The Energy Policy Draft
0:19 Hey everybody, welcome to Chuck Yates needs a job the podcast special episode today. I have as my co host literally the greatest research analyst, Canada has ever known Stacy McDonald. Thank you
0:33 for hosting today. Thanks Joe. So Stacy, here's where we are. We've got 100 oil. We got 7 natural gas. You can't find a lump of coal anywhere in the world We've got a ground war in Europe over
0:48 energy dogs and cats are sleeping together masses stereo. What do we make of all this? Thanks, Chuck. Honestly, I think, you know, the chaos currently in the energy market is the result of a
1:01 series of very poor policy decisions. You know, it's not unique to one country. It's everywhere. It's an all aspects of the energy staff. So everyone here today on this podcast We all work in
1:14 some aspect of the energy business and we all love to provide our on everything in our chair quarterback what's going on. So I figured, why don't we try to harness what we perceive as being subject
1:26 manager, subject matter experts. Let's see where we end up. So what we're calling this is the energy policy draft
1:35 and see if you come up with anything constructive or practical. So I'm gonna hand it back to Chuck to kind of explain the process a little bit - So we couldn't come up with a better name for the
1:45 energy policy draft, but think the NBA draft, the NFL draft. What we're gonna do is we're gonna go down the list of our various experts. We charge them with you, our energies are of the world.
1:57 Tell us an energy policy. We may get laughs, we may get serious thoughts, we may get a combination of both of them, but let's just see where this takes us. Hopefully we will make the world a
2:11 better place by the end of it. First on the clock. is a long time energy veteran, Mark Meyer. He set a successful career as an investor, then moved into industry.
2:24 He started off life as an engineer. So he is gonna say an EMP guy by background, but very well versed in all of energy. Mark, you are on the clock with the first pick in the first annual energy
2:40 draft - All right, thanks, Chuck. I was thinking NFL draft, and I think back to some of the greats that I've seen play - I actually saw Bo Jackson play his last college game and actually a loss in
2:54 my alma mater, Texas AM in the cotton bowl, I won't say which year. But my draft pick is probably the most versatile athlete on the board. It's probably also going to be the most predictable and
3:06 that's natural gas.
3:09 It is, I think, in arguably the standard by which policy ought to be set given all of the things that we've seen come back to us here in this cycle of history, conflict, pandemic, energy
3:25 shortages, squabbles over things that have very little scientific perspective or understanding. And so along with that, I'd like to propose a couple of things as it relates to the foundations of
3:41 energy understanding. One is, I think there ought to be compulsory basics of energy in our educational curriculum. And then two, after watching most recently the energy and commerce hearings, if
3:56 you can call them that, I think there ought to be qualification tests for those who are at least driving the rhetoric around policy. And so if you think about natural gas as the standard
4:12 And speaking mostly from a NATO G7 North American standpoint, the US is fourth in total global reserves. It would take more than a quadrupling to overtake Russia as the number one reserves holder.
4:28 We are the number one producer. The thread that is natural gas that runs through so much of our daily lives from power generation to transportation to feed stocks for important things like fertilizer
4:42 and manufacturing of things like plastics. I think make it a really a perpetual policy plank that is the centerpiece of all going forward at least for those that are
4:57 part of the kind of the constituent alignment with North America NATO and G7 - So Stacey, when we saw the experts opining on who would go first in the energy policy draft,
5:12 you had natural gas and potentially nuclear energy running one and two, two and one through that. What do we think a marks pick -
5:21 Well, first of all, I want to commend you on
5:25 taking down the policymakers a bit 'cause ultimately these problems fall in their lap.
5:32 I like to pick on huge natural gas bull. So the question is, if we make natural gas the kind of the backbone of the next phase of the, whatever energy transition or driver of the economy, do you
5:44 think that the politicians have
5:48 enough like muster to actually say that fossil fuels are gonna be the next leg of this? Or do you think they double down and go with renewables more - Well, I just think given the current political
5:59 climate, the reality is much more complex and there's a ton of inertia. But when you look at, there's a popular quote floating around in the Battle of Physics. and platitudes physics always wins.
6:14 And so I think we see the interdependency of so many things including renewables and natural gas. Ultimately we get pushed into corners like we have been with the Northeast energy crisis, with the
6:28 European energy crisis. Natural gas is an athlete that can not only go north south, it can go east west, it can go for power, it can go for speed And so it ultimately has a core place in whatever
6:44 that next generation is once we get across the transition bridge, I don't like calling natural gas a bridge fuel because then investors start looking at, okay, what's my terminal value? I just
6:56 think that until we displace the laws of physics and materials, then we've got to ultimately accept natural gas being out in front of that fact of life if you will. is a much better policy path than
7:13 reacting to increasingly, kind of ominous crises that we're facing here. I mean, Putin's weaponized natural gas for sure. Those countries in the G7 and NATO that have great gas potential ought to
7:30 weaponize their own, you know, don't bring a knife to a gunfight - Ah, I'll bring McClendon to smiling down from heaven at that pick So with the second pick, Marc Rosano, CEO, C6, Capitol
7:45 Holdings, one of the smartest people I know, only 'cause I don't know you that well. But you're on the clock with the number two pick - Well, I love it. Thanks for having me on. I have to say,
7:57 I do love the natural gas pick. And if you look at the policy shift, they've dropped the term bridge And I always love how they play these little mind games. Like they're acting like they're being
8:10 so clever. And it is a flexible fuel. I never thought it was a bridge fuel. It is a fuel of the future. And I think that that is a huge piece, especially when you talk about solar and all these
8:21 fun things that need these little things called plastic that come from natural gas liquids, all these important things that come from the ground. But to nobody's surprise, I'm not funny. I won't
8:34 try to be. I will be coming out with a nuclear call So I do want to provide a little bit of backdrop on nuclear and nuke in general, because I don't think it's understood. I would agree on the
8:48 physics comment especially, with people and the way they view the capacity that we can come from. Some of the key things that I think are important are the micro reactors and the small modular
8:59 reactors. Everyone thinks of this big behemoth that has these big gigantic reactors, these big huge pieces that need all this type of reinforcement
9:12 There's been a huge breakthrough with pebble reactors, other types of safety measures that have been pulled through. But if you look at nuclear and the opportunities that it provides, you also have
9:23 to appreciate how it's been changing. And we also need to appreciate what needs to be created. And one of those is Hae Loo, which is high assay low enriched uranium. And so everyone likes to talk
9:35 about, oh, well, we're just gonna go build Nuke. It's like, okay, but what are the pieces that go into that? And I think the Hae Loo is something that really needs to be pushed and understood.
9:45 It allows for the smaller design, but it also has these benefits for those that are gonna push back on, oh, the
9:53 waste and the core. Well, it actually produces much less waste. It has a much longer life expectancy, and it increases underlying fuel efficiency. So you're looking at things that inherently not
10:05 only can shrink the design, but then also has a lot of the ancillary pieces because everyone always says, not in my backyard. So this is something that I think provides a very deployable
10:17 opportunity. It can be anywhere from upwards to about 300 megawatts depending on how many of these units are pieced together. Now, just because we have to talk about the fuel itself, Hilo was in
10:31 range between the 5 and 20 of Uranium 235 So when you look at the existing fleet, you're stopping at 5. So that's the main piece. So you really wanna be able to enrich that. So not only do we have
10:46 a new reactor in itself, but we would also create a whole new industry in terms of things that can be created. Now, there's different ways to do it. And that could come into some other type of
10:59 discussion. But realistically, when you're looking at Okay, I want to attack the environment. I want to bring things back under control. I wanted to shrink the GHG side of things. What is better
11:10 than what our cleanest form of power is, which is the nuclear side. So that's where I'm going to go. I don't think it's surprising anyone in terms of, because if I didn't get Nuke, I was going
11:22 with natural gas and indoor propane. So just, you know, moving with the board, if you will
11:29 So Stacey, Colin and I said the other day on the BDE podcast, it's too bad nuclear energy wasn't invented like yesterday, 'cause we'd probably be running around going, Ah, we've solved all our
11:41 energy problems. What are we thinking of Mark's pick - I just have a couple questions from Mark. So what's the cycle time on building these? And is it something industry can do, or would it need
11:52 more government backstop - So it's a great question. And I think the biggest be can it industry that done is, but thing it does need government backing to
12:02 build the halo structure because you have to create and allow for this to be built. So you're going to have to have other types of enrichment centers that are going to be created. So it's kind of a
12:13 two-handed, two-headed beast where you need the corporations, but you also need the government. Now, the other thing that the government has to do is reduce these little things. And again, I
12:22 don't say reduce in a sense of we're just going to throw these things up and not have inspectors come in to make sure that everything is built the way it's supposed to. It's just you have to
12:32 streamline the red tape. You know, you can have this red tape that just gets prolonged. And then all of a sudden, a facility that should have taken you eight, you know, two years to build is now
12:42 in year eight. And you just got the permitting to build to pour the cement foundation. So again, these are some of those key pieces that not that you're going to cut corners, but you're going to
12:53 work hand in hand to really push that forward. So I think Joe Rogan made one of the best comments about nuclear energy. He was looking. at all the issues, Chernobyl, Three Mile Island, et cetera,
13:07 all the baggage that comes with nuclear. And he said, when were all these facilities built? And they were all built in the 70s. And he said to that, he's like, did you drive a car built by the
13:17 Americans during the 70s? They all sucked. So we really shouldn't hold the fact that we were crappy as a country in the 70s against nuclear - Well, and if you look at like Fuzhara and all these
13:30 other things, like those were known flaws back in the 60s and 70s. I mean, they have GE emails knowing that it's like, oh, it would take a 92 and greater earthquake. So the chances are small,
13:44 they are small. It took 40 some odd years for it to happen, but then it happened. So again, be cognizant of fault lines, you know, where we are, where we're building, how we're building it.
13:54 And there's these are things that are life lessons that we've learned over time. and the reactors that have been built can be shut down quicker. They have more surface area because they're pebble
14:03 reactors. There are things then safety measures that have come in, not just on the infrastructure, but the actual reactor itself - Gotcha. Mr. Sankey, you are on the clock, but first with the
14:17 third pick, we have Kyrie Baker, who is currently a professor at Colorado University, formerly with the National Renewable Energy Lab, Kyrie, the weight of the world and energy is on your
14:31 shoulders. Who are you taking with the third pick - Thanks so much for having me. SMR was actually one of my picks, but I do have a backup. My pick is a little unconventional and it's not an
14:45 energy technology, but it's a scale of energy technologies. So my pick is community level resources. So if we're thinking about resilience rather than cost. Some of us think about making the
14:57 transmission grid a lot more redundant. Some of us think about every house having a chicken in every pot and EV and home battery system and every garage. But a lot of these costs with the smaller
15:10 scale systems just aren't scalable for most consumers. So we're going to get somewhere in between with the sweet spot where we're going to get some economies of scale with community scale, solar
15:22 community scale batteries, cogent shared resources. But we're also going to get the resilience, the aspect of being able to disconnect from the grid self sustained during the case of a major grid
15:33 outage.
15:36 So incentivizing DERs distributed energy resources. I like to call them DERS because I think that they're no brainer. It gets a little bit complicated when you have to share these resources But,
15:48 you know, taking a look at the fact that utility scale solar is half the cost of rooftop residential PV. It really incentivizes it for a community. So it introduces a couple issues that I'm not
16:00 gonna ignore. One of them being, you know, my neighbor Carol, I've seen her simultaneously charge her EV, wash her clothes and cook dinner during peak hours. And I do not wanna be, have her
16:12 doing that with my community resources. And I share a transformer with this woman. So people say you can't choose your families. You also can't choose who you share a transformer with sometimes.
16:22 And so transformers at the distribution level, one of the biggest bottlenecks for, you know, plugging in my EV, electrifying my house, keeping micro grid stable, just gets harder when you have
16:33 more consumption. So that's my pick. I think there's a lot of benefit to it. There's a lot of challenges to be overcome. But I think that we could work together and get there -
16:47 Stacy, what's your thought - I mean, it's very interesting. Do you think that the first way to kind of prove this would work would be. like a pilot project in the community or how do you kind of
16:57 see your first step in rolling this out - Pilot project would be good. I also think automating it is necessary. I don't think that humans are ever gonna be, you know, consciously adjusting
17:09 thermostat set points, choosing when they do things at such a granularity but matching supply and demand to keep the AC frequency at 60 Hertz is extremely challenging, especially when you get down
17:20 to that small scale where you don't have too many controllable resources At the transmission scale, it's easier. You have these large plants that can balance out frequency, everything's kind of
17:29 connected. There's a lot of inertia, but it just gets to be a hard engineering problem. So automation, pilot projects, testing it in communities where you are connected to the grid to begin with
17:41 - So Kyrie back when oil hit 12 a barrel in the late 90s, I went from being an oil and gas guy to a power technology guy, which meant I ran around distributed generation and everything you just said,
17:57 we could have said back in the late '90s. And in fact, an energy veteran family friend said, you could have said that in the '70s as well. One of
18:05 the biggest issues was the owners of the grid, whoever they were, utilities, nonprofits, threw up their hands and said, we can't have distributed generation assets connecting to our grid 'cause
18:19 it'll bring our grid down. I always felt like the science and the engineering could overcome that and that that was just protecting turf-type stuff, but is that still an issue and is it really an
18:33 issue - A lot less of an issue now. There's a bunch of IEEE standards that have come out for inverters that basically prevent them from causing voltage spikes and frequency issues, harmonics. So
18:48 the technologies have advanced a lot and the cost has also dropped a lot. So in the '70s, I wouldn't have really said microgrids makes sense, except maybe for military bases or applications where
18:58 you need to be cyber secure and physically separated. But now they're making a lot more sense.
19:06 Gotcha. All right. Little unexpected pick. Didn't see that one coming at number three. Maybe a little bit of a reach here in the draft Now with pick number four, literally the greatest research
19:20 analyst in energy that America has known, Paul Sankey. Paul. I'm more than the same cool as Mark Razzano, mate. You want to be good
19:30 for you, son? The one thing I will say is when
19:34 I laid out the backdrop for this, telling everybody your energies are, you did ping me back, saying, I know I am. You don't have to tell me. That's so sad. Paul That's a lot of pretty chug,
19:45 but hey. Paul, what is number four? Well, I think that the big mistake that I see in energy - policy is always attacking the supply side and I just see it time and time again right down to the
19:57 infuriating environmentalists trying to stop gas pipeline side of thing. What I always say to people is what these big oil companies fear most of all is demand. Demand changes. That's what really
20:09 causes them huge nightmares in terms of where we go next. In general, everything that we look at and is longer analyzed is the demand side As energy star, what I would do is gasoline tax. I would
20:24 address the US gasoline tax. I totally agree with the other ideas that we've heard so far, particularly regarding natural gas and particularly regarding small scale nuclear. In fact, anything we
20:34 can do. But I do think that the really obvious issue is that the gasoline tax in the US has been too low because it's politically unpalatable for either side to change it you have Democrats coming on
20:48 a very strong environmental agenda. You won't see any mention of addressing what's the most obvious differentiation in US energy pricing against the world, which is you don't fully charge for the
20:60 full cost of gasoline. And the story I tell is that I was testifying on gasoline prices to the Senate back in the 2000s. And I said to them, I've calculated that you need a 2 gasoline tax per
21:12 gallon to pay for the Iraq war. And they were like, Ugh, please just don't go there on that But it was a trillion dollar cost, an arguably a war about oil. And if you look at where we use our oil,
21:26 we're farm will disproportionately using gasoline that any other major economy in the world at a far lower price with much more inefficient cars. I didn't start my clock, Chuck. So you have to stop
21:40 me at three minutes. Okay. So basically the gasoline tax in the US was last raised in 1993 has not been inflation adjusted And um. you know, now represents just about 5 of the gallon of gas in
21:55 Europe, the equivalent level is about 60. Now, I'm not saying that, you know, we need to go to European levels because of the nature of the US and the way people like to live. But I do think
22:08 that it's just politically
22:11 unpalatable as the word I've been using to put in a gas tank. And if I had the kind of power that you're talking about, one idea I've had is that you would regress the tax. So essentially when
22:22 gasoline prices fall next time around, when we're next at 40 a barrel, you would stop the price going below, you know, 3 at the pump by increasing the federal tax. And, you know, essentially
22:35 that would also take about 30 out of gas prices. Because if you look at the gas as a share of American consumers' wallets, it's actually not that high now compared to history The issue is actually.
22:48 shock. So if you reduce the volatility, that would actually be helpful to people in planning their lives and planning to kind of Carly buy everything else. And you see major shifts in US behavior
22:57 regarding gasoline prices. We had forecast EVs and S under hybrids in 2009 to take a huge part of the US vehicle market by 2020. But the downsurning gasoline prices in the middle of the decade saw
23:13 an enormous upsurge in SUVs. So I used to play a game in my son, which was, let's count how many pickups have something in the back. And it was consistently about 80 of pickups just don't have
23:25 anything in the back. You don't need a pickup that's peculiar for fun vehicle to drive as opposed to a necessity. If you become more efficient in gasoline and getting from A to B, there's no
23:35 economic loss. The fact of the matter is you still get from A to B just did it in the more efficient. So I'm going to go for the gasoline text that Chuck and Stacy, and thanks for having me on.
23:46 And we've got some spare time. Stay Stacy, on the bingo board this morning, I did not have higher gasoline taxes as being one of the picks. What do you think -
23:58 It's definitely interesting. It kind of veering close to a carbon tax, but not quite. I guess it's - Yeah, I support carbon tax as well. Stacy, but that's not what I'm talking about - I mean, I
24:03 would
24:10 ask for things. One, two things to address. One, this would be very aggressive on low income people. So how do you deal with that? And two, what would the government do with the massive amount
24:22 of proceeds from the gasoline tax -
24:25 Yeah, on one, I think that's why I'm suggesting that we would stop prices falling. But I hear you, it is gasoline taxes regressive, and there's not a lot you can do about that in terms of it. It
24:36 does disproportionately punish poor people in the way that so many other supply-side type attacks have had a similar effect, when people are trying to reduce the of energy, which obviously
24:50 disproportionately affects four people. The other one that's crazy is the California solar system, where you pay rich people a generous price to have solar panels that four people can't access. And
25:00 in fact, they tried to address this. And the solar industry has fought back furiously in the past six months to prevent a more market correct price of the cost of solar effectively, because it does
25:13 disproportionately affects four people to have so many rich people, because subsidized by the Red Tesla or solar panel. But so I hear you on that one, and it's sort of unavoidable in terms of the
25:24 in terms of the spend,
25:27 the deficit is pretty massive. But I don't really, if I was to support an idea, it's definitely gas pipelines and facilitating that's a pipeline infrastructure in the US. If I was to go after the
25:39 supply side, potentially, I do think that you know, US infrastructure, I do agree with the Biden administration and most that we need to upgrade the infrastructure when you look at China. And if
25:52 I'm going for it, I'm gonna build high speed trains.
25:56 I'm gonna use the money for high speed trains - Yeah, I mean, you could also rebate a portion of the fact of people that are super low income rates because they're still incentivized to lower their
26:07 gasoline usage even with the rebate because they get to keep more of it. So it's just something to think about - Here in the United States, every dollar we get, people just use to pay interest on
26:18 the debt. You know, that's kind of seems to be our jam.
26:23 All right, with the fifth pick in the energy policy draft, we have Team Rory Johnson. Rory is the author of the Commodity Context newsletter that's on sub stack and a former bank economist. So
26:40 Rory, you're now energy czar. You've heard who other people have picked. with the fifth pick, what are you doing on energy - Thanks so much for having me. And just to, everyone else has had
26:52 fantastic needs. I particularly loved Paul's comment around the kind of a scalable gasoline tax that was actually very close to my backup. So very happy I didn't have to go to it. But if I was
27:03 energy czar and I was able to do anything completely kind of fresh from scratch, I would take a relook at the US Strategic Recrualium Reserve and mirror the policy more broadly globally So people
27:14 love to hate on the SPR and I think, you know, reasonably so because most of the time the SPR particularly recently has been used, it's to kind of lean against very organic structural price
27:26 increases like we saw from the Biden administration at the end of last year, which not only doesn't really help matters but actively could make things worse by reducing the price signal to Brit, you
27:36 know, that we should be bringing on more supply to actually solve that structural deficit. how I would restructure it is I'd restructure it. The SPR actually make it a more expert, active
27:50 participant in the market with the intended policy goal of reducing price volatility and increasing the effective signal, particularly to US shale producers down the curve. So the reason we're going
28:05 to see volatility higher, obviously we're seeing volatility massively higher today. I think that's only going to continue to get worse over time as you have the uncertainty kind of ripple through
28:16 investment intentions and the kind of policy chaos that we're seeing on the demand and the supply side. Also on that, the traditional volatility, softener or dampener in the market, OPEC and
28:30 particularly Saudi Arabia has very much over the last couple of years. And I think most acutely this year very much stepped back and relinquished kind of an active role. You can argue about why
28:41 that's happened, you know, a proximate likely cause would be Mahab had been Salman taking a larger and larger kind of control over the commanding heights of the Saudi state, both military and
28:53 Aramco, and kind of politicizing SPR, sorry, politicizing supply changes and production changes in a way that we just haven't seen historically from a much more technocratic, almost deferential
29:05 kind of OPEC and Saudi state. So I think when you think about the way that the SPR could operate, I think we saw the shadow of good policy with this latest and the largest ever SPR release. There
29:19 was talk about a floor price that would be supported by refilling the SPR, but I think you have one step forward and basically say that anytime you sell a barrel from the SPR, you on some kind of go
29:30 forward base in the futures market directly contract to refill that space. So not only are you reducing the prompt price, you're lifting the kind of middle or back of the curve
29:43 increasing the effective signal to producers that are looking to hedge with those prices. The same thing could happen on the other side. And again, this is where reducing and removing the political
29:52 side is so important. The fact that the SPR did not buy into the wildly super-contangled market of early 2020 because of political pushback for filling at that time, I think is a no-brainer. It
30:07 should be able to step in those moments, fill up what capacity is there so that it can be used for other policy purposes down the line. So whether or not you want to create a tailor rule or
30:17 something central banky like saying, Only you can think of intervening when the container or backwardation is in the highest kind of 5 of the distribution on either side, whichever way you want to
30:30 frame it. I think it allows for using the SPR in a way that actually affects positively the price signal that we want to be going to producers. So Stacey, this is interesting. I didn't think the
30:44 fuck you Saudi Arabia policy was gonna fall to the fifth pick. I thought it'd come off the board earlier. What are we thinking there - I like the idea. So a couple of questions. One, industry
30:57 people are almost all optimists on price. Politicians are optimists the other way. They always think the oil price is gonna be lower. So when you talk about filling a panel with expert people, I
31:10 mean, you've kind of got two groups that neither of those should be in charge. So who would you, what are the types of people, is the people like Roy Johnson that are on there? What
31:20 are the types on this panel - Well, as energy czar, I would want to be on that panel myself. But I would say more generally, I think the idea isn't necessarily even to target. I think you could
31:31 have a happy, fall out of this being a profitable kind of trade and kind of be able to subsidize the functioning structure of the SPR running itself. But I think more importantly, it's specifically
31:44 to act counter-curve. And I think that's why you have policy frameworks like what I mentioned about only the top 5 or bottom 5 of kind of back-ordaded or contangoed markets. So that you basically,
31:58 the goal is to operate like commercial inventory, but at the extremes. And so you don't lean into normal backwardation or normal contigo, let commercial markets deal with that But in those extreme
32:09 moments, have a group of people that are willing and knowledgeable enough to know why this is important to lean in at this particular time. Stacey, I do think Jeff's skilling is available these
32:21 days.
32:26 Sorry, one last question. Would you, the last two SPR releases, if you were energy czar, would you have done both of them or neither of them or just one of them? What would you have done? So
32:36 the one at the end, I think it was the 50 million barrels at the end, you know, at the end of 2021, I certainly wouldn't have done. I think that was probably one of the most glaring examples of
32:43 bad SPR policy, just like, oh, oil prices are high. Whoa, is me. Let's release some SPR. That's bad policy. I think the latest, you know, massive release Again, there is framing and there
32:57 have been quotes of people involved in knowledge with the policies that they are thinking about refilling it. But I think the fact that they've kind of adopted to just trust us will do it is not
33:07 sufficient. I think you need to actually go into the market and said that signal directly. Interesting. Well, guys, we have two picks left. And so just kind of as a little bit of a preview,
33:19 we'll do these last two picks and then we'll come to everybody for kind of a closing statement. think kind of a 30 second minute closing statement to have. But now on the clock with the sixth pick,
33:33 Mr. Hot Take of the Day, David Ramsey Wood, who appears to be on a golf course, which is awesome, as you should be. You're now not cutting, not chipping, your energies are, what are we doing
33:48 to save the planet - Oh no, I gotta tell you, I am probably the best conference call golfer in the human history. When we were selling one energy, I was on a lot of conference calls with Jeffries
34:00 and buyers wild on the golf course, and it just turned your brain off. So I highly recommend it, although the playing partners don't love it that much. I'm actually really excited, and I don't
34:09 think that this comes as a surprise. Whether I was number one pick, or whether I was the number six pick, I was taking coal. The reason I'm taking coal is because I truly believe that for the
34:20 politas, Politis, Polito.
34:23 The political elements of the conversation are so driven around climate change and CO2. My biggest concern is scarcity. At some point in the next thousand years, we run out of energy. And at that
34:36 point, no one is going to care whether it comes from coal or water or hydro. And maybe technology is better and maybe it's not. But coal is a real thing. Coal is the oldest energy form It is one
34:51 of the things that propelled us out of the Industrial Revolution to where we are today. It's consistent. It's clean. In 2020, there were 350 coal plants being built around the world. Today, I
35:01 believe China's building 45. It's going nowhere. And you notice that Greta Thunberg didn't spend any time in China when she was doing her boat trip around the world because they don't care about Net
35:14 Zero. I would say, and I know that there's a family friendly podcast, but their net zero goal as they give net zero fox about CO2. And I don't care about CO2, we will adapt as a planet. We have
35:27 110 million people currently living below sea level, including one of the greatest towns on Earth, New Orleans. But there is no reason you should rebuild that town. Buildings have a useful life of
35:39 50 years. So in 2100, if the sea level goes three millimeters a year, in 80 years, it's up maybe a foot. But we can rebuild the buildings that are going to collapse half a mile inland And it's
35:52 going to be totally good. So I was glad it was still on the board. I'm totally taking coal for the win. And I'm excited about China's energy policy, because we export all of our production, all
36:02 of our manufacturing, all of our trade, to China to build our stuff anyway. So yeah, they should keep going hard in coal. And I love coal. Confirming his status as the Al Davis of the energy
36:17 policy draft.
36:21 I don't know what to make of it. Words escape me - I think one thing that's interesting is, I mean, there's obviously a strategic advantage to having low energy input costs for economies, just in
36:31 general. So do you see coal playing into that, especially for the American economy, that you can help some of those manufacturing jobs if we lower our energy costs? Is that part of it - I think so.
36:43 And I would also go as far as to talk about diabricating, because I love the nuclear-wet number two. But the Comanche coal plant in Colorado, along with five others, in order for Colorado to get
36:53 to its net, 85 of the electric grid is carbon free by 2030. They're literally spending a billion dollars to decommission coal plants that have 60 years' worth of life left. And so maybe I'm not
37:07 rebuilding coal plants, but I'm certainly not dismantling them. I'm not dismantling Indian Point, I'm not dismantling the abrogantian. And so yeah, energy cost is a thing, but we also have a
37:17 tremendous number of coal plants Texas going into the polar vortex. we got rid of 20 coal plants. So we didn't even have the backup element and there was no reason to get rid of them. So number one,
37:29 yes, it's cheap energy. That's good for American jobs. But number two, we already have them. And in a scarce world, why destroy something that already works - So I know that DRW would quickly
37:43 put me as his assistant czar. So as the assistant czar, I wanna comment on this because I actually think it's a good pick. There is a lot of technology that is now available that would actually
37:57 take away a significant amount of the polluting aspect of coal. So if you think about the rate base, you're charging the rate base to tear down that facility, then you're charging the rate base to
38:07 replace it with something that may not be, that may be intermittent at best. So you could create essentially a natural ecosystem with what is captured from flue gas. into anything from hydrogen to
38:19 other types of industrial gases. I think that brings back some of the points that Kyrie brought up, which I think are fantastic in terms of regional grids and the ability to do that and to have some
38:31 of that layered in where you protect some of that coal, but at the same time you layer in some of the regional side because microgrids become an issue when you think about rate base because when you
38:42 look at any steam off, I love it So when you think about the actual rate base, the microgrids can be very expensive, so it becomes an underlying problem. Now to Paul's point on the one thing as
38:53 the assistant czar or these are, I would have to decay all of the high speed rail. Ultra high voltage electricity lines are super expensive, completely inefficient and has been a waste of money for
39:06 China. So it's fun to watch them absolutely utterly destroy their economy by building things that make no sense, but I will cut it off there. So Kyrie, did you. laugh at DRW for teeing off or
39:21 were you throwing up in your mouth at the mention of coal? I couldn't tell. I guess a little book. Now I'm just surprised that coal is a pick. I thought coal was like CCUS or something. If
39:38 I could just weigh in for a second. Look, and I know everyone gets mad at me when I go to COVID, but COVID is climate change. It's a policy picked by government to terrify everybody, and they do
39:50 not allow discussion. And I think the Steve Cooner episode on Joe Rogan was an excellent conversation around CO2. And I think we need to actually have real conversation. Is CO2 a problem? Yes or
40:03 no? And is the world heating up three degrees of problem? I'm not convinced. If I was just in Trudeau, other than obviously coloring myself black face and just owning that shit because that guy
40:13 stopped walking away from the stuff you did. You know what I mean? But I would ask. more coal in the world because Canada would be a much better place if it was three degrees. And quite frankly,
40:24 my calculation is that there will be 195 million people on planet Earth that died this summer because they don't have food. And that's using the Ethiopian famine from 1983 where 1 million out of 40
40:36 million died. And we are not going to have enough food. And yet we continue to use corn in ethanol and 40 of the US coal production goes into making ethanol instead of food. So we're going to lose
40:47 195 million people. And so we can all move a little bit further north. It's going to be a little warmer. We're going to have a more hospitable place in Canada is going to be a party town in the
40:57 winter. So I'm all about coal. I'm all about global warming. If we can, like let's go five degrees and let's have that debate instead of censoring people online who say that in state or a crazy
41:08 person. I'm not convinced that a warming planet is not a better planet.
41:16 Do you need
41:19 to feel? I did the other night with CUNY and two days later had Alex Epstein. It sounds like Alex Epstein's argument actually. CUNY is very impressive and he's just saying it's unsettled.
41:30 Obviously, that's the title of its book.
41:34 He has some pretty radical geoengineering, geoengineering, you know, spraying stuff into the atmosphere type approaches But the argument that it'll actually be a more tropical, better planet with
41:47 global warming is very much part of it. Epstein's thesis actually. And that millions of people will die if you can see down the path. I'm
41:58 trying to reduce energy in such an inefficient manner as
42:03 we are.
42:05 Yeah, no, there's also a train of thought to the effect of CO2 of CO2 diminishes with more of it as opposed to
42:17 Yeah, that we've seen so far. So the last pit in the energy policy draft,
42:25 a great energy investor here in the United States, Brad Olson of recurrent, and arguably the greatest cleanup hitter since you're having to go last since EZE, saying the final verse of straight out
42:40 of Compton. Brad, you're on the clock as the energies are, you've heard all this, what are you doing to save the planet - Thanks, Chuck. Yeah, I am. Let me see if I can channel my spirit
42:54 animal here without a, only you can share. I was going to share a picture of Matthew Lesco, who many of you probably remember as the Uncle Sam gives you free money infomercial guy from the 90s.
43:08 And the reason I'm channeling Matthew Lesco is and I'm sure everyone on this call.
43:15 will hate this idea maybe even more than some sort of greeny idea or by the way, DRW, I loved your idea. I mean, I love the approach to coal, but I might, I might elicit more disgust from the
43:32 audience than any pick so far because my pick involves free government money, moral hazard, increased debt leverage and an annoying bureaucratic acronym. It is the toxic asset relief program for
43:51 the energy sector. Many 2008 in back remember probably you of
43:55 , Timothy Geithner, as we were coming out of the worst of the financial crisis, he suggested that the government basically provide free leverage to hedge funds so that hedge funds could buy the CDOs
44:11 and the mortgage assets that nobody wanted to touch. Now, obviously mortgage assets in early 2009 had expected returns that were astronomical, even if you assume huge failure and huge default rates
44:24 on these assets. And yet the government wasn't happy with the recovery in the asset market. So they threw free money at hedge funds so that the rich could get richer. All the bad stuff we talk
44:35 about, basically transpired on the back of free government leverage. Well, I can say, because I spend a lot of my time fundraising that if you look at on a fundamental analysis, after high oil
44:48 prices, the only explanatory variable for capex and drilling activity that matters is valuation multiples on energy stocks. We've already got the high oil prices and we don't have capex. So the
45:02 only remaining explanatory variable is the valuations on public companies and energy stocks in general They're not going to drill as long as their valuations remain in the tank. that bad CEOs are now
45:16 good CEOs. It's not that the profligate CEOs
45:21 are now, are now sober as a judge. What it comes down to is if the market is giving you less than a hundred cents on the dollar, you're not gonna expand your asset base. It's much more effective
45:33 to just give people money back from your cashflow yield than reinvested in a business that the market values at a discount. So these are toxic assets I can tell you that endowments who totally
45:44 understand the math, they understand the super normal profitability of the energy sector, pensions, endowments, they know how much money this sector is making, they know how good the returns are
45:53 gonna be. They still have no interest in owning it. And so when you have this chicken and egg problem in the capital markets like you did in 2008 and 2009 with mortgages, you need to just throw
46:05 some free government money in there as the spark that gets the cycle moving again. And, you know, I think again, I'm not a technical guy. I'm a dumb finance guy. I can only bring the big picture
46:17 to bear. And the only explanatory variable left is terrible valuations that discourage CEOs from drilling. You're not gonna unwind all the terrible regulatory decisions. You're not gonna unwind all
46:31 the terrible subsidies that have gotten in the way of mining more coal, building more nuclear plants. None of that stuff is really fixable in the near term. Free money is something our government
46:42 is very good at, has a lot of experience handing out. And it's the thing that I think would accelerate the drilling of new hydrocarbons and bring the average cost per BTU of the energy we consume
46:54 down without really having to do a whole lot with the Environmental Protection Act or any of the regulatory hurdles that have held up the industry - You know, if this energy investing thing doesn't
47:06 work out, you have a real future as a casino floor host. Cheap drinks and free debt.
47:16 Stacy, I love that face you're making right now. Lay it on him - They're talking about providing free capex money - So basically the
47:27 way the plan worked with the mortgages, mortgages were paying out huge returns based on their prices in '08, '09. But nobody was buying them 'cause they were still worried about a double dip in the
47:38 economy So the government basically said, we will provide, for every dollar mortgages you buy, we will provide you 50 cents of effectively risk-free leverage. If the mortgages go bust, the
47:52 government takes the loss on the first 50 cents. If things take off, you have a leverage bet on an asset class which is almost certain to make a ton of money in the next few years. And as much as
48:04 it made everyone go crazy and all the hard money inflationists has went nuts, have now found a home in the energy space for the last 10 years, the reality is it worked, right? It got capital off
48:17 the sidelines. It allowed a lot more dollars to chase mortgages back and getting the cost of borrowing down led people to start buying homes again. And very similarly right now, the drilling capex
48:30 might make money even without a subsidy, but your average investor is still not coming back to the space. Your active investor, your pension, your endowment is still not coming back to the space.
48:41 And so government can kind of plug the hole and be the first guy to cannonball into the pool in the absence of a more robust kind of institutional investor response - Wouldn't this just end up being a
48:53 wealth transferred at service companies -
48:56 You know, that's a great question. I think, you know, again, when I look back and I ran a fairly lazy like 30 year Bloomberg correlation of if we're looking. for the cheapest dollar per
49:14 BTU for the end consumer. What's the recipe for that? And high valuations across the energy sector has historically led to a bunch of CapEx. And as we learned over the last 10 years, even as
49:26 commodity prices are falling, if the capital markets remain open, drilling continues. And I think it's a very good question about, initially I think the OFS market will capture a lot of this
49:38 economic upside. But the reality is that to respond to the current energy crisis, the OFS sector needs to be a lot bigger. They need to make super normal profits in order to get to a size that can
49:51 accommodate the energy response that physically the world needs out of North America. So just the same way that everyone hated in '08 and '09, the idea that mortgage speculators would get hit with a
50:05 free bag of money.
50:07 It's moral hazard. It makes some people stomach churn, but it works. And I think that's kind of, and it cuts through a lot of the regulatory and technical complexities. And some people will
50:18 definitely get rich on it, but they'll get rich making energy cheaper for the rest of the world -
50:24 And there we have it.
50:27 Everybody, this was really cool for you guys to join and to participate. Why don't we do this? We got three minutes left, two minutes left. Everybody have a final statement here. 30 seconds or
50:44 less. Make fun of somebody else's pick. Make fun of your own pick. Make fun of Brad's pick. However you wanna go, we'll do it in the same order we drafted. Mark, how do you wanna close -
50:57 First of all, great picks. There's nothing, I think that's been no stone lift turn on the fly on the demand side. I'm thankful Paul brought in the demand side because as former analyst, it
51:10 usually is the vastly under scrutinized dimension. You know, I would just say that we need to look at this in terms of short, medium and long cycle type investments And my pick was, I guess,
51:24 decidedly the most viable from a short cycle investment perspective I saw somebody posted that climate envoy, John Kerry just said that, you know, the resurgence of natural gas here on the world
51:36 stage is caused a temporary pause and climate and I would just point to the US is 20 year track record as a indisputable evidence of what natural gas substitution can do, and we'll continue to play
51:49 both offense and defense. And so, I think I'll just leave it there
51:55 And
51:57 I think that's a good one.
52:06 percent and it's now above the 30 year. So it's just when you look at it, it's an interesting move. One of the things that we saw with the Fed and on the MBS side are the mortgage-backed securities.
52:17 It's interesting to create that toxic fund, something that would free up capital because one of the biggest constraints that we have right now for anybody that's in the OFS basis, seeing your
52:28 inability to get pipe. If you can get pipe, good luck paying for it. What does that look like? Labor. And the problem that we have when you start talking about coal and natural gas, if you don't
52:40 believe there's a future in it, well then why are you going to go get employed by those guys? So now all of a sudden we need the labor and it's like good luck getting it. You need the equipment,
52:51 get in line. And that's I think where you're seeing some of the near term because some of the things that we've talked especially on the nuclear side is a very much of a long-term trajectory.
53:01 something that would take time to build out, but you do need a certain amount of that backstop. So I think when you look at coal, and I would take that to the next level and look at the ability to
53:12 clean it up with different types of scrubbers and other ways to capture the flue gas. And then just use that power to just start papering the world like Brad wants, 'cause I love it - Yeah, the
53:24 Weimer Republic is smiling down from heaven as well. Kyrie, what do you think -
53:30 All very interesting picks. I guess I wanna reinforce the, don't discount the little guy's energy infrastructure, 'cause we could have infinite gigawatts at the transmission scale, but a tree blew
53:41 into my power line the other day, and we were without power for 36 hours during really cold temperatures. So really, really need to also think about local resilience and distributed resources -
53:56 Mr. Sankey - Yeah, I mean, I hear you, I'm pleased. call, but I just don't agree on call. I think, you know, I often saw the story of how 20 years ago, when we had little kids, I said to my
54:06 ex wife, you know, just by organic every time, because if we keep buying organic, eventually it'll become cheaper and, you know, more widespread. And essentially, that's what Europe was trying
54:17 to do with this disastrous energy policy, that which they're already the most efficient major economy of Japan, but they were trying to lead the way to a lower carbon future, which is a good thing.
54:29 And they screwed it up completely. But the riasias, they were trying to do the right thing, and now they've got to kind of reset it. But this whole regression back into, hey, let's use more coal,
54:40 I just think it doesn't make any sense to me at all. So,
54:44 you know, that would be one issue I had. And what would you just talk about? I was going to say something about what you just said. Micro generation or? one. Um, yeah, clean cold. Clean cold
54:57 is fine. Sure. I got a completely forgotten one of this. and say, oh, let's just leave it - It's about paper in the town where Brad just wants to just pull a pernacti and just go it over - I was
55:07 thinking - No, I was talking about the five year and the seven year over for the third year - I was sneakily messaging Brad and he did say that he had had his ideas taken. So he used to come up with
55:20 something a bit more radical. But the big one is always the energy efficiency side and just use less on the energy side and you have the same, if you're more efficient, you have the same economic
55:29 outcome, right? So you don't need to just use a ton of energy. As I say, as an example, to get from A to B when you can actually do it in a more efficient manner and the economy benefits. So
55:39 yeah, the demand side is what's underanalyzed and what really needs to be addressed - I blame myself for Brad's pick comparing him to EZE, a former drug dealer who gave away free crack to build a -
55:51 He got a great - Build some clients - He had a great speech about higher gasoline taxes, you know, but - Exactly. Rory, final thoughts - Thanks, all interesting ideas. I probably would echo some
56:05 of the thoughts of some others that I'm not totally on board with the revitalization of the coal industry. I think we can move forward from there. But one thing I think that my policy, and again,
56:15 that Paul's that I really liked was, I think one of the big defining features of the energy markets over the next decade is we kind of go through this attempted transition is going to be radical
56:25 volatility And I think that it's volatility that policymakers and politicians in particular are going to be very ill-suited to lean against. I think the better we can do now to thoughtfully build out
56:38 policies and structures that automatically modulate to kind of price and market realities, whether that be an SPR that can lean against spot, crisis, a spot market crises or a gasoline tax that
56:52 puts an effective floor and kind of again to the. The Paul's point about sticker shock and the kind of variability being the big driver right now, I think it's really important. I think policies
57:01 that do that, I think are going to both lessen the harm economically that the transition is going to cause, but also I think, you know, buttress the political backstop against the kind of
57:15 necessary transition.
57:18 All right, DRW, you're taking flack for your cold pick Do you have any final thoughts?
57:26 Yeah, the thing I would just say, first of all, the ideas are phenomenal, and I totally agree, you can't always talk about supply. We need to talk about demand and personal choice. And so I
57:37 always laugh at the climate activists that have Amazon Prime deliver 17 times a day to their house. And I've noticed that Jeff Bezos, I'm a pleasureena in Seattle, still has a 500 million yacht
57:49 that uses the same carbon footprint as, I think, 2, 000 people a year. And so nobody. actually cares about steel too. They only care about money. And if we wanna actually care about people, we
58:02 need to provide them energy, all forms of energy, and we need to stop the storey markets. Example I use, wind and solar, we're not discussed here, because they're intermittent and because
58:13 they're subsidized. All subsidies for all energy should go away entirely, and I'm not talking about accelerated depreciation. Let the market work. And I'll close with my comment on COVID I had
58:26 people just been allowed to do what they did. March 8th in Denver, people stopped going to the Colorado Avalanche games because they were afraid. A third of people weren't afraid, two thirds were.
58:39 And had we had no mandates, had we had no mask mandates, no vaccine mandates, no intervention by government at all, people would have come out of their homes when they felt it was appropriate,
58:50 because everyone's personal self-interest is the most important part in defining.
58:56 of their life, we need to do the same with energy. Do less, be better, let the market take care of itself and stop distorting it with horrific energy policies that will create a crisis that will
59:07 kill hundreds of millions of people this summer because of the lack of food and the lack of energy. So that's my closing comment - And one of the, so I mean, if I was able to draft multiple, it
59:19 would be propane and flu gas technology. 'Cause I think the misconception here is that it can only go on coal plants 'cause flu gas technology can go on any plant and it creates a lot of the backend
59:30 products from nitrogen, which we've talked about in terms of shortages. It can be a key component to the hydrogen solution in terms of making localized hydrogen plants. So I do think that there is
59:41 a value in terms of adopting that and retrofitting coal facilities. And then at the same time also doing that
59:50 components from then on. 'Cause we
59:53 always talk about this, but again, this is a real solution. And with free money that Brad's throwing at me, I can easily make money off of it, which I'm gonna be at the about.
1:00:03 Brad, bring us home.
1:00:07 Final thoughts - Yeah, look always I thing the think I, know You. everyone to listening enjoyed really I,
1:00:14 have struggled with with demand, moderating demand is, you're making some other gas guzzlers, and energy cheaper, right? The US has done an amazing job reducing coal consumption, and we've
1:00:26 really allowed the rest of the world to accelerate their coal consumption. So there is even within demand reduction and efficiency gains, there is another side of that, which is making energy,
1:00:38 which may not be clean energy, cheaper for somebody else who's probably going to use it in a less environmentally strict way. And so, you know, every. that's been brought up has its upside and
1:00:49 its downside. The one thing that I would just mention and maybe I'm bitter coming directly off a fundraising tour talking to endowments is the calls for capital discipline, which were very healthy
1:01:02 in terms of their reaction to a period of profligate, shale spending, and capital destruction have now basically turned into cheering on a sector that is strangling the supply of energy to the rest
1:01:15 of the world. And I don't blame the CEOs, like I understand they're responding to the world as they see it, but in a world where every year billions of dollars are kind of passively flowing out of
1:01:27 this sector for ESG and other issues, you know, buybacks are a nice first step in terms of where does the capital come from, but buybacks strangle capex. So if there's going to be a capital
1:01:40 provider to the space beyond just, you know, companies buy back their own stock, there needs to be a new participant in. financing this industry. And beyond that, natural gas, cold, nukes,
1:01:52 they're all great ideas, but why haven't they prospered and flourished in the kind of existing capital market environment that we've seen over the last five and 10 years? And bad incentives and a
1:02:04 constantly shrinking capital market are things that I think we all need to think about. So great ideas. I wouldn't mind some more cold, but frankly, when I talk to coal companies, they have very
1:02:14 legitimate reasons that their buyers will not give them long-term deals because their buyers can't get debt financing if they don't commit to phasing out coal. So the market, which we view as always
1:02:28 the answer to everything, what it makes me think of is the calls coming from inside the house. The market, in this case, is part of the problem, strangling energy supply. And so the market's
1:02:41 always - it's better than all the other alternatives paraphrase Winston Churchill but right now it's not getting us enough energy to face the current set of challenges -
1:02:53 All right, Stacy, close us out -
1:02:58 I liked all the ideas. They were actually very interesting. Some of them came out of nowhere. If I had to pick, I'm gonna talk my own book. So I'm totally biased here. So I'm gonna go with
1:03:07 natural gas. And I liked Paul's idea
1:03:13 on gas taxes being higher I just don't think the politicians have the balls to do it. So good in theory, I just don't think, I don't think they could do it - I still think if we could harness the
1:03:26 sexual tension between Mark Meyer and Paul Sankey that I felt on this call, we'd solve all our energy problems. Hey, thanks everybody for doing this. I really appreciate it and we'll talk soon.
