numbers in there were really shocking that for a country
Speaker 1: that is less than thirty million people, Australia is one
Speaker 1: of the biggest world's biggest importers of diesel. It consumes
Speaker 1: more diesel per capita than any other country in the world,
Speaker 1: eighty percent more diesel than US per capita, which really
Speaker 1: does consume a lot of oil, and eight times as
Speaker 1: much as China. So why did Australia get hooked on diesel?
Speaker 2: It's fascinating. I was actually taking a long road trip.
Speaker 2: I live in Sydney and I was taking a road
Speaker 2: trip up to Brisbane, which, funny enough, was like my
Speaker 2: first long ev car trip. It's about nine hundred kilometers
Speaker 2: since nine hour drive a lot of the time. The
Speaker 2: only other vehicles on the road with me are just
Speaker 2: these enormous Technically we don't call them road trains. We
Speaker 2: call them b doubles. In Australia, it's a big truck
Speaker 2: with two trailers behind it. Further out in Australia there
Speaker 2: can be with three trailers behind them, or even four
Speaker 2: trailers behind them. But these are immense diesel powered monsters,
Speaker 2: as big as you'll see so of anywhere else. And
Speaker 2: there's just a constant stream of them going up and
Speaker 2: down the coast and going on all the big intercity
Speaker 2: routes and that's just a small part of the pitch
Speaker 2: that you have in Australia, and I think part of
Speaker 2: it is really because of geography and the structure of
Speaker 2: the economy. In terms of geography, most journeys between major
Speaker 2: cities in Australia are the best part of a thousand
Speaker 2: kilometer journey, So our rail system is quite underdeveloped and
Speaker 2: the distances are not very suitable for freight rail, so
Speaker 2: a lot of that gets done with diesel. Our economy
Speaker 2: is very dependent on mining and agriculture, and mining machineries
Speaker 2: are powered by diesel, and agriculture, you know, farming machinery
Speaker 2: is generally powered by diesel. So all of those countries
Speaker 2: to the fact that, as I say, you know, seven
Speaker 2: point seven barrels of diesel per person per year get
Speaker 2: used in Australia and it's sort of far more than
Speaker 2: any other country. Having said that, I think there's a
Speaker 2: crucial factor that you need to add to that, which
Speaker 2: is that we also subsidize diesel very heavily. It's one
Speaker 2: of the biggest spending programs that the government has. It's
Speaker 2: treated as essential to the economy because this is treated
Speaker 2: as a business input. Running a mine. One of your
Speaker 2: business inputs is diesel. So this, you know, you get
Speaker 2: a rebate on what you spend, but the scale of
Speaker 2: it and the distortion of it is what makes it
Speaker 2: really striking. We spend more on the diesel rebate than
Speaker 2: we spend on on the army, on the air force.
Speaker 2: We spend almost as much on the diesel rebate as
Speaker 2: we spend on public education. That you really get the
Speaker 2: sense of the importance of that when you start talking
Speaker 2: to people who are using a lot of diesel and
Speaker 2: on paper, would like to reduce their use of these diesel.
Speaker 2: All the mining companies they're obviously shying away from this now,
Speaker 2: but a few years ago they were, you know, very
Speaker 2: seriously looking into decarbonization, and they were talking a lot
Speaker 2: about decarbonization, but lots of fairly low hanging fruit that
Speaker 2: exists elsewhere just doesn't really happen very much in Australia.
Speaker 2: There's a lot of sort of talk about tentatively having
Speaker 2: electric mining trucks and things like this, but they essentially
Speaker 2: had some studies of this and most of them are
Speaker 2: not doing very much with this. You go to Chile,
Speaker 2: one of the biggest copper mines in the world to
Speaker 2: Coloquassi has overheadlines a little bit like tram lines for
Speaker 2: haulinger or out of the pit, and that's the standard
Speaker 2: way of doing it. If you go to Brazil, S
Speaker 2: eleven d, part of the biggest iron or mine in
Speaker 2: the world, has a huge piece of electric mining equipment
Speaker 2: that mines and prices and crushes the ore inside the mine.
Speaker 2: And of course, actually, if you're a sort of nerd
Speaker 2: about electric vehicles, of course the biggest electric vehicles ever
Speaker 2: built are actually in Germany. They're not a very net
Speaker 2: zero activity there in some of these enormous lig night
Speaker 2: mines in Germany, and they're all fully powered by electricity.
Speaker 2: So electric mining equipment is common elsewhere in the world,
Speaker 2: not in Australia, and I would argue part of the
Speaker 2: reason is that we're we subsidized diesel so aggressively that
Speaker 2: it doesn't make sense for miners to switch.
Speaker 1: Those gold diggers in Germany are so enormous. I think
Speaker 1: they're like five story buildings that run on electric just
Speaker 1: essentially taking tons and tons of earth with just one
Speaker 1: single swipe. But the point of me here is also
Speaker 1: one that I think you know, we know, but we
Speaker 1: don't really absorb, which is just how much policy matters
Speaker 1: in shaping our choices, especially energy choices. Let me give
Speaker 1: you the example of UK's diesel problem. So around two
Speaker 1: thousand and two, there is a policy brought in to
Speaker 1: encourage people to buy more diesel cars than petrol cars,
Speaker 1: because at that time there was the assumption that diesel
Speaker 1: was cleaner than petrol. And so even though the total
Speaker 1: volume of cars in the UK, diesel made up only
Speaker 1: fifteen to twenty percent at that time, because of the
Speaker 1: incentives that were given, tax incentives that were given, the
Speaker 1: sale of diesel cars really rocketed and by twenty fifteen,
Speaker 1: more diesel cars were being sold than petrol cars. And
Speaker 1: of course we know diesel Gate happened. Folkslagen got caught
Speaker 1: in the scandal. We learned that actually it is not
Speaker 1: cleaner than petrol, and then diesel car sales plummeted. But
Speaker 1: heavy goods vehicles, you know, UK doesn't have that much industry,
Speaker 1: but there are a lot of trucks they continue to
Speaker 1: run diesel, and actually the consumption of diesel hasn't fallen off.
Speaker 1: And now because of the way the country has been
Speaker 1: reconfiguring its refineries, etc. The UK is heavily dependent on
Speaker 1: importing diesel. About sixty percent of the diesel comes from
Speaker 1: the CREUD in the Middle East in some form or
Speaker 1: the other, direct or indirect, and so these policy choices
Speaker 1: really have a huge impact on the fuel dependency that
Speaker 1: is created as a result. But talk me through other
Speaker 1: examples in you're part of the world where the diesel
Speaker 1: dependency is something that could really be walked away from,
Speaker 1: at least on the road vehicle level.
Speaker 2: I think the most striking thing is actually what we
Speaker 2: saw happening last year in China, and this is I
Speaker 2: think not talked about nearly enough, but there's enormous potential there.
Speaker 2: And that's the scale of the electrification of heavy trucks.
Speaker 2: I remember, going back, I think would be about eight
Speaker 2: years now, eight to nine years when Ailn Musk first
Speaker 2: unveiled the Tesla Semi, the electric semi truck. I was
Speaker 2: very skeptical about that that I wrote about it at
Speaker 2: the time, and I was very skeptical that the economics
Speaker 2: and the sort of battery weight elements of electrified truck
Speaker 2: are actually going to work very well. And I think
Speaker 2: I've been proved wrong about that.
Speaker 1: And we know that it took Tesla eight or nine
Speaker 1: years to actually have the semi on the road, because
Speaker 1: it's only last month that of the first commercial semi
Speaker 1: has been put on the road. Indeed, China of course
Speaker 1: got there sooner.
Speaker 2: Well, yeah, China has got there so much sooner that
Speaker 2: actually in December, more than I mean, the number is
Speaker 2: astonishing to me. More than half of the heavy duty
Speaker 2: trucks sold in China in December were electrified trucks. This
Speaker 2: and this is a number that just really sort of
Speaker 2: defies belief to be honest. I mean again, member writing
Speaker 2: about two years ago, there was at that point compressed
Speaker 2: natural gas was actually seen as the sort of the
Speaker 2: thing that would take over large, large scale trucking. I
Speaker 2: was saying, well, that's actually going to damage diesel demand
Speaker 2: in Chinese trucks. But then batteries have really come from
Speaker 2: nowhere and saw this huge search towards the end of
Speaker 2: last year. And the thing that you have to bear
Speaker 2: in mind about a lot of this trucking is a
Speaker 2: lot of the companies that are producing these electric trucks,
Speaker 2: companies like Sanny Heavy and XCMG. They made a lot
Speaker 2: of money during China's construction boom, essentially, their construction machinery
Speaker 2: companies and trucks are a sort of sideline. And of
Speaker 2: course Chinese construction boom has comprehensively ground to a halt.
Speaker 2: The amount of new floor space built in January and
Speaker 2: February this year, we've only got the sort of first
Speaker 2: two months of the year, but it's the lowest since
Speaker 2: two thousand and two, which was just a couple of
Speaker 2: months after China joined the WYE. We're talking about a
Speaker 2: completely different China now that these companies were built for
Speaker 2: that market and they need a new market, and electrified
Speaker 2: trucking could be there.
Speaker 1: But there is also diesel dependencies in developing countries where
Speaker 1: it is used for public transport. There are all these
Speaker 1: mini trucks running around in Africa that run on diesel.
Speaker 1: The Philippines, you've noted, has tried to switch to immobility,
Speaker 1: but it hasn't really worked. So what kind of policies
Speaker 1: would help developing countries to figure out how to cut
Speaker 1: their diesel dependency.
Speaker 2: With a lot of those developing countries, it's a very
Speaker 2: thorny problem that involves I mean, I think it involves
Speaker 2: a lot of the sort of subsidy structure and it
Speaker 2: involves this sort of shift that you always notice in
Speaker 2: development between sort of CAPEX and opex. Op X is
Speaker 2: something that might be more expensive for you in the
Speaker 2: long term, but it's easy to do because you don't
Speaker 2: need a lot of money on hand to do it.
Speaker 2: You don't need to borrow a bunch of money, whereas
Speaker 2: capital spending you need to persuade someone to lend you
Speaker 2: some money. This is a problem that we see in
Speaker 2: the sort of low end of transport across developing world.
Speaker 2: I was channing to an expert today actually in the Philippines,
Speaker 2: where you know, if you've been to the Philippines, you'd
Speaker 2: know their sort of iconic of public transport is what's
Speaker 2: called jeepney, which started after World War Two with military
Speaker 2: jeeps getting converted into little buses with people on the
Speaker 2: flatbed truck. But they're all diesel powered. They or most
Speaker 2: of them are diesel powered. They tend to be very
Speaker 2: very old vehicles with sort of terrible pollution. Passengers don't
Speaker 2: really like going in them anymore. People would like to
Speaker 2: be in something more modern, and the Philippines really for
Speaker 2: the last ten years has been trying to sort out
Speaker 2: the jepney sector. To be honest, it's not gone as
Speaker 2: well as you might have hoped. They've been big strikes
Speaker 2: by drivers because what sorting this out will involve is
Speaker 2: individual drivers getting turned into sort of big cooperatives, and
Speaker 2: then cooperatives borrowing a bunch of money and then they
Speaker 2: can get electric jeepneys and the drivers will get a wage,
Speaker 2: the drivers will get benefits. It'll be much more regularized
Speaker 2: as a sort of business. And people who have converted
Speaker 2: tend to be a bit happier about it. But the
Speaker 2: people who have not converted, they like they like running
Speaker 2: their own business. They like the independence context that makes
Speaker 2: sense for Australian UK. They are a bit like uber drivers.
Speaker 2: They have that sort of independence. They have the upside
Speaker 2: that you get if you have a good day of driving.
Speaker 2: The government was to switch them to more than something
Speaker 2: like a bus driver model, where you don't get any
Speaker 2: upside if there's more driving, and there's been a lot
Speaker 2: of resistance to that and it has proved difficult.
Speaker 1: One other way in which I've been thinking about this
Speaker 1: energy shock is, you know, having lived through what happened
Speaker 1: after Russia attacked Ukraine here in Europe, it feels like
Speaker 1: that kind of energy shock is now really an Asian problem.
Speaker 1: In a way, this is Asia's Ukraine moment. You know,
Speaker 1: it was mostly a gas crisis in Europe. Of course,
Speaker 1: there were other fossil fuels in world as well, because
Speaker 1: Europe imported a lot of diesel from Russia, some crude oil,
Speaker 1: but also a bunch of coal. But in Asia this
Speaker 1: is going to to be both an oil and gas crisis.
Speaker 1: Let's stick to oil, and let's look at electric cars.
Speaker 1: You know, we keep hearing that, yes, they are now
Speaker 1: lower in price, there's all these availability. Actually there's a
Speaker 1: cool factor. We also see that in sales figures some
Speaker 1: of the Asian countries are now selling more electric cars
Speaker 1: as a proportion of new cars than many of the
Speaker 1: rich economies, better than the US, better than the UK, Vietnam, Thailand, Nepal,
Speaker 1: these countries come to mind when you were thinking about
Speaker 1: the switch to evs You know, how are you thinking
Speaker 1: this particular shock will affect EV sales in Asia?
Speaker 2: I think this has been another of these emerging trends
Speaker 2: that again, it was sort of emerging last year, and
Speaker 2: then this energy shock has come on top of it,
Speaker 2: and I think it could prove very dramatic. The numbers
Speaker 2: that we've seen in the last six just in the
Speaker 2: last six months for some of these Asia markets are extraordinary.
Speaker 2: And the one little caveat I would add to them
Speaker 2: is that these markets tend to be quite driven by
Speaker 2: the fact that there have been some quite high tariffs
Speaker 2: on a lot of these vehicles, and they've the tariffs
Speaker 2: were sort of knocked off and a lot of those
Speaker 2: task reductions were coming to an end at the end
Speaker 2: of last year, so a lot of people were rushing
Speaker 2: to buy cars in time for that. So that's probably
Speaker 2: distorted things a lot, but it's shown what you can
Speaker 2: actually achieve if you if you decide not to tax
Speaker 2: green energy basically, and then yeah, the numbers are extraordinary,
Speaker 2: Like fifty percent of cars sold in Thailand and Singapore
Speaker 2: in the last few months have been battery only models,
Speaker 2: not just plugins, but battery only without an engine at all.
Speaker 2: About third in China and Indonesia, South Korea and Vietnam
Speaker 2: far ahead of numbers. I think the UK is about
Speaker 2: twenty percent, the US is about eight percent, Japans about
Speaker 2: three percent. The one that's actually notably that you know,
Speaker 2: lagging of the big economies is India is also similar.
Speaker 2: Japan is about three percent injuries on a very low level,
Speaker 2: but across South East Asia really there's been this really
Speaker 2: dramatic change. Thailand, ev cars are at price parity, which
Speaker 2: is still not quite the case in a lot of
Speaker 2: places that are not as exposed. I think there's not
Speaker 2: the case in the UK. Here in Australia it is
Speaker 2: the case. Evs are pretty much at price parity, and
Speaker 2: certainly in China evs are cheaper. The thing that always
Speaker 2: holds people back is the sticker price. It's actually not
Speaker 2: the price of fuel, but obviously the price of fuel
Speaker 2: is suddenly very much on everyone's mind at the moment,
Speaker 2: So I think that really does you know, that gets
Speaker 2: an opportunity for a much broader shift.
Speaker 1: The tariff policy, you can argue, makes sense for some countries,
Speaker 1: like in India, it probably makes sense because it has
Speaker 1: its own domestic car industry that it wouldn't very much
Speaker 1: like to protect that has a number of people that
Speaker 1: are employed. For most countries there isn't really an auto
Speaker 1: industry to protect. So what is the reason for those
Speaker 1: tartifs to exist and what could be done to encourage
Speaker 1: countries to actually drop them.
Speaker 2: I mean a lot of these tariffs, to be clear,
Speaker 2: are in the countries that are protecting their car industries.
Speaker 2: But as you say, I mean a crucial factor about
Speaker 2: a lot of these emerging markets where you know, to
Speaker 2: be clear, people's models about the future of oil demand
Speaker 2: will depend on the idea that these countries are going
Speaker 2: to buy petrol cars, not electric cars. If you don't
Speaker 2: have an incumbent car industry to protect, you just want
Speaker 2: to buy whatever the cheapest car is. And also, if
Speaker 2: I'm a government, I want the car that it does
Speaker 2: the best thing to my balance of payments. Because of course,
Speaker 2: the other much bigger thing to consider it is that
Speaker 2: the amount that you spend on imported cars in any
Speaker 2: one year is just dwarfed by the amount that you
Speaker 2: spend on imported petroleum. If you're not an oil producer,
Speaker 2: then the amounts that you're spending on oil to fuel
Speaker 2: all those cars is many orders of magnitude in most
Speaker 2: cases greater than the amount that you're spending on cars.
Speaker 2: So it makes no sense if you don't have your
Speaker 2: own car industry to put a fifty percent tariff on
Speaker 2: cars when generally you don't have a ch on the petrol.
Speaker 2: You're just blowing out your own balance of payments.
Speaker 1: Basically, there's also the psychology of what happens during an
Speaker 1: energy shock that sort of remains with people for much
Speaker 1: longer than what the numbers might always be able to capture.
Speaker 1: You know, talk to anybody in America who's lived through
Speaker 1: the nineteen seventies, and they'll talk about rationing of fuel
Speaker 1: and there were all these long cues, and you know,
Speaker 1: many vow this will never happen again. That's why you've
Speaker 1: got the Strategic Petroleum Reserve, et cetera. Well, we are
Speaker 1: already starting to see those kinds of cues across Asia.
Speaker 2: Now, I was just going to say, I mean, I
Speaker 2: grew up in Britain and I remember my parents telling
Speaker 2: these stories of the four day week in the nineteen seventies,
Speaker 2: which was when you know, this was fuel rationing at
Speaker 2: the time of the seventy three Old crisis. And today
Speaker 2: I'm talking to someone in the Philippines and she's telling
Speaker 2: me about how everyone's working a four day week. This
Speaker 2: is something that happened before I was born, and is
Speaker 2: a phrase that I remember from my childhood more than
Speaker 2: fifty years ago. And this is happening right now now
Speaker 2: in Asia. I don't think you ever saw the recent film.
Speaker 2: It was a great film, Licorice Pizza. It came out
Speaker 2: about five years ago. It's sort of set in Los
Speaker 2: Angeles in the nineteen seventies, and there's this wonderful cameo
Speaker 2: scene of people having basically having punch ups in nineteen
Speaker 2: seventy three at gas stations in Los Angeles. And I
Speaker 2: was seeing these videos recently of punch ups in India,
Speaker 2: retail sales of LPG for cooking gas. It's exactly the
Speaker 2: same thing. And this is, you know, memories of a
Speaker 2: generation ago. You know, the new memories are being made
Speaker 2: right now.
Speaker 1: After the break, more of my conversation with David Fickling.
Speaker 1: And while I have you, please take a moment to
Speaker 1: read or review Zero on Apple Podcasts, Spotify, or YouTube.
Speaker 1: It helps new listeners find the show. Recently, a reviewer wrote,
Speaker 1: in a world with so much bad news, love that
Speaker 1: this podcast has some episodes of things that are going
Speaker 1: in a positive direction. So let's come to natural gas
Speaker 1: because this crisis is both an oil crisis and a
Speaker 1: gas crisis. And in the climate conversation, the industry keeps
Speaker 1: promising that look, natural gas, which is a bit cleaner
Speaker 1: than coal, will be the bridge fuel between coal and renewables. Well,
Speaker 1: after the Ukraine crisis, that promise of a bridge fuel
Speaker 1: was really under question. And then I saw your piece
Speaker 1: in March where you talked about how Asian industries are
Speaker 1: switching away from gas and this was happening even before
Speaker 1: the war started, how exactly.
Speaker 2: I mean, the most striking thing I think has been
Speaker 2: has been what's happened in Pakistan with the solar boom there.
Speaker 2: But the effect that's had on gas has been really
Speaker 2: striking because Pakistan is it's a very similar pictured to
Speaker 2: a lot of countries. Egypt is a similar story. In
Speaker 2: Bangladesh is a similar story, Thailand, Malaysia, Indonesia, They're all
Speaker 2: similar stories. They used to produce a lot of gas,
Speaker 2: but their own gas fields are declining, their energy demands
Speaker 2: are increasing. They have outgrown their own declining gas industry
Speaker 2: and they're needing to import LNG. And in Pakistan, we
Speaker 2: saw at the time of the Ukraine War, Europe basically
Speaker 2: went out and bought all of the leg that would
Speaker 2: otherwise have headed towards Pakistan. Pakistan had a big energy
Speaker 2: crunch As a result, they'd also spent far too much
Speaker 2: on a bunch of Chinese finance coal plants, and the
Speaker 2: price of electricity went through the roof. People were spending
Speaker 2: more of their income on energy bills than they were
Speaker 2: on their rent. And so as we know, we saw
Speaker 2: these sort of huge growth of solar and a thing
Speaker 2: that got talked about a lot is the way a
Speaker 2: lot of households just put so on their roof. But
Speaker 2: I think the thing that's really striking is what corporates
Speaker 2: have done. So I was speaking to this cement manufacturer Cement.
Speaker 2: They started putting in solar panels in twenty nineteen just
Speaker 2: because they were getting a lot of sort of power
Speaker 2: cuts and things. They now have sixty nine megawatts of
Speaker 2: solar panels across their sites, which I mean to put
Speaker 2: that in context. Tesla doesn't tell us exactly how many
Speaker 2: megawats they put on their factories. I mean, Elon Musk
Speaker 2: originally said that they were going to be fully solar powered.
Speaker 2: The best I can see, and this is literally from
Speaker 2: counting looking at that like photies and counting solar cells,
Speaker 2: they've probably got about thirty megawatts of solar panels. So
Speaker 2: this cement company in Pakistan that most people have not
Speaker 2: heard of, has at least twice as much solar panels
Speaker 2: as solar Power paring its operations as Tesla, which is
Speaker 2: the you know, the obviously the biggest clean energy stock
Speaker 2: but in some ways in the world, and they're not
Speaker 2: the only ones. You can go like niche Up mills
Speaker 2: into loop. These are names that are not known outside Pakistan,
Speaker 2: but they are their big supplies to you know, Henny's
Speaker 2: and Morit, to the Gap, to ADDIDAUS, to all all
Speaker 2: the sort of high street brands. They have thirty five
Speaker 2: megawats twenty five megawats. There's an enormous amount going on
Speaker 2: because the grid electricity is so expensive and as a result,
Speaker 2: Pakistan is turning away LNG cargoes and is actually in
Speaker 2: some ways I think doing better than of course, you know,
Speaker 2: Bangladesh is the other country that is heavily associated with
Speaker 2: the garment trade. Bangladesh has some challenges Pakistan doesn't have.
Speaker 2: It's obviously much more land constrained than Pakistan, it doesn't
Speaker 2: have it's not as sunny as Pakistan, but it's really done.
Speaker 2: It's policy wise. It still has like a thirty percent
Speaker 2: tax on solar panels. It makes it quite hard to
Speaker 2: install solar, and it's in its imports of Velenji's for
Speaker 2: more or less double since the Ukraine War. So Pakistan
Speaker 2: seems to actually be riding this out pretty well because
Speaker 2: it's installed all with solar, and someone like Bangladesh is
Speaker 2: doing much worse.
Speaker 1: And it's again not just developing countries that get affected
Speaker 1: by energy prices. There is a huge dependency in South
Speaker 1: Korea and then Taiwan on gas that comes from the
Speaker 1: Street of Homus. And of course those are also the
Speaker 1: hubs for the other big industry that is being powered
Speaker 1: by investors right now, which is AI. And you wrote
Speaker 1: about that, talk us through how South Korea and Taiwan's
Speaker 1: gas problem becomes an AI problem.
Speaker 2: Yeah, well, I mean these are really interesting economies because
Speaker 2: of course both you don't think it was South Korea,
Speaker 2: but South Korea is essentially an island because the only
Speaker 2: bit connected with the Menal is North Korea. So these
Speaker 2: are both islands. Essentially, they're island grids, and so they've
Speaker 2: had difficult decisions about how to paw themselves. They're small
Speaker 2: countries as well, they don't have a lot of land
Speaker 2: but I don't think they've made it easy for themselves
Speaker 2: because a lot of their restrictions against renewables as some
Speaker 2: of the toughest in the world. I mean just actually
Speaker 2: in the last six months, Taiwan parts and laws that
Speaker 2: effectively make it impossible to build utility scale solar. South
Speaker 2: Korea until recently had similar laws. So as a result,
Speaker 2: these countries are very dependent on LNG. They're very dependent
Speaker 2: on coal as well, but LNG is you know, is
Speaker 2: a very large part of their grid sort of you know,
Speaker 2: twenty five thirty five percent of their grid. Japan is similar,
Speaker 2: but Japan was quite smart and diversifying its supply. But
Speaker 2: South Korea and Taiwan, each of them, as I say,
Speaker 2: about sort of thirty to forty percent of their grid
Speaker 2: comes from LERG and about thirty percent of their energy
Speaker 2: comes from Qatar and the UAE. South Korea is one
Speaker 2: of the countries that sort of declared, you know, sort
Speaker 2: of energy emergency. Taiwan last year closed down its last
Speaker 2: nuclear power plants, and the politics of nuclear are very,
Speaker 2: very sort of fraught issue in Taiwan. They're now possibly
Speaker 2: looking at restarting some of those nuclear power plants. They
Speaker 2: are obviously scrambling around for coal at the moment to
Speaker 2: get to get more coal, and there's been vocal support
Speaker 2: from South Korea certainly for pushing harder for renewable are
Speaker 2: the countries where all our you know, all our chips
Speaker 2: come from. The South Korea is where all the memory chips,
Speaker 2: the vast ma gjoorraphy of memory chips come from. Taiwan
Speaker 2: is where the vast majorraphy of our pricess and power
Speaker 2: comes from. Those factories will probably be prioritized, but in
Speaker 2: a prolonged energy crunch, we are going to see problems
Speaker 2: that raple through that they economy, through the ai economy,
Speaker 2: through everything that uses chips.
Speaker 1: And one other thing I want to touch on from
Speaker 1: the street of farmers is fertilizers. So because there's so
Speaker 1: much gas that comes from the Middle East, they created
Speaker 1: as you would fertilizer production, because natural gas is a
Speaker 1: key input into essentially stripping out the carbon from methane
Speaker 1: from H four you get to hydrogen, and then you
Speaker 1: combine that hydrogen nitrogen making ammonia fertilizer, which is used
Speaker 1: around the world and often just given the politics of farming,
Speaker 1: it is heavily subsidized. There's usually reserves that countries have,
Speaker 1: but natural gas is acheme. But whether it's coming through
Speaker 1: the Strait of Foremost to a fertilizer plant in India
Speaker 1: or through being turned into fertilizer and then being exported
Speaker 1: to Asia, how are you seeing the fertilizer problem playing out?
Speaker 2: I think, like with India, it's it's particularly crucial obviously,
Speaker 2: like the season we're coming into the sort of monsoon
Speaker 2: crop planting season, so that's you know, that's when a
Speaker 2: vast amount of the fertilizer gets consumed. It's very dependent
Speaker 2: on on Gulf natural gas. And we're actually seeing in
Speaker 2: some of the decisions being made by the Indian government
Speaker 2: there sort of prioritizing the you know, the fertilizer industry
Speaker 2: because that's you know, that scene is so crucial just
Speaker 2: you know, for for rural livelihoods. The other aspect of
Speaker 2: this that I don't think has talked about as much though,
Speaker 2: is the role of China in this. You know, China
Speaker 2: has not thought of as a big fertilizer exporter, but
Speaker 2: actually for a lot of the world, it's it's much
Speaker 2: more important than the Middle East, and China has is
Speaker 2: in terms of nitrogen production is by far the biggest player.
Speaker 2: Now a lot of China is not used all of
Speaker 2: it's nitrogen has fertilizer, a lot of it. You can
Speaker 2: use it for making laminated wood, you can use it
Speaker 2: for sort of pollution control equipment. China uses a lot
Speaker 2: of this nittroen production, ammonia urea production for stuff that's
Speaker 2: not fertilizer. And of course we've seen in terms of
Speaker 2: you know, China's long standing attitude to resources and also
Speaker 2: how it's how it's dealing with the current crisis. It
Speaker 2: doesn't want to extend all its stockpiles to the world.
Speaker 2: It's not it's not a country that is releasing its
Speaker 2: petroleum stockpiles. So and it's not a country that you know,
Speaker 2: they've tightened exports of ura and ammonia rather than increasing
Speaker 2: exports of urine ammonia. But if you if you look
Speaker 2: across a lot of East Asia and actually across the world,
Speaker 2: place like Indonesia is I think about seventy five percent
Speaker 2: or eighty percent of its fertilizer comes from comes from China, Vietnam, Malaysia, Pakistan.
Speaker 2: There they're all sort of you know, you know, thirty
Speaker 2: to forty to fifty percent. It's it's a big player
Speaker 2: in this market. And if you think of the sort
Speaker 2: of long term dynamic, the risk is if a lot
Speaker 2: of fertilizer production from the Gulf becomes more risky and
Speaker 2: less certain. Obviously, this is something where China has a
Speaker 2: lot of export potential, and we've seen with rare earths
Speaker 2: China's abilities to sort of weaponize a lot of that stuff.
Speaker 2: So I would worry in the long term that this
Speaker 2: is another critical mineral.
Speaker 1: Essentially, Yeah, and I think this is something that again
Speaker 1: is worth noticing just because China has built all this
Speaker 1: clean tech capacity and might be the country that provides
Speaker 1: all the climate solutions at least to a majority of
Speaker 1: the countries in the world that cannot produce it. It
Speaker 1: is not doing it for climate concerns or even really
Speaker 1: for the economic growth of those countries. These are industries
Speaker 1: born out of energy security as the priority for China.
Speaker 1: They built a whole cols to chemicals industry that is
Speaker 1: very underutilized to try and make liquid fuels just in
Speaker 1: case of exactly this moment, whether the strait of hormones
Speaker 1: is brought to a halt, the fertilizer capacity is also one.
Speaker 1: As we see it's stopped the export of diesel and
Speaker 1: gasoline from its shores right now. So it's really looking
Speaker 1: inwards as really people should know China would do in
Speaker 1: these circumstances. But let me come to a bigger, broader view.
Speaker 1: I mean, this crisis. Who knows how long this lasts
Speaker 1: and how it all hicks out. But if you're a
Speaker 1: betting man, what do you think happens to the energy
Speaker 1: system in five years and ten years as a result
Speaker 1: of this war?
Speaker 2: I mean, I think the best thing to think about
Speaker 2: is if you just look at the way prices have
Speaker 2: changed since Ukraine of a lot of the sort of
Speaker 2: key components of an energy system. Because obviously, when anything
Speaker 2: like this happens, you can sit back and decide, like,
Speaker 2: you know, how do these pieces fit together, and how
Speaker 2: do we rework the system in future? And one thing
Speaker 2: I think this really underappreciated is how much these prices
Speaker 2: have changed, you know, the price I'm just going by
Speaker 2: China prices here because they're sort of the you know,
Speaker 2: the sort of global market. The China price of solar
Speaker 2: panels is down thirty fifty percent since the Ukraine War,
Speaker 2: the China price of wind turbines is down thirty fifty
Speaker 2: percent since the Ukraine War. The China price of lithi
Speaker 2: iron batteries is down the same amount. Electric vehicles is
Speaker 2: down the same matt The price of gas turbines has
Speaker 2: doubled or possibly tripled. So if you think that the
Speaker 2: shift towards renewables accelerated in the immediate aftermath of the
Speaker 2: of the Ukraine War, which I think it has, if
Speaker 2: you look at the you know, the figure I love
Speaker 2: to look at is that like five years ago, I
Speaker 2: think it was the IA when they put out the
Speaker 2: first net zero report, they said, well, to achieve net zero,
Speaker 2: you need to be installing about six hundred gigawatts of
Speaker 2: solar a year. And this was pipe dream stuff in
Speaker 2: twenty twenty one. That's what we're installing. We may not
Speaker 2: keep installing that much. That's it's an interesting debate to
Speaker 2: see what will happen now. But we have the capacity
Speaker 2: to do that, and we did that last year. And
Speaker 2: that is that that's sort of net zero pathway, and
Speaker 2: that's before any of this stuff happened, before the uncertainty
Speaker 2: over the leg it's been treated as this bridge field
Speaker 2: before the costs of gas went up the way the
Speaker 2: way they have since. So, you know, I think certainly
Speaker 2: here in Asia, energy has been pushed as the fuel
Speaker 2: for energy security in the last few years, and it's
Speaker 2: been pushed very hard. Like if you go to Japan,
Speaker 2: which consumes a lot of energy but also sort of
Speaker 2: sees itself as a sort of ambassador for energy, they've
Speaker 2: been very much pushing developing Asia a dot more and
Speaker 2: more energy over the past few years. It provides a
Speaker 2: sort of export market for a lot of like their
Speaker 2: own you know, gas turbine equipment and that sort of stuff.
Speaker 2: These arguments are going to be looking incredibly weak at
Speaker 2: the moment because these are you know, countries are going through,
Speaker 2: as we were saying, sort of once in a generation,
Speaker 2: sort of lifetime social crises because of these, and they're
Speaker 2: going to start thinking a bit more seriously about what
Speaker 2: energy security really means. As a lot of people have
Speaker 2: pointed out, if your energy supply runs at then you
Speaker 2: have you know, whatever, it's thirty days you've got left
Speaker 2: in stocks. If China stops selling you solar panels for
Speaker 2: whatever reason, you still have thirty years of solar power
Speaker 2: until you need to buy a new one, so it's
Speaker 2: a materially different situation.
Speaker 1: Well, David, this was a lot of fun. I look
Speaker 1: forwd to every column you're write, but I think, given
Speaker 1: this energy crisis is really hitting Asia the worst, if
Speaker 1: there were more reasons people needed to read your columns,
Speaker 1: this is the moment. So thanks again for joining the show.
Speaker 2: Thank you, it's great to talk.
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