Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. Bloomberg Intelligence has five
Speaker 1: hundred analysts and strategists working across the globe and focused
Speaker 1: on all major markets. Our coverage includes over two thousand
Speaker 1: equities and credits and have outlooks on more than ninety industries,
Speaker 1: one hundred market industries, currencies and commodities. This podcast series
Speaker 1: examines the intersection of business policy and law. I'm Nathan Dean,
Speaker 1: an analysts with Bloomberg Intelligence covering financials policy. The following
Speaker 1: which you are about to hear, was a US election
Speaker 1: webinar series with the US Energy Team that was recorded
Speaker 1: on October twenty ninth, twenty twenty four. If you have
Speaker 1: any questions or would like to have access to any
Speaker 1: of the research available is discussed in the webinar, please
Speaker 1: contact me Nathan Dean at end inten at Bloomberg dot net.
Speaker 2: Thank you.
Speaker 1: I just want to say thank you very much for
Speaker 1: joining us. Joining me on the call today is our
Speaker 1: BI Energy team, who I'm extremely excited to be discussing with.
Speaker 1: In no particular order, we have our senior analysts, Vince Piazza,
Speaker 1: Brett Gibbs, Rob Barnett, Will Harris, and Talent Custer. Now,
Speaker 1: one thing before we get started, just please note that
Speaker 1: this is interactive. Please use the Q and A function.
Speaker 1: We'll certainly be happy to answer any questions. Also, if
Speaker 1: you miss this and you know, it's going to be
Speaker 1: available both as a replay and also as a version
Speaker 1: of our Votes and Verdicts podcast series, we'll be putting
Speaker 1: that out before the election and they'll be available on
Speaker 1: Apple and Spotify and all the other various podcasts platforms.
Speaker 1: So Bloomberg Intelligence who we are. We are the equity
Speaker 1: research division of the Bloomberg Terminal. We've got about five
Speaker 1: hundred analysts and associates across the globe. We cover a
Speaker 1: variety number of companies, industries, sectors, commodities, strategies and so
Speaker 1: forth like that ventially. If it's in your portfolio, we
Speaker 1: cover it. You can find all of our research at
Speaker 1: Big The last thing I'll discuss before we move on
Speaker 1: to the topic of today is all of us are
Speaker 1: available to chat with you via the Bloomberg Terminal. If
Speaker 1: you have a client, please ib us message us, call us,
Speaker 1: because while we're going to go through the quick version
Speaker 1: of the electoral impact on the energy sector, we just
Speaker 1: like the highlight that Will and his team has put
Speaker 1: out a pretty comprehensive report on the elections, and certainly
Speaker 1: we would love to get you a copy of that
Speaker 1: before we find out what happens on November fifth. So
Speaker 1: with all that being said, let me go ahead and
Speaker 1: get started. What I'd like to do is just spend
Speaker 1: about ten minutes to talk about how you should think
Speaker 1: about Washington and when you hear the statements from presidential candidates,
Speaker 1: how does it assist you with policy analysis. Now, this
Speaker 1: not only applies to energy, but this also applies to
Speaker 1: financial services, triffs, taxes, and so forth like that. So
Speaker 1: the first thing that keep in mind is just the
Speaker 1: general state of the races. We have the House of Representatives,
Speaker 1: we have the Senate, we have the presidency. Now, for
Speaker 1: those of you who aren't in the United States are
Speaker 1: not familiar with the US government, remember the House of
Speaker 1: Representatives has fourign thirty five members. Each member serves a
Speaker 1: two year term and all fourigundred and thirty five members
Speaker 1: are up for re election. Now, according to our friends
Speaker 1: over at Bloomberg government. There's about forty four seats that
Speaker 1: are still undecided, that are either toss up or in
Speaker 1: the leaning category. So the majority of House members, when
Speaker 1: they go to bed on election night, their hard work
Speaker 1: is done there probably have already won their races, but
Speaker 1: it's those remaining forty four that we have to watch. Now.
Speaker 1: Polling in the House is a lot more difficult, But
Speaker 1: one thing we often say is is that it generally
Speaker 1: turns on the turnout of the presidential cycles. So if
Speaker 1: former President Donald Trump wins, more likely than not, the
Speaker 1: Republicans take the House. If Kamala Harris wins, more likely
Speaker 1: not the Democrats take the House, certainly things can change.
Speaker 1: But the reason why we care about this so much
Speaker 1: is because whoever controls the hose House of Representatives controls
Speaker 1: the House in Ways and Means Committee, and the House
Speaker 1: in Ways and Means Committee is the committee in the
Speaker 1: House that deals with tax reform. And because the Trump
Speaker 1: Air tax cuts expire for individuals at the end of
Speaker 1: twenty twenty five, there is going to be a robust
Speaker 1: tax debate taking place next year in Congress, and historically,
Speaker 1: tax policy starts with the House, so that Chairman or
Speaker 1: the chairwoman of the House in ways means committee will
Speaker 1: be an extremely important person to watch, probably even more
Speaker 1: important than the President when it comes to tax policy.
Speaker 1: Moving over to the Senate, you know there are one
Speaker 1: hundred senators, two from each state. They serve up six
Speaker 1: year terms. There are thirty four Senate seats that are
Speaker 1: up for right now, two of them and then state
Speaker 1: of Nebraska due to Senator Ben sass retiring, twenty three
Speaker 1: of those are held by the Democrats or their allies.
Speaker 1: There are four independents right now that caucus with the Democrats. Now,
Speaker 1: this is an extremely difficult election for the Democrats. The
Speaker 1: reason being is is that there are many states that
Speaker 1: the Democrats are defending in They're either considered swing states
Speaker 1: or Trump states, and so for the Democrats to keep
Speaker 1: control of the Senate, the Democrats essentially have to win everything.
Speaker 1: Right now, the Democrats have a fifty one to forty
Speaker 1: nine lead. Senator Joe Manchin, he's an independent caucuses with
Speaker 1: the Democrats, is going to retire. And you don't have
Speaker 1: to be a political strategist to note that West Virginia
Speaker 1: is most likely going to turn Republican. So now the
Speaker 1: Democrats are fifty to fifty, and right now there are
Speaker 1: some several tough races, like Senator Cheron Brownie's the chairman
Speaker 1: of Senate Banking Committee in Ohio. Ohio is generally a
Speaker 1: Republican state, has been at the least the state wide
Speaker 1: level for the last few election cycles. The second one
Speaker 1: is going to be Montana Senator John Tester. Senator John
Speaker 1: Tester also a member of the Senate Banking Committee. He's
Speaker 1: currently about five or six points below and Montana is
Speaker 1: also a Republican state. So where I'm going with this
Speaker 1: is that most people in Washington think the Senate is
Speaker 1: going to turn Republican. And why is that important for
Speaker 1: us in the energy sector. Well, it's about appointments of
Speaker 1: regulatory leaderships. If President Trump wins and the Republicans take
Speaker 1: the Senate, he will be able to replace the head
Speaker 1: of FERK, the head of EPA, a lot more regulatory
Speaker 1: officials with a much faster timeline than if the Democrats
Speaker 1: controlled the Senate. On the flip side, i Kamala Harris
Speaker 1: were to win, the Republican Senate could effectively jam her
Speaker 1: up or force her to keep positions in place and
Speaker 1: people in place because they're not going to be able
Speaker 1: to spend that much time confirming folks. So again something
Speaker 1: to keep in mind. Now, finally, when it comes to
Speaker 1: the presidential cycle, I apologize I cannot tell you who
Speaker 1: is going to win. Before you dialed, before we opened up,
Speaker 1: the six of us had a robust conversation on who
Speaker 1: we thought we were going to win, and we still don't know.
Speaker 1: But what we can say is is that this is
Speaker 1: a race between former President Donald Trump, vice President Kamala Harris,
Speaker 1: and the couch. And if the couch wins and people
Speaker 1: stay home, they're more likely they're not. President Trump wins.
Speaker 1: If people get off the couch and they go to
Speaker 1: the polls, more likely than not, Vice President Kamala Harris wins.
Speaker 1: And for those of us who are watching, which states
Speaker 1: to watch, in my opinion, it comes down to Pennsylvania
Speaker 1: in North Carolina. Those are the two states that I think,
Speaker 1: over the next couple of days after the election, look
Speaker 1: to see and you may get an indication of who
Speaker 1: is going to win. So with all that being said,
Speaker 1: the last thing I want to leave you with before
Speaker 1: I start asking questions to my colleagues about the energy
Speaker 1: sector is just remember how things get done in Washington.
Speaker 1: There's largely three ways. The first is legislation. Now, look, legislation.
Speaker 1: The House Representative passes a bill, the Senate passes a bill.
Speaker 1: It has to be the identical bill. They come together,
Speaker 1: and then they send it to the President's desk. It
Speaker 1: doesn't happen all that much. The reason being is the
Speaker 1: Senate has something called the filbuster. It allows one senator
Speaker 1: to overturn or block, not overturn, block legislation unless sixty
Speaker 1: senators overturn him or her. Now, this is not written
Speaker 1: down in the Constitution. It's actually not written down anywhere.
Speaker 1: It's essentially sixty or sorry, two hundred and fifty years
Speaker 1: of best practice. And there has been some chatter about
Speaker 1: doing away with the philbuster. The philbuster for nominations, for example,
Speaker 1: doesn't exist anymore. We think the filibuster is going to remain,
Speaker 1: so we think legislation is going to be extremely difficult
Speaker 1: to come by. It will happen, but it's extremely difficult.
Speaker 2: To come by.
Speaker 1: With one exception. If the Republicans take the House, the Senate,
Speaker 1: and the presidency, you're going to hear me and other
Speaker 1: Washingtonians talk about the word called reconciliation. This is a
Speaker 1: budgetary maneuver where you can avoid the filibuster.
Speaker 2: You just need.
Speaker 1: A majority vote in the House, majority vote in the Senate,
Speaker 1: and the president's signature. This is how President Obama got
Speaker 1: Obamacare through, this is how President Trump got a Trump's
Speaker 1: tax cuts through, and this is how President Biden got
Speaker 1: the Inflication Reduction Act through. So the Republicans state the House,
Speaker 1: the Senate, and the Presidency look for another round of
Speaker 1: very robust tax debate next year and maybe multi trillion
Speaker 1: dollar tax packages through because they can essentially bypass democratic opposition.
Speaker 1: So that's legislation. The second is regulation. If you've been
Speaker 1: following Furk or you follow the Federal Reserve, you know
Speaker 1: what a proposal looks like, a proposed rule several hundred
Speaker 1: pages of industry impacting regulations. Now, regulators can put this
Speaker 1: out and they can essentially bypass the opposition party, and
Speaker 1: they can do what the president wants in terms of regulation.
Speaker 1: But a it takes time. Even a deregulatory effort by
Speaker 1: President Trump would take probably two to three years to
Speaker 1: begin to truly feel the impact in the sectors. And secondly,
Speaker 1: courts are becoming increasingly skeptical towards the power of regulators
Speaker 1: when it comes to new regulations. So if Kamala Harris wins,
Speaker 1: you're going to see courts continue to question whether or
Speaker 1: not those regulations actually are constitutional or not. We can
Speaker 1: certainly get into that in the Q and A if
Speaker 1: you'd like, but I'll just let you know it's becoming
Speaker 1: much more difficult and as a result, a lot of regulators,
Speaker 1: we think at a Kamala Harris presidency, would turn to
Speaker 1: the enforcement arm. And then finally is executive orders. Now,
Speaker 1: in my estimation, eighty five percent of executive orders are
Speaker 1: symbolic in nature. It's a fancy way of the president
Speaker 1: picking up the phone and saying to his or her staff,
Speaker 1: I want you to do something either the la legislative
Speaker 1: route or the regulatory route. But please remember that in
Speaker 1: that other fifteen percent, the power of the presidency is
Speaker 1: a lot more powerful when it comes to things like
Speaker 1: national security, foreign relations, trade, and tariffs. So if you're
Speaker 1: interested in comments and you think that there's a real
Speaker 1: risk or opportunity that comes with President Trump saying that
Speaker 1: I want to put sixty percent tariffs on all goods
Speaker 1: from China, this is something that he can do fairly
Speaker 1: early in his presidency and can essentially bypass Congress. Now,
Speaker 1: our just real brief thought on tariffs is that even
Speaker 1: if you see an executive order that comes out from
Speaker 1: President Trump, it says I'm going to put these tariffs
Speaker 1: in place, Please note that tariffs are viewed by presidents
Speaker 1: as negotiation tools when conducting foreign relations, and so you're
Speaker 1: not going to see an immediate tariff. You'll probably see
Speaker 1: the redline come across the Bloomberg terminal. There'll probably be
Speaker 1: a market reaction, but in the actual text of the
Speaker 1: executive order, you'll probably see language like this won't go
Speaker 1: into place into two except for two hundred and seventy
Speaker 1: days or three hundred and sixty five days unless the
Speaker 1: Treasury Department says this, or unless the Energy Department does that,
Speaker 1: because presidents also want to keep flexibility when they conduct negotiations.
Speaker 1: So just something to keep in mind as you hear
Speaker 1: kind candidates talk and as we talk about the energy
Speaker 1: sector today, just remember how does this fit into one
Speaker 1: of those three buckets? Okay, so let's go ahead and
Speaker 1: turn it over to the questions. First. I'm going to
Speaker 1: start with talent and just talking about the power of
Speaker 1: the presidency. Let's talk about the energy exports and the
Speaker 1: LNG pause. So, talent, what is the latest on the
Speaker 1: freeze on the LG export authorizations, What are some likely
Speaker 1: outcomes and who are the beneficiaries of the freeze and
Speaker 1: who does it hurt the most.
Speaker 3: Yeah, So, as most known, in January, the Biden administration
Speaker 3: put a moratorium on the Department of Energy's ability to
Speaker 3: issue export authorization to countries that lack free trade agreements
Speaker 3: with with the US. And the idea is to study
Speaker 3: and assess climate domestic energy prices. But really was it
Speaker 3: was a political move to play CAID activists. You know,
Speaker 3: we said from the beginning that in January that we
Speaker 3: don't expect anything to happen until the election and really
Speaker 3: the inauguration, and we're kind of on track for that.
Speaker 3: You know, in July there was a federal judge that
Speaker 3: overturned it, but unofficially it remains. There was a one
Speaker 3: off with New Fortress Energy. They have a small project
Speaker 3: in Mexico. They actually issued a five year expert authorization
Speaker 3: to non FTA countries instead of twenty five years. But
Speaker 3: you know it's in Mexico. It's one off. It was
Speaker 3: a way of saying like, okay, you know it was overturned.
Speaker 3: We're looking without really looking. So we still don't expect
Speaker 3: anything until really the inauguration the outcomes. So if you
Speaker 3: have if Harris wins, I don't think it's a permanent man.
Speaker 3: I think eventually the energy track will we'll keep moving.
Speaker 3: Some projects will move forward, but it will you know,
Speaker 3: inhibit some and I do expect some stricter emissions criteria
Speaker 3: and regulations. Obviously, if Trump wins, it's going to be
Speaker 3: a lot more favorable for LNG. I think one of
Speaker 3: the first things he does will be to stop the pause.
Speaker 3: I think will try to expedite some of those authorizations
Speaker 3: or extensions. But you know, I think ultimately even that
Speaker 3: it will take a few months to address. He has
Speaker 3: to get a new Energy secretary, maybe take a look
Speaker 3: at Ferk. The Energy Department's already understaff, so I think
Speaker 3: even that's going to continue to pressure the administration along
Speaker 3: with you know, activists appealing everything. So the bottom line
Speaker 3: is we're looking at delays of over a year and
Speaker 3: higher costs for many of these projects regardless of who
Speaker 3: comes in. But ultimately Trump would be more favorable for
Speaker 3: LERG and beneficiaries and you know winners and losers of this.
Speaker 3: So who are the beneficiaries? The first thing that comes
Speaker 3: to mind are the international exporters and competitors through most
Speaker 3: mostly through three q this year of LNG contract signed
Speaker 3: firm or tentative, the US comprised about twenty three percent,
Speaker 3: but that compares to forty three percent last year, so
Speaker 3: it just goes to show that there's less interest. And
Speaker 3: the majority of that twenty three percent were tentative deals,
Speaker 3: not firm deals. So you still have to you know
Speaker 3: that those are heads of agreement that you would have
Speaker 3: to turn into a sale and purchase agreement. So obviously
Speaker 3: when I say international competitors Qatar, Oman UAE, we saw
Speaker 3: a final investment decision taken on a UAE project this year.
Speaker 3: Other beneficiaries Mexico and Canada, they have that advantage the
Speaker 3: don't have to go through the Panama Canal. See more
Speaker 3: contracts signed with them as well. Other beneficiaries US projects
Speaker 3: that are already operational. If it comes to it, the
Speaker 3: scarcity value of those assets right, but also de bottlenecking
Speaker 3: is an opportunity for growth without going through the extremely
Speaker 3: lengthy regulatory process. So for example, Shaner, the nameplate capacity
Speaker 3: of each of their trains was four and a half
Speaker 3: million tons. They've already found a way to extend that
Speaker 3: to five point one million tons a year, so you know,
Speaker 3: other projects could do that. I say this with a caveat,
Speaker 3: but proposed projects with that already have export authorizations to
Speaker 3: non FDA countries. They have a leg up on projects
Speaker 3: that don't, obviously, But at the same time, many of
Speaker 3: those expire in twenty twenty six, twenty twenty seven, and
Speaker 3: it takes four years to build a project, so you know,
Speaker 3: naturally you're going to many of these projects are waiting
Speaker 3: for more clarification. They don't want to invest billions take
Speaker 3: a final investment decision without an extension, so probably won't
Speaker 3: see those decisions until after the inaugura is age inauguration
Speaker 3: losers of this, you know, I just said it. Obviously,
Speaker 3: the proposed projects with with that lack the non FTA
Speaker 3: export authorizations, you're already behind. Even if they do eventually
Speaker 3: get one, they may be so far behind with other
Speaker 3: projects in the US or globally that are moving forward,
Speaker 3: and there's a lack of demand there because realistically not
Speaker 3: all these projects are going to get built anyway, and
Speaker 3: I think that this freeze reduces that that number even further.
Speaker 3: And another loser of this is is the US's reputation
Speaker 3: as a reliable LNG provider. You know, financial backers could
Speaker 3: become hesitant counterparties, maybe even trying to get out of
Speaker 3: of certain contracts. And realistically a lot of this we've
Speaker 3: seen it with the contracts signed this year. You're pushing
Speaker 3: demand and opportunities to other countries, and you could push
Speaker 3: it the countries that don't support your agenda, like Russia.
Speaker 3: So definitely, the US's reputation is so right.
Speaker 1: You know, you mentioned you know, you mentioned the courts earlier,
Speaker 1: and so one of the questions that we have is
Speaker 1: is that, you know, the Biden administration's freeze isn't just
Speaker 1: a risk to US liquid natural gas, but what about
Speaker 1: the DC Appeals Court overturning the Furk approvals of those
Speaker 1: two LNG projects, And how does it impact your outlook?
Speaker 1: And you know, I would just say to those of
Speaker 1: you who are listening right now, the courts are changing
Speaker 1: fairly quickly in the United States, and so this is
Speaker 1: an area that I think is really important especially if
Speaker 1: you're not in in the US, just to understand, because
Speaker 1: the courts are beginning because of what's known as the
Speaker 1: Chevron Difference and major questions doctrine, courts are going to
Speaker 1: be increasingly involved in regulations. So just that being sided telling,
Speaker 1: can you just give your thoughts on what's happening over
Speaker 1: the DC Appeals Court.
Speaker 3: Yeah, what's going on with the appeals court is it's
Speaker 3: a slippery slope and it's it's unprecedented. I think activists
Speaker 3: and environmentalists kind of found a loophole in a way
Speaker 3: to get some wins and it's it's really empowered them
Speaker 3: and I think other projects may suffer the same fate.
Speaker 3: So what happened was two lergy projects next decades, Rio
Speaker 3: Grande and Texas Energy, both in Brownsville. They had their
Speaker 3: first certificate overturned on on environmental grounds. Also, Commonwealth Energy
Speaker 3: had it not it's not as extreme as what happened
Speaker 3: with the other two projects, but they had THEIRS sent
Speaker 3: back to them to reassess also the climate impact of Commonwealth.
Speaker 3: And then Williams had the trans Co Expansion project regional
Speaker 3: energy access up in the Northeast. They had their FIRK
Speaker 3: certificate overturned as well, so they're dealing with a similar,
Speaker 3: similar issue. It's all on environmental grounds and essentially, you know,
Speaker 3: if we use next decade as a as a case study,
Speaker 3: you know, they had to they recently just submitted an
Speaker 3: appeal and they can continue construction their in the appeals
Speaker 3: process and make take months. It could take a year.
Speaker 3: There's a decent chance that the appeal is denied and
Speaker 3: then it could go to the Supreme Court. It could
Speaker 3: take years. But this is a project, you know, it's
Speaker 3: alarming for for other projects. What is this to stop
Speaker 3: from other other projects even that have crossed those lines
Speaker 3: and are under construction to be halted. So this one
Speaker 3: will be following very closely. You know, if if construction
Speaker 3: is halted, it could be devastating. I could hurt other projects.
Speaker 3: Venture Global CP two project has a has a target
Speaker 3: on its back. I wouldn't be surprised if that suffered
Speaker 3: a similar fate as the other two. So you know,
Speaker 3: Rio Grand has to go undergo. They have to submit
Speaker 3: a new environmental impact study, a new public comment period,
Speaker 3: so they have to jump through all these hoops that
Speaker 3: they've you know, to keep the project going. But again
Speaker 3: it just it. It's a lot of risk on all
Speaker 3: energy infrastructure projects. So whether it's permitting reform or just
Speaker 3: tightening up and giving clarity to the industry in general
Speaker 3: as to you know, at what point does a permit
Speaker 3: become unappealable? You know, we have to speed up the process.
Speaker 3: When can it not no longer be challenged? Because this
Speaker 3: is this is definitely a significant issue, and I'm not sure,
Speaker 3: you know, I think Trump, if he was elected, would
Speaker 3: put more energy into addressing this. But regardless of who
Speaker 3: gets in, I'm you know, this is an important topic
Speaker 3: that has to be fixed.
Speaker 1: So one my last question I have for you is
Speaker 1: this is a little bit more about midstream and energy infrastructure.
Speaker 1: How would how does your outlook for that piece look
Speaker 1: under a Harris administration versus a Trump administration?
Speaker 3: Yeah, I will you and I have spoken about this
Speaker 3: previously at a at a high level, and I'll defer
Speaker 3: to some of my colleagues. I think ultimately whoever wins
Speaker 3: doesn't in fact impact production too much oil and gas production.
Speaker 3: But this LNG, you know, the freeze, the appeals court,
Speaker 3: everything affecting that is. This election is is big because
Speaker 3: if Trump is is elected, then I think he you know, again,
Speaker 3: puts a lot of energy into dialing back the freeze,
Speaker 3: basically getting rid of it and trying to expedite you know,
Speaker 3: export authorizations and getting these projects to move forward. Whereas Harris,
Speaker 3: I think ultimately there's results, but more strict criteria. So
Speaker 3: that's the LNG issue right as far as midstream, it's
Speaker 3: just a lot of there's a regulatory red tape. I
Speaker 3: think if Trump wins, he's going to try to deregulate.
Speaker 3: He may get some wins on you know, lightening up
Speaker 3: like making air emissions quality you know, less impactful to
Speaker 3: this sector, speeding up omitting, things like that, but something
Speaker 3: that significantly moves the needle I don't foresee. You know,
Speaker 3: Texas and Louisiana are the most friendly jurisdictions, and luckily
Speaker 3: for the sector, that's where LNG exports and exports in
Speaker 3: general are are mostly you know concentrated. But you have Appalachia,
Speaker 3: for example, where there's a ton of gas and you know,
Speaker 3: you just can't build infrastructure there to get it out,
Speaker 3: So it's gonna limit growth there. It's gonna limit expansion
Speaker 3: of of the MP's, which I'm sure Vince will talk
Speaker 3: about So I think regardless of who gets elected, there's
Speaker 3: going to continue to be pressure. But if Trump gets elected,
Speaker 3: there may be some some small wins that help out
Speaker 3: the industry.
Speaker 1: Well, it sounds good, and I think that's a good
Speaker 1: segue to go to Vin Vince. You know, Vince, when
Speaker 1: we ask for questions, which I'm you know, making up.
Speaker 1: Of course I got them in a viance.
Speaker 4: But when we.
Speaker 1: Asked for questions, Vince sent over his note and let
Speaker 1: me just read the headline. The headline says, forget elections.
Speaker 1: Politics doesn't affect energy in the long run. Now that
Speaker 1: pains me as a Washingtonian vance but I don't disagree
Speaker 1: with you. But what does history tell us about the
Speaker 1: energy equity performance and the political party that is in
Speaker 1: the White House.
Speaker 2: Good morning, and thanks for having this. I really appreciate it.
Speaker 2: So just full disclosure before we start this off. I
Speaker 2: am a hugger, not a fighter. I hug the fifty
Speaker 2: yard line. Politically, I am a registered independent. I have
Speaker 2: no skin in this game. It's just the facts for me.
Speaker 2: And when I take a look at equity performance over time,
Speaker 2: it's really about technological advances and it's really about the
Speaker 2: interplay between that demand and supply on a more global basis.
Speaker 2: So let's take a look at since the nots. Let's
Speaker 2: take a look at since the two thousand election, and
Speaker 2: let's roll forward right. So, during a period where we
Speaker 2: had more restrictive production, where we didn't have that technological breakthrough.
Speaker 2: This was obviously during that commodity supercycle where that demand
Speaker 2: was relatively high, but that supply of hydro carbon was restricted.
Speaker 2: Energy equities did fairly well. When we go to this
Speaker 2: period of drill, baby drill, that's when things become a
Speaker 2: little murkier because you had more supply enter the market.
Speaker 2: It's interesting that production oil bottomed in two thousand and
Speaker 2: eight and natural gas production bottomed in two thousand and five,
Speaker 2: and from that point on we saw a rise in
Speaker 2: the output of both hydrocarbons. And during that administration, Nathan
Speaker 2: who was the president after two.
Speaker 1: Thousand and eight, President Obama.
Speaker 2: So for those eight years, we continued to reach new
Speaker 2: highs in both oil output and natural gas output. And
Speaker 2: if you remember, during the budget negotiation process, there were
Speaker 2: these funny little things called intangible drilling credits that were
Speaker 2: being negotiated, and those intangible drilling credits are they provide
Speaker 2: energy companies with the tax credits to move more molecules
Speaker 2: from the ground and enable more production. And every year
Speaker 2: in the budget they were removed and every year they
Speaker 2: were put back in, and you have that production increase
Speaker 2: every year to new highs. And this was during a
Speaker 2: Democrat sitting in the White House. And sure enough what
Speaker 2: happened to prices. Prices came down, but also equity performance
Speaker 2: came down. So whenever we have this view of drill,
Speaker 2: baby drill, it's not exactly positive for the investor because
Speaker 2: you have wider balances if you don't have that demand pickup.
Speaker 2: And during that time, which you also had was a
Speaker 2: decline in the growth rate of that demand, especially from
Speaker 2: the after effects of that commodity supercycle. But overall, what
Speaker 2: was the key ingredient for this increase in oil and
Speaker 2: gas production. It was technological innovation. It was unconventional drilling.
Speaker 2: It was horizontal drilling, attacking the molecule under the ground
Speaker 2: in a different way to move more of that molecule
Speaker 2: above the ground. It had nothing to do with politics.
Speaker 2: It had nothing to do with who was in the
Speaker 2: White House, who was in the legislature. It was really
Speaker 2: about the innovation in those rooms of the oil and
Speaker 2: gas companies coming up with different ways to produce, and
Speaker 2: that what that's what really needs to be understood more
Speaker 2: more fully is that over the long run, if the
Speaker 2: innovation of the oil and gas companies that is moving
Speaker 2: more molecules out of the ground, that is helping society
Speaker 2: more broadly, especially on the natural gas side. But we'll
Speaker 2: get into that much later on. So equity performance when
Speaker 2: supply was much more restrictive did well. When you had
Speaker 2: more supply come out, you saw performance of let's call
Speaker 2: it the general industry. And we looked at the XCEL,
Speaker 2: which is the energy ETF that performance that were there
Speaker 2: was under performance both relative to the SMP and relative
Speaker 2: to other sectors that had more technol logical innovation during
Speaker 2: that time, like the technology ETF or the healthcare ETF.
Speaker 2: So pay attention to the long run technological innovations, not
Speaker 2: so much who inhabits the White House.
Speaker 1: Does the White House and who has the White House?
Speaker 1: Does that have an impact on oil gas production or prices.
Speaker 2: So keep in mind that the voters in Texas, the
Speaker 2: voters in Oklahoma, the voters in Arkansas, those producing states,
Speaker 2: But you also have those who consume the hydrocarbon as well,
Speaker 2: and those who produce the hydrocarbon. Those who consume the hydrocarbon,
Speaker 2: they're also voters as well, so they also key in
Speaker 2: on the price at the pump, and that is a
Speaker 2: very important issue for so many people across the political divide.
Speaker 2: So the idea that we have more output is good
Speaker 2: for society in general, but in this particular environment right now,
Speaker 2: we have a more modulated output growth for both oil
Speaker 2: and gas. The investor community is telling the oil companies,
Speaker 2: we want less of the stuff, and we want that
Speaker 2: excess cash back to us. So stop putting it in
Speaker 2: the ground, stop putting the capital on the ground, give
Speaker 2: it back to us, and let's level off the degree
Speaker 2: of output. We don't want to see the high levels
Speaker 2: of production growth that we saw in the early part
Speaker 2: of the two thousands. We want that to be much
Speaker 2: more modulated. And because it's much more modulated, we probably
Speaker 2: have higher prices for both crude and also for gas
Speaker 2: for on road transport as well. The natural gas story
Speaker 2: is somewhat different, but it plays along those same lines
Speaker 2: that we have significant levels of storage. Output growth has
Speaker 2: been steady, and that demand side of the equation because
Speaker 2: of seasonal cyclical factors, is keeping that gas price historically low,
Speaker 2: natural gas price historically low, and that's also helpful for
Speaker 2: the consumers on so many levels.
Speaker 1: You know, the last question I wanted to ask you
Speaker 1: was about regional issues, because you know, Vincent, I hope
Speaker 1: you're okay with me saying this. You know, you're coming
Speaker 1: to us from the greater Philadelphia area, which you know,
Speaker 1: my I actually saw a tweet the other day that
Speaker 1: the NBC affiliate in Philadelphia had thirty six adverts between
Speaker 1: five am and seven am, specifically geared towards both the
Speaker 1: Pennsylvania Center race and the national race. So obviously you're
Speaker 1: one of the you know, one hundred thousand or so
Speaker 1: Americans that may ultimately decide who the next president is
Speaker 1: amongst those seven swing states. You know, what are the
Speaker 1: regional issues that we should be thinking about in terms
Speaker 1: of the energy sector as the production moves forward?
Speaker 2: Right, So, it's really not so much about what's happening
Speaker 2: at the well site. It's really about how we get
Speaker 2: that molecule from the well site from the production site
Speaker 2: to the consumption site. And that's more of an issue
Speaker 2: of the infrastructure and the transportation issues. In places that
Speaker 2: are much more energy friendly to investors, like Texas, infrastructure
Speaker 2: development infrastructure investment could be much easier, but even those
Speaker 2: areas have had some difficulty bringing infrastructure. On the matter
Speaker 2: Horn pipeline down in Texas that is slowly ramping up.
Speaker 2: That'll help prices as well for the producers. Right now,
Speaker 2: WAHA prices are negative, so that is a disincentive. With
Speaker 2: Mattterhorn coming online, that should be helpful for the producers
Speaker 2: to move additional molecules from the producing areas into the
Speaker 2: consumption areas. Places like New York, Pennsylvania, places along the
Speaker 2: Northeast and the Middle Atlantic, they will always be somewhat
Speaker 2: more difficult to build infrastructure, and a lot of times
Speaker 2: it's really the civic backlash, the civic organizations that want
Speaker 2: to prevent that degree of investment. Unfortunately, when you prevent
Speaker 2: molecules from getting where they need to be and you
Speaker 2: restrict that, your price prices for utilities, prices for the
Speaker 2: underlying natural gas that can spike as well, especially when
Speaker 2: you have periods of a deep, deep cold, similar to
Speaker 2: what we saw in places like New England over the years,
Speaker 2: where those molecules can't get to what to where they
Speaker 2: need to be and you still have to import from
Speaker 2: overseas when you're just a few states away. Great. Actually,
Speaker 2: the infrastructure side that is going to be the driver
Speaker 2: for the ultimate price to the consumer.
Speaker 1: Oh that's great. So thank you very much for that.
Speaker 1: And you know, so we're going to take the conversation
Speaker 1: Will now, and you mentioned Vince drill baby drill, And
Speaker 1: that's one of the biggest questions that we get here
Speaker 1: in Washington, is this idea of drill baby drill. You know,
Speaker 1: President Trump says drill baby drill. So Will, my first
Speaker 1: question to you is what does drill baby drill actually
Speaker 1: mean and more specifically, what does it mean policy wise
Speaker 1: for upstream sector versus the status quo.
Speaker 4: Yeah, thank you very much, Nathan. So it's actually a
Speaker 4: very tricky question to answer because I think, as sometimes
Speaker 4: with former President Trump, it's you know, can be ambiguous
Speaker 4: as to know exactly what the policy specifics he is
Speaker 4: referring to. But we can take an educated guess, and
Speaker 4: I think the best place to start and start doing
Speaker 4: that is to look at at what the Biden administration
Speaker 4: has done over the last four years and see the
Speaker 4: ability for a prospective Trump administration to roll that back,
Speaker 4: and so I think probably the clearest element of what
Speaker 4: would be a drill baby drill policy would be a
Speaker 4: rollback of the federal oil and gas leasing auction pace.
Speaker 4: So Biden has has instituted a very slow pace of leasings.
Speaker 4: He's proposed only three oil and gas lead sales in
Speaker 4: the Gulf of Mexico for twenty twenty five, in twenty
Speaker 4: twenty seven and twenty twenty nine, and obviously there's none
Speaker 4: at all in the Atlantic, Pacific or Alaskan waters. I
Speaker 4: think it's important here to note as well that this
Speaker 4: is the lowest number of oil and gas leases that
Speaker 4: the Biden administration can offer in order to enable a
Speaker 4: corresponding amount of offshore wind leases as well, which is
Speaker 4: determined by the Inflation Production Act. So the current program
Speaker 4: under the Biden administration is a pretty big drop compared
Speaker 4: to the previous Trump administration, which had forty seven lease
Speaker 4: sales off all the coastal areas of the US. So
Speaker 4: I think it's safe to say that a drill baby
Speaker 4: drill policy would likely comprise a big acceleration in lease
Speaker 4: sale activity. Further onto that, we also think there could
Speaker 4: be swift action by a prospective Trump presidency to remove
Speaker 4: restrictions placed on some of the leasing auctions which the
Speaker 4: Biden administration did. So this could include something like executive
Speaker 4: actions for the BOEM the Bureau of Ocean Energy Management
Speaker 4: to conduct newly sales to the maximum extent permitted, and
Speaker 4: so this could potentially be on an accelerated quarterly schedule,
Speaker 4: and and in new areas which which haven't been previously
Speaker 4: leased before. I think one special policy area really stands
Speaker 4: out with drill Baby Drill, and this is Alaska. And
Speaker 4: some listeners might might recall that this was a big
Speaker 4: focus of the Biden administration to restrict oil and gas
Speaker 4: development and exploration activity. So specifically, the Biden administration directed
Speaker 4: the Department of the Interior to cancel multiple and war
Speaker 4: leases in twenty twenty three. This is the Arctic National
Speaker 4: Wildlife Refuge, and so we think that a drill Baby
Speaker 4: Drill would likely start reopening Alaska. There's about thirteen million
Speaker 4: acres of the National Petroleum Reserve of Alaska that the
Speaker 4: Biden administration barred from development, so we think that could
Speaker 4: also come back. But I think what's the impact here
Speaker 4: with Alaska specifically, I personally think that this is somewhat
Speaker 4: of a poison chalice for most oil and gas companies.
Speaker 4: We've actually seen an exit and divestment from many major
Speaker 4: companies over the last few years. Some quite recently we've
Speaker 4: seen any shell BP all exit their activity, and this
Speaker 4: is largely due to what we think is it's quite
Speaker 4: clearly ecological risk, environmental risk, but also increasing reputational risk
Speaker 4: given given the upside on resource, given the very limited
Speaker 4: annual operating window that you actually have in Alaska offshore,
Speaker 4: and of course a what you're facing a multi year
Speaker 4: payback period for a relatively high risk project, and ongoing
Speaker 4: reputational risk from the public markets and investors. So we
Speaker 4: think that Alaska's probably won't factor in for many of
Speaker 4: the larger companies. But of course BP sold on all
Speaker 4: of their North Slope development and Alaska portfolio to Hillcore,
Speaker 4: which is one of the largest private companies in the US,
Speaker 4: and so that would probably be be a key beneficiary
Speaker 4: of a policy like this. So essentially it boils down
Speaker 4: to where the offshore leasing will be. The pace of
Speaker 4: the offshore leasing and Alaska are the three major areas.
Speaker 4: So I would just finally note that I would be
Speaker 4: surprised if a new President Trump would would open up
Speaker 4: offshore leasing off the coast of Florida.
Speaker 1: Yeah, we've heard, you know, we've heard Florida governor, you know,
Speaker 1: the Florida local politicians speak out against that as well.
Speaker 1: I mean, so obviously a lot, a lot can be
Speaker 1: said there. You know, one of the things that we're
Speaker 1: going to ask about is fracking, because we hear fracking.
Speaker 1: I would argue it's part of the election cycle, but
Speaker 1: we've had it. It's probably not as big as we've
Speaker 1: seen in other years, certainly in the state of Pennsylvania.
Speaker 1: It's important. But you know, Vice President Harris is always,
Speaker 1: you know, I think historically indicated an opposition of fracking.
Speaker 1: You know, what's the outlook for this in the event
Speaker 1: of her winning the election.
Speaker 4: So I think that fracking has has been quite effectively
Speaker 4: been dealt with by by the Harris administration here. Obviously,
Speaker 4: she she's made some historical comments that she was in
Speaker 4: favor of banning it, but I think she the campaign anyway,
Speaker 4: has been pretty clear for very obvious reasons that that
Speaker 4: that fracking would be untouched and is a very you know,
Speaker 4: is a major core component of the US oil and
Speaker 4: gas industry and has been invaluable in in driving oil
Speaker 4: and gas production to to record highs for UH for
Speaker 4: the country. So I I think the the key part
Speaker 4: here is is that for for Harris, as as it
Speaker 4: relates to two energy policy tracking will will almost certainly
Speaker 4: remain untouched. But the e p a's rules, I think
Speaker 4: are there are probably the area that is most important
Speaker 4: for for a prospective Harris administration. There are key methane
Speaker 4: fees and uh and and restrictions that that were included
Speaker 4: in the Inflation Production Act. These these include the the
Speaker 4: Methane and Emissions Reduction Program. There's a waste emissions charge
Speaker 4: as well, which applies to certain emissions above above thresholds
Speaker 4: for oil and gas operations, and and of course increased
Speaker 4: reporting requirements. There's elimination of routine flaring uh and and
Speaker 4: and increased monitoring requirements as well. So so some sort
Speaker 4: of variations of these under the RA could be you know,
Speaker 4: could it could be set status quo even but but
Speaker 4: but it could even be strengthened as well. So I
Speaker 4: do think that the fracking is has played a lot
Speaker 4: less of a role than it has maybe in previous campaigns,
Speaker 4: and I think given the how important Pennsylvania is and
Speaker 4: and the Marcellus there is, uh it, maybe that's that's unsurprising.
Speaker 1: So moving out of Pennsylvania and then thinking more on
Speaker 1: a global stage, you know, let's talk about OPEK. What
Speaker 1: is the potential outlook for OPEC plus in its strategic
Speaker 1: position under a Harris presidency versus the Trump presidency.
Speaker 4: So so for Harris once again, it's almost certainly the
Speaker 4: status quo and sore. Where we are currently with OPEK
Speaker 4: is that there are significant production cuts being instituted by
Speaker 4: by OPEC plus at the moment in order to try
Speaker 4: and stabilize and support global pricing. We've just seen today
Speaker 4: that a pretty big move down in oil prices as
Speaker 4: a geopolitical risk premium is fading now given there was
Speaker 4: some concern that Israel would retaliate on Iranian oil facilities,
Speaker 4: that looks like it's that that risk vector is dissipating
Speaker 4: at the moment. So we're seeing a lot of pressure
Speaker 4: on oil prices, we're all. And this comes alongside you know,
Speaker 4: pretty soft demand data out of China as well. So overall,
Speaker 4: this this paints a pretty bearish picture into next year
Speaker 4: for oil pricing. And on top of that, it's very
Speaker 4: clear that OPEC plus is getting increasingly uncomfortable with their
Speaker 4: level of cuts. And so we think there's going to
Speaker 4: become We're going to see some renewed urgency from members
Speaker 4: to UH to start tapering these cuts. And and you know,
Speaker 4: there's not much room for extra OPEC barrels in the
Speaker 4: market right now. UH and and so so we see
Speaker 4: this as a potential downside catalyst for pricing. How this
Speaker 4: relates to to the U S election, Well, once again,
Speaker 4: it's sort of tricky tricky to tell with with with Trump,
Speaker 4: but we can look back into his first into his
Speaker 4: first term to to see where where he might go.
Speaker 4: And in his first administration he needed a habit of
Speaker 4: pressuring OPEC to do his bidding. And though in which
Speaker 4: direction remains remains to be seen, really because because because
Speaker 4: he actually did both, and I think it's import I
Speaker 4: think the reason why is and it's important to touch
Speaker 4: on this is that there exists sort of a clear
Speaker 4: tension I think between a protecting the US energy complex
Speaker 4: with you know, with supporting high price higher prices. And
Speaker 4: then also there's a very clear benefit to political benefit
Speaker 4: to having low energy prices and particularly low gasoline prices
Speaker 4: for for American consumers. So I wouldn't be surprised to
Speaker 4: see that sort of ebb and flow throughout throughout a
Speaker 4: potential Trump presidency, which which might sort of ramp up
Speaker 4: during times where, uh, maybe the mid terms, you could
Speaker 4: see more pressure on more barrels into the market from OPEC.
Speaker 1: Right, So let's let's turn over to Brett. Brett, biofuels
Speaker 1: very important, very policy dependent. I'm reading this as if
Speaker 1: I know that, but actually that's what the question said, So,
Speaker 1: you know, very policy dependent, but they have bipartisans support
Speaker 1: as such. How do you think the election is going
Speaker 1: to out to sway shape the biofuels industry and does
Speaker 1: President Trump repre he sent a dramatic change to altering
Speaker 1: the existing policy landscape.
Speaker 5: Thanks Nathan. There's two key federal policies that drive biofields
Speaker 5: in the US, so it's important to think about the
Speaker 5: election and the context of these two. The first is
Speaker 5: the Renewable Fuel Standard, which sets biofueld mandate here domestically,
Speaker 5: and there is second are tax credits that now have
Speaker 5: been bundled and included in the inflation Reduction Act. The
Speaker 5: former has been in place for almost two decades now
Speaker 5: and volumes have been set out until twenty twenty five. However,
Speaker 5: after twenty twenty two, the EPA has more authority and
Speaker 5: setting mandates going forward, so change an the EPA administrator
Speaker 5: who's appointed by the President could alter the approach to
Speaker 5: twenty twenty six mandate. Then, outside of appeal to the IRA,
Speaker 5: which I know Nathan, you and your team have done
Speaker 5: a lot of work on discussing the likelihood of that,
Speaker 5: there are tax credits that are still awaiting official guidelines.
Speaker 5: So one of the pressing priorities for the biofuels industry
Speaker 5: is a tax code forty five Z within the Inflation
Speaker 5: Reduction Act, which takes effect January first. The lack of
Speaker 5: formalized carbon intensity calculations leaves room for post election adjustments,
Speaker 5: so this is something of a particular note or a
Speaker 5: lot of folks are tracking with the outcome of next Tuesday.
Speaker 5: While we believe biofuel policy is broadly durable regardless of
Speaker 5: who is elected, feet sucks election specific pathway targets and
Speaker 5: how imports are included in these policies are at hand.
Speaker 5: Then the question on how Trump specifically could alter the
Speaker 5: existing policy landscape. I think there's five things to consider.
Speaker 5: The first of which, again is an IRA repeal, because
Speaker 5: it's one of those two key policies that biofuel the
Speaker 5: biocule industry depends on. A wholesale repeal would obviously be
Speaker 5: negative for the renewable fuels industry. Another one that you
Speaker 5: touched on at the top with tariffs. The second is
Speaker 5: promote US agriculture, third of which is small refinery exemptions,
Speaker 5: and the last is how the president or Trump in
Speaker 5: this case would support evs. But just going into each
Speaker 5: of them briefly, the IRA repeal, the note that the
Speaker 5: policy team Nathan yu All put out assigns a ten
Speaker 5: percent chance of a full repeal, so again it's not
Speaker 5: necessarily in our base case. One thing to note and
Speaker 5: a partial repeal is energy or clean energy specific credits,
Speaker 5: which I'm sure Rob will get into, and a bit
Speaker 5: have been called out specifically as sources of potential funding
Speaker 5: as they consider, you know, new tax bills or things
Speaker 5: under Trump presidency. The second of which tariffs, So tariffs
Speaker 5: could make it harder for US domestically to meet obligations,
Speaker 5: which could make some of these credit prices jump and
Speaker 5: then tariffs has a particular impact on the sourcing of feedstocks.
Speaker 5: The reason as there's been an uptick the past year
Speaker 5: of using China based use cooking oil to make some
Speaker 5: of the biofuels, and the reason being is that use
Speaker 5: cooking oil has a carbon intensity advantage, so you get
Speaker 5: more credits. If there are broad tariffs on Chinese goods,
Speaker 5: this would limit the amount of Chinese uko into into
Speaker 5: the US, would force bio fuels producers to rely more
Speaker 5: on domestic based feedstuck. The next one of how it
Speaker 5: could how a Trump presidency could promote US agriculture, so
Speaker 5: aside from the tariffs which I mentioned, have the potential
Speaker 5: impact to promote domestic feedsuck usage policy in general could
Speaker 5: cater to US agriculture. So of the top five states
Speaker 5: that we've looked at, from corn production, solviean production by
Speaker 5: cross capacity, ethanol production, renewal, diesel, biodiesel the key components
Speaker 5: of biofuels in general. From market participants, seventy seven percent
Speaker 5: of those were won by the GOP in twenty twenty.
Speaker 5: So if you exclude Texas and Louisiana not necessarily who
Speaker 5: you'd consider ag specific state. The other eight states total
Speaker 5: fifty eight electoral votes, so under Trump presidency, policy could
Speaker 5: lean a little bit more towards the agricultural base. The
Speaker 5: next is small refinery exemptions. So this is something where
Speaker 5: in setting the policies you essentially could remove the obligated
Speaker 5: fuel within that by removing small refiners from those mandates.
Speaker 5: This is something that under Trump's previous presidency in twenty
Speaker 5: seventeen that were the most small refinery exemptions granted in
Speaker 5: any year. The one thing that we like to note
Speaker 5: with that too is exemptions don't necessarily mean that there
Speaker 5: will be less biofueld demand if they're included in the
Speaker 5: planning process ahead of So this becomes more of an
Speaker 5: issue when they set the twenty twenty six com mandate,
Speaker 5: But anything retroactive would reduce the amount of obligations or
Speaker 5: the demand for biofueld so to speak. The last part
Speaker 5: on a Trump presidency is any slower ed adoption in
Speaker 5: the form of policy actually preserves the biofuel addressable market,
Speaker 5: which would be supportive for biofields in general.
Speaker 1: So, thinking you mentioned about President Trump, thinking about Vice
Speaker 1: President Harris, are there major differences between her views and
Speaker 1: President Biden's views, especially when it comes to decarbonizing transportation.
Speaker 5: For example, Yeah, under a Harris presidency, we kind of
Speaker 5: see a status quo or an acceleration of decarbonization effort.
Speaker 5: So a policy expansion may favor a carbon intensity based approach.
Speaker 5: This is the model of the four state based programs
Speaker 5: in the US that we didn't touch on that have
Speaker 5: passed low carbon Fuel Centers, all of which were won
Speaker 5: by the deer in twenty twenty Democratic states. The IRA
Speaker 5: tax credit actually includes some of these attributes, so we
Speaker 5: can see further expansion of this. Under these schemes, fuels
Speaker 5: without blend restrictions that are generated from waste based speed
Speaker 5: stocks are the most advantaged. And then any extension of
Speaker 5: EV policy support is an overhang longer term renewable fuels
Speaker 5: and could steer policy more towards sustainable aviation fuel or
Speaker 5: other hard to abate transportation sectors.
Speaker 1: Great, so let's you mentioned IRA. Let's turn it to
Speaker 1: Rob Barnett. IRA very important to his renewable stocks that
Speaker 1: he covers. You know, the policy team says a ten
Speaker 1: percent chance of repeal. We don't want to look we
Speaker 1: can have an entire webinar on that one. But if
Speaker 1: you think about your sector, help us understand what's at
Speaker 1: risk in the election. How does President Trump or Vice
Speaker 1: President Harris have a meaningful impact on win and solar?
Speaker 1: Are they relevant?
Speaker 6: Well, you know, I want to take it back to
Speaker 6: what Vince said here at the start of the call
Speaker 6: in that let's let's rewind and look a little bit
Speaker 6: at history here, and you know, I think it's it's
Speaker 6: probably will become as a little bit of a surprise.
Speaker 6: But if you look at the solar stocks, they're down
Speaker 6: just a tremendous amount under the Biden administration. The MAC
Speaker 6: Global Solar Index has declined about sixty seven percent since
Speaker 6: Biden was sworn in, same index up about four x
Speaker 6: under Trump. So we've had a precipitous decline under Biden
Speaker 6: and a massive rally under the trumpet prior Trump administration
Speaker 6: for solar stocks, I think, you know, if you were
Speaker 6: only paying attention to policy, you'd probably think the opposite
Speaker 6: would be true, because there's been so much positive, sort
Speaker 6: of almost moral cheerlyaing under the bind administration. There is
Speaker 6: the IRA things like that, and so you know, my
Speaker 6: general sense is that the wind and solar industry probably
Speaker 6: chugs along no matter who the president is. Will you
Speaker 6: get slightly more favorable terms under a Harris presidency than
Speaker 6: a Trump presidency?
Speaker 5: I think so.
Speaker 6: But if you look at all of the capacity editions
Speaker 6: that are anticipated to come online this year in the
Speaker 6: United States, ninety four percent of them are wind or solar,
Speaker 6: and they're remaining a little bit mostly gas. So we
Speaker 6: live in a world where all the folks in utility
Speaker 6: land are basically installing wind or solar with a little
Speaker 6: bit of gas to go alongside it. I really don't
Speaker 6: see that paradigm shifting depending independent of who the president is.
Speaker 6: We are roughly installing about forty gigawatts of solar a
Speaker 6: year in the US. Potentially that figure goes up to
Speaker 6: eighty gigawatts a year by say twenty thirty. Will it
Speaker 6: move in that direction independent of who the president is.
Speaker 6: Probably it's going to trend up independent of whether IRA
Speaker 6: even stays or not. And of course, if you're a
Speaker 6: manufacturer and you are producing in the US, you want
Speaker 6: the IRA to say why, you'd be irrational not to
Speaker 6: want to keep it. But I think that the sort
Speaker 6: of general trend of more renewable power flowing into the
Speaker 6: electric power landscape is sort of an unstoppable force at
Speaker 6: this point.
Speaker 1: But when it comes to the IRA, just to set
Speaker 1: the scene for everybody, I mean, if President Trump wins,
Speaker 1: or even if Vice President Harris wins, and they want
Speaker 1: to extend the Trump air tax cuts, the entire package
Speaker 1: from twenty seven team is around six trillion plus just
Speaker 1: the individual tax cuts are around three point five trillion.
Speaker 1: Now the IRA is around five hundred billion, So it's
Speaker 1: not going to get you there. But you know, if
Speaker 1: they decide to start chipping away at the IRA. In
Speaker 1: your scenario analysis where you go from repeal and so forth,
Speaker 1: what does it mean for the US clean energy manufacturers?
Speaker 6: Yeah, so I think repeal would be very meaningful for
Speaker 6: any of the companies that have expanded their US manufactured footprint.
Speaker 6: At First Solar to the extent that we have a
Speaker 6: national champion of solar module makers is probably First Solar,
Speaker 6: and they've expanded, They've got additional facilities even under construction
Speaker 6: as we speak, and right now they're running at about
Speaker 6: a forty five percent adjusted gross margin, that is when
Speaker 6: you include the forty five x manufacturing tax provision that's
Speaker 6: within the IRA. If you get rid of that, I
Speaker 6: think they fall to, you know, a much more humble
Speaker 6: and a twenty twenty five percent gross margin business. And
Speaker 6: so you know, and this is every company that's in
Speaker 6: the US, whether you are domiciled in the US or
Speaker 6: a foreign entity that's built manufacturing facilities in the US,
Speaker 6: you get to take advantage of this credit if you're
Speaker 6: made here so or if you're making your modules in
Speaker 6: the US, and so you know, generally, the US has
Speaker 6: given a very nice subsidy to encourage not just a
Speaker 6: solar demand, which which I've already mentioned is strong, but
Speaker 6: to say don't don't import the modules, make them here
Speaker 6: in the US. And I think if you get rid
Speaker 6: of these provisions, it's a it's a very difficult operating
Speaker 6: environment for a lot of the folks who have built
Speaker 6: out cap X are built manufacturing facilities here as as
Speaker 6: as you've noted, and as we often like to discuss,
Speaker 6: all of those facilities are in red states and red districts.
Speaker 6: So if you go and you yank some of the
Speaker 6: manufacturing provisions within the IRA, you might render some of
Speaker 6: these manufacturing facilities no longer competitive. Because I will tell
Speaker 6: you the global solar business is a tough one. Chinese
Speaker 6: players can do modules for way cheaper than we can
Speaker 6: do them here in the US, and so you open
Speaker 6: these guys potentially up to global competition if you get
Speaker 6: rid of the IRA, which would possibly be quite painful
Speaker 6: for some of the players.
Speaker 1: But could tariffs make up for some of that? Like
Speaker 1: if President Trump were to come in or even Vice
Speaker 1: President Harris, I mean, on our matrix, we have a
Speaker 1: seventy percent chance of new tariffs coming no matter who
Speaker 1: wins the presidency. Can tariffs make up for some of
Speaker 1: the changes to the renewable tax incentives?
Speaker 6: Yeah, tariffs certainly don't hurt, and I think it would
Speaker 6: probably be very difficult to get the same outcome that
Speaker 6: we've seen with tariffs only uh that that being said,
Speaker 6: I mean the IRA has been if you like clean
Speaker 6: energy manufacturing in the US, or or if you like
Speaker 6: chips manufacturing, right, you know you've got the chipsack, You've
Speaker 6: got the IRA. They've they've really really helped get some
Speaker 6: of these businesses up and running in the US. Could
Speaker 6: could tariffs help keep it going if you got rid
Speaker 6: of the underlying support structure? I'm not saying possibly that
Speaker 6: they would, they don't hurt to give you a sense.
Speaker 6: I mean, tariffs are a bit complicated mathematically to characterize
Speaker 6: because they are they're often applied uh at two individual importers,
Speaker 6: individual companies that are in the business, but globally solar modules,
Speaker 6: you can buy a solar module wholesale for about tens
Speaker 6: and a want in the US, you're going to pay
Speaker 6: anywhere from the best best case scenario, maybe you can
Speaker 6: get one for twenty cents a whit, but maybe up
Speaker 6: to sixty cents a while. There's a big range, and
Speaker 6: so in the US the consumers ultimately paying a higher price.
Speaker 6: And largely that is because if you've got a ten
Speaker 6: cent panel coming in from China, you're probably going to
Speaker 6: pay one hundred percent ish tariff. So you get that
Speaker 6: ten cent, you're gonna be much closer to twenty cents
Speaker 6: a walt what the consumer would pay, and possibly even
Speaker 6: higher depending on which specific tariffs you get hit with.
Speaker 1: So I think that tariffs can help.
Speaker 6: They certainly, and so that gives a US manufacturer the
Speaker 6: ability to you know, produce at a different cost basis
Speaker 6: than than competitors in China. But I think it's probably
Speaker 6: still a difficult story with tariff only.
Speaker 2: Great.
Speaker 1: Thanks Rob. So at this point I see where at
Speaker 1: the end of the hour. So I want to say
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