Speaker 1: Hello, and welcome to What Goes Up, a weekly markets podcast.
Speaker 1: My name is Mike Reagan. I'm a senior editor at
Speaker 1: Bloomberg and I'm gonna higher across acid reporter with Bloomberg.
Speaker 1: And this week on the show, well, that red hot
Speaker 1: inflation is proving to be the biggest story in markets
Speaker 1: this year, and obviously energy prices are a huge part
Speaker 1: of it. So we're going to tap the brain of
Speaker 1: an expert who The New York Times calls quote America's
Speaker 1: most influential energy pundit, but Bill Downa first, I need
Speaker 1: to talk to Bloomberg's most influential markets fund in you.
Speaker 1: But you, I'm very jealous. You're going to London next week?
Speaker 1: What is up with that? Am my more influential than
Speaker 1: you are. I'm starting your bone there. You know you can? Yeah, yeah, yeah, yeah,
Speaker 1: I am. I am going to London and I'm so
Speaker 1: excited to see all of the London colleagues I've never
Speaker 1: even met in real life, and I've never been to
Speaker 1: the Bloomberg golfice there, so um. But then at the
Speaker 1: end of my trip, I'm going to a wedding in
Speaker 1: a castle. Oh that's cool. What's the name of the castle.
Speaker 1: I have no idea. I think actually people live in it,
Speaker 1: so might not have a name. It's not where it's
Speaker 1: not where the Queen's living, is it. I think it's
Speaker 1: a royal adjacent wedding. Yes, do you have one of those?
Speaker 1: You need one of those hats? Fascinating It's called a fascinating. Yeah.
Speaker 1: I wish I could pull that off. But yeah, and
Speaker 1: maybe I need to go shopping for a fascinating And
Speaker 1: you also need to go to the myth reum in
Speaker 1: the basement of the Bloomberg building, the temple to the
Speaker 1: Roman god Mithros. Yes, I heard about that. Yeah, then
Speaker 1: you'll be at a castle and a Roman temple. You'll
Speaker 1: see that that London has to offer. Yeah, how cool
Speaker 1: is that? But I want to bring in our our
Speaker 1: guests this week. You just introduced him and want to
Speaker 1: welcome Daniel Jurgen. He's the vice chairman at SMP Global
Speaker 1: and he's also the author of the New Map Energy
Speaker 1: Climate and the Clash of Nations. Welcome to the podcast.
Speaker 1: Glad to join you both. Thank you. I have to
Speaker 1: say your team sent over a copy of your book
Speaker 1: before the podcast, and I highly highly recommended. I love
Speaker 1: stuff like this. It's all about geopolitics and the role
Speaker 1: that energy is playing, which obviously has been a huge
Speaker 1: topic this year. So maybe just to start out very
Speaker 1: broadly speaking, you start the book book actually saying there's
Speaker 1: this growing coldness between the US and China and Russia,
Speaker 1: and I want to ask you about energy's role in
Speaker 1: this growing coldness. Energy is a very important part of it. Obviously,
Speaker 1: I focused in the book on really how this war
Speaker 1: began in Ukraine by explaining the focus and the conflict
Speaker 1: between Russia and Ukraine, uh, and how that ties into
Speaker 1: natural gas in Europe and similarly, of course China. The
Speaker 1: big geopolitical story the twenty one century is the relationship
Speaker 1: between the US and China, and that is getting colder
Speaker 1: and more difficult, it seems almost day by day. You
Speaker 1: know that. No, I read your book too. I agree,
Speaker 1: very excellent book. Uh, And I know you have several others,
Speaker 1: so we've got a lot of reading to do, Wildonna
Speaker 1: to catch up with these, but well, I think Bill
Speaker 1: Donna just has a long plane ride which still get
Speaker 1: us started. I'm loading them all on my kindle until
Speaker 1: you fall asleep. But you know what I thought occurred
Speaker 1: to me Daniel. As I was reading it is, um,
Speaker 1: what's a company that sort of you know, new Cold
Speaker 1: War if you will, or however you want to describe it.
Speaker 1: Is America's growth of its own domestic energy industry, the
Speaker 1: shale patch and the tracking and whatnot. And I wonder,
Speaker 1: you know, it almost seems like going from sort of
Speaker 1: being renowned as the biggest consumer of energy in the
Speaker 1: world to now made your producer almost escalates the geopolitical tensions.
Speaker 1: I feel like it does. It almost make sort of
Speaker 1: America's influence, um, if not weaker, uh, but different in
Speaker 1: this environment since we are such a big producer. Now. Yeah,
Speaker 1: I think it well, I think that's that's absolutely right.
Speaker 1: You know. I deal with a lot of things from
Speaker 1: you know, Ukraine to climate in the book, but I
Speaker 1: start with shale and because shales really had a much
Speaker 1: bigger impact on geopolitics and people recognized. In the story
Speaker 1: I tell in the book is when I was in St.
Speaker 1: Petersburg at a conference where Bootin was speaking, and uh,
Speaker 1: I three thousand people there and I was told to
Speaker 1: ask the first question. I started to ask a question,
Speaker 1: I mentioned the word shale, and he started shouting at
Speaker 1: He's saying shales barbaric. He knew that US shale was
Speaker 1: a threat to him in two ways. One because it
Speaker 1: meant that the US natural gas would compete with natural
Speaker 1: gas in Europe, and that's what we're seeing today. Secondly, Uh, Mike,
Speaker 1: it's your point because this would really augment America's position
Speaker 1: in the world and give it a kind of flexibility
Speaker 1: it didn't have when it was importing its oil. I'd
Speaker 1: love to know who decided that you get asked in
Speaker 1: the first question. That's the talk about drawing the church
Speaker 1: straw there. That's uh, that's not a position I'd want
Speaker 1: to be in. Well, it was, I will tell you. Um.
Speaker 1: It was started off innocuously that I was gonna ask
Speaker 1: him a normal question about UH diversifying your economy, and
Speaker 1: I said shale And you know, to be shouted at
Speaker 1: him by him in front of three thousand people are
Speaker 1: really unpleasant experience. The other thing, and now that we're
Speaker 1: talking about I realized the other person on the stage
Speaker 1: was Chancellor Merkel, who was chance of Germany for sixteen years.
Speaker 1: And you can see the enemy between the two. But
Speaker 1: you know, Merkel is now being criticized for UH policies
Speaker 1: like shutting down nuclear that to Germany being more dependent
Speaker 1: on Russian gas, and you know, the sort of judgment
Speaker 1: of history is shifting a little bit. Yeah, I actually
Speaker 1: wanted to ask you about this because I noticed that
Speaker 1: early on in the book you had actually mentioned that
Speaker 1: Marco said about nord Stream that it linked Russia in
Speaker 1: Europe in a safe and resilient partnership. And then later on,
Speaker 1: as you continue reading you you lay out that she says, uh,
Speaker 1: you know, actually putting his living in his own world,
Speaker 1: where her judgment maybe was shifting a little bit or
Speaker 1: changing a little bit. So I wanted to ask you
Speaker 1: where everybody sort of went wrong or where people made
Speaker 1: mistakes and over the last ten years or so, well,
Speaker 1: I think that's a really important question and what I've
Speaker 1: been thinking about because you know, now there's a kind
Speaker 1: of revisionism that we shouldn't you know, the world shouldn't
Speaker 1: have traded with Russia, shouldn't have tried to integrate Russian
Speaker 1: to the world economy, particularly as Putin got more and
Speaker 1: more authoritarian. But you say, well, what was the ald
Speaker 1: term native to leave it festering there? I mean, the
Speaker 1: best thing was to get it anchored in the world. Uh,
Speaker 1: but you know Putin, I mean, he's been in power
Speaker 1: now almost as long as Joseph Stalin, and I think
Speaker 1: he was becoming more and more authoritarian. And people who
Speaker 1: have known him over the years said that that COVID
Speaker 1: changed him. He was isolated for two years. He wasn't
Speaker 1: meeting Western business people, he wasn't meeting Western government officials,
Speaker 1: and so forth, very isolated with a small group of
Speaker 1: people around him. May be ill and developed this incredible paranoia, uh,
Speaker 1: and this anger that led him to unleash this terrible war.
Speaker 1: So I don't think there was an alternative to not
Speaker 1: trying to integrate Russia into the world. But obviously what's
Speaker 1: happening now is the world, at least the Western world,
Speaker 1: is slamming the door on Russia. You know, it's such
Speaker 1: a thing, Daniel. I feel like this conflict between Russia
Speaker 1: and Ukraine has lasted longer than most people expected. I
Speaker 1: think people I think, if I can jump in, like
Speaker 1: longer than anybody expect, right, I think most people thought
Speaker 1: that they would go in and take over in a
Speaker 1: matter of a couple of weeks. If if not sooner, well, well,
Speaker 1: I mean, just to tell you, I mean putin thought
Speaker 1: it was gonna be three or four days, right right,
Speaker 1: So as it drags on, I'm just trying to wrap
Speaker 1: my head around. Um. You know, Luckily the spring weather
Speaker 1: in Europe now is sort of made the the energy
Speaker 1: situation a little less acute than it would be otherwise. Obviously,
Speaker 1: you know, uh, they still need natural gas for electricity, um,
Speaker 1: and you know, keep the factories running and the lights on.
Speaker 1: But as it drags on closer to the fall and winner,
Speaker 1: I mean, is Europe going to be able to just
Speaker 1: soldier on without uh sort of succumbing to Russia uh
Speaker 1: and their demands. Um, when it starts getting colder again,
Speaker 1: it is what do they need to do to sort
Speaker 1: of be able to do that? Well, I think that's
Speaker 1: a question that's really weighing now because in terms of oil,
Speaker 1: there's enough oil crude oil in the world. Uh, you
Speaker 1: have to move it around, but between strategic stocks demand
Speaker 1: being down in China, you can manage that. When you
Speaker 1: get into products site diesel, it gets harder and then uh, Mike,
Speaker 1: you're going to the hardest thing was natural gas, and
Speaker 1: that is exactly as you go into the winter. So
Speaker 1: the big question now is can you feel, can they
Speaker 1: feel storage so that that they can get to the
Speaker 1: winter and, by the way, not only stay warm, but
Speaker 1: keep industry operating. And I think, you know, we can
Speaker 1: say that Putin made a series of decisions which kind
Speaker 1: of were rational, that his army was really good, that
Speaker 1: Ukraine wouldn't be able to resist, that the US had
Speaker 1: just gone through getting out of Afghanistan, and was deeply divided,
Speaker 1: that Europe was so dependent on his energy that they
Speaker 1: would say, Okay, this is terrible, but life goes on. Uh,
Speaker 1: and none of that. But I think he's still calculating,
Speaker 1: and he said it that ultimately this energy disruption and
Speaker 1: we are in a huge energy disruption at this huge
Speaker 1: disruption of energy markets would be such a big threat
Speaker 1: to the European economy that that that the coalition that
Speaker 1: now exists would fall apart. I think that's that's his
Speaker 1: wager right now. And uh, and the Achilles Heal is
Speaker 1: what you pointed to. What happens is uh as Europe
Speaker 1: goes into the fall and winter, right, so you can
Speaker 1: still sort of counting on that to happen, I imagine
Speaker 1: at this point. Yeah, and we've had at least one
Speaker 1: German very prominent industrialist is said, you know, this is
Speaker 1: too dangerous for the European economy. We should negotiate something
Speaker 1: with Putin. And before we get into more of the intricacies,
Speaker 1: I actually wanted to ask you to lay out because
Speaker 1: in your book you you really presciently lay out what
Speaker 1: happened between Russia and Ukraine. I mean you go back
Speaker 1: centuries really, but you know over the last eight to
Speaker 1: ten years how important that's been. The war that broke
Speaker 1: out back when Russia invaded Crimea. Can you just talk
Speaker 1: about that and just lay out for our listeners what happened. Yeah,
Speaker 1: I mean there's always been this question and the Russian
Speaker 1: narrative there wasn't There is no Ukraine. Putin has said
Speaker 1: that Ukraine was simply part of Russia. And he published
Speaker 1: last summer bizarrely a five thousand word essay, particularly bizarrely
Speaker 1: in terms of what's happened now san Ukrainians and Russians
Speaker 1: are brothers. He had this mystical Slavic notion, and so
Speaker 1: he had described the breakup of the Soviet Union as
Speaker 1: the greatest geopolitical catastrophe of the twentieth century, and so
Speaker 1: he never really accepted the breakup of the Soviet Union,
Speaker 1: particularly Ukraine, because that was part of Russia and it
Speaker 1: was like the West, particularly United States, had taken it
Speaker 1: away from Russia, taken away from him, and so this
Speaker 1: relationship was always very acrimonious, uh really from the nineteen nineties,
Speaker 1: but particularly when Putin came to power and there was
Speaker 1: a series of crises over gas and Ukraine was, you know,
Speaker 1: not a very is a pretty corrupt, uh country with
Speaker 1: a lot of conflict going on in internally and so forth,
Speaker 1: and a lot of Russian efforts to kind of dominate
Speaker 1: the country, and so uh, Putin really you know, regarded
Speaker 1: it as part of his mission as he became maybe
Speaker 1: more and more megalomaniacal uh, that Ukraine had to be
Speaker 1: brought back into Russia, and he started with primea. He's
Speaker 1: and ever since fourteen there's been a war going on
Speaker 1: actually which one doesn't realize, but the Ukrainian army is
Speaker 1: as good as it is because it's been fighting a
Speaker 1: war in eastern southeastern Ukraine and so um, you know,
Speaker 1: these tensions were just there and they remained today where
Speaker 1: he says there's I mean, he said it to people,
Speaker 1: He said it to George W. Bush One said Ukraine
Speaker 1: never existed as a country. Two thirds of it it
Speaker 1: was ours, and one third of it belonged to the
Speaker 1: Austro Hungarian Empire. So it was really a question of
Speaker 1: the refusing to accept the settlement at the end of
Speaker 1: the Cold War, refusing to accept the breakup of not
Speaker 1: only the Soviet Union but the Russian Empire. And that
Speaker 1: unsettled question was and I, as I wrote in the book,
Speaker 1: that Ukraine was likely to be the issue that blew
Speaker 1: up between Russia and the West. Um that it took
Speaker 1: this form as something that one, you know, might not
Speaker 1: have expected. Um. But um, you know, this is what
Speaker 1: sort of boiled up in Putin's mind during his two
Speaker 1: years of Covid isolation. But as you say, uh, it was,
Speaker 1: it was long and coming, and it always been festering
Speaker 1: in his mind. He'd always been denouncing that. Daniel. One
Speaker 1: thing that stuck out to me in your book is
Speaker 1: you mentioned the notion of sanctions and how they can
Speaker 1: be sort of a wasting asset. I think is the
Speaker 1: words I believe it was. Uh, George Schultz, you were
Speaker 1: quoting the Secretary of State under Reagan about how well, yes,
Speaker 1: you can impose sanctions. Um, but they sort of have
Speaker 1: a a short shelf life, so to speak. You know,
Speaker 1: if you try to lock Russia out of getting certain technologies,
Speaker 1: well they'll they'll develop their own, um that sort of thing.
Speaker 1: And I wonder if we when we look at the sanctions, Uh,
Speaker 1: so many sanctions that have been placed on not only Russia,
Speaker 1: but uh, you know, the the oligarchs, the billionaires of Russia. Um,
Speaker 1: is there any risk of these sanctions do you think
Speaker 1: being a wasting asset? I mean, you know, I was,
Speaker 1: I was. I always found that comment by George Schultz
Speaker 1: very wise because there, you know, there is a tendency
Speaker 1: for the United States to just say, well, let's just
Speaker 1: put sanctions and that will solve the problem. And then
Speaker 1: well Ran is still there, Venezuela is still there. Um.
Speaker 1: I think, hey, or we've never seen sanctions. They have
Speaker 1: two characteristics. One as massive as they are, and too
Speaker 1: it's not just the United States, but the United States
Speaker 1: and Europe together and some other countries, and so uh,
Speaker 1: the impact on the Russian economy will be enormous in Russia,
Speaker 1: really will you know, the the door to the West
Speaker 1: is closed and it will really have to look to China,
Speaker 1: um will they wear away? I think that goes to
Speaker 1: some of the questions. A kind of basic theme in
Speaker 1: in your podcast is what happens to markets and you
Speaker 1: know how turbulent is it? And this is a contributor,
Speaker 1: a major contributor to the energy crisis or energy disruption
Speaker 1: we're seeing with all the impacts on the economy and
Speaker 1: of course tying into the struggle over inflation. But I
Speaker 1: think this is I think at a level that's never
Speaker 1: been been done before. And uh, it was interesting because
Speaker 1: at the beginning, remember talking to people in the in
Speaker 1: the US government, they said, we're excluding energy because Europe
Speaker 1: is too dependent and so we can't do that. But
Speaker 1: now the Europeans themselves are saying we don't want to
Speaker 1: send to a fifty billion dollars a year to Russia,
Speaker 1: and so most of German countries, led by Germany, actually
Speaker 1: want to put on sanctions on energy as well. Before
Speaker 1: we talk more about the US and China, I want
Speaker 1: to ask you about what the future of oil and
Speaker 1: gas exploration looks like when it comes to Russia, because
Speaker 1: you have this passage and actually a really great picture
Speaker 1: where you show I think it was a titanium flag
Speaker 1: that the Russians planet at the north pole to sort
Speaker 1: of stake it and say this is ours and this
Speaker 1: is where we'll be looking for oil in the future.
Speaker 1: So can you talk about that because it's that that
Speaker 1: is like so striking to me. Yeah, it is. It's uh, well,
Speaker 1: really there are two parts to that titanium flag. This
Speaker 1: Russian uh mariner went down and planted it at the
Speaker 1: you know, the on the seabed because the Russians want
Speaker 1: to claim the Arctic, and of course that will looks
Speaker 1: like it's going to be a new arena of competition,
Speaker 1: and the US has been slow to wake up to it.
Speaker 1: But you know what do they call it the high Arctic?
Speaker 1: But uh and for Russia, offshore oil was a major
Speaker 1: new frontier. But I think they're not gonna without Western technology,
Speaker 1: without the Western companies who have said, you know, they've
Speaker 1: said so long, we're out of here. I think it's
Speaker 1: going to be very hard for them to develop the
Speaker 1: off shore or or developed further their Arctic ellen gy
Speaker 1: and so forth. So I think they'll be more focused
Speaker 1: on their traditional areas in western Siberia and they probably
Speaker 1: have the you know, the capabilities to cantinue to produce.
Speaker 1: But I think they're going to produce. I think their
Speaker 1: production will go down, and so Russia will not. It
Speaker 1: will be a very important producer, but it won't be
Speaker 1: an energy superpower, and it won't be able to tap
Speaker 1: into the globally economy, technology and capabilities and partnerships that
Speaker 1: it did up till February. I love that idea of
Speaker 1: just dropping a flag to to claim ownership. You know,
Speaker 1: what is it? Technically? Is it Canada? I guess it's
Speaker 1: a little titanium flag. And I mean, but the funny
Speaker 1: thing was I think it was a Canadian foreign minister,
Speaker 1: which also has a big interesting Arctic center. What is
Speaker 1: this is? This is? This isn't the nineteenth century. You
Speaker 1: don't go around planting flags, but in a way putin
Speaker 1: lives in the nineteenth century. The fair point, you know,
Speaker 1: Danniel will bring it back to the US energy industry. Um. Uh.
Speaker 1: One thing in your book that I found interesting and
Speaker 1: I don't think a lot of people appreciate this that
Speaker 1: the notion that will yes, um, you know, these shale
Speaker 1: producers in Texas are producing a tremendous amount of oil,
Speaker 1: but are refining capacity in this country isn't a perfect
Speaker 1: match for all that light suite Texas crew that were
Speaker 1: actually better set up to refine heavy crew from overseas.
Speaker 1: So I'm curious. To me, I'm guessing you know, the
Speaker 1: capital intensity and the time intensity of of upgrading that
Speaker 1: refining capacity must be h harder even than you know,
Speaker 1: drilling and exploring for oil, you know, more more capital
Speaker 1: intensive and more time intensive. Is is that going to change?
Speaker 1: Do you think where you know, some more refineries will
Speaker 1: maybe get retrofitted or come online that will be able
Speaker 1: to process more of that shale oil. And would that
Speaker 1: be the in the best interests of this country? Do
Speaker 1: you think? Well? I think, um, it depends. I mean,
Speaker 1: you know, the basic theme of your show with your
Speaker 1: podcast is markets, and it's kind of efficient. This is
Speaker 1: efficient markets at work. It economically makes more sense to
Speaker 1: export that oil somewhere else, uh, and then import the
Speaker 1: crew that fits the system. You can run you know,
Speaker 1: ill fitting crews through refineries. But it's just a lot
Speaker 1: less efficient than and costs are are higher. I think
Speaker 1: I think to some degree we'll see you know, that retrofitting,
Speaker 1: that investment go on. But the US made such a
Speaker 1: huge investment I think we estimated like a hundred billion
Speaker 1: dollars to get our refinery system because we were an
Speaker 1: importer of oil to be able to take those uh,
Speaker 1: heavier crudes and so forth, and so it takes you
Speaker 1: know a lot of money to change it. So uh,
Speaker 1: but you know, it was a big political battle to
Speaker 1: get the crew to export band lifted. It was a
Speaker 1: relic of the nineteen seventies that you had this band.
Speaker 1: It really didn't you know it actually, I mean if
Speaker 1: you think markets are the best way to do it,
Speaker 1: then it didn't. It didn't make sense. And without lifting
Speaker 1: that band, we would not be able to produce as
Speaker 1: much oil as we are doing because given our refining system,
Speaker 1: it just you wouldn't have had the global You needed
Speaker 1: the global market to just to justify the continuing investment
Speaker 1: and the growth of production. So do you think the
Speaker 1: American producers, I mean, clearly they must be reacting to
Speaker 1: these elevated prices and uh increasing production to some degree.
Speaker 1: But well, when you think about it, you know, if
Speaker 1: I were a CEO of an energy company, and you know,
Speaker 1: first I lived through the crashing prices in like two
Speaker 1: thou two thousand and sixteen, and then the actual negative
Speaker 1: prices during the covid epidemic. I imagine that's got to
Speaker 1: be causing some reluctance um to sort of go in
Speaker 1: with both feet and yeah, yeah, exactly. I mean in
Speaker 1: the last decade we saw this incredible growth where the
Speaker 1: US was at one point adding two million barrels a day.
Speaker 1: It's been a much more muted reaction for exactly the
Speaker 1: reason you say. That's one of the big reasons. Because
Speaker 1: prices go up, just like the title of your show,
Speaker 1: they go up, and then the other side of your
Speaker 1: the title of your shows that prices go down, and uh,
Speaker 1: and they've been through those cycles. They've been through two
Speaker 1: down cycles. So there's that factor at work. Second factor
Speaker 1: is investors are saying to them, don't go hog wild.
Speaker 1: You you know, you have to return money to us.
Speaker 1: This is an investment. This isn't the gift. And so
Speaker 1: uh they are uh, you know, returning their cash flow
Speaker 1: because investors are, uh, are are demanding it. It's like
Speaker 1: a new social contract between the producers and the investors.
Speaker 1: And the third thing is the same supply chain problems
Speaker 1: that would be definitely the rest of our economy or
Speaker 1: be deviling them, not enough pipe, not enough truck drivers,
Speaker 1: you know, not enough crews to work on things, and
Speaker 1: so they're competing for workers with other people. So, um,
Speaker 1: you know that supply chain is is a big problem.
Speaker 1: And it's just came back from Houston. People were saying, well,
Speaker 1: you know, well that might have taken six months to
Speaker 1: get the production, will take nine or twelve months to
Speaker 1: get the production. So productions going up. Uh. Maybe at
Speaker 1: the beginning of the year people thought it would go
Speaker 1: up by a million barrels a day, which is a
Speaker 1: big number. Now you know, at least some of the
Speaker 1: producers are saying more like US production will by about
Speaker 1: six hundred thousand barrels a day. So it is going up,
Speaker 1: but it's you know, people are not shall we say
Speaker 1: that this uh irrational exuberances out of fashion and the
Speaker 1: oil patch. That makes sense. And just to give listeners
Speaker 1: a bit more background information, can you as you lay
Speaker 1: out in the book, can you lay out how it
Speaker 1: is the US became such a big oil and gas producer. Yeah,
Speaker 1: it's really it's it was. It was a revolution. You know,
Speaker 1: we had eight presidents in a row, starting with Richard
Speaker 1: Nixon and uh saying right up through Barack Obama saying
Speaker 1: we want to become energy independent, and it seemed a joke,
Speaker 1: it was never going to happen. Uh, But there was
Speaker 1: this technology called shale, which really involves sort of umu
Speaker 1: hydraulic fracturing as it's called, combined with horizontal drilling, and uh,
Speaker 1: there was one really obsessed individual. You know, it's so
Speaker 1: it's so interesting when you you know the role of
Speaker 1: obsessed individuals in economic change, named George P. Mitchell, who
Speaker 1: was convinced if you just worked somehow, even though the
Speaker 1: textbook said it was impossible, you can make it work.
Speaker 1: And for twenty years, twenty five years, people scoff. But
Speaker 1: then it did work. And uh, you know, even his
Speaker 1: own company people were telling him not to spend money
Speaker 1: on it. But if he hadn't spent that money, I'm
Speaker 1: not sure that we would have been where we were.
Speaker 1: And then so in the early two thousand's you started
Speaker 1: to see kind of wildcatteries as independence as are called,
Speaker 1: small companies starting to adapt that technology. And then people said, oh, us,
Speaker 1: natural gas supply, instead of going down, is going up.
Speaker 1: And then they said, well, if it works for gas,
Speaker 1: maybe it works for oil too. And about two thousand
Speaker 1: and eight, two thousand nine. So this all really happened
Speaker 1: in you know, in that period from around two thousand
Speaker 1: and eight till you know, up until that's when it
Speaker 1: all really began, the shale revolution, and it just took
Speaker 1: the US from an entirely different position. And if you
Speaker 1: had told people in two thousand and two that the
Speaker 1: US was going to be the world's largest oil producer,
Speaker 1: larger than Russia, larger than Saudi Arabia, the world's largest
Speaker 1: producer of natural gas, and this year the world's largest
Speaker 1: export of L and G, they would have said, you're
Speaker 1: living in a fantasy world. So I know, no one
Speaker 1: I know likes to make predictions on prices, Daniel, but
Speaker 1: I'm getting the vibe that, um, from where you're sitting, Um,
Speaker 1: it doesn't sound like we should expect these desalivated prices
Speaker 1: to show much improvement in the near future. Any any
Speaker 1: thoughts on on what we can expect. So, you know,
Speaker 1: one of the things I've seen from studying the industry
Speaker 1: is that it about every three years is a consensus
Speaker 1: about what's going to happen, and then something entirely different happens,
Speaker 1: particularly when it particularly when it comes to price um.
Speaker 1: But you know, I think that before we went into
Speaker 1: the Ukraine crisis, uh, the Ukraine War, we were already
Speaker 1: in an energy crisis. And it started last autumn in
Speaker 1: Europe and Asia with much higher prices. And that's because
Speaker 1: supply demand balance had become very tight, because the rebound
Speaker 1: from COVID had been quite strong, and you simply had
Speaker 1: had what I started to call preemptive under investment, just
Speaker 1: not you know, picking up one of the things we're
Speaker 1: talking about, not enough investment around the world. Uh. I
Speaker 1: think that condition still persists, and I think uh, Russian
Speaker 1: oil is not gonna rush, is not going to be
Speaker 1: producing as much oil. So I think my expectation would
Speaker 1: be tight markets. And some people you know, have much higher,
Speaker 1: you know, higher expectations of price uh. And you know,
Speaker 1: because you know this, no one thought this war would
Speaker 1: go on for as long as it has, and you know,
Speaker 1: is it may be going to go on much longer?
Speaker 1: And is Putent going to use nuclear weapons? You know,
Speaker 1: just there's so many questions you don't know the answers to.
Speaker 1: I'd say the big counter fact out there. And by
Speaker 1: the way, and if China comes out of its COVID lockdown.
Speaker 1: Then that starts to push demand up. And that's why
Speaker 1: you know you've seen prices, you know, they've been pretty volatile,
Speaker 1: but days it goes up. It's because Shanghai is ending
Speaker 1: its lockdown. Um. Uh. But the other side of it
Speaker 1: is um, the growing, the growing, you know, way to
Speaker 1: voices about recession and downturn. And if you do have
Speaker 1: a downturn, uh, you know significant recession, energy prices will
Speaker 1: come down along with uh, you know, other commodities. But
Speaker 1: commodities are tight and natural gas you know, this expectation
Speaker 1: this summer is for higher you know, natural gas prices
Speaker 1: to remain high. So I think that the one factor
Speaker 1: on the other side is the recession, is the FED
Speaker 1: and with the central banks do um. But I think
Speaker 1: that if you look at supply demand balance, it does
Speaker 1: say we're in a period of tight supply. Well, you're
Speaker 1: saying the book that the world has grown to worry
Speaker 1: about peak demand or how long consumption of oil will
Speaker 1: continue to grow. So I want to I want to
Speaker 1: ask you to make that prediction as well, like how
Speaker 1: long will it continue to grow? Okay? Well there, um,
Speaker 1: you know, there were some people during the lockdown we
Speaker 1: thought world oil demand had peaked. Uh. My response was,
Speaker 1: you shouldn't make generalize about the future in the middle
Speaker 1: of a pandemic. Uh. And Uh, I think that we've
Speaker 1: seen I mean what coming out of the pandemic, We've
Speaker 1: seen growth, and we have growth in the developing world,
Speaker 1: in emerging markets, add two billion people, more demand will
Speaker 1: continue to grow. So I think it's very reasonable at
Speaker 1: this point to expect world oil demand to continue to
Speaker 1: grow until the early twenty thirties in that period and
Speaker 1: then kind of reach a plateau and maybe start to
Speaker 1: to to slope downward. But you know, that's you know,
Speaker 1: maybe ten years away from that. But I think that
Speaker 1: growth is still there, and I think natural gas actually
Speaker 1: consumption grows for a longer period of time. And that
Speaker 1: sloping downward in in ten years or so, is that
Speaker 1: because of the electrical vehicle Electric vehicles will finally be
Speaker 1: sort of more economical. Yeah, exactly, that that e v
Speaker 1: s will become much more common, although there's still now
Speaker 1: the new question is about what about the minerals and
Speaker 1: the medals that you need for a highly electrified society.
Speaker 1: I wanted to ask you about that. I mean, I'm
Speaker 1: I'm a worry work by nature, you know, or the
Speaker 1: new geopolitical tension is going to be about, you know,
Speaker 1: the supplies of nicol and cobalt and all the other modems.
Speaker 1: I think so, yes, I think you're quite right. I think, uh,
Speaker 1: we'll have a you know, oil and gas have been
Speaker 1: wrapped up in geopolitics. Uh, you know from the beginning.
Speaker 1: I think that now these minerals, which people didn't think
Speaker 1: much about unless they were in the business or near
Speaker 1: the business or investing in the business, will also be
Speaker 1: much caught up in geopolitics. We're doing a study now
Speaker 1: on copper and just uh, you know how kind of said, okay,
Speaker 1: if you have these goals for how much copper will
Speaker 1: you need? Uh? And it turned out you'll need a
Speaker 1: lot more than we have now. And where the minds,
Speaker 1: and you know, they're in Chili there in Peru. Uh.
Speaker 1: It takes a much longer time to open develop and
Speaker 1: open a new mind than it does to bring on
Speaker 1: even an offshore oil field. So uh, I think I
Speaker 1: think that's kind of looming out there, and that may
Speaker 1: affect the cost curve for for wind and solar but
Speaker 1: I think, uh so that's part of it. But I
Speaker 1: do think Yeah, as you get more electric cars and
Speaker 1: as kind of population world population starts to stabilize. I
Speaker 1: think those are the factors that would mean that you know,
Speaker 1: and more efficient, that demand just starts to uh flatten
Speaker 1: out demand growth. I have a two part question for you,
Speaker 1: which listeners will know. Mike is very well known for
Speaker 1: having multi multi, multi part questions. So do I need
Speaker 1: to get a penny? Possibly? No? No, that was like
Speaker 1: two part question is amateur? Okay, I'm piling on. So
Speaker 1: I want to ask you to grade how what grade
Speaker 1: you would give all of us in terms of the
Speaker 1: progress we've been making when it comes to renewables. And
Speaker 1: the second part is just because we were just talking
Speaker 1: about international developments and how that plays a part. But
Speaker 1: in the book you had said that COVID could actually
Speaker 1: lead to more failed states, and I want to ask
Speaker 1: you how that also plays a role in this right.
Speaker 1: So on renewables, you know I spoke before about the
Speaker 1: shale revolution, there's been a solar revolution. Solar costs have
Speaker 1: come down. Uh. It's interesting. Wind and solar as modern
Speaker 1: industries about half a century old, but it's about ten
Speaker 1: years ago when they started to really achieve scale. Uh
Speaker 1: and costs came down so dramatically, and so that's been
Speaker 1: very significant. So there, you know, most of the new
Speaker 1: capacity that's been put in place for US utilities is
Speaker 1: wind and solar, and so I think you know that's
Speaker 1: been a big success story. Uh. They are intermittent, so
Speaker 1: you need something else like natural gas to balance them
Speaker 1: out or otherwise you have brownouts. So uh, and I
Speaker 1: think you know, we're now starting to see the development
Speaker 1: of offshore wind, which is on a whole different scale
Speaker 1: and um, you know it's more advanced in Europe. Um.
Speaker 1: But by the way, um about the solar panels are
Speaker 1: made in China and their tariffs on them, and you know,
Speaker 1: so that gets back to our kind of geopolitical question
Speaker 1: about as we move in that direction. Um. So I
Speaker 1: think that's uh, that's part one of your question. Part two. Uh.
Speaker 1: I mean, covid is really has been pretty devastating for
Speaker 1: you know, many economies in developing countries that don't have
Speaker 1: the resources like the United States have and don't have
Speaker 1: a printing press actually, and so I think it's created
Speaker 1: a lot of hardships for a lot of states right now,
Speaker 1: Sri Lanka. I mean, there are other factors at work too.
Speaker 1: Is is just its economy is just broken down. And
Speaker 1: uh so, I think the recovery from uh COVID, I mean,
Speaker 1: there's an economic recovery that has to go along with
Speaker 1: the with the with the health recovery. So I think,
Speaker 1: you know, I think the economic scars are going to
Speaker 1: be there for a longer time. So if we do
Speaker 1: have if we do end up seeing war field states,
Speaker 1: how much more difficult does it make, you know, to
Speaker 1: to mind Cobalt or any of these other well either
Speaker 1: failed states or um states swept up in populism. And uh,
Speaker 1: we've seen some elections in Latin America that point in
Speaker 1: that direction. Uh you know there there will be more
Speaker 1: of those. Uh. If you look at the political map
Speaker 1: of Latin America, it's not people. The people who are
Speaker 1: who are in power are not people who believe in
Speaker 1: the necessary the free flow of capital and investment and
Speaker 1: so forth, and um so I think and they will
Speaker 1: want to, you know, change the terms on which people
Speaker 1: have made investment. And so I think that will I
Speaker 1: think those political factors will hinder investment and slow down
Speaker 1: the investment. And you know, Chile has a thirty five
Speaker 1: year old president who wants to change the terms under
Speaker 1: which companies operate. Chili is the world's largest producer of copper. Uh,
Speaker 1: you know, and and therefore, if the politics change, companies
Speaker 1: are more reluctant to make investment and are more cautious.
Speaker 1: So I think that's something to watch that. It's not
Speaker 1: don't it's it's you have to pay attention to the
Speaker 1: politics that are happening above ground, right, Daniel, You mentioned,
Speaker 1: um how Germany had shut down their nuclear power plants. Um.
Speaker 1: I guess under Angela Merkel, and I believe that was
Speaker 1: after Fukushima, when they sort of got freaked out about
Speaker 1: the Fukushima incident. I think that Mike, I think that's
Speaker 1: the right word, freaked out rightly. So I can't blame him,
Speaker 1: I guess. But at the time, but is um, do
Speaker 1: you anticipate any change of heart on on nuclear Yeah, yeah,
Speaker 1: there's been. Um, there's even been a change of heart
Speaker 1: in Germany. Who we even had people in the Green
Speaker 1: Party saying it may have been a mistake to shut
Speaker 1: down the nuclear uh. And uh, you see, what you
Speaker 1: see now is a lot of focus on small nuclear reactors.
Speaker 1: We just had our big SERWEE conference in Houston. I
Speaker 1: heard three Industrial is just kind of almost talking like
Speaker 1: they expect that. By the twenty thirties, you had President
Speaker 1: Emmanuel mccrown and France who came into power saying we
Speaker 1: want to downplay nuclear and do more renewables. He's just
Speaker 1: now set elected for a second term. He wants to
Speaker 1: UH six new nuclear reactors and maybe another eight. Even
Speaker 1: Brittain has talked about it. So I think that and
Speaker 1: in the US there's something like UM sixty at this
Speaker 1: point companies and research groups that are working in nuclear
Speaker 1: And I heard the other day that something like four
Speaker 1: billion dollars has gone into kind of venture capital funding
Speaker 1: for fusion not vision. So I think that UM and
Speaker 1: and the U. S. Government is putting money into, you know,
Speaker 1: into these new nuclear technologies. So I think there has
Speaker 1: been a turnaround, not an embraced by any means, but
Speaker 1: a turnaround. And I thought that particularly that maybe small
Speaker 1: nuclear reactors will be economically manageable by the way UH
Speaker 1: to UH to deploy, and sense that it needs to
Speaker 1: be part of our electricity supply, by the way the
Speaker 1: countries that's the biggest international vendor kind of nuclear power
Speaker 1: and uranium happens to be a country called Russia. What
Speaker 1: could go wrong there? Right? Yeah, yeah, it's a reliable supply. Daniel.
Speaker 1: You you lay at all these characters in the book
Speaker 1: who helped revolutionize boil and gas exploration in the US.
Speaker 1: So Harold Ham or Sharif Suki, and I want to
Speaker 1: ask you who the Harold Hams are of the renewable
Speaker 1: space today? Well, uh, they are today. Well, obviously the
Speaker 1: person who has you know, this is no secret. The
Speaker 1: person who has trans form the automobile industry is Elon Musk.
Speaker 1: And I have that wonderful story in the book about J. B. Strabo,
Speaker 1: who was this technology as electricity enthusiasts, who had lunch
Speaker 1: with them in two thousand three and tried to sell
Speaker 1: them on the idea of electric airplane. Says I'm not
Speaker 1: interested as an electric car, and must says I might
Speaker 1: well be interested in that. And uh, Musk a couple
Speaker 1: of years ago said it had not been for that
Speaker 1: lunch in Los Angeles, there might not have been a tesla.
Speaker 1: I mean, it's just the contingency of history. And look
Speaker 1: at now all the automobile makers are all staying. By
Speaker 1: twenty five, they want to go all electric or mostly
Speaker 1: electric So I think he stands out there the most
Speaker 1: in terms of in terms of wind and renewables. I mean,
Speaker 1: I I mean there's a pioneers. I mean I think
Speaker 1: there you know, people who are playing UH leadership roles,
Speaker 1: but it's I think, I think the breakthrough period is
Speaker 1: behind us. I mean, now these are well established industry. Well, Daniel,
Speaker 1: you're the one who brought up Elon musk, which I
Speaker 1: feel like is the perfect segue to our craziest things
Speaker 1: of the week, because mine is is UH elon related.
Speaker 1: But Daniel, what a treat to catch up with you.
Speaker 1: Daniel Jurgen is the author of the New Map, Energy
Speaker 1: Climate and the Clash of Nations. Also about a half
Speaker 1: dozen other books, right, yeah, there are a few weather
Speaker 1: as well. And he's the Vital Quest vice chair just
Speaker 1: to UH and the vice chairman of SMP Global. And
Speaker 1: it's a better real honor to to get your thoughts
Speaker 1: on on energy markets, Daniel with you. It's been great
Speaker 1: to talk to both of you, and thanks for the opportunity.
Speaker 1: But but first we're gonna get your thoughts on the
Speaker 1: crazy things in the markets. We can't let you go without. Okay, well,
Speaker 1: I think the thing that's on my mind, is um
Speaker 1: kind of this schizophrenic US policy about energy, Uh on
Speaker 1: the one hand, wanting more production on the other hand,
Speaker 1: UH kind of beating up on you know, on the industry.
Speaker 1: And you know, Germany has been able to work out
Speaker 1: what to do about oil because they had this dialogue
Speaker 1: between government and the private sector, and we don't have
Speaker 1: that in the United States. And I think when you're
Speaker 1: in a crisis and in a disruption, you ought to
Speaker 1: do that. So I'm not sure I would put the
Speaker 1: label crazy on it, but it is UM is something
Speaker 1: that really stands out that you know, we need to prepare.
Speaker 1: It may not happen, but we need to prepare for
Speaker 1: greater disrupt right. You know, politicians love to use gasoline
Speaker 1: prices as a blunt tool to to beat up their
Speaker 1: their opponents with. And you know, obviously Biden's getting a
Speaker 1: lot of abuse about gas prices. But is there is
Speaker 1: there any blame to be shouldered on the administration? I mean,
Speaker 1: I get the impression that US producers have some spare
Speaker 1: capacity that they could be using. They don't need sort
Speaker 1: of looser regulations to increase production. Well I think, I mean,
Speaker 1: I think they need confidence that if it goes back
Speaker 1: to what you said earlier, that if they invest, that
Speaker 1: the rules of the game won't change two years from
Speaker 1: now when prices come down again. Um, and you know
Speaker 1: they I mean, they would give them confidence to invest.
Speaker 1: I mean one thing, if you're gonna invest, you need confidence.
Speaker 1: I think we could be you know, we could be
Speaker 1: talking to Canada right now and uh, you know more
Speaker 1: we need more oil. We could get it from there.
Speaker 1: But it is I was talking the other day to
Speaker 1: a Democratic congressman and he kind of sees all of
Speaker 1: that and everything we said. But you know, you gotta
Speaker 1: understand we have an election in seven months, and of
Speaker 1: course gastling prices really do hurt a lot of people,
Speaker 1: and so uh, but it's very familiar because it's it's
Speaker 1: the same language. We recently had a you know hearing,
Speaker 1: a big dramatic hearing, you know, where their line up
Speaker 1: all the executives and you know, accuse them of price
Speaker 1: doudging everything. And I found actually looked at my previous book,
Speaker 1: The Prize, and I found that the first congressionally hearing
Speaker 1: on the high gasling prices was in n really and
Speaker 1: you know what, it was the same script that's hilarious.
Speaker 1: That's really good. Um, all right, well, Donna, I will
Speaker 1: give you my I tease it a little bit. I'll
Speaker 1: give you my crazy thing. I will not make you
Speaker 1: play prices right this week. Usually I make build down
Speaker 1: to play prices right and guess the price of what
Speaker 1: I'm talking about, Daniel. But does I'm not good at
Speaker 1: it though I don't enjoy the game. Well, let's see,
Speaker 1: maybe I think you can guess this one. I still
Speaker 1: have to make it a game somehow. So, Uh, Elon Musk,
Speaker 1: as you put it out, brought into the program, Daniel.
Speaker 1: It's obviously got a little side endeavor going on where
Speaker 1: he's trying to buy Twitter, and then he's sort of
Speaker 1: pulled the plug on the deal, saying he's not sure
Speaker 1: how many of these accounts are really actual humans and
Speaker 1: how many are fake bots, And so the CEO of
Speaker 1: Twitter put out a very elaborate long list of tweets
Speaker 1: explaining they're how they deal with bots. Uh, and Elon
Speaker 1: Musk replied with one emoji, Bia, do you know what
Speaker 1: the emoji was? I don't, but I'm going to guess
Speaker 1: it was good. Guess it only makes sense for there
Speaker 1: is It makes then the visionary of electric vehicles, of
Speaker 1: space exploration and the richest man in the world. Uh,
Speaker 1: replying with a with a poop emoji. So Twitter diplomacy. Yeah,
Speaker 1: so what do you think do you think he wants
Speaker 1: to buy Twitter? Uh? Good question. I don't know what
Speaker 1: do you think? I was struck by a bluemgarticle earlier
Speaker 1: this week they talked about the debt burden that that
Speaker 1: comes along with Twitter. I think it's something like thirteen
Speaker 1: billion dollars or you know, just the annual interest rate
Speaker 1: payments are something around a billion dollars. Just he must
Speaker 1: be thinking about that now after he had rushed into
Speaker 1: the deal so quickly and watching the share price reaction
Speaker 1: in Tesla, I think might have made him change his
Speaker 1: tune a little bit. Yes, yes, yeah, Well I have
Speaker 1: the craziest thing in the electric vehicle market as well. Okay,
Speaker 1: at least I think it's in the electric vehicle market.
Speaker 1: But I had never heard of this company before. But
Speaker 1: my craziest thing. And and just to to lay the
Speaker 1: record tread there were so many crazy things this week.
Speaker 1: We had Walmart and Target I think each had their
Speaker 1: largest one day declines in share price since seven and
Speaker 1: just massive amounts of crazy stuff just happening on a
Speaker 1: daily basis. But there was this Bloomberg story about some
Speaker 1: of the wealth that has been coming out from the
Speaker 1: spack market. And so there's a company called Arrival, and
Speaker 1: maybe Daniel can tell us about it if if he's
Speaker 1: familiar with it. But the founder or the CEO or
Speaker 1: whoever is behind Arrival, he was worth the eleven point
Speaker 1: seven billion dollars a year ago and he's lost nine
Speaker 1: of his wealth. So there's just been massive losses of wealth,
Speaker 1: you know. But I think there were a couple of
Speaker 1: tycoons in China who had lost similar amounts of the
Speaker 1: CARBONA founders all so had lost huge amounts of wealth,
Speaker 1: and so just it's that that market has created. Yeah,
Speaker 1: I mean it is interesting. I mean this happens that
Speaker 1: you know, people thought they had all this wealth, and
Speaker 1: you know, they thought it was sort of like golden
Speaker 1: Fort Knox, and it turns out it was paper. And
Speaker 1: so I guess we're gonna see a lot of fortunes
Speaker 1: just uh pulverize. And that's even before we start talking
Speaker 1: about crypto, where they it's it's it's going off, Okay,
Speaker 1: I have when I have I have a game I've
Speaker 1: played I just mentioned to you, which uh is. There
Speaker 1: are a lot of teslas on the street in Washington,
Speaker 1: and so my hobby is to account how many tests
Speaker 1: I see in a day, the numbers going up. Okay,
Speaker 1: is it really? Yeah? It's at and Lelan is a
Speaker 1: new uh, a newfound conservative politically leaning, so curious to
Speaker 1: see how sales do I don't. I don't picture. I
Speaker 1: don't know. I picture a lot of Democrats buying those cars.
Speaker 1: I don't know if he's uh actually that you're right,
Speaker 1: I mean, you're right his that's a really good point
Speaker 1: that his uh, his market may not be where his yea,
Speaker 1: where he is politically currently. Yeah, he might might regret
Speaker 1: some of this, but we'll see. Maybe we'll get him
Speaker 1: on the show of all, Donna and he can answer
Speaker 1: all our questions, the invitations out right. But Daniel, you're
Speaker 1: going again. Thank you so much. Vil. Donna and I
Speaker 1: were not exactly book critics, but we both love the
Speaker 1: new map. Big endorsement for us, great storytelling, great writing,
Speaker 1: and just um really putting it all together. Everything going
Speaker 1: in around the world now with you Tew, politics and energy,
Speaker 1: it's um. The two are really joined at the hip
Speaker 1: and and you really did a good job of putting
Speaker 1: it all together. Well, thank you. I appreciate it. Thank
Speaker 1: you for joining us. Meant thank you. What Goes Up
Speaker 1: will be back next week and so then you can
Speaker 1: find us on the Bloomberg Terminal, website and app or
Speaker 1: wherever you get your podcast. We love it if you
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Speaker 1: Apple Podcasts, so more listeners can find us. And you
Speaker 1: can find us on Twitter, follow me at reag Anonymous.
Speaker 1: Bildanna Hirach is at Bildanna Hirach. You can also follow
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Speaker 1: Stacy Wang. The head of Bloomberg podcast is Francesco Levie.
Speaker 1: Thanks for listening. To see you next time.