WEBVTT - What So Many People Get Wrong About The Energy Transition 0:00:10.160 --> 0:00:14.360 Hello, and welcome to another episode of the Odd Locks podcast. 0:00:14.480 --> 0:00:19.040 I'm Joe and I'm Tracy Halloway. Tracy, you know, the 0:00:19.120 --> 0:00:23.400 high price of energy obviously has put a lot of 0:00:23.480 --> 0:00:28.240 increased interest once again on energy transition, cleaner energy, cheaper energy. 0:00:28.520 --> 0:00:31.400 But the thing that strikes me about two so far 0:00:31.720 --> 0:00:35.159 is the world is using more coal than ever right. 0:00:35.400 --> 0:00:38.640 I think if there's one thing we can internalize from 0:00:38.880 --> 0:00:45.880 the lessons of two, it's that a things we expected 0:00:45.920 --> 0:00:48.680 to happen have not happened. And be on that note, 0:00:49.000 --> 0:00:52.440 the energy transition is just a lot messier and a 0:00:52.479 --> 0:00:55.320 lot less linear than I think a lot of people expected. 0:00:55.360 --> 0:00:59.840 People expected, like you know, once evs became widely available, 0:01:00.080 --> 0:01:03.680 someone somewhere would flip a switch. Everyone would shift their 0:01:03.720 --> 0:01:07.240 dependency away from gas into electricity, and the problem would 0:01:07.280 --> 0:01:10.520 kind of be solved and all these dirty energy industries 0:01:10.800 --> 0:01:15.080 like coal, like oil would be resigned to the dustbin 0:01:15.200 --> 0:01:17.880 of history. I guess yeah, And I think the twenty 0:01:18.000 --> 0:01:22.280 tens sort of lulled us into maybe this false sense 0:01:22.319 --> 0:01:28.560 of complacency about the future of fossil fuels or dirty, 0:01:28.720 --> 0:01:31.600 dirtier sources of energy. And I think, you know, we 0:01:31.600 --> 0:01:35.240 we had the especially starting this big drop in the 0:01:35.280 --> 0:01:40.000 price of oil combined with the boom and electric cars, 0:01:40.120 --> 0:01:42.959 and I think a lot of people sort of thought like, okay, well, 0:01:43.000 --> 0:01:45.480 this is like this is the final chapter of the 0:01:45.520 --> 0:01:49.200 oil era, of the fossil fuels era. It's gonna fade 0:01:49.240 --> 0:01:53.240 over time, you know, people over a long time into oblivion, oblivion. 0:01:53.440 --> 0:01:56.000 But it's already of this linear down. And of course 0:01:56.080 --> 0:02:00.400 now oil is exploding, and not only that, these other 0:02:00.480 --> 0:02:03.000 you know, sort of coal has bounced back, and there's 0:02:03.040 --> 0:02:09.360 sort of this very intense impulse now to expand production, 0:02:09.440 --> 0:02:12.760 at least in the short to medium term, of energy 0:02:12.800 --> 0:02:15.079 sources to bring prices down. Right, I think a couple 0:02:15.080 --> 0:02:17.840 of years ago, no one would have expected governments, you know, 0:02:17.919 --> 0:02:21.800 liberal governments from Europe to the US the Biden administration 0:02:21.880 --> 0:02:25.440 to basically say like, we need more energy, we need 0:02:25.480 --> 0:02:28.480 more oil to be drilled, we need more energy coming 0:02:28.480 --> 0:02:31.280 from somewhere, preferably cleaner energy, but if we have to, 0:02:31.600 --> 0:02:34.000 we will also look at dirtier forms of energy as well. 0:02:34.080 --> 0:02:37.240 Like that was totally unexpected, right, And everyone long term 0:02:37.320 --> 0:02:41.000 is like, yeah, electrification of everything, and hopefully we're renewables, 0:02:41.080 --> 0:02:44.680 maybe even some nuclear and stuff like that. But in 0:02:44.760 --> 0:02:48.080 the short to medium term, suddenly there's just big, this 0:02:48.200 --> 0:02:51.160 big urge to get the price of energy down. So 0:02:51.400 --> 0:02:53.959 it raises the question if we were like lulled into 0:02:54.040 --> 0:02:56.800 this false sense of complacency last decade, like what are 0:02:56.800 --> 0:03:00.200 we getting wrong in our thinking? And what will of 0:03:00.200 --> 0:03:04.400 the energy transition ultimately look like? Absolutely all right, So 0:03:04.520 --> 0:03:07.720 I am very excited about this guest, someone who has 0:03:07.720 --> 0:03:12.960 been talking for many years, long before the two cycle, 0:03:13.280 --> 0:03:16.400 who has been making this argument that people are wrong 0:03:16.440 --> 0:03:20.720 about how energy sources die or wrong about how commodities 0:03:20.919 --> 0:03:23.600 get replaced by something new. We are going to be 0:03:23.639 --> 0:03:27.600 speaking with Bob Brackett. He's a senior analyst covering natural 0:03:27.680 --> 0:03:31.720 resources at Bernstein and he's been covering the resource space 0:03:31.800 --> 0:03:35.839 and various capacities for about thirty years. So, Bob, thank 0:03:35.880 --> 0:03:38.280 you so much for coming on odd lots, Thank you 0:03:38.320 --> 0:03:40.640 so much. Thank you Tracy for having me. So how 0:03:40.800 --> 0:03:43.000 is that that? Like there are people have been like 0:03:43.200 --> 0:03:47.200 wanting to kill cole forever, it seems like, and you know, 0:03:47.240 --> 0:03:50.720 there's been so little funding of coal, like all these 0:03:50.760 --> 0:03:53.640 banks got out of like financing call everyone's like this 0:03:53.720 --> 0:03:56.080 is over. I remember, you know, big thing, and like 0:03:56.520 --> 0:03:58.720 last decade was like what are we gonna you know, 0:03:58.840 --> 0:04:01.680 let's train all the coal workers to learn to code 0:04:01.760 --> 0:04:06.360 and things like that, and yet here in the world 0:04:06.440 --> 0:04:09.080 is using more cold than it ever has in history, 0:04:09.160 --> 0:04:12.280 Like how did that happen? So it happened. That's sort 0:04:12.280 --> 0:04:14.560 of on the supply side, and that happened on the 0:04:14.640 --> 0:04:18.599 demand side, and on the demand side that the reality 0:04:18.720 --> 0:04:25.279 is energy transitions just take time. If we think about coal, clearly, 0:04:25.440 --> 0:04:28.760 on the demand side, there is just an inherent demand 0:04:28.920 --> 0:04:32.440 for the utility that coal provides, or nobody actually wants 0:04:32.480 --> 0:04:35.120 to consume coal. No one wakes up and says I 0:04:35.120 --> 0:04:37.680 wish I had some coal people wake up and say 0:04:37.720 --> 0:04:39.760 I want to electricity, right, I want of the things 0:04:39.839 --> 0:04:44.159 that lifestyle that electricity and genders. And so if we 0:04:44.279 --> 0:04:48.000 can't provide that electricity from other means, because we can't 0:04:48.400 --> 0:04:52.480 ramp renewable spending capital fast enough, if we can't tackle 0:04:52.520 --> 0:04:56.880 issues around intermittency and security of supply, then you fall 0:04:56.880 --> 0:05:00.719 back on what's available, and that's coal, and that that's 0:05:00.760 --> 0:05:03.880 the call of demand. On the supply side. If you're 0:05:03.920 --> 0:05:08.200 a coal miner and you're building assets that last decades, 0:05:08.880 --> 0:05:12.080 you were terrified about what the future, what the last 0:05:12.120 --> 0:05:14.839 ten years of that asset could look like. They could 0:05:14.880 --> 0:05:18.799 have no terminal value. So as a result your your burden, 0:05:19.000 --> 0:05:22.640 your risk return, your cost of capital, however you want 0:05:22.640 --> 0:05:24.960 to call it, you just end up being afraid to 0:05:25.040 --> 0:05:28.400 sanction long term supply, and then you end up in 0:05:28.400 --> 0:05:31.280 this sort of perpetual tightness. And Tracy, you know, I'm 0:05:31.320 --> 0:05:34.279 thinking about some of the conversations we've had with Jeff Curry, 0:05:34.320 --> 0:05:36.679 and you know, this is the vault trap, like this idea, 0:05:36.680 --> 0:05:39.600 It's like, Okay, prices are high right now, but if 0:05:39.640 --> 0:05:42.000 everyone is like talking about some peak in a few 0:05:42.080 --> 0:05:46.760 years in consumption, like lie invest how much does regulation 0:05:47.120 --> 0:05:50.200 play into a story like coal? Because one of the 0:05:50.240 --> 0:05:52.960 interesting things about coal is it's I don't think it's 0:05:53.000 --> 0:05:56.840 ever really been considered a good source of energy, Like 0:05:56.920 --> 0:06:00.040 it's always had certain connotations. It's always been dirty to 0:06:00.200 --> 0:06:02.760 actually get out of the ground, dirty to store in 0:06:02.800 --> 0:06:06.320 your house, which I'm experiencing now because I just discovered 0:06:06.320 --> 0:06:09.040 we have a large pile of coal in the basement, um, 0:06:09.080 --> 0:06:13.880 which is fun. Of course Tracy, of course Tracy has 0:06:13.920 --> 0:06:16.039 a basement full of coal, like that is a very 0:06:16.120 --> 0:06:18.320 Tracy thing and keep going all right, and you know, 0:06:18.360 --> 0:06:21.719 associations with child labor and things like that. It feels 0:06:21.760 --> 0:06:25.920 like Cole has sort of been vilified for most of 0:06:25.960 --> 0:06:31.599 its history. So how does that play into its life cycle? Yeah, 0:06:31.800 --> 0:06:35.400 it's funny. And I forget the King of England who 0:06:35.480 --> 0:06:40.560 attempted to ban Cole uh half a millennium ago and 0:06:41.000 --> 0:06:44.039 utterly failed. Cole has an externality. In the old days, 0:06:44.160 --> 0:06:47.880 the externality around Cole was the was the soot and 0:06:47.920 --> 0:06:49.960 the emissions and the socks and the knox, and we 0:06:50.720 --> 0:06:53.200 mostly as a planet cleaned that up, and today the 0:06:53.240 --> 0:06:57.640 externality is carbon dioxide. It's kind of always had an externality, 0:06:57.680 --> 0:07:01.880 and despite that, it is always had a utility that's 0:07:01.960 --> 0:07:05.760 that's overcome that, and so it is just an incredibly 0:07:06.040 --> 0:07:09.880 geologically unique store of energy and it's just very hard 0:07:09.960 --> 0:07:13.600 to find a substitute. And the other aspect, even today, 0:07:13.640 --> 0:07:18.960 what we're seeing is politicians, regulators they don't like coal 0:07:19.080 --> 0:07:23.480 for its externalities, but they also like cheap electricity for 0:07:23.640 --> 0:07:28.320 the voting population. And so we're even seeing in the US, 0:07:28.360 --> 0:07:31.560 we're seeing in Europe, we're seeing softening of taxes against 0:07:31.640 --> 0:07:35.160 hydro carbon's and that's sort of short termism. I've got 0:07:35.160 --> 0:07:40.360 to keep the penalty of inflation against my my voting population, 0:07:40.880 --> 0:07:42.880 even though in the long term I really have to 0:07:42.920 --> 0:07:46.320 tackle this thing. The king who tried to ban cole 0:07:46.400 --> 0:07:49.320 in twelve eighty five, King Edward the First. I only 0:07:49.320 --> 0:07:52.320 know that because I read it in your note wrote 0:07:52.800 --> 0:07:55.160 so the whole you know, we wanted to talk to 0:07:55.200 --> 0:07:57.880 you because you wrote this amazing sort of this long 0:07:58.040 --> 0:08:02.040 piece at Bernstein in twenty seven and team basically talking 0:08:02.040 --> 0:08:05.720 about what people get wrong about the energy transition and 0:08:05.800 --> 0:08:08.840 what the theme seems to be that in our heads, 0:08:09.640 --> 0:08:11.560 you know, when we think about transition or we think 0:08:11.560 --> 0:08:15.160 about disruption, we think the iPhone comes along and then 0:08:15.280 --> 0:08:17.800 like two years later there's no palm pilots, or one 0:08:17.840 --> 0:08:20.239 year later there's no flip phones like it. Just something 0:08:20.240 --> 0:08:23.000 better comes along and then the old thing is over. 0:08:23.440 --> 0:08:26.680 And sort of the thrust of your note is that no, 0:08:26.960 --> 0:08:29.800 like energy just doesn't work like that, and having this 0:08:29.840 --> 0:08:34.080 sort of like tech framework of disruption leads you to 0:08:34.160 --> 0:08:36.760 some bad paths when thinking about the future of commodities, 0:08:36.760 --> 0:08:40.320 of the future of energy exactly. And the genesis of 0:08:40.360 --> 0:08:44.880 this book that I wrote was effectively a debate with 0:08:45.080 --> 0:08:48.559 the ever so popular tech analysts here at Bernstein, where 0:08:48.559 --> 0:08:51.600 the metaphors they were using for the energy transition were 0:08:52.360 --> 0:08:57.959 digital cameras displacing analog cameras, and flat screens displacing crt s, 0:08:57.960 --> 0:09:03.720 and smartphones displacing dumb phone. And my caution, for my 0:09:03.840 --> 0:09:08.560 rather lengthy caution, was in in natural resources industries, in 0:09:08.640 --> 0:09:11.560 depletion based industries where you need just a lot of 0:09:11.640 --> 0:09:15.000 capital not only to grow but just to stay flat, 0:09:15.559 --> 0:09:18.320 that that dynamic is different. And in those sorts of 0:09:18.440 --> 0:09:22.520 environments where it's not a consumer electronic device, transitions can 0:09:22.559 --> 0:09:25.760 take decades and decades and decades. So that was that 0:09:25.840 --> 0:09:29.800 was ultimately the genesis of why I wrote describe Well, 0:09:29.880 --> 0:09:32.600 could you go into that in a little bit more detail, 0:09:32.679 --> 0:09:37.200 like why is energy different from a consumer good? Why 0:09:37.400 --> 0:09:40.440 does the transition seem to be more complex, and why 0:09:40.480 --> 0:09:45.400 does it definitely take longer? It comes to the supply 0:09:45.559 --> 0:09:49.200 side being afraid of the future. And the term I've 0:09:49.240 --> 0:09:51.880 coined for oil is this green wolf at the door 0:09:52.440 --> 0:09:57.520 that if you're investing in hydrocarbons know someday that green 0:09:57.520 --> 0:09:58.960 wolf at the door is going to come in and 0:09:59.000 --> 0:10:01.840 you're just afraid to to not earn a return on 0:10:01.880 --> 0:10:05.600 your capital, not strand your asset. My favorite analog, and 0:10:05.600 --> 0:10:08.800 I've got a couple, is the mercury industry. So the 0:10:08.920 --> 0:10:14.480 US Geological Survey posts the annual volumes, price, and revenues 0:10:14.600 --> 0:10:18.600 for the mercury industry over the last hundred years and 0:10:19.040 --> 0:10:21.840 store to say, well, mercury is terrible. Talk about a 0:10:21.880 --> 0:10:25.559 bad product. I think, think mad hatters, think insanity, I 0:10:25.640 --> 0:10:28.800 think of all of the terrible things mercury does. But 0:10:28.960 --> 0:10:33.120 the mercury industry has never had higher revenues. And the 0:10:33.160 --> 0:10:36.400 reason is is there is sticky demand for mercury in 0:10:36.480 --> 0:10:40.480 a bunch of niche abuses that are very hard to displace, 0:10:41.120 --> 0:10:45.240 and only a full would open a mercury mind today 0:10:45.480 --> 0:10:48.079 right just to think about what that would take. So 0:10:48.559 --> 0:10:52.160 the supply side that requires capital to keep going has said, 0:10:52.360 --> 0:10:56.320 I just can't deploy capital here, and the demand side says, well, 0:10:56.320 --> 0:10:59.040 but I really don't have a substitute yet. And so 0:10:59.080 --> 0:11:01.559 the mercury in this is going to end someday in 0:11:01.640 --> 0:11:04.440 a time measured in decades, but it's going to go 0:11:04.520 --> 0:11:08.440 out at high prices and a lack of supply, not 0:11:09.360 --> 0:11:11.760 with the shelves full of products the way of consumer 0:11:11.840 --> 0:11:17.359 electronic device that's that's defunct would. So how should investors 0:11:17.400 --> 0:11:19.600 actually think about that? Because I feel like this is 0:11:19.600 --> 0:11:22.880 where things get really tricky, especially when it comes to oil. 0:11:23.080 --> 0:11:27.320 So everyone, I think pretty much agrees that oil is 0:11:27.360 --> 0:11:30.920 going to go away someday. The question is just how 0:11:30.960 --> 0:11:33.520 long it's going to take, and then whether or not 0:11:33.559 --> 0:11:36.440 there are these sort of big peaks and troughs in 0:11:36.520 --> 0:11:40.920 oil use in the meantime during the transition, And as 0:11:40.960 --> 0:11:44.319 we've seen in recent years, it just feels really difficult 0:11:44.360 --> 0:11:47.679 for investors and also the energy businesses themselves to get 0:11:47.679 --> 0:11:49.400 a handle on because how do you plan for the 0:11:49.440 --> 0:11:52.800 future if you're expected not to have one and the 0:11:52.880 --> 0:11:55.880 question is just how long it's going to take. The 0:11:56.280 --> 0:11:59.640 one misconception out there is this concept with the demand 0:11:59.720 --> 0:12:02.200 for a product starts to fall, the price for the 0:12:02.200 --> 0:12:05.160 product starts to fall. But you know, ultimately, if you 0:12:05.200 --> 0:12:08.400 think back to your classic economics one oh one, the 0:12:08.440 --> 0:12:11.880 price of something is where marginal cost meets marginal supply. 0:12:12.480 --> 0:12:15.319 And if the marginal supply is running away from you 0:12:15.559 --> 0:12:19.360 and there's no requirement that price fall. And so if 0:12:19.360 --> 0:12:22.720 you believe the Mercury analogy that I shared with you. 0:12:22.760 --> 0:12:25.319 If you believe the asbestos analogy, if you kind of 0:12:25.320 --> 0:12:27.600 believe call right we're trying to get rid of call 0:12:27.960 --> 0:12:30.440 and prices at all time high, then the answer is 0:12:30.920 --> 0:12:35.600 the oil and gas companies are afraid to deploy long 0:12:35.760 --> 0:12:39.480 cycle asset right ten twent thirty year types of projects. 0:12:39.880 --> 0:12:43.559 They're generating record cash flows, certainly as we go into 0:12:43.640 --> 0:12:46.760 earnings in the next week or two. And the response 0:12:46.840 --> 0:12:48.680 for the typical U, S, E. N P that I 0:12:48.760 --> 0:12:52.400 follow is I'm just gonna return that cash to shareholders 0:12:52.640 --> 0:12:55.080 and let them decide what to do with it. Right, So, 0:12:55.320 --> 0:12:59.439 I don't know when my industry is over. It's a twilight. 0:13:00.040 --> 0:13:02.720 But in the meantime, investors, you take the cash and 0:13:02.760 --> 0:13:04.840 you decide how to read a ploy, and I will 0:13:04.880 --> 0:13:09.600 manage my best short term high return investments as that happens. 0:13:09.800 --> 0:13:11.880 So obviously we're going to have to do a Mercury 0:13:11.920 --> 0:13:14.199 episode at some point in the future. But actually I 0:13:14.240 --> 0:13:16.960 do have. I want to go back to Mercury real quickly. 0:13:17.280 --> 0:13:19.520 When you say the Mercury will come to an end, 0:13:19.640 --> 0:13:22.640 is there a substitute like what that exists for Mercury? 0:13:22.640 --> 0:13:24.280 Like is there a reason that at some point there 0:13:24.280 --> 0:13:27.760 won't be a future mercury demand. So it gets to 0:13:27.840 --> 0:13:31.520 the end uses. So luckily, like mercury gets used in 0:13:31.600 --> 0:13:35.439 the mining sector for example, certainly by artisanal miners, it 0:13:35.480 --> 0:13:38.920 can be displaced with cyanide, which you know, there's a 0:13:38.920 --> 0:13:43.400 whole bag of works there. Um, the there are medical 0:13:43.600 --> 0:13:48.480 uses as well, there are some industrial uses, and yeah, 0:13:48.600 --> 0:13:52.200 I mean yeah, there have to be workarounds, but yes, 0:13:52.360 --> 0:13:54.920 and then at some point, like we see with other medals, 0:13:55.200 --> 0:13:57.480 we can get to a world where there's enough efficient 0:13:57.520 --> 0:14:00.800 recycling of mercury that the and can get a messed 0:14:00.800 --> 0:14:18.440 that way, but which is not quite there yet. Let 0:14:18.480 --> 0:14:20.760 me ask you another question, and I guess it's about 0:14:20.920 --> 0:14:24.160 coal and the failure of the sort of typical tech 0:14:24.240 --> 0:14:26.600 disruption frame. Seems to me that there is a way 0:14:26.640 --> 0:14:29.560 to view this is like coal is the disruptive technology. 0:14:29.600 --> 0:14:31.960 I mean, again, all these things sort of breakdown because 0:14:32.000 --> 0:14:34.280 cole has been around forever. But if you think, like 0:14:34.640 --> 0:14:38.160 here's a really cheap form of energy, it's like really 0:14:38.240 --> 0:14:40.520 powerful form of energy, like you get a lot of 0:14:40.600 --> 0:14:43.920 electricity out of it and it's cheap, then you know, 0:14:44.000 --> 0:14:46.520 you could probably make the argument that you know, if 0:14:46.560 --> 0:14:50.680 you're willing to tolerate the externalities. Yes, it's worse for 0:14:50.720 --> 0:14:53.400 the air. Yes, it emits a lot of carbon that 0:14:53.520 --> 0:14:56.240 on a sort of like strictly like like for like 0:14:56.360 --> 0:15:00.000 basis that one might consider coal the disruptor of natural 0:15:00.000 --> 0:15:03.000 a gas or the disruptor of oil. Should all the 0:15:03.040 --> 0:15:05.400 tech ETFs get into coal, is that's what you're saying. 0:15:05.520 --> 0:15:07.880 You can very quickly see how some of the like 0:15:07.960 --> 0:15:11.200 tech thinking could like really break down or lead you astray. 0:15:11.680 --> 0:15:13.640 It's like, well, which one is the real disruptor here? 0:15:14.080 --> 0:15:18.360 If the planet had over invested in l n G 0:15:18.960 --> 0:15:22.080 and other sources of natural gas, and if you're getting 0:15:22.080 --> 0:15:24.720 all of our energy from windmills, then I'm sure coal 0:15:24.800 --> 0:15:27.200 would be a massive disruptor to that. So if we 0:15:27.320 --> 0:15:31.479 started in the reverse and if everything was a wind turbine, 0:15:31.640 --> 0:15:35.480 we would have this issue of intermittency. The wind patterns 0:15:35.600 --> 0:15:38.800 changed daily and seasonally and sometimes not at all. And 0:15:38.840 --> 0:15:41.120 if someone came and said, I've got this product. It's 0:15:41.240 --> 0:15:44.560 very dense, it has a lot of energy, and look 0:15:44.600 --> 0:15:47.400 at it can burn twenty four seven and be a 0:15:47.400 --> 0:15:51.119 baseload of power, Yeah, it would be a remarkable disruption. 0:15:51.320 --> 0:15:54.960 So I have maybe a strange question. You know, we're 0:15:55.000 --> 0:16:00.200 talking about disruption and new technologies and things come in 0:16:00.200 --> 0:16:04.120 to replace other types of commodities in history, has there 0:16:04.280 --> 0:16:08.520 been like a good example of a commodity just going 0:16:09.080 --> 0:16:14.080 completely away? Because it feels like even the really questionable 0:16:14.120 --> 0:16:18.960 stuff like mercury still finds some sort of use, and 0:16:19.000 --> 0:16:21.880 even things that have been vilified, like coal as we've 0:16:21.880 --> 0:16:25.560 been discussing, or like tobacco or instance, those are all 0:16:26.000 --> 0:16:28.200 you know, they're still around. There's still big industries, and 0:16:28.400 --> 0:16:31.560 they're still in the case of tobacco, still quite profitable. 0:16:32.240 --> 0:16:34.360 That is a strange question, and it's one that I 0:16:34.400 --> 0:16:37.040 went to answer, and so I good, okay, not the 0:16:37.120 --> 0:16:42.960 only Yeah. I looked at eighty four different commodities and 0:16:43.440 --> 0:16:46.200 over the last hundred and twenty years, said which one 0:16:46.200 --> 0:16:49.680 of them went away? A category of them that are 0:16:49.800 --> 0:16:54.200 deadly on average declined single digits a year. So even 0:16:54.240 --> 0:16:59.280 the deadliest, the caesiums of the world, the asbestos, the mercury, 0:16:59.520 --> 0:17:03.520 even though things tend to go away slowly, I didn't 0:17:03.560 --> 0:17:10.679 find a commodity that was radically displaced on any short 0:17:10.800 --> 0:17:14.080 term time horizon. I believe the closest you could come 0:17:14.080 --> 0:17:17.720 with strontium, where the biggest source of demand for strontium 0:17:18.640 --> 0:17:20.720 was in in c rt s, the old TVs we 0:17:20.800 --> 0:17:22.639 used to use, and so when flat screens came in, 0:17:23.119 --> 0:17:26.800 strontium demand fell. But that was the exception for that's 0:17:26.880 --> 0:17:29.320 that was kind of the one percent club. The reality 0:17:30.080 --> 0:17:33.080 and it goes back to Jevan's paradox, which which was 0:17:33.359 --> 0:17:35.760 again a guy looking at cold at the end of 0:17:35.800 --> 0:17:41.040 the eight hundreds. Generally, just commodity demand rises. It's it's 0:17:41.080 --> 0:17:43.760 hard to find commodities that we use less of remind 0:17:43.800 --> 0:17:47.520 us what paradox is. So the Japan's paradox was that 0:17:47.560 --> 0:17:50.440 the more efficient you got that producing cold, the more 0:17:50.520 --> 0:17:52.960 you use. And it works for road systems, it works 0:17:52.960 --> 0:17:56.959 for a number of things. But the classic example is, hey, 0:17:57.000 --> 0:17:59.760 I've got a four lane highway, I'll make it an 0:17:59.800 --> 0:18:03.199 eight lane highway, and then congestion will fall, right, And 0:18:03.240 --> 0:18:06.280 then every time we build an eight lane highway, congestion rises. 0:18:06.440 --> 0:18:08.439 And so it was kind of as you try to 0:18:08.480 --> 0:18:12.600 improve the efficiency of something, you actually increase the consumption 0:18:12.640 --> 0:18:15.240 of it. So going back to oil for a second, 0:18:15.280 --> 0:18:18.240 because as you've said, like you actually do think there 0:18:18.240 --> 0:18:20.720 will be an end date for oil or at least 0:18:20.840 --> 0:18:24.359 oil as a source of maybe fuel for automobiles, Like 0:18:24.760 --> 0:18:27.399 what does that look like and what is how are 0:18:27.440 --> 0:18:32.600 you thinking about the long term time frame of when 0:18:32.640 --> 0:18:35.359 the oil age comes to an end and how is 0:18:35.400 --> 0:18:37.800 it replaced? And you know, like what what do you 0:18:37.840 --> 0:18:40.359 tell people when they say, like how long is the 0:18:40.400 --> 0:18:42.440 future of all? How long do we have here? Part 0:18:42.480 --> 0:18:45.680 of it is just a mentality shift. So through most 0:18:45.720 --> 0:18:50.200 of my career looking at oil and gas investment, people 0:18:50.240 --> 0:18:53.520 believed in peak oil supply, right, it was Harbard's peak, 0:18:53.880 --> 0:18:57.119 It was the association for the society peak oil. It 0:18:57.200 --> 0:19:00.480 was twilight in the desert, and we all fall in 0:19:00.920 --> 0:19:04.080 hindsight incorrectly that we would run out of supply. And 0:19:04.119 --> 0:19:07.720 in that world, give sanctional project and you say, maybe 0:19:07.720 --> 0:19:10.760 it's over budget, maybe it's late, maybe it's not quite 0:19:11.000 --> 0:19:14.080 up to stuff on deliverability, but price will bail me out. 0:19:14.720 --> 0:19:17.720 And so as long as the mentality of scarcity existed 0:19:17.760 --> 0:19:21.520 in my sector, we as an industry kept growing oil 0:19:21.520 --> 0:19:26.160 and gas supply. And in the last five ish years 0:19:26.920 --> 0:19:31.160 that mentality has pivoted to this world of the end 0:19:31.359 --> 0:19:33.600 of oil demand. So we're going to run out of 0:19:33.640 --> 0:19:37.480 oil demand before supply, and that's where all the capital 0:19:37.480 --> 0:19:42.600 allocation mentality completely flips from sort of i'll lean into 0:19:42.640 --> 0:19:46.400 it into fear. That's what's driving kind of what could 0:19:46.440 --> 0:19:50.000 be perpetual tightness now in terms of windes the oil 0:19:50.080 --> 0:19:53.320 age end. The way we think about oil, we we 0:19:53.359 --> 0:19:56.879 divide oil into six big buckets, and reality, oil into 0:19:56.880 --> 0:20:00.800 a refinery produces dozens and hundreds of products. We think 0:20:00.840 --> 0:20:09.680 about gasoline for passenger travel, diesel for think rail trucks, trains, vessels, 0:20:09.760 --> 0:20:13.920 marine vessels, and then pet cams for plastics, jet fuel 0:20:14.160 --> 0:20:18.080 for air travel, and then into more obscure buckets. The 0:20:18.359 --> 0:20:22.439 obvious bucket that gets disrupted is gasoline, right, So e 0:20:22.560 --> 0:20:26.400 v s attack gasoline demand to some degree, the hydrogen 0:20:26.440 --> 0:20:31.119 economy attacks diesel demand. But even under a range of 0:20:31.240 --> 0:20:35.280 reasonable assumptions, oil demands should rise into the twenty thirties, 0:20:35.760 --> 0:20:38.800 perhaps it's ten percent higher than it is today, and 0:20:38.800 --> 0:20:42.920 then it enters kind of this gradual plateau. We as 0:20:43.000 --> 0:20:47.320 a planet are still looking for ways to substitute jet 0:20:47.320 --> 0:20:51.399 fuel air travel. Air travel grows with GDP, So if 0:20:51.440 --> 0:20:55.159 GDP not this year, but if GDP grows three percent 0:20:55.240 --> 0:20:58.879 a year, then jet fuel demands growing three percent a 0:20:58.960 --> 0:21:03.320 year and compounds in the next ten twenty years, how 0:21:03.320 --> 0:21:06.879 do we substitute air travel in any meaningful time frame. 0:21:07.000 --> 0:21:09.920 So so the answer is, think of a plateau. Think 0:21:09.960 --> 0:21:13.480 of the thirties is where that plateau starts to be visible, 0:21:14.040 --> 0:21:17.240 and think of the supply side of the equation being 0:21:17.359 --> 0:21:19.880 much more afraid of that plateau than the demand side. 0:21:20.119 --> 0:21:23.320 This is a tough question, I think, but in your opinion, 0:21:23.359 --> 0:21:28.639 when it comes to encouraging that transition from gas and 0:21:28.720 --> 0:21:33.960 oil to a more electrified future, what's the best way 0:21:34.040 --> 0:21:36.800 or the most effective way of doing that. Is it 0:21:37.240 --> 0:21:40.040 something on the demand side. Is it trying to you know, 0:21:40.280 --> 0:21:44.280 encourage a better or a larger supply side response, or 0:21:44.400 --> 0:21:48.959 is it you know, government intervention coming in and subsidizing 0:21:49.080 --> 0:21:53.040 things like electric cars? Like what is most effective here? 0:21:53.320 --> 0:21:56.760 So the subsidies have been the past. People have accepted 0:21:57.119 --> 0:22:02.320 Norway is the perfect experiment meant for the energy transition 0:22:02.560 --> 0:22:05.879 for e vs, But we have yet to see, for example, 0:22:06.080 --> 0:22:10.840 Norwegian oil demand roll over significantly. And so I think 0:22:10.960 --> 0:22:14.720 the answer is, and what Norway has done is through subsidies. 0:22:14.720 --> 0:22:17.960 And of course it's a well developed economy, it's a 0:22:17.960 --> 0:22:21.800 wealthy economy, and they can afford those sorts of tools 0:22:21.840 --> 0:22:25.600 that a broader adoption just can't afford. And so if 0:22:25.640 --> 0:22:28.639 you can't really tackle it on the demand side, you 0:22:28.720 --> 0:22:32.720 have to tackle it on the supply side. Now, selfishly, 0:22:32.880 --> 0:22:36.200 I would argue that the mining side, which I also cover, 0:22:36.760 --> 0:22:41.880 is the obvious bottleneck. And so in theory, supporting mining 0:22:42.480 --> 0:22:46.760 in your home country, in your home region, we're supporting 0:22:46.800 --> 0:22:51.159 mining in general the industry. If you think about I 0:22:51.200 --> 0:22:54.080 spent a lot of time thinking about shale, right, So 0:22:54.200 --> 0:22:57.560 shale was a massive disruptor to to what I did 0:22:57.560 --> 0:22:59.800 for a living for a long period of time. And 0:23:00.040 --> 0:23:03.840 shale was a manufacturing process that we did a hundred 0:23:03.840 --> 0:23:07.280 thousand times, and we drove the cost of it down 0:23:07.760 --> 0:23:11.920 massively just through that classic learning curve. As we look 0:23:11.960 --> 0:23:14.879 at building e vs, we're going to go from a 0:23:14.920 --> 0:23:17.600 planet that's sold ten tho ev s and then a 0:23:17.680 --> 0:23:20.440 hundred thousand and now north of a million, will get 0:23:20.440 --> 0:23:23.840 to ten million someday, and those learning curves will just 0:23:23.960 --> 0:23:27.960 reduce the cost of all the manufacturing parts of the 0:23:28.320 --> 0:23:32.200 e V supply chain. But you know, mining the extractive 0:23:32.200 --> 0:23:37.479 industries just following a different drummer and those get tougher 0:23:37.560 --> 0:23:41.000 over time. We drill the best wells first, we find 0:23:41.040 --> 0:23:45.040 the best copper minds first, we mind the best grades first, 0:23:45.440 --> 0:23:50.280 and so to me, encouraging the supply side, the metal 0:23:50.359 --> 0:23:54.919 side of the battery revolution, would be something policymakers could do. 0:23:55.400 --> 0:23:58.720 And frankly, that's the toughest part because it's the one 0:23:58.760 --> 0:24:03.320 place where local s G issues are fighting full force 0:24:03.400 --> 0:24:08.120 against global E s G issues. I'm really fascinated by 0:24:08.119 --> 0:24:13.400 this idea that there's a shift in mentality when everyone 0:24:14.200 --> 0:24:17.080 went from talking about peak supply and I think, you know, 0:24:17.119 --> 0:24:19.320 we all remember I used to read the Oil Drum 0:24:19.520 --> 0:24:22.440 that blog years ago where everyone talked about like peak 0:24:22.520 --> 0:24:24.240 oil and we're going to run out of oil, and 0:24:25.760 --> 0:24:28.440