WEBVTT - Liam Denning on the Price of Oil 0:00:01.000 --> 0:00:04.399 I'm Bethany McClain, and this is making a killing interviews, 0:00:04.559 --> 0:00:08.440 exploring the headlines you thought you understood, and finding the 0:00:08.520 --> 0:00:12.080 long term lessons we can all learn from today's business stories. 0:00:12.440 --> 0:00:17.600 I'm at Bethany mactwelve on Twitter. So here's a really 0:00:17.600 --> 0:00:22.040 inconvenient truth. Oil is still the lifeblood of industrialized nations. 0:00:22.640 --> 0:00:26.200 From driving your car to heating your home, to getting 0:00:26.200 --> 0:00:30.960 those Amazon packages delivered to charging all your devices, modern 0:00:31.080 --> 0:00:34.600 life still depends on fossil fuels. One of the funny 0:00:34.640 --> 0:00:37.440 things about energy markets is how everyone who dares to 0:00:37.440 --> 0:00:40.920 make predictions usually has one thing in common. They're wrong. 0:00:41.600 --> 0:00:44.640 Most famously was two thousand and five's Twilight in the Desert. 0:00:44.920 --> 0:00:47.920 It was written by a really serious, smart analyst, and 0:00:48.040 --> 0:00:52.360 he predicted rising oil prices due to sharply declining Saudi production. 0:00:53.720 --> 0:00:56.920 In the mid nineteen nineties, there were congressional hearings featuring 0:00:56.960 --> 0:01:00.960 politicians and economists who were hand ringing over pending shortages 0:01:01.000 --> 0:01:03.840 of both oil and natural gas in the US. Then 0:01:03.920 --> 0:01:07.640 came the shale revolution, better known as fracking, and now 0:01:07.720 --> 0:01:10.680 everyone thinks we have a plethora of both. The Trump 0:01:10.680 --> 0:01:15.080 administration even calls them Freedom molecules. In other words, the 0:01:15.160 --> 0:01:19.679 conventional wisdom is often wrong. So here's today's conventional wisdom 0:01:19.720 --> 0:01:23.600 about oil prices. Global oil supply is supposed to continue 0:01:23.600 --> 0:01:27.440 to rise rapidly, thanks in part to substantial growth coming 0:01:27.480 --> 0:01:31.000 from US frackers, so prices are supposed to stay low. 0:01:31.640 --> 0:01:34.040 Likely we won't ever have to worry about oil price 0:01:34.040 --> 0:01:37.600 shocks again because the frackers will keep prices low, and 0:01:37.680 --> 0:01:40.320 by the time that runs out, renewables will for sure 0:01:40.360 --> 0:01:43.400 if kicked in, the days of fear and trembling about 0:01:43.440 --> 0:01:47.440 oil price shocks are over. But are they really their 0:01:47.480 --> 0:01:50.720 skepticism about what will happen if investors stop funding the 0:01:50.760 --> 0:01:54.880 money losing shale industry. Conversely, if prices do stay really 0:01:54.920 --> 0:01:58.520 low or the age of renewables does come quickly, that 0:01:58.680 --> 0:02:01.360 poses some risks of its own. What does that mean 0:02:01.400 --> 0:02:05.240 for Saudi Arabia, which depends on oil revenues defund its 0:02:05.240 --> 0:02:09.080 economy and keep its society stable, and right now is 0:02:09.080 --> 0:02:12.040 trying to take its massive state owned oil company, Saudi 0:02:12.080 --> 0:02:15.880 Aramco public. It was supposed to be the biggest IPO ever. 0:02:16.720 --> 0:02:19.880 If there were easy answers, history shows that'd likely be wrong. 0:02:20.280 --> 0:02:22.720 But I'm delighted to talk through the topic with Liam Denning, 0:02:23.160 --> 0:02:26.160 who is a well known Bloomberg opinion columnists covering energy, 0:02:26.280 --> 0:02:29.440 mining and commodities. He previously worked at The Wall Street 0:02:29.480 --> 0:02:31.960 Journal in the Financial Times, and like me, he was 0:02:32.040 --> 0:02:35.480 once a Goldman Sachs investment banker. So, Liam, why would 0:02:35.520 --> 0:02:38.200 you look historically has it been so difficult to predict 0:02:38.280 --> 0:02:41.120 the direction of energy prices? Why are people mostly wrong? 0:02:41.360 --> 0:02:45.480 Partly because, like any commodity, any sort of disruption can 0:02:45.560 --> 0:02:49.480 cause prices to fluctuate one way or the other. I 0:02:49.520 --> 0:02:53.320 think it's also because energy, because it's so central to 0:02:53.840 --> 0:02:59.800 modern society, is a highly politicized commodity. It's often forgotten 0:03:00.000 --> 0:03:04.040 and we focus on companies like Exomobile or Chevron that 0:03:04.120 --> 0:03:07.000 they're actually a tiny part, a relatively small part of 0:03:07.040 --> 0:03:09.640 the global oil business. A lot of it is really 0:03:09.680 --> 0:03:15.200 still controlled by state owned entities like Saudi Aramco or 0:03:15.880 --> 0:03:20.920 state like controlled entities like the Russian oil companies. So 0:03:20.960 --> 0:03:24.120 it really sits at the intersection of the economy and 0:03:24.200 --> 0:03:26.800 politics in a way that is somewhat unique in the 0:03:26.840 --> 0:03:29.600 business world. Would you say, I would say so, yeah. 0:03:29.680 --> 0:03:33.119 I mean, I think anything that touches upon what we 0:03:33.160 --> 0:03:36.560 eat or how we heat ourselves or get around is 0:03:37.000 --> 0:03:39.960 going to be ultimately a political thing. So what's the 0:03:40.000 --> 0:03:43.280 debate today? It seems like we've switched from this idea 0:03:43.440 --> 0:03:47.160 of peak supply, this idea made famous by Twilight in 0:03:47.200 --> 0:03:48.680 the Desert, that we are going to run out of 0:03:48.680 --> 0:03:51.600 oil and natural gas, to a different concept, and almost 0:03:51.640 --> 0:03:55.480 the opposite concept, right, which is peak demand. Yeah, we've 0:03:55.560 --> 0:03:59.040 we've gone from an age of scarcity to an age 0:03:59.040 --> 0:04:02.160 of abundance, or at least that's what everybody thinks. That's 0:04:02.200 --> 0:04:04.280 what everybody thinks, you know. And I think it's it's 0:04:04.320 --> 0:04:10.080 important to distinguish really what abundance means. I think it's 0:04:10.120 --> 0:04:14.520 fair to say, in purely geological terms, we will probably 0:04:14.640 --> 0:04:18.120 never run out of oil and gas below the ground. 0:04:18.240 --> 0:04:20.839 I think it's fairly well established that there is just 0:04:20.960 --> 0:04:23.440 a hell of a lot there. What it really boils 0:04:23.440 --> 0:04:26.839 down to is the demand there for it, and also 0:04:27.000 --> 0:04:30.720 is the capsule there to fund it? And you know, 0:04:30.720 --> 0:04:33.680 and I think shale has actually been a great example 0:04:33.720 --> 0:04:37.320 of how that dynamic plays out. And what do you mean, 0:04:37.440 --> 0:04:40.120 because investors have been willing to fund the shale industry 0:04:40.160 --> 0:04:43.200 despite the fact that it doesn't make money. Yeah, I mean, 0:04:43.200 --> 0:04:47.080 what ails the US oil and gas business is that 0:04:47.200 --> 0:04:51.720 technologically it is brilliant. It has been able to effectively 0:04:52.240 --> 0:04:56.719 pick itself up from thirty years of decline and turn 0:04:56.760 --> 0:04:59.640 itself into the biggest force in the global energy business 0:05:00.120 --> 0:05:02.400 in the space of a decade, mainly for fracking, right 0:05:02.400 --> 0:05:04.880 and pas on that just from just to tell people 0:05:04.920 --> 0:05:08.360 what it is and how why it's changed things so dramatically. Yeah, 0:05:08.400 --> 0:05:12.120 So essentially the US oil business has gone from being 0:05:12.200 --> 0:05:17.600 a conventional oil business, which was centered mainly on some 0:05:17.720 --> 0:05:21.640 declining onshore assets the Gulf of Mexico which had kind 0:05:21.640 --> 0:05:24.480 of boomed in the late seventies and into the eighties, 0:05:24.800 --> 0:05:28.920 and Alaska. Those are all now either flat or declining. Really, 0:05:29.520 --> 0:05:33.280 and what's happened is the US independent oil and gas 0:05:33.320 --> 0:05:37.320 business unlocked the code of fracking, which is essentially, you 0:05:37.920 --> 0:05:41.480 drill down into the source rock of oil and gas 0:05:41.520 --> 0:05:45.279 and you pump a bunch of fluids and propints into 0:05:45.320 --> 0:05:47.200 it and break apart the rock and you release a 0:05:47.200 --> 0:05:49.680 lot more oil and gas. And back to your point, 0:05:49.240 --> 0:05:53.320 it's it's a pretty enormous technological achievement, right. Whatever the 0:05:53.400 --> 0:05:56.160 questions about the environment and other things, which we'll get 0:05:56.160 --> 0:05:59.920 to But that's a pretty enormous technological achievement. Yeah. I mean, 0:06:00.400 --> 0:06:02.920 the industry has been playing around with fracking, you know, 0:06:03.080 --> 0:06:05.599 for at least about forty or fifty years. It was 0:06:05.680 --> 0:06:09.240 only really in the you know, the first decade of 0:06:09.279 --> 0:06:13.920 this century that companies like Mitchell Energy Chesapeake Energy really 0:06:13.960 --> 0:06:15.640 began to get things going. And it's only in the 0:06:15.640 --> 0:06:18.640 past decade that it's really taken off with oil production. 0:06:18.800 --> 0:06:21.159 It was previously a gas thing. So you're come back 0:06:21.160 --> 0:06:24.000 to your point about how shale is emblematic of the 0:06:24.120 --> 0:06:27.400 US of the industry overall. Yeah, So the industry has 0:06:27.400 --> 0:06:32.000 been technologically brilliant. Financially it's been a disaster. You know. 0:06:32.080 --> 0:06:34.919 What's really happened is, you know, in some ways, I 0:06:34.960 --> 0:06:38.240 see the frackers as being a little like Tesla or 0:06:38.440 --> 0:06:41.919 Uber or we Work. Even what you've seen is the 0:06:42.040 --> 0:06:45.560 US engage in a massive grab for market share in 0:06:45.600 --> 0:06:49.880 the global oil and gas business, mostly financed by third 0:06:49.920 --> 0:06:53.479 party capital. So it's not necessarily the venture capital that 0:06:53.520 --> 0:06:57.840 we've seen with companies like we Work. It's very accommodating 0:06:58.560 --> 0:07:03.279 high yield debtmark and the equity market and private equity 0:07:03.360 --> 0:07:05.919 and private equity as well and what they've done is 0:07:05.920 --> 0:07:09.480 they've essentially allowed these companies to outspend their cash flow 0:07:10.120 --> 0:07:13.040 based on a story like all these companies don't worry 0:07:13.040 --> 0:07:15.800 about the fact that we're outspending capital now because we're 0:07:16.000 --> 0:07:18.920 growing into things and the more market share we take 0:07:18.960 --> 0:07:23.120 eventually will be fantastically profitable. And I think what's happened, 0:07:23.160 --> 0:07:25.040 particularly over the last year or so is that's kind 0:07:25.080 --> 0:07:27.120 of hit the wall. Why did it hit the wall 0:07:27.240 --> 0:07:29.920 now when that dynamic was always in place. In other words, 0:07:29.960 --> 0:07:32.600 it's not like these companies once made money and then 0:07:32.600 --> 0:07:36.040 they stopped. Why did investors start believing partly it was 0:07:36.080 --> 0:07:37.720 an OPEC thing? You know, if you go back to 0:07:37.800 --> 0:07:41.680 Thanksgiving twenty fourteen, that's that famous OPEC meeting where OPEC 0:07:41.760 --> 0:07:44.880 decided to kill you as shale, right, it wasn't going 0:07:44.920 --> 0:07:48.160 to cut production, it was going to let prices fall 0:07:48.200 --> 0:07:52.280 and the shale industry would be devastated. What we've seen 0:07:52.440 --> 0:07:57.160 is actually a capital markets stepped in and twenty sixteen, 0:07:57.200 --> 0:08:01.120 which was when oil briefly dipped below thirty dollars a barrel, 0:08:01.280 --> 0:08:05.760 is also, to my recollection, the biggest year ever for 0:08:06.000 --> 0:08:09.400 emp excy fundraising. If you can imagine it actually happened 0:08:09.440 --> 0:08:12.040 just as oil hit its lowest point, and it's because 0:08:12.600 --> 0:08:16.200 investors were used to this cycle playing out where all 0:08:16.280 --> 0:08:20.239 prices drop, stocks become cheap, and then everyone gets ready 0:08:20.240 --> 0:08:23.960 for the next up cycle. The next up cycle hasn't happened. Uhha. 0:08:24.200 --> 0:08:28.040 So that's why now you have this this brewing skepticism. 0:08:28.080 --> 0:08:32.440 How does that play into the bigger picture? Because the 0:08:32.520 --> 0:08:35.600 markets are counting on continued growth from US shale, right 0:08:35.880 --> 0:08:38.040 And I think it's a fascinating thing because we tend 0:08:38.080 --> 0:08:40.000 to think of it through an environmental lens, and we'll 0:08:40.440 --> 0:08:44.040 get to that, but there's this this very economic lens 0:08:44.040 --> 0:08:46.199 to think of it through, too, which is that these 0:08:46.280 --> 0:08:48.720 companies don't make money and the market stops funding them 0:08:48.760 --> 0:08:51.480 and their supply starts to go down. What does that 0:08:51.559 --> 0:08:55.200 do to this dynamic where everybody's predicting that oil prices 0:08:55.200 --> 0:08:57.520 will stay low exactly? I mean, this is the big 0:08:57.559 --> 0:09:03.240 debate now amongers of supply and demand. It seems the 0:09:03.280 --> 0:09:06.440 big agencies that we usually look to for forecasts, so 0:09:06.600 --> 0:09:09.760 you know, OPEC, the I, the EIA in the US 0:09:10.160 --> 0:09:15.200 are all still reasonably convinced that US shale supply will 0:09:15.240 --> 0:09:20.280 prove resilient. Now there's a little complication in twenty twenty, 0:09:20.320 --> 0:09:24.520 and that we're also expecting a big wave of NONWUS shale, 0:09:24.800 --> 0:09:29.040 non OPEC production to come through in places like Brazil Norway. 0:09:29.080 --> 0:09:32.240 This is all stuff that got teed up when all 0:09:32.280 --> 0:09:34.720 prices were at one hundred bucks a barrel and is 0:09:34.760 --> 0:09:38.439 now starting to come through because these conventional projects take 0:09:38.520 --> 0:09:42.160 so long to debate, multiple years to bring on stream. Yeah, 0:09:42.240 --> 0:09:46.800 so twenty twenty is looking bad anyway, no matter in 0:09:46.880 --> 0:09:50.040 terms of all prices, no matter what happens with shale. 0:09:50.120 --> 0:09:54.800 The big question is will the capital spiggot being turned 0:09:54.840 --> 0:09:59.000 off cause US shale production to go from this one 0:09:59.040 --> 0:10:03.080 million barrels a day extra every year down to you know, 0:10:03.120 --> 0:10:06.280 five hundred thousand barrels or even zero? And what do 0:10:06.320 --> 0:10:08.880 you do You think that's likely and what's what's the 0:10:08.880 --> 0:10:13.520 effect if that does happen? So is it likely? It 0:10:14.160 --> 0:10:17.960 seems to me almost certain that the EMP business has 0:10:18.000 --> 0:10:21.160 to scale back, and that's certainly the message that's coming 0:10:21.200 --> 0:10:23.920 out from a lot of the companies. Only this morning 0:10:23.960 --> 0:10:27.040 I was listening to the CONCO kind of ten year plan, 0:10:27.360 --> 0:10:30.400 and most of that plan boils down to things look 0:10:30.480 --> 0:10:32.360 very uncertain. All you can do is try and keep 0:10:32.360 --> 0:10:37.920 your costs down. So you have to imagine that, given 0:10:37.920 --> 0:10:40.760 that this is a business that's mostly driven by its 0:10:40.800 --> 0:10:43.960 access to capital, that it has to scale back in 0:10:44.000 --> 0:10:47.560 some way. Having said that, I probably would have said 0:10:47.559 --> 0:10:51.480 almost the same thing in twenty fifteen, right, and somehow 0:10:52.400 --> 0:10:55.960 it managed to prove us all wrong. So I think 0:10:56.000 --> 0:10:58.600 that that factor has to be borne in mind in 0:10:58.679 --> 0:11:01.400 terms of what it would do well. For one thing, 0:11:01.600 --> 0:11:05.080 it would allow OPEC to claw back a bit of 0:11:05.080 --> 0:11:08.160 the power that it's lost over the past few years 0:11:08.160 --> 0:11:11.520 in terms of trying to support all prices. In an 0:11:11.520 --> 0:11:17.840 extreme scenario, if you had us supply growth suddenly flip 0:11:18.280 --> 0:11:21.840 and everyone couldn't count on it, you have the potential 0:11:21.880 --> 0:11:26.240 then for a pretty serious increase in all prices. I 0:11:26.320 --> 0:11:29.920 think though, that this cycle would be different from the 0:11:30.000 --> 0:11:32.440 last cycle that we had if that was to play out. 0:11:32.480 --> 0:11:35.000 In other words, prices wouldn't shoot over one hundred dollars 0:11:35.000 --> 0:11:38.280 a barrel because there's more flexibility in the system. It's 0:11:38.400 --> 0:11:41.320 it's it's less where the price would settle, it's more 0:11:41.360 --> 0:11:44.520 what the impact of that would be. Because I think 0:11:44.559 --> 0:11:48.120 when all prices last peaked above a hundred bucks a 0:11:48.160 --> 0:11:51.360 barrel and then collapse. I think we were all in 0:11:51.400 --> 0:11:55.360 the mindset that all prices, you know, were still stuck 0:11:55.360 --> 0:11:58.200 in the usual cycle, that they would go above a hundred, 0:11:58.200 --> 0:12:01.120 come down, go above a hundred, come down. I think 0:12:01.160 --> 0:12:03.800 this time, if we were to see all prices jump 0:12:03.840 --> 0:12:07.040 above a hundred bucks a barrel, given what's happened in 0:12:07.080 --> 0:12:10.640 the last few years in terms of two main things. 0:12:10.720 --> 0:12:14.400 One is greater awareness of what climate change is doing 0:12:14.440 --> 0:12:19.280 to us, and secondly this changing relationship between the US 0:12:19.440 --> 0:12:23.280 and the Middle East, I think another superspike in all 0:12:23.400 --> 0:12:25.760 prices is probably the worst thing that could happen to 0:12:25.800 --> 0:12:29.360 the old market. We elaborate on that. Why Well, if 0:12:29.360 --> 0:12:32.520 you go back to two thousand and eight, which is 0:12:32.559 --> 0:12:35.920 the last time I would say politically the US was 0:12:36.400 --> 0:12:38.959 serious about dealing with climate change. You may remember there 0:12:39.000 --> 0:12:41.800 was a carbon pricing bill that died in the Senate, 0:12:42.320 --> 0:12:44.760 but there was a bill right there, at least was 0:12:44.800 --> 0:12:47.080 a bill. What was interesting about that time was that 0:12:47.120 --> 0:12:51.800 there was an alignment between environmentalists on one hand and 0:12:52.240 --> 0:12:55.160 you know, the kind of security hawks on the other. 0:12:55.200 --> 0:12:58.040 Because people were getting worried about our dependence on this 0:12:58.320 --> 0:13:01.480 fractious area called the Middle East for US supply. What's 0:13:01.520 --> 0:13:04.920 different this time, I think is if we were to 0:13:04.960 --> 0:13:08.800 get another one hundred dollars a barrel superspike in all prices, 0:13:09.400 --> 0:13:13.360 it would absolutely lend more credence to the environmentalist movement, 0:13:13.720 --> 0:13:17.000 particularly because in the intervening decade we've seen the cost 0:13:17.040 --> 0:13:21.600 of alternative technologies drop dramatically, so electric vehicles no longer 0:13:21.640 --> 0:13:26.520 seem fantastical. Renewable energy is pretty cheap now. But I 0:13:26.559 --> 0:13:29.400 think we would also see that security element come back, 0:13:29.480 --> 0:13:32.200 but with a crucial twist, which is, these days the 0:13:32.320 --> 0:13:37.160 US does not see itself as quite so dependent on 0:13:37.200 --> 0:13:39.800 the Middle East in certain respects. As we can see, 0:13:40.000 --> 0:13:43.000 particularly with the current administration, it is pulling back in 0:13:43.040 --> 0:13:47.000 all sorts of ways, in part because of these freedom molecules, 0:13:47.000 --> 0:13:49.400 as the Trump administration calls them, right, what did you 0:13:49.440 --> 0:13:54.920 call them? Freedom frack? Freedom fracking. Yes, that's a path 0:13:55.000 --> 0:13:57.680 that administrations in the past have not pursued, and that 0:13:57.880 --> 0:14:01.120 well they weren't able to. But the Obama aministration pretty 0:14:01.160 --> 0:14:04.440 explicitly did not want to use energy as a geopolitical weapon. 0:14:04.800 --> 0:14:07.320 How big a change is it in US policy to 0:14:07.400 --> 0:14:11.840 have the Trump administration using it so explicitly. Oh, that's enormous. 0:14:11.880 --> 0:14:16.400 I mean, I think the standard US policy on energy 0:14:16.440 --> 0:14:19.960 markets posts the seventy three crisis was to essentially use 0:14:20.080 --> 0:14:25.920 markets and diversification and you know, protecting global trade to 0:14:26.080 --> 0:14:29.960 manage its energy exposure, almost like an investor diversifies their 0:14:30.000 --> 0:14:33.840 portfolio to manage their risk. We've now seen that flip 0:14:33.840 --> 0:14:36.600 and the US is actually saying the speech. I think 0:14:36.680 --> 0:14:40.200 it was the speech that Mike Pompeo gave it Serial 0:14:40.280 --> 0:14:44.600 Week earlier this year, where you know, he actually talked 0:14:44.640 --> 0:14:48.720 about values being attached to US energy exports and using 0:14:48.760 --> 0:14:52.480 those exports to export American values. I mean, that's a 0:14:52.640 --> 0:14:55.200 that's a huge change in the old market we've had 0:14:55.200 --> 0:14:58.400 it gone back to a more mercantilis framework. You had 0:14:58.440 --> 0:15:00.160 it in one of your pieces, and he' said we're 0:15:00.200 --> 0:15:03.680 not just exporting American energy, We're exporting our commercial value 0:15:03.680 --> 0:15:06.280 system to our friends and to our partners. Our model 0:15:06.480 --> 0:15:08.600 matters now, frankly more than ever in an era of 0:15:08.640 --> 0:15:11.920 great power, rivalry and competition, and they're using their energy 0:15:11.960 --> 0:15:16.600 to destroy ours. It was quite a strongly worded speech. Yeah, 0:15:16.720 --> 0:15:19.000 not great if you're in Europe, of its name. No, 0:15:19.680 --> 0:15:22.240 isn't there a risk to that if fracking companies do 0:15:22.400 --> 0:15:24.880 turn out to be well, I suppose it's not clear 0:15:24.920 --> 0:15:26.600 what the fate of Tesla and Uber is, but it's 0:15:26.640 --> 0:15:28.840 certainly clear what the fate of we Work is. If 0:15:28.840 --> 0:15:31.640 the analogy does hold and fracking companies turn out to 0:15:31.680 --> 0:15:34.400 be potentially like we Work and they can never make money, 0:15:34.440 --> 0:15:36.680 isn't that a dangerous game for the US to be playing? 0:15:37.160 --> 0:15:39.680 It is? I mean, we have to consider how it 0:15:39.680 --> 0:15:42.320 would play out. I mean, the thing is the thing 0:15:42.360 --> 0:15:45.680 with the US fracking business is we tend to think 0:15:45.720 --> 0:15:48.480 of it in all or nothing terms. So if a 0:15:48.520 --> 0:15:51.760 bunch of frackers can't make their debt payments they go bankrupt, 0:15:51.920 --> 0:15:55.360 what does that mean? Really, it doesn't necessarily mean production 0:15:55.400 --> 0:15:58.960 goes to zero. The assets change hands. Whoever ends up 0:15:59.000 --> 0:16:02.160 owning the assets wants those assets to produce, and actually, 0:16:02.200 --> 0:16:06.360 once you take the burden of debt off them, in 0:16:06.400 --> 0:16:08.760 some ways, there are actually better position to keep producing. 0:16:09.240 --> 0:16:13.480 It is dangerous in the sense that the US is 0:16:13.520 --> 0:16:18.120 being overconfident. Yeah, I think in its energy independence or 0:16:18.240 --> 0:16:21.840 dominance dream that it has now, the US is not 0:16:22.160 --> 0:16:26.920 energy independent. Yes, next year, technically it will become a 0:16:27.040 --> 0:16:31.320 net oil exporter for the first time in decades, it 0:16:31.400 --> 0:16:34.840 will still be importing millions of barrels of crude oil 0:16:35.400 --> 0:16:38.040 a day, because that's just how the oil system works. 0:16:38.120 --> 0:16:40.760 You know, there are different grades, there are different prices 0:16:40.800 --> 0:16:44.440 on offer. There's a reason we haven't embraced autarchy. It's 0:16:44.480 --> 0:16:48.080 generally not good for the economy. And isn't the concept 0:16:48.120 --> 0:16:52.200 of energy independence itself somewhat flawed given that we live 0:16:52.240 --> 0:16:55.120 in a global economy, and so even if we were 0:16:55.200 --> 0:16:58.200 producing enough energy to fund all our needs, we're not 0:16:58.280 --> 0:17:01.800 producing enough to ask fund Asia's needs. So Asia's dependent 0:17:01.880 --> 0:17:04.640 on the Middle East, We're dependent on Asia. Isn't there 0:17:04.680 --> 0:17:07.640 something sort of flawed at the heart of that notion 0:17:07.760 --> 0:17:11.480 in today's very global economy? There is if you believe 0:17:11.520 --> 0:17:14.160 in a very global economy. I mean, I would say 0:17:14.880 --> 0:17:18.080 all the signals coming out of the Trump administration is 0:17:18.480 --> 0:17:21.800 that it doesn't believe in a global economy. It believes 0:17:22.040 --> 0:17:28.720 in great power rivalry and trade barriers and reverting back 0:17:28.800 --> 0:17:34.439 to a trading system that sort of predates the Bretton 0:17:34.480 --> 0:17:36.720 Woods arrangements at the end of the Second World War. 0:17:37.160 --> 0:17:39.800 It made sense in the past for the US to 0:17:39.880 --> 0:17:43.720 guarantee Middle Eastern oil supplies because it was dependent on 0:17:43.760 --> 0:17:46.920 it and its allies that we're helping it face off 0:17:46.960 --> 0:17:49.800 against the Soviet Union would dependent on it. That world 0:17:49.880 --> 0:17:54.840 no longer holds, and I think what we've seen with Obama, 0:17:54.880 --> 0:17:57.320 to be honest with regards to the Middle East, but 0:17:57.359 --> 0:18:00.399 we've seen it massively accelerate under Trump. The US is 0:18:00.440 --> 0:18:03.000 just stepping back from a lot of the arrangements that 0:18:03.119 --> 0:18:06.399 used to underwrite. And as somebody who's covered the energy 0:18:06.480 --> 0:18:08.720 markets now on the banking side and then as a 0:18:08.760 --> 0:18:11.840 journalist for almost two decades, how big a change is this. 0:18:12.400 --> 0:18:15.719 I mean, it's a completely changed world. We have become 0:18:15.840 --> 0:18:20.800 used to the idea that as volatile as energy markets 0:18:20.880 --> 0:18:26.120 can be, undergoding it all were some constants. US security guarantees, 0:18:26.600 --> 0:18:31.199 free trade, freedom of navigation. Those are the things that 0:18:31.359 --> 0:18:33.480 enable us to go from a ten million barrel a 0:18:33.560 --> 0:18:36.600 day world to one hundred million barrel a day world. 0:18:37.480 --> 0:18:41.480 I'm not sure we can necessarily count on oil demand 0:18:41.520 --> 0:18:44.679 continuing to grow in a world that's changed. It's really 0:18:44.720 --> 0:18:47.560 interesting because it goes back to your point about oil 0:18:47.680 --> 0:18:52.840 sitting at this intersection of both economic factors and political factors. 0:18:53.080 --> 0:18:55.960 And if the economic factors were always volatile, the political 0:18:56.000 --> 0:18:59.159 ones were in a sense more constant, Right, they were 0:18:59.200 --> 0:19:04.520 more fixed, And they're both completely wildly unpredictable. Absolutely, And 0:19:04.720 --> 0:19:08.200 also obviously the third element is we've begun to price 0:19:08.280 --> 0:19:09.960 in the thing that's always been there but which we 0:19:10.000 --> 0:19:13.560 always ignored, which is the environmental cost. I wanted to 0:19:13.560 --> 0:19:15.680 go back to something you'd said earlier, which is, which 0:19:15.760 --> 0:19:19.040 is interesting in a tiny bit counterintuitive, but not once, 0:19:19.280 --> 0:19:22.400 but that higher oil prices actually can be really good 0:19:22.400 --> 0:19:25.000 for the advent of renewables, right. And so in some 0:19:25.040 --> 0:19:27.640 ways the fact that prices are low as a result 0:19:27.800 --> 0:19:30.800 of fracking has been a benefit to all of us, 0:19:30.800 --> 0:19:33.199 a benefit to our pocketbooks, but it's also sort of 0:19:33.280 --> 0:19:36.600 thwarted into him that would be to our long term benefit. Right, 0:19:36.720 --> 0:19:38.800 Is that the right way of thinking about it? Yeah? 0:19:38.800 --> 0:19:41.000 I think so. I mean I think particularly in terms 0:19:41.000 --> 0:19:44.440 of gas, right, I mean, the cheap gas that's come 0:19:44.480 --> 0:19:48.800 from the fracking revolution obliterated the US coal industry. Yeah, 0:19:48.840 --> 0:19:52.640 but it also presents a fairly formidable challenge to renewables. 0:19:52.640 --> 0:19:55.240 And in some ways we're reaching a point in certain 0:19:55.280 --> 0:19:59.680 markets where renewables is if that's a word true target 0:19:59.720 --> 0:20:02.560 these days is less coal and it's more natural gas. 0:20:03.160 --> 0:20:06.000 So do you believe, because there's such heated debate about this, 0:20:06.160 --> 0:20:08.560 is natural gas a bridge fuel to a cleaner future? 0:20:09.760 --> 0:20:11.520 I mean, I think the problem with the whole bridge 0:20:11.520 --> 0:20:14.879 fuel thing is it's a blanket term. It's obviously a 0:20:14.960 --> 0:20:20.200 nice selling point that Chesapeake among other companies used to push. 0:20:20.240 --> 0:20:25.280 I think gas plays a useful role in balancing renewables. 0:20:25.840 --> 0:20:27.960 I think in certain markets. You know, if you look 0:20:27.960 --> 0:20:30.600 at places like China or India, it can play a 0:20:30.680 --> 0:20:33.840 much more aggressive role, partly because you still have a 0:20:33.840 --> 0:20:37.840 lot of coal fired power there. The downside for those countries, 0:20:37.880 --> 0:20:40.639 I think China in particular is for them they still 0:20:40.640 --> 0:20:43.440 look at they look at gas, and yes it helps 0:20:43.480 --> 0:20:46.320 them on the coal side, but they're still dependent on 0:20:46.560 --> 0:20:50.280 energy imports. And this comes back to the geopolitical aspect 0:20:50.280 --> 0:20:52.520 of all this is, you know, if you're a planner 0:20:52.520 --> 0:20:55.560 in Beijing, yes, on the one hand, you definitely want 0:20:55.560 --> 0:20:58.439 to clean up the air in your major cities. What 0:20:58.560 --> 0:21:01.320 you really don't want to do is repeat what the 0:21:01.440 --> 0:21:04.040 US did in the twentieth century and become dependent on 0:21:04.119 --> 0:21:07.120 places like the Middle East or countries that might turn 0:21:07.240 --> 0:21:12.080 hostile to you for your energy. And so when people, 0:21:12.200 --> 0:21:15.320 for example say, well, you know, we can be bullish 0:21:15.320 --> 0:21:18.199 on fossil fuels because China and India still need to 0:21:18.240 --> 0:21:21.120 industrialize and get up to our consumption levels that we've 0:21:21.119 --> 0:21:23.800 had in the West, I think it's a mistake because 0:21:24.280 --> 0:21:26.520 there really is no guarantee that they're going to repeat 0:21:26.600 --> 0:21:28.639 the model of development that the West had in the 0:21:28.640 --> 0:21:31.080 twenty They're actually trying to learn from the past instead 0:21:31.080 --> 0:21:34.320 of repeating the mistakes of the past. That's really interesting. 0:21:34.760 --> 0:21:37.880 When I was doing my book about energy, I put 0:21:37.920 --> 0:21:39.840 a lot of work into trying to figure out when 0:21:39.960 --> 0:21:42.000 the dawn of the age of renewables would be and 0:21:42.119 --> 0:21:44.760 figured out at least that just like with energy markets, 0:21:44.800 --> 0:21:47.080 no one really knows when it will be. Is that 0:21:47.200 --> 0:21:49.240 still the case or do you feel like now you 0:21:49.320 --> 0:21:51.320 have a sense of when we might be able to 0:21:51.320 --> 0:21:53.399 see the end of the fossil fuel industry. I mean, 0:21:53.440 --> 0:21:55.879 I think we're already at the dawn of it, definitely. 0:21:56.000 --> 0:21:58.520 And the way I think about that is looking at 0:21:58.600 --> 0:22:04.680 marginal change. So already you see renewable power and even 0:22:04.760 --> 0:22:08.119 things like electric vehicles are still tiny parts of the 0:22:08.200 --> 0:22:11.040 overall market. But when you look at their share of 0:22:11.080 --> 0:22:14.840 the growth in the overall energy or automobile market. They're 0:22:14.880 --> 0:22:17.199 already at more than fifty percent in a lot of 0:22:17.240 --> 0:22:20.800 major markets. So to my mind, when new technologies begin 0:22:20.880 --> 0:22:24.040 to capture a bigger share of growth, that's when they 0:22:24.080 --> 0:22:27.480 start to attract more capital. It's almost like a self 0:22:27.480 --> 0:22:31.360 fulfilling cycle. I mean, I think there's a reason why 0:22:31.720 --> 0:22:36.359 big incumbent car makers who are selling eighty odd million 0:22:36.480 --> 0:22:41.240 new internal combustion engine cars a year globally are putting 0:22:41.280 --> 0:22:44.160 the vast majority of their R and D spending into 0:22:44.160 --> 0:22:47.640 electric vehicles, which maybe a tiny part of their sales now, 0:22:47.920 --> 0:22:50.640 but they clearly see as being the way things are going. 0:22:50.720 --> 0:22:53.800 It's a very talent statistic, I think. In terms of 0:22:53.960 --> 0:22:58.399 looking towards peak demand. I try not to give hard 0:22:58.440 --> 0:23:01.520 and fast date because you'll be wrong on that, because 0:23:01.520 --> 0:23:04.200 I will be wrong. But I think, you know, look 0:23:04.240 --> 0:23:07.800 back over the past decade, you go back to November 0:23:07.800 --> 0:23:11.360 two thousand and nine, it'd be really hard to predict 0:23:11.440 --> 0:23:14.720