Why It's So Hard to Get the Oil Taps Turned Back On

in this industry. Yeah, and you can kind of see why, right, I mean, first of all, um environmental concerns, and I imagine that, like particularly the younger generation might have some reservations about going into something like mining. And then secondly, it just wasn't a profitable industry for quite a long period of time, or at least I'm thinking specifically about

shale oil in the US. But you had the big boom and sure people made a lot of money in that, but then you had the massive bust and it often feels like kind of an uncertain industry that swings between feast and famine all the time. Yeah. So imagine you're like thinking about your career and you're like pretty technical minded, you're pretty smart, you could do a lot of things. You're intelligence, and you're like face with like two options.

It's like, Okay, do you want to like go to North Dakota or somewhere up in Canada and analyzed rock formations? Or do you want to live in California and work for Facebook and get lots of free lunches and free dry cleaning and maybe make millions of dollars. I don't know. It seems like kind of an easy choice from the perspective of a potential tailted person thinking about which direction

they want to take their life in. Well. Also, I mean, Silicon Valley was very good at selling the idea of making the world a better place, yeah right, which I don't think is as impactful as it once is. That message, I don't think as many people believe it. But like, certainly for a while it was about come build a better future, um in tech versus come dig out of rock in northern Canada. Yeah, so come to Canada, dig

out of rock, be cold all the time. Oh and by the way, you're contributing to the worsening of the planet through global warming. Oh and by the way, this industry has no future. These were like the messages I mean the message we can tell it's like you're gonna contribute to climate change by participating this industry. Also, the industry has no future because it's all gonna be you know,

disappear because of electric cars or whatever. So all these things it's like or you know, do software make up fortune? It seems like you can see why people made one choice or not the other. Yeah, so we obviously have to dig into this no pun intended, but um, yeah, we're gonna dig into the talent shortage in energy and mining, right, and so there's all kinds of bottlenecks, you know. Now of course everything's flipped, and you know there's like, well,

why can't we restart the minds? Why can't we get drilling again for energy? Uh, you know natural gas and oil. There is a pickup in activity, but it has not been as rebustes people expected. So what are the constraints on getting everything going again and getting dirty stuff out of the ground for whether it's gasoline or fuel or medals that we need for decarbonization and electricity. I'm very excited about our guests, Uh, someone who understands the space deeply.

We're gonna be speaking to Peter to sack In. He is the managing director of ARC Financial, a private equity company that specifically focuses on energy, and he knows a lot about the nuts and bolts of this space and investing in this space. So, Peter, thank you so much for joining us. Well, it's my pleasure. I'm delighted to

be on the program. So is that true they're sort of like the premise that we started out this conversation that they're really uh, the number of people wanting to make a career sort of like petroleum engineers or mining engineers has really tailed off over the last decade. Yes,

that's true. Actually there's a double whammy. Also, what we're seeing and we're going to see more of, is that the older generation is set to retire and now with these higher commodity prices, they are going to cash in, so to speak, and be much more apt to exit the business. And with nobody coming into the business, it's going to make the problem more acute. So so the

higher prices increase the need for talent. But what they do in the immediate term is a bunch of people like, oh, I can finally retire because my oil stocks are up, or by commodity whatever it is, by copper Stock, the company that I worked for. So the first order effect, even before it has the effect of bringing a new talent, is to accelerate the departure of the existing til Yeah,

that's going to be a big problem. And the other part of losing the older generation is that resources exploration, certainly oil and gas, has a lot of tact knowledge. In other words, it takes years to really build up gut feel expertise, which is just as important as you know, raw numerical expertise. I have this image of like Bruce Willis and Armageddon teaching the youngsters how to mind properly, right,

remember that? Yeah? Right? The asteroid Yeah yeah, yeah. I mean those are the sort of the Hollywood perceptions of the way things work. I mean, I have to say that the the industry is actually very technologically advanced, and that uh, you know, the loss of knowledge is much more than just sort of these perceptions of people going and digging holes in the ground. It's it's much more complicated than that, which exacerbates the problem because there's a

lot of taskit knowledge that needs to be replaced. So when you mentioned an older generation, potentially entering retirement. It reminds me a lot of the pilot shortage that we saw and this idea that you know, we had a lot of pilots we're coming through the military primarily, and then after they completed their service that would go into commercial flying and then they entered retirement age and we

don't have a lot of people to replace them. Where historically has energy talent come from, Well, energy talent comes from to places. First of all, there's the field, and that talent typically comes from hiring people and training them also out of technical schools, and there's a lot of training that goes on in terms of safety and how to operate equipment, and that can take many months certification UH.

And then in the offices where a lot of the engineering is done and the and the and the geoscience is done, I mean those the talent pool there comes from universities, petroleum engineering courses, geophysics, geology, chemical engineering, you

name it, petroleum engagineering. Yeah. So what has enrollment been like at these uh, at these at the university level for petroleum engineering and some of these related fields, Well, it's declining and in the handful of universities and the Western hemisphere, I'll call it in Europe, United States, Canada. Whereas there's a lot of expertise in the universities to train students, the enrollment is going down. In some instances the university are shutting programs down. And it's what you

said earlier. I mean, the the emphasis for students and the desire for students with technical backgrounds is to go into Silicon valley type ventures and so on. It's not to go into the resource economy. So it's so it's problematic. Yeah, what was the sales pitch earlier? So you know, I guess the seventies, eighties, nineties, if someone was thinking about a career in resource management, what would they What would

be the benefits of such a career. Well, the benefits certainly would be pay to start with, because historically and even now, these are very high paying jobs. Uh and even so it's difficult to attract paying people. But historically it's also been viewed as well, with the growth of the economy, you need more energy, energy dominated by falsil

fuels over the course of the last couple of centuries. Therefore, you are contributing to the UH, the growth of society and energy needs in the economy, and so it's historically been the paradigm. But now that paradigm is broken, certainly in the Western world, it's broken, and that leads to the problems that we're going to see are already seeing in terms of the price of the commodity and the supply shortage. Can you uh, what schools have actually shut down?

I went to University of Texas, so there was a geology program. They're pretty I think at the time there were a pretty decent number of people going into the patrolling industry. But where have we actually seen you said some schools have shut down, like just the Yeah. I can't speak for the American universities as much. I mean, there's certainly the Texas universities, including s m u H, some of the schools in Louisiana, you know, the Oklahoma does big. I mean, those are the states where that

have a lot of the resources. Not surprisingly, that's where the schools are. Ditto here up in Canada where I'm located. University of Calgary, Canada is the fourth largest producer of oil and gas in the world now, and so we have the schools here in University of Alberta, University of Calgary. The enrollments are way down and some of the programs are likely to be shut so we are going to

see a talent talent pool shortage. There's no question. Can you give us a little bit more color on how much enrollment is down or exactly what the extent of the talent shortage actually is and are there particular areas where it's more are acute versus you know, other types of energy jobs. Yeah, so the petroleum engineering department here. I had a conversation a couple of weeks ago with one of the faculty members and he indicated school are

you referring to this University of Calgary? I mean, you know, typically probably see uh thirty students a year and graduating clause maybe more. I mean historically it would have been much more than that. I think they have enrollment for one student. You know, it's uh, you know, it's that kind of thing. Now that may pick up as we get it closer to the fall session, but the numbers are not looking positive in terms of replenishing the knowledge

base one student. I introduced you as the managing director of ARC Financial, But can you just sort of give the summary of like you've seen these cycles come and go for a while, like what's your person, what's your sort of like general background and story. Having watched and been in bold within the extract of resources industries, Yeah, well, I started out as a geoscientist back in the eighties.

I worked for one of the multinational oil companies. I worked in the field, I worked in the office, UH, and then I migrated to the world of finance, the world of technology, the world of energy technology, and so I sort of have a very holistic background in energy and energy technology, and in my career over the last twenty years, have financed everything from oil and gas to solar,

to win to you name it. So, as I watched the boom and the bus cycles, there was always a repetitive theme on the oil and gas side, is that when the price of oil and gas went up, that was the signal, the siren goes off for the companies to go back and drill more and bring more supply on. Now, as we all know, they're over. Over the course of the last half dozen years, that signal has been broken. Right.

It's because of the vilification of the industry, the climate change can arns, the divestment movement UH, and of oil narratives, all that kind of stuff. So and then of course, uh, the turnover of investors in many of the publicly traded Western oil and gas companies basically who want their money back in terms of dividends. So that means that there's not a lot of money going back into the ground, certainly not as much as use there used to be to give a supply side response to to meet the

demand which is still there. And and and as we can see growing, everybody's back flying and going on vacations and driving, and so you know, it's a and then you lose your your upstream talent pool. And that just combined with the war in Europe with Ukraine and a boy, it's just sort of like the perfect storm two create an energy crisis the likes of which we have not seen since the nineteen seventies perfect storm. We hear that phrase so much on this podcast, but you know, for

for eight different things. But okay, so I'm looking at the chart of Brent oil and it's currently above a barrel. So in olden times, olden times being you know, just ten years ago or so, you would expect shale driller of some sort to see that chart and go, oh, we're going to restart some of our old wells um and presumably they would have gotten that done fairly quickly given the incentive there from the price. When that happens. Now, when oil goes above one as it is, now, what's

the hold up for restarting those drills? Like walk us through exactly all the points um in actually ramping up that production. Well, first of all, a little bit of perspective, add twenty barrel today. If you inflation adjust the price of oil and take it back historically all the way to the beginning of the lost entry, in other words, undred and twenty years ago, a d is is typically the high point on an inflation adjusted basis, like beyond one, all of a sudden you will get a demand response

and people will start peeling back. The supply response typically starts around in earnest. Now, we didn't see that this time around. So last year when we certain that the price started to escalate through and the call went out, hey, you know, like the price is going up, we better

get some more production going. Well, the publicly treated companies and the CEO has basically said, well, wait a minute, everybody told me to uh focus on profitability, not production growth, and give give the cash flow back to the shareholders. What are we doing here changing the tune right? And you know not And by the way, everybody's saying, it's the end of oil, so why should I go back

and drill? So a's then you get into hundred. Oh that's interesting, and the rid count starts to go back up a little bit, but it's very muted relative to what it would have been historically. And so here we are today at one The allure of going back and bringing on production will be irresistible, but it's still I believe, not going to be the same level of drilling. And then there's all the field level constraints which we haven't talked about yet, the physical the physical equipment, and the

people in the field. I mean, to this point, we've talked about university graduates and engineers who typically go work in the office. Now you've got to talk about the shortages in the field. So yeah, what are let's talk about those? So how many people like compare the sort of upswing cycle now, the ease of hiring, the number of people willing to do the work, How is that different than you know, previous cycles that you've seen the

challenge of staffing the field. Yeah, so what we've seen, well, you have to wind back to late At that time, shale drilling was so prolific and the money was being given to the industry from Wall Street to drill. We created a supply glut. The Saudis said, we'll wait a minute. Uh, We're not going to give up our market share. So that started the price war. They flooded the market. The price of oil collapsed down to thirty bucks uh. And that started a prolonged period where prices were low. So

the industry went into sort of a downturn. Prices recovered back to kind of like the fifty level, and and and stay there. Fifty is not compelling, fifties not compelling. And then layered on top of that, the end of oil narrative started. And so there's this whole negative paul around the industry. So in that context, it's been now

seven years of negativity. And so the service companies that go out to the field with their people basically said, well, why would I build new equipment, why would I even maintain equipment. I'm just going to cannibalize parts off old equipment to keep the equipment of a smaller equipment fleet going. So here we are today with a shrunken field capacity and by the way, a lot of loss of knowledgeable people trained on how to operate this equipment that's being

called back and saying, hey, go go drill again. We need it because we want to get off Russian oil. Well, wait a minute, Like, I can't just tool up and and hire a cruise overnight to do this, even if I wanted to. And then on top of that, you have the inflationary effects of things like steel and chemicals and raw parts, supply chain issues, and so even if you wanted to grow it meaningfully, it would be very difficult. Can you talk a little bit about this from a

technical perspective? So, if I have a well that I haven't been using for a while because oil prices were so low, what does it actually take to restart it? I mean, assuming I can get the labor, what are the technical things that I need in order to get it going again. Well, it's not so much restarting old wells because wells you typically do not want, especially oil wells, you don't. You never want to shut them in because restarting them is is problematic. So a lot of wells

the other get choked back. But if you want to grow production back to where it was before, you have to drill more new wells. And so that's where the problem lies is you need drilling rigs, you need hydraulic fracturing crews, you need all sorts of peripheral services to get these things going, and so the ability to bring on new wells, and then you also need service equipment, by the way, to wrap up the old wells. Again. Uh, it's it's said that you want to bring on the

amount that we're forfeiting from sanctioning Russia. I mean, you're talking several million earls a day, which the Permian and feels like that and up here and kind of we can do, but you just can't turn this spigot on overnight. And then there's just this general reluctance by investors and others saying, well, I don't know if I believe all this, And by the way, you told me was the end of oil, so why would I put money into the ground.

I'm sort of fascinated by something you said about like equipment either having been not preserved or preserved in a bad state, like what equipment, Where was it housed? You know, for these last seven years while the industry was sort of shrinking or downstairs? Where was it housed? And what you know? Now it's like, okay, we're back. And then they opened the warehouses. What is it like literally rusted?

Like can you tell what type of equipment and what is actually well, I don't know if it's arrusted, I guess environment. Yeah, yeah, I get what you're saying. Yeah, So I mean the whole thing is is that when when prices fall and they still commodity prices, when they fall and they stay low, that's a signal to just contract. Right. So basically, the service companies, unfortunately, especially if the downturn is severe, which it was, have to shed people and

they basically have to stop building new equipment. In fact, you have to contract your fleet. So they say, well, why would I keep say a hundred units active and maintained when my customers, the oil and gas companies, only want the equivalent of forty units. So basically you park everything in a yard and you keep the forty units going, But instead of buying a whole bunch of new spare parts, you just start cannibalizing the other parts of the for

the existing are in action. You're cannibalizing the other sixty to keep them buying new spare parts because you don't like exactly new. But then when it's time to go access those other sixty, they're missing parts exactly. So that's what's been happening over the last seven years, is saying, well, why would I buy new stuff? I just keep things going. And it's so you know, this creates the situation now where he say, okay, I need a bunch of spare parts if I want to ramp up, and then he say, okay,

now we've got supply chain issues. Now I've got people issues, and so the ability to ramp back up at the snap of your fingers is very difficult. So I remember back when oil prices were quite low, So I guess around one of the talking points in the industry was well why do people keep pumping at these prices? And we saw production be a lot um sticky, I suppose than than many people had expected, and so so a

why do you think that happened? And then be one of the things that I remember people talking about around that time was standardization of parts for rigs and drills and things like that, and basically just a discussion that technological advancement and standardization meant that producing oil was a lot more efficient than it used to be, so you could pump more without necessarily spending tons of money. So is that, like, doesn't that also work the other way?

You know, with high oil prices, shouldn't standardization help um keep some production up and hopefully increase it? Yeah? Okay, so I think it's actually brought up some really important points. But let's let's let's tackle the one. Why keep pumping if prices are low, as I said, because it's very, very costly for oil wells to to turn them off and then to bring them, so you you want to

keep producing for as long as possible. Now, in two thousand fifteen, when the price went down, you know, we went down to for a while, but for the most part, over the course of the latter half of it was fifty bucks of barrel. So there's three kind of costs here. There's operating cost, which is the cost to keep pumping, and the oup costs are typically lower than that, and

so it makes you make money just by pumping. But what happens is is that if you don't drill more into the same reservoirs, the production declines, and it's called a decline curve. In other words, today you're pumping a hunter barrels uh and typically some of these wells decline, maybe more a year. In the first year, it's even more so a year on you're only pumping let's just say seventy barrels for the sake of argument, and the next year it's only fifty barrels. So the basic operating

costs keeps the oil flowing. Then you need the maintenance capital costs, which is drilling us to keep production level. So what happens is when you're go into a downturn, depending upon your cost structure of an individual company, you have typically pull back on your maintenance cost and you might decline your production. But if you're in growth mode and you want there's the call because prices are high, then you start drilling new wells to not only offset

your declines but to grow. So for the past seven years it's largely been a off costs plus maintenance costs to keep production level. The big event was the pandemic. Okay, when the pandemic, you know, we saw zero dollars for a few days we saw prolonged prede. That's when they said no maintenance costs, no growth, no nothing, and American production fell by at least a couple million barrels a day,

and we haven't really recovered. Actually, yeah, I realize we haven't really discussed like what happened in those months of the acute early months of the pandemic. You know, of course there's the infamous like briefly like w T I at least on a computer screen, traded at negative forty barrel I think at one point. But obviously it seems like something snapped there. So you had this degradation of the industry from through and then something like broke there.

It sounds like that really changed the trajectory so that the energy players were just not going to go back to the old way of sort of well losing a lot of money. But what was it? Can you talk a little bit about more like that? How transformative and significant those few months in Yeah, it was huge because you know, the event really weakened the industry and created the contraction and the capacity and the cannibalizing and spare

parts and so on. But you know, many companies still hung on but when you get to twenty a barrel and you know, momentarily zero and all of a sudden, all the pipes are backing up because no, there's no demand and there's a global immobility with lockdowns and nobody's using this stuff momentarily, then you create cash flow crisis for service companies and producers, and those that were on

the verge of bankruptcy went bankrupt. And certainly there was more layoffs, and so you lose more talent and more tacit knowledge, and and and so the pandemic really was problematic. And that was at the same time, again that was a layered on top of that the whole end of an oil narrative like okay, electric vehicles are taking over the world and so on and so forth, we don't need this stuff anymore, and zoom is going to help us, uh, you know, overcome our commuting and blah blah blah. And

so it really weakened the industry further. And then all of a sudden, of course, the demand comes back, comes roaring back, and the supply side is hampered, especially the Western oil and gas industry, which has been under intense pressure UH to decarbonized cut its production, so on and so forth, and so here we are, so talk to us a little bit more also about the financing aspect

of it UM. And this is something that we hear from energy producers in particular, this idea that well, for them credit, you know, for the rest of the world, credit has been an ample supply for the past few years. But for anything that's considered a polluting industry or a non E s G compliant industry, it's much more difficult. So how how real has that been for the industry. It's been very real. I mean there's two major sources of financing, like in any company, it's equity and debt.

So historically, certainly, when the price of the commodity goes up at any players from Wall Street come in and and say here go drill, go produce more. Uh, And you produce more of the cash flows are strong, so you're able to borrow more. But the combination of seven years of low prices and not making any money already investors were saying, well, you know, give me a call

when you make money. And then on top of that, the divestment movement and end of oil narrative E s G and many financial institutions pension plans for example, saying no, we're we're not allowed to invest in these companies and anymore, and banks coming out and joining things like the Net Zero Banking Alliance, which basically says no more fossil fuel

debt investing. And so now we're in a situation where the oil and gas companies are making a lot of cash flow, right, they can finance themselves and they can even drill themselves. But the investors who stuck with the companies are basically saying, well, you know, I stuck it out with you, give me my money back and a divid end and buy back shares and so on, and so again we're in a situation where the ability to make decisions to put money back into the ground to

grow production is very encumbered. Yeah. So in theory, okay, So the the shareholders of these companies who are sitting on years and years of cash for losses, they're like, no,

don't indvise. So the idea is they don't want UH to invest because they wanted to get repaid after years of losses, and then there isn't some pool of other money and that would be more the sort of E. S. G. Defined broadly, but that would be more of the E s G impaired financing because all different kinds of industries, it sounds like a are all different sorts of players basically made a formal decision to get out of the game. Yeah. Well, so what's happening is is that there's what I call

the alt finance universe that's starting to emerge. So the alt finance universe are financial provide uh what do you call it? Equity providers, debt providers that are not overly concerned about E s G. And they say, find sure, we'll give you the money, maybe at a higher price. Uh. So they come in and they start financing these companies. At the moment, though, I'll reiterate at a barrel and even a hundred bucks of barrel. Oil and gas companies

are actually vigorously paying debt down. They don't need they don't need any money, and they are issuing special dividends and so on. But the issue is going to come when the price of oil falls back to say eighty dollars and we think it's all okay, but really it's not. It's a very precarious situation because you know the root issue of still the need for fossil fuels, oil and gas for several decades, in my opinion, is not going away.

So just to play devil's advocate on that question, I mean, a lot of people in the E s G would presumably say, well, this is exactly the kind of dynamic that we do want. Okay, so not we don't necessarily want oil at a barrel, but we want people to go into other industries. We want to choke off funding for dirtier industries in order to encourage newer types of energy, cleaner types of energy. What would be your response to that message, Well, I have the benefit of financing all

types of energy and have seen how transitions work. In fact, even written books on energy transition before energy transition was even a buzzword. Uh. So you know, the thing is is that it's not a good idea to prematurely abandoned this industry. Because the price goes up to a hundred twenty bucks gasoline goes to five dollars a barrel. Uh, it's like a massive carbon tax. Uh let's say the equivalent from going from fifty dollars a barrel to barrel.

That's like imposing a two ton carbon tax and the people right, which is huge, and it disenfranchises obviously the lower income strata of society and creates all sorts of social issues and polarization. So yeah, it's one way to think about, you know, forcing people to switch off of oil and gas into alternatives, except the alternatives are not

available easily. It costs people money which they don't have now to say, buy a new vehicle electric vehicle, or replace their heat their furnace with a heat pump, or are conditioning or whatever, and and so we'll just create this really distorted economy that speaks to a very sorderly transition that has potentially a lot of civil uh unrest and problems. So you're somewhat beautiful and this is right

because you're invested in the transition. So he but well, I guess sort of a one and a half part question is like you're invest in the transition, what new tech? I guess it sounds like this is a really bad way to accelerate it in your view, But what is like what do you see as like the problem? You know, what is the orderly transition? Look like the order of the transition is that you know, I'm very still bullish on renewables. I mean the cost curves coming down and

the adoption rates. Personally, I drive, I've been driving an electric vehicle for five and a half years, so I'm a fan of electric vehicles, however, and I'm also a social what do you call color commentator and energy and I can tell you, like, the transition does not occur overnight.

I mean this is if you look at historical transitions, they take decades and to think that, you know, it's almost a lot of hubris to think that we could get off this stuff in a matter of a few years and make us which is being disproven right right now. And you know it's going to be disproven doubly because they said, what we have right now is the equivalent of a two carbon tax, and all it's doing is creating um a lot of animosity and society is what

I can see, and disenfranchising the lower income strata. So if this is my new favorite question to ask people, but if you could wave a magic wand and change one thing about the way the current world works or the way policy is formed or whatever, in order to help some of the problems, help alleviate some of the problems we've been discussing what would it be, Well, I mean it's it's probably not one one, But I'll just say one thing that we should be doing is focusing

back on the core objective, which is to reduce emissions. Okay, So reducing emissions is not the same as shutting down and thinking the oil and gas industry is dead. Okay, the put putting an industry out of business is a

lot harder than reducing emissions in my opinion. Okay, And you can go deep into the subject, but this, to me is the core issue that and the and the core mistakes that's been made to this point is that the only way to decarbonize quickly is to shut down the oil and gas industry and call it dead and buried, which is what we've been doing over the last half dozen years and has resulted in the situation that we're

in right now. You know, we need to get people back into the industry that is innovating now fairly vigorously in terms of how to reduce their upstream emissions and with carbon capture and other technologies that are yet to come to the fore, so we can reduce emissions dramatically and we can have a transition to electrification in all sorts of things that will help us decarbonized going forward

and create clean and prosperous energy. But you know, we have to do it smoothly, because if we don't do it smoothly, you're going to create all sorts of social tensions which we're seeing get manifested. And that's just obstructionist in terms of getting it. It's friction in terms of getting to the end goal. What about is there anything in the short to medium term, either in the US or Canada policy wise, that could just simply accelerate the

production of oil right now? Because that's a big thing just getting in the US right Like supposedly Biden wakes up every day and he isn't he in the staff look at the price of gastly and every day. Supposedly that's what I read a report that said that is the other policies that could meaningfully accelerate I mean, as you mentioned, you know, you can look at the ridcounts they are going up. Other policies that in the sort of short to medium term could accelerate both production and

refine such that the price has come down. Yeah, well, I don't think actually it's as much policy. Um. Now, Canada is a little bit different than the US, but

maybe not too far different. I think the industry and the shareholders of the industry are really exhausted by the vilification and the negative rhetoric, and so actually having leaders right at the top say that our domestic industry is among the best in the world and is plays a valuable role not only in terms of the carbonization, but plays a valuable role in energy security and energy affordability globally.

Just to say that, just just just to say the industry is important, I think would make a lot of people be much more inclined to be part of the solution and maybe even encourage people to come back to work in the industry. You know, there's nothing you almost need like a rally cry and say you know, this is important to us that we have a smooth transition with safe, secure, cheap clean energy. You know, in your view, we're nowhere closed towards this sort of end of carbon

of fossil fuels, oil and gases. What is like the transition look like when you like, when you think about this and you say it is a decade to cage one decade, what is what does it look like when's peak energy production, peak energy demand? What's the sort of ideal transition looked like from your perspective. Yeah, so let's focus it on the word transition. Well, first of all, I think the peak oil demand is probably around that's that's my estimates based on numbers and things. But let's

think about transition. I mean transitions save from DVD players to streaming. You know, basically, you the demand for DVD players and DVDs goes down and the demand for streaming goes up. You know, what we're seeing in energy is that we have oil and gas and actually, unfortunately even coal continuing to rise at the same time as renewables are rising and electric vehicles are rising. It's more of a diversification of our energy system rather than our transition

that's occurring. And then there's a big difference. And so let's let's bring that to cars, which is really important. You know, there's all these headlines and metrics measuring the sales of electric vehicles, and I think that's great. As I said, I've driven one for five and a half years.

I love it. But the real metric in terms of decarbonization and transition is well, how many cars are we taking off the road that are combustion vehicles Because the reality is is that when somebody sells their combustion vehicle to buy an electric vehicle, that combustion vehicle goes to somebody else, and then when that person is done with it, it typically goes to a developing country and it gets

driven for another twenty years. So yeah, because I mean, if you think about vehicles today, I mean, they'll go to three miles easy, right, because they're built robotically. The quality is a lot better than the cars we even produced ten years ago. And and so you know, the real metric for a transition is how fast are we not using legacy paradigms for energy versus just focusing on on the growth curve of new energy systems. We have

to figure out how to retire the old stuff. And this is one of the big issues with oil and gas. Oil in particular and petroleum uses that oil demand is not likely to go down because population continues to grow

in in developing economies. Uh, people are buying more and more vehicles still, and you know they're they're not necessarily buying electric vehicles, are buying somebody's used combustion vehicle that just gets shifted in container ships around the planet, and so it's a you know that the real transition, as I said, where you get the decline of the fossil fuel systems and the growth of the the new clean energy systems in earnest I don't I don't really expect

that to happen until So that means between now and then, we've got this massive gap that's deteriorating in terms of the incumbent system. Well, Peter Church second, really great perspective. You know, we've been sort of talking about some of these topics very generally in terms of the financing and the constraints, but it's great to get this sort of like very clear ideas and like how they were thinking through these things with the constraints and plus the machinery.

So I really appreciate you coming out online. That was very very educational. Well, my pleasure, thanks for having me, Thanks so much, Peter. Yeah, that was really interesting, Tracy. That example of just thinking through Okay, you have a hundred pieces of equipment, you only use forty, but then you cannibalize the other sixty to maintain the existing forty and then at the end, you do not have a

hundred anymore because you didn't buy anything new. I think it was actually one of the clearest sort of big examples of I guess, like history sist or supply side degradation, what happens when you have a protracted slumping in they in an industry totally. And then I guess the um extending that to the labor side, that anecdote of one person enrolled versus classes that used to be you know, thirty or more are that's kind of stunning to me.

But I guess, you know, to Peter's point, what would you expect when for years and years and years people have been like, oh, this is a terrible industry, you're ruining the planet. Who in their right mind would want

to go into that? No, it doesn't seem like you know, okay, yes, I'm sure in many cases they were very very well paying jobs still even during the downturn years, but very little about that career over the last ten years would have seemed to be particularly appealing for a lot of people.

And then it's sort of like kind of mind blowing to think, uh, you know, the first order effect of a of a surgeon energy stocks is that you probably have a lot of people who worked for Exxon or whoever else they like, finally, my portfolio stocks is high enough that I can retire. So even before you have the positive price signal of of putting people into the market, you finally get people who could cash out and retire.

The two other things that struck me was one just the idea that maybe if people were a little bit nicer to the industry. And again, like so much of it, it sounds like messaging, and it is, but I think that matters to people, right, Like, no one wants to feel like they're coming into a job and they're not. It's weird making it different. Yeah, I know, I know it's weird. But on the other hand, and that's true.

But something else has I've thought about. It's like Trump was like really nice, like rhetorically to the industry, and that was the years when like they lost hundreds of billions of you know how many hundreds of billions of dollars in the industry Louise from through so yeah, but I mean they were still producing, right, that's the difference.

I know. It's so it's so weird, it's like, oh, we're nice and we're like going bankrupt and now we have a president doesn't you know, doesn't quite say as nice things, at least at the UYS about the industry, but they're all making a fortune. It is sort of

this weird I don't know well. And the other thing that I thought was interesting was this notion of you know, when he was talking about peak oil, which is a something that I haven't heard about for a long time because it kind of died during that era, which again tells you, you know, how extreme the sentiment kind of

swings here. But when he was talking about the energy transition, we're not actually replacing all these combustible engines with new electric vehicles, were just moving them to a different place.

So if the pool of the global population that needs a car continues to grow, then you can have a situation in which maybe you know, in the US and Norway and some of these other places have booming e V demand of course China as well, but then still like all of these used combustion vehicle don't actually leave the road and go to poorer countries, and the fact that you know, cars are made pretty well these days, I was sort of that they might live another twenty years,

even after the second owner in the US sells it to someone an emerging market. Well, I mean, even like Landrovers from the nineties are really desirable. No, no, I had a really bad experience with the used land Rover. Never buy used land Rover. I think he would feel differently if you were living in like tens of years. No, no, no, no, no, I would not on any I would never wish anyone, even the most desperate person for a car, to buy

an old land Room. Okay, they're great. I love them visually and aesthetically, but I would never, no matter how hard up you are, never buy an old land Rover. Okay, well, I feel like we're gonna have to talk about that that that website Bring a Trailer. It's so cool because they have all these like old classic cars, but it's called like bring a Trailer because it's it's old classic

car auctions. But like these really like land Rovers, or these like BMWs and Mercedes that are like from the eighties and nineties that are like so cool and retro looking, but you just know, like it's there's not gonna work. You're you're gonna drive yourself crazy. But okay, but here's my point before I clearly touched a nerve by mentioning land Rover. But you know, like a lot of the newer cars, people don't have the expertise needed to fix

them if something goes wrong because they're computer. Trust me, you don't have the expertise. I know this because we had so we had a land Rover that we got used in our family and the problem was not that like actually no one hit the expertise like it was like, oh we had to find someone Manueilson. No, don't do it. Never, it doesn't matter how cool they look. Don't buy What if I okay, what if instead of like Rover, I say land Cruiser. Would that be better like a Toyota

land Cruiser. Toyota probably a little bitter Okay, okay, okay. My point is there are different reasons why you might want an older vehicle. And so to Peter's point, the assumption that we're just all going to switch to electric vehicles that might be unrealistic. The broad point, you just picked a category that I have. Okay, Look, if anyone, if anyone wants to get a reaction out of Joe on Twitter, just tweet like pictures of land Rovers out of it. I guess that's the way they look. Still

drive on. Tell him you're thinking of buying one? All right, don't buy. I don't give it financial advice, but don't buy a nineties land. Okay, shall we leave it there. Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Eisenthal. You can follow me on Twitter at the Stalwart. Follow our guests on Twitter Peter Church sack In and he's

at Peter Second. Follow our producer Carmen Rodriguez at Carmen Erman. Follow the Bloomberg head of podcast, Francesca Levi at Francesco Today, and check out all of our podcasts at Bloomberg under the handle and podcasts. Thanks for listening to