WEBVTT - Who's Boring Now: Utilities vs Oil 0:00:00.480 --> 0:00:03.080 Okay, so the Dull Men's Club. I first stumbled on 0:00:03.200 --> 0:00:05.280 it on YouTube or something years ago. But it's a 0:00:05.360 --> 0:00:08.840 club that quote celebrates the ordinary, like I recall seeing 0:00:08.880 --> 0:00:11.720 something about a post box appreciation society, or one guy 0:00:11.720 --> 0:00:14.800 who collected soda bottles, or another member who was really 0:00:14.840 --> 0:00:17.560 interested in those brown tourist site signs you see along 0:00:17.600 --> 0:00:21.400 the highway. Calendar items featured on the website include National 0:00:21.400 --> 0:00:25.040 Punctuation Day or the annual Dullis Airport plane pole asking 0:00:25.200 --> 0:00:28.680 were you there? Or the World Stone Skimming Championship. Okay, 0:00:28.720 --> 0:00:31.360 those last two sound pretty cool. Today we'll be talking 0:00:31.400 --> 0:00:33.400 with Nat Bullard about a piece he wrote with Liam 0:00:33.440 --> 0:00:36.920 Denning for Bloomberg Opinion called energy stocks are now duller 0:00:36.920 --> 0:00:40.600 than utilities. It opens with quote, utilities are, by design 0:00:40.680 --> 0:00:43.199 a bit of a snooze. We feel no excitement of 0:00:43.240 --> 0:00:47.159 the miracle of instantaneous light, television and coffee grinding, expecting 0:00:47.159 --> 0:00:49.360 those things simply to happen when we want them to, 0:00:49.560 --> 0:00:52.360 which virtually all the time they do. Reading this, I 0:00:52.360 --> 0:00:54.440 thought for sure there would be a Dull Men's Club, 0:00:54.480 --> 0:00:58.600 appreciation society, or electrical things that worked as expected. I checked, 0:00:58.720 --> 0:01:01.720 there's not listening back to this interview. I kept pressing that, 0:01:01.880 --> 0:01:04.480 trying to get him to say energy or oil stocks 0:01:04.480 --> 0:01:07.000 are duller than utilities because utilities are doing all kinds 0:01:07.000 --> 0:01:10.760 of cool, new exciting things leading to really exciting growth stories. 0:01:10.959 --> 0:01:13.839 But no, he held his ground, wouldn't go there. Turns 0:01:13.840 --> 0:01:15.800 out it seems utilities are just the less dull of 0:01:15.840 --> 0:01:17.480 the two. So maybe we have a candidate for the 0:01:17.480 --> 0:01:20.559 Dolmen's Club. I don't know. The interview itself is actually 0:01:20.640 --> 0:01:23.360 quite interesting, so stay with us. We'll also discuss a 0:01:23.360 --> 0:01:26.280 piece called big Energy Companies see Cole's Last Stand that 0:01:26.360 --> 0:01:29.640 he wrote with David Fickling, also for Bloomberg Opinion. We'll 0:01:29.640 --> 0:01:31.759 talk about the future of coal and where and why 0:01:31.880 --> 0:01:35.120 it still make makes sense or not and we mentioned 0:01:35.120 --> 0:01:37.080 it last time. But Not is global head of executive 0:01:37.080 --> 0:01:39.240 Insights for BANF. He wears many hats for beanof one 0:01:39.280 --> 0:01:41.559 of which is writing a weekly op ed called spark Lines, 0:01:41.600 --> 0:01:44.520 published do Bloomberg Opinion. You can find them on terminal 0:01:44.600 --> 0:01:47.800 under Ni Bullard or on Bloomberg dot Com under spark Lines. 0:01:48.040 --> 0:01:50.320 In either location you can sign up for a weekly distribution. 0:01:50.720 --> 0:01:53.120 And as always, BENIF does not provide investment or strategy 0:01:53.160 --> 0:01:54.680 advice and you can hear the full disclaimer at the 0:01:54.720 --> 0:01:57.320 end of the show. Him Mark Taylor here with Dana Perkins, 0:01:57.440 --> 0:02:01.480 and you're listening to switch On the benf podcast. NAT. 0:02:01.520 --> 0:02:03.680 Welcome back to Switched On. Thanks for having me, folks, 0:02:03.560 --> 0:02:05.440 it's going to be back. So this first one we're 0:02:05.440 --> 0:02:07.840 going to talk about today actually has the word dull 0:02:07.920 --> 0:02:09.880 in the title that it actually was one of your 0:02:09.880 --> 0:02:12.600 best read pieces and I actually really got quite interested 0:02:12.600 --> 0:02:13.600 in it. Tell me why it was one of your 0:02:13.600 --> 0:02:15.919 best red pieces. What happened there? So what I wrote about, 0:02:16.040 --> 0:02:18.959 and I'll give you the exact title is energy stocks 0:02:19.000 --> 0:02:23.120 are now dumber than utilities. Wah wah wah. I know 0:02:23.200 --> 0:02:24.760 that from many of you out there in radio man, 0:02:24.880 --> 0:02:28.520 that doesn't sound that interesting. However, within the financial community, 0:02:28.520 --> 0:02:30.400 and when you consider the scale of these two industries 0:02:30.400 --> 0:02:32.800 that we're talking about, like two of the biggest on 0:02:32.880 --> 0:02:36.120 earth in terms of stock market capitalization, in terms of 0:02:36.440 --> 0:02:39.400 fixed and long term assets, in terms of cash flow, everything, 0:02:40.200 --> 0:02:44.120 there's quite a bit of implication in the financial market 0:02:44.160 --> 0:02:47.560 for what is, to be honest, that's sort of dry 0:02:47.800 --> 0:02:51.360 sounding thing, which is there is a dividend yield paid 0:02:51.400 --> 0:02:54.720 out by oil and gas companies, there's a dividend yield 0:02:54.720 --> 0:02:59.480 paid out by utilities. Historically, utilities have had a relatively 0:02:59.560 --> 0:03:02.960 high it end and relatively lower growth compared to oil 0:03:02.960 --> 0:03:05.560 and gas. Oil and gas companies have had a relatively 0:03:05.840 --> 0:03:10.440 no dividend and relatively high growth in equity prices and valuations. 0:03:11.240 --> 0:03:12.959 And what we've seen in the last four months is 0:03:13.000 --> 0:03:16.639 that that has switched and now utilities are actually paying 0:03:16.639 --> 0:03:20.120 out less in dividend than oil and gas companies are paying. 0:03:20.320 --> 0:03:21.760 And what that means for those of you out there 0:03:21.760 --> 0:03:24.440 in radio land is that you can think about this. 0:03:24.560 --> 0:03:28.520 A company can reward its shareholders in two ways. It 0:03:28.560 --> 0:03:31.920 can either reward them with a stock price that is 0:03:31.960 --> 0:03:34.519 going up all the time, so you're benefiting from growth. 0:03:34.920 --> 0:03:37.160 Or you can reward shareholders for holding your stock by 0:03:37.240 --> 0:03:39.640 paying them a fixed amount of cash based on the 0:03:39.640 --> 0:03:42.840 share price. That would be a dividend. And historically utilities 0:03:42.840 --> 0:03:44.800 are said, well, you know, we're very very stable, we 0:03:44.800 --> 0:03:47.760 have a very predictable market. We're going to give you 0:03:47.960 --> 0:03:49.760 a lot of cash, one in the form of dividends 0:03:50.120 --> 0:03:52.160 as a way of saying thank you for owning our stock. 0:03:52.480 --> 0:03:54.320 And oil and gas companies have saying, goin, we need 0:03:54.360 --> 0:03:55.840 money to invest, so we're not going to pay you 0:03:55.840 --> 0:03:58.920 a lot of cash. We're going to then return an 0:03:58.920 --> 0:04:02.040 advantage to you in terms of an increasing stock price. 0:04:02.200 --> 0:04:05.280 And that's the way that you're going to benefit from 0:04:05.280 --> 0:04:09.480 owning a share in x y Z company. Now, when 0:04:09.560 --> 0:04:11.920 those things shift, it's a really really big deal. When 0:04:11.920 --> 0:04:14.600 a company makes a decision that it needs to start 0:04:14.640 --> 0:04:18.360 paying out more in a dividend, it implies all kinds 0:04:18.400 --> 0:04:22.640 of things. One is you need to reward shareholders for 0:04:22.680 --> 0:04:25.200 holding onto you more, so they in order to do that, 0:04:25.240 --> 0:04:28.040 you pay them more money. But within that, there's also 0:04:28.360 --> 0:04:31.800 a question about the nature of your future growth prospects. 0:04:32.560 --> 0:04:35.800 It's saying, maybe there's less of an option to have 0:04:36.360 --> 0:04:39.040 a high amount of growth in the share price, and 0:04:39.279 --> 0:04:41.640 if people want to hold onto this equity, we need 0:04:41.680 --> 0:04:43.240 to give them a reason, and the reason is give 0:04:43.279 --> 0:04:46.320 them more money in cash. And you're seeing this industry 0:04:46.320 --> 0:04:48.840 wide for the energy stocks, that's right. So what I 0:04:48.880 --> 0:04:50.560 did is I took the S and P five hundred, 0:04:50.560 --> 0:04:53.640 which has within its sub indicase one for utilities, one 0:04:53.720 --> 0:04:57.320 for what they confusingly call energy that's actually oil and gas. 0:04:58.040 --> 0:05:01.640 Yet sorry, everybody, out there, SMB energy is actually oil 0:05:01.640 --> 0:05:04.600 and gas, it's not energy, and you can just very 0:05:04.640 --> 0:05:07.320 easily pull the dividend yield on those for it's going 0:05:07.400 --> 0:05:08.680 as far back as you want. In this case, I 0:05:08.680 --> 0:05:11.000 went all of that to and you can see this 0:05:11.080 --> 0:05:14.720 this nice trend, this compression over time or rather convergence 0:05:14.760 --> 0:05:16.880 I would say, over time between the yields and these 0:05:16.880 --> 0:05:19.520 two sectors. And then this crossover point which happens sort 0:05:19.520 --> 0:05:22.360 of midsummer, ends up being quite a big deal. Can 0:05:22.400 --> 0:05:25.560 you go back and describe why this change started to happen? Well, 0:05:25.560 --> 0:05:28.120 the change started to happen because what my co author 0:05:28.160 --> 0:05:30.320 and the indenting said is roughly that the oil price 0:05:30.440 --> 0:05:33.800 option in equities is pretty much gone, so companies are 0:05:33.800 --> 0:05:38.359 really no longer pricing their their future vision with a 0:05:38.440 --> 0:05:40.400 huge amount of upside in the oil price. That's not 0:05:40.440 --> 0:05:42.800 to say that it might not happen, right, you might 0:05:42.880 --> 0:05:45.719 get spikes in oil that go to who knows what 0:05:46.000 --> 0:05:48.279 a hundred and fifty three hundred dollars a barrel or 0:05:48.279 --> 0:05:51.279 something like that, but it's not viewed as structural. The 0:05:51.279 --> 0:05:54.720 way that the oil market activity of the early two 0:05:54.760 --> 0:05:58.839 thousands was wherein you had primary energy demand and fuels 0:05:58.839 --> 0:06:02.760 demand in excessive economic growth. So you gave people a 0:06:02.839 --> 0:06:05.240 reason to invest in a growth story. And if that 0:06:05.440 --> 0:06:07.560 is sort of coming off the boil and you were 0:06:07.640 --> 0:06:11.200 expecting nowhere growth, then you're now competing with the whole 0:06:11.200 --> 0:06:14.440 host of other low growth industries like let's say real 0:06:14.560 --> 0:06:18.120 estate or utilities and things that traditionally return a lot 0:06:18.160 --> 0:06:21.520 of benefit to investors in the form of cash. And 0:06:21.600 --> 0:06:24.960 so now you're having to compete with that message to 0:06:25.040 --> 0:06:27.960 the market in a very straightforward way with money by 0:06:28.040 --> 0:06:30.520 just paying people in the form of the dividend. I 0:06:30.600 --> 0:06:33.080 thought it was really interesting that you called the utilities 0:06:33.160 --> 0:06:36.080 of the past, or our interaction as consumers with the 0:06:36.160 --> 0:06:39.800 utilities and mindless transaction. What has changed with the utilities 0:06:40.000 --> 0:06:42.680 now are going forward to make them a bit more exciting. Well, 0:06:42.720 --> 0:06:45.960 I'm not certain that they're necessarily that much more exciting, 0:06:46.040 --> 0:06:48.240 although in a relative sense, they're more exciting. Right. This 0:06:48.320 --> 0:06:51.040 is like from a financial markets perspective, they're being priced 0:06:51.480 --> 0:06:54.080 more excited. And I should clarify, a mindless transaction is 0:06:54.080 --> 0:06:56.040 that you don't really think about your monthly electricity bill. 0:06:56.080 --> 0:06:57.640 We did it. We did an episode a little while 0:06:57.680 --> 0:07:01.279 back about the changing business models and utilities, but for 0:07:01.320 --> 0:07:03.040 the most part, we don't tend to think about our 0:07:03.040 --> 0:07:05.320 monthly electricity bill. And that's why we said mindless transaction. 0:07:05.360 --> 0:07:07.520 That's right. Well, listen, we are all sitting here in 0:07:07.560 --> 0:07:12.240 this lovely climate controlled studio, the beneficiaries of trillions of 0:07:12.280 --> 0:07:16.360 dollars and more than a century worth of investment in property, 0:07:16.400 --> 0:07:22.040 plant equipment, uh, synchronization, optimization, all of that sort of 0:07:22.080 --> 0:07:24.720 stuff to make sure that these things work without us 0:07:24.720 --> 0:07:28.520 really knowing about it. We're not hand cranking a dynamo 0:07:29.160 --> 0:07:32.480 to have flickering lights and recording under wax disks here 0:07:32.480 --> 0:07:35.240 in the studio. You know, We're actually, we're actually the 0:07:35.280 --> 0:07:39.320 beneficiary of something that has embedded itself into every other 0:07:39.400 --> 0:07:42.560 sort of process and subprocess that we have in modern day, 0:07:42.640 --> 0:07:45.600 which I would say was very apparent um just earlier 0:07:45.680 --> 0:07:49.360 this month when my family out in California had their 0:07:49.400 --> 0:07:52.600 electricity shut off, and we could say that that's exciting 0:07:52.800 --> 0:07:55.240 in a way and not dull, but all jokes aside. 0:07:55.600 --> 0:07:57.840 It's a It's a sign of a couple of things. 0:07:57.840 --> 0:08:02.640 One inherent physical brittleness in the power infrastructure and architecture 0:08:02.680 --> 0:08:06.600 of northern California. In particular the WUI, the wild land 0:08:06.760 --> 0:08:09.400 urban interface where so many of these homes are being 0:08:09.400 --> 0:08:12.920 shut off for wildfire risk, but also the sense that 0:08:13.000 --> 0:08:15.200 there is a great deal of things that need to 0:08:15.320 --> 0:08:20.040 change and can change within the utility, the utility business 0:08:20.120 --> 0:08:23.440 and its physical stuff. If you want to invest to 0:08:23.880 --> 0:08:28.480 harden PGENS infrastructure in order to not have these fire 0:08:28.480 --> 0:08:31.440 shut offs, it's on the order of I don't even 0:08:31.440 --> 0:08:34.280 know the exact numbers, but at the minimum, tens of 0:08:34.320 --> 0:08:36.880 billions of dollars, if not hundreds of billions of dollars 0:08:36.960 --> 0:08:38.959 worth of investment, which is all capital that needs to 0:08:39.000 --> 0:08:42.320 be deployed, which is probably capital that you cannot be 0:08:42.360 --> 0:08:44.800 paying out to shareholders as you used to know. Is 0:08:44.880 --> 0:08:47.040 that the reason for the growth story, you know, to 0:08:47.040 --> 0:08:49.240 to maintain status quo or get back up to the 0:08:49.240 --> 0:08:52.160 status quote or is it a you know, exciting, bold 0:08:52.160 --> 0:08:56.040 new frontier. It's a transformation narrative for sure. And and actually, 0:08:56.120 --> 0:08:59.479 as you can see from whale and gas interest and utilities, 0:08:59.559 --> 0:09:03.040 there's a sense of competition with you know, at the 0:09:03.080 --> 0:09:06.720 margins within these two very established businesses. Let's think about 0:09:06.720 --> 0:09:08.839 it as as you change the way that you energize 0:09:08.840 --> 0:09:12.360 the vehicle fleet, So you're no longer pumping distalates, you know, 0:09:12.440 --> 0:09:16.439 through a network of physical pipes, and your essentially substitutingal 0:09:16.480 --> 0:09:20.360 nectron sent through wires. It's unclear who exactly is going 0:09:20.400 --> 0:09:22.760 to own that end point, but one of the other 0:09:22.800 --> 0:09:25.200 company can't. We see plenty of oil and gas companies 0:09:25.240 --> 0:09:29.240 buying charging networks, for instance. Um, you could also argue 0:09:29.240 --> 0:09:31.679 that they're buying charging networks and tagging into the end 0:09:31.679 --> 0:09:34.200 of trillions of dollars worth of power infrastructure already owned 0:09:34.200 --> 0:09:38.080 by big companies who could probably do it on their own. So, uh, 0:09:38.120 --> 0:09:41.560 there's there's more. There's more excitement in this part of 0:09:41.559 --> 0:09:44.080 the margins than there would have been ten years ago. 0:09:44.440 --> 0:09:47.360 What should we be watching for in this particular dynamic, 0:09:47.480 --> 0:09:51.240 Just well, watch watch my my simple squiggling line chart 0:09:51.320 --> 0:09:55.040 and see see how this goes over time. Watch as well, 0:09:55.160 --> 0:09:58.120 the waiting in the s the SMP five hundred that 0:09:58.200 --> 0:10:01.920 energy companies get in the early nineties. This is going 0:10:01.960 --> 0:10:05.360 way back now, but in the early nineties the energy 0:10:05.400 --> 0:10:10.119 sector had a higher weighting in the SMP than technology stocks. 0:10:10.240 --> 0:10:12.959 It now has barely any more than utilities. I think 0:10:12.960 --> 0:10:15.960 it has less than pharmaceuticals. And healthcare, which is really 0:10:16.000 --> 0:10:19.080 an extraordinary, extraordinary tangle about the transformation of the U. 0:10:19.160 --> 0:10:21.839 S economy. But it's also just a sign that these 0:10:21.920 --> 0:10:25.160 these are not, you know, the double digit percentages of 0:10:25.240 --> 0:10:28.400 the proxy for the global or the United States economy 0:10:28.400 --> 0:10:30.880 and the market that they used to be so pivoting 0:10:30.880 --> 0:10:33.040 a bit the energy story that we're talking about, his 0:10:33.120 --> 0:10:35.360 energy story that those of us who listen to a 0:10:35.360 --> 0:10:39.280 podcast right now probably experience. There's another article that you 0:10:39.360 --> 0:10:42.720 also wrote for Bloomberg Opinion that's called big Energy Companies 0:10:42.760 --> 0:10:45.400 see Cole's Last Stand. And one of the things you 0:10:45.400 --> 0:10:48.840 really point out in this particular piece is that they're 0:10:49.040 --> 0:10:53.400 that Cole's story is one actually of countries that are 0:10:53.480 --> 0:10:57.320 developing energy infrastructure in places where maybe there wasn't as 0:10:57.400 --> 0:11:00.560 much or there wasn't these predictable all the lights are on, 0:11:00.679 --> 0:11:03.280 all the electricities available. Can you delve into that a 0:11:03.320 --> 0:11:06.360 little bit? Sure? So that if you watch the long 0:11:06.440 --> 0:11:08.840 term narratives that go through that go through sectors, it's 0:11:08.840 --> 0:11:11.000 always interesting to watch how they change. Right So, from 0:11:11.040 --> 0:11:13.120 the early days of the analyzes that Mark and I 0:11:13.160 --> 0:11:15.400 were doing, you can look at the coal sector and 0:11:15.480 --> 0:11:19.240 its argument is what we're the cheapest right, like like 0:11:19.880 --> 0:11:21.800 you don't, We don't need to have any debate about 0:11:21.800 --> 0:11:26.040 any other merit. We are the least cost provider of 0:11:26.600 --> 0:11:29.560 the synchronized electron on the grid. There you go, As 0:11:29.600 --> 0:11:34.600 you have competition from other resources, you see another sort 0:11:34.600 --> 0:11:36.800 of layer that adds on that narrative. You can probably 0:11:36.840 --> 0:11:38.760 still make that argument and many plates. But then the 0:11:38.800 --> 0:11:41.760 next one is, well, we're reliable. Right, Um, we may 0:11:41.760 --> 0:11:44.960 be domestic in some cases. Right, this is the molecules 0:11:44.960 --> 0:11:47.200 of freedom argument. More on us in the United States. 0:11:47.280 --> 0:11:51.440 We we we are, we are reliable, we're domestic, we're 0:11:51.440 --> 0:11:55.480 predictable in terms of supply, we're not intermittent. And look 0:11:55.520 --> 0:12:00.160 as technology to uh synchronize to the grid every they're 0:12:00.200 --> 0:12:03.040 kind of renewable and intermittent energy you might have becomes 0:12:03.040 --> 0:12:05.240 better and better, and those are simply so cheap that 0:12:05.320 --> 0:12:08.679 even the integration costs are not really a problem. Then 0:12:08.720 --> 0:12:11.199 the argument has to continue to shift in some way, 0:12:11.280 --> 0:12:14.160 and the argument has shifted out of a domestic argument 0:12:14.280 --> 0:12:16.439 in the higher cost markets in Europe and in the 0:12:16.559 --> 0:12:21.319 United States too. Well, you know, China still builds a 0:12:21.360 --> 0:12:23.720 coal plant every week. This is not only not true, 0:12:23.760 --> 0:12:26.800 it hasn't been true for quite some time. Then the 0:12:26.920 --> 0:12:29.280 argument becomes, well, you know in India, f India is 0:12:29.280 --> 0:12:31.360 going to will actrify in the same way that China did, 0:12:31.400 --> 0:12:34.360 then it's going to turn out that same way. Fair Enough, 0:12:34.480 --> 0:12:37.079 China has like China, it's like four times the amount 0:12:37.080 --> 0:12:40.200 of energy capacity that that that India does per capita. 0:12:41.040 --> 0:12:43.120 Is it going to grow to the point and you're 0:12:43.120 --> 0:12:45.000 going to grow to the point where it becomes just 0:12:45.080 --> 0:12:48.720 as much an energy economy in terms of power generation 0:12:48.720 --> 0:12:51.880 capacity per capita as what you would have in China. 0:12:53.080 --> 0:12:56.760 Potentially potentially not. But at the same time it's also 0:12:56.760 --> 0:13:00.320 the beneficiary India is in this case of into acting 0:13:00.360 --> 0:13:03.959 with all of these technologies as they're really really mature, 0:13:04.160 --> 0:13:06.800 right so finding wind and somewhere as the cheapest cost 0:13:06.800 --> 0:13:10.360 of new build electricity and markets like this. So the 0:13:10.480 --> 0:13:14.240 shifting rationalizations and justifications are a sign of a market 0:13:14.240 --> 0:13:17.200 that is very, very mature and that is being intersected 0:13:17.200 --> 0:13:20.479 in multiple ways and in multiple places by new technologies. 0:13:21.080 --> 0:13:22.760 One of the things you also bring up are the 0:13:22.800 --> 0:13:26.760 different scope one two in this case three emissions of 0:13:26.800 --> 0:13:30.120 the steel industry and various industries. And I think I 0:13:30.160 --> 0:13:33.720 have a sub question here, which is not just about 0:13:33.840 --> 0:13:37.080 the utility industry, but just generally how deeply anybody's going 0:13:37.160 --> 0:13:40.280 to look at Scope three because it's so difficult for 0:13:40.400 --> 0:13:44.360 companies to actually calculate out should we do it, should 0:13:44.400 --> 0:13:47.160 we do a family roundtable? And what Scope three emissions 0:13:47.200 --> 0:13:51.199 actually are? Absolutely, go for it, Mark, I'm not I'm 0:13:51.200 --> 0:13:55.160 not your guy. Scope three emissions. Scope three missions for 0:13:55.160 --> 0:13:57.360 for those of you out there in radio land, are 0:13:57.640 --> 0:14:01.280 emissions from the value chain of your customers. If you're 0:14:01.280 --> 0:14:03.600 a company, right, So there are the emissions in the 0:14:03.640 --> 0:14:07.480 case of take, for instance, BHP the mining group, the 0:14:07.520 --> 0:14:12.400 emissions that people make from using your product, so that 0:14:12.559 --> 0:14:15.640 it's it's possible to have very very low Scope one 0:14:15.679 --> 0:14:17.800 emissions and two emissions which are related to your own 0:14:17.960 --> 0:14:21.760 use basically, but have extremely high Scope three emissions because 0:14:21.920 --> 0:14:24.520 you're selling coal into a market that uses it to 0:14:24.560 --> 0:14:27.080 make steel or to make power. And in the case 0:14:27.200 --> 0:14:31.040 in particular of coal's use and steel, uh, the reason 0:14:31.120 --> 0:14:33.480 that it's used as is that it's hard to substitute for, 0:14:33.840 --> 0:14:37.840 it's cheap, it's reliable, and there are, as Mark can 0:14:37.840 --> 0:14:41.840 tell you, like physical chemical reasons why you need to 0:14:41.920 --> 0:14:44.160 use it in a lot of processes. What's interesting to 0:14:44.200 --> 0:14:46.520 see is we begin to see some of these big, 0:14:47.240 --> 0:14:53.480 publicly englisted, internationally diversified mining metals and mining companies starting 0:14:53.480 --> 0:14:56.640 to address this issue, mostly from a research and development perspective, 0:14:57.240 --> 0:14:59.960 but as a way to I think, start working around 0:15:00.000 --> 0:15:02.760 own the inherent issues that might come from their very 0:15:02.880 --> 0:15:05.280 very large scope three emissions. And if you think about 0:15:05.280 --> 0:15:08.040 it in the case of steel, there's there's really two 0:15:08.080 --> 0:15:12.720 ways to do that. One is substitution at the combustion level, 0:15:12.800 --> 0:15:15.480 right like that the process level to make steal the 0:15:15.520 --> 0:15:19.040 way you traditionally do, and that is a hydrogen argument 0:15:19.120 --> 0:15:21.480 for the large part. But then there's another argument that 0:15:21.560 --> 0:15:23.440 might call ether for this piece David Fickling looked at 0:15:23.480 --> 0:15:26.760 pretty closely, which is the same thing that really gutted 0:15:26.880 --> 0:15:29.440 the primary steel industry in the United States, which was 0:15:30.360 --> 0:15:35.120 electric arc furnace recycling is probably going to take hold 0:15:35.320 --> 0:15:38.680 in China, in particular, given the fact that China has 0:15:38.680 --> 0:15:41.280 been deploying half the world steel for about ten years now. 0:15:42.000 --> 0:15:46.400 So you you have substitution and you have essentially non 0:15:46.480 --> 0:15:49.600 consumption as you're as you're competing. Thing that might start 0:15:49.640 --> 0:15:53.360 changing that scope three emissions landscapes in theory and theory, 0:15:53.400 --> 0:15:58.160 one could make steel that has zero emissions for most 0:15:58.160 --> 0:16:01.840 of the process if you use an entirely renewable electric 0:16:01.920 --> 0:16:05.840 arc furnace in the process of making recycls deal scope 0:16:05.840 --> 0:16:09.200 three emissions, as I previously stated, are difficult to calculate, 0:16:09.200 --> 0:16:12.680 and I think that companies in the energy industry, if 0:16:12.720 --> 0:16:15.440 they started to integrate this in this may have an 0:16:15.480 --> 0:16:19.640 impact on their attractiveness from an E s G standpoint. 0:16:20.480 --> 0:16:22.640 Tying it back to the first article that we were 0:16:22.640 --> 0:16:25.560 actually talking about earlier, how do you see this potentially 0:16:25.640 --> 0:16:29.920 having an interplay with these balance and dividends and stock 0:16:29.920 --> 0:16:34.080 price and just attractiveness of these companies overall. So as 0:16:34.160 --> 0:16:36.400 as a as a proper commentator, I don't get to 0:16:36.440 --> 0:16:39.080 talk at all about whether or not this makes companies 0:16:39.120 --> 0:16:42.040 better investments or not. But what it can definitely do 0:16:42.640 --> 0:16:45.440 is that a labor of distinction, right, So I think 0:16:45.480 --> 0:16:50.040 you could you the institutional investor will ask yourself in 0:16:50.080 --> 0:16:55.160 the process of doing analysis whether this whether and focus 0:16:55.280 --> 0:16:58.600 on E s G. Environmental, social, and governance is a 0:16:58.640 --> 0:17:00.640 matter of alpha. So it's a way of making an 0:17:00.640 --> 0:17:03.760 outsized return compared to peer groups. If it's a matter 0:17:03.760 --> 0:17:06.720 of beta, if it's a matter of producing risk and 0:17:06.800 --> 0:17:09.600 sort of uncorrelating your risks from your peer group, or 0:17:09.640 --> 0:17:13.760 whether it's just something that is essentially preparing you better 0:17:13.800 --> 0:17:15.919 for the future. Let's put it in another way. If 0:17:15.960 --> 0:17:18.960 you had I don't know, a thirty five percent growth 0:17:19.080 --> 0:17:22.520 rate as an industry, and you had increasing gross margins 0:17:23.200 --> 0:17:26.680 and you had decreasing unit costs, you can probably get 0:17:26.680 --> 0:17:29.240 away with saying we are just the growth story. You 0:17:29.280 --> 0:17:31.719 don't really need to think about e s g. As 0:17:31.760 --> 0:17:35.880 a major lens on the performance or the future prospects 0:17:35.880 --> 0:17:39.639 of the company. If, however, you have less of a 0:17:39.680 --> 0:17:44.080 growth story, and you're in a mature industry with well 0:17:44.240 --> 0:17:47.040 analyzed peer groups, so without a lot of sort of 0:17:47.080 --> 0:17:52.320 disruptive innovation frontier around you, then it's probably sensible to 0:17:52.400 --> 0:17:57.000 start start applying lens is like this to that sector, 0:17:57.640 --> 0:18:00.479 because there they are ways of making distinctions, right they 0:18:00.520 --> 0:18:03.000 could they could lead to better returns, that's a matter 0:18:03.040 --> 0:18:06.480 of deep financial analysis. They could be reducing risk or 0:18:06.560 --> 0:18:08.680 un correlating it from the rest of the sector. So 0:18:09.560 --> 0:18:11.520 I think I think we'll start to see that more 0:18:11.520 --> 0:18:14.760 and more applied the very mature industries, not just because 0:18:15.800 --> 0:18:19.159 they might have the very technical exposures around emissions and 0:18:19.240 --> 0:18:22.320 things like that, but simply because it's another way of 0:18:22.359 --> 0:18:26.520 analyzing things that are otherwise quite well analyzed. Okay, so 0:18:26.600 --> 0:18:28.960 let's go back to the emerging markets team for a minute. So, 0:18:29.000 --> 0:18:31.280 if you'll indulge me, I heard this thing yesterday that 0:18:31.560 --> 0:18:35.560 Southeast Asia, who has historically built been the ones promoting 0:18:35.600 --> 0:18:39.400 coal these days. Right, they've stopped and they've completely shifted 0:18:39.440 --> 0:18:42.080 their focus to hydro Right, which carries its own set 0:18:42.080 --> 0:18:44.000 of problems. But at least it's not they're saying, at 0:18:44.080 --> 0:18:46.880 least it's not coal. Right, So it was the kind 0:18:46.920 --> 0:18:51.600 of last stronghold of coal new build um, but it's 0:18:51.600 --> 0:18:54.520 gone for the most part. Well, there's there's a there's 0:18:54.520 --> 0:18:57.000 an element in all of these things that doesn't really 0:18:57.040 --> 0:18:59.800 make its way into a lot of macro modeling, which 0:18:59.840 --> 0:19:04.720 is what do people want? So people, people, people. If 0:19:04.720 --> 0:19:07.800 we think about energy from a very classical perspective is 0:19:07.960 --> 0:19:10.840 energy is just the ability to do work. So I 0:19:10.840 --> 0:19:13.480 don't go out and buy a quantum of fuel or 0:19:13.560 --> 0:19:16.880 a you know a certain number of electrons. I actually 0:19:17.400 --> 0:19:20.520 I actually hire them to do a job, which is 0:19:20.760 --> 0:19:25.120 run the lights. Uh, you know, energized rotating machinery, help 0:19:25.160 --> 0:19:28.679 me move, help me heat, whatever it might be. And 0:19:29.320 --> 0:19:32.280 again you can make the argument when the spread in 0:19:32.320 --> 0:19:38.280 economics between something renewable or zero carbon and something high 0:19:38.320 --> 0:19:41.400 carbon but very very reliable. When that spread is very 0:19:41.480 --> 0:19:44.760 very wide, you can make the argument that mitigates in 0:19:44.840 --> 0:19:48.000 favor of let's just do more cold because it's cheap, reliable, 0:19:48.080 --> 0:19:52.119 domestic whatever. When the economics of those can press forward 0:19:52.680 --> 0:19:55.760 quite a bit such that there's either very little or 0:19:55.840 --> 0:19:59.280 no difference in the levelized cost of energy from one 0:19:59.400 --> 0:20:01.919 versus the There, I think you sort of start to 0:20:01.960 --> 0:20:05.080 look into sort of secondary characteristics that are imputed to 0:20:05.119 --> 0:20:08.840 each of these different sources. So people say I want 0:20:08.920 --> 0:20:11.760 something clean because now I know that there's no difference 0:20:11.800 --> 0:20:17.200 economically between them. Uh. But in another way, people have preferences, 0:20:17.680 --> 0:20:21.160 and as incomes rise, as people are past the point 0:20:21.200 --> 0:20:23.880 of sort of abject poverty and more into the sort 0:20:23.920 --> 0:20:28.640 of approaching middle income country status, people don't want air pollution. 0:20:29.640 --> 0:20:33.000 People have a sensitivity around baking in thirty years worth 0:20:33.040 --> 0:20:36.160 of worth of emissions, and it actually is much more 0:20:36.280 --> 0:20:40.480 localized than it is than it is sort of generalized 0:20:40.520 --> 0:20:44.080 and climactic you can think of it is it's more 0:20:44.080 --> 0:20:47.480 of a local environmental issue than a global climate issue 0:20:47.560 --> 0:20:51.720 that you see people manifesting all of this objection around, 0:20:52.080 --> 0:20:55.800 so people saying, look, okay, they may not actually care 0:20:56.480 --> 0:21:01.600 in the least about the global war, the carbon emissions 0:21:01.680 --> 0:21:04.800 aspect of having a coal plant in one's back yard. 0:21:05.280 --> 0:21:08.240 What people do care about is local air quality. Look, 0:21:08.320 --> 0:21:09.840 you can walk on the street here in London and 0:21:09.880 --> 0:21:11.600 see that we're soon to be and what is it, 0:21:11.720 --> 0:21:16.000 the no emission zone. We already are. We are in 0:21:16.080 --> 0:21:19.440 the ultra low emission zone we're recording today and where 0:21:19.480 --> 0:21:23.000