Speaker 1: And welcome to the Votes and Verdicts podcast hosted by
Speaker 1: Bloomberg Intelligence, Bloomberg LP's investment research platform. In this podcast series,
Speaker 1: we talk about the intersection of business policy and law.
Speaker 1: My name is Brandon Barnes and I'm a senior analyst
Speaker 1: with Bloomberg Intelligence covering energy litigation, regulation and policy. Today,
Speaker 1: I am lucky enough that a longtime contact and friend
Speaker 1: in the energy infrastructure world is joining us for our
Speaker 1: second episode of the podcast, Tim Schneider. He's currently with
Speaker 1: his own group after being a veteran of the cell
Speaker 1: side for energy for years. Tim and I first cross
Speaker 1: paths back when he was with Evercore when he invited
Speaker 1: me to speak there, and we kept that relationship going
Speaker 1: through his move back to city. So I think I
Speaker 1: guess it's my turn, finally way overdue, to return the
Speaker 1: favor and bring him somewhere. So Tim, welcome, thanks for
Speaker 1: joining us.
Speaker 2: Absolutely, thank you for thank you for having me. It's
Speaker 2: been a long time, so glad we can can connect here.
Speaker 1: You've you've had a really interesting career that I think
Speaker 1: spanned some geography and a number of different disciplines. I
Speaker 1: was hoping you could share some of that with US
Speaker 1: and talk about how that's led you to what you're
Speaker 1: doing right now.
Speaker 2: Yeah. Absolutely. Look, I mean I've always I've always been
Speaker 2: an energy kind of my whole my whole career. I
Speaker 2: actually started out at at Haliburton while at the time
Speaker 2: it was Kellic Brown and Route. That was when I
Speaker 2: was still part of Haliburton in the Middle East a
Speaker 2: couple of a couple of different countries. Then came back,
Speaker 2: came back to the US and I kind of knew
Speaker 2: I always wanted to be in finance. So I actually
Speaker 2: started my first Wall Street job was at at Leeman Brothers,
Speaker 2: kind of doing some stuff on the on the credit
Speaker 2: risk side, and then moved over to Deutsche Bank, where
Speaker 2: I kind of i you know, started as an associate
Speaker 2: on the oil field services team. Went to City then
Speaker 2: and kind of this is where I really started to
Speaker 2: kicking kicking the attires and the midstream stuff. Then went
Speaker 2: over to Evercourt to head up their midstream midstream platform,
Speaker 2: and then the old City analysts left, and then City
Speaker 2: you know called me and said, hey, Tim, do you
Speaker 2: want to come come over and head up our energy
Speaker 2: energy franchise. So I did that at for the America.
Speaker 2: So came back to city and then recently recently left
Speaker 2: to kind of start my own firm and look businesses
Speaker 2: called the Schneider Capital Group LLC. And it's basically, you know,
Speaker 2: we're trying to help our customers navigate complexities along the
Speaker 2: energy value chain and then also trying to identify some
Speaker 2: opportunities to unlock and capture value for them. And I
Speaker 2: really thought it was the time to do this because
Speaker 2: I'm extremely I don't know if bullish is the right word,
Speaker 2: but I'm extremely I'm extremely excited to be in a
Speaker 2: space to be an energy and I'm extremely excited to
Speaker 2: kind of, you know, look at the next couple of
Speaker 2: years and kind of see what's coming down the pipe,
Speaker 2: no pun intended, right, and especially with this new with
Speaker 2: the energy revolution and kind of what I think is
Speaker 2: an all of the above approach going forward. So it's
Speaker 2: extremely exciting, I think, And you know, we we work
Speaker 2: with institutional asset managers, private equity firms, infrastructure funds come
Speaker 2: out of you trading houses, some sovereign wealth funds, and
Speaker 2: then obviously obviously corporate. So I actually do have Brandon,
Speaker 2: I do have a hey, I do have my own
Speaker 2: Twitter wire on Bloomberg now, so if you if you
Speaker 2: are subscribed to that, you can you can follow my tweets.
Speaker 2: And it took me a while to kind of learn
Speaker 2: the hashtags and the dollar signs and all that, but
Speaker 2: I got a I got the I got the introduction.
Speaker 2: So I look, if anybody wants to wants to be
Speaker 2: put on my distribution list, I post everything on the
Speaker 2: website for now you can. You can ping me or
Speaker 2: or or they can go through you. So happy, happy
Speaker 2: to do that.
Speaker 1: So that distribution list has been the source of a
Speaker 1: lot of interesting content for me already, and I thought
Speaker 1: that most, I mean the reason for us getting back
Speaker 1: in touch was your Houston email. I thought that was
Speaker 1: a very interesting discussion that peaued my sort of policy
Speaker 1: antenna about where energy companies were thinking and where their
Speaker 1: heads were at because of some of the policies that
Speaker 1: have been offered in the past year, because of what's
Speaker 1: coming down this year and maybe looking forward. Just interesting
Speaker 1: to read about that and then think about what the
Speaker 1: actual issues are that are making companies change their behavior
Speaker 1: and change their allocations for resources.
Speaker 2: Yeah. Absolutely, and look, I mean maybe some context here
Speaker 2: for the listeners. So I was in Houston now two
Speaker 2: weeks ago, and it was basically, I mean the Kindram
Speaker 2: Morgan analyst day was kind of the anchor, and I
Speaker 2: met with a couple of other other corporates and then
Speaker 2: also had a couple of meetings with with a few
Speaker 2: folks in the in the industry. And I think before
Speaker 2: we kind of get into some of this policy stuff,
Speaker 2: maybe it'd be helpful for the listeners to kind of
Speaker 2: convey or at least kind of share with with you
Speaker 2: my views and what's happening in the in the industry
Speaker 2: right now. And I think it's it's it's extremely interesting
Speaker 2: because you've you've kind of had this, I guess this
Speaker 2: tug of war, in my opinion, at least between between
Speaker 2: capital allocation, right I call it, and I kind of
Speaker 2: call it threading the needle, right, And that's threading the
Speaker 2: needle between returning cash to shareholders, whether or that is
Speaker 2: via buybacks, dividend increases. I actually think debt reduction is
Speaker 2: part of that equation as well, and then also what
Speaker 2: I call kind of high grading the company for the future,
Speaker 2: right And I'm not looking I'm not saying hydro carbon
Speaker 2: traditional hydrocarbons are going away overnight. That certainly is not
Speaker 2: going to happen. But at some point, right, I mean,
Speaker 2: the the renewable mix for these companies or clean clean mix,
Speaker 2: well however you want to call it, is going to
Speaker 2: get is going to get bigger, right, And I think
Speaker 2: it's it's been difficult. It's I don't envy some of
Speaker 2: these management teams that have to make these decisions of
Speaker 2: you know, how do we kind of position ourselves for that?
Speaker 2: So I actually think there's two things I think that
Speaker 2: happened with that. The one thing is I think it
Speaker 2: potentially sets up a kind of a wave of privatizations,
Speaker 2: right because I think it's much easier to kind of
Speaker 2: high grate yourself if you're a private company because you
Speaker 2: don't really I mean, you don't have to answer shareholders, right.
Speaker 2: And I think we're actually we saw a couple of
Speaker 2: privatizations happen. I think this is back in eighteen nineteen.
Speaker 2: Those those are altered. There's a couple portfolio companies of
Speaker 2: large private equity firms, and I think that that's what
Speaker 2: that's what's happening right now right in terms of how
Speaker 2: they're positioning themselves. I don't know what their exit strategy
Speaker 2: is we'll see and I think the other thing that
Speaker 2: could potentially come come out of this, and I'm not
Speaker 2: going to get into this in great detail on this podcast.
Speaker 2: It's a it's a that's a whole new discussion. For
Speaker 2: another thing is you know, it probably sets up a
Speaker 2: wave of M and A activity in the sector. And
Speaker 2: that's you know, that's either interest subsector called upstream, upstream, midstream, midstream,
Speaker 2: or if you want to be a bit more i'll
Speaker 2: call it adventurous or think outside of the box. I
Speaker 2: do think there's something to be said here for for
Speaker 2: combining companies along the energy value chain, right, so that
Speaker 2: would be upstream, midstream, midstream, downstream, or or along those lines.
Speaker 2: But it ultimately a lot of this is kind of
Speaker 2: tied back to how these companies are going to position
Speaker 2: themselves for for the next couple of years here. And
Speaker 2: I think obviously this is a that's where you and
Speaker 2: I are.
Speaker 1: Talking absolutely, and I think that tension is sort of
Speaker 1: on either side of the needle. You're going to get
Speaker 1: squeezed by potentially by either rhetoric or actual legislation policy
Speaker 1: out of the government. So it's an interesting tension. So
Speaker 1: what what do you see the companies doing about it
Speaker 1: these days?
Speaker 2: Yeah, Look, I think there is if you look at
Speaker 2: and and Kinder Morgan actually kind of I think did
Speaker 2: a good job kind of kind of highlighting this. And
Speaker 2: I always like to I like to use baseball analogies
Speaker 2: because most people, most people understand it, right, and specifically
Speaker 2: talking about innings, right, what inning are we in here?
Speaker 2: For different things? So I'd say in terms of let's
Speaker 2: let's look at some of the renewable stuff, right, I
Speaker 2: think in terms of call it rang or renewable natural gas,
Speaker 2: I think that industry in the US is relatively mature
Speaker 2: at this point. You know, I'll call it just in
Speaker 2: terms of the technology, right, alcohol and we can get
Speaker 2: into that in a bit here how that are how
Speaker 2: we kind of see that market shape shaving. But you know,
Speaker 2: i'll give that middle to late innings. I think the
Speaker 2: carbon capture and see frustration stuff. There's Robby still some
Speaker 2: some more with the chop here, but there certainly is
Speaker 2: you know, there's a lot of companies out there that
Speaker 2: have have some pretty ambitious plans. It was actually interesting
Speaker 2: Exxon just had their earnings call and they certainly they
Speaker 2: certainly talked about that and then kind of a little
Speaker 2: a little further along, I'll still call it earlier innings
Speaker 2: is probably hydrogen althrough ammonia in that as well, But
Speaker 2: those are kind of you know, those are kind of
Speaker 2: I would say to three three main buckets at least
Speaker 2: that we're getting a lot of a lot of questions on,
Speaker 2: so happy to happy to kind of start where wherever
Speaker 2: you want to start. Maybe we'll start with let's see
Speaker 2: here low carbon fuel standards.
Speaker 1: Maybe let's do it.
Speaker 2: Yeah, and look obviously, and then that was a focus
Speaker 2: when when we're we're in Houston obviously right now, you know,
Speaker 2: let's talk about renewable diesel, right, all renewable diesel right
Speaker 2: now is kind of gravitating towards California, right, And the
Speaker 2: reason it wants to get there is because, I mean,
Speaker 2: you certainly have, if you're looking at you call it
Speaker 2: low carbon fuel standards, right, a pretty well developed three
Speaker 2: layer tax credits, so everybody kind of gets to two
Speaker 2: layers from the federal perspective. And then obviously in California,
Speaker 2: what makes that so lucrative is the credit that you're
Speaker 2: getting in California and just kind of putting putting some
Speaker 2: numbers around that. I think last time I checked in California,
Speaker 2: into subsidy kind of equates to about four dollars per gallon.
Speaker 2: Why is that happening in California? Obviously, Look, the state's
Speaker 2: been relatively I guess i'll call it progressive, and I think,
Speaker 2: off the top of my head here, I think their
Speaker 2: goal is to eliminate for California the state's greenhouse guess emissions,
Speaker 2: I want to say by twenty five. I think that's
Speaker 2: what they've kind of I think that's what they've put
Speaker 2: out there. And look, I think the other interesting thing
Speaker 2: here is that we came away with in Houston is
Speaker 2: what other states are potentially going to copy or at
Speaker 2: least adopt some sort of a footprint that we're seeing
Speaker 2: in California right now. I think that's interesting from a
Speaker 2: midstreamer's perspective, because if you already have assets, call it
Speaker 2: terminal assets or whatnot, in one of those states right now,
Speaker 2: I'll use I'll use Oregon, Oregon, because that's probably the
Speaker 2: furthest along here. There's there's some stuff going on in
Speaker 2: Washington State as well, but I'm I'm I actually don't
Speaker 2: know specifically where they are in that process. But I
Speaker 2: think back back to back to the point I was making,
Speaker 2: I think it's interesting for companies that have assets in
Speaker 2: those states potentially because obviously, look, it's a tremendous amount
Speaker 2: of operating leverage, right, you already have the existing asset footprint,
Speaker 2: and it just would kind of a cree to the
Speaker 2: bottom line in my opinion at least. But look, I
Speaker 2: think at this point it's probably I don't think people
Speaker 2: are really discounting it. So actually curious have you guys
Speaker 2: spent a lot of time kind of kind of looking
Speaker 2: at that what's going to happen with with some of
Speaker 2: these different.
Speaker 1: States, So not on a state by state policy basis,
Speaker 1: but the way we've been looking at it most recently
Speaker 1: is we've been focused on, you know what, how did
Speaker 1: these credit stack got to force new projects being on offer?
Speaker 2: Right?
Speaker 1: It was always more recently the question was where does
Speaker 1: if we're building pipes, what are they going to transmit?
Speaker 1: Because it's so hard to build natural gas pipes, it's
Speaker 1: very difficult to build crew pipes just from a regulatory standpoint,
Speaker 1: And so we've watched some of the bigger new projects
Speaker 1: coming out of the Midwest or actually co two pipes, right,
Speaker 1: And so that's where it's an interesting you know, are
Speaker 1: these state level programs combined with the federal programs, are
Speaker 1: they actually forcing changes in the dynamic? And that's what
Speaker 1: we're focused on right now.
Speaker 2: Yeah, and you actually you bring up a really interesting
Speaker 2: point and that kind of gets back to what are
Speaker 2: the actual returns on some of these projects? Right? So
Speaker 2: kinder Morgan, actually I thought I keep coming back to
Speaker 2: them because that was kind of the impetus of this
Speaker 2: discussion because it's who I went to see down in Houston.
Speaker 2: You know, I mean they have a what's the backlog
Speaker 2: I think to over three billion and the implied the implied,
Speaker 2: and so that that's not all going to be renewables, right,
Speaker 2: but it's you know, I think they kind of bucketed
Speaker 2: as eighty percent towards carbon reduction or whatnot, but there
Speaker 2: certainly is some some capex in there for renewable natural
Speaker 2: gas and so forth. But look, I mean they're saying
Speaker 2: they can bring that backlog online that kind of you
Speaker 2: call it three and a half three and a half times.
Speaker 2: So I think that that obviously is you look at
Speaker 2: traditional midstream returns typically call it you know, I'll use
Speaker 2: a range of six to eight times on EBITDA. And
Speaker 2: I think what's been interesting. I don't know if you
Speaker 2: saw the the article that just came out on BP,
Speaker 2: because BP really had been had been the penalty box
Speaker 2: a little bit, I'd say, because investor, because then obviously
Speaker 2: they've made this huge push into renewable, right, and I
Speaker 2: think investors are We're kind of questioning is that really,
Speaker 2: you know, are the returns going to be there? And
Speaker 2: is there really basically could you be using your capital
Speaker 2: for for something else? And the article I'm referring to
Speaker 2: is basically the I think it was a CEO and
Speaker 2: I only read the you know, glance to it briefly,
Speaker 2: you know, kind of maybe shifting away a little bit
Speaker 2: from the UH from this ESG driven I guess i'll
Speaker 2: call it investment agenda and more kind of focusing on
Speaker 2: their bread and butter hydrocarbon business. So I thought that
Speaker 2: I thought that was interesting just in terms because you
Speaker 2: brought up the UH, the whole topic of returns on
Speaker 2: some of these projects.
Speaker 1: Yeah, I certainly.
Speaker 2: Yeah.
Speaker 1: I saw the hit the Wire too yesterday, and I think,
Speaker 1: you know, it's just interesting to watch it flex, right,
Speaker 1: because it's someone like Excellent getting knocked over the years
Speaker 1: for not doing enough, and now they seem to be
Speaker 1: getting you know, positive feedback on having a more diverse
Speaker 1: fight outlook on what they're what they're spending money on,
Speaker 1: and a longer term vision on the transition.
Speaker 2: That I mean, I we put out a we kind
Speaker 2: of put out a takeaway or quick take after the
Speaker 2: Excellent call, and I think, look, I mean they've done
Speaker 2: They've done a decent job in terms of kind of
Speaker 2: returning cash excuse me, returning cash to shareholders investing in
Speaker 2: their traditional hydrocarbon business, but then also really focusing on
Speaker 2: I forget what they I think it's called the Carbon
Speaker 2: Solutions Group or something like that. Then really kind of
Speaker 2: you're marking funds for that, right, so you kind of
Speaker 2: have you have these different buckets and you kind of
Speaker 2: have to address all of them. The other thing i'd
Speaker 2: i'd say from a from a from an energy infrastructure
Speaker 2: perspective that I think is gaining gaining some momentum here
Speaker 2: is if you call it, call it twenty twenty twenty
Speaker 2: twenty one, that was a period of time where these
Speaker 2: companies really had to get obviously the depths of COVID
Speaker 2: here had to get their balance sheets in order. You
Speaker 2: know a lot of them, a lot of them cut
Speaker 2: their cut their dividends. An investor, all the investors wanted
Speaker 2: to see is really, you know, just give me the
Speaker 2: money coming out of COVID, right, buyback stock, increase the dividend.
Speaker 2: I think, now if we're kind of solving towards the
Speaker 2: lowest come denominator here, right, and this is cash flow allocation,
Speaker 2: I think there's something to be said here for a
Speaker 2: company that had that has all that plus an interesting
Speaker 2: kind of growth angle. Right, And I think this is
Speaker 2: again where you know, so some of these some of
Speaker 2: these legislative things or somebody you know call it renewable
Speaker 2: natural gas, carbon sequestration, low carbon fuel standards. I think
Speaker 2: if you have, if you have an angle on that,
Speaker 2: I think that is something that certainly can be a
Speaker 2: differentiating factor. When you're kind of telling your story.
Speaker 1: So and picking up on that thread because I'm curious
Speaker 1: your take from what you're hearing. I understand that most
Speaker 1: most of the bigger guys are probably sitting there saying, well,
Speaker 1: let's do a little of each. But where do you
Speaker 1: see out of some of the things you mentioned the
Speaker 1: sort of the policy driving the biggest push right now?
Speaker 1: Is it carbon capture, is it hydrogen ammonia? Is it RNG?
Speaker 1: Which one gets most attention?
Speaker 2: Look, I think the one that gets a I mean
Speaker 2: obviously hydrogen and ammonia. It depends on I mean that
Speaker 2: also depends on who you talk to, right, I think
Speaker 2: that one certainly is kind of getting in my opinion
Speaker 2: even I mean, just go on social media, right, linked
Speaker 2: and whatever, and if you're willing to look kind of
Speaker 2: beyond your traditional energy audience, I think, just hydrogens always
Speaker 2: in the headlines. Right, So, I think just from a
Speaker 2: from an awareness perspective, I would kind of put those
Speaker 2: those front and center. I'd say, from a you know,
Speaker 2: from an investment opportunity right now, immediate from a you
Speaker 2: know called an energy infrastructure company, that market probably at
Speaker 2: least if I kind of look at the companies I'm
Speaker 2: looking at, is probably a little bit further out right.
Speaker 2: I mean, I mean that there's some I think that
Speaker 2: a lot of the companies are still trying to figure
Speaker 2: out what actually what actually happens to our pipeline when
Speaker 2: we move hydrogen molecules through the through the pipeline, right,
Speaker 2: Because it's it's obviously a tiny it's a tiny molecule,
Speaker 2: and you know there's some potential integrity issues with that.
Speaker 2: But certainly i'd say in the general media again that
Speaker 2: hydrog pnemonia gets the most attention. I think in terms
Speaker 2: of near term opportunity, i'd probably stack up renewable natural
Speaker 2: gas is probably the one where there's the most kind
Speaker 2: of near term opportunity. I preay threw in, you know,
Speaker 2: call it renewable diesel in California. I throw it in
Speaker 2: there as well. And obviously in terms of economic impact,
Speaker 2: the other thing, I mean, the one that's that's really
Speaker 2: interesting here is obviously carbon capture and sequestration. Right if
Speaker 2: you kind of look at the tax credits or the
Speaker 2: incremental I guess the incremental benefit coming out of the
Speaker 2: Inflation Reduction Act. I think that certainly has increased economics
Speaker 2: for for a lot of projects here, and I think
Speaker 2: there certainly is companies pivoting towards that. Excellent made an
Speaker 2: interesting comment on that the car hole carbon capture thing
Speaker 2: in their in their earnings call here last week actually
Speaker 2: this week. I'm sorry, I'm getting my getting my days confused,
Speaker 2: and that was it's not you know, carbon capture is
Speaker 2: not a game for startups, right, It's going to require
Speaker 2: a ton of capital that you have to be willing
Speaker 2: to put behind. Obviously, there is you know, there's still
Speaker 2: is some regular some regulatory delays, right because you need
Speaker 2: to in order to get the carbon in the ground,
Speaker 2: you obviously need to have a Class six well permit,
Speaker 2: and that right now is going through the e p A.
Speaker 2: It's so, I obviously I've never filed one, but the
Speaker 2: feed by the feedback from.
Speaker 1: FOLCUS, you haven't filed, No, not yet.
Speaker 2: It's a it's a it's a very onerous project. It
Speaker 2: takes forever. And and so there's a couple of states
Speaker 2: that have filed for what's it called privacy rights primacy, Yeah,
Speaker 2: primacy And actually curious as to what your take is
Speaker 2: on this. So so I think it's Texas is one
Speaker 2: of them. Louisiana is the other one. There may be
Speaker 2: a couple others. I don't know, but I think Louisiana
Speaker 2: is a little bit further along than Texas. But I
Speaker 2: actually don't know what that would do to the timeline
Speaker 2: in terms of getting one of these walls wells approved.
Speaker 2: Curious if you guys have looked at that.
Speaker 1: Yeah, you're you're you're speaking my language when you're talking primacy, I.
Speaker 2: Know, right, I was like, what is that?
Speaker 1: Yeah, So it's interesting, right, because this is you know,
Speaker 1: if you think about carbon captures being such a big
Speaker 1: push as an opportunity for the government to meet industry
Speaker 1: in a place where they maybe already are or could go,
Speaker 1: they are dragging their feet. So EPA is the one
Speaker 1: who gets to hand out like essentially, it's delegating authority
Speaker 1: to a state to run a program. And all the
Speaker 1: underground wells that you see like fracking, you know, a
Speaker 1: Class two solid waste disposal, which we do a lot of.
Speaker 1: I think that's class one. All these different classes of wells,
Speaker 1: they are administered by the states because at one point
Speaker 1: they applied to EPI. EPA said, you have the expertise here,
Speaker 1: we agree, so you can do the permitting. So right now,
Speaker 1: North Dakota and Wyoming are approved. They are the only
Speaker 1: two states that are approved for carboncy questration wells permitting programs.
Speaker 1: Louisiana has been pending for like over six hundred days,
Speaker 1: and Texas, West Virginian, Arizona are all in the so
Speaker 1: called pre application stage, which is just you know, government
Speaker 1: regulatory speak for first stage of application. But you know
Speaker 1: it took North Dakota eighteen hundred days to get approved,
Speaker 1: so these are not moving quickly. And that I think,
Speaker 1: as a separate conversation outside of the scope of this
Speaker 1: podcast topic, I think discussing that is a looming problem
Speaker 1: for all of these projects there now being you know,
Speaker 1: people are rushing to throw money at them, but they
Speaker 1: don't necessarily have these wells on a large scale basis
Speaker 1: that can be permitted yet.
Speaker 2: Got it? Yeah, And look, I think there certainly is
Speaker 2: you know, there's a big opportunity set around it. And
Speaker 2: just I mean if you're looking at CO two emissions, right,
Speaker 2: I mean, let's look at some of these sources. I
Speaker 2: think the coal industry obviously, and this is in the US, right,
Speaker 2: the coal industry. I mean that is what the call it,
Speaker 2: forty eight billion cubic feet a day or so, natural
Speaker 2: gas power about thirty billion cubic feet a day or so,
Speaker 2: then kind of drops off and you know, refineries nine,
Speaker 2: men production four and then there's a bunch of others.
Speaker 2: But obviously there is there's a big opportunity set and
Speaker 2: I'd say you know it just in terms of of
Speaker 2: CO two infrastructure, I think obviously if you do have
Speaker 2: existing pipes, I think Kinder Morgan actually I want to
Speaker 2: say it's the largest CO two pipe, But don't don't
Speaker 2: quote me on that court.
Speaker 1: I think we just quoted you on that.
Speaker 2: I guess that's the that's the perils of the podcast, right,
Speaker 2: I think that's I think that is the I think
Speaker 2: that's the Cortes pipeline. I want to say. I think
Speaker 2: that's one one point five billion cubic feet today and
Speaker 2: I think they're flowing just about a billion cubic feet
Speaker 2: a day of carbon out of I think it comes
Speaker 2: out of Colorado and it goes down to the Permian
Speaker 2: that you They use it obviously for their for their
Speaker 2: CO two floods right now in the for their old business.
Speaker 1: It's an interesting I think it's all fascinating, right because
Speaker 1: the the way you think about like ament policy, like
Speaker 1: there were already some kind of getting off the ground
Speaker 1: here and there when the Q credits to the tax
Speaker 1: credits supporting carboncy questration were we're at the lower end,
Speaker 1: which I think was still like forty five dollars a
Speaker 1: ton or something.
Speaker 2: Yeah, and I think.
Speaker 1: I think it's Yeah, I think it's even higher. It's
Speaker 1: over one hundred. I'm almost positive, I think. And that's
Speaker 1: that's the power of throwing money at something, right, is
Speaker 1: because the Inflation Production Act, basically from my perspective in
Speaker 1: DC seemed to surge projects and not and so suddenly
Speaker 1: you got a bunch of baler g export terminals that
Speaker 1: are trying to get off the ground, get approval, get
Speaker 1: over that final hump with FURK the Federal Energy Regulatory Commission,
Speaker 1: and the ones that were in a little bit of
Speaker 1: trouble start adding carbon capture as a mitigation measure, because
Speaker 1: you know, it helped kind of reset the balance for
Speaker 1: them on the analysis of the cost benefits and looking
Speaker 1: at like environmental justice for surrounding communities, whether they were
Speaker 1: disproportionately impacting various communities that are disadvantaged and typically religie
Speaker 1: that means not just really land use, but more like
Speaker 1: potential emissions, and so having carbon capture there was a
Speaker 1: huge add on. But not just that it's the potential
Speaker 1: revenue generator now, which is kind of a wild thing
Speaker 1: to think about.
Speaker 2: Yeah, yeah, I really agree with you, And actually you
Speaker 2: brought up you brought up an interesting point here, and
Speaker 2: just and I actually have a question for you on
Speaker 2: this because you're the your de policy expert expert, not me,
Speaker 2: but so obviously they're let's assume this the tax credit
Speaker 2: is sticky. Right, So as a as you're kind of
Speaker 2: looking as an energy infrastructure operator, you're kind of looking
Speaker 2: at your call it your portfolio of you know where
Speaker 2: you can because you only have a finite amount of money, right,
Speaker 2: And I think obviously you know the whole renewable natural gas,
Speaker 2: low carbon fuel standards, all that stuff. I mean, it's great, right,
Speaker 2: I mean, just I'll give you an example here. Let's
Speaker 2: look at renewable natural gas kind of demand markets. Right,
Speaker 2: Let's look at a transport transportation market, right, so you're
Speaker 2: selling let's call it gases. Actually, don't do not have
Speaker 2: my bloom work up, which is funny on the Bloomberg podcast. Right,
Speaker 2: let's say natural gas right now, is you call it
Speaker 2: three three bucks, but you're adding obviously as you're selling that.
Speaker 2: As you're selling that, you're getting the rint credit, right,
Speaker 2: And that is the most relevant one here is probably
Speaker 2: the D three rent. And again don't have my bloom
Speaker 2: work up. You can look this up on Bloomberg. They
Speaker 2: do have the WRINT pricing on there. I think last
Speaker 2: time I checked it was close to call it twenty
Speaker 2: seven dollars, right, So that turns a three dollars molecule
Speaker 2: into a thirty dollars molecule. And that's interesting. However, I
Speaker 2: mean WRINT prices obviously are can be extremely balad well, right,
Speaker 2: so as you're kind of allocating, as as you're you know,
Speaker 2: let's let's say an energy infrastructure company, you don't really
Speaker 2: want that or you don't you don't love that variability
Speaker 2: of cash flow, right, that volatile, I mean, because your
Speaker 2: whole investment thesis had always been we have we have
Speaker 2: city city cash flows. Now look, I mean the opportunity
Speaker 2: set obviously is I mean, the returns you're getting on
Speaker 2: that is is pretty impressive. So you'll you'll take the volatility.
Speaker 2: But just in terms of more visibility, you probably have
Speaker 2: more visibility on cash flow on something on the carbon
Speaker 2: capture side. And this is this is where where the
Speaker 2: question the question I had for you, do you think
Speaker 2: there's ever any risk to those carbon credits, those tax
Speaker 2: credits being being repealed or lower if they were changing
Speaker 2: the administration or do you think once it's in there,
Speaker 2: it's sticky.
Speaker 1: I mean, the easy answer is, generally speaking, any quote
Speaker 1: unquote entire is stuck. Right. Anything you give to somebody
Speaker 1: and they feel entitled to it stays. I think I
Speaker 1: think you can support that answer with a little more
Speaker 1: analysis by saying that both sides can like this, right,
Speaker 1: both sides of the aisle. Because you're supporting infrastructure development
Speaker 1: and buildouts, you're giving energy projects another opportunity to do
Speaker 1: either generate more revenue or go forward through the regulatory
Speaker 1: process with a little more certainty. And then at the
Speaker 1: same time you're trying to gradually push you it's technology forcing, right,
Speaker 1: So you're forcing towards a greener fuel set, or you're
Speaker 1: forcing towards better limitation of emissions in some way, And
Speaker 1: so I think both sides can get behind it. It's
Speaker 1: just the only people who might not like this over
Speaker 1: time are the ones who are looking at and saying,
Speaker 1: you're paying a pipeline, you know, eighty five dollars a
Speaker 1: ton for twelve years guaranteed without taking into account what
Speaker 1: they're making on the product that they're shipping. So that
Speaker 1: feels like a lot of money. I mean, these are
Speaker 1: clearly these are very capital intensive projects, so it's going
Speaker 1: to be there's a high cost there, so you have
Speaker 1: to offset that. And we probably wouldn't have had you know,
Speaker 1: these Midwest pipelines popping up being proposed, but for these
Speaker 1: credits out there, I mean, they just don't don't make
Speaker 1: sense in the structure that they're built at it right now.
Speaker 1: So so you definitely need that level of funding. But
Speaker 1: I think, you know, I do think it's pretty low
Speaker 1: risk that these disappear over time.
Speaker 2: Yeah, and going back to your earlier question kind of
Speaker 2: where what do you think the biggest opportunity sets are,
Speaker 2: So I'm actually going to you know, I do think
Speaker 2: it's it's going to be carbon captured and sequestration, and
Speaker 2: then also you know, further along hydrogen and pneumonia. And
Speaker 2: then the reason I'm saying that because I just pulled
Speaker 2: this up, I actually had this prepared before. If you
Speaker 2: look at the renewable natural gas market, I mean, look,
Speaker 2: it's it's a it's a good business, but let's call
Speaker 2: let's call it. You know, dry gas production in the
Speaker 2: US isn't as you know, I like round numbers called
Speaker 2: one hundred cubic feet to day. So renewable natural gas
Speaker 2: production is you know, it's a low single digit percentage
Speaker 2: of that, so it's not huge. There's going to be
Speaker 2: a lot of growth, but it's off a low base
Speaker 2: and you know, well it gets uh you know, call
Speaker 2: it five ten b's over the next decade or so
Speaker 2: maybe who knows. And I think there is you know,
Speaker 2: it's a nice supply source for someone who has access
Speaker 2: to that because unlike shale, you have you know, there's
Speaker 2: a lot of visibility just I mean you don't have
Speaker 2: to keep I mean the garbage keeps coming in, right,
Speaker 2: so and it's keep. Well, it's it's funny, right, it's
Speaker 2: actually not not every landfill is a good landfill. You
Speaker 2: you ideally want one that's in a high population area because
Speaker 2: there's a lot of there's a lot of organic matter
Speaker 2: that gets thrown out obviously, you know, food scrapes and that.
Speaker 2: You don't want landfill that has you know, rocks and
Speaker 2: I call it whatever industrial stuff in there. And just
Speaker 2: on that, I think there's about twenty five hundred landfills.
Speaker 2: I'll throw some numbers at you in the US and
Speaker 2: just for scope, I think thirteen percent of those of
Speaker 2: that landfill gas right now is kind of converted into
Speaker 2: renewable natural gas, and I think over half of these
Speaker 2: landfills or just underhalf, don't even have the infrastructure. So
Speaker 2: look that there certainly is capital. And it's not just landfills, right,
Speaker 2: I mean, there's dairy digestors and whatnot. There certainly are
Speaker 2: capecs dollars that can be spent on that. But ultimately,
Speaker 2: I think the big, the big dollars are really going
Speaker 2: to be gravitating towards carbon capture and sequestration and then
Speaker 2: again hydrogen pneumonia.
Speaker 1: I gotta say, Tim, I'm impressed with your landfill preparation
Speaker 1: for this podcast. I appreciate it.
Speaker 2: Yeah, so in the prior life, I used to cover
Speaker 2: I used, I used to cover A. I used to
Speaker 2: cover r KA ticker l f G or that was
Speaker 2: the old ticker. We had some fun with that one.
Speaker 2: But yeah, look, and then they obviously they recently got
Speaker 2: acquired by by BP, so that that company is no
Speaker 2: longer a stand alone but look at it. And then
Speaker 2: obviously look Kinder Morgan made some acquisitions on the renewable
Speaker 2: natural gas space. In the renewable natural gas space as well,
Speaker 2: but it'll be interesting to kind of see what happens
Speaker 2: with some of these private companies going forward, so.
Speaker 1: Even though they got acquired, you'll always have landfills. That
Speaker 1: was right, Well, that, I mean, I think that that's
Speaker 1: a really good sort of look at some of the
Speaker 1: opportunities that these policies are presenting. And I'm glad that
Speaker 1: your email newsletter from Houston triggered that for this conversation
Speaker 1: because it's it's it helps me think about it in
Speaker 1: a different way as well. I'm wondering what your thoughts
Speaker 1: are in terms of like policy risks, UH, specifically for
Speaker 1: midstream and energy infrastructure generally, what do you think, at
Speaker 1: least from what you're hearing or just you personally, what
Speaker 1: do you think are some of the bigger policy risks
Speaker 1: for the near term.
Speaker 2: Sure, I mean, look, i'd say permitting, but I mean
Speaker 2: it cann't really get much worse, so.
Speaker 1: We would say maybe.
Speaker 2: Well, but look, I think the interesting thing. The interesting
Speaker 2: thing about that though, is it actually kind of in
Speaker 2: a in a very funny manner, is somewhat valuable for
Speaker 2: these companies because there's no you're not going to have competition,
Speaker 2: right barring some obviously Permium pipeline. That stuff is you know,
Speaker 2: it's intrast state, it's not interstate. But if you have
Speaker 2: a big kind of trunk line natural gas pipeline network,
Speaker 2: I mean, no one is going to come in there
Speaker 2: and build a pipeline next to you, because you know
Speaker 2: they'll they'll I mean, it's it's never going to get approved, right,
Speaker 2: So so it's basically I mean the replacement value of
Speaker 2: steeling the ground. I mean, it's actually a really interesting
Speaker 2: topic because because those assets can't be replicated. But let's
Speaker 2: just assume permitting is what it is. I mean, maybe
Speaker 2: it gets worse, it definitely doesn't get better. I mean
Speaker 2: just from a from a risk to cash flows. I mean,
Speaker 2: i'd say, or just just across the entire energy kind
Speaker 2: of value value chain, and I think any kind of
Speaker 2: sort of export ben obviously wouldn't be obviously obviously wouldn't
Speaker 2: be wouldn't be great. Now I don't I don't see that.
Speaker 2: I don't see that happening. I mean, it does does
Speaker 2: pop up every now and then, right then, and news media,
Speaker 2: i'd say, you know that there there were some talking
Speaker 2: points last year. I remember writing about this at my
Speaker 2: former employer around you know, the tax structure, tax treatment
Speaker 2: for for master limited partnerships specifically. But I haven't I
Speaker 2: haven't followed it super closely since since since I left,
Speaker 2: But I guess any sort of any sort of kind
Speaker 2: of windfall tax which I look, I mean, we I
Speaker 2: think I think that just went through in Europe, right,
Speaker 2: And it's kind of it's actually it's funny because it
Speaker 2: really is achieving the exact opposite of what you want, right.
Speaker 2: I mean, you you want more production because you want
Speaker 2: people to have reliable supply. You want people, you know,
Speaker 2: be able to heat your homes and not have to
Speaker 2: live paycheck to paycheck to do that. So I don't
Speaker 2: think that's where that's going to happen in the US,
Speaker 2: but obviously Europe your's a little different. But I'd say
Speaker 2: I can probably noodle over a couple more about a
Speaker 2: gun to my head. I think that's kind of what
Speaker 2: popped up.
Speaker 1: Yeah, I think I think that those are all probably
Speaker 1: pretty relevant to discuss, because in one shape or other
Speaker 1: over the last year, they've been discussed. Right. Traveloons get
Speaker 1: floated in DC all the time just to kind of
Speaker 1: see what initial polling looks like as a just a
Speaker 1: measure of you know either is this something we want
Speaker 1: to pursue, or can we use this as a as
Speaker 1: a chip to talk about and go into, you know,
Speaker 1: a more moderate direction, so we look like we're trying
Speaker 1: to come to the table. That's a cynical view of DC,
Speaker 1: which is probably the right one. But I don't, Yeah,
Speaker 1: we agree. I don't think there's an export ban that
Speaker 1: gets put on the table. The geopolitics, particularly with how
Speaker 1: things are right now in Russia Ukraine. I don't think
Speaker 1: the US can do anything to minimize exporting any of
Speaker 1: their commodities. Just too many allies relying on it right now,
Speaker 1: and pricing would go crazy. Obviously, you know that as
Speaker 1: well as anybody. So I don't I don't see that
Speaker 1: happening other than just sort of yelling. There's there's a
Speaker 1: lot of yelling in DC, and I think that that
Speaker 1: might be one of them, but that never comes to fruition.
Speaker 1: Permitting is more interesting because we've had some proposals, right,
Speaker 1: We've had some things thrown out there. Centator Mansion. It's
Speaker 1: really what he wants to get done. But you know,
Speaker 1: that's not been the way that the GOP leadership wants
Speaker 1: to go because it wasn't done in it by bartererson
Speaker 1: manor now there's some news out I think even just
Speaker 1: today on Bloomberg about rumors around permitting reform and is
Speaker 1: it back, does it come back? You know, we think
Speaker 1: the only way it gets done is if the GOP
Speaker 1: leads and mansion gets behind it. The problem really, I
Speaker 1: think for midstream and ellen g which is really I
Speaker 1: think probably the two key pieces of infrastructure type that
Speaker 1: we think about when we think about permitting issues. Although
Speaker 1: I'm sure others would feel the same way in the
Speaker 1: chemical space. But the problem is for them is that
Speaker 1: the reforms that are being proposed are really just in
Speaker 1: the margins. They don't get at the issue, which is
Speaker 1: that the underlying statutes problematic. It's the environmental reviews have expanded,
Speaker 1: They've doubled the time over the period of like four years,
Speaker 1: and so it's an interesting time I think for energy permitting,
Speaker 1: particularly midstream, because that permitting reform won't do much. But
Speaker 1: on the other hand, Furcus right now is that two
Speaker 1: to two in a split. They're supposed to be five
Speaker 1: commissioners generally, and we're at two two because one his
Speaker 1: term is up and there hasn't been somebody reappointed yet
Speaker 1: and the current chairman Commissioner Phillips is pretty moderate and
Speaker 1: seems to our opinion is that this will move some
Speaker 1: projects along faster in this period than we've seen in
Speaker 1: the last four years. And so those projects that are
Speaker 1: in sort of the intermittent stage where they're waiting on
Speaker 1: approval but have already applied, like I think Williams, like
Speaker 1: their regional energy access project that's a big deal for Transco,
Speaker 1: that one just got its certificate in January. I think
Speaker 1: we're going to see that kind of movement at least
Speaker 1: in the next six months, just because of the way
Speaker 1: FERGUS is set up. And then once potentially once we
Speaker 1: get past six months, we'll see a full compliment and
Speaker 1: then firks, you know, dynamic shift again. Who knows, but
Speaker 1: it's sort of a it's the first time we've seen
Speaker 1: some optimism in the space on the regulatory side. But
Speaker 1: I think overall the package of obstacles that these projects
Speaker 1: face is still pretty robust.
Speaker 2: Yeah, you know, it's funny. It just made me think,
Speaker 2: I think the first time you and I when I
Speaker 2: hosted dinner. This is back when I was at is
Speaker 2: I or at Evercore now I should say I think
Speaker 2: it was on MVP. Oh yeah, that was what that was?
Speaker 2: What that was twenty sixteen or so. And uh, I
Speaker 2: don't know how many subsequent calls we had and dinners
Speaker 2: on on MVP, but I feel like that as uh,
Speaker 2: that is certainly case in point for for for what
Speaker 2: happens to one of those pipe for one of those projects.
Speaker 1: And you know that that, I mean, you know, MVP
Speaker 1: is looking at whatever permitting reforms out. They're just hoping
Speaker 1: that they get named again because they've been the only
Speaker 1: one who's potentially been talked about as a carve out.
Speaker 1: They would love that because they're in they're in just
Speaker 1: a whiplash between the agencies and the courts right now.
Speaker 1: That keeps going. But that is another podcast idea. We're
Speaker 1: just coming up with pearls here, Tim.
Speaker 2: Yeah, I know right. Well, look I said, do the
Speaker 2: other thing that I forgot to mention, Uh that that's
Speaker 2: interesting and I have I will covet I do a
Speaker 2: little bit more work on this and kind of see
Speaker 2: what the actual economic impact could be for for these companies,
Speaker 2: right or kind of whoever is touching us as this
Speaker 2: whole idea of an URN right and that's obviously that
Speaker 2: came out of the ep eight. It just kind of
Speaker 2: issued their renewable fuel renewable volume obligations for the next
Speaker 2: three years. And that what an URN is. It's basically
Speaker 2: you're selling renewable natural gas RNG basically in the power market, right,
Speaker 2: and that that is then going to be used to
Speaker 2: charge electric cars. So it's kind of, you know, it
Speaker 2: kind of fits that whole called it renewable renewable energy
Speaker 2: value chain, I think, and you probably know this better
Speaker 2: than me. I don't think the regulations are finalized yet.
Speaker 2: I think they should be mid year, but that could
Speaker 2: be I mean, that could be another I guess I'll
Speaker 2: call it shot of a shot of adrenaline for the
Speaker 2: renewable natural gas market for lack of a better term.
Speaker 1: Yeah, which is it's an interesting time for EPA and
Speaker 1: the RID market, right because they had to revisit the program,
Speaker 1: which sort of statutory expired in twenty two. Just to
Speaker 1: put a fine point on that. Yeah, that rule is
Speaker 1: supposed to be finalized by June fourteenth of this year.
Speaker 1: Comment period ends February tenth, so depending on the volume
Speaker 1: of comments that that rule could take a little bit longer,
Speaker 1: but you know, mid mid year, start looking for it.
Speaker 1: That's a good that's a good spot. I think tim
Speaker 1: to cover us for the substance a portion we're you know,
Speaker 1: we have a long history of this. Now our second
Speaker 1: episode of finishing with an off topic question here. I
Speaker 1: think the last one my colleagues asked Mick mulvaney what
Speaker 1: album three albums he would use on a need to
Speaker 1: have with him on a desert island. I would ask
Speaker 1: you something slightly different, which is, if you were stuck
Speaker 1: on a desert island, heaven forbid, would you want a
Speaker 1: movie with you? One single movie? What would you want
Speaker 1: an album? Oh?
Speaker 2: That is a that is a good.
Speaker 1: Question, is it? Is it a good question?
Speaker 2: Well? I mean I would. I would have to say,
Speaker 2: it's it's gotta be a movie. Okay, it's gotta be movie.
Speaker 2: And I bet your follow up is going to be
Speaker 2: what movie?
Speaker 1: Well, we can't leave our listeners hang.
Speaker 2: Yeah, I mean, look, I like eighties movies. I would
Speaker 2: probably I would have to bring it's gotta be it's
Speaker 2: gotta be something with Chevy Chase and I got gonna
Speaker 2: it's I got I'm gonna.
Speaker 1: Bring Caddy Shack that's a great answer.
Speaker 2: Actually, you know, either either caddy Shack or Fletch.
Speaker 1: One of those two also a good answer. I think
Speaker 1: Caddyshack has a better soundtrack.
Speaker 2: Maybe there's some journey in there, and there's Yeah. So
Speaker 2: I'm getting two for one.
Speaker 1: You get Loggins, which we know is all about the
Speaker 1: danger zone. All right, well we'll close it out there.
Speaker 1: That's our second episode of Boats and Verdicts. I want
Speaker 1: to thank our guest Tim Scheider for taking the time
Speaker 1: to join us. It was interesting, it was not provoking.
Speaker 1: We had some chuckles. I wouldn't call them laughs, but
Speaker 1: certainly we got into it on energy business litigation regulation policy,
Speaker 1: which is my favorite place to be. So please join
Speaker 1: us next time.