With Laurent's segle And from London and Gerard Reed from Berlin. This is redefining energy today.
I'm redefining energy.
We're going to talk about molecules now, Laurn, we don't talk about this very often, but obviously it is a critical part of our energy system and it's going to continue that going forward. What we do need to do is we need to make them a little bit more green, right.
Yeah, So it's all about that segment of the energy transition that we don't address a lot because we are a very electron guy. We're going to talk about waste gas management, We're going to talk about bio fuel sustainabilization, fuel emission capture. It's really a sector which is nascent and it's very American, much more than your opinion. And interestingly, you have some privatic de fund who are pretty good at developing those type of project.
Great and we've got a really great character that we decided we bring on the show, Chris Roselle, who is the managing partner of a US business called Cresta Funds, which is a big investor in this area.
So yeah, let's bring them on the show.
Chris, Welcome to the show.
Thanks for having me, Chris.
When you created Christ Funds, you're a certain thesis around energy infrastructure investing, So what was it?
My two founding partners and myself we started our careers together as operators and then founders and then became private equity investors. And so because of that, we started in the energy infrastructure sector, building midstream as sets, with a big focus around the gas sector in particular, so waste gas was a big focus of ours. At one point we had one of the largest footprints of assets and
plants dealing with CO two nitrogen sulfur gases. And so when we went to build our first firm and started meeting with private equity, we found that there was a bit of a gap culturally from what we were looking
for in venture capital. Firms have spent decades trying to put the founder mentality into the venture capital world, but in the real assets world, where real essets capital was, it seemed like most of the folks leading those sectors had come out of project finance, and so here we were as founders having the problem that founders have trying to raise capital for real asset investments, and we're having
a very difficult time bridging that gap. So when we decided, after a decade of success as founders and operators to go raise a fund, we recognized where we could really add value is building a firm that brought real asset expertise with an appreciation for what founders go through. And that's really the gap that we try to fill as earlier stage real asset investments.
So basically you're saying you're better building things running in next send sheets.
Yes, a team, we're better at building things than running Excel spreadsheets.
You managed almost two billion now and can you describe the various sector you've been investing in.
Yeah, specifically in sustainability. You know we have this as I mentioned this long background in dealing with waste gas, both energy gas, industrial gas, and as energy transition began to take hold over the last few years in a very big way, we saw a specific need for our waste gas expertise Outside of just the energy sector. We started seeing that same need in agriculture, in waste management,
in chemical production and fertilizer production. Then in twenty one, we were fortunate enough to be joined by a fourth partner, John Skriner, who had a decade of experience in low carbon fuels, which was an area we did not have a lot of experience in. But when we combined his low carbon fuel experience with our or waste gas experience, we felt like we could address this second transition that
had been overlooked. Everyone's focused on power and the needs for power, but to get to net zero, we have to deal with a lot of other challenges. We have to deal with ag waste and chemical waste and other things that really weren't being addressed, and so that's our focus area for our fund.
Can you give a specific example, so you're like into bio fuel or saff or something that I can understand.
Yeah, if you had to break it down, there's sort of three areas that we really focus on. One is circular economy, waste management upcycling of waste. You know, can we take plastic waste and do something more than just make plastic. That's an area that we see value add solutions right now. The other is various kind of liquid
and gas fuels. So obviously batteries play a role in mobility, but there are applications out there that we just don't think batteries are well suited for because of their dense. Either're just so heavy, and so we see need for things like SAFF. You mentioned sustainab aviation fuel, and that's an area that we focus on. And then lastly, it is in just dealing with direct emissions. That may be methane emissions from a dairy farm, it may be CO
two emissions from a fertilizer producing plant. Those are the three big areas. Waste up, cycling, liquid and gas fuel alternatives, and then waste gas management.
Okay, so if we're going between two SAFF, recent news have not been very positive and NESTA is an absolute disaster, you know, air products or so considering a certain number of plants, So how can you survive in that environment?
I mean, MESSI is a good case study. I think about fifteen percent of what they make is SAFF. They make a lot of HBO and diesel and other products. But you know, they certainly struggled the last year. But if you go back to twenty twenty, you know they were up two hundred percent. You're same in twenty two
they were up again. So what you're really looking at is just a tremendous amount of volatility, and the reason it's so volatile, we believe today is you have a rapidly growing demand, and this is not just for sustainable aviation fuel, but also for renewable diesel and ethanol and lots of other liquid fuels. You have a rapidly growing demand, but it's on a very small starting base, and so unfortunately, we can't add supply in this market ten gallons at
a time. We have to build very large plants, and so as people bring these plants on to meet demand, you find yourself whip sawing between a market that is undersupplied and oversupplied, and undersupplied and oversupplied.
As we look.
Forward to twenty thirty, we see that market correcting because eventually this base gets big enough that one or two new plants isn't enough to move the market. In fact, even as early as twenty twenty six, with Canada coming on as a new demand center and EU and UK continue to grow in their requirements for sustainable aviation fuel, we see that market correct and you're actually in an undersupplied market in twenty six. By twenty thirty, there's a
very healthy deep market. So we are long term bullish, but there's a lot of turbulence between here and there.
Chris, Really, I'll tell you there's two things I'm really interested and i'd love to hear your view on. One is is the United States and the future a sort of infrastructure investment in energy as you see it. And then the second thing is I'd love to talk about Texas.
At the end of the day.
You come from Texas and a lot of your investments are in that area. But maybe we just talk about the US first and foremost and just give us your view on how you see the landscape over the.
Next few years.
So you look at it positive from an investment point of view, do you look at it cautiously?
How do you see it?
What I think is clear is there's a lot of uncertainty right now. This existing administration has had a lot of activity in the first month, and the markets globally are trying to digest that and predict where it's headed. I'm not going to be able to predict the future, but what I will say is there are some areas that we focus on that we believe are really not in the spotlight of a lot of the changes that are happening today. So one of those areas is carbon capture.
That's an area in particular that the incentives that drive a lot of the support behind carbon capture are not new incentives. These are not created by the Biden administration. They go back a decade or more. And also most of the benefit of these incentives tends to flow into conservative districts or conservative states, and so we see a lot of bipartisan political support in the United States for carbon capture. I don't know exactly how that will play out.
One of the big secular trends we see driving power right now is AI and we're seeing hyper scalers need massive amounts of twenty four to seven based load power, which tends to lend itself away from wind and solar and more towards solutions like natural gas fired power with carbon captures something along those lines, and so I could
see that being a big growth area. Areas that are a little just from a US sort of investment standpoint, that are a little more uncertain, are areas that tend to get caught up in some of the trade friction that we see we have as I think, you know, a large refinery in Canada that produces renewable diesel and could produce sustainable aviation fuel as well. Historically, all of that product that's produced has come to the United States. We may have a tariff on that product that obviously
creates a big headwind, but we're already seeing responses. The Canadian province of British Columbia announced a change to their Low Carbon Fuels Act that requires the satisfaction of their fuel demand be met with Canadian fuel. So right there, just opened up a new market for our Canadian refinery. So what's going to happen is there's just like with sustainab waviation fuel broadly, there's a lot of near term
uncertainty and turmoil. As the rules become known, the markets will settle out and it will.
Be business as usual. When I look at the set of policy that US government is, you hear this drill, baby drill, I don't think that's what it is.
I think it's cheap, baby cheap.
In other words, energy has to be cheap. I don't care what it is.
It has to be cheap. Do you look at it like that?
How would you sum up the policy as you see it going for the next few years.
There's probably a couple of sentiments behind that policy. On the one hand, the traditional energy sector tends to lean very conservative, so I think there is an internal desire from the administration to find way to support this industry that's been supportive of the Republican administration. Right, So there's a little bit of that, But I think you're right when you're looking longer term. The big concern that's really started to plague renewables globally, but it's being brought to
the spotlight in the US is inflation. Right, we have a large risk of inflation. There are solutions within energy transition that can be implemented with very minimal cost impact, and then as you start to move to the right of that curve, the costs go up dramatically. You hit a wall pretty fast. Our own view has been for some time that pragmatic solutions that can be impactful will get built eventually. Though when we hit that inflationary wall,
there are hard decisions to make. It's easy to dismiss these things as saying, well, economics shouldn't matter. We're in a crisis here, and like the end of the day, this crisis could impact sort of lie. But the reality is inflation does too. Right, When the cost of food is too high to bear, then people starve, and so the reality is this inflation is not just greed or
people's money in their pockets. It's a real concern whether or not sort of lowest income producing people in the world will suffer inordinately to try to achieve these larger climate goals. I do think you're right. I don't think that the Trump administration is anti climate. I think they are pro traditional oil and gas. And I also think they are anti inflation, or at least, you know, ostensibly
anti inflation. I think the tariffs could drive inflation, but the ultimate goal is to try to find ways to curb inflation. And so when you say cheap, baby, cheap, that's probably in line with where the goals are.
The other thing related to that is Texas. At the end of the day, is that you guys are based in Texas. If I'm just looking across the world of energy, I sort of have to look at Texas and say, well, maybe these guys are really showing us the way forward. And it's for me amazing that Texas seems to be at everything to do with energy. They're not just leading, but the winning right and the whole economy is basic.
So could you talk a little bit.
About how you see Texas, and I suppose what makes it special.
Right, And in some cases there's some advantages Texas has. It's a very large land mass, it gets a lot of sun coverage. There's a lot of open areas in the plains with big wind right. So we have a lot of the resources that lend themselves well to renewables. We also have access to low cost natural gas and a very stable long term grid that's been integrated within Texas.
So the ARCOT grid is largely self contained, and so it's almost a country under itself, right, So it has a lot of resources that has been taken advantage of. I don't think all of the growth that Texas has had has been driven by ideology. It's a lot of it's just driven by economics. It's an area with an abundance of resources, and it's had people with very low barriers and very low amounts of friction. It's given companies ways to access those resources and develop them fully.
That's great help.
Yeah, Look, it's always interesting to confront your Texan or American view with what we have in Europe, which is basically squeeze between America and Algie dominance and Chinese technology. And to tell you the truth, ch and I were investing in a chairman off top solar company and the German they went to see their US counterpart and they say, those guys are morons. They don't know how to put sela on the roof. It costs forty thousand dollars a
roof in California. In Germany it costs half this price. I don't know if they are disorganized or not, but the reality is we were just dealing with Chinese solar panels and there was no from Tarif from them, and there was no.
One bargo or whatever band.
So at some point if you want to do the energy transition, because unfortunately we don't have the permium basin in Bavaria as big energy importer, we need to use whatever is on the hand, and a lot of Chinese technology are good. Now the old mantra we hear are I mean they're gonna spy on us and so on is bs because there is a law in your rope which call a cyber security law, and you cannot have
the Chinese software controlling any equipment. So in fact there's this very limited world way in vertors and so on. But there are basic parts, whether it's batteries or solar where we are happy to get a lot of cheap Chinese and build value on the top of them. And in the US it's not. The US is importing less Chinese solar panels than the Dominican Republic. So that's ridiculous ideology on one side and ideology on the other. Sorry, I mean this, there's no question there, it's.
Just no no. I think the challenge we run into is, you know, in politics, there's conflicting goals. If the unilateral goal of all politicians was to create the lowest cost energy transition, then you have to eliminate trade friction. The best way to do that is there are companies that
specialize in the production of products. There are companies like your German counterparts, that specialize in the installation itself and the systems and the efficiency and to get the best of all worlds, would we would ultimately end up with the lowest cost product. I think when you run up against other political goals that that starts to conflict with the transition. And I think that's what we're running into in the US and.
In Europe as well.
Right, you do have anti dumping duties on US products, and you do have things that drive your European cost up as well, where you may be bringing in components from Asia, you know, duty free. You're not bringing in fuels duty free, right, So there are there are areas where that friction does exist. So in a perfect world, we would eliminate that friction for purposes of hitting this
energy transition at the lowest possible cost. But I think we just have to deal with those practical inefficiencies, Chris.
I wanted to go back to your portfolio.
Right.
A lot of what we talk about is about electrons, and a lot of what you're doing is molecules. And we realize this is incredibly important. But I'd love to ask you how you see that in the light of if we look again from the outside of the US, what you've got is a surplus of molecules and that purpose to increase, not decrease in the next few years.
So how do you sort.
Of invest in that type of area when you've got that over capacity maybe looming? And if you look at the gas prices, they're incredibly low compared to everywhere else across the world.
Right.
A couple of things. One, while we do talk about drill baby drill, and there's this big sort of ethos shift around traditional energy. In the US, we haven't really seen drilling constraints in the last few years. Most of the drilling pacing is still driven by global pricing, which is I still think more influenced by OPEC's decisions than
US policy decisions. So I don't know that you'll necessarily see a big flood of incremental growth without a market to support that globally, because we are already exporting products right as we've already overrun our own refining capacity. On the natural gas side, the need for these hyper scaling of data centers is likely to chew up most new supply that we can generate in natural gas and on the crude side, I think you're going to still be
just driven by global demand for product. If I think really long term, though, we still have a limited amount of finite resource in the ground. I don't know how
much that is. It seems like you can always squeeze a little more juice out of this lemon, but at some point these resources deplete, and where we see things like biofuels coming into place are to help supplement longer term, as those lower cost molecules either deplete or become higher and higher cost to get to where all of a sudden, now, if we're using waste products or cover crops like camelina, we may be able to see a cost parity on
biofuels that's in line with traditional That's really the endgame for biofuels.
Now.
The challenges there's not enough biomass in the world to meet our energy needs. Right, you have to have solar, you have to have wind, you have to have these other things. But it can be a nice stop gap and bridge and quite low cost as well over the long enough time period. Compared to the lowest cost oil in the world. No, it's expensive, but compared to where oil is been in the last ten years at times, I mean, I've seen one hundred and forty dollars oil,
I've seen negative forty dollars oil. When you get oil prices that are on the high end of that, we can actually make renewable diesel and sustainableviation fuel at true cost parity to those numbers. And so that's where I think we're headed long term. So you're right, we're flooded with molecules today. I don't believe we'll be flooded with them forever, and I do think there's a global recognition of that.
Let's assume I have a beautiful project or something, what would interest you as an investment the next three years? Say like, I can feel something because what I really appreciate with your approach is you have a real dominic expertise, which means that you might see trends at least a few months ahead before the behemoth of Black Blackstone, KKR and so on. I think you have a feel of the grantity of the market. So why are you're editing now.
One area that's early stage for us but pretty excited is there's been a lot of megascale early venture work in things like carbon capture, and in some cases there are projects out there where they're taking the carbon from carbon capture and making other products like graphene from those carbon.
We're not likely to be competitive on those multi billion dollar type projects, but what we find is they've been built quickly, and they've been built to address a specific problem, and in that case, they end up with a waste stream or a waste product that was unintended. So, for example, in some of the projects we've seen where they're building graphene out of captured CO two or methane, for example, you end up with hydrogen that's just being vented into
the atmosphere. So we're looking at ways to take that waste hydrogen and turn that into a usable product like an e fuel or an ammonia or something that can then be utilized one example. But there are lots of ancillary examples to that approach, which is we go and we sort of chase where the big whales have gone, and we look to see, in their rush to get something that works, where have they left inefficiency laying around that we can come in on a smaller scale and
help to patch up. And I think that's a big focus area of ours, and we see that in and around large ethanol projects and carbon capture projects. We see that in forestry waste management projects, in plastic refining projects. There are lots of areas where we can come in with a smaller solution and clean up an inefficiency that's quite attractive economically but also has a pretty big carbon impact.
Chris, I'd actually like to ask you about ESG investing in the States, because what we sort of see and I'm speaking for Lauren. I think we said I think there's generally a reaction against ESG investing across the world. Yeah, I was on your website and there's ESG all over, So you wouldn't be doing that if there isn't still people out there that are believers. So I'd love to hear your thoughts in terms of how investors in the US are looking at ESG.
The way I see it, and this may be simplification, but I don't think there's anyone that's anti climate in the world. ESG as a phrase or as an acronym has become loaded with political meaning that's not just tied to climate. The same Istruy for DEI. I mean there are a lot of these phrases where people have become anti the phrase because it evokes more than just climate investing. What it boils down to. And it's a bit on what you said earlier, Gerard, when you asked, is our
policy cheap baby cheap? Where people's tension ultimately is is everyone would try to save the planet. If it was free of cost, everyone would do that, And then I think there's some costs that most people will still save the planet. And then I think there's a cost at which no one wants to save the planet, right, so that when we're looking at ESG, we try to step away from the politics behind that always have and what we're really focused on are pragmatic solutions that are returns first.
We're an organization that's not impact first. We're not trying to go make an impact at the expense of returns. But we see a secular trend and an opportunity to invest profitably in ways that also have an ancillary positive climate impact, and that's really our focus. So when we talk about ESG or DEI or any of those terms, we're coming at it with a very pragmatic approach. We want to be innovative, but we want to be pragmatic. It's actually one of our values is pragmatic innovation, and
so that's really our focus areas. So not to try to thread the needle here, but I think a lot of people are against the phrase ESG. I don't believe if anyone's against the idea of protecting the climate Chris.
As we conclude, we like a lot of your approach, we like your portfolio, we like that you're in the zag when everybody's in the ZIG, So what is it?
It's a cultural thing. Explain please.
One of the challenges. There's a lot of capital that's been raised in climate tech and venture capital, and there's a lot of capital that's been raised in megascale infra. And what we find in the market is when a technology has grown past the venture stage, it's commercial, it's ready to go, but it needs to be implemented sort
of one asset at a time. Those assets maybe twenty five or fifty million dollars installations, which is too much for a venture capital firm to touch, but it's pretty small for a major infrastructure firm to get involved in. And the other challenge we've heard it called the missing middle. There's a lot of ways to approach this, but we
see this as a very real phenomenon. And one of the things we try to do is get involved in that early commercialization so it's no longer venture, it's commercial scale. Allow a company to build a base of assets and a pipeline of growth so that they can become a better target for the large infra because the bigger challenge for the large infragroup is not just the smaller check size. It's a smaller check that also needs a really large
amount of manpower. It takes a lot of time because you're dealing with permitting and construction and commercial contracts, and a lot of that stuff is just very high touch, and so when you're doing twenty five and fifty million dollar investments that are also very high touch. Right now, there's just not a natural home for a lot of those opportunities, and that's where we've been able to fill the gap.
Well, thank you for unveiling your secret on those wise words crisis. There's been a pleasure to have you on the show, and what I wish the best for Christophins.
Thanks.
Yeah, thanks jar Thanks Lauren, It's really great to talk to both of you.
Well, Jarad, compared to last week where you're your foot fight, this was very civilized.
Yeah.
Chris is very articulated, very smooth sailing, and I like his approach at the intersection of private infrastructure.
I do too.
And what I actually, there's a lot of things I like. One is I would say what he's doing is not easy. And number two but what I like about it is the fact that he's going into niche markets, which means actually from a money managing money making.
Point of view.
You can make quite a lot of money in these niche markets because they're ignored by the really, really big players. And by the way, it's obviously I think we both agree you need these molecules going forward, so you want to have them as green as possible. So we need to work in that area and investment in that area.
Yeah, so it's all was great, Okay, So I'm going to qualify strategy, but I'm not denegrating it. It's very positive. But technically it's a scavenger policy. You find those big fat inefficiency and you manage to feed on them, and that is very smart, and you want to do carbon capture on it and all plant it's going to cost you twenty seven dollar pattern of C two and in front you have a forty five Q tax credit which gives you eighty five dollars. So that is super profitable.
That's very smart. Now, not of all these pets are gonna succeed in the short term, because as you said, the market is very long molecule and suffire expensive. And if your strategy, say when all is back at two hundred to barile, all be profitable or you know a lot of that's not very anyway. It's good, it's smart. I like it. It's good that the market just to create technical actors who are taking care of the blind spots that the black Hawk or Blackstone of this will have.
So yeah, I like their approach a lot.
Yeah, Micho, I'm looking forward to following their investment activities over the next few years.
Okay, we thank Chris Moseel for coming on the show. Christa and Job I'll talk to you next week.
Look, porter, thank you for listening to Redefining Energy.
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