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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal.
And I'm Tracy Alloway.
So, Tracy, you know, the war in Iran is primarily, at least from a commodity standpoint, being understood is like an oil shock. That's the number that most people are paying attentions the headline. Sure, but as we know from multiple episodes we've already done, it's not just an oil region. And of course we've been talking about fertilizer in one
of our episodes. We did the episode on other sort of dry ball commodity shipping that's affected by the closure or the almost closure of the Strait of for Moves. There's plenty there. It's not just an oil story.
Yeah. The one silver lining of all of this, I guess, is that we're all becoming commodities ex supply chain commodity experts and petrochemicals as well. I should just say we're recording this on March seventeenth, because who knows what's going
to happen by the time this episode comes out. But one of the big headlines today is that Iran has just struck one of the big gas fields in the UAE, yes, which is the Shaw Field in the sort of empty quarter area, and it's on fire, so pretty dramatic footage, which definitely does tend to concentrate your mind on one particular commodity, which is gas.
Well, there's sort of like two dimensions of the supply chain destruction, isn't there, Because there is the fact that for the most part, there are very few vessels going through the straight and Horn moves and people are sort of wondering when will that open again?
Right?
But then there's the other question of, as you just mentioned, there's a lot of damage to core infrastructure of various swords and so setting aside when the strait opens, how badly will the production infrastructure be impaired and how long will that go on? That's a sort of separate dimension besides just the passing of the ships, right, And.
I think that gas in particular have these sort of geopolitical connotations. Even before the war with Iran, we're all used to thinking about, you know, big strategic pipelines, yeah, and thinking about potential disruptions to those. Back when Russia invaded Ukraine, there was obviously a European gas crisis, and so everyone's kind of worried about Europe once again. Yes, there's a lot to discuss totally.
I saw a headline today also on the train here talk about how like Pakistan is very serious, like they have like a month of NED gas right now and they're heavily dependent on gas from the region. Of course, the fertilizer story, as we learned uria downstream from NED gas, etcetera. Anyway, last year, we did our live episode with one of our favorite commodities guests, Bob Racket, and I recall as we were walking out of the theater, I was like, Bob, we got to have you back on just for like
an episode. Let's pick a commodity, and he said, let's talk about next time I'm on, let's talk about NED gas.
Yeah.
I was like, all right.
And so so it turns out that now is the perfect.
Time, the perfect time for the perfect guess. We are going to be speaking with Bob Brackett, Managing Director and senior research analyst covering North American oil and gas exploration and production and global metals and mining at Bernstein Research. So, Bob, thank you so much for coming back on a Law.
Thanks for having me, Joe, thanks for having me. Tracy.
When I said we should do an episode on one commodity at that time, why do your mind immediately go to ned gas? Was that the big story in your mind?
So one, And I've told clients this, I am most useful when I am least loved. The problem with being a cyclical commodity analyst is everyone will ask me about whatever is the highest on the screen. Yeah, that's the thing that's going to be revert lower. The money has already been made there, and therefore you should be looking at the things that no one's really talking about. So I would argue today Henry Hubb us natural gas, not
the LNG stuff that's shut in, not other commodity. Henry hub is unloved, okay, sitting at three dollars in MCF, while we have all of these underlying demand drivers in the US. So it's the forgotten molecule today.
Forgot the forgotten line. But just broadly though, you were pretty spot on when it came to natgas, because I remember last year you turned bullish after like fifteen years of being bearished something like that. So I know you're too modest to say that you got that call correct, but directionally things seem to be going your way.
Yeah.
So I've been Bernstein covering the energy space, you know, nyon fifteen sixteen years, and for most of that time we've had these giant disruptions. First, we had shale gas, where the entire oil and gas complex was drilling and learning curves of how do you frack gas? How do you get it out? We drove the cost of shale
gas out of three point fifty at mcf. And then shale oil comes along the way and just hands out, you know, gives away the associated gas from oil directed drilling, and so you've had a big chunk of the cost curve that doesn't really care what the price of gas is. It's a byproduct. Waha. Gas prices go negative at time
to time, it doesn't slow down the oil drilling. And then finally you're starting to see the light where in the same way that the shale oil industry became well behaved kind of a twenty eighteen, the shale gas industry, and especially the Hainesville shale sitting down there on the border of Louisiana and Texas, starts to behave itself and in a world where you have these really strong structural demand drivers to the upside and you have discipline on
the supply side. That's a nice time to come into a sector.
Amazing perfect setup. One more sort of setup question. I was sort of thinking about this on the way in, Like when I think about oil, you know, there's various grades of oil, and there's various prices, but basically there's one global price of oil, and everything trades it a little bit of a spread to that, depending a little bit on geography, and depending a little bit on grade and light, sweet and heavy tower whatever it is my impression,
and tell me if I'm wrong. Is that with gas, the story is like there's one type of gas, but there is absolutely not one global market because the exact flip side of oil, the supply chain is just so radically fractured.
Yeah, if you think about it, VLCC, very large crude carrier, holds two million barrels of oil, and oil today's hundred bucks a barrel. I couldn't have said that three four weeks ago, and the movement, the cost of moving that halfway across the world a few bucks of barrel. So for a couple percent, I can take my product delivered to you wherever you want, anywhere you go to LNG. The cost of getting shale gas out of the Marcellus from two miles down and two miles out through the
fractures is less than a dollar. Then it's a couple bucks to get it to market Henry Hub through pipelines. If I want to ship it, cost me two and a half bucks to liquefy it, another buck and a half to put it on a vessel, send it somewhere and then regas it. And so eighty ninety percent of the cost of gas is in the movement. Wow. And so in that world, all right, you've got a law of one price for oil, right because the relative value
of the cargo versus the shipping's trivial. With gas, it's all the game of distance and markets, and therefore there is no one price.
So can you maybe just situate us on Iran's place in the sort of I guess gas complex of the world, because you know, we think about it as a commodities player, but a sort of unreliable commodities player in some respects. You never know what's going to get sanctioned. And NAT gas, as we all know, tends to be kind of volatile in and of itself. So what exactly is Iran's role in this particular complex.
So we're looking at the largest gas field on the planet and the Qataris call it Northfield, and that extends into Iranian territory where it's kind of parts. But you've got something that the numbers get huge, but we think about it. T CF of gas is a huge amount of gas AF So think of a LNG vessel can hold somewhere the big ones the q max is coming out Katar could be six bcf billion cubic feet to medium one would be four bcf, got it, And so a TCF would be.
Two hundred four bcf. Would be a really good boy band. Nay, yeah, sorry, go ahead, I interrupted.
I wouldn't have gone there, but yes, BCF.
Right, good Haynesville, Well, a good marcellis well might produce over its life twenty BCF. It could load for four five cargoes of LNG. So take that times one thousand, and that's the scale of the field of Northfield. And it's a gas field that also produces a lot of condensate associated and so it's a massive money maker. It sits west of the straight before Moose right, and so all of the LNG coming out of the Gulf except Oman is sort of trapped west of the Strait of Hormus.
Wait, just to be clear, that field is Qatar and Oronic goes into both.
Its giant structure, largest gas structure on the planet, and it's shared geologically, it's shared operationally. It's absolutely not shared, but yes, operationally, it's all operationally. The North Field, what the Kataris are called Northfield, comes back to Qatar, gets liquefied there, loaded ships east out through the Strait of horm moves typically goes to Asia.
This is what I was gonna ask, so again, because it's so fractured, where is it all Asia? Like, where's that gas going? And who's it competing with? What's that market?
So the global LNG market's about five hundred million tons per animal, and the units that will kill you, we're going to be converting between a million. It's the minute it gets on a vessel and becomes a ton for whatever reason. Huh. And so out of that, you know Qatar. The three powerhouses of l and G are Qatar, the US, and Australia. The Qataris have the lowest cost field. The
condensate pays for the field they could get. They're never going to they could give away the gas, and they sign these really long term contracts you know, around the world, but a lot into Asia. The US is the other powerhouse. It doesn't sign long term contracts. So if you went back in time, and let's say you're a Japanese utility and you're sitting on an island and you need something to burn to spinnatervine and generate electricity, you're sort of indifferent.
I got to bring a vessel in, I could bring a cargo of crude, bring the fuel oil, some diesel or gas, and so I'm sort of indifferent. I'll pay roughly the same price for all of those. And so for half a century we've always had oil linked contracts for LG. So when we think about JKM, they're often linked to a crude cocktail price in Japan. The US comes along and breaks that and says, you know what, just pay me TTF. I'll take Henry Hub. I'll buy Henry Hub off of this flooded market in the US,
liquefy it on the Gulf coast. Mostly, I'll send it to where you want, and a bunch of merchants will capture that arm and so it's a completely different pricing. It's much more of a spot market than these big, heavily contracted Katari volumes. And so now you know, Asia is running around saying I got forced majeur out of Katar. I don't have this. I gotta go burn something else and maybe I'll burn somebody else's LNG. But if not, I'll burn coal, I'll burn fuel, oil, diesel. I need electrons.
So speaking of arbing the price, So with so many different pricing benchmarks and now this dislocation, are you seeing any weird like price movements that people are starting to look at and take advantage of.
We're still well under what happened when Russia invaded Ukraine? Huh So, certainly europe prices and we could call them another alphabet soup TTF or MVP, but TTF so a price into the Netherlands has not gotten to nearly the levels it did in Russia Ukraine. Some of that is it always felt. I remember in the end of twenty twenty one, people were wondering why europe gas prices were so high, and they're like, oh, those Russians are terrible.
They don't know how to maintain production. In fact, they were just sort of slowly dialing down the gas in order to tighten the market. And then you invade in winter February peak demand. You know, now we're entering the shoulder season in the spring and in the fall, it's beautiful outside in the northern hemisphere, and people don't need that same amount of gas, and so shoulder season is normally a terrible price for gas. So that sort of helps.
And what also helps is, you know, to a certain degree, Europe has weaned itself off Russian gas and it feels like it has more options. We'll see how the things turn when we get toward the summer.
Let's talk about you know, one of the stories in the US has been the rise of LG exports. Obviously the export terminals, Like how much has that scaled up? But you know, today in twenty twenty six, how much more are we exporting versus what we were in say twenty sixteen or twenty twenty one, prior to the invasion of Ukraine. And what is the how much capacity is going to come online in the coming years.
Yeah, so if we wound back the clock. There's an interesting historic anecdote that's coming soon. So right now Qatar is not selling LNG. However, there is an LNG terminal called Golden Pass. It's thirty percent x on seventy percent Katar. It sits in Texas, it's loading now, and so in March it might be that the next cargo that Qatar sells is a Texas cargo, not a Qatari cargo. And
that's because this Golden Pass terminal was an import terminal. Right, so if you go back far enough before shale gas, the strategy in the US was the US is going to run out of gas. It's going to get priced off of the price of diesel. Right, I'm going to run out of gas, have to need electricity, I'm going to go burn diesel. And so everyone had their favorite strategy. I'm going to build an import terminal and I'll bring in Katari gas or choose your favorite gas and that'll
save my energy bill. And then Shelle Gas completely destroyed that strategy. But along the way, Excellent Mobile and Katar had this import terminal and they just flipped the switch and said, well, instead of being a regas terminal, let's make it an LNG terminal, and so that is loading as we speak. It'll start to sell cargoes as early as this month and right now that's Katar gas is only source of revenue until things get fixed in the Middle East.
So, speaking of shale, one of the legacies of the shale boom is that a lot of energy companies got very nervous about over expansion and ramping up supply. In a situation like this, what's your gut check on how fast LNG producers can really ramp things up, both logistically and then just in terms of their sheer willingness and I guess in the face of their shareholders.
So the gestation period of a shale gas well, if you're super quick, might be two three quarters. Realistically, the gestation period and of course these aren't gestational periods of an LNG facility is four years. Wow. So if we anniversary what happened four years ago? Russia invades Ukraine? What was the theme that started this year? Oh, there's going to be an energy glut in twenty twenty six and twenty twenty seven, and many an incorrect analyst hand raised
you know, I was written about the approaching ler g glut. Right, this event has changed that logic. And so the reason there was a glut this year is because four years ago everyone ran out and said, I need LNG, I need the cavalry. Quick call the cavalry. How long is it going to take? Right? Four years? And so the answer is LNG facilities, once built, run full. Right, there's an ability to de bottleneck and run above nameplate. But
basically there is no spare capacity. To a certain degree, we had Opek with a bit of spare capacity that they released in the first second week of the war. There is no equivalent on energy. Every cargo would have gotten delivered anyway. So there's no flex in the system and the system takes two years to fix.
So one of the stories that after Russia's invasion of Ukraine was that, well, this is going to be a boon to US gas and we're going to ship them. Are we shipping a lot more energy to Europe than that?
And so we go back to this phase where Golden Pass was an import terminal. Yeah, and then we got to about and so think of US overall gas supply demand as about one hundred and twenty bcf a day. A couple of years ago, ten percent of that would have been lergy exports. Okay, today we just were getting close to twenty b it'll be twenty percent, and so over the next out to twenty thirty will just be adding multiple bcf a day, and so it is the fastest growing part of US gas demand.
One of the controversies with export terminals, as you mentioned, not that long ago, we're absolutely swimming in free gas, and it was this concern that, well, if you start exporting it, it raises the domestic price because then you don't have these gluts anymore. Has the rise of LNG exports meaningfully raised the price of domestic gas consumption?
I wish that's the EENP investor. That's the dream of all the MP investors. You know, we're sitting here entering the shoulder season in Henry hubs three dollars, it got to five, It got to six during the winter where the seasonal dam and end was the highest. There is no strong evidence that that extra ten going to twenty
percent of the demand wedge has changed price. Right, What changes price is where supply equals demand, And up until now, the supply side has been perfectly willing to hand the market as much gas as the world wants the US once it's three point fifty. I think we think that's changed. I think that's changed. I think you know, ultimately, certainly on shale oil, we're approaching a world where oil, your shale oil inventory five to ten years from now looks
pretty lean. You're starting to see oil and gas companies say, well, what do we do in a post shale world? Shale oil world?
What can we do?
We can go international, right, so you've got you can go to the Middle East, and certainly there are people there looking for shale oil and were conventional oil like the Shaw gas field. Today people are looking at M and A, I'll just acquire my partners. Some people are looking at gas. But yeah, there is a sense that it is a It's always been a finite resource. It had been a growing resource, and one where this learning
curve had taken cost out every year. You know, that chapter has kind of passed, and now it's a world if you're in a planning cycle of five to ten years and you look out five to ten years, you've got to go replace that stuff.
How elastic is demand for something like nat gas? Because I'm used to thinking about it as someone with a house in the northeast and something that I have to buy every year unless I actually get really good at chopping firewood or something like that. But I imagine there must be some marginal source of demand that actually depends on the price.
So there's the demand for that which gas gives you, which electricity, and so there's substitution. So one thing to watch is bubbling behind the scenes. Global thermal coal prices are starting to take off. They're up thirty percent year to date. What happened when Russian invaded Ukraine, Europe bought every LNG cargo they could, sucked it all the way into Europe. Asia was left saying, well, we're short electricity,
let's go burn some more coal, let's consume more. And so thermal coal price is back in Russia Ukraine three hundred bucks a ton. I started the year a one hundred bucks a ton. We're up to one thirty. And so there's always going to be there's some demand destruction.
But you know, people really like electricity, air conditioning and the things that it gives, and so the answer is you'll start to look for certainly coal is an obvious place, and then eventually some demand destruction, but that's a kind of much higher levels.
Do you have a read on Tracy is mentioned in the beginning setting Outside the straight and hoorm move, it's just pure infrastructure destruction. Do you have a read on how much Katari production is going to be impaired? And the medium to long term here.
So we know LNG terminals have a bit of momentum associated with them, and we've got pretty good experience on the Gulf coast where hurricanes come through, you bring down your LNG facility and you bring it back up. Same with oil platforms in the Gulf of America, Gulf of Mexico. Hurricane comes through, you shut in, you come back. And so in general, oil and gas assets are built. They're built for turnarounds, right, They're built to go down and come back up, especially when you can plan ahead. So
you'll get whipsaws on the order of weeks. And so if this is over in weeks, right, we'll kind of have a big wedge of a month of chaos that'll filter through the economy. And if it goes on for months and months, it's something like if we talk about the Big three L and G, the US kutar in Australia.
They're kind of each a fifth of fifth a fifth of global supply, So something like twenty percent of the L and G would be knocked out and that needs a lot of coal to replace, or a lot of demand destruction.
So just on this point, I think commodity markets in particular are very used to fading Middle East flare ups very quickly. Is there any reason to believe that this time is going to be different? You have, you know, decades of experience in this space. Does it feel different to you.
As a geologist and not a geo politician? I'm not sure. I'm the perfect guest that answer. What the market is saying is that we're returning to normal, right and so and yeah, so the is the market right or wrong? I have a few sign posts, and so one of the ones I'll use oil as an example. When you take the price of oil and you add in the crackspread, right, which is effectively what does the consumer pay for diesel,
for gasoline, et cetera. When the cost of that gets to seven percent of global GDP, right, the world says that's too much and you stop using it. And that's where we got in twenty twenty two Right today, that'd be about one hundred and twenty dollars crude. Call it about a sixty dollars crackspread. So on my screen, I can show you oil never works a year forward when the cost of oil is six percent of GDP, And so.
That's kind of that right now.
So today we're one hundred plus forty, So crackspreads are around fort and these things are moving by the minute. But yeah, call it about one hundred and forty. So we're not quite there, but there would be an exit alarm ringing if we did get to kind of one eighty crewde plus crackspreads. And then you'd say, I don't need to be a g politician. I just know every time this has happened, the global economy has gone blah.
It's private. Geopolitics is a fake field, isn't it. No, I don't know about that, but geology, feel sorry, I think geology is more of a science than geopolitics. Right, Well, anyone can fake being a geopolitical expert.
Geology doesn't change when you talk about it, but geopolitics changes. Yeah, we talk about it. So the experimental influences the experiments.
You know, here's something I've wondered about you know again that GUS there's not a global market. But with the rise of L and G, have global markets become somewhat more correlated over time? Are we trending towards a global price of gas?
Yes? And in fact, if you think of the role the Saudi Ramco plays, and when they're setting their official selling prices, they will look east and they'll look west, and they'll see what are Atlantic basin prices for oil and what are Pacific basin and they're not going to let anybody arm them away, right, So kind of they help set a law of one price. The kataris that not only are sort of a fifth of LERG today,
but growing right, serve two markets. They can look east and they can look west, and so the idea would be we used to have ja Ham, you'd have an energy market over here, and you'd have TTF over here. The Katari's role in the market is to say, no one's going to arm me. We're smarter, We've got more customers than anybody. And they were going to kind of link the price of energy in Europe to the one
in Asia. So we have kind of the law of one seaborn price of gas, and then you can compete against that, and then I can say, Okay, if I build an import terminal here and the shipping is this much and the liquefaction regases this much, I can do this project.
What's actually going on with Russian energy in Europe? Because you hear these very different stories. One is they're phasing out Russian imports, and then the other story is, well, Russian imports are at a record high.
If Russian crude is getting a free pass on this conflict, then Russian energy will likely get a free pass. And so yeah, the answer is the longer this conflict takes right, if you are a buyer, and who are the big buyers of LERG Right, think about Europe and they're buying it for electricity, Think about Japan, Korea, Taiwan and China. And one of the strategies is diversity of supply is security of supply? Right, That's kind of been a mantra when you look at the various utilities, and that's been
proven absolutely correct. If anyone said, well, the Kataris are giving me the best deal, I'm going to be one hundred percent linked to them, that was a terrible in hindsight choice and so diversity of supply means Russia has boatloads of gas, They've got pipeloads of gas. Now they've got a customer that they're not friendly with anymore, and
so their ability to build LNG and eventually right. The problem with the pipeline is it goes from point A to point B, and so it is a marriage between the person putting stuff in one end of the pipe and the person taking stuff.
Out of the other end.
You can't move that pipe. The beauty of LNG is you don't have to get married. You can kind of have lots of customers with benefits.
You mentioned that, and I remember these stories Ukraine after the invasion of Ukraine and Europe going around and trying to buy every LERG tanker that it could on the market, and that there were poorer countries that essentially just got shut out. What was the next chapter there? What happened? What did they do?
Yeah, And so the challenge is there's probably there are two tons of demand for every LNG cargo, right, so there are twice as many tons of regas as there are liquefaction. And the way to think about that is a liquefaction terminal costs one thousand dollars a ton, and the ones in the Gulf Coast are big, ten million tons, so you're spending ten billion dollars for this terminal. Regas terminals are a tenth of that cost. So you invest
in liquefaction exactly. So the supplier does the liquefaction, the buyer does the regas. So you can build regas terminals as an option, so you and therefore there are twice as many options. And so when the market is tight, you can have two people fighting for every cargo, which brings us back to the person that pays the most
gets it. And then the answer is you need another form of source of electricity, and it's developing economies are generally going to have access to coal, right, They'll have coal and power plants and that's going to be their choice. Right, So yeah, the second place in fighting for an LERG CARYO is to go buy a coal.
I'm going to change the subject slightly in the grand tradition of us interviewing Bob, I'm just going to throw out a random commodity, so anyone who came to our live show last year will know we had a segment with Bob where we just had the audience basically throw out random things and ask him to talknoledgeably on each of them for five minutes. So I'm going to do
the same right now with sulfur and sulfuric acid. And the reason I ask is because you know, I was in Nabu Dhabi for a while and I remember Adnock, the big energy giant over there, striking some off take deals for its sulfur, and I was very used to thinking of sulfur as a byproducts of crude oil, like this thing that is kind of useless. But to my surprise, it turns out it is in fact very useful because you can make sulfuric acid out of it, and sulfuric
acid is needed for things like etching of microchips. So I'm very curious what's happening to sulfur right now.
Yeah, So the craziest thing happening to sulfur right now is this Shaw gas field in UAE is on fire. That gas field, twenty five percent of the gas is htwos right. This is a they call it a sour gas field. In the old days, if you ever went out to a well site that was H two s right, Joe would have to shave because the equipment to cover you need protective.
Dear, you would have to shave too.
Right, to shave, this is the whole oil well killed.
It would take you longer to shave than me. And so you could always see the folks coming back from a sour gas field because they'd gone clean shaven. And so here we have one of the largest sources of H twos. And also it's about ten percent CO two. Hopefully it's controlled, but that's an environmental, huge safety risk, right, So that's that's worrying. Now, sulfur in general is not scarce at all. We got sulfur all over the place.
This field produces sulfur. You can see if you ever go to western Kazakhstan the big Tengi's chevrel field, right, big piles of sulfur. Also, so every copper smelter in the world generates sulfur because you'll take a mineral, you'll take something like a calcupyrite, kind of the copper version of fools gold, and it's a copper sulfide. And so if you ever visited a smelter, you got this big tower where you're in the old days, you just burn
off the sulfur dioxide. You make the tower tall enough so that that acid rain spreads across a large area, or you can capture the sulfur. So around the world today, copper smelters lose money, right You don't make money running a copper smelter. They call them treatment charges refining charges. They're kind of zero and they're sometimes negative. So a copper smelter will ring me up as a copper minor
and say I want your copper concentrate. You can take that copper concentrate and normally you'll get the precious metals out of it. So I'll squeeze all the gold out of your copper ore and I'll make some money. Or I'll get an efficiency uplift. I'll pay for ninety five percent conversion and I'll squeeze them out. The other product I get is sulfuric acid. So right now copper smelters are looking and saying, hey, we're getting a revenue stream off of sulfuric acid. Most sulfur is going to go
into agriculture. So if you've ammonium sulfate, for example, is an explosive but it's also a great fertilizer. And so for example, if you in Kazakhstan, the leading producer of uranium, uses sulfuric acid in the operations, they compete with agriculture, and so when the market is tight sulfuric acid, you might say, hey, I got to let the people make in food win, so you can have areas where your short sulfuric acid. We're taking sulfur off of the market.
It's pretty abundant, and there will be sources, and there are lots and lots of copper smelters that can help convert it. So we'll find a way. So it's not clear to me that we've run out of sulfur. I think it's the fifth most abundant element in the crust.
I love asking let's just do this.
Yeah, I know you basically know all commodity. But you're not a soft sky, right, didn't you like carrying? Yeah, so you're.
Not things that were once Yeah, if it comes from the earth, I'm more comfortable.
Than if it were right the things that are grown, Yes, from the earth. Got it. When we think about particularly the war right now, and we've obviously oil and gas and solve further. Any what else do we bee watching? Any other weird I think I thought there was a good headline in Bloomberg about zinc prices have served, but anything else going up into the right these days.
Yeah, So if you think about aluminum's one. So if you went back to when Russian invaded Ukraine, everyone went and said, okay, what portion of which element does Russia produce? And at the time a lot of nickel out of Russia, a lot of PGMs, platinum group metals and plati imprimed, and so people were like, oh, we're gonna run into those things. You know this time around the Middle East from a mining perspective, doesn't mine a lot west of the Straits of Horror moves, but they process a lot.
So smelters are basically an aluminum People talk about illuminum as solid electricity. Most of the costs to make aluminum is electricity to me in the smelter. And so therefore you put aluminum smelters where you have cheap energy, and so we have some of the certainly in Bahrain, we've got these very large aluminum smelters running off cheap local feedstock natural gas. And you've seen aluminum price take off.
As a result, zinc smelters are similar, not quite as energy intensive, and so to the extent that the Middle East was both a local and a global source of cheap energy, and so those that invested locally are seeing some of those consequences.
All those zinc bar tops in danger. Why did that become a thing?
Is zinc bar time?
Yeah?
Is this not a thing in America? In London, it used to be like if a bar had a zinc bar top, it was like a thing.
It was like a nice class Yeah it was.
Yeah, And I never really understood why people were really into zinc bar tops. But maybe we can start ripping them mountain converting.
Yeah.
Well, yeah, you know, whether we're talking about domestic American gas or whether we're talking about oil, et cetera. I'm curious, like over the last year since Liberation Day, one of the stories, Tracy and I were up in Alaska. We were at a little manufacture of oil Country tubular goods and they were talking about, you know, the fluctuating price of steel and how this was creating all kinds of issues.
What has been the effect in terms of domestic energy infrastructure from the tariffs and just the sheer cost of you know, building out the infrastructure.
For the most part, energy has been somewhat exempt from the tariffs. Okay, the metal, so what did we have. We had aluminum tariffs in the US, and we'd steal tariffs. We've had this threat of copper tariffs that I think is distorting copper price. The oil patch, the gas patch, the energy patch mostly been left alone. Okay, so that flow through of things like the domestic content of steel
that's shown up. But yeah, to first order, if you think about how the oil industry set their budgets this year, it wasn't based it wasn't a factor. It was based on what was the price of oil on their screen when we started the year.
Actually related to this, one of the things we heard from the Trump administration coming in was that they were going to be very energy friendly, you know, friendly to all the molecules, whether it's coal or gas or whatever. Have we actually seen policies that have helped those industries. Do people feel good about it right now?
I would argue bombing Iran is a pro oil price policy.
Took a year and okay, but domestic policies, I guess there's.
This tension between you know the fact that, you know, one of Trump's mantra seems to be low oil price. Low gasoline prices extremely sensitive to that, and at the same time you sort of pro the oil industry. That's a very narrow path to tread. Yeah, right, the oil industry makes money when oil prices are reasonable.
Now.
Now, I would argue that a good mid cycle price of oil seventy five dollars eighty dollars, right, and that's where marginal producers can turn. We haven't really had that, right and undisturbed. We haven't had that since Trump took office or much before. We've been bouncing, you know, below seventy five. We've had a glut. The shale industry has been remarkably resilient, right amidst sixty dollars oil. We haven't seen shale oil give up very much, and Opek has
been adding barrels to the market. Am it's kind of tepid demand. So we've kind of been under mid cycle prices for oil through most of the Trump administration. You know, Biden posts the solution in Russia Ukraine. So yeah, there is no policy. So the question is how do you get somebody to drill more in Texas, and you know, first and foremost it's the returns. Right, So clarity of policy permitting has improved. You'll hear folks in the oil patch say, right, some of the time you would spend
to get things approved permitted has improved, But that hasn't changed. Right, the input, which is how many rigs are running, hearts rings, you know, how many frags spread throughout there.
One of the big themes you know of the last several years kind of since we've been doing the podcast, but really since COVID has been one thing after another that encourages basically every country in the world to think about sovereignty, resource security, and so forth. And so obviously COVID major impetus to like make sure you have stuff, then the trade war, then Ukraine now that war and Iran et cetera. Like big structurally when you think about,
I guess the last six years. Now, are we going to be living with the ramifications of this six year period for years? In terms of global commodity markets.
So if you went back to the First World Second World, you had the West and you had the Soviet Union, and you had sort of two complete supply chains of all the commodities. Right, there were Soviet smelters and there were Western smelters, and there was just a lot of redundant capacity. Then you sort of got into the nineties and you have the collapse of the Soviet Union and you had at the same time, I am the China rose.
You were lucky enough, so the China supercycle, the China demand supercycle, came at a point in time where you had all of this excess capacity undermanaged. So all you needed was a bit of capitalism applied to Soviet assets and that was sort of the only reason China could feed on consuming half of the world's copper or and half of the world's deal and half of the world's et cetera. Now we're almost flipping that and say, well, you know what, China has a bunch of rare earth processing,
but now Japan and Malaysia will have it. Now the US is going to have it, and tariffs on copper, well, the US needs to be self sufficient in copper. So we're entering sort of this long cycle of globalization where are we going to recapitalize the end of globalization and we're going to go out and build two smelters in or five or however we're going to divide the planet. It's very capital intensive, it's inefficient, it would be powerful for it's inflationary. Yeah, and then someday in the next
cycle we release it, all right. So yeah, So that's again a geopoliticians view, like his globalization over If if a geopolitician convinces you of that, then there's gonna be a lot of assets. Yeah, that's a big economy.
All right. I have one that tiny question, Tracey is gonna love it?
Do you?
Land Man?
I have watched. I tend to binge watch when I get a chance, So I binge watched the first season. I have not binge watched the second.
Does it feel realistic to you?
Is that.
My lived experience has very little?
Okay?
Yeah? Versus Landmann.
I would just like to say a significant portion of my life right now is listening to.
Talk about the show. I love land Man so much anyway.
Bob Brackley, land Man is the Moby Dick of our times.
Bob Brackett, thank you so much for coming back on olods. Always a true true pleasure.
Thank you so much.
Joe, Thanks for things so much, Bob. That was great, as always yeah.
God, I love talking to Bob so much. One thing with a lot of Energy episodes is that and I've mentioned it, we both mentioned it. Energy math is not intuitive to me, you know, like I have a very hard time conceptualizing like what is a billion cubic feed or whatever. But in that gas, especially with all the conversions that happened between the liquefaction, and it's like, I find it, really.
It's really hard. No, I sympathize. I was one of those like toddlers that was trying to stick like triangle pieces into round holes. Yeah, I've always struggled to sort of visualize shapes and sizes.
So absolutely the word cells and we're yeah.
That's exactly it. But there is a bunch of stuff that stood out from that episode. One thing I should just clarify because I don't mean to make light of, you know. I asked about the Trump administration being energy friendly, yeah to domestic US energy producers, and Bob was like, well, the war is very friendly, and I kind of waved it off, like it is a huge giveaway to US energy.
And you know, Isabella Weber, another Great Odd Lots guest, had a paper about like where the value of these higher oil prices actually flows to and it's all the US energy comes.
Trump said himself. Yeah, maybe in one of his truth social posts something like that, he's like, we're actually going to make more money. Yeah, you know, because most people are not oil producers. Most people are oil consumers rights, and so people are not happy that gas prices, but you like sort of spun it. He's not, Look, we're gonna make a lot of money because we're a net oil exporter and energy exporter now between LNG and crude.
So yes, clearly domestic energy has benefited, obviously benefiting you know, a wave that it's riding because obviously the demand for LNG after the invasion of Ukraine. That's just that's a very big story.
Yeah.
And I also think this brings us back to the episode were recorded on the impact of the Strait of Horror Moon's closure on China's Yeah, and this idea that well, the more disruptions to commodity supply you have like this, the more you have governments sort of worried about choke points materializing, the more you're going to see a hasten shift to renewables that might be to more immune from these types of disruptions.
I hadn't appreciated at all until Bob said it at the very end that you know, like when we think of the early two thousands, you know, the commodity super cycle driven by China. But then for the first several years of Chin Chinese opening up, they really benefited from the fact that there was just a glut of capacity that the combining of Bloo, which I hadn't really thought
about at all. That is, like, from an economic perspective, there was a lot of capacity to supply China with raw commodities, particularly in the mid nineties, simply due to the fact that you know, as you said, apply a little bit of capitalism to those Soviet assets and suddenly you have a lot of production broad online. The nineties were a special time. Everything was just working out peak humanity, peak humanity, I already believe. So all right, shall we.
Leave it there.
Let's leave it there.
This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me at the Stalwart follow or producers Carmen Rodriguez at Carman Ermann dash Ol Bennett at dashbot and kel Brooks at Kilbrooks. And for more odd Laws content, go to Bloomberg dot com slash odd Lots or of a daily newsletter and all of our episodes, and you can chat about all of these topics twenty four to seven in our discord Discord dot gg slash odd Lots.
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