WEBVTT - Just How Bad Will the Energy Crisis Be in Europe This Winter? 0:00:09.960 --> 0:00:13.440 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:13.480 --> 0:00:17.400 I'm Tracy Alloway and I'm Joe Wisen't thal Joe, things 0:00:17.400 --> 0:00:21.120 look rough in Europe. Yeah, we we've talked about this. 0:00:21.400 --> 0:00:25.040 We haven't done a Europe specific episode in a while, 0:00:25.120 --> 0:00:29.240 but something we've been talking about lately is the macro forces, 0:00:30.040 --> 0:00:33.880 shortage of energy, high inflation, but also sort of mediocre 0:00:34.000 --> 0:00:37.519 underlying growth. Tough position right now. Yeah, you know, my 0:00:37.560 --> 0:00:40.199 mother is actually visiting the States at the moment. She 0:00:40.280 --> 0:00:44.040 lives in Austria, so I'm getting a firsthand picture of 0:00:44.159 --> 0:00:46.120 a lot of the stuff that's going on there in 0:00:46.240 --> 0:00:49.000 terms of attempts to save energy in the middle of 0:00:49.000 --> 0:00:52.440 a heat wave, I might add, and she even had 0:00:52.440 --> 0:00:54.840 to She had to trade in her car for she says, 0:00:54.880 --> 0:00:58.400 for something more efficient and reasonable in the current climate. 0:00:58.480 --> 0:01:02.520 So she gave up this very like gas guzzling convertible 0:01:02.560 --> 0:01:07.039 in order to get some efficient like sedan. Well that's uh, 0:01:07.120 --> 0:01:09.560 that's the goal, right everyone, Everything becomes a little bit 0:01:09.600 --> 0:01:13.120 more efficient. Conservation is the pain? Would she come on 0:01:13.200 --> 0:01:18.959 the podcast? I don't think so. Okay, but you know, 0:01:19.000 --> 0:01:21.679 there's a lot going on in Europe with energy at 0:01:21.680 --> 0:01:24.200 the moment, and it's pretty clear now. You know, we 0:01:24.319 --> 0:01:26.479 touched on this a little bit earlier in the year, 0:01:26.560 --> 0:01:29.880 the potential for an energy crisis in Europe, and it 0:01:29.920 --> 0:01:34.080 now looks like Europe is firmly in one. So, for instance, 0:01:34.120 --> 0:01:37.080 if you look up the benchmark gas features in Europe 0:01:37.240 --> 0:01:40.319 Dutch t t F contracts, I think they're still hovering 0:01:40.360 --> 0:01:44.039 around like two hundred euros, which is pretty close to 0:01:44.120 --> 0:01:48.160 a record high. We know that before Russia invaded Ukraine 0:01:48.720 --> 0:01:53.240 it was responsible for something like of Europe's energy imports. 0:01:53.560 --> 0:01:57.080 That has obviously dropped quite a bit as Russia sort 0:01:57.080 --> 0:01:59.880 of cuts off gas supplies. But the big question is 0:02:00.720 --> 0:02:05.240 what can Europe do to offset this and exactly how 0:02:05.320 --> 0:02:08.799 bad could things get this winter? Yes, this is the 0:02:08.880 --> 0:02:12.000 key question. How bad will there be a big shortage? 0:02:12.200 --> 0:02:14.560 You know in the summer you can sort of, you know, 0:02:14.639 --> 0:02:16.880 not run the air conditioning is hard, or maybe you 0:02:16.880 --> 0:02:19.359 know a lot of places don't even have air conditioning, etcetera. 0:02:19.560 --> 0:02:22.240 Open windows is what my mother keeps telling me. It's 0:02:22.240 --> 0:02:25.320 worth noting, by the way, that Dutch natural gas features 0:02:25.639 --> 0:02:29.800 contract that you quoted is to around two euros is 0:02:30.000 --> 0:02:33.239 you know, is eleven So I just think it's really, 0:02:33.280 --> 0:02:36.680 you know, for some context, just an absolutely insane jump 0:02:36.720 --> 0:02:39.880 and the gas shortage or the gas crisis part of it, 0:02:40.080 --> 0:02:43.000 but also a lot of attention paid lately to the 0:02:43.040 --> 0:02:47.280 state of the French nuclear industry, disrepair, lots of shutdowns, 0:02:47.320 --> 0:02:50.840 reactors not operating, So there is a confluence of factors 0:02:51.200 --> 0:02:55.560 really putting the squeeze on Europe right now. Yeah, and again, 0:02:55.600 --> 0:02:58.519 like it is just crazy to think how far we've come, 0:02:58.560 --> 0:03:01.040 both in terms of prices, which you pointed out, but 0:03:01.120 --> 0:03:03.560 just in terms of the actions to try to contain 0:03:03.600 --> 0:03:07.120 this crisis. Because I remember when Pierre and Durand came 0:03:07.160 --> 0:03:09.560 on the show, um, you know, in the spring, and 0:03:09.600 --> 0:03:11.959 he was talking about, oh, Europe might have to ration 0:03:12.000 --> 0:03:15.400 and energy and that seems so extreme at the time, 0:03:15.639 --> 0:03:18.200 and you know, fast forward a few months and that 0:03:18.400 --> 0:03:21.680 is exactly what is happening. There's a scramble not only 0:03:21.720 --> 0:03:24.840 to save energy, but also a scramble to store as 0:03:24.919 --> 0:03:28.799 much gas as possible. So I am very very pleased 0:03:28.840 --> 0:03:31.200 to say that we are going to be speaking with 0:03:31.240 --> 0:03:33.880 two people on this topic today. We're going to have 0:03:33.919 --> 0:03:37.680 a real discussion around the issue, get some varying viewpoints. 0:03:37.920 --> 0:03:40.080 We're gonna be speaking with Heavy a Blast. He is, 0:03:40.120 --> 0:03:44.160 of course a columnist over at Bloomberg Opinion and an 0:03:44.200 --> 0:03:46.880 expert on all things energy. And we are also going 0:03:46.880 --> 0:03:49.320 to be speaking with Alex Turnbull, who we've had on 0:03:49.360 --> 0:03:52.240 the podcast before. He's a fun manager based in Singapore 0:03:52.520 --> 0:03:56.280 and also a researcher in global energy. So thank you 0:03:56.360 --> 0:03:59.920 both for coming on the show, Thank you for having me. 0:04:00.280 --> 0:04:03.080 Thank you very much. So have it. Why don't we 0:04:03.120 --> 0:04:06.120 start with you. Let's let's just do the basic question. 0:04:06.320 --> 0:04:08.480 How bad do you think things are going to get 0:04:08.520 --> 0:04:12.240 in Europe this winter? Well, it's gonna get bad. And 0:04:12.480 --> 0:04:16.200 allow me to give you a personal example and also 0:04:16.279 --> 0:04:21.200 show you how bad I am at investments. I use recently. 0:04:22.240 --> 0:04:26.279 I use recently close the purchase of a house in London, 0:04:26.400 --> 0:04:29.279 in West London. I resisted for many years. I was 0:04:29.360 --> 0:04:32.120 very happy with my flat, but I wanted a garden, 0:04:32.200 --> 0:04:35.560 as every middle class British person likes. And you know 0:04:35.680 --> 0:04:38.159 I did that probably at the very peak of the market. 0:04:38.279 --> 0:04:42.200 So that's how bad I am. So I was used recently. 0:04:42.240 --> 0:04:45.280 I'm just doing my moving and I was thinking how 0:04:45.400 --> 0:04:47.960 bad it will be if I could not carry my 0:04:48.120 --> 0:04:51.240 gas and electricity contract. That I have and it's you know, 0:04:51.360 --> 0:04:54.279 fixed for for for a number of months still ahead, 0:04:54.680 --> 0:04:57.039 and I have to start from the scratch, just get 0:04:57.040 --> 0:05:00.160 a new electricity and gas contract on the new your 0:05:00.160 --> 0:05:04.039 property and currently paying about a hundred and thirty five 0:05:04.120 --> 0:05:09.159 pounds per month for electricity and gas in my current flat. 0:05:09.680 --> 0:05:13.040 If I have to get a new contract because prices 0:05:13.080 --> 0:05:16.159 have gone so much up and because every utility in 0:05:16.160 --> 0:05:19.120 the UK is already factory in the big price increase 0:05:19.400 --> 0:05:23.240 that we're going to get from October, my bill will 0:05:23.320 --> 0:05:26.839 go monthly from a hundred and thirty five pounds to 0:05:27.040 --> 0:05:31.159 four hundred and seventy five pounds per month. That is 0:05:31.200 --> 0:05:34.760 how bad it's going to get now using mine, working 0:05:34.880 --> 0:05:39.880 class families getting electricity and gas bill, unless the government 0:05:39.880 --> 0:05:44.200 makes an intervention of anything north of four hundred, four 0:05:44.279 --> 0:05:47.880 hundred and fifty pounds, which is more than five hundred 0:05:47.920 --> 0:05:51.800 dollars per month used for electricity and gas put aside 0:05:51.960 --> 0:05:55.280 castoline prices, that's how bad it's going to get in 0:05:55.400 --> 0:05:58.200 terms of the impact of the cost of living crisis. 0:05:58.279 --> 0:06:01.440 And that is across Europe. What is happening in the 0:06:01.560 --> 0:06:06.360 UK is very similar in Germany, where utilities are already 0:06:06.440 --> 0:06:10.920 warning consumers that the utility monthly charge is going to 0:06:11.200 --> 0:06:14.479 double at the very least starting on the first of October. 0:06:14.680 --> 0:06:17.359 So Alex, I want to bring you in, you know, 0:06:17.480 --> 0:06:20.719 as have you mentioned, his energy bill is going to soar, 0:06:20.839 --> 0:06:23.400 and of course we're going to see that across Europe 0:06:23.480 --> 0:06:26.440 if people haven't already had that rerating kick in already. 0:06:26.640 --> 0:06:30.040 But it's one thing for prices to surge. It's another 0:06:30.080 --> 0:06:33.160 thing for say, people do not have power, maybe people 0:06:33.160 --> 0:06:36.680 do not have heat, or probably more likely industry in 0:06:36.720 --> 0:06:40.279 some countries has to shut down because it's uneconomical. What 0:06:40.360 --> 0:06:43.440 do you see as the sort of you know, is 0:06:43.480 --> 0:06:47.440 there risk of something beyond it's just more expensive and 0:06:47.560 --> 0:06:51.440 something more sort of fundamental hit and shortages that's coming winter. 0:06:52.800 --> 0:06:55.760 I think in the short term it's very hard to 0:06:55.839 --> 0:06:59.040 do a lot of substitution, which is, while we saw 0:06:59.200 --> 0:07:01.640 not a lot of change in industrial gas demand in 0:07:01.720 --> 0:07:04.880 Europe around last winter, there was a sense in which 0:07:05.520 --> 0:07:09.080 everyone was kind of frozen in place, but you're already 0:07:09.080 --> 0:07:13.440 starting to see quite substantial substitution for industrial demand. The 0:07:13.480 --> 0:07:17.040 problem is is that as a consumer, it's Harvier points out, 0:07:17.080 --> 0:07:18.800 there's not a lot you can really do in the 0:07:18.840 --> 0:07:21.400 short term. But you know, here's where my story of 0:07:21.440 --> 0:07:24.680 buying the house comes in. I bought a house briefly 0:07:24.760 --> 0:07:28.720 before COVID in in Australia, and I was planning on 0:07:28.760 --> 0:07:30.680 putting solar panels on it, but then I kind of 0:07:30.720 --> 0:07:32.480 got locked out of the country for two years because 0:07:32.520 --> 0:07:37.080 of Australia's COVID controls, and my tenant, who was not 0:07:37.120 --> 0:07:40.680 happy with the change in power prices, basically said like, 0:07:41.160 --> 0:07:42.800 if you want to put solar on it, and I said, yeah, 0:07:42.800 --> 0:07:44.760 I actually I love to do that. And so that's 0:07:44.760 --> 0:07:48.960 already knew about seventy their power demand UM and their 0:07:48.960 --> 0:07:52.720 power bills. So in places like Australia where you are 0:07:52.760 --> 0:07:57.160 similarly impacted by issues of gas and coal, price has 0:07:57.200 --> 0:07:59.960 been the marginal pricing source of demand, and it's certainly 0:08:00.080 --> 0:08:03.360 South Wales. UM. You can type of media action and 0:08:03.400 --> 0:08:05.680 I think you're going to say a lot more of 0:08:05.720 --> 0:08:08.080 that over time, but but that does take time, and 0:08:08.120 --> 0:08:11.040 that demand destruction not in a bad way, and a 0:08:11.080 --> 0:08:14.080 sense that people workout ways to consume less while preserving 0:08:14.120 --> 0:08:17.880 their lifestyles. That is a multi year process and so 0:08:18.720 --> 0:08:21.360 in the short run, people can't really cut their consumption 0:08:21.440 --> 0:08:24.480 much but at a time that does tend to happen, 0:08:25.120 --> 0:08:28.040 you know. I think the real lesson is to be 0:08:28.160 --> 0:08:32.079 like Tracy and when you buy a house, discovery that 0:08:32.120 --> 0:08:35.200 you actually have a mountain of coal in your basement, 0:08:35.360 --> 0:08:38.280 which is something Tracy revealed to us in a recent episode. 0:08:38.320 --> 0:08:41.160 That's like the ultimate hedge is to buy a house 0:08:41.240 --> 0:08:44.240 that comes with coal. Don't worry, guys, I too bought 0:08:44.320 --> 0:08:46.360 at the top of the market, so yes, I have 0:08:46.440 --> 0:08:51.240 some commodity exposure to offset that purchase. But yeah, Alex, 0:08:51.880 --> 0:08:55.920 I mean I mentioned the benchmark gas contract in Europe earlier, 0:08:55.960 --> 0:08:59.160 hovering around like two hundred euros, and Joe pointed out 0:08:59.200 --> 0:09:02.000 that that's up from nineteen, you know, just a little 0:09:02.000 --> 0:09:06.560 while ago, but it has come down a little bit, 0:09:07.040 --> 0:09:10.120 like there does seem to be some moderation recently. What's 0:09:10.240 --> 0:09:13.240 driving that? Is that a sign that maybe we're turning 0:09:13.280 --> 0:09:17.199 around the corner as some of these energy savings kick in, 0:09:17.440 --> 0:09:21.640 or as Europe starts to reach its gas storage target. 0:09:22.360 --> 0:09:26.320 I'm allowed to make any definitive comments here. On the 0:09:26.360 --> 0:09:28.120 one hand, I'll point out that if you talk to 0:09:28.160 --> 0:09:32.120 your friendly prime broker about wanting to trade something which 0:09:32.200 --> 0:09:36.720 realizes about volatility. On a good day, you may find 0:09:36.760 --> 0:09:39.440 that actual risk taking capacity in these markets is heavily 0:09:39.480 --> 0:09:43.199 constrained and the information in prices is not quite what 0:09:43.240 --> 0:09:48.640 it once was. UM. So that there's that. UM. The 0:09:48.679 --> 0:09:50.520 other thing I would point out is that that can 0:09:50.640 --> 0:09:53.320 be both to the upside or to the downside. So 0:09:53.920 --> 0:09:57.199 we saw a similar dynamics in coking coal for much 0:09:57.200 --> 0:10:00.280 of this year when people were concerned about USh and 0:10:00.320 --> 0:10:03.360 supply getting taken out of the market. But then China 0:10:03.440 --> 0:10:06.160 open the border the Mongolia and mongol, so you took 0:10:06.240 --> 0:10:09.400 seven million tons out from Russia, but then actually China 0:10:09.480 --> 0:10:12.160 just board it all more or less, and then you 0:10:12.200 --> 0:10:14.840 also had Mongolia into the market for thirty six million 0:10:14.880 --> 0:10:18.200 tons run right currently. So as a result, coke and 0:10:18.200 --> 0:10:22.200 cole went from say two fifty dollars to six briefly 0:10:22.200 --> 0:10:25.280 and is now back to two hundred dollars. So, UM, 0:10:25.320 --> 0:10:26.880 I don't think we're going to get a kind of 0:10:26.920 --> 0:10:31.000 supply d s X macin in gas or high caloritic 0:10:31.080 --> 0:10:51.280 value coal to fix Europe's problem that quickly. Have you 0:10:51.320 --> 0:10:53.880 can you sort of give us the broader picture of 0:10:53.960 --> 0:10:57.840 how you wait the different factors driving up European prices 0:10:57.920 --> 0:11:01.199 right now because obviously everyone is, you know, quite aware 0:11:01.360 --> 0:11:04.360 of the stress and the tensions between Europe and Russia 0:11:04.440 --> 0:11:08.480 over the war and the declining exports. But then of 0:11:08.520 --> 0:11:10.880 course you know there's also and this has gotten more 0:11:10.920 --> 0:11:14.320 attention than the last couple of weeks, the French nuclear 0:11:14.400 --> 0:11:18.320 industry has is operating a diminished capacity. France is currently 0:11:18.360 --> 0:11:21.880 an electricity importer as opposed to an exporter. Like you know, 0:11:22.040 --> 0:11:26.960 there's there's multiple factors and how would you attribute them? So, Joe, 0:11:27.000 --> 0:11:29.680 You're right, there multiple factors that they are driving here 0:11:30.000 --> 0:11:33.360 the market on gas. The most important one certainly is 0:11:33.840 --> 0:11:38.680 Russia restricting supplies to Europe. You take Germany as an example, 0:11:39.440 --> 0:11:43.600 Supplies are down eighty percent from where they were normally, 0:11:43.679 --> 0:11:47.240 and that is a completely political decision by Bloodymid putting 0:11:47.280 --> 0:11:49.840 to put pressure on Europe and drop the support on 0:11:49.920 --> 0:11:54.440 on Ukraine. Then in electricity, the situation in France is 0:11:54.480 --> 0:11:58.560 certainly the main driver. About fifty percent of the nuclear 0:11:58.600 --> 0:12:01.560 reactors in France are not working at the moment, Most 0:12:01.600 --> 0:12:06.640 of them are on maintenance revised, just checking for cracks 0:12:06.640 --> 0:12:11.000 on some welding, and that it has really forced France 0:12:11.040 --> 0:12:14.640 to import and usually last quantities of electricity from every 0:12:14.679 --> 0:12:18.439 neighboring country, which is putting pressure on gas because that 0:12:18.640 --> 0:12:22.160 means that we are consuming more gas for for power generation. 0:12:23.200 --> 0:12:27.440 Looking forward, well, a lot of the situation in Europe 0:12:27.480 --> 0:12:30.640 is gonna depend, I think on three factors. Number one 0:12:30.760 --> 0:12:33.160 is what Bloodymid Putting does in the next few weeks 0:12:33.160 --> 0:12:36.680 and months, whether he shuts down completely supplies or not. 0:12:37.200 --> 0:12:39.800 Number two is the weather. How call is going to 0:12:39.880 --> 0:12:41.960 be the winter in Europe or how warm. If we 0:12:42.040 --> 0:12:45.440 get a mile winter like last year, Europe may be 0:12:45.600 --> 0:12:49.880 able to whether the problem without much of an additional 0:12:49.920 --> 0:12:53.080 problem it's really called in Europe, then there is trouble 0:12:53.120 --> 0:12:55.680 in Europe. It it's called in Japan. There is also 0:12:55.720 --> 0:12:58.400 trouble in Europe because it means that Europe is going 0:12:58.440 --> 0:13:01.400 to have to compete with Japan for llergy supplies. And 0:13:01.440 --> 0:13:05.880 the other big question, and Alex was talking about this earlier, 0:13:06.040 --> 0:13:10.680 is how much consumers from myself to the big companies 0:13:10.720 --> 0:13:13.720 are going to be able to save this winter. We 0:13:13.720 --> 0:13:16.720 are beginning to see signs that demand in the industry 0:13:16.800 --> 0:13:20.920 is coming down. That's in part due to high gas prices. 0:13:21.000 --> 0:13:24.199 We are beginning to see some substitutions, some companies trying 0:13:24.240 --> 0:13:27.760 to run on fuel oil or diesel some of their operations. 0:13:27.880 --> 0:13:29.719 And I think that consumers are going to save quite 0:13:29.720 --> 0:13:32.240 a lot of gas, in part because, to be frank, 0:13:32.400 --> 0:13:34.079 I don't want to be hit by a four hundred 0:13:34.200 --> 0:13:37.520 seventy pounds and months bill for my electricity and gas. 0:13:37.559 --> 0:13:40.280 So yeah, I'm gonna put my thermo state a bit lower. 0:13:40.760 --> 0:13:43.679 And how those factors are going to interact over the 0:13:43.679 --> 0:13:46.040 next three months it's going to be the key. But 0:13:46.080 --> 0:13:50.360 the big problem for policymakers and for traders is that 0:13:50.480 --> 0:13:54.440 you cannot really model properly two of those factors. I mean, 0:13:54.440 --> 0:13:58.040 you could make assumptions on savings, how much demand substitution 0:13:58.160 --> 0:14:00.480 is gonna be, you could, you could really try to 0:14:00.559 --> 0:14:04.320 attempt to answer that question, but you cannot really answer 0:14:04.360 --> 0:14:06.439 the question of what bloody mill Puttin is going to 0:14:06.559 --> 0:14:08.720 do and how call is going to be the weather 0:14:09.040 --> 0:14:11.760 four months from now. And that is why it's so 0:14:11.880 --> 0:14:15.319 difficult and so volatile the market right now. And Alex 0:14:15.360 --> 0:14:18.599 said add to that that there is very little liquidity, 0:14:18.640 --> 0:14:21.760 so the information on the price is rather imperfect at 0:14:21.760 --> 0:14:24.960 the moment. That's really interesting. So I take the point 0:14:25.000 --> 0:14:27.600 that it's difficult to predict what Putin is going to do, 0:14:27.720 --> 0:14:31.000 and it's probably difficult to predict exactly what the weather 0:14:31.080 --> 0:14:33.560 is going to be this winter, But could you make 0:14:33.600 --> 0:14:36.280 an assumption about how or could you try to model 0:14:36.560 --> 0:14:42.120 how well prepared Europe is for the possibility, for instance, 0:14:42.160 --> 0:14:44.920 that Russia just cuts off all the gas, because I 0:14:44.920 --> 0:14:47.440 think at the moment, like the flows through nord Stream 0:14:47.600 --> 0:14:52.040 something like one to of normal capacity. What if they 0:14:52.080 --> 0:14:55.800 just go away? How prepared would Europe be for that scenario? 0:14:56.840 --> 0:15:00.360 If the flows of North Stream were to stop, let's 0:15:00.400 --> 0:15:03.320 say tomorrow. You know, we we are not nearly there. 0:15:03.400 --> 0:15:06.000 We will we will, we will not have enough gas 0:15:06.000 --> 0:15:08.240 in the storage to make it through the whole winter 0:15:08.800 --> 0:15:12.600 without having to save significant amount of gas. That means 0:15:12.640 --> 0:15:17.760 demand destruction in the industry if we can't build inventories 0:15:17.800 --> 0:15:21.160 to the eighty percent target or nine percent target that 0:15:21.200 --> 0:15:25.000 Germany has put itself to, the Hargert higher target by 0:15:25.120 --> 0:15:30.040 October November and then putting shuts down completely gas supplies. 0:15:30.560 --> 0:15:33.600 We will make it through the winter barely, but we 0:15:33.640 --> 0:15:35.880 will make it through the winter. But that's gonna still 0:15:35.960 --> 0:15:39.720 require very high prices because you need to you need 0:15:39.760 --> 0:15:43.280 to make sure that some industries are not consuming gas. Uh, 0:15:43.560 --> 0:15:48.360 you have a combination of putting cats supplies, say September October, 0:15:48.520 --> 0:15:52.520 and we have a cold winter. While that really requires 0:15:52.720 --> 0:15:56.080 some significant savings on energy, and that will require the 0:15:56.160 --> 0:16:00.040 German government effectively taking control of the energy sector and 0:16:00.080 --> 0:16:03.960 saying you can consume, you cannot consume because we need to. 0:16:04.280 --> 0:16:07.440 We need to make sure that every home has enough 0:16:07.480 --> 0:16:10.400 gas for hitting. The priority will be the homes and 0:16:10.480 --> 0:16:14.400 everything else will be secondary to that. But all of 0:16:14.440 --> 0:16:18.000 those scenarios also create a problem. Even if we make 0:16:18.040 --> 0:16:22.080 it through the winter without massive troubles us with having 0:16:22.120 --> 0:16:26.360 to I mean, an economic recession is given, but you know, 0:16:26.440 --> 0:16:30.280 without additional pain beyond that, we are in a very 0:16:30.320 --> 0:16:34.480 precarious situation for the following summer and the following winter. 0:16:34.920 --> 0:16:37.840 So this becomes a bit of a multi year problem. 0:16:38.320 --> 0:16:40.600 So even if you make it through the winter in 0:16:40.600 --> 0:16:45.440 twenty three, then you emerge in March of twenty three 0:16:45.600 --> 0:16:48.920 in a very low situation of inventories and probably with 0:16:49.080 --> 0:16:54.240 not enough time to rebuild inventories for two in any 0:16:54.280 --> 0:16:57.200 meaningful way. So then you have another year of problem, 0:16:57.280 --> 0:17:02.880 another year of high prices. Look, it's not how to 0:17:02.960 --> 0:17:06.119 put it, I mean, it's not really good. It looks 0:17:06.240 --> 0:17:09.560 very challenging. Best cases scenario we make it through the 0:17:09.600 --> 0:17:14.119 winter without significant trouble, having to reduce demand in the 0:17:14.200 --> 0:17:17.800 industry and paying very high prices similar to now that 0:17:18.080 --> 0:17:21.520 I think it's best cases scenario. Worst cases scenario is 0:17:21.600 --> 0:17:24.800 we have to race on gas significantly and paying even 0:17:24.880 --> 0:17:29.320 higher prices than today. Alex, what is your assessment of 0:17:29.400 --> 0:17:33.000 the inventory situation right now? And then you know if 0:17:33.040 --> 0:17:35.320 this is like you know, we're not just talking winter, 0:17:36.400 --> 0:17:42.320 and like, is there more capacity to import gas besides 0:17:42.600 --> 0:17:46.080 nord Stream, like through terminals or is that just completely 0:17:46.520 --> 0:17:51.240 maxed out basically, I I guess on on inventor is 0:17:51.280 --> 0:17:55.880 currently depending on how you can figure your model, we're 0:17:55.880 --> 0:17:59.439 in the seventies now. In terms of storage, there's still 0:17:59.480 --> 0:18:03.120 to my it's pretty aggressive storage builds ahead of us. 0:18:03.680 --> 0:18:07.480 So we will be, by my estimates, you know, in 0:18:07.520 --> 0:18:10.520 the mid eighties by the time at peaks, which is 0:18:10.920 --> 0:18:13.240 generally a very good place to be in terms of 0:18:13.280 --> 0:18:17.119 storage levels. Um and if you look at your break 0:18:17.119 --> 0:18:20.040 down the nodal consumption of the way they present the 0:18:20.080 --> 0:18:25.280 data in Europe and industrial demands already down a lot 0:18:25.280 --> 0:18:27.679 of places, and some of that were easier saving some 0:18:27.800 --> 0:18:31.159 of that SF moving more of ammonia production to the States, 0:18:31.440 --> 0:18:34.280 but that's in. Industry is already very much doing its bit. 0:18:34.840 --> 0:18:40.480 If you assume households do very modest levels of demand constraint, 0:18:41.000 --> 0:18:44.280 I don't think the winter is going to be that stressful. However, 0:18:44.840 --> 0:18:48.600 every marginal gigga jewel that comes into Europe giggle, what 0:18:48.720 --> 0:18:50.719 our or however you want to measure gas, the gas 0:18:51.240 --> 0:18:53.119 has to come out of the lergy market, and that 0:18:53.280 --> 0:18:56.720 is very tight. And the reason that's tied is because 0:18:56.720 --> 0:19:00.800 it had to grow to accommodate Europe very quickly. When 0:19:00.800 --> 0:19:05.120 it's normally had quite moderate, sort of mid to high 0:19:05.200 --> 0:19:07.800 single digit growth at best. It's had to grow almost 0:19:08.440 --> 0:19:11.800 this year and that's not easy to do. And the 0:19:11.840 --> 0:19:13.840 reason that's tied is that you cannot get a lot 0:19:13.880 --> 0:19:17.359 of incremental gas into the market without more energy landing 0:19:17.400 --> 0:19:20.200 capacity in Europe which is coming in, but also more 0:19:20.240 --> 0:19:23.639 export capacity from the US. So over time, I agree, 0:19:23.680 --> 0:19:27.680 it's a multi year process, but that's spread between US 0:19:27.680 --> 0:19:32.760 gas prices. Henry hub and what that translates to into 0:19:33.320 --> 0:19:37.920 um TTF will converge towards Henry Hub plus a spread 0:19:38.400 --> 0:19:42.600 over times US gas becomes essentially linked to global lergy prices. 0:19:43.240 --> 0:19:45.960 Historically it was linked, but but it sort of broke 0:19:46.080 --> 0:19:48.560 because the we suddenly hit a constraint in terms of 0:19:48.600 --> 0:19:51.919 export capacity and demand in Europe. Just real quickly, to 0:19:52.000 --> 0:19:56.239 what degree alex is this? You know, aggressive demand for 0:19:56.480 --> 0:19:59.920 energy in Europe? How is it spilling over to other 0:20:00.200 --> 0:20:03.320 llenergy importers? And I'm thinking, you know the natural gas 0:20:03.400 --> 0:20:06.000 depend in Asian countries, like what is this sort of 0:20:06.000 --> 0:20:10.600 like global knock on effect. It was quite funny as 0:20:10.640 --> 0:20:15.520 an Australian because it very quickly blew up Asian ellergy 0:20:15.600 --> 0:20:19.640 prices where cargoes had to be rerouted or China due 0:20:19.680 --> 0:20:23.800 to lockdowns consume less gas, so resold cargoes and spot 0:20:23.880 --> 0:20:27.600 markets innovated them to Europe. But then in Australia people 0:20:27.600 --> 0:20:30.640 thought they were sort of immune, and then by April May, 0:20:30.960 --> 0:20:37.320 Australian power prices started moving very aggressively up because the 0:20:37.400 --> 0:20:41.800 European grid will first burn gas if it can, we'll 0:20:41.840 --> 0:20:43.800 consume it. If it can't get that, it has to 0:20:43.840 --> 0:20:47.240 burn coal. And the coal it burns is six thousand 0:20:47.280 --> 0:20:49.919 killer cow coal, which is exactly what it's produced in 0:20:49.920 --> 0:20:53.359 the Hunter Valley of Australia, where most of Australia's Eastern 0:20:53.359 --> 0:20:57.280 grid's power plants are. So it's it's everyone has got 0:20:57.280 --> 0:20:59.399 swept up in this to one shape or form or another. 0:21:00.320 --> 0:21:03.160 I want to bring Heavier in on the same topic. Really, 0:21:03.200 --> 0:21:07.280 I mean, it has been a pretty rapid adjustment the 0:21:07.320 --> 0:21:10.399 way the LERG market has done this. And you know 0:21:10.520 --> 0:21:12.880 it used to be a fairly fragmented market and now 0:21:12.880 --> 0:21:16.359 it's increasingly globalized because of all these pressures and some 0:21:16.440 --> 0:21:19.000 other factors. How do you see that shaking out, Heavier 0:21:19.040 --> 0:21:21.639 and how does it sort of change the dynamics of 0:21:21.760 --> 0:21:25.879 the energy industry as a whole. Well, clearly, the ability 0:21:26.160 --> 0:21:30.200 of Europe to tap the llend market has really saved 0:21:30.200 --> 0:21:33.879 the day for Europe. This has happened only ten fifteen 0:21:33.960 --> 0:21:36.959 years ago, where the global lending market was not nearly 0:21:36.960 --> 0:21:40.439 as developers is today, and the ability of cargo's was 0:21:40.560 --> 0:21:43.360 much lower, particularly on the spot market with the ability 0:21:43.400 --> 0:21:47.240 to reroute carrigos, Europe will have had a big problem 0:21:47.359 --> 0:21:50.080 and the dependency on Russia was much much higher. So 0:21:50.320 --> 0:21:54.359 the lending market is offering a relievable to Europe in 0:21:54.400 --> 0:21:57.080 so many ways. Um. I mean, one of the things 0:21:57.080 --> 0:21:59.080 that we have seen that to me is very interesting 0:21:59.240 --> 0:22:01.800 is Europe. But the Many is outbidding everyone else in 0:22:01.840 --> 0:22:04.960 the market taking the llergy. That's one of the reasons 0:22:05.000 --> 0:22:08.680 we have these very high prices in the market. I mean, 0:22:08.920 --> 0:22:12.159 on fundamentals, as Alex was pointing out, we should not 0:22:12.280 --> 0:22:15.520 probably have two hundred euros permica the hour of gas 0:22:15.560 --> 0:22:18.600 because the inventories are builting in the right direction and 0:22:18.680 --> 0:22:22.240 we should have enough gas um if putting was to 0:22:22.320 --> 0:22:26.040 keep the flows. But obviously we need to continue outbidding 0:22:26.160 --> 0:22:29.000 the whole market for llergy supplies, and for that we 0:22:29.080 --> 0:22:31.919 need to sustain very high prices in Europe for that 0:22:32.000 --> 0:22:35.359 to happen. What's happening there is that a number of 0:22:35.480 --> 0:22:38.480 countries that were starting to rely on the global llengy 0:22:38.520 --> 0:22:41.680 market for supplies middle middle income and poor countries and 0:22:41.800 --> 0:22:45.280 thinking the likes of Pakistan or Banglades or even India 0:22:45.760 --> 0:22:49.639 are now being um. They're seeing now that European nations 0:22:49.640 --> 0:22:53.359 and European utilities campaign much higher prices, so they're not 0:22:53.400 --> 0:22:55.480 getting the cargos that they were expecting. Some of the 0:22:55.520 --> 0:22:57.879 cargos that this will be going into Asia at the 0:22:57.920 --> 0:23:00.960 moment I rerouted into you Rope, and we have seen 0:23:01.640 --> 0:23:06.440 power supply problems in the likes of Banglades or Pakistan, 0:23:06.440 --> 0:23:10.080 which is affecting the textile industry. So in a way 0:23:10.200 --> 0:23:14.280 it may be a case where Europe avoids the black 0:23:14.320 --> 0:23:17.679 house that many of us we have been talking and fearing, 0:23:18.160 --> 0:23:22.040 but only because the black house move somewhere else, somewhere 0:23:22.520 --> 0:23:26.120 else that they cannot really pay the price that Europe 0:23:26.119 --> 0:23:28.560 is paying for the llergy and then the black house 0:23:28.560 --> 0:23:31.560 are happening in Pakistan or Banglades, but the black house 0:23:31.600 --> 0:23:35.480 are actually happening. It's used differently, and that global ellergy 0:23:35.600 --> 0:23:40.560 market is allowing that arbitrast to happen that without it, well, 0:23:40.600 --> 0:23:42.400 it will not be happening in the black house will 0:23:42.440 --> 0:23:44.280 be happening in Europe because we will not be able 0:23:44.320 --> 0:23:46.560 to get in off GUS real quickly. Is there any 0:23:46.640 --> 0:23:49.399