WEBVTT - One Word That Triggers Putin 0:00:13.960 --> 0:00:17.440 Hello, and welcome to What Goes Up, a weekly markets podcast. 0:00:17.560 --> 0:00:19.880 My name is Mike Reagan. I'm a senior editor at 0:00:19.880 --> 0:00:23.880 Bloomberg and I'm gonna higher across acid reporter with Bloomberg. 0:00:24.360 --> 0:00:27.120 And this week on the show, well, that red hot 0:00:27.160 --> 0:00:30.240 inflation is proving to be the biggest story in markets 0:00:30.280 --> 0:00:34.080 this year, and obviously energy prices are a huge part 0:00:34.080 --> 0:00:36.280 of it. So we're going to tap the brain of 0:00:36.280 --> 0:00:39.360 an expert who The New York Times calls quote America's 0:00:39.479 --> 0:00:44.760 most influential energy pundit, but Bill Downa first, I need 0:00:44.800 --> 0:00:48.919 to talk to Bloomberg's most influential markets fund in you. 0:00:49.680 --> 0:00:52.080 But you, I'm very jealous. You're going to London next week? 0:00:52.120 --> 0:00:54.040 What is up with that? Am my more influential than 0:00:54.080 --> 0:00:59.560 you are. I'm starting your bone there. You know you can? Yeah, yeah, yeah, yeah, 0:00:59.600 --> 0:01:01.480 I am. I am going to London and I'm so 0:01:01.520 --> 0:01:04.840 excited to see all of the London colleagues I've never 0:01:04.920 --> 0:01:07.360 even met in real life, and I've never been to 0:01:07.400 --> 0:01:10.280 the Bloomberg golfice there, so um. But then at the 0:01:10.400 --> 0:01:11.840 end of my trip, I'm going to a wedding in 0:01:11.880 --> 0:01:15.040 a castle. Oh that's cool. What's the name of the castle. 0:01:15.800 --> 0:01:17.920 I have no idea. I think actually people live in it, 0:01:18.040 --> 0:01:21.679 so might not have a name. It's not where it's 0:01:21.680 --> 0:01:27.160 not where the Queen's living, is it. I think it's 0:01:27.160 --> 0:01:29.840 a royal adjacent wedding. Yes, do you have one of those? 0:01:29.920 --> 0:01:32.960 You need one of those hats? Fascinating It's called a fascinating. Yeah. 0:01:32.959 --> 0:01:36.120 I wish I could pull that off. But yeah, and 0:01:36.240 --> 0:01:39.080 maybe I need to go shopping for a fascinating And 0:01:39.120 --> 0:01:41.000 you also need to go to the myth reum in 0:01:41.040 --> 0:01:44.120 the basement of the Bloomberg building, the temple to the 0:01:44.240 --> 0:01:48.280 Roman god Mithros. Yes, I heard about that. Yeah, then 0:01:48.320 --> 0:01:51.720 you'll be at a castle and a Roman temple. You'll 0:01:51.160 --> 0:01:54.280 see that that London has to offer. Yeah, how cool 0:01:54.320 --> 0:01:57.480 is that? But I want to bring in our our 0:01:57.520 --> 0:02:00.240 guests this week. You just introduced him and want to 0:02:00.240 --> 0:02:03.880 welcome Daniel Jurgen. He's the vice chairman at SMP Global 0:02:04.240 --> 0:02:07.440 and he's also the author of the New Map Energy 0:02:07.600 --> 0:02:10.960 Climate and the Clash of Nations. Welcome to the podcast. 0:02:11.480 --> 0:02:14.200 Glad to join you both. Thank you. I have to 0:02:14.280 --> 0:02:17.200 say your team sent over a copy of your book 0:02:17.240 --> 0:02:20.839 before the podcast, and I highly highly recommended. I love 0:02:20.919 --> 0:02:24.360 stuff like this. It's all about geopolitics and the role 0:02:24.520 --> 0:02:27.440 that energy is playing, which obviously has been a huge 0:02:27.480 --> 0:02:30.680 topic this year. So maybe just to start out very 0:02:30.720 --> 0:02:34.400 broadly speaking, you start the book book actually saying there's 0:02:34.440 --> 0:02:38.240 this growing coldness between the US and China and Russia, 0:02:38.600 --> 0:02:41.400 and I want to ask you about energy's role in 0:02:41.440 --> 0:02:46.200 this growing coldness. Energy is a very important part of it. Obviously, 0:02:47.000 --> 0:02:51.360 I focused in the book on really how this war 0:02:51.480 --> 0:02:56.040 began in Ukraine by explaining the focus and the conflict 0:02:56.080 --> 0:02:59.280 between Russia and Ukraine, uh, and how that ties into 0:02:59.360 --> 0:03:03.520 natural gas in Europe and similarly, of course China. The 0:03:03.560 --> 0:03:07.000 big geopolitical story the twenty one century is the relationship 0:03:07.040 --> 0:03:09.840 between the US and China, and that is getting colder 0:03:09.840 --> 0:03:13.400 and more difficult, it seems almost day by day. You 0:03:13.440 --> 0:03:15.840 know that. No, I read your book too. I agree, 0:03:16.000 --> 0:03:18.919 very excellent book. Uh, And I know you have several others, 0:03:18.919 --> 0:03:20.600 so we've got a lot of reading to do, Wildonna 0:03:20.720 --> 0:03:22.680 to catch up with these, but well, I think Bill 0:03:22.720 --> 0:03:26.000 Donna just has a long plane ride which still get 0:03:26.040 --> 0:03:30.000 us started. I'm loading them all on my kindle until 0:03:30.040 --> 0:03:34.200 you fall asleep. But you know what I thought occurred 0:03:34.200 --> 0:03:37.800 to me Daniel. As I was reading it is, um, 0:03:37.840 --> 0:03:40.560 what's a company that sort of you know, new Cold 0:03:40.560 --> 0:03:43.240 War if you will, or however you want to describe it. 0:03:43.320 --> 0:03:47.400 Is America's growth of its own domestic energy industry, the 0:03:47.680 --> 0:03:51.480 shale patch and the tracking and whatnot. And I wonder, 0:03:51.760 --> 0:03:55.440 you know, it almost seems like going from sort of 0:03:55.840 --> 0:03:58.600 being renowned as the biggest consumer of energy in the 0:03:58.640 --> 0:04:03.840 world to now made your producer almost escalates the geopolitical tensions. 0:04:04.120 --> 0:04:06.760 I feel like it does. It almost make sort of 0:04:06.800 --> 0:04:12.880 America's influence, um, if not weaker, uh, but different in 0:04:13.200 --> 0:04:16.040 this environment since we are such a big producer. Now. Yeah, 0:04:16.040 --> 0:04:18.520 I think it well, I think that's that's absolutely right. 0:04:18.600 --> 0:04:21.040 You know. I deal with a lot of things from 0:04:21.080 --> 0:04:23.479 you know, Ukraine to climate in the book, but I 0:04:23.520 --> 0:04:27.159 start with shale and because shales really had a much 0:04:27.200 --> 0:04:31.559 bigger impact on geopolitics and people recognized. In the story 0:04:31.600 --> 0:04:35.040 I tell in the book is when I was in St. 0:04:35.040 --> 0:04:38.800 Petersburg at a conference where Bootin was speaking, and uh, 0:04:38.960 --> 0:04:42.039 I three thousand people there and I was told to 0:04:42.040 --> 0:04:44.279 ask the first question. I started to ask a question, 0:04:44.320 --> 0:04:46.240 I mentioned the word shale, and he started shouting at 0:04:46.279 --> 0:04:50.359 He's saying shales barbaric. He knew that US shale was 0:04:50.400 --> 0:04:53.640 a threat to him in two ways. One because it 0:04:53.680 --> 0:04:57.279 meant that the US natural gas would compete with natural 0:04:57.320 --> 0:05:01.480 gas in Europe, and that's what we're seeing today. Secondly, Uh, Mike, 0:05:01.560 --> 0:05:05.160 it's your point because this would really augment America's position 0:05:05.200 --> 0:05:07.080 in the world and give it a kind of flexibility 0:05:07.440 --> 0:05:11.159 it didn't have when it was importing its oil. I'd 0:05:11.160 --> 0:05:13.200 love to know who decided that you get asked in 0:05:13.240 --> 0:05:15.440 the first question. That's the talk about drawing the church 0:05:15.839 --> 0:05:19.440 straw there. That's uh, that's not a position I'd want 0:05:19.440 --> 0:05:24.720 to be in. Well, it was, I will tell you. Um. 0:05:26.520 --> 0:05:28.840 It was started off innocuously that I was gonna ask 0:05:28.880 --> 0:05:34.359 him a normal question about UH diversifying your economy, and 0:05:34.400 --> 0:05:36.960 I said shale And you know, to be shouted at 0:05:37.080 --> 0:05:39.920 him by him in front of three thousand people are 0:05:40.040 --> 0:05:43.880 really unpleasant experience. The other thing, and now that we're 0:05:43.880 --> 0:05:46.040 talking about I realized the other person on the stage 0:05:46.440 --> 0:05:49.760 was Chancellor Merkel, who was chance of Germany for sixteen years. 0:05:50.200 --> 0:05:53.000 And you can see the enemy between the two. But 0:05:53.120 --> 0:05:58.160 you know, Merkel is now being criticized for UH policies 0:05:58.200 --> 0:06:01.440 like shutting down nuclear that to Germany being more dependent 0:06:01.480 --> 0:06:05.120 on Russian gas, and you know, the sort of judgment 0:06:05.160 --> 0:06:09.440 of history is shifting a little bit. Yeah, I actually 0:06:09.480 --> 0:06:11.720 wanted to ask you about this because I noticed that 0:06:11.800 --> 0:06:13.800 early on in the book you had actually mentioned that 0:06:13.839 --> 0:06:17.320 Marco said about nord Stream that it linked Russia in 0:06:17.360 --> 0:06:21.039 Europe in a safe and resilient partnership. And then later on, 0:06:21.240 --> 0:06:24.960 as you continue reading you you lay out that she says, uh, 0:06:25.040 --> 0:06:27.840 you know, actually putting his living in his own world, 0:06:27.880 --> 0:06:31.120 where her judgment maybe was shifting a little bit or 0:06:31.200 --> 0:06:33.000 changing a little bit. So I wanted to ask you 0:06:33.120 --> 0:06:36.520 where everybody sort of went wrong or where people made 0:06:36.560 --> 0:06:40.600 mistakes and over the last ten years or so, well, 0:06:40.640 --> 0:06:43.800 I think that's a really important question and what I've 0:06:43.839 --> 0:06:47.120 been thinking about because you know, now there's a kind 0:06:47.160 --> 0:06:51.239 of revisionism that we shouldn't you know, the world shouldn't 0:06:51.240 --> 0:06:53.560 have traded with Russia, shouldn't have tried to integrate Russian 0:06:53.560 --> 0:06:56.800 to the world economy, particularly as Putin got more and 0:06:56.800 --> 0:06:59.800 more authoritarian. But you say, well, what was the ald 0:06:59.839 --> 0:07:03.200 term native to leave it festering there? I mean, the 0:07:03.240 --> 0:07:06.080 best thing was to get it anchored in the world. Uh, 0:07:06.720 --> 0:07:09.080 but you know Putin, I mean, he's been in power 0:07:09.120 --> 0:07:11.960 now almost as long as Joseph Stalin, and I think 0:07:12.000 --> 0:07:16.200 he was becoming more and more authoritarian. And people who 0:07:16.280 --> 0:07:19.120 have known him over the years said that that COVID 0:07:19.200 --> 0:07:22.200 changed him. He was isolated for two years. He wasn't 0:07:22.280 --> 0:07:27.880 meeting Western business people, he wasn't meeting Western government officials, 0:07:27.880 --> 0:07:30.840 and so forth, very isolated with a small group of 0:07:30.880 --> 0:07:36.280 people around him. May be ill and developed this incredible paranoia, uh, 0:07:36.320 --> 0:07:40.040 and this anger that led him to unleash this terrible war. 0:07:40.160 --> 0:07:43.280 So I don't think there was an alternative to not 0:07:43.360 --> 0:07:47.600 trying to integrate Russia into the world. But obviously what's 0:07:47.600 --> 0:07:50.760 happening now is the world, at least the Western world, 0:07:51.200 --> 0:07:54.480 is slamming the door on Russia. You know, it's such 0:07:54.480 --> 0:07:58.040 a thing, Daniel. I feel like this conflict between Russia 0:07:58.040 --> 0:08:02.040 and Ukraine has lasted longer than most people expected. I 0:08:02.040 --> 0:08:04.480 think people I think, if I can jump in, like 0:08:04.840 --> 0:08:07.880 longer than anybody expect, right, I think most people thought 0:08:08.040 --> 0:08:10.120 that they would go in and take over in a 0:08:10.160 --> 0:08:14.000 matter of a couple of weeks. If if not sooner, well, well, 0:08:14.080 --> 0:08:16.160 I mean, just to tell you, I mean putin thought 0:08:16.200 --> 0:08:18.480 it was gonna be three or four days, right right, 0:08:19.040 --> 0:08:22.400 So as it drags on, I'm just trying to wrap 0:08:22.480 --> 0:08:25.760 my head around. Um. You know, Luckily the spring weather 0:08:25.800 --> 0:08:29.000 in Europe now is sort of made the the energy 0:08:29.040 --> 0:08:32.000 situation a little less acute than it would be otherwise. Obviously, 0:08:32.400 --> 0:08:36.040 you know, uh, they still need natural gas for electricity, um, 0:08:36.640 --> 0:08:39.440 and you know, keep the factories running and the lights on. 0:08:39.600 --> 0:08:43.240 But as it drags on closer to the fall and winner, 0:08:43.600 --> 0:08:47.600 I mean, is Europe going to be able to just 0:08:47.720 --> 0:08:52.319 soldier on without uh sort of succumbing to Russia uh 0:08:52.640 --> 0:08:56.040 and their demands. Um, when it starts getting colder again, 0:08:56.080 --> 0:08:58.200 it is what do they need to do to sort 0:08:58.200 --> 0:08:59.920 of be able to do that? Well, I think that's 0:09:00.000 --> 0:09:03.760 a question that's really weighing now because in terms of oil, 0:09:04.679 --> 0:09:08.040 there's enough oil crude oil in the world. Uh, you 0:09:08.160 --> 0:09:12.160 have to move it around, but between strategic stocks demand 0:09:12.200 --> 0:09:14.920 being down in China, you can manage that. When you 0:09:14.920 --> 0:09:19.520 get into products site diesel, it gets harder and then uh, Mike, 0:09:19.559 --> 0:09:22.280 you're going to the hardest thing was natural gas, and 0:09:22.360 --> 0:09:24.640 that is exactly as you go into the winter. So 0:09:24.720 --> 0:09:28.800 the big question now is can you feel, can they 0:09:28.840 --> 0:09:32.240 feel storage so that that they can get to the 0:09:32.280 --> 0:09:34.920 winter and, by the way, not only stay warm, but 0:09:35.040 --> 0:09:38.680 keep industry operating. And I think, you know, we can 0:09:38.679 --> 0:09:42.319 say that Putin made a series of decisions which kind 0:09:42.360 --> 0:09:44.920 of were rational, that his army was really good, that 0:09:45.040 --> 0:09:49.320 Ukraine wouldn't be able to resist, that the US had 0:09:49.360 --> 0:09:52.400 just gone through getting out of Afghanistan, and was deeply divided, 0:09:52.679 --> 0:09:55.600 that Europe was so dependent on his energy that they 0:09:55.600 --> 0:09:59.240 would say, Okay, this is terrible, but life goes on. Uh, 0:09:59.280 --> 0:10:01.839 and none of that. But I think he's still calculating, 0:10:01.880 --> 0:10:06.720 and he said it that ultimately this energy disruption and 0:10:06.760 --> 0:10:09.920 we are in a huge energy disruption at this huge 0:10:09.920 --> 0:10:13.600 disruption of energy markets would be such a big threat 0:10:13.679 --> 0:10:18.440 to the European economy that that that the coalition that 0:10:18.480 --> 0:10:21.920 now exists would fall apart. I think that's that's his 0:10:22.000 --> 0:10:25.400 wager right now. And uh, and the Achilles Heal is 0:10:25.440 --> 0:10:28.720 what you pointed to. What happens is uh as Europe 0:10:28.760 --> 0:10:31.400 goes into the fall and winter, right, so you can 0:10:31.440 --> 0:10:33.520 still sort of counting on that to happen, I imagine 0:10:33.559 --> 0:10:35.640 at this point. Yeah, and we've had at least one 0:10:35.800 --> 0:10:39.800 German very prominent industrialist is said, you know, this is 0:10:39.840 --> 0:10:42.880 too dangerous for the European economy. We should negotiate something 0:10:42.880 --> 0:10:47.839 with Putin. And before we get into more of the intricacies, 0:10:47.880 --> 0:10:50.280 I actually wanted to ask you to lay out because 0:10:50.320 --> 0:10:52.800 in your book you you really presciently lay out what 0:10:52.920 --> 0:10:56.120 happened between Russia and Ukraine. I mean you go back 0:10:56.480 --> 0:11:00.520 centuries really, but you know over the last eight to 0:11:00.720 --> 0:11:04.280 ten years how important that's been. The war that broke 0:11:04.320 --> 0:11:09.080 out back when Russia invaded Crimea. Can you just talk 0:11:09.120 --> 0:11:13.040 about that and just lay out for our listeners what happened. Yeah, 0:11:13.080 --> 0:11:15.560 I mean there's always been this question and the Russian 0:11:15.640 --> 0:11:18.440 narrative there wasn't There is no Ukraine. Putin has said 0:11:18.480 --> 0:11:21.680 that Ukraine was simply part of Russia. And he published 0:11:21.760 --> 0:11:26.880 last summer bizarrely a five thousand word essay, particularly bizarrely 0:11:26.880 --> 0:11:29.800 in terms of what's happened now san Ukrainians and Russians 0:11:29.840 --> 0:11:33.640 are brothers. He had this mystical Slavic notion, and so 0:11:35.320 --> 0:11:37.640 he had described the breakup of the Soviet Union as 0:11:37.679 --> 0:11:41.679 the greatest geopolitical catastrophe of the twentieth century, and so 0:11:41.760 --> 0:11:45.080 he never really accepted the breakup of the Soviet Union, 0:11:45.120 --> 0:11:48.760 particularly Ukraine, because that was part of Russia and it 0:11:48.880 --> 0:11:51.319 was like the West, particularly United States, had taken it 0:11:51.360 --> 0:11:54.439 away from Russia, taken away from him, and so this 0:11:54.480 --> 0:12:00.560 relationship was always very acrimonious, uh really from the nineteen nineties, 0:12:00.600 --> 0:12:03.480 but particularly when Putin came to power and there was 0:12:03.520 --> 0:12:07.280 a series of crises over gas and Ukraine was, you know, 0:12:07.720 --> 0:12:11.760 not a very is a pretty corrupt, uh country with 0:12:11.840 --> 0:12:16.440 a lot of conflict going on in internally and so forth, 0:12:16.760 --> 0:12:19.480 and a lot of Russian efforts to kind of dominate 0:12:19.520 --> 0:12:25.200 the country, and so uh, Putin really you know, regarded 0:12:25.240 --> 0:12:28.400 it as part of his mission as he became maybe 0:12:28.440 --> 0:12:32.320 more and more megalomaniacal uh, that Ukraine had to be 0:12:32.400 --> 0:12:35.800 brought back into Russia, and he started with primea. He's 0:12:35.880 --> 0:12:39.000 and ever since fourteen there's been a war going on 0:12:39.160 --> 0:12:43.680 actually which one doesn't realize, but the Ukrainian army is 0:12:43.679 --> 0:12:45.520 as good as it is because it's been fighting a 0:12:45.559 --> 0:12:50.640 war in eastern southeastern Ukraine and so um, you know, 0:12:50.679 --> 0:12:54.360 these tensions were just there and they remained today where 0:12:55.080 --> 0:12:57.600 he says there's I mean, he said it to people, 0:12:57.800 --> 0:13:00.800 He said it to George W. Bush One said Ukraine 0:13:00.840 --> 0:13:02.840 never existed as a country. Two thirds of it it 0:13:02.920 --> 0:13:05.120 was ours, and one third of it belonged to the 0:13:05.160 --> 0:13:09.680 Austro Hungarian Empire. So it was really a question of 0:13:09.800 --> 0:13:13.880 the refusing to accept the settlement at the end of 0:13:13.880 --> 0:13:17.440 the Cold War, refusing to accept the breakup of not 0:13:17.480 --> 0:13:20.559 only the Soviet Union but the Russian Empire. And that 0:13:20.679 --> 0:13:24.120 unsettled question was and I, as I wrote in the book, 0:13:24.559 --> 0:13:27.600 that Ukraine was likely to be the issue that blew 0:13:27.679 --> 0:13:30.920 up between Russia and the West. Um that it took 0:13:30.960 --> 0:13:33.560 this form as something that one, you know, might not 0:13:33.640 --> 0:13:37.480 have expected. Um. But um, you know, this is what 0:13:37.840 --> 0:13:40.520 sort of boiled up in Putin's mind during his two 0:13:40.600 --> 0:13:45.480 years of Covid isolation. But as you say, uh, it was, 0:13:45.960 --> 0:13:49.280 it was long and coming, and it always been festering 0:13:49.480 --> 0:13:54.160 in his mind. He'd always been denouncing that. Daniel. One 0:13:54.160 --> 0:13:56.600 thing that stuck out to me in your book is 0:13:56.640 --> 0:13:59.880 you mentioned the notion of sanctions and how they can 0:13:59.880 --> 0:14:02.440 be sort of a wasting asset. I think is the 0:14:02.480 --> 0:14:05.320 words I believe it was. Uh, George Schultz, you were 0:14:05.400 --> 0:14:09.440 quoting the Secretary of State under Reagan about how well, yes, 0:14:09.520 --> 0:14:14.200 you can impose sanctions. Um, but they sort of have 0:14:14.360 --> 0:14:16.880 a a short shelf life, so to speak. You know, 0:14:16.920 --> 0:14:21.840 if you try to lock Russia out of getting certain technologies, 0:14:21.880 --> 0:14:25.720 well they'll they'll develop their own, um that sort of thing. 0:14:26.080 --> 0:14:29.640 And I wonder if we when we look at the sanctions, Uh, 0:14:29.760 --> 0:14:33.080 so many sanctions that have been placed on not only Russia, 0:14:33.160 --> 0:14:38.360 but uh, you know, the the oligarchs, the billionaires of Russia. Um, 0:14:38.520 --> 0:14:40.560 is there any risk of these sanctions do you think 0:14:40.600 --> 0:14:44.040 being a wasting asset? I mean, you know, I was, 0:14:44.240 --> 0:14:46.880 I was. I always found that comment by George Schultz 0:14:47.000 --> 0:14:50.120 very wise because there, you know, there is a tendency 0:14:50.800 --> 0:14:52.560 for the United States to just say, well, let's just 0:14:52.600 --> 0:14:54.960 put sanctions and that will solve the problem. And then 0:14:55.520 --> 0:14:59.160 well Ran is still there, Venezuela is still there. Um. 0:15:00.000 --> 0:15:03.360 I think, hey, or we've never seen sanctions. They have 0:15:03.400 --> 0:15:07.240 two characteristics. One as massive as they are, and too 0:15:07.360 --> 0:15:09.520 it's not just the United States, but the United States 0:15:09.600 --> 0:15:14.240 and Europe together and some other countries, and so uh, 0:15:14.360 --> 0:15:19.680 the impact on the Russian economy will be enormous in Russia, 0:15:19.800 --> 0:15:23.560 really will you know, the the door to the West 0:15:23.640 --> 0:15:26.840 is closed and it will really have to look to China, 0:15:27.440 --> 0:15:30.320 um will they wear away? I think that goes to 0:15:30.960 --> 0:15:33.440 some of the questions. A kind of basic theme in 0:15:33.440 --> 0:15:37.200 in your podcast is what happens to markets and you 0:15:37.240 --> 0:15:40.680 know how turbulent is it? And this is a contributor, 0:15:41.200 --> 0:15:45.080 a major contributor to the energy crisis or energy disruption 0:15:45.120 --> 0:15:47.800 we're seeing with all the impacts on the economy and 0:15:47.840 --> 0:15:52.600 of course tying into the struggle over inflation. But I 0:15:52.640 --> 0:15:56.560 think this is I think at a level that's never 0:15:56.640 --> 0:16:01.280 been been done before. And uh, it was interesting because 0:16:01.320 --> 0:16:03.600 at the beginning, remember talking to people in the in 0:16:03.640 --> 0:16:07.040 the US government, they said, we're excluding energy because Europe 0:16:07.040 --> 0:16:09.920 is too dependent and so we can't do that. But 0:16:10.080 --> 0:16:12.760 now the Europeans themselves are saying we don't want to 0:16:13.160 --> 0:16:16.680 send to a fifty billion dollars a year to Russia, 0:16:17.160 --> 0:16:21.840 and so most of German countries, led by Germany, actually 0:16:21.880 --> 0:16:31.840 want to put on sanctions on energy as well. Before 0:16:31.840 --> 0:16:34.640 we talk more about the US and China, I want 0:16:34.680 --> 0:16:37.320 to ask you about what the future of oil and 0:16:37.360 --> 0:16:40.480 gas exploration looks like when it comes to Russia, because 0:16:40.480 --> 0:16:44.040 you have this passage and actually a really great picture 0:16:44.040 --> 0:16:47.040 where you show I think it was a titanium flag 0:16:47.120 --> 0:16:50.400 that the Russians planet at the north pole to sort 0:16:50.440 --> 0:16:53.400 of stake it and say this is ours and this 0:16:53.440 --> 0:16:55.720 is where we'll be looking for oil in the future. 0:16:55.800 --> 0:16:58.040 So can you talk about that because it's that that 0:16:58.200 --> 0:17:01.680 is like so striking to me. Yeah, it is. It's uh, well, 0:17:01.720 --> 0:17:05.520 really there are two parts to that titanium flag. This 0:17:05.880 --> 0:17:10.359 Russian uh mariner went down and planted it at the 0:17:10.560 --> 0:17:13.080 you know, the on the seabed because the Russians want 0:17:13.119 --> 0:17:17.040 to claim the Arctic, and of course that will looks 0:17:17.040 --> 0:17:19.960 like it's going to be a new arena of competition, 0:17:20.440 --> 0:17:23.680 and the US has been slow to wake up to it. 0:17:24.560 --> 0:17:27.000 But you know what do they call it the high Arctic? 0:17:28.560 --> 0:17:34.119 But uh and for Russia, offshore oil was a major 0:17:34.160 --> 0:17:38.160 new frontier. But I think they're not gonna without Western technology, 0:17:38.240 --> 0:17:40.400 without the Western companies who have said, you know, they've 0:17:40.400 --> 0:17:42.719 said so long, we're out of here. I think it's 0:17:42.760 --> 0:17:45.359 going to be very hard for them to develop the 0:17:45.440 --> 0:17:49.719 off shore or or developed further their Arctic ellen gy 0:17:50.040 --> 0:17:53.600 and so forth. So I think they'll be more focused 0:17:53.600 --> 0:17:57.280 on their traditional areas in western Siberia and they probably 0:17:57.320 --> 0:18:00.760 have the you know, the capabilities to cantinue to produce. 0:18:00.800 --> 0:18:03.000 But I think they're going to produce. I think their 0:18:03.040 --> 0:18:07.800 production will go down, and so Russia will not. It 0:18:07.800 --> 0:18:10.040 will be a very important producer, but it won't be 0:18:10.440 --> 0:18:14.000 an energy superpower, and it won't be able to tap 0:18:14.119 --> 0:18:19.840 into the globally economy, technology and capabilities and partnerships that 0:18:19.920 --> 0:18:23.479 it did up till February. I love that idea of 0:18:23.520 --> 0:18:27.159 just dropping a flag to to claim ownership. You know, 0:18:27.800 --> 0:18:31.960 what is it? Technically? Is it Canada? I guess it's 0:18:31.960 --> 0:18:35.600 a little titanium flag. And I mean, but the funny 0:18:35.600 --> 0:18:37.679 thing was I think it was a Canadian foreign minister, 0:18:37.760 --> 0:18:40.720 which also has a big interesting Arctic center. What is 0:18:40.920 --> 0:18:43.320 this is? This is? This isn't the nineteenth century. You 0:18:43.359 --> 0:18:47.520 don't go around planting flags, but in a way putin 0:18:47.560 --> 0:18:51.520 lives in the nineteenth century. The fair point, you know, 0:18:51.560 --> 0:18:56.239 Danniel will bring it back to the US energy industry. Um. Uh. 0:18:56.400 --> 0:18:59.320 One thing in your book that I found interesting and 0:18:59.320 --> 0:19:01.480 I don't think a lot of people appreciate this that 0:19:02.040 --> 0:19:05.280 the notion that will yes, um, you know, these shale 0:19:05.280 --> 0:19:09.159 producers in Texas are producing a tremendous amount of oil, 0:19:09.640 --> 0:19:13.240 but are refining capacity in this country isn't a perfect 0:19:13.240 --> 0:19:16.959 match for all that light suite Texas crew that were 0:19:17.000 --> 0:19:21.640 actually better set up to refine heavy crew from overseas. 0:19:22.280 --> 0:19:26.080 So I'm curious. To me, I'm guessing you know, the 0:19:26.160 --> 0:19:29.840 capital intensity and the time intensity of of upgrading that 0:19:29.960 --> 0:19:35.280 refining capacity must be h harder even than you know, 0:19:35.560 --> 0:19:39.080 drilling and exploring for oil, you know, more more capital 0:19:39.119 --> 0:19:43.679 intensive and more time intensive. Is is that going to change? 0:19:43.720 --> 0:19:47.120 Do you think where you know, some more refineries will 0:19:47.240 --> 0:19:50.400 maybe get retrofitted or come online that will be able 0:19:50.440 --> 0:19:52.919 to process more of that shale oil. And would that 0:19:52.960 --> 0:19:54.879 be the in the best interests of this country? Do 0:19:54.880 --> 0:19:57.720 you think? Well? I think, um, it depends. I mean, 0:19:57.920 --> 0:20:00.560 you know, the basic theme of your show with your 0:20:00.600 --> 0:20:04.600 podcast is markets, and it's kind of efficient. This is 0:20:04.640 --> 0:20:08.280 efficient markets at work. It economically makes more sense to 0:20:08.520 --> 0:20:12.879 export that oil somewhere else, uh, and then import the 0:20:12.880 --> 0:20:16.439 crew that fits the system. You can run you know, 0:20:17.000 --> 0:20:20.440 ill fitting crews through refineries. But it's just a lot 0:20:20.520 --> 0:20:25.160 less efficient than and costs are are higher. I think 0:20:25.640 --> 0:20:28.280 I think to some degree we'll see you know, that retrofitting, 0:20:28.280 --> 0:20:31.159 that investment go on. But the US made such a 0:20:31.240 --> 0:20:34.359 huge investment I think we estimated like a hundred billion 0:20:34.400 --> 0:20:38.800 dollars to get our refinery system because we were an 0:20:38.800 --> 0:20:41.480 importer of oil to be able to take those uh, 0:20:41.720 --> 0:20:45.200 heavier crudes and so forth, and so it takes you 0:20:45.240 --> 0:20:48.480 know a lot of money to change it. So uh, 0:20:48.680 --> 0:20:51.119 but you know, it was a big political battle to 0:20:51.240 --> 0:20:53.760 get the crew to export band lifted. It was a 0:20:53.800 --> 0:20:57.680 relic of the nineteen seventies that you had this band. 0:20:57.680 --> 0:21:01.200 It really didn't you know it actually, I mean if 0:21:01.200 --> 0:21:03.359 you think markets are the best way to do it, 0:21:03.720 --> 0:21:07.120 then it didn't. It didn't make sense. And without lifting 0:21:07.160 --> 0:21:09.600 that band, we would not be able to produce as 0:21:09.680 --> 0:21:14.920 much oil as we are doing because given our refining system, 0:21:14.920 --> 0:21:19.280 it just you wouldn't have had the global You needed 0:21:19.320 --> 0:21:24.480 the global market to just to justify the continuing investment 0:21:24.520 --> 0:21:27.960 and the growth of production. So do you think the 0:21:27.960 --> 0:21:31.800 American producers, I mean, clearly they must be reacting to 0:21:31.840 --> 0:21:36.639 these elevated prices and uh increasing production to some degree. 0:21:36.720 --> 0:21:38.679 But well, when you think about it, you know, if 0:21:38.680 --> 0:21:42.320 I were a CEO of an energy company, and you know, 0:21:42.400 --> 0:21:46.080 first I lived through the crashing prices in like two 0:21:46.119 --> 0:21:49.480 thou two thousand and sixteen, and then the actual negative 0:21:50.080 --> 0:21:55.720 prices during the covid epidemic. I imagine that's got to 0:21:55.800 --> 0:22:00.119 be causing some reluctance um to sort of go in 0:22:00.200 --> 0:22:03.879 with both feet and yeah, yeah, exactly. I mean in 0:22:03.920 --> 0:22:06.720 the last decade we saw this incredible growth where the 0:22:06.800 --> 0:22:09.560 US was at one point adding two million barrels a day. 0:22:09.920 --> 0:22:14.720 It's been a much more muted reaction for exactly the 0:22:14.760 --> 0:22:17.120 reason you say. That's one of the big reasons. Because 0:22:17.200 --> 0:22:19.720 prices go up, just like the title of your show, 0:22:19.760 --> 0:22:22.200 they go up, and then the other side of your 0:22:22.200 --> 0:22:25.320 the title of your shows that prices go down, and uh, 0:22:25.400 --> 0:22:27.920 and they've been through those cycles. They've been through two 0:22:28.000 --> 0:22:33.520 down cycles. So there's that factor at work. Second factor 0:22:33.760 --> 0:22:38.879 is investors are saying to them, don't go hog wild. 0:22:39.680 --> 0:22:42.160 You you know, you have to return money to us. 0:22:42.200 --> 0:22:45.240 This is an investment. This isn't the gift. And so 0:22:45.640 --> 0:22:52.080 uh they are uh, you know, returning their cash flow 0:22:52.520 --> 0:22:56.159 because investors are, uh, are are demanding it. It's like 0:22:56.680 --> 0:23:00.840 a new social contract between the producers and the investors. 0:23:01.480 --> 0:23:05.160 And the third thing is the same supply chain problems 0:23:05.240 --> 0:23:07.240 that would be definitely the rest of our economy or 0:23:07.280 --> 0:23:12.800 be deviling them, not enough pipe, not enough truck drivers, 0:23:13.400 --> 0:23:17.000 you know, not enough crews to work on things, and 0:23:17.080 --> 0:23:21.640 so they're competing for workers with other people. So, um, 0:23:21.680 --> 0:23:25.280 you know that supply chain is is a big problem. 0:23:25.400 --> 0:23:29.400 And it's just came back from Houston. People were saying, well, 0:23:29.440 --> 0:23:31.280 you know, well that might have taken six months to 0:23:31.280 --> 0:23:33.760 get the production, will take nine or twelve months to 0:23:33.840 --> 0:23:37.560 get the production. So productions going up. Uh. Maybe at 0:23:37.600 --> 0:23:39.080 the beginning of the year people thought it would go 0:23:39.160 --> 0:23:40.720 up by a million barrels a day, which is a 0:23:40.760 --> 0:23:43.600 big number. Now you know, at least some of the 0:23:43.640 --> 0:23:46.240 producers are saying more like US production will by about 0:23:46.280 --> 0:23:48.800