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Speaker 2: I'm looking at Tesla.
Speaker 3: That stock has been in the news every day every
Speaker 3: day this year. The stock is really underperforming, down thirty
Speaker 3: seven percent, so it seems like an odd time for Tesla.
Speaker 2: We'll ask shareholders to.
Speaker 3: Vote again on the same fifty six billion dollar compensation
Speaker 3: package for chief executive officer Elon Musk that was avoided
Speaker 3: by a Delaware court early this year. Craig Trudell joins us.
Speaker 3: He covers all that Auto stuff for Bloomberg. It's just
Speaker 3: amazing here, Craig, it seems like an odd time to
Speaker 3: be asking for this monster's payday here.
Speaker 2: What's going on at Tesla? The board and Elon?
Speaker 4: Yeah, it's it's not a huge shock in that we
Speaker 4: we sort of heard the complaining about this ruling, uh
Speaker 4: as as soon as it hit, you know, we saw
Speaker 4: it play out on on X as you would expect.
Speaker 4: But it is I guess I was surprised to see that.
Speaker 4: You know, their their move here was to take the
Speaker 4: same plan and just put it back to the shareholders.
Speaker 4: It's a it's a fairly simple one, but it does
Speaker 4: seem like a pretty bold one, just given the very
Speaker 4: thorough uh you know case that was laid out by
Speaker 4: the Delaware Chance record, uh you know against the company
Speaker 4: in particular, particularly the board. I mean, the language that
Speaker 4: Judge Kathleen McCormick used was was pretty uh, pretty notable.
Speaker 4: She described the directors as and I quote, supine servants
Speaker 4: of an overwinning master. I mean, she just had a
Speaker 4: lot of mil zingers about this, about this board. And
Speaker 4: for them to you know, respond to that by you know,
Speaker 4: doing it over again is really something.
Speaker 5: Just to be clear, we're talking fifty six billion, like
Speaker 5: with a bee with.
Speaker 4: A bee, yeah, I mean, how do we get to
Speaker 4: that if you want to, if you want to defend
Speaker 4: the board here, of course they did. We constantly referred
Speaker 4: to this pay package as a moonshot award, right, and
Speaker 4: and it absolutely was. It was setting targets that nobody
Speaker 4: thought was was at all possible that the company wouldn't
Speaker 4: be able to pull off. It was it was based
Speaker 4: on performance of the company and its earnings and market value.
Speaker 4: And I think there was a combination of Musk absolutely
Speaker 4: pulling you know, miracles in terms of the earnings performance
Speaker 4: of this company that no one saw company comping coming.
Speaker 4: But it was also the case that you know, this
Speaker 4: company was the sort of poster boy for the zerp
Speaker 4: Era and you know, a mean stock, right, and we
Speaker 4: don't get there without you know, the enthusiasm that Musk
Speaker 4: manage to pull off. In addition to turning this company
Speaker 4: into a car company to really you know, take seriously.
Speaker 3: All right, So they're also looking to reincorporate I guess
Speaker 3: in a friendlier jurisdiction, maybe get out of Delaware and
Speaker 3: get to the great state of Texas.
Speaker 2: Is that all tied together with this?
Speaker 4: They interestingly do lay out in the proxy that they
Speaker 4: wanted to sort of put this to shareholders together. They
Speaker 4: didn't want to be perceived as basically running from Delaware
Speaker 4: in response to the ruling and going to Texas where
Speaker 4: they would be treated differently. They wanted to have shareholders,
Speaker 4: you know, get another opportunity to say yay or nay
Speaker 4: to this and give them an opportunity to weigh in
Speaker 4: on whether they should change the incorporation. I think it
Speaker 4: still remains to be seeing you know, just exactly how
Speaker 4: this can can work out, uh legally speaking, this idea
Speaker 4: that a court would make this ruling and and the
Speaker 4: company would, you know, basically just have shareholders perform a
Speaker 4: do over after the judge you know, said that they,
Speaker 4: you know, did not look out for the best interests
Speaker 4: of shareholders.
Speaker 1: Uh.
Speaker 4: You know, I guess if if you're Tesla, the argument
Speaker 4: you make here is that, well, you know, you just
Speaker 4: exposed this idea that that we apparently did enough and
Speaker 4: broke it down and uh, you know, pretty damning detail.
Speaker 4: The investors know. Now the shareholders can vote again, and
Speaker 4: if they vote in favor, then uh, you know, what's
Speaker 4: your what's your problem is essentially.
Speaker 5: Yeah, hither too. I want to transition to Continental, which
Speaker 5: is an autoparts company really that stuck us down over
Speaker 5: five percent over in Germany. And I say that because
Speaker 5: their results were worse than feared, and there's all points
Speaker 5: to the current auto market isn't doing too great. And
Speaker 5: then they also ev market isn't doing too great and
Speaker 5: for Continental, that squeezes on both sides.
Speaker 4: Yeah, I think they've been a company that really has
Speaker 4: struggled with this transition, you know, really like very very
Speaker 4: much been in a position of being caught flat footed
Speaker 4: in terms of being ready for electrification, and has made
Speaker 4: a lot of a lot of moves to try and
Speaker 4: address that that haven't gone particularly smoothly. And so, in
Speaker 4: addition to this idea that you know, the auto market
Speaker 4: is showing some signs of strain under the pressure of
Speaker 4: higher interest rates making it more difficult for consumers to
Speaker 4: be able to afford big, big purchases like a new car,
Speaker 4: it's also very much a case specific to this company
Speaker 4: where they're really trying to remake themselves and struggling to
Speaker 4: do so.
Speaker 2: Craig, We're where are we now?
Speaker 3: Just in kind of the markets perception of overall and
Speaker 3: demand for evs. I mean, is this just a bump
Speaker 3: in the road that an industry that's undergoing a long
Speaker 3: term transition should we should expect to see, or there's
Speaker 3: something more fundamental going on out there.
Speaker 4: Yeah, it's a good question, because I think even folks
Speaker 4: who covered this just religiously are our colleagues at Bloomberg
Speaker 4: New Energy Financed. I think they were initially reluctant to
Speaker 4: sort of come around to this idea of an ev
Speaker 4: slowdown and sort of you know, had a view that
Speaker 4: you know, people were more more pessimistic than was really warranted.
Speaker 4: And this was as you know, a lot of headlines
Speaker 4: were coming out late last year early this year, I
Speaker 4: think when when Tesla reported their first quarter deliveries and
Speaker 4: it came in so far short of of everyone's expectations.
Speaker 4: You know, the consensus was coming down and down going
Speaker 4: into that report, and yet even then the company came up,
Speaker 4: you know, tens of thousands of vehicles short of where
Speaker 4: people were seeing them, you know, report. I think even
Speaker 4: BNF now is very much concerned about, you know, the
Speaker 4: magnitude of deceleration that we've seen and the challenges that
Speaker 4: we're seeing, particularly in a market like the US, where
Speaker 4: you would think that at this point, you know, this
Speaker 4: many years into this transition, and with all the investments
Speaker 4: that companies are making, that surely we would start to
Speaker 4: see you know, more momentum or at least a healthier
Speaker 4: continuation of momentum. Instead, we've seen a real slow down,
Speaker 4: and I think you know, even even Biden's Inflation Reduction
Speaker 4: Act does a lot of the right things to try
Speaker 4: and you know, uh, move this this part of the
Speaker 4: industry forward, and yet executions has been a challenge.
Speaker 5: Hey, Craig, thanks a lot, Craig Trudell Bloomberg a Global
Speaker 5: Autos editor. Super appreciated and we are at a Bloomberg
Speaker 5: Ye ANYF conference right now. But I think, but that
Speaker 5: does point to the fact that we don't actually know
Speaker 5: how this will play out, and things are really lumpy,
Speaker 5: and you can be in a structural shift in different
Speaker 5: industries and still be a cyclical industry like auto auto
Speaker 5: industry is cyclical, right, so but you can still be
Speaker 5: in a structural shift. So all of these things can
Speaker 5: be true. It's just a matter of then how you
Speaker 5: price it. If you're an investor, that gets complicated.
Speaker 2: It does get complicated.
Speaker 3: And I just wonder to what extent if any, this
Speaker 3: ev transition, at least in the United States, has become
Speaker 3: politicized blue red totally, you know, And if that's in
Speaker 3: fact the case, then that really I think is a
Speaker 3: significant roadblock for the mass adoption, the mass volume that
Speaker 3: the economics demand to get the unit profitability there, because
Speaker 3: it's not you barely make a profit. It seventy or
Speaker 3: eighty thousand a car, and its Kevin Tyne and a
Speaker 3: Bloomberg Intelligence points out.
Speaker 2: How you're going to make a profit at thirty or
Speaker 2: forty thousand dollars.
Speaker 5: Yea, exactly, exactly.
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Speaker 5: We are at Bloomberg an ef A Summit, Day two. So, Paul,
Speaker 5: one of my bigger takeaways from yesterday when we were
Speaker 5: here is that you have a lot of money being
Speaker 5: spent on stuff, and that's the good part. The other
Speaker 5: part is there's still a lot of uncertainty in terms
Speaker 5: of are we spending on the right stuff? Is the
Speaker 5: demand really there? Permitting is an issue, connection to lays
Speaker 5: trade issues. There's lots of stuff that we're trying to
Speaker 5: unpack here. One way to look at it is the
Speaker 5: importance of big energy in this space. So you need
Speaker 5: exon Chevron Shell total BP. You need these guys to
Speaker 5: put money in the right spot to really help turn
Speaker 5: things around. So one of those individuals we're going to
Speaker 5: talk to you right now is Jeff Gustavin. Nope, Gustafson,
Speaker 5: I can't do it. I asked him to say, gust Ofsen.
Speaker 5: It's V and the s Jeff, this is my problem.
Speaker 5: He's president of Chevron New Energies. He's been at Chevron
Speaker 5: for what was it twenty five years?
Speaker 7: You said twenty five years.
Speaker 5: We've belt lots of different positions. What brought you to
Speaker 5: the new energy part of Chevron? What's that like for you?
Speaker 7: Yeah, well, first of all, great to be here, thanks
Speaker 7: for having me. We launched these new businesses about three
Speaker 7: years ago. This is actually our third full year and
Speaker 7: it's a suite of businesses that support our lower carbon
Speaker 7: strategy as a company. There's two pieces to that. One
Speaker 7: is lowering the carbon intensity of our traditional oil.
Speaker 8: And gas business.
Speaker 7: The other part is growing new low carbon businesses and
Speaker 7: solutions to scale, and that's what Chevron New Energies is.
Speaker 7: We're focused on renewable fuels, carbon capture, utilization and storage,
Speaker 7: hydrogen carbon offsets, emerging technologies, and everything in between. This
Speaker 7: is something that's always been a passion of mine, the
Speaker 7: energy transition and low carbon energy. I love oil and gas.
Speaker 8: I grew up in.
Speaker 7: Oil and gas, but now shifting seeing a company like Chevron,
Speaker 7: with the capabilities we bring to this space, growing these
Speaker 7: new businesses. I couldn't be more excited about this role.
Speaker 3: And I always looked to the educational background of our
Speaker 3: guest because I think that's kind of fun.
Speaker 2: University of Colorado.
Speaker 3: He's a buffalo, that's big, and he's also got his
Speaker 3: NBA from the Red Macombs School of Business at the
Speaker 3: University of Texas. Red Macombs is a co founder of
Speaker 3: Clear Channel, little radio company. I took public back in
Speaker 3: the day, so I know read pretty well. And Larry
Speaker 3: Mays like this, likes to say, Hey, I got my
Speaker 3: name on the NBA program in Texas a and in
Speaker 3: for ten million, Red you spent fifteen million.
Speaker 2: I got a better deal.
Speaker 5: You got a better deal.
Speaker 2: Yeah, Jeff, what is I don't know.
Speaker 3: If you fast forward five years from now, ten years
Speaker 3: from now, how do you guys think about sustainable energy
Speaker 3: as a part of the overall portfolio of Chevron. What
Speaker 3: percentage do you think that might look like?
Speaker 7: Yeah?
Speaker 8: Good question.
Speaker 7: And when we launched, we announced that we were allocating
Speaker 7: or guiding to spending ten billion dollars over an eight
Speaker 7: year period, right, this would be twenty twenty one to
Speaker 7: twenty eight And that's just the starting point. So these
Speaker 7: are already a significant part of our capital allocation strategy.
Speaker 7: We have a very large oil and gas business, which
Speaker 7: requires a lot of capital to maintain and grow that
Speaker 7: business to meet global demand. But these these businesses are
Speaker 7: We're spending anywhere from one and a half to two
Speaker 7: billion a year to support these new businesses. And my
Speaker 7: job and our job as a new segment is to
Speaker 7: find the right opportunities that are investable so we can
Speaker 7: grow this business even further.
Speaker 5: So Paul asked this question and break and I actually
Speaker 5: think it's a good one, so I'm gonna ask it.
Speaker 5: You're based in Houston, and his question was, are guys
Speaker 5: like you the new energy people?
Speaker 8: Are?
Speaker 5: Are you guys welcome in Houston?
Speaker 3: Like the oil bar, like the oilman's bar, taking.
Speaker 5: Like the cowboy guys who stick like a pipe in
Speaker 5: the ground and get oil. He's thinking those people, are
Speaker 5: you welcome in those bars?
Speaker 8: Yes?
Speaker 7: And I love being referred to as a new energy person,
Speaker 7: but no, I mean this is I think this. Look,
Speaker 7: there's three things that we're that we really need to
Speaker 7: see in order to accelerate the growth of these businesses.
Speaker 7: And that's a greater collaboration between private companies, between private
Speaker 7: companies and policymakers, between governments around the world. It's lowering
Speaker 7: the cost of these new technologies and solutions so customers,
Speaker 7: large customers, large businesses or individual customers will buy them.
Speaker 7: And it is bringing capabilities to bear the right capabilities.
Speaker 7: And that goes to your Houston question. The energy industry
Speaker 7: possesses a lot of the capabilities, technical, operating, commercial capabilities
Speaker 7: that are required to grow these businesses profitably, to scale.
Speaker 7: So absolutely, you know a lot of this, a lot
Speaker 7: of activity in Houston, a lot of companies engaged in this.
Speaker 7: So Houston it's an oil and gas capital that's out
Speaker 7: thought of. It's also new energy capital.
Speaker 3: So where are we in terms of I've been reading
Speaker 3: a lot on this, Alex, she knows that she's the expert.
Speaker 3: I've been reading up a lot on this over the
Speaker 3: last several days. It seems like the US government's putting
Speaker 3: a lot of money into this. That's the good news,
Speaker 3: as Alex mentioned earlier, but I've also heard here of
Speaker 3: the last couple of days, it's still not easy doing
Speaker 3: business with the government. I'm thinking permitting for certain projects
Speaker 3: and things like that. What's been your experience there is
Speaker 3: to is the government doing the best it can to
Speaker 3: kind of facilitate some of these investments in transition.
Speaker 7: Yeah, So collaboration between the private sector and the public
Speaker 7: sectors fundamental here. It helps lower the cost. Those are
Speaker 7: you know, advocacy understanding politics, not just in this country
Speaker 7: but around the world. Is a strength of our company
Speaker 7: of energy companies, you know, more broadly, so it fits
Speaker 7: one of our existing capabilities. But that is one of
Speaker 7: the starting points here. You know, you need the right
Speaker 7: policy support, the right incentives to get the private sector
Speaker 7: investing even more heavily in this space. That will drive
Speaker 7: the technology forward, That will drive innovation, that will drive
Speaker 7: to building large scale projects which will lower the cost,
Speaker 7: make it more consumable for the world, and that is
Speaker 7: a cycle that will then you know, continue. So it
Speaker 7: starts with policy, but it really is sustained by the
Speaker 7: investment by the private sector in technology. Government's a very
Speaker 7: important partner. We've seen We're having really constructive conversations with
Speaker 7: the government, But you mentioned permitting. There's still a long
Speaker 7: way to go to make all of this come together.
Speaker 7: We've shown some progress, but there are many steps in front.
Speaker 5: Of us, you know, Paulo. To your point, it seems
Speaker 5: like the good part of this is that energy companies
Speaker 5: in the new energy world are in the room talking
Speaker 5: to people, typically the government and oil and gas of
Speaker 5: a contentious relationship at past in certain administrations, and it
Speaker 5: feels like in this area maybe that is dissolving a bit,
Speaker 5: which would be helpful. Something that I've noticed too, is
Speaker 5: that I think it was like three hundred and three
Speaker 5: billion dollars has been spent I think it was last
Speaker 5: year on all these new energy stuff. What I'm also
Speaker 5: hearing is that demand is a forgotten problem. Like all
Speaker 5: the money is being spent, all the money, but the
Speaker 5: money being spent on supplying the stuff and getting that
Speaker 5: cost down, but not enough it is being spent on
Speaker 5: demand to incentivize a company signing up with you for
Speaker 5: esaff for something along those lines. Is that true?
Speaker 7: There is a lot of money being spent in these
Speaker 7: in these new businesses. It's actually one point seven trillion
Speaker 7: dollars globally compared to about one trillion dollars spent in
Speaker 7: the traditional energy business last year, and we need even
Speaker 7: more to grow these businesses to scale. And you hit
Speaker 7: on a very important point. It is, and I'll use
Speaker 7: hydrogen as an example. It's not hard to produce hydrogen.
Speaker 7: It's harder to produce low carbon hydrogen at a low cost,
Speaker 7: something that we're working on using natural gas as a
Speaker 7: feedstock or using electricity and renewable power as feedstocks to
Speaker 7: produce low carbon hydrogen. But transporting hydrogen to the market,
Speaker 7: you need policy support in order to do that. You
Speaker 7: need technological innovation to do that to lower the cost,
Speaker 7: and then importantly, encouraging consumers to buy a hydrogen making
Speaker 7: it easier for them to transition from a traditional product
Speaker 7: that they're using today to a lower carbon product that
Speaker 7: comes at a higher cost. That's where demand incentives and
Speaker 7: policy support will also be required.
Speaker 3: What's the biggest headwind you guys have been facing over
Speaker 3: the last three years as you begin this transition. Has
Speaker 3: it been on the regulatory governmental front? Has it been
Speaker 3: capital getting capital from your CFO?
Speaker 2: Where's it been now?
Speaker 7: There's always a lot of challenges when you're starting up
Speaker 7: new businesses, but it's very, very exciting, and we're making
Speaker 7: tremendous progress. We've identified probably a dozen large foundational projects
Speaker 7: and all of these sectors around not just the US,
Speaker 7: but around the world. We're the second largest bio based
Speaker 7: a diesel producer in the United States. We've got a
Speaker 7: large you know, CCUS hub on the US Gulf Coast.
Speaker 7: We've got a large hydrogen project in Utah that we're growing.
Speaker 7: So we're making a lot of a lot of progress.
Speaker 7: There's always challenges along the way. How do you prioritize
Speaker 7: the best opportunities, how do you advocate for the right policies,
Speaker 7: how do you create the right culture to support these businesses.
Speaker 7: We have a fantastic culture in our company. We're using
Speaker 7: all of that and more. But you have to think
Speaker 7: about these businesses in a different way. So there are challenges,
Speaker 7: but it has been very rewarding.
Speaker 3: At the same time, He's not going to answer that question, Paul, Well,
Speaker 3: I stock, I thought I did answer it.
Speaker 5: We're looking for like, hey, what what's really hard? What
Speaker 5: stresses you ask?
Speaker 8: Well, it's I mean.
Speaker 7: To go, it's all hard, yeah, and so all of that,
Speaker 7: you know, how can we collaborate you know more uh
Speaker 7: more aggressively. How can we lower the costs faster? How
Speaker 7: can we bring all of the capabilities we have to
Speaker 7: bear here. How do we make sure that everyone remains
Speaker 7: committed to this, not just us, but everyone in this
Speaker 7: ecosystem to drive these businesses forward. So those are all
Speaker 7: big challenges. I'm not discounting that, but I'm very excited
Speaker 7: about what we're doing.
Speaker 5: Gotta leave it there, Jeff really appreciated Jeff Gustavenson. I'm
Speaker 5: going to get it. President of Chevron New Energies. I'm
Speaker 5: going to work towards that for sure. Thanks so much.
Speaker 8: Thank you.
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Speaker 5: We're at Bloomberg n e App Summit, Day two. We're
Speaker 5: in the middle of the pubbabaloo. We're in our Intercontinental
Speaker 5: Hotel on forty U Street down in Midtown Manhattan, and
Speaker 5: it's all about getting world leaders and CEOs and thought
Speaker 5: leaders and analysts together to sort of tackle this energy
Speaker 5: transition where we are now, and then where do we
Speaker 5: go to and how do we do that?
Speaker 4: Well?
Speaker 5: Doing us now? As our next guest, Andy Vessi, he's
Speaker 5: president and CEO of Fordescue North America, and he joined us. Now, Andy,
Speaker 5: good to see you.
Speaker 8: Well, that's a pleasure to be here and thank you
Speaker 8: for having me.
Speaker 5: So I do follow this industry quite closely, and I
Speaker 5: was like, what Fordescu is a metal company, what's going on?
Speaker 5: It's based in Australia. What are you doing here talking
Speaker 5: about hydrogen?
Speaker 8: Well, Fortia something. Forlidescu was a metal company. In fact
Speaker 8: it still is.
Speaker 9: It's the fourth largest producer bron or in the world
Speaker 9: and the lowest cost operator. What our founder, Andrew Forres,
Speaker 9: came to the realization that carbon emissions was having a
Speaker 9: significant impact on the planet and it was happening quickly,
Speaker 9: and that his business contributed to that, and so he
Speaker 9: made a commitment that he was going to decarbonize his
Speaker 9: metals business, scope on and scope to emissions by twenty thirty.
Speaker 9: And in thinking about doing that, he had to think
Speaker 9: about all the technologies he needed to make that happen,
Speaker 9: and many of them were n't available commercially. So he
Speaker 9: decided that he would is going to create that ecosystem.
Speaker 9: One component of that was green hydrogen because he needed
Speaker 9: green hydrogen to do a number of things to replace
Speaker 9: diesel fuel in his mining operations. But then he realized
Speaker 9: there were a lot of other things he needed and
Speaker 9: a lot of more things he needed. So what Fordeskew
Speaker 9: is today, while it still has a metals group, it
Speaker 9: now has an energy's group, but we describe ourselves as
Speaker 9: an integrated green technology, energy and metals group and they're
Speaker 9: all coming together and it's one Fortescue now. So that's
Speaker 9: why we're here. And I happen to have the privilege
Speaker 9: of trying to be on the side of the business
Speaker 9: that produces green hydrogen specifically.
Speaker 8: In North America.
Speaker 2: Is green hydrogen?
Speaker 9: Okay, well it's hydrogen, but it's made from green energy,
Speaker 9: which would include solar, wind and hydro So just to alex.
Speaker 5: Plain Youse, so you have some been called an electrolizer
Speaker 5: where you get water in and you separate the hydrogen
Speaker 5: from the water, and how you power that determines the
Speaker 5: color of that hydrogen. So if you power with say cole,
Speaker 5: it's going to be gray. If you power with natural gas,
Speaker 5: it's going to be a blue. If you power with
Speaker 5: solar and wind, it's going to be green.
Speaker 2: And there's right, I learned something to get it.
Speaker 3: But now I'm guessing there's a tax issue here. I'm
Speaker 3: reading all throughout your notes forty five v. Dumb it
Speaker 3: down for somebody like me, a media guy.
Speaker 9: Yeah, So look, the bottom line is that seventy percent
Speaker 9: of a green molecule made what would be called electrolytic
Speaker 9: because it uses electricity. Seventy percent of the cost of
Speaker 9: that molecule is the cost of that green electron. And
Speaker 9: so if you're going to be in this business, you
Speaker 9: would say, well, I'm going to go every place where
Speaker 9: the renewable energy is really really cheap. Right, You're going
Speaker 9: to go to North Africa, You're going to be in Australia,
Speaker 9: you might be in parts of Latin America. But where
Speaker 9: you would not be would be in the US, right,
Speaker 9: because we know it's expensive. But there's another thing about
Speaker 9: the US. It's probably one of the largest consumers of
Speaker 9: gray hydrogen or hydrogen that's produced from methane gas. So
Speaker 9: there's a huge market here. But the challenge is getting
Speaker 9: to a price point where people will buy it well.
Speaker 9: The US government also understood this and understood that to decarbonize,
Speaker 9: hard to abate sectors, meaning sectors that can't use a
Speaker 9: green electron to meet emission reduction goals need a green molecule.
Speaker 9: And so the Bidy administration decided, well, what we need
Speaker 9: to do is assist in getting the price down, get
Speaker 9: the industry started, and then eventually, through scale and involvement
Speaker 9: in the market, the price will come down naturally on
Speaker 9: the learning curve. Right, So they came up with the
Speaker 9: idea of providing a tax incentive a PTC that you
Speaker 9: can get direct cash for it, so it would help
Speaker 9: lower the end product price to customers. And the maximum
Speaker 9: you can get would be three dollars a kilogram, and
Speaker 9: that's based on the carbon intensity of that molecule. So
Speaker 9: all non gray molecules, right, all those molecules not produced
Speaker 9: or that don't have carbon emissions at some level, would
Speaker 9: get a rising incentive.
Speaker 8: Okay, brilliant.
Speaker 9: Right Now, companies like Fordesky, who is investing all over
Speaker 9: the world that sys, we're going to put capital in
Speaker 9: the United States, right, We're going to develop technology in
Speaker 9: the United States because this could be a big market. Right,
Speaker 9: But there was an expectation of how that would come out,
Speaker 9: and when the rules were written. It's now called forty
Speaker 9: five V because it's a section in the IRS code
Speaker 9: came out in such a way that it didn't actually
Speaker 9: help us to some degree. It hurt early movers because
Speaker 9: of how strict the rules were.
Speaker 5: Meaning that from where I understand it is it Normally
Speaker 5: you could say, look, I'm going to buy this much
Speaker 5: wind and solar over the course of a year, give
Speaker 5: me the credit. But they want hour for hour matching.
Speaker 5: So if you use energy for an hour, that needs
Speaker 5: to be solar, and that needs to be counted, and
Speaker 5: that's very difficult because that's not predictable with wind and solar,
Speaker 5: and you also.
Speaker 8: Don't have it right. See you underst in as perfectly.
Speaker 9: That's when that's one of the pillars, right, but probably
Speaker 9: the most problematic. And I'll give you a reason why.
Speaker 9: So you said it earlier. We use an electoralizer, right.
Speaker 9: We take electricity and we split the water into oxygen
Speaker 9: and hydrogen.
Speaker 8: That's what we do.
Speaker 9: In terms of when you're going to be using the energy.
Speaker 9: That's called temporal matching, and it exists because there are
Speaker 9: no one hundred percent green grids in the US, so
Speaker 9: there's always the concern by adding additional load, you potentially
Speaker 9: are going to use fossil based energy to meet it. Right,
Speaker 9: So the view is, how are you going to do
Speaker 9: the temporal matching?
Speaker 8: Right?
Speaker 9: So, if I have a one megawatt electoralizer, I need
Speaker 9: to have three times that much capacity in the market
Speaker 9: if I'm matching on an annual basis, because they get
Speaker 9: to average it over the year, and over a year perfect.
Speaker 10: Right.
Speaker 9: If you go to monthly matching, you need five times
Speaker 9: much energy, but an hourly you need seven times.
Speaker 8: Right.
Speaker 9: So if I'm building a gigot of electrolyizers in Texas,
Speaker 9: I may only need a giggot of energy at any time,
Speaker 9: but I have to buy seven times that to ensure
Speaker 9: that I have all the probabilities working so I know
Speaker 9: I can match in that hour, which means that the
Speaker 9: bulk of what I buy I don't need. So I'm
Speaker 9: gonna have to be buying and selling energy and that's
Speaker 9: equivalent to almost, you know, between five and ten percent
Speaker 9: of the annual I mean the daily load in the
Speaker 9: AIRCOT system. I mean it's massive. So what are the implications, Well,
Speaker 9: there are two the way forty five via structure today A.
Speaker 9: It will absolutely increase the price of the product. Now,
Speaker 9: remember the whole idea of this was to decrease the
Speaker 9: price of the product. It will increase the price of
Speaker 9: the project anywhere between one hundred and fifty to one hundred.
Speaker 8: And seventy five percent to the consumer. Okay.
Speaker 9: The second thing is because of the massive amount of
Speaker 9: energy we have to buy, all right, we have to
Speaker 9: make the project smaller so you can actually transact that
Speaker 9: third point. Because of again annually this hourly matching, there
Speaker 9: are only certain places you can do it, so there
Speaker 9: are fewer opportunities to get it done right. And if
Speaker 9: we have to do one other thing, which is part
Speaker 9: of the forty five E we have to add new
Speaker 9: green electrons, well that can take years and years. So
Speaker 9: we are doing everything against the original intent. Right, And
Speaker 9: why are we doing this Because we're thinking about the
Speaker 9: perfect solution at the beginning, right, we want the perfect projects.
Speaker 8: The idea should be.
Speaker 9: No, we're building an industry which ultimately will work. Let's
Speaker 9: not handicap it at the beginning. Because like any other industry,
Speaker 9: the more market interactions you have, the more things you build,
Speaker 9: the more things that fail. The more supply chains that
Speaker 9: get created, the more people who get trained. That's what
Speaker 9: building an industry is. And unfortunately we're thinking about projects. Yeah, right,
Speaker 9: one off projects, and that's just wrong.
Speaker 5: Andy, we really appreciate it. It's complex to break it down.
Speaker 5: There's a lot of chemistry. It's actually weirdly good at chemistry,
Speaker 5: but it's all forgotten of Cotant. Andy Vz, President and
Speaker 5: CEO of Fortescue Industries here in North America, really appreciate it.
Speaker 5: Thank you so much. I guess the takeaway and we
Speaker 5: have to even dealt with the demand side. Then you
Speaker 5: have to make the demand be there. People are going
Speaker 5: to have to buy that product, and that gets really
Speaker 5: and that's also very difficult.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 5: Thirty Alex Thee alongside Paul Sweeney. This is Bloomberg Intelligence
Speaker 5: Radio and we are live from Bloomberg n EF Summit
Speaker 5: to Day two in the Intercontinental Hotel right here in
Speaker 5: New York City. The summit really provides a chance for CEOs,
Speaker 5: thought leaders, world leaders, politicians to kind of get together
Speaker 5: in a room and talk about the issues facing the
Speaker 5: energy transition. How you get from zero to one hundred?
Speaker 5: How do you get from here to there in a
Speaker 5: meaningful way that is also price efficient and makes profits
Speaker 5: and does stuff and is cheap enough. We spent about
Speaker 5: the US, I should say, spent about three hundred and
Speaker 5: three billion dollars last year's position. Wow, worldwide over a trillion.
Speaker 5: And there's still a lot of problems, things like but
Speaker 5: permitting demand trade issues we just saw earlier today, maybe
Speaker 5: President Biden will look at an increased terror from stale
Speaker 5: aluminus in China. So how do you deal with that
Speaker 5: if you're running a company?
Speaker 10: Well.
Speaker 5: Anna Moscolow is chief executive vice president of Low Carbon
Speaker 5: Solutions over at Shell. She's been with Shell for about
Speaker 5: twenty years and has had many different jobs within the
Speaker 5: company and has landed here in the past two years,
Speaker 5: right years, two or three years? Okay, Yes, how's it
Speaker 5: going well?
Speaker 11: So it's going well. We are progressing. Energy transition probably
Speaker 11: is progressing well overall. And we've seen big strides in electrification,
Speaker 11: but at the same time in my lifetive oil demand
Speaker 11: is doubled, and we still see sectors like aviation, shipping
Speaker 11: and commercial road transport buses and trucks where we see
Speaker 11: demand increasing in the coming years, and.
Speaker 12: These sectors need the hardware.
Speaker 11: Sectors need solutions to support that, so biofuels or biogasses.
Speaker 3: So I think what we've learned maybe over the last
Speaker 3: several years with the invasion of Ukraine is just an
Speaker 3: important you know, traditional energy, carbon energy is for the
Speaker 3: global trade. So as we make this transition to a
Speaker 3: more sustainable energy grid, we still have to invest there.
Speaker 2: How does your company think about that? How does a
Speaker 2: huge company like Shell think about that?
Speaker 11: It's all about balance probably and making sure that we
Speaker 11: have probably two things that we pace ourselves with our
Speaker 11: customers in making sure that we transition with the right
Speaker 11: pace in different places and that changes by country and
Speaker 11: by geography, but also that we focus on the solutions
Speaker 11: where we have a real competitive advantage. If I think about,
Speaker 11: for example, the LNG market, we've seen LNG actually playing
Speaker 11: a big role in being providing flexible and secure supplies
Speaker 11: in the last two or.
Speaker 5: Three years, and LNG is under your purview right. LG
Speaker 5: is part yes of these, which is interesting because not
Speaker 5: every company is going to look at LNG in the
Speaker 5: new carbon low solutions business.
Speaker 12: Yeah, so the traditional LNG business does not sit with me.
Speaker 11: But what my team does is actually using the LNG,
Speaker 11: for example, the marine sector. So we match LNG and
Speaker 11: our traditional position globally in LERG trading with customers. So
Speaker 11: the marine sector sits with me, and we are transferring
Speaker 11: and selling LNG for the marine sectors instead of fuel oil,
Speaker 11: and that provides for lower carbon intensity products.
Speaker 3: Are there certain industries in your customers You mentioned the
Speaker 3: marine industry and I didn't even think about that when
Speaker 3: this discussion started ten years ago about how they burned
Speaker 3: so much fuel. But when I see them off or
Speaker 3: at on my beach, when I'm sitting on my pitch here,
Speaker 3: I see the smoke at the back of the thing.
Speaker 3: So what industries are doing a good job and making
Speaker 3: the transition and what maybe industries still need some work
Speaker 3: from your perspective.
Speaker 11: So, as I said, we've made great progress on the
Speaker 11: decarbonizing true electrification.
Speaker 12: The areas that are a bit more stubborn are.
Speaker 11: The planes, the trucks, the ships, and also the heavy industry,
Speaker 11: so industry that need high intensity heat.
Speaker 12: Cement like cement, steel.
Speaker 11: Fertilizers, chemical industries, and in those cases you need what
Speaker 11: we call drop in fuels like biofuels or synthetic fuels,
Speaker 11: whether liquid or gas, so high energy intensity and different
Speaker 11: sector is moving at different paces in different regions. And
Speaker 11: of course we shouldn't forget that regulatory environments certainty around
Speaker 11: how things should develop is very important.
Speaker 12: Where it is carot or stick.
Speaker 5: Yeah, we talk a lot carrot and stick on the
Speaker 5: panel earlier today. You also mentioned when I was talking
Speaker 5: to you about how you guys look at returns for
Speaker 5: the different investments. So if you look at oil and
Speaker 5: gas returns straight up to say fifteen percent plus correct,
Speaker 5: then how do you judge the returns for different projects
Speaker 5: in low carbon solutions.
Speaker 11: Yeah, it's important to recognize that different products and different
Speaker 11: solutions are available at different scales. So for our traditional
Speaker 11: businesses we are looking upstream and marketing. We are looking
Speaker 11: at fifteen plus for biofuels electrical vehicles where we have
Speaker 11: positions today we are one of the biggest suppliers or
Speaker 11: biofuels and traders.
Speaker 12: Today for.
Speaker 11: Ev we have already fifty four thousand charging points globally,
Speaker 11: so for those one we are looking at at twelve percent.
Speaker 11: And for solutions that are not quite there and they
Speaker 11: need scale, and we've been a bit more selective in
Speaker 11: our investments like hydrogen and CCS it's ten plus, So
Speaker 11: we are being targeted around our approach on returns and
Speaker 11: they are also will change over time as the industry changes.
Speaker 11: And also when we look at our overall investment profile
Speaker 11: last year with twenty three percent of our capital was
Speaker 11: spent in low carbon energy solutions so IV, biofuels, biogases.
Speaker 12: And renewable generations that was five point six billion.
Speaker 3: By the way, you know, boy, I'm looking at your
Speaker 3: revenue contribution where comes I mean, you're truly a global
Speaker 3: company obviously show with roughly a third out of Europe,
Speaker 3: a third out of Asian and Africa, and the third
Speaker 3: out of I guess the America is so truly a
Speaker 3: global company. Are there certain parts of the world where
Speaker 3: you have had more success and maybe you know, in
Speaker 3: terms of making these investments and seeing change versus some
Speaker 3: other parts of the world, we.
Speaker 11: See that it's easier when we have clarity from the
Speaker 11: regulatory perspective. So Europe, US, Canada we've seen whether it
Speaker 11: is charac or stick, We've seen clarity around mandates, tax
Speaker 11: incentives and so on. But all this being said, by
Speaker 11: the way, we are also seeing Asia picking up the
Speaker 11: way China is going around evs for example, and electrical
Speaker 11: charging points. We are seeing in Southeast Stasia development of
Speaker 11: carbon capture and storage. India also, we've made an investment
Speaker 11: recently in India Spring Energy, where we are investing in
Speaker 11: renewable generation. So actually Asia and everybody knows that the
Speaker 11: moment it comes and it picks up, the volumes will
Speaker 11: be there.
Speaker 5: What's it like being a company in Europe versus if
Speaker 5: you were a company in the US. In that Europe
Speaker 5: deals with a lot of sticks. US typically has the carrots,
Speaker 5: but the governments are supportive in different ways. It's much
Speaker 5: more bifurcated in the US. How do you yeah, what's
Speaker 5: the hardest part of all of that?
Speaker 11: Probably the hardest part is making sure that there are
Speaker 11: clear trade offs between sectors. So let me give you
Speaker 11: an example. If I want to use hydrogen greener hydrogen,
Speaker 11: do I use it for commercial road transport?
Speaker 12: Or do I use it for passenger cars?
Speaker 11: Well, actually probably passenger cars that can use it for
Speaker 11: ev so making sure that the regulatory environment matches with
Speaker 11: the sectors you need to address. So hydrogen for commercial
Speaker 11: road transport in the future or heavy industries, that would
Speaker 11: be a solution. So trying to incentivize use of these
Speaker 11: cars agyrogen we will have available, and we have available
Speaker 11: into the industry that needs it most. And then the
Speaker 11: other thing is probably the stability. So these are longer
Speaker 11: term investments. You need to make investments that are multi
Speaker 11: billion over ten, fifteen years, twenty years time. You need
Speaker 11: to have certainty of the regulatory environment and direction of trouble,
Speaker 11: and the industry needs to move in tandem supply and demand.
Speaker 11: We cannot build projects if our customers also don't invest.
Speaker 11: Carbon capture and storage is quite a good one where
Speaker 11: our customers need to invest in the capture of the
Speaker 11: CO two, invest in the transport and the storage to
Speaker 11: bring the CO two under the ground.
Speaker 3: What's the next big road a mile post that someone
Speaker 3: like me who doesn't follow this day to day, what
Speaker 3: should I look for? Is there a piece of news,
Speaker 3: Is there a piece of legislation or something that's going
Speaker 3: to be a big milepost that. Boy, this industry is
Speaker 3: continuing to make progress.
Speaker 11: We would want to see that carbon pricing is reflected
Speaker 11: in in in and starting to see that there is
Speaker 11: an opportunity and incentives for people to switch and move on.
Speaker 11: That that's one one trend that you would be looking at.
Speaker 11: Then stability of the regulative environment is another one. And
Speaker 11: then the other thing I would say is there is
Speaker 11: not a single solution that fits all. So for sect,
Speaker 11: every sector, we have a roadmap and we work with
Speaker 11: our customers to look at what is what is available.
Speaker 11: And again we start from our position of strengths l
Speaker 11: n G, e V, bio fuels and then building on
Speaker 11: that with hydrogen ccs and probably in the future with
Speaker 11: director capture, if and when that will happen.
Speaker 12: That's Skate and.
Speaker 5: Thanks so much, super appreciate Ana Moscolo. She is a
Speaker 5: Shell executive vice president for Low carbon Solutions. Really interesting.
Speaker 5: You more coming up?
Speaker 2: I am more coming up?
Speaker 5: More You into it?
Speaker 8: I am.
Speaker 2: I'm getting into it now.
Speaker 3: You see, you need to get traditional entry companies and
Speaker 3: new energy companies that got to be together, which they
Speaker 3: are at this conference at least.
Speaker 2: So we'll see.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 5: Thirty Alex de alongside Paul Sweeney. We are live at
Speaker 5: the Bloomberg AF Summit right here in Midtown Manhattan, where
Speaker 5: we're covering all the top regulators, official CEOs, analyst strategy
Speaker 5: officers within the energy transition space. How do you get
Speaker 5: from oil and gas to something different and what does
Speaker 5: that actually wind up looking like. So here's a question
Speaker 5: for you, Yep, what is the third best performing stock
Speaker 5: in the SMP this year.
Speaker 2: I'm going to guess it's an energy stock.
Speaker 5: Calls the best. It is Constellation Energy, which is the
Speaker 5: largest nuclear power facility in the country. It also is
Speaker 5: the largest provider of power to like C and I customers.
Speaker 5: And that's really interesting because you have super Marico is
Speaker 5: the best performing stock, then in Vidia, and then you
Speaker 5: have Constellation Energy GE and Energy Energy And what all
Speaker 5: of this has in common is a lot of demand
Speaker 5: for data centers. A boost and power demand and a
Speaker 5: need for that power, and nuclear is really front and
Speaker 5: center for that. So joining us now to discuss is
Speaker 5: Kathleen Baron. She's executive vice president and chief strategy officer.
Speaker 5: She joins us now here at the summit. Kathleen, it's
Speaker 5: a pleasure, Thanks for joining.
Speaker 10: Thanks, Alex happy to be here.
Speaker 5: So funnily enough, I talked to her CEO yesterday on TV.
Speaker 5: So if you guys want to hear more about nuclear,
Speaker 5: you can check out that segment from Bloomberg Television The Clothes.
Speaker 5: Let's talk about what other stuff you guys are doing
Speaker 5: nuclear obviously bread and butter in the energy transition space
Speaker 5: of which nuclear is a big part. What else are
Speaker 5: you guys doing looking at paying money.
Speaker 10: For well, one of the opportunities we see ahead of
Speaker 10: our country is to find ways to decarbonize austrial sector.
Speaker 10: It's a huge source of emissions. It's really hard to
Speaker 10: find a way to run steel, manufacturing, agriculture, aviation, long
Speaker 10: haul shipping on electricity, right, So we have to find
Speaker 10: another way to decarbonize that sector and find a liquid
Speaker 10: or gases or a solid fuel that we're going to
Speaker 10: have at the ready at any moment to power those industries,
Speaker 10: and hydrogen has emerged as an opportunity for the US
Speaker 10: now that the Inflation Reduction Act has passed. There's a
Speaker 10: production tax credit for hydrogen in that act, and we
Speaker 10: see nuclear and hydrogen as an ideal pairing because, as
Speaker 10: you pointed out, nuclear is clean, but it's also firm,
Speaker 10: it's reliable, it runs twenty four to seven, and so
Speaker 10: it can be a steady source of power to run
Speaker 10: into an electrolyzer, split water into oxygen high and then
Speaker 10: create that clean molecule that can power industrial applications.
Speaker 5: What color fuel, Well, we're trying to.
Speaker 10: Discourage the rainbow of colors and just talk about clean
Speaker 10: versus emitting.
Speaker 5: But it is called pink for what it's for just
Speaker 5: to work clear, yep.
Speaker 2: So I was fascinated to not just I didn't know
Speaker 2: much about your company.
Speaker 3: Your company has the largest or the biggest nuclear fleet
Speaker 3: in the country with twenty one reactors. What is the
Speaker 3: future of nuclear energy in this country as we again
Speaker 3: think about more green types of energy sources.
Speaker 10: You know, it has changed a lot, even just in
Speaker 10: the last few years in terms of public acceptance for
Speaker 10: the technology it makes. I mean not just our fleet,
Speaker 10: but the nuclear fleet generally generates twenty percent of the
Speaker 10: electricity that runs through this building we're in in our
Speaker 10: economy every day. People don't really realize that, but it
Speaker 10: is the backbone of the power sector, and it is
Speaker 10: carbon free, and as we just talked about, very reliable.
Speaker 10: It operates around the clock, no matter the weather, their sun, wind, brainstorm,
Speaker 10: it's still operating. And we own twenty one reactors. We
Speaker 10: operate T one reactors. We own twenty three and so
Speaker 10: that's about a quarter of the US fleet. And the
Speaker 10: beauty of these machines is that they can run for
Speaker 10: a very long period of time. Most of our assets
Speaker 10: are sort of in the thirty forty to fifty year
Speaker 10: old time frame, but they can run up to eighty
Speaker 10: years according to the Federal Safety Regulators in Washington, and
Speaker 10: so they are constantly being rebuilt. We put in about
Speaker 10: a billion and a half a new capital every year,
Speaker 10: and we're replacing the components. It's kind of like an
Speaker 10: old car that's having its plate its parts replaced regularly.
Speaker 10: So these machines can run for a very long time.
Speaker 10: They abate about five hundred million metric tons of carbon
Speaker 10: every year, so it's in the nation's interest to keep
Speaker 10: them running. In with this growing public acceptance, we're seeing
Speaker 10: interest in corporate procurements, We're seeing interest from governments. We're
Speaker 10: seeing people valuing this thing that we don't have enough of,
Speaker 10: which is a clean firm megaal pour.
Speaker 5: So when we talk about the hydrogen stuff, so pink.
Speaker 5: So basically you would get the power to split the
Speaker 5: hydrogen from the oxygen and the electrolyizer using nuclear stream.
Speaker 5: Does that mean that if I'm building a hydrogen facility,
Speaker 5: I have to go where your power plant is, or
Speaker 5: are you going to be building a power plant, a
Speaker 5: small modular power plant near me, or are we running
Speaker 5: like a big tube of something in between me and you.
Speaker 10: So what we're talking about is using the existing reactors
Speaker 10: to power an electrilyizer, and as you said, split the
Speaker 10: oxygen and the hydrogen. You could do that right up
Speaker 10: next to the power plant, so you put the electricity
Speaker 10: right into the electrolyzer, or you could put your electrolyizer
Speaker 10: next to your manufacturing plant or whatever process you're trying
Speaker 10: to use the hydrogen for. 's say you're making sustainable
Speaker 10: aviation fuel, and we can shift the electricity over the
Speaker 10: transmission line to your electrolyizer and the dedicated power purchase
Speaker 10: agreement that sort of hydrogen by wire configuration. So either
Speaker 10: co located with the plant or through the transmission line.
Speaker 10: Either way you're going to have that steady source of
Speaker 10: zero carbon electricity going. It's the electrolyizer every hour.
Speaker 2: Can I go out and build a nuclear power plant
Speaker 2: in this country today?
Speaker 10: There is no reason why you can't. But thank you, Alex.
Speaker 2: You know, there are.
Speaker 10: A bunch of reactor technology developers who have new designs
Speaker 10: you mentioned small modular reactors that are in the process
Speaker 10: of getting licensed, and there are some utilities who have
Speaker 10: created relationships with those technology developers for sort of you
Speaker 10: know co development or you know, an advanced commitment, but
Speaker 10: none of them are under construction just yet. Some of
Speaker 10: them are going to be starting soon. For example, in
Speaker 10: Canada that the Ontario Power Generator has partnered with the
Speaker 10: GE three hundred megawatt reactor design too, and they think
Speaker 10: they have been through regular Tory approvals and they will
Speaker 10: start construction sooner. But in the US we're just we've lagged.
Speaker 10: I mean, this is happening in Canada's happening overseas and
Speaker 10: we don't have that market poll here. We don't have
Speaker 10: commitments as much as we should to get those new
Speaker 10: reactor designs through licensing and into construction and past that
Speaker 10: first of a kind cost cycle. That's really the thing
Speaker 10: that we need to overcome.
Speaker 5: It kind of jumped over nuclear for a while, right
Speaker 5: Like when I first started covering commodity seventeen years ago,
Speaker 5: it was all uranium because of the nuclear stuff. And
Speaker 5: then it was like, we don't talk about that right now.
Speaker 5: And even Germany was like anti nuclear for a while.
Speaker 5: They retired all their fleets and they're like, oops, oops, yep, oopsie,
Speaker 5: what happens when Russian and Beidess Ukraine? Kathleen, so great
Speaker 5: to get your perspective. That was really great. Love to
Speaker 5: see how that relationship pans out between hydrogen A nuclear.
Speaker 5: Kathleen Baron, she's executive vice president and chief strategy officer
Speaker 5: over a Constellation Energy.
Speaker 2: I'm learning a lot this past couple of days.
Speaker 5: I thought you could be so bored.
Speaker 2: Sibl. Yeah, a little bit more chemistry than I thought.
Speaker 2: You know, I didn't think there would be math here,
Speaker 2: but I'll figure it out.
Speaker 5: It's helpful with the ag Oh, it's like right, okay,
Speaker 5: yes to hydrogen one oxygen.
Speaker 12: We got this.
Speaker 5: We can do this.
Speaker 2: Yep, we can do math.
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