Speaker 1: Hello, and welcome to another episode of the Odd Thoughts podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't so Joe. I
Speaker 1: feel like we need to do an episode on European
Speaker 1: energy once a month now. There are so many developments
Speaker 1: happening so fast. German electricity prices, price caps in the UK,
Speaker 1: the French nuclear industry, and it all relates to geopolitics
Speaker 1: and inflation. How it fits with the e c B
Speaker 1: and everything there really is like it's really like a
Speaker 1: NonStop story that we have to be covering more or
Speaker 1: less all the time. Yeah, and I feel like we
Speaker 1: had some interesting conversations on this topic earlier in the year,
Speaker 1: definitely throughout the summer and even way back into the spring.
Speaker 1: And the difference now is that we really are starting
Speaker 1: to see governments take some steps to try to limit
Speaker 1: the impact of the energy crisis. Right. But here's the
Speaker 1: thing that I don't really get, Like, sure, the government
Speaker 1: can you know, cap prices theoretically, or they could provide
Speaker 1: subsidies to homeowners theoretically, etcetera. But the one thing nothing
Speaker 1: actually provides more molecules, Like none of there's nothing that's
Speaker 1: on the government's balance sheet that it could be done
Speaker 1: to like actually, in my mind, get at the core issue,
Speaker 1: which is a shortage of natural gas, molecules or oil, etcetera.
Speaker 1: And so the question of like how Europe gets through
Speaker 1: the winter, how much of a recession will be, how
Speaker 1: it's gonna ration, energy, etcetera, is still, to my mind
Speaker 1: like a huge question mark. And I think a lot
Speaker 1: might even depend on the weather. Yeah, that's exactly right,
Speaker 1: And there's so much to discuss on this topic. But
Speaker 1: I am happy to say that we really do have
Speaker 1: the perfect guest for today. We're going to be speaking
Speaker 1: with the commodities trader Pierre onderand about this topic. We
Speaker 1: spoke to him, I think it was back in March
Speaker 1: or April of this year when a lot of these
Speaker 1: energy can sterns were just kicking off, And we're going
Speaker 1: to catch up with him and see what he's thinking
Speaker 1: about the market now. Can't wait. Pierre, Thank you so
Speaker 1: much for coming back on all blots. My pleasure. High Tracy,
Speaker 1: Hi Joe, good to speak with you again. Pierre. Maybe
Speaker 1: just to begin with you know, we've spoken to some
Speaker 1: of our colleagues, some people in the energy market recently,
Speaker 1: back in August just about how dire the situation in
Speaker 1: Europe could get this winter. At least one of them
Speaker 1: was pretty pessimistic about the outlook. But you had a
Speaker 1: Twitter thread recently where you were suggesting that maybe things
Speaker 1: aren't that bad, Maybe there are steps that society as
Speaker 1: a whole could be taking to try to offset some
Speaker 1: of these commodities pressures. What do you think Europe can
Speaker 1: do here? Yes, I think, I think, you know, then
Speaker 1: we think we have you know, we've been you know,
Speaker 1: used to living in in a very abundant world and
Speaker 1: we have to switch into a wolf of a dime.
Speaker 1: And once we understand that, I don't think the steps
Speaker 1: we have to make our are too difficult. But first,
Speaker 1: plan number one for no Russian gas, you know, pretty
Speaker 1: much ever for the foreseeable future. Once politicians understand that
Speaker 1: we have to plan for no Russian gas, then it
Speaker 1: is much easier than you know, assuming that it will
Speaker 1: come and then it doesn't go. So so far there
Speaker 1: has been a lot of steps have been taken. So first,
Speaker 1: you know, at the moment, Russian gas exposed to Europe
Speaker 1: have gone down by seventy and I think they will
Speaker 1: go down. I mean, for me, I think we have
Speaker 1: to assume that we will not get from now and
Speaker 1: pretty much from from next week onwards um and and
Speaker 1: think about how we can live without Russian gas altogether.
Speaker 1: So the good news is that Europe has been able
Speaker 1: to import a lot more energy so liquid natural gas
Speaker 1: than expected this year, pretty much almost double the imports
Speaker 1: of llenergy and that increasing energy so apply corresponds to
Speaker 1: about two thirds of the Russian losses so far, So
Speaker 1: that's a good news. We managed to import a lot
Speaker 1: more energy, and there's more import capacities as being built
Speaker 1: and that will come online over the next few months.
Speaker 1: So it looks like energy import capacity will not be
Speaker 1: an issue for Europe. The problem is how much you know,
Speaker 1: llergy can Europe really managed to to attract because the
Speaker 1: West of the world is competing for that supply and
Speaker 1: some other countries have no long term contracts. But I
Speaker 1: will assume that you know, Europe being you know what,
Speaker 1: you know, like one of the wealthiest continent, that they'll
Speaker 1: be able to most of the competitors for for llergy.
Speaker 1: And I think the hard part is mainly behind us.
Speaker 1: I think now the global supply of energy is still
Speaker 1: going up, we'll should have a big bump in. So
Speaker 1: if we assume that Europe could attract about of the
Speaker 1: energy additions, that will already go a long way in
Speaker 1: solving solving the crisis. But we can't replace over the
Speaker 1: next two years all of the Ossian gas. We can
Speaker 1: replace a big part of it with energy, but not
Speaker 1: all of it, So we need to have some kind
Speaker 1: of demand response. Some of it already happened. So basically,
Speaker 1: if you think of all the gas, about fifty percent
Speaker 1: is coming from residential slash commercial demand as for hitting
Speaker 1: and cooking, but many hitting, about twenty five percent is
Speaker 1: coming from industrial demand or so from power. So so
Speaker 1: far we've seen a switch of about thirty five oil
Speaker 1: in the industrial demand. So already today we have lost
Speaker 1: a lot of gas demand from the industry because natural
Speaker 1: gas prices are much higher than than oil prices. Some
Speaker 1: of that switching from gas to oil has happened, and
Speaker 1: I switching happening just because some of it needs a
Speaker 1: bit of lead time, so that in Europe and Asia.
Speaker 1: So I think we will lose some natural guest demand
Speaker 1: worldwide due to very high natural gas prices, and then
Speaker 1: what's what's left to do is really bring residential demand
Speaker 1: and power demand down to Willie balance the market and
Speaker 1: the steps that have to be taken are not so dramatic.
Speaker 1: Basically a thing that I mean, it looks like in
Speaker 1: my supplant demand model that we need to bring the
Speaker 1: residential and commercial demand down by fifteen percent. Of responds
Speaker 1: to lowering the term stat by three degrees from twenty
Speaker 1: two degrees celsius to nineteen degrees celsius. So it might
Speaker 1: sound a bit you know, chili relative to what we
Speaker 1: are being we are used to, but it's not very cold.
Speaker 1: It's basically had in nine six in in Europe and
Speaker 1: the UK, and we were living with fifteen to sixteen
Speaker 1: degrees in the seventies, you know, during the the energy
Speaker 1: crisis of the seventies. Um so alreadys that will go along,
Speaker 1: and then we'll need to bring power demand down by
Speaker 1: five percent, which is you know, BIGI just switching some
Speaker 1: you know, switching off the lights in a room that
Speaker 1: are not used, switching off buildings at night when they're
Speaker 1: not used, and stuff like that bring power demand down
Speaker 1: by five percent. So there are steps to be taken.
Speaker 1: Um in that situation, we don't need any Russian gas
Speaker 1: at all. And actually Russia would not get one dred
Speaker 1: billion dollars of European money as a result. So I
Speaker 1: think if I were bring that you know, to be
Speaker 1: three degrees cooler in in the winter, but still very comfortable,
Speaker 1: very comfortable temperatures, and you know, switching off some lights
Speaker 1: here and there and that enough to not gas at all.
Speaker 1: So I think we have more language than we think.
Speaker 1: I think the Shermong girls and the version protagonists, you know,
Speaker 1: when they say that we're all gonna freeze to days
Speaker 1: in the in the winter, it's actually not true. But
Speaker 1: we need to plan, you know, I mean, it could
Speaker 1: be true at the end. If we don't make steps
Speaker 1: today to lower demand, then we will have some issue,
Speaker 1: some shortage before the end of the winter. I keep
Speaker 1: having to remind myself three degrees does it sound like
Speaker 1: that much? But you know, for listeners, bear in mind,
Speaker 1: you know that celsius in fahrenheit and something. But it
Speaker 1: is interesting too that, as you point out, and you
Speaker 1: said on Twitter, that actually was more the average in
Speaker 1: the nineties. So it's not a huge backstab. Just on
Speaker 1: the question of getting adequate llergy imports. How much of
Speaker 1: it is it about essentially outbidding the rest of the
Speaker 1: world versus expanding the physical infrastructure to take in that llenergy.
Speaker 1: Is there an acceleration of LLERGY import terminal construction that
Speaker 1: will start to move of the dial in the medium
Speaker 1: or short term, Yeah, there are some. So I'm not
Speaker 1: worried about the import capacity of Europe because we already
Speaker 1: have some floating platform that can import energy that are
Speaker 1: coming online in the next few months, and already today
Speaker 1: like the energy imports, we present seventy one of the
Speaker 1: import capacity of Europe. But we need a bit more
Speaker 1: important in the north of Europe, and that will happen
Speaker 1: over the next few months. So it doesn't look like,
Speaker 1: you know, the import capacity is a constraint in Europe.
Speaker 1: So what we need is that we need the global
Speaker 1: supplier of energy to grow up. Um So, in terms
Speaker 1: to give you some numbers, global supply of energy is
Speaker 1: about five hundred and fifty busy m, so that's billion
Speaker 1: cubic meters, and it's growing for the next few years
Speaker 1: um at a one fifteen b c m yes of
Speaker 1: the next two years, and then it goes to sixty
Speaker 1: or so sixty bc mp year. And so if we
Speaker 1: assume so basically with the current volume that Europe is important.
Speaker 1: It will just need to import about of the additions
Speaker 1: on top of the import today to balance the markets.
Speaker 1: Fas for the next two years we accept slightly cooler
Speaker 1: temperatures in the winter. So you mentioned this idea of Europe,
Speaker 1: you know, giving a hundred billion dollars of money to
Speaker 1: Russia for its commodities exports. And one thing that you
Speaker 1: wrote after we last spoke in March was about how
Speaker 1: price caps on Russian oil could work and add pressure
Speaker 1: to the Russian economy, and you kind of focused on
Speaker 1: a problem in the current situation, which is that Russia
Speaker 1: is exporting less oil and gas, but it's selling that
Speaker 1: oil and gas at higher prices, so it's still getting
Speaker 1: a substantial amount of money from those exports. Uh. And
Speaker 1: fast forward to this month, we have the G seven
Speaker 1: endorsing that price cap on Russian oil. I should say
Speaker 1: we're recording this UM on September twenty one, which is
Speaker 1: the week of the UN General Assembly, so there might
Speaker 1: be some news on this. But talk to us about
Speaker 1: what you would like to see from the G seven
Speaker 1: in order to make these price caps work, because it
Speaker 1: does seem like it's kind of a delicate balancing act,
Speaker 1: and presumably the West wants to pressure the Russian economy
Speaker 1: without sending commodities prices way higher. Yes, so I think
Speaker 1: it's possible to enforce, but you need and I think
Speaker 1: a lot you know, all the consumers have an incentive
Speaker 1: in playing game and you know, buying buying really cheaper
Speaker 1: than what they've done, you know, in the past. So
Speaker 1: I think the keys to find cap prize that is
Speaker 1: lower than current prices obviously, and and lower than where
Speaker 1: China and India are buying it. And I think somehow
Speaker 1: there will be game, at least unofficially to to do that.
Speaker 1: But then it's a question of how they will want
Speaker 1: to enforce it, right, it's um there will always be
Speaker 1: some cheating, But I think on on on a large part,
Speaker 1: it's possible to enforce as far as um you know,
Speaker 1: because there's like it's a large flow bicky. If you
Speaker 1: have to replace all the oil exports to Europe and
Speaker 1: move them to India and China, you need a lot
Speaker 1: more ships. So backy, you have some constraints in terms
Speaker 1: of shipping, and a lot of those ships are Greek,
Speaker 1: so I think there will be some you know, the
Speaker 1: devil will be in the detail. I think it's possible,
Speaker 1: but the but hopefully they're speaking with enough people to
Speaker 1: understand what has to be done to really minimize the
Speaker 1: cheating so that we can really put a damp on
Speaker 1: on Russiana revenue. Can we just go back a little
Speaker 1: bit to the rationing, and some of the rationing seems
Speaker 1: straightforward in Europe, It's like, okay, turned down the thermostats
Speaker 1: in the winter, turn off lights in rooms when you're
Speaker 1: not in them. But in terms of like industrial demand,
Speaker 1: that seems like, you know, it almost seems like a
Speaker 1: guarantee that there is a deep recession coming to Europe.
Speaker 1: If factories just can't afford to operate profitably at current prices,
Speaker 1: how much demand destruction, Like what's that going to do
Speaker 1: to Europe's industrial sector? And how much of a bite
Speaker 1: will that take out? How much will it just sort
Speaker 1: of like factory shutdowns essentially contribute to getting demand to
Speaker 1: the necessary levels. So there's some industries that um use
Speaker 1: natural gas as if eat stuck, so not only to
Speaker 1: know not only geration, but that defeats stuck. So some
Speaker 1: examples would be chemical manufacturing would be you know, glassmaking
Speaker 1: would be petro chemical, the petro chemical industry. So for
Speaker 1: some processes you need natural gas as the feedstock and
Speaker 1: you cannot change it right, but some of them you can.
Speaker 1: For example, for the petcam industry, you can use NAPSA
Speaker 1: instead of instead of natural gas, so you can have
Speaker 1: some switching from natural gas to oil. Also in in
Speaker 1: the in terms of natural gas demand for the industry,
Speaker 1: a lot of it is also to generate their own
Speaker 1: power and and for that they can actually use oil
Speaker 1: instead of natural gas. So you can have quite a
Speaker 1: lot of switching in the industry. And already today we're
Speaker 1: seeing switching of thirty pc from natural gas to oil.
Speaker 1: So that's the good news. In in in the industry
Speaker 1: that does have to take natural gas, well, I guess
Speaker 1: we'll have to think of which ones are strategic and
Speaker 1: which ones are not. And the strategic industries will have
Speaker 1: to be helped by the government to be able to
Speaker 1: afford gas and power places until the matter resolve and
Speaker 1: and and it will you know, over the next two
Speaker 1: to three years. It would be resolved to more lergy
Speaker 1: and as far as we there's enough incentive for consumers
Speaker 1: to red the unnecessary consumption of energy. I know this
Speaker 1: is a slight turn or detour, but can you give
Speaker 1: us a lot of perspective just from where your perspective
Speaker 1: what's going on with French nuclear well brickally, you know,
Speaker 1: it's a nuclear park. You know was at first at
Speaker 1: the life expectancy of forty years and we're getting towards
Speaker 1: the end of the forty years. So there's some issues
Speaker 1: that the maintenance have to be done. Uh you know
Speaker 1: they can they see some cousion, some you know, some
Speaker 1: issue here and there that they have to fix. But
Speaker 1: it looks like you know, the work mainly at those
Speaker 1: power places. The work will be done for some of
Speaker 1: that capacity to come back online. But I think there
Speaker 1: should be a switch to to really invest massively into
Speaker 1: nuclear like around Europe, and I hope that will come
Speaker 1: because we need that baseload no no low calbum capacity.
Speaker 1: That takes a while to build plants, right nuclear plants,
Speaker 1: but they have to today decided to go for it.
Speaker 1: If I can add also, you know, like the warmer
Speaker 1: temperatures in the summer make it more difficult to cool
Speaker 1: U nuclear reactors, so that's why some of them have
Speaker 1: to shut down as well. And that happens not only
Speaker 1: in Europe, but around the world, right, So there most
Speaker 1: of them are built around weathers or around the sea,
Speaker 1: and when the water becomes too warm, they have to
Speaker 1: shut down until the water gets cooler. That you have
Speaker 1: that tissue as well. So you mentioned perhaps some support
Speaker 1: for certain industries who cannot easily substitute fuels, but you've
Speaker 1: also been publicly critical of some government support schemes for
Speaker 1: energy usage. Specifically, the UK is capping of electricity and
Speaker 1: net gas prices. I think it's something like two thousand
Speaker 1: five pounds for UK households. What's the issue there? And
Speaker 1: I'm curious if that criticism also extends to the US
Speaker 1: where the big you know, effort that's been underway here
Speaker 1: when it comes to lowering energy prices is the release
Speaker 1: from the U S is strategic petroleum reserve natural gas
Speaker 1: in all Like, I think I understand that government you
Speaker 1: want to help households and businesses, and of course they should,
Speaker 1: you know, but we have to make sure that the
Speaker 1: demand meat supply as well, because if demand is above supply,
Speaker 1: eventually you have shortages and we all are in trouble, right,
Speaker 1: we have blackouts, you know, we can't eat at all,
Speaker 1: and then you know in the winter gets much much
Speaker 1: called the rights three degree impact. So the key is
Speaker 1: to do I think too if you look at the UK,
Speaker 1: UK places have a lot more expensive than most European
Speaker 1: places of emample in France, uh electricity and gas prices
Speaker 1: are only a four percent relative to last year, and
Speaker 1: next year there will be a fifteen percent, which is
Speaker 1: way way below commercial like wholesale levels. In the UK
Speaker 1: they followed at least the doubles you know over the years,
Speaker 1: so that you should have some kind of price response
Speaker 1: already because it's a lot more expensive than last year
Speaker 1: and more expective than in Europe. But I think that
Speaker 1: the government should do more. You know, you can't. Just
Speaker 1: when I hear a listress saying, well, we don't want
Speaker 1: to tell you to use the less energy, well actually
Speaker 1: you do. You know energy doesn't You can't print energy,
Speaker 1: right you? You can import some of it, but you
Speaker 1: have limits to how much you want to you can import.
Speaker 1: You can only import what's available on the world. Um
Speaker 1: and if you overbid I want, like if you try
Speaker 1: to buy you know, the one extra cargo that another
Speaker 1: country needs desperitely, then you you bring prices up a
Speaker 1: lot and then the government will have to to to
Speaker 1: pay the bill which is eventually which is at the
Speaker 1: end of the day taxpayer, right. And so I think
Speaker 1: government should do more um to motivate, to encourage I mean,
Speaker 1: first to explain why to go on the public awareness campaign,
Speaker 1: to explain to the consumer what you know, how to
Speaker 1: reduce their energy demand while still you know, living comfortably um.
Speaker 1: And that's something that they've been they have started doing
Speaker 1: in the in in the EU, and I hope the
Speaker 1: UK will will will do that as well, because you
Speaker 1: need to bring demand down. The market will not be
Speaker 1: able to two to be in balanced if you don't,
Speaker 1: let you know, consumer prices go up and your supply
Speaker 1: is going down, then you know, how can you meet
Speaker 1: You can't import enough energy to to really you can't
Speaker 1: replace natural gas with all the energy um. You need
Speaker 1: to bring demand down to And what about the spr release?
Speaker 1: How significant has that been in terms of bringing down
Speaker 1: oil and gas prices? And then secondly is that a
Speaker 1: sustainable strategy because one of the criticisms as well, you
Speaker 1: really saw this inventory and then it becomes harder and
Speaker 1: perhaps more expensive to buy it back. Yes, I mean,
Speaker 1: so for this year, right, we have We still have
Speaker 1: the Russian invasion of Ukraine, but so far we have
Speaker 1: not lost any Russian oil or very little bitlically maybe
Speaker 1: maximum half a million bar of the day, which is
Speaker 1: a lot less than what we expected earlier in the year.
Speaker 1: So so far Russia has been able to to you know,
Speaker 1: to export pretty much as much as they wanted around
Speaker 1: the world. But the EU embargo has not started yet, right,
Speaker 1: so we're starting in in could in early December and
Speaker 1: then products in early February. Um so so far, but
Speaker 1: the better administration used that as the user potential you know,
Speaker 1: version supply loss that the next use to release THEESPR,
Speaker 1: and we had the largest SPR whillis ever m you know,
Speaker 1: briefly by hundred and sixty million barars I today over
Speaker 1: the last six months, which is weughly a million barrels
Speaker 1: a day from the US and also half a million
Speaker 1: barrels a day from the west of the world. Publicly,
Speaker 1: if we lost half a million barllars a day from
Speaker 1: from Russia, but we got one point five million barllars
Speaker 1: a day extra from the ESPR, I think it means
Speaker 1: that the Russian invasion of Kin bought a million barllars
Speaker 1: a day, more production, more supply on the market. And
Speaker 1: I think that one of the reasons why the market
Speaker 1: has gone down since the summer is the fact that
Speaker 1: market participants were expecting Russian supply to go down by
Speaker 1: buffy two million bars a day and we have not
Speaker 1: seen that yet. But on the other hand, we saw
Speaker 1: the SPR release, and there are like large worries about
Speaker 1: you know, uh, like important worries about a large recession
Speaker 1: coming with interest rates going up and with the impact
Speaker 1: of the Russian war on the globody economy. Um. So
Speaker 1: I think it's a mix of that, right, Like, Russian
Speaker 1: supply hasn't gone down, we had a large SPR supply,
Speaker 1: demand is probably weaker than what we expected. And then
Speaker 1: you have all the macro worries about you know, fighting
Speaker 1: inflation for getting you know, higher and higher interest rates
Speaker 1: while the consortable is being hit with higher community places.
Speaker 1: So when we talked to you in the spring, I
Speaker 1: mean there were a number of factors and you said,
Speaker 1: you know, there was a possibility that we could see
Speaker 1: two hundred dollar oils. I think the number that you
Speaker 1: put out and obviously now uh, you know, w T
Speaker 1: I think is somewhere maybe at the high eighties. Right now,
Speaker 1: where what do you see here? I mean the SPR release,
Speaker 1: They're not they can't keep releasing it forever, right, it's
Speaker 1: a finite amount that they release. It's still seems plausible
Speaker 1: that we could have risks to Russian supply, and of
Speaker 1: course we haven't talked about. You know, China has had
Speaker 1: hard lockdowns over the last several months in major cities
Speaker 1: and that is significantly curtailed the country's petroleum consumption previous reasons.
Speaker 1: So I'm curious, like, which way you see the risk
Speaker 1: skewed and where could oil go now? Yes, I think
Speaker 1: res as cute to the upsite clearly as you say,
Speaker 1: I believe we're gonna lose some Russian supply. I don't
Speaker 1: know how much, but I would say between one and
Speaker 1: two million pars a day. The SPR release will have
Speaker 1: to stop, I mean always. I think the pace of
Speaker 1: the release is going to slow down now, um quite
Speaker 1: a lot, and I don't think they can carry on
Speaker 1: for very long, so that will stop. Then China at
Speaker 1: some point will we open. We don't know when, but
Speaker 1: they will, and there's probably two million packs a day
Speaker 1: of demand that can come back once China, you know,
Speaker 1: we opened to the world and you start having people
Speaker 1: going there and change people traveling again. So I think
Speaker 1: you have a lot of even risks that you know
Speaker 1: that are positive for the oil Twice, I would say
Speaker 1: the only negative events is is is a global re session,
Speaker 1: but a large enough global re session blessing overall. The
Speaker 1: the risk in the medium terms more to the up side.
Speaker 1: But it looks like in the short term people are
Speaker 1: still very worried about, you know, with sessional risk, and
Speaker 1: the macroecon Michaut looks so so far it's trading like
Speaker 1: it's on the day to day basis if he wants
Speaker 1: to go lower. But when I look at my supplanted
Speaker 1: demand balance for the next few years, to me, it
Speaker 1: looks bullish, right, and it looks and and it looks
Speaker 1: like prices we'll have to go up at least for now.
Speaker 1: I'm happy that is getting less money at least in
Speaker 1: the meantime with lower old places. But I'm not sure
Speaker 1: it's really justified who has the upper hand between US
Speaker 1: shale and opaque at the moment, because you know, with
Speaker 1: prices going higher over the summer, we might have expected
Speaker 1: to see more of a response from US energy producers
Speaker 1: that didn't really seem to happen. They still seem to
Speaker 1: be kind of cautious about ramping up production. And meanwhile,
Speaker 1: we have seen some noises from OPEC about how they
Speaker 1: would like the price to go higher from here. Well,
Speaker 1: the reality that we there is almost no spare production
Speaker 1: capacity arond the world. So most of the OPEC members
Speaker 1: at maximum production. If you look at the Southeast there
Speaker 1: at eleven million dollars a day production They've never had
Speaker 1: they've never managed to to have that level of production
Speaker 1: for more than a month, So now we're expecting them
Speaker 1: to be at that level for years. Um, the US,
Speaker 1: shall it looks like, you know, US production is still going,
Speaker 1: but I think a lot less than in the past.
Speaker 1: So instead of growing like one to one point five
Speaker 1: million bars a day, I think they will grow around
Speaker 1: a half a million dollars today over the next couple
Speaker 1: of years. So it's still you know, a bullish outlook
Speaker 1: over wall. But then it depends if we have a
Speaker 1: total demand collapse due to too large financial crisis. That's
Speaker 1: a big question mark. You know, something that you brought
Speaker 1: up on our last conversation that I haven't heard many
Speaker 1: people talk about, and I was sort of kicking myself
Speaker 1: for not having followed up on it. But you know,
Speaker 1: we talked about the economics of US shill producers and
Speaker 1: is the price signal strong enough for them to invest?
Speaker 1: But something you said that I haven't heard many other
Speaker 1: people talk about is available wells and is the is
Speaker 1: the oil there at the same level that it used
Speaker 1: to be and is it or has it? Have we
Speaker 1: sort of picked the low hanging fruit? How much is
Speaker 1: that in your view and impediment and what do you
Speaker 1: see specifically on the sort of just like available supply
Speaker 1: part that may be contributing to a sort of less
Speaker 1: the stellar supply response by domestic producers. Yeah, I think
Speaker 1: it's a mix of you know, the low hanging foods
Speaker 1: having been taken so they're going through less you know,
Speaker 1: polishing parts of the basin, and and also like supply
Speaker 1: you know, supply issues like supply like production part issues
Speaker 1: that they can't get from from you know, all the
Speaker 1: elements they need and all the fracking cruise to be
Speaker 1: able to grow production fast enough. So I think it's
Speaker 1: a mix of those of those two. But I would
Speaker 1: say it's more of a question there's and and there's
Speaker 1: also the pressure from shareholders to not grow production too fast.
Speaker 1: Decline rate operations. The decline rates for SHELA like the
Speaker 1: first year, so they need to really keep on drilling
Speaker 1: to to keep productions still or to make it go up.
Speaker 1: As soon as they review the drilling, production can go
Speaker 1: down pretty fast. So just on incentives for oil production,
Speaker 1: one thing that we have heard is, you know, the
Speaker 1: futures curve still isn't in the right sort of shape
Speaker 1: to incentivize future production. So I'm wondering how much you
Speaker 1: place on that argument. And then be you tweeted recently
Speaker 1: and this is something that we've heard from previous guests
Speaker 1: to this idea that the oil futures market is I
Speaker 1: think you said completely broken. And the fact that you
Speaker 1: could see a really volatile spot price, you know, big
Speaker 1: moves for no reason or on very little news. How
Speaker 1: much economic information is currently embedded in the price, I
Speaker 1: think you're white. I mean, like there are some days
Speaker 1: where I think the day I tweated that the markets
Speaker 1: were completely broken, the day where we went down ten
Speaker 1: dollars Barton from from like ninety five to like from
Speaker 1: one hundred and five to nine dollars in less than
Speaker 1: twenty four hours and there was no no headlines, and
Speaker 1: somebody comes and that he'd beat he'd bid, he'd bid
Speaker 1: for like twenty four hours and being down tend allars
Speaker 1: and and then we assume many days now nowadays is
Speaker 1: normal to go down five dollars one with the and
Speaker 1: then back up three and and the volumes are much
Speaker 1: lower than in the past. The opening test has gone
Speaker 1: down a lot. Also in terms of positions. If you
Speaker 1: look at the commitment of traders, so data coming from
Speaker 1: from the CFTC, and you look at non commercial positions,
Speaker 1: it went from one point four billion barrels in two
Speaker 1: thousand and eighteen to three million today, So there's a
Speaker 1: lot less people being long oil in general. Um. And
Speaker 1: then if you look at the phones that are a
Speaker 1: bit more active and look at their p n L
Speaker 1: day today, they will adjust their positions in line with
Speaker 1: the volatility. So if a market is twice as volatile,
Speaker 1: they're going to have half of the position in battles
Speaker 1: than they used to have. And so that leads to
Speaker 1: a bit of a snowball effect. What you have less equality,
Speaker 1: less positioning, and but then every day you have still
Speaker 1: people trying to do something and you have some hedging
Speaker 1: that has to go through, which is the main the
Speaker 1: same type of volumes than in the past, but in
Speaker 1: the in the market that is a lot less liquid,
Speaker 1: and then it moves, it moves prices a lot. So
Speaker 1: I've been like very surprised by the price action over
Speaker 1: the last few months and and and worried about what
Speaker 1: the price means. You know, if you can go down
Speaker 1: from hundred to nineteen one day for the reason, why
Speaker 1: not go down to fifty dollars in the day for
Speaker 1: the reason? You know, it's if nobody is willing to
Speaker 1: come and think it's it's cheap to buy it, nobody
Speaker 1: has any risk capetite anymore, then then the price doesn't
Speaker 1: mean anything. And I'm afraid that you know, a producers,
Speaker 1: that's another issue to deal with, right on top of
Speaker 1: getting the financing, you know, having the white asset worrying
Speaker 1: about you know, you know, the shareholders and activists and
Speaker 1: all kinds of stuff, then they have to worry as
Speaker 1: well on the price of all that can move down
Speaker 1: or for no reason. I mean generally it's been down
Speaker 1: more easily than I would say. What has it actually
Speaker 1: been like for you to trade energy and commodities over
Speaker 1: the past few months, Like what is it like on
Speaker 1: a day to day basis and how has it changed
Speaker 1: versus say a year ago. Well, you know, we've had
Speaker 1: like a structural British position on energy and that worked
Speaker 1: well in the first half of the of the year,
Speaker 1: and then we gave back some gains over the last
Speaker 1: few months. So basically when it happened, we just reduce
Speaker 1: positions because you know, you don't you accept that I
Speaker 1: don't understand really what's going on the market. You know,
Speaker 1: I might disagree, but I don't understand. So I don't
Speaker 1: want to be too stubborn and I want to reduce
Speaker 1: my positions um to focus on survivable. So for me
Speaker 1: to period of time when I focus on survivable, I'm like, okay,
Speaker 1: well I don't really get it. I don't really agree
Speaker 1: with it, but you know, it is what it is.
Speaker 1: I have to accept it. Let's reduce positions because I
Speaker 1: don't want to lose a lot more money than what
Speaker 1: we give back over the last few months. Already, I
Speaker 1: actually have another natural gas question, and you know, I'm
Speaker 1: just thinking like very long term, Like okay, we've been
Speaker 1: talking about this winter and how Europe will scrape by,
Speaker 1: but it's not often that we see a continent completely
Speaker 1: re architectic essentially how it gets energy. And so of
Speaker 1: course the pipelines from Russia to continental western Europe were huge,
Speaker 1: or continental Europe. And now it looks like in the
Speaker 1: sort of aftermath or the sort of ongoing however long
Speaker 1: this goes, that there's gonna be this huge shift towards
Speaker 1: demand towards US natural gas. And you mentioned that, Okay,
Speaker 1: maybe Europe itself is not particularly limited by import capacity,
Speaker 1: but we know that the US is limited by export capacity,
Speaker 1: and that domestic producers could sell all they wanted if
Speaker 1: if there was the if we had like more export terminals.
Speaker 1: Is this going to be a fundamental long term change
Speaker 1: to the energy story that ultimately benefits domestic US gas
Speaker 1: producers in a massive way for years to come. I
Speaker 1: think so. I think it's very positive for for US, right,
Speaker 1: I mean, large part of what we're gonna lose from
Speaker 1: Russia going to Europe is going to be replaced by
Speaker 1: energy coming from from the US, from other countries as well,
Speaker 1: but a large part from the US, because I think
Speaker 1: US is probably going to be close to half of
Speaker 1: the the energy growth addish the energies additions over the
Speaker 1: next three to four years. So yeah, US will will
Speaker 1: benefit from it. And and and the fact that I
Speaker 1: think energy policies in general will remain high. Um, there
Speaker 1: will still be you know a lot of money in
Speaker 1: moving cargoes until the US has export capacity, which I
Speaker 1: think is not to be for you know, six or
Speaker 1: twenty seven if if you even even I'm not sure
Speaker 1: that they will have excess capacities. And so if we're
Speaker 1: talking about a big redesign of the global energy market
Speaker 1: that's basically happening in real time, you know, more lerg
Speaker 1: coming out of the US, potentially more emphasis on renewables
Speaker 1: or maybe even nuclear in Europe. How do you position
Speaker 1: for that? Well, I think you have to look like
Speaker 1: either in equities in the stocks that will benefit from
Speaker 1: that from that point, so I think it's quite positive
Speaker 1: for you know, all the natural gas producers that can
Speaker 1: export that have you know, also some export capacity. Um,
Speaker 1: I think that's the one that will benefit the most.
Speaker 1: And then uranium, like uranium, just being long uranium is
Speaker 1: probably a good trade. Being long the company that build
Speaker 1: nuclear reactors will be a good one. And I think
Speaker 1: still solar solar and wind um will will benefit from
Speaker 1: me too. I think it's a yeah, it's nuclear and
Speaker 1: wind and naturally gas in the US. Do you see
Speaker 1: any short term or medium term tensions between essentially energy
Speaker 1: security and climate goals? And of course you know we
Speaker 1: know that coal production is up, as you mentioned in
Speaker 1: Europe factories switching to oil, which I believe is more
Speaker 1: is worse for climate and CEO two emissions. Can you
Speaker 1: talk a little bit about like our is someone going
Speaker 1: to have to make a sort of like priorities sacrifice.
Speaker 1: You've talked about the industrial or the sort of economic sacrifice.
Speaker 1: But at some point to make this work, will there
Speaker 1: have to be a more explicit like acceptance like oh,
Speaker 1: maybe we push our net zero goals out a few years,
Speaker 1: or some sort of like rethinking of like the emphasis
Speaker 1: on decarbonization. I mean, somehow if we recabinized earlier, we
Speaker 1: wouldn't be in that tissue, right we'll have we would
Speaker 1: you less natural gas, and Russia couldn't, you know, do
Speaker 1: what they're doing. So I think the issue is not decambanization,
Speaker 1: is actually probably that we haven't done it fast enough yet,
Speaker 1: and this energy security issue will only I think should
Speaker 1: accelerate the transition, because when you deal with nuclear wind
Speaker 1: or power, you're you know, you're not giving that money
Speaker 1: to autocratic regimes and and so I think if anything,
Speaker 1: that will accelerate the energy transition as it should. But
Speaker 1: in the short term, to keep the lights on, to
Speaker 1: make sure we don't have you know, social unrest, we
Speaker 1: have to accept that more code is being used and
Speaker 1: more all is being used. But you know, in the
Speaker 1: very short term, for like a couple of years, maybe
Speaker 1: three years, um. But what they need to do is
Speaker 1: well focused on bringing more more generation capacity right from
Speaker 1: you know, nuclear from from wein from win and solar
Speaker 1: as much as possible, as fast as possible, because we
Speaker 1: cannot say, okay, well, you know what, we're going to
Speaker 1: stop having oil and cool and with nothing to replace it,
Speaker 1: because then then we'll really fuze to death and and
Speaker 1: and have social unrests. So you need society to keep
Speaker 1: on functioning. For that, we still need enough you know,
Speaker 1: enough energy. Um. I think we can deal with ten
Speaker 1: or fifteen percent lessers enough fat in the system somewhere
Speaker 1: in consumption, but you can't really deal with fifty percent
Speaker 1: less right without having massive social arrests and huge, like
Speaker 1: a really huge financial crisis. So I think what we
Speaker 1: have to focus on is bringing more low carbon generation
Speaker 1: capacity as quickly as possible. And then naturally you will
Speaker 1: not use the coal and oil if you don't need it,
Speaker 1: right that you then you have the choice. But when
Speaker 1: you can't say okay, you know, actually you don't use
Speaker 1: oil and don't use call if that is the only
Speaker 1: option you have. So just on this topic up in Europe,
Speaker 1: one of the other big trends that we've seen is
Speaker 1: nationalization of energy companies UM. You know, so things going
Speaker 1: on in France and in Germany. Just today when we're recording,
Speaker 1: there was this announcement that Germany is nationalizing its big
Speaker 1: utilities company, Uniper UM. I think they're putting in something
Speaker 1: like eight billion euros worth of equity into the company.
Speaker 1: How significant is that for Europe's energy market? How does
Speaker 1: it change it? And then secondly, if governments are suddenly
Speaker 1: shareholders in energy companies or utilities, does that accelerate the
Speaker 1: shift to renewables or does it slow it down? I
Speaker 1: think it will accelerate it. I mean, because it's an
Speaker 1: energy security issue, you need to uh and that's why,
Speaker 1: like early I became less polish on carbon, so on
Speaker 1: cabin price e the EU s carbon crediting you because
Speaker 1: I think now the month dates will come from the
Speaker 1: top down from government saying okay, you know what we
Speaker 1: need explicit extra and and and wind and and we're
Speaker 1: going to go for nuclear UM at some point we're
Speaker 1: gonna have those lines and governments will have to to
Speaker 1: look at the long term and and and and and
Speaker 1: go quicker because we cannot stay um dependent on ATO
Speaker 1: CATECH regimes for too long. We know you know what
Speaker 1: that money can be used for. So you talked about
Speaker 1: the fact that to get through this winter right now,
Speaker 1: that Europe can do it in part simply by outbidding
Speaker 1: the rest of the world, which is good for Europe,
Speaker 1: I guess because it's Europe is incredibly rich and you
Speaker 1: can afford to outbid the rest of the world. But
Speaker 1: it's basically a sort of zero something. Can you talk
Speaker 1: a little bit about where you see the most stress emerging,
Speaker 1: essentially from the countries that are on the losing side
Speaker 1: of these bidding wars. Well, it's uh just it's general
Speaker 1: to generally the countries that have the most issues to
Speaker 1: start with it, right, So small like emerging markets that
Speaker 1: and in imports of natural gas. So you sweet earlier
Speaker 1: this year with or the collapse of you know in
Speaker 1: Sri Lanka. Pakistan you know is obviously having lots of
Speaker 1: issues to due to the floods and that are linked
Speaker 1: to the climate change. But also for all those countries,
Speaker 1: natural gas imports become a lot more expensive so that
Speaker 1: they become more energy poor. Um And generally that's that's
Speaker 1: that's what will happen. But I don't think it's only
Speaker 1: a biding wor basically you have like it's a biding
Speaker 1: war in the short term the first like here also
Speaker 1: and then you have enough switching hopefully in the rest
Speaker 1: of the world from from gas to oil or other things.
Speaker 1: Um yeah, generally gas to all is the cheapest actually
Speaker 1: because now oil is even cheaper than coal, and then
Speaker 1: that will support all demands to some extent that will
Speaker 1: be marginal the bulish oil, but it will displaces natural
Speaker 1: gas um demand, so bakly you'll have a bit less
Speaker 1: demand for natural gas. That will no open more energy
Speaker 1: cal goals to export to the country that needed. So
Speaker 1: eventually you get a price. Do I do suspect the
Speaker 1: natural gas prices to stay high generally for the next
Speaker 1: two years so and then go down and stay elevated.
Speaker 1: But I think the first step down will be if
Speaker 1: we can manage this winter properly and and realize that
Speaker 1: actually in what we did it with no Russian gas
Speaker 1: already psychologically the price there will be a large price
Speaker 1: impact to natural gas. And and then all the switching
Speaker 1: and the extraal energy will we will get we care
Speaker 1: and putting pressure on natural gas. I think it's really
Speaker 1: paramount that governments, you know, use those public awareness campaigns
Speaker 1: too to bring that demand that we don't absolutely need down,
Speaker 1: because not only we can avoid shortages, but also bring
Speaker 1: it will bring prices down significantly and and that will
Speaker 1: be good for the global economy. And know, so you
Speaker 1: mentioned that you're you're still bullishly positioned when it comes
Speaker 1: to energy, I mean broadly, and maybe less bullish on
Speaker 1: carbon credits than you were at the beginning of the year.
Speaker 1: But what's the big wild card when it comes to
Speaker 1: the energy market at the moment, Like, what's the big
Speaker 1: thing that you are potentially on the lookout for that
Speaker 1: could unsettle some of those positions. Is it simply Europe
Speaker 1: losing its appetite to you know, stomach some pain when
Speaker 1: it comes to reducing energy demand. I'm not too worried
Speaker 1: about that. I think Europe will, you know, like more
Speaker 1: aggressive Russia becomes the easierities to accept some pain on
Speaker 1: our side. And because we you know, all psychologically we
Speaker 1: understand it's a war power time and we need to
Speaker 1: take a heat as well. So I'm not too worried
Speaker 1: about that. So I would say there's two conflicting forces.
Speaker 1: One is how much or we will lose from Russia,
Speaker 1: because we will lose some once the price cap goes through.
Speaker 1: We'll have to see how putting we act to it,
Speaker 1: to it if he cuts production and if he has
Speaker 1: how much, So we have to understand how much all
Speaker 1: we will lose from Russia. And the second is you know,
Speaker 1: the global economy in general, right if you look at
Speaker 1: the impact of higher interest rates around the world for
Speaker 1: the consumer and businesses and countries. Um, we don't know
Speaker 1: yet what impact it will have for interest rates to
Speaker 1: have gone up so much over the left few months.
Speaker 1: For now you know these things, it's it's like paying
Speaker 1: that add up and eventually we have some kind of
Speaker 1: some kind of issue. Um, So I think the mix
Speaker 1: of much higher interest rates and still high energy prices
Speaker 1: and the worries about the war and and all that,
Speaker 1: you know, makes people want to spend less. Um that
Speaker 1: could also have a negative impact on on on on
Speaker 1: demand and eventually on prices. So I think these are
Speaker 1: you know, it's not it's not that did to forecast
Speaker 1: because on one hand, you're gonna lose some supply, on
Speaker 1: the other hand, we're gonna lose some demand. UM. So yeah,
Speaker 1: it's it's not a musical overall with time you should
Speaker 1: go up, but it should go up, but in you know,
Speaker 1: clearly the market of being telling us that it's not
Speaker 1: as as obvious. All right. I have two short questions.
Speaker 1: So the first one is on Russian oil exports, which
Speaker 1: you mentioned have not dropped off like they expected. Setting
Speaker 1: aside sanctions, one question that's come up is essentially whether
Speaker 1: Russia can import equipment to maintain its oil sector or
Speaker 1: whether Russia loses um uh sort of expertise and know
Speaker 1: how from the departure of foreign energy companies. Is that
Speaker 1: still a risk out there for Russian supply. Setting aside
Speaker 1: the politics and price caps, that the quality of the
Speaker 1: Russian oil infrastructure degrades. I think it tweel and on
Speaker 1: top of that, I mean with mobilization that put in
Speaker 1: the once today, all that will have an impact I
Speaker 1: think on on on oil supply going forward. So so
Speaker 1: it will go down due to the sanctions or due
Speaker 1: to to put in one thing to to cut to
Speaker 1: to show that he doesn't think we with the price caps.
Speaker 1: But also eventually with time production will go down anyway
Speaker 1: due to the lack of investment that will go into
Speaker 1: the system. And then my final question is how did
Speaker 1: you get that statu about what average temperatures in homes
Speaker 1: were in Europe in the nineties. How do you track that?
Speaker 1: And why have European homes gotten warmer over the last
Speaker 1: twenty years. I think it's generally energy has been you know,
Speaker 1: relatively cheap, I will say for some time. I mean
Speaker 1: we have a period of time for a few years
Speaker 1: where it gets a bit expensive, but over over you know,
Speaker 1: twenty year period, even like almost thirty year period. If
Speaker 1: you look at consumption at the percentage of income has
Speaker 1: been going down in general, so energy has been relatively
Speaker 1: abundant and and and cheap, So you no, we we
Speaker 1: could live a more comfortable life basically, I think it's
Speaker 1: due to that. And in terms of where where I
Speaker 1: got the start, some of them is just the idea.
Speaker 1: The idea showed that one degree, like moving the the
Speaker 1: terms sat down by one degree, has an impact of
Speaker 1: ten b c m for the for Europe, so that's
Speaker 1: about five percent or so, and so backy, you know,
Speaker 1: you just think it's kind of linear, says we degrees
Speaker 1: will be will be one and and then about knowing
Speaker 1: what the temperatures were in the past. It was actually
Speaker 1: some medical medical journal. Actually it was the Indoor Beat
Speaker 1: on environ that's the magazine, and that's the study that
Speaker 1: was made into this than fourteen to look at the
Speaker 1: impact of winders on. I love that you're looking at
Speaker 1: those sources for these stats. All right, so slightly cooler
Speaker 1: winter or colder winter in Europe, but hopefully not a
Speaker 1: frozen one. Pierre on Duran from and Duran Capital, Thank
Speaker 1: you so much, appreciate you coming on. Thanks very much,
Speaker 1: m Well, Joe. Always good having Pierre on the show,
Speaker 1: really good just to get an update of how he's
Speaker 1: thinking about the market at the moment. I do think
Speaker 1: this idea that the price disconnect from fundamentals or you know,
Speaker 1: maybe not completely disconnected from fundamentals, but the idea that
Speaker 1: it's so volatile right now, the moves are kind of unexpected.
Speaker 1: There's lots of liquidity in the market, and that makes
Speaker 1: it hard or for everyone to deal with what's happening
Speaker 1: right And of course that was a point that Alex
Speaker 1: Turnbull made in our conversation a few months ago with
Speaker 1: Javier Blast Talking to Pure is great. I like that
Speaker 1: he provides a sort of non hysterical take, which are
Speaker 1: kind of rare these days because a lot of that
Speaker 1: I like, you know, it's like, how does he have
Speaker 1: that stat about temperature in the nineties. Well, he's a
Speaker 1: there's a different reason why he's a massively successful hedge
Speaker 1: fund manager and most people aren't. It's like putting in
Speaker 1: uh the work like that and having like you know,
Speaker 1: putting in the effort to learn about these things, lots
Speaker 1: of really interesting insights. And to your point about I'm
Speaker 1: glad you asked them, like what is it like been trading,
Speaker 1: because you know, it's one thing to look at a
Speaker 1: screen and price going up, but actually like how is
Speaker 1: the how is that price on the screen being arrived at?
Speaker 1: Is a really interesting question right or just got it
Speaker 1: directionally right? But then how do you actually execute on
Speaker 1: that idea? So energy markets are tight, but how do
Speaker 1: you actually put that into practice? And are the prices
Speaker 1: that are flashing up on your screen actually reflecting what
Speaker 1: you think is going on in the market. Shall we
Speaker 1: leave it there? Let's leave it there. Okay. This has
Speaker 1: been another episode of the All Thoughts podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway and
Speaker 1: I'm Joe wi isn't though. You could follow me on
Speaker 1: Twitter at the Stalwart, follow our guest Pierre on durand
Speaker 1: at on Durand Pierre. Follow our producer Carmen Rodriguez at
Speaker 1: Carmen Armand, and check out all of our podcasts Bloomberg
Speaker 1: under the handle at podcasts. Thanks for listening.