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YouTube on Stock on the move is definitely Intel up over three percent. It had a big gap hire here on the end of close on Friday on the rumors that maybe Qualcom was looking at a possible deal for Intel. Then this morning we learn that Apollo was offered to have made a multi billion dollar investment in the company as well. Want to get more on this with Leanna Baker, Bloomberg News Managing director of the Deal team. She joins us here in studio. Leana, talk us through the Apollo part.
What does that look like in your reporting? Sure, so this is a potential investment. Apollo has made this offer to Intel. It's unclear if Intel is going to take them up on this offer. Although Apollo is already a partner to Intel. They have a joint venture with them for their Irish plant, which was a really big project. So yeah, we're waiting to see how Intel decides to proceed. You mentioned there is an approach that came from Qualcomm.
Late last week, so Intel has a lot to think about. Its board is meeting to decide which way to go. This Apollo investment could be an alternative potentially to the Qualcom merger, or it could be something that happens before any deal with Qualcomm would take a long time, according to analysts, just due to all the regulatory bodies around the world that would have to bless this deal.
Now, was this expected and you're reporting were there any whispers about this prior to this?
So we've been chasing for a long time what Intel is going to do. Since they are disastrous earnings report over the summer, they've kind of put themselves in play. At Bloomberg, we were the first to report that the company was thinking about M and A options, about a potential split, and then you might remember that late last week, you know, paq Elsinger put out a statement kind of laying out what would happen. We are watching to see what happens with the foundry business.
Intel.
Foundriies is something that Intel has spent a lot of money on over the years, and it's not making money. It doesn't have that many customers, and that is sort of sinking the company right now. Even though it's kind of the long term future play that the management is laid out for Intel, what is.
In it for Apollo? Like, I know you said they have a doinventor, but like, why so?
Apollo is a turnaround specialist. They love complicated situations, putting money to work where maybe other pockets of Wall Street doesn't go. This is a perfect example. They've already invested in Intel. Intel clearly needs some confidence capital. They need someone on Wall Street to say I believe in the future of this company under pau Elsinger. This is why,
because you know, the stock slow. It has been really remarkable to even be at the point where it could be considered a takeover target for Qualcom, one of their competitors.
So where does Wall Street think that they should go Qualcomm or Apollo?
We don't know at this point, and there could also be other suitors or analysts are saying. We report it over the weekend that Broadcom, which some people speculate it could be interested that they're currently not evaluating an offer for Intel. So right now Broadcom's on the sidelines. Could that still change? We'll keep an eye on it, but Intel has a lot of options to consider. It's going to be an interesting few weeks to see where things go.
Hey, can I answer a quick question, how does this impact the Chips Act? The investment from the Biden administration? Does that change at all in any of these scenarios.
It's all related because the US government has a long term ban on Intel as a manufacturer that's in the US of chips, which are so critical. So the US government is watching this all really closely. They want Intel to survive, whether that's with Qualcomm, whether that with a capital in fusion from Apollo. So they want to be part of the solution. Since Intel it stands to gain a lot of cash from the government.
They want them to combine. So they would tell Justice and the other regulators hands off this one.
Huh. That would be interesting, wouldn't it right?
And it sounds like a conspiracy theory, But you have to understand that any deal that Intel does would need the blessing from the government. So sure, could the US government tap qual come on the shoulder and say, hey, you know, do a solid for us and make an offer. I have no idea, but there's all these different theories that people are saying, and it's not that crazy to think people in DC might know more about this deal than we know right here.
Right what's the most interesting thing that you found while you're reporting.
I just love semiconductors. It's always interesting. And just to see an American icon like Intel face with these prospects and we're talking this could be the largest tech deal of all time if Intel is somehow sold. So it's just amazing to be following this situation because I've been reporting on on semis for you know, over a decade, and you just you never know how this is going to go.
Well, also, just how fast this all deteriorated, Like I've read so many stories of sort of the decline and Intel and how fast it came on. And then we're talking about this moment where like Qualcom might need to step in, Apollo might need to step in, the government might need to step in in a particular fashion that to me is really striking.
Is it also striking to you how quickly Nvidia kind of caught everyone's imagination. And so it's a semiconductors, it's you know, it's cyclical, it depends on trends and AI so it's so fast moving and it's just been a spectacular industry to follow.
Yeah, all right, Lenna, thanks a lot, great reporting. Really appreciate Itly on a Baker Bloomberg News and managing editor for the Deal Team and joining us on that.
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We get a bunch of CEO interviews the next two hours, and I say a bunch because it's nice to get perspective kind of on the ground on where the growth is, where the worry spots are, how hiring is, what inflation looks like. So let's kick it off now with Signet Jewelers. So they had earnings on the twelfth, and they did really well. They reported adjusted earnings and comparable sales for the second quarter of the top analyst expectations. The stocks
and sent is up over eleven percent. Management set in the earning statement that comp sales are positive so far in the third quarter, some of the analysts are also saying, look, this was a better than feared quarter, especially when you look at the reiterated annual guidance. So we wanted to get an update from the CEO. Jenna Gudrosos is CEO
of Signet, joining us now from Seattle. Jenna walk us through sort of the highlights, like what you think that it really impressed investors, and then we can go from there.
Sure, well, good morning, great to be with you. Our team delivered a sequential improvement in same store sales. It was the fifth quarter in a row that we've seen a sequential improvement. As you said, comp sales have been positive in Q three to date. That's encouraging because in the jewelry category and especially engagements, COVID is actually just ending.
So while for a lot of businesses COVID was in twenty twenty, people tend to get engaged about three years after they meet, and people weren't meeting during lockdown in twenty twenty, so we saw a twenty five percent drop in the average number of people getting engaged in twenty twenty three, and that's been slowly coming back in twenty twenty four, but we saw that turn positive as we've entered the third quarter, so that was encouraging.
I wanted to know. Of course, a lot of consumer companies have talked about house shoppers are watching their spending carefully, they're being very nitpicky. Is that something that you all have noticed at all? What is it look like for your business?
Yes? I think we've seen a cautious customer for most of this calendar year. An example of that is that we see customers coming to our websites fifteen percent more often before they make a purchase than we did a year ago. So people are being careful in an environment like this, but when it comes to getting engaged, they might delay a little bit just make sure they're getting the right value, which given our scale, we feel like
we can very often offer. But they're still deciding to get engaged, and we expect that to pick up as we go through peak engagement season, which is during the holidays.
Hey, it's John Tucker. Can I ask a quick question. I can see the price of Goal, by the way, was a record. How do you track diamonds because that's essentially a cartel that controls the supply and I guess the pricing there right? How does that work.
No, Diamonds trade just like gold does. There commodity. Many many years ago, it was more of a monopoly situation, but that hasn't been true for a couple of decades. Now there are multiple miners that mind diamonds around the world. Signet is one of only five retailers in the world that are vertically integrated and actually buy diamonds directly from
the miners. We own our own cutting and polishing facility in Botswana, so we have a really good I would say, a vertically integrated I into what diamonds should cost, what metal should cost, how much it should cost to cut and polish of stone, and that's how we're able to bring great value to our customers.
Now, how do you control the sourcing or nowhere where it comes from.
So that's really one of the places where Signet has shined and been a leader in the industry. Responsible sourcing is very important to our customers and to our company and I you know, and to my twenty something children, I should add, So we are pristine, we can guarantee to all of our customers. We have what's called the Signet Promise that we are confident that all of the metals and all of the gemstones, including diamonds that we source our conflict free and produced in a way that
they would feel good about. So we trace that back to the origin of where the diamonds are, where the metals come from, so we can be confident.
There's also the lab grown diamond phenomenon. And when I was doing you know, packages on diamonds fifteen years ago, that was like really taboo. Now I hear of younger people and this is what they do. They want to save a little money, but they still wanted to look pretty. What kind of market do you know is evolving here and kind of what the pricing is and what the demand is.
Yeah, so lab created diamonds have been broadly available in jewelry since twenty nineteen, so about five years now. Of course, they've been available for a long time in drill bits and you know things like that that needed a hard substance to be part of it, but in jewelry about
five years. Every year since they've been in the market, the price has fallen about five about fifteen to thirty percent actually, so they haven't really maintained their value over time, and that's because they're made in a machine and you know, about three weeks, whereas a natural diamond is precious. It's you know, made in the earth over a billion years,
and so they're chemically the same but quite different. And what we've seen is that consumers, if they are on a tight budget and want to get a bigger stone, lab created can be a great choice for them in an engagement ring. But it's particularly a great choice in fashion jewelry, where maybe it's not quite as sentimental a piece. That's where we really see lab Created as having a bigger potential on over the long term.
So just a tootle tootle, tell John Tucker. So a fashion jewelry is like, here's my super cool ring that I'm doing with my evening gown.
Everyone look at it. It's it's really big.
Maybe it has a good shape. That's kind of interesting. But I didn't have to break my bang for it.
Now, Is there some Is there some planned by you guys to like trying to get people to get married.
No, not.
That, which is a plan. When you pipe in romantic music to you, it's got to be right.
No, No, we don't. We don't plan. But I will say that we have a lot of consumer insight around that. Several years ago, we started tracking the milestones that couples typically go through between when they meet and when they get engaged. So, for example, they typically go to a movie or a concert before they say I love you, or move in together, or meet the parents or things like that. And so we with our partners at Google and Meta, have identified forty five trackable signs or milestones
that couple couples typically go through. Once they've crossed over twenty six, they are statistically significantly more likely to get engaged in the next twelve months.
One of the things I'm learning a lot, i'd be speaking right to north right as I'm thinking about the future.
It's super interesting. And that's one of the things we said in our second quarter call is that there's a nine hundred basis point increase or twenty percent more couples that crossed over that milestone in the second quarter this year versus the second quarter last year. So we really are seeing this ramp back up to a normalized level of engagement.
All so happy on it ten o'clock on a Tuesday and a Monday. All right, thanks so much, didn't address us. We really appreciate CEO of Signetic.
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So natural gas prices are two dollars and fifty seven cents MMBT you. It's much better than we were before. We were under two dollars MMBT you. But still considering the amount of demand globally that we need, that price is a little bit low. So we wanted to check in with the largest independent natural gas producer right here in the United States. They have world class assets and appllation basin, and that is Toby Rice, CEO of natural
gas producer EQT. He joins us in studio. Hey Toby, good to see you.
Good morning.
So do you like prices at two fifty eight?
Well, we are unique in the sense that our company actually can generate free cash flow at a price as low as two dollars, but that is not the case for the other producers in the United States. Our view is that the marginal producer in the US requires about three dollars and fifty cents to justify activity levels and rigs up in the air.
So when you look at prices, say then under three or actually under two, where do you sort of like just say, we're gonna just going to drill them, not complete them, and hang tight and then when you kind of release it, and what does your inventory right now look like?
So right now, short term people are looking at curtailments, uh, and you have about two bcf a day of natural gas that's currently curtailed.
This is as simple as just.
Operators shutting in the chokes. That production could come back and you'll see that pressuring prices up until about three dollars range. But then after that there's some some short cycle activity that would come back requires about three fifty and again that's sort of the price that you'll see with activity levels. So these shorter price these shorter prices we're seeing right now are going to ultimately influence activity
levels that are set. Is part of the twenty twenty five budget planning which will influence supply in the future, and we think is going to be pretty constructive towards the second half of twenty twenty five, where more energy demand picks up at some of these activity reductions will start hitting the front lines.
Well, let's talk a little bit about AI. Natural gas is not, of course at top of mind as an artificial intelligence trade, but some people are saying that rising power demand for more natural gas demand. Are you drilling to meet that demand at all? How would you all boost production?
Well, natural gas, about a third of it is used for power generation, so it is a very important dynamic to study and look at. EQT has an asset called Mountain Valley Pipeline, which is a very contested pipeline. Fortunately that was put in service this summer. That's going to send about two Bcfi day of natural gas down to the Southeastern markets. And we just announced some deals, one of the largest physical supply deals with two very large utilities in that market to deliver up to one point
two Bcfi day of natural gas. Now, where is that natural gas going? Sure, it's going to help keep people's homes warm in the winter time, but a large portion of that is going to power gen and it's going to be replacing cold facility. Ye, that would be enough natural gas to power about eight gigawatts of power.
Now, one of the biggest problems in this whole scenario is how you move the stuff, and that's a pipeline issue, and that's an infrastructure issue. Are where are those conversations now in that we're going to have to have data centers built near where you guys pump natural gas or we're actually going to be able to get the pipelines in the ground to move it to where those data centers can be built.
Well, it always makes sense if you're an energy intensive business to build your facilities close to where the energy is, and that would put Appalachia as a really great place to be. But you know, just to step back at a very high level, what's happened in the United States over the last fifteen years, and it really understands the
natural gas markets. Since twenty ten, demand has grown fifty percent for natural gas, but during that period of time, natural gas infrastructure pipelines has only grown twenty five percent, and most importantly, natural gas storage infrastructure has only grown twelve percent. What does that mean? That means we haven't built enough pipelines to keep up with demand, and our
current pipeline system is maxed out. You're going to continue to see big disconnects between markets, like we're going to be selling our natural gas for four dollars in Appalachia, and people in Boston and New York are could be paying ten to twenty dollars to that natural gas. But the storage infrastructure is probably the most important dynamic. Simply put, natural gas storage is no longer sufficient to bounce supply and demand. And what that means is that price is
going to bounce supply and demand. And so we would describe the natural gas markets going forward as being very volatile, and we think pricing could be as low as two dollars you see now, and you see sort of a natural floor where operators will actually curtail production volumes. But we also think gas price could be significantly higher than that.
And the last structural piece of the puzzle has been the massive retirement of coal has traditionally been a replacement fuel when gas prices got high and coal gas to coal switching would occur when prices would run in that call it three to five dollar range. Well, with call gone, the lid on gas prices is significantly muted, and that means prices could run up closer to the eight to nine dollars range. Those are the prices you saw in twenty twenty two. And that is the price where industrial
demand will start shutting off. That's not a great place to be. The solution is get more infrastructure built in this country, both pipelines and storage infrastructure. And if you have the opportunity, build your manufacturing in Appalachia.
Interesting, I mean, we're right around the corner from the winter season. That's when I cry it's going to be called is the market oversupplied this winter?
Right now, we have about three hundred about three hundred bcf of extra gas in stores. It's about eight percent higher than.
Normal billion keep it feed, Yeah.
And for perspective, the US market is about one hundred bcf a day. That's what the current supply is today. But this can be corrected very quickly in a winter period where natural gas demand in this country goes of one hundred and twenty bcf a day. So right now storage isn't a is a little bit oversupplied, but that goes away with just a normal winter. And when you think about the fact that we don't have the necessary pipeline infrastructure to deliver natural gas in that just in
time scenario, it's going to put further pressure on prices. Hence, you know a lot of volatility towards the upside here.
We have don't had that that much time. But you have a Southwestern and Chesapeake maybe merging up here, where would you be looking to add M and A. Is it going to be pipelines or is it going to be producers?
So we just completed our transformation at EQT. Over the last five years, Alex, since taken over, we've been very purpose very purposely designing this business to be the energy company of the future for us. That means we wanted to create a business with a low cost structure in a commodity business that really is your only moat. We're really excited to say that EQT over the last five years has cut its costs by thirty percent. You now
are looking at a two dollars cost structure. We've increased our productive capacity by fifty percent over that period of time, and show me the money to our investors. We've increased our free cashule per share by two times, so we've doubled that over. So we're in a great place right now. And you know, we're just going to continue harvesting the success of the transaction we've done in the past, all.
Right, to be really good to catch up with you. It's been too long. Toby Rice, a CEO of EQT joining us. This is Bloomberg Intelligence. Happy Monday.
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One of the tough stories over the last couple of days has been that deal that energy Constellation Energy inked with Microsoft to help restart one of its nuclear power plans on three Mile Island, investment about one point six billion dollars. But Constellation Energy is not the only company doing stuff like this and talking to hyper scalers about how to provide energy for this massive demand for data
centers and GPU chips. And one of the companies involved is also as it does a lot of different things. It sells renewable power to corporate customers, It deals with LERG infrastructure, It has two fast growing utilities. It does a lot of stuff, yet the stock has not performed. Like Constellation Energy and like Vistra, which are sort of the power plays on AI. So luckily the CEO of AES is in the studio right now with us Andres Gleski dress.
Nice to see you, very nice to see you too.
So why hasn't your stock gotten the same kind of credit that Vista and Constellation Energy have.
Well, our stock recovered a little bit, let's say, in the last couple of weeks, yes, but I still think, yeah, it has long way to go. So we are the largest provider of actually renewable energy to hyperscalers in the world.
So we have already eight.
Gigawatts signed over history. So I think that you know, the nuclear has gotten a lot of attention. I do think nuclear is part of the solution. But we're really looking at a market that's short energy to really be able to implement the AI revolution and the amount of data centers that are needed.
I know, just last month, you're all we're saying that you see demand at Midwest utilities rising fifty percent on data centers. So of course that's really been the conversation about AI. What is your expectation for how much more power demand you'll need to produce to meet data center demand?
Well, the truth is right now, anything that you can get built on the renewable space in the right areas you can contract, so there's really a shortage in the case of the utilities. This is a very nice story because one of them is Dayton, Ohio. We call it as Ohio, and it was really a city that had suffered a lot, you know, with the the industrialization of the US. And what we're seeing is we contract did for about two gigawatts of new data centers coming into
that area. But you also have an EV plant and a battery plant coming in. So it's great to see this area reindustrializing and you know, growing again. So it's an area that you know, it's population is probably half of what it was in the seventies, so there's a lot of you know, there's water available, there's interconnection, there's everything else. So it's it's really it was a it's a great spot to locate data centers.
A couple don't.
Questions for you when we talk about renewable power to some of the data centers, for example, or the hyperscalers, what does that actually mean for AEES and what kind of partnerships you currently have and who are you talking to h that's three questions, right, now.
Yeah, well, let's see. Sometimes we're not able to say, you know how who exactly are the different partners. What I can say is that it's you know, pretty much all of the big ones.
Okay.
We do have the largest solar plus storage project in the country being built right now, and that's with Amazon Web Services AWS in California, and that's two gigawatts just that one facility. So we have a backlog of about twelve gigawatts that we have to build over the next maximum three years, all of it. And we're signing of
about five gigawats a year. So to put it in perspective, something like let's say putting the unit on three mile aland back online, that's probably about eight hundred and fifty megawatts, and we were talking about, you know, five gigawatts a year that we're signing. So there's you know there. I see nuclear as part of the solution, but it's not going to displace renewables, certainly not in the next decade.
And when we think about Microsoft striking that contract with Consolation Energy, do you feel like that positive sentiment has permeated through the market in terms of thinking about renewable energy utilities?
No, I think the market's still thinking of it a little bit like a zero sum game, and it's not understanding sort of energy markets because what nuclear can do is really provide dispatchable energy, which is twenty four to seven. Renewables are intermittent, you know, clouds passed, sun goes down when stops blowing. So you can compliment that with batteries, but you can certainly complement it with nuclear, and you
can complement it with gas. So rather than either or, it's both because per megawatt hour and actually the energy you produce, renewables are the cheapest, they just aren't twenty four to seven.
So then to that point, the reliability one argument is nuclear and SMR small modular reactors are quote unquote better because they have more reliability, or natural gas has more reliability than for wind or solar. And you're mentioned you're building this largest solar plus storage with AWS in California. How hard slash easy is the storage world right now?
For you?
Storage is a little bit like a hammer. It has lots and lots of uses. Okay, the prices of batteries are coming down a lot, So as the prices of batteries come down, there are more uses that you can find for it. What's interesting about batteries is it can do stuff that for example, a gas plant or even a nuclear plant can too. They can go positive and
they can go negative. So for example, we have found that when you have a hurricane, having batteries is great because as transmission lines fall down, they were able to suck up that energy and actually allow the fossil plants to gear down and not get damaged. So that's that's very important. If you compare it to a gas plant, they're online ninety nine percent of the time. A gas
plant will be online ten percent of the time. So I think when there's a lot of excitement like SMRs, the great use I see of SMRs is putting them into retired coal plants because basically a big coal plant is just like a kettle. You just change the flame the heat, so instead of burning coal, you would be heating up the water with a nuclear so you get to reuse the steam, turbine's interconnection, all those things.
The issue I have, you know with.
SMRs today is tell me what they cost no one knows yet, and tell me when they're going to be ready. So I believe in the concept I think they'll be you know, they could be a game changer, but we really have to see how much they cost, how many we can build before we're going to say that, they're going to say significantly displaced renewals.
Transport us to one of your boardroom meetings. What types of conversations are you all having right now, especially as we think about power demand.
Well, I think I'm very lucky you have a great board. We do a lot of scenario planning, and we've been doing that for twenty five years, so we do scenario planning for regulatory changes, for demand changes. So I think, you know, basically they're quite pleased because about six years ago we really said, look, if you look at people's decarbonization goals, there's going to be a shortage of zero carbon energy. So we built up a pipeline, we bought
rights to land, we did interconnection. So you know, we feel a little bit on the right side of history on these things. So I'd say generally the conversation is very good. So honestly, nuclear is not a main theme, for example, of my board of.
Directors talking about sort of the different projects. What's the hardest part about building stuff right now? Is it labor and materials, is it getting the PPAs or the off take agreement. So basically your customer has to sign up and say, okay, I'll pay you this much to get this amount of solar from you. So that gives you clarity on then what you have on your books. What's the hardest part.
The hardest part is getting permittal end.
So none of the things I said, okay, none of the things.
No, you know, the PPA would be simple. And look, we haven't postponed, not even forget abandon, not even postponed a significant project even during COVID, So I think, you know, we have a very robust supply chain and we will certainly move up everything that's in the US to domestic
production by twenty six so that is not worrying me. Labor, we've also not had a problem because we've tended to work with a strategic contray actors in the sense that we don't give them one project, We'll give them a series of projects so they can move the crew from one spot to another.
I see.
And that's interesting when you think, do you think permitting is going to get fixed no matter who's in the White House? How do you fix it?
Look, they say, all politics is local, all permitting is local. So you know, while they've made I say progress, let's say in the way they do interconnections in the states of batching it, of new ways of thinking about it. I do think that's going to be probably the biggest bottling. I think we have to, you know, move renewables to some extent outside of certain areas where there's more resistance.
So there's definitely going to be a move to putting renewables where you know, the permitting is easier.
But that's the most difficult.
Can I answer you what kind of shape the grid is in? From your perspective?
How much time do you have?
Look, I think it's a great question, and I'll tell you for the following reason. I think there's a lot of talk about, you know, the shape of the grid, but what we're not doing is fully applying the new technologies we have. So for example, grids are probably used at fifty percent.
Of their real capacity.
We have a lot of copper sitting around most of the time, so we're we have the biggest what's called dynamic line reading project in the US. It's in Indiana. What is dynamic line ate very simply you put sensors on the lines to say what's the actual temperature, what's the actual sag in the lines, what's the wind, and so in some cases you can actually transmit fifty percent more energy over it. The second one is that the whole grid is built out for the peak time. The
peak time could be one hour. The rest of the time it's underutilized. So by using batteries we have projects called grid Booster, you actually transmit the energy on the off peak hours. So that does I'm not saying it solves everything, but I think we have to think more about these new technologies to make better use of existing grid.
Before I let you go, what's the one thing that you hope is that investors take away in terms of say your stock price, it's recovery, but for the last year it's still flattered down by one percent. What do you think it's going to take for you to finally get credit like Constellation Energy?
Well, I think what people have liked very much about the pure ipp place, they think there's a little investment, so it's just using existing plants and just recontracting them. In our case, I think, look, we have met or beaten our guidance eight years in a row. We have grown our divid in ten years in a row. So I'm by training an economist, and I'm just kind of really surprised at some of the correlations in our stock. We're not sensitive to interest rates, so I think those
things tend to work themselves out over time. So look, company's never been better. We're cripple investment grade. We have three years of construction in our backlog today and a lot of very cool new technologies coming on.
All right, andres really appreciate it. It's always good to see you so thoughtful. Andris Kluski, CEO of AS joining us there.
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So around this time every day. On Monday, we talked to Bloomberg bn EF. They are the leading researchers and everything you need to know about the energy transition. They do work on commodities and power and transport industry ads. They also talk about finance and governments and so everyone can make informed decisions on this. And joining us now in studio is David Doherty, head of Oil and Renewable Fuels Research for Bloomberg b n EF. David, great to
see you, Thanks for joining. This is Climate Week, So this is climate week, so it's all going to be about climate y friendly green things. Does that include your oil and gas?
It's us.
Yeah, you can call oil green things, I suppose if you want, I get exciting about it. You know, we've been talking about alcoholic free beer, so oil can feature in the climate change.
So that was my way of kind of asking of how does oil and gas play in the energy transition and what are some of the trends that we've noticed over the last year.
Yeah.
I mean, if you think of the players in the oil market, they're the energy pros in the world, right They've got the balance sheet, they've got the skills, they've got the technology, and they're already established, right, so they've got interest in seeing how this develops, how fast it goes, how it impacts their bottom line.
Basically, what are the main hold ups in terms of the transition. What are some of the headwinds.
I mean, capital is obviously one raising capital. Smart people in the right jobs in the right place push back both political and from people.
Right.
People love the idea, but as soon as it costs money, that's quite a difficult to swallow, especially now in like inflationary times.
Right, is the conversation that evs will eventually surplant internal combustion engines and get rid of gas demand. Is that still something that you guys are working with in modeling or has that conversation evolved?
It's evolved, I mean that is kind of the trend though. Yeah, when you look at things when they're cheaper upfront, right, consumers tend to shift towards that.
If it's cheaper day.
One for buying an ev versus an internal combustion engine car, and all else is equally, you're probably going to see a shift towards that.
Right.
So we're really though US centric here and we don't see that in the same way. But elsewhere, is that truly what's happening?
Yeah, you are.
You're seeing a big uptick in Europe and in China for example, and even here in the US California for example, behave it's much more like a European economy. When we think about the transition to evs, we've seen really high rates of penetration there.
What are some of the main themes in market dynamics that your team is focused on right now?
Yeah, Like, the rate of this change is interesting. What's happening in different markets?
What the response is.
If you take the US for example, it's a it's a mature market. So when these evs come into the market, you're seeing a decline in gasoline sales versus saying in China where it's like what could have been doesn't necessarily manifest, right, So that turns into then power in your pocket. Right, You're seeing the cost of gasoline isn't coming down even though you're expecting it to a less gasoline being consumed. There's so many more dynamics in just a four wheels on the road situation, right.
And how are all these things impacting the consumer?
Yeah?
I mean, if you think about costs in your pocket when it comes to driving your card, that's a big thing, particularly here in the US, particularly in an election year. You know, it trickles down into inflation. You get something delivered to your house. The cost of diesel impacts all
of these things. So your consumers are super sensitive of anything to a cost at the moment, and probably the biggest development here in the US it's been interesting is less consumption of gasoline hasn't turned into less prices at the you know, a lower price at the pump.
Why do you think that is?
Well, this is key.
This is something we have to think about as we go towards transition. If you pull supply in any scenario, you're going to see a price spike. In the US, we're seeing less refinery production than we have a few years ago. So you're seeing over a million barrools per day cut in the last two three years alone. And when you have a less supply of something, even if you have less demand, it really depends on which one goes first, on how speedy that changes.
And so what are people thinking when will this all shake out?
I mean it's shaking out already. It's already shaking out in the four court when people are buying the car. You're seeing the response from refiners. For example, some big refineries like P sixty six are switching some of their facilities to make things like renewable diesel or sustainable aviation fuel so people are posturing. Companies are postering for the next five, six, seven years, right.
Which is such a great point because I guess the question then becomes, if we're posturing for the seven or eight years, what does the landscape in your world look like then? I mean everyone seems to say it's a yes, and we need everything above all And is that how you model it?
That is how we model it.
In our sort of standard out look twenty twenty nine, we see peak oil consumption globally.
So that's still pretty far out. There's still a lot of growth left.
Also, peak doesn't mean the then it goes to zero. I feel like that's something we need to also wrap ourmind around, Like just because it's not increasing, it doesn't mean it's rapidly decreasing.
Yeah, you're totally right.
Even in like a net zero world, in our modeling, you get about twenty five million boos per day of oil, so you net zero doesn't mean zero oil.
So what does the growth outlook here?
You're looking at about four or five million barrels per day upside in our inner base case scenario. But lots of things can change that, right. Policies are the main thing to look at particularly in big markets like the US.
Right, the US consumers is about one.
In every five barrels globally, so if something changes here, the whole market can change.
The dynamic is really upended.
When we take a look at say China and India, large consumers of energy, obviously, are they jumping from coal to what.
You know, gases and transition fuel. We're seeing them shift towards I was just in Beijing last weekend. There's a very different way of looking at the oil market versus if you're down in Texas, Right, it's what's the displacement? Because they need more and more energy, right, they don't want to import that energy, So what can you do domestically In the case of power, that's coal. But we're also seeing in the case of evs, right, LNG trucks, even electric trucks. So we have a lot we can
learn from them. But they're just different, very different markets.
And how do they get there? How do they get there? Is it because of subsidies? Is it because they were so dependent on coal? Like what leads that transition there differently than say in the US.
Yeah, I mean, I think it's dependency on imports. For one example, they've got a lot of national champions, and to be honest, when they say they're going to do something, they do it in Europe and in the US you got to get it through parliament, you got.
To get it through votes. It's a lot slow.
Over process, and there's less domestic manufacturers like Tesla's a big, big player here.
But it's kind of it in China.
You've got a lot of big producers, a lot of big industrial champions, right, and they're encouraged by.
The States and by the city and by incentives.
So how do we fit into the bigger international ecosystem.
Well, for the US, one of the most important things is it's sort of gasoline production. Machines send a lot of gasoline abroad South America, Europe, even so there's a change coming along for your US refiners basically, and you're starting to see how they just they're positioning in a sort of a market leading way.
I think, all right, David, we appreciate it.
Thank you very much.
David Doherty joining US head of Oil and Renewables Fuels Research.
Before you go for you, have you ever had a non alcoholic beer?
Oh, bring the Irish guy in. I like this and I have yet, and I'm also not a verse exhumation. Yeah, I think it's pretty good, especially if you're driving, you know, yeah, or.
Just like because some of them you actually can feel the taste, like non alcoholic wine is basically like fruit juice, but not alcoholic beer does taste somewhat like beer.
I agree, And you know what, it's stuffed people asking you, like, why ain't you drinking today because they have no idea. It looks exact same.
Yeah. Well and the more you know, John Tucker.
You just all disappointment.
So sorry.
The alcohol removed wine though, that's that's I try to get into that.
And it was like, I have the hot wine. What's the word for that? Warm wine?
But stuff? What mold stuff? But that's not wine?
What is it?
Okay, now we're going to research.
This is what I back away.
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