War in Iran Is Already Reshaping East Asia's Energy Future

The war in Iran has caused the price of all kinds of commodities to surge, and that has a negative economic impact almost everywhere. But the squeeze is really being felt hard in East Asia, which is the ultimate destination for a lot of oil and gas that come out of the Gulf. And though the Strait of Hormuz may eventually re-open, and the acute pain may pass, this episode may already be reshaping the future. On this episode of the podcast we speak with Alex Turnbull, an investor based in Singapore, and a researcher on energy topics with the Australian National University. He argues that the war will accelerate the region's appetite to restart nuclear power plants, ultimately lessening its dependence on imported natural gas. He also notes that per his channel checks, the region is already seeing a jump in demand for electric vehicles, with BYD dealers holding less and less inventory on hand. Read more: US, Iran Seek More Ceasefire Talks as Blockade Stops ShipsThere Are No Easy Exits From Iran for the US Subscribe to the Odd Lots Newsletter Join the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:08Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 2:44Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:49Tracy Alloway?

  And I'm Tracy Alloway.

• 2:51Joe Weisenthal?

  Tracy, it's April ninth, nine oh five A M. There's a ceasefire ish. It's sort of, there's been something announced that's called a ceasefire. There does not seem to actually have been much of a cessation of fire per se. Maybe it slowed down a little bit. Some of the headlines this morning are about Israel continuing to strike hard in Lebanon. Iran saying that, well, if there's no ceasefire in Lebanon, there's no ceasefire at all. But, you know, overall, at least as of right now, you know, the market, et cetera. We saw that huge drop in oil Tuesday night. You know, the market's still sort of, still sort of buoyant, right? Still sort of resilient.

• 3:33Tracy Alloway?

  Well, I think the important thing for the purposes of this particular discussion is, if you take a look at what's going on in the Strait of Hormuz, it still seems to be shut, more or less. And shout out to the Bloomberg function, E Can Hormuz Go. You can see the number of ships that are going through that particular choke point. And I have two as of today, which is basically not like two today.

• 3:57Joe Weisenthal?

  There was some, there were some headlines about how maybe even in the good case, they would let through ten to fifteen, which is still sort of nothing compared to normal ship traffic. So like, nothing's back to normal.

• 4:10Tracy Alloway?

  I was gonna say, to your point, I think the thing that's confusing everyone is we keep seeing these headlines about like a billion barrels lost of world supply or twenty percent of the world's oil supply now choked out because of the Hormuz situation. And yet, if you look at the oil price. You know, WTI, Brent.

• 4:30Joe Weisenthal?

  Right.

• 4:30Tracy Alloway?

  Definitely up, but they're not up as much as you might think, given the scale of disruption.

• 4:36Joe Weisenthal?

  I think many people feel intuitively the price should be higher. And then, of course, there's the whole refined products situation, which is more extreme. And a lot of the prices that feel really extreme in general have happened in the, where we see it in East Asia, whether it's like Singapore jet fuel, et cetera, or a lot of the headlines that you see about extreme rationing come from East Asia. I forget which country was, they were like, you know, they're doing that classic thing of only drive to work if your license plate ends in an odd number on this day, whatever.

• 5:09Tracy Alloway?

  Very 1970s.

• 5:10Joe Weisenthal?

  Yeah, and we're seeing a lot of these types of headlines, some in Korea, some Thailand, et cetera. So it also then raises the question, you know, the, the Strait of Hormuz is closed, maybe it'll be open. But does this change future energy trajectory in some way? Does this mean there's going to be more comfort with coal mining over the long term? Does this mean that economies are going to try to accelerate decarbonization efforts more intensely? Could this be a huge boon for the American LNG industry where we know we're building a lot of export terminals, et cetera? And if, you know, impair, there's some sort of impairment to Qatari LNG, then, I don't know,

• 5:50Joe Weisenthal?

  huge questions about even just setting aside market pricing right this second or this week, the, the, the future of energy.

• 5:57Tracy Alloway?

  One thing about our current market moment is we are getting like a crash course in real time about the flow of energy throughout the world. And as we will see in this conversation, like it is still very much geographically constrained, east versus west. And so, as you say, the big question is whether or not the east kind of, I don't know, scrambles even harder to adapt to this.

• 6:19Joe Weisenthal?

  Well, I'm very excited to say we do in fact have the perfect guest, someone who knows about all this stuff, someone who's been on the podcast before, but we haven't talked to him in years, which is really sad because we really like the guy. And so very excited to welcome back onto the show, Alex Turnbull. He's an investor based in Singapore, but he's also a researcher with the Australian National University, focused on energy security, really knows the energy scene very well, spends his time thinking about the present and future of energy. So Alex, thank you so much for coming back on Outlaws.

• 6:50Speaker 03

  Thank you very much. It's great to be back on.

• 6:53Joe Weisenthal?

  Yeah, really, really appreciate it. Talk about like right now, you know, this phenomenon that we talk about where, yeah, prices are up, but you know, by some measures, still within some sort of historical range. Whereas the headlines that you see about rationing, et cetera, like, oh, this is extremely dire, et cetera. Give us your lay of the land from the, from the, from the Asian perspective, from the perspective of East Asian countries, like, how dire are things just like right now without that, without that flow?

• 7:25Speaker 03

  Terrible, frankly. The challenge right now for Asia is that most of their crude supply does come from the Middle East. Or there are some countries which do have some domestic production, Malaysia, China, of course, but broadly speaking, Asia is a massive crude importer and principally from the Middle East because it's the most proximate supply and generally it's the cheapest shipping distances and costs. So Asia is very heavily exposed right now and more acutely thinking about what the impacts might be and how they might want to pre-answer than the United States, of course, which produces a lot of oil, but still needs Middle Eastern grades for blending and refining.

• 8:07Speaker 03

  Also Europe, which has access to it quite readily.

• 8:12Tracy Alloway?

  How much do the spot prices actually matter at this moment in time? Because you know, you can look up something like Dubai Oman or some type of oil that you would assume would be maybe flowing into East Asia and you can look at the spot price, but like if it's not actually moving, does that like moving out of the Strait of Hormuz into Asia, does that mean anything?

• 8:33Speaker 03

  It does certainly for some grades. So for a money crude can still be loaded and is being loaded. Those are real prices, prompt Brent, these are, and those are, those sorts of trades are, are real. So you're often seeing even for loadings from Yambu and Saudi Arabia, OSPs, which are, you know, indications of price are anywhere from 20 to 25 dollars above whatever the prevailing Brent contract is.

• 9:00Joe Weisenthal?

  So in terms of like the knock on effects on the economy, we mentioned some of the rationing thing. Okay, yes, this is very, they're highly exposed to it. What are, is it, is it hitting now? Is it, is the economic destruction already taking place? Like, talk to us about like, just sort of like, I guess, on the ground figuratively and literally, what are some of the ripple effects that we're seeing?

• 9:24Speaker 03

  You're certainly seeing serious constraints on consumption where they don't really have a lot of refining capacity and where there is, they just don't have large amounts of crude storage. So places like the Philippines and Vietnam are already under some significant stress. A lot of it is also driven by the fact, is this kind of a question of whether you can get credit lines to be able to pay these prices. And ultimately, the decision of the refineries is, if they don't have inputs, they have to shut the refinery down, which incurs a large amount of fixed costs and downtime and so forth. So a lot of these players are kind of living hand to mouth and trying to get whatever they can to stay open as long as they can. So that's how

• 10:09Speaker 03

  you have this extreme willingness to pay for prompt cargoes in order to keep these assets operating and running. But then, you know, the futures curve is out 30, 60 days, and that's a long time in, in the current February context, where you could get resolution or not. And so that that disconnect is going to remain, I think, so long as there is no sense of a clear path here.

• 10:35Joe Weisenthal?

  Who's not getting energy? Because, all right, if there are some entities that are almost going to be price, completely price insensitive, they have to keep the lights on, they, they're going to just pay whatever. And so you get these huge, uh, short-term spot prices. But volume is volume. And so who is actually being forced to turn off the lights or not run a refinery or whatever, because they're getting outbid? If there are fewer molecules, there are fewer molecules?

• 11:01Speaker 03

  Yeah, I mean, certainly less, um, high income countries in Asia, you're starting to see quite an acute crunch in the Philippines. So they've recently secured some cargoes from China on a one-off basis. Some Vietnam, the same, you know, places like the Pacific Islands, they're in a not very good place. So it's already starting to begin the demand destruction, starting mostly caused, mostly by income.

• 11:30Tracy Alloway?

  So you mentioned refineries there and one of the headlines that's come up recently is Asian refining margins slip into negative territory, which would seem like a bad thing if you're a refiner. And I take the point that you need to keep these assets going because it's hard to shut them down and then restart them again. But if you're not making any money, how long are these refiners actually going to keep going for?

• 11:54Speaker 03

  Well, some Chinese tap up refineries, just smaller private ones, they live in a different political slash economic context. And if they're told to stay on, they will. It depends on which, in many of these countries, you don't have purely market price fuels. So whether that's Vietnam or China, places where you have market pricing pass through, like Australia, the price of fuel is getting very expensive indeed.

• 12:23Joe Weisenthal?

  So in those situations, basically where Tracy mentioned a refiner might be actually operating at negative margin, that's in an environment in which the retail price of fuel is not liberalized. The government sets the price of fuel or sets some band or something like that, and the refiners just have to keep operating until the next time that band is changed.

• 12:46Speaker 03

  Yes.

• 12:46Joe Weisenthal?

  Okay, got it. So what are you seeing? Let's talk about, you know, right now, is this, is there, what's happening with US LNG? Is it all being taken up by Europe? Is Asia trying to get in on the action or bidding for cargoes? Like, what's happening with American flows?

• 13:05Speaker 03

  American flows are going to move into Asia quite sharply right now. So Asian prices in spot, even the JKM futures, are above European TTF or Title Transfer Facility futures for the next period. That could change quickly. But at the moment, Asia has a much higher urgency and willingness to pay. As they go into summer, higher powered demand from cooling, air conditioning, and also just a much more acute dependence upon LNG in certain countries. So in Europe, you've also, so you're going into summer. You have this solar and wind and it's not quite panic stations just yet. So I think Europe will be a little bit more slow to fill its storage, but then

• 13:51Speaker 03

  if this goes on till, say, June or July, then that's when the real panic will set in.

• 14:12Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 14:38Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices,

• 15:21Speaker 01

  but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 16:01Tracy Alloway?

  For Asia, how much of a role does Russian oil play right now in terms of replacing lost Middle Eastern supply?

• 16:08Speaker 03

  I mean, most of the Russian crude has already been sold anyway, and it has been sold very heavily into Chinese refineries and teapots. So it's not like it, some of it was sitting offshore when it was going through a period of more robust US sanctions. The offshore barrels of oil and water has been dropping very sharply as all that crude has been absorbed into various places, India, China, like I said. So, yeah. So I think that's sort of, that has provided something of a buffer to this shock because there was this backup of Russian crude that couldn't, no one was quite sure whether they could pay for it without getting sanctioned by the US. But of course, that's melted away in the current context.

• 16:52Joe Weisenthal?

  You mentioned that the Philippines has imported some gas from China. And I'm curious, like, what has China, we know they've been a big accumulator over the years generally of natural resources, and they have strategic stockpiles and so forth. But right now, what are they doing? And are they trying to play some role in stabilizing or easing the crunch for the region overall?

• 17:16Speaker 03

  I think they've been very strategic. They're not, certainly, there's more or less control on exports of oil products right now, which is not very helpful for the region because they have, over time, been large exporters. They are clearly doing this in a very targeted fashion. And I would assume there's other considerations behind that.

• 17:40Tracy Alloway?

  Oh, wait, say more.

• 17:41Speaker 03

  Well, for example, China has territorial distribution with the Philippines and Vietnam and the South China Sea, and they've now got something they want. So.

• 17:51Joe Weisenthal?

  Interesting. Okay, that makes sense.

• 17:53Tracy Alloway?

  Yeah. Oil as geopolitical tool is a tale as old as.

• 17:57Joe Weisenthal?

  As old as time.

• 17:57Tracy Alloway?

  I was gonna say time, but I guess as old as what, 200 years or something like that. Okay. So we were talking about the potential for an energy crisis to actually hasten decarbonization efforts in Asia. And this is something that came up before on an episode we did on China's teapot refineries.

• 18:17Tracy Alloway?

  Are you seeing rumblings of that at the moment? Or are people still in sort of wait and see mode?

• 18:23Speaker 03

  Uh, no, there's definitely been a notable pickup in certain areas where there was already a bit of momentum. So in Japan, they have been undertaking a number of nuclear restarts. They've been, were moving very tentatively. Uh, as the public got behind nuclear and the politics became less challenging. Uh, that, that is all apparently accelerating now. So Japan will push very hard on nuclear restarts. And more importantly, the public polling is really strong for it. So there's not a lot of political risk. And of course, Takechi had a massive election win. So she's in favor of it. The public's behind it and there's a matter of necessity now. So I think that's something one could assume is only going to move faster.

• 19:06Speaker 03

  Uh, and then in Korea, there's also more of a push for nuclear restarts. So that's, that's moving quickly. Chi- China is doing some very pointed stuff to try to reduce LNG burns. And use in chemicals, it's tricky and tricky to, if you've got a plastics plant, that's kind of hard to do. But they're having a red hot go at it. And similarly, you're also starting to see a staggering acceleration in EV adoption. If you do calls to auto dealers around Asia and ask them how much time electric vehicles stay on the lots, down to single days. And many of them are backordered now. So, uh, if there probably wasn't even.

• 19:46Tracy Alloway?

  Is that something you're doing? Are you calling up the car lots and asking them this?

• 19:50Speaker 03

  Yeah, of course.

• 19:51Joe Weisenthal?

  Wait, say more about this and what would they have said? This is actually, this is, uh, this is not, this is new, uh, this is new, this is on the ground information. But talk about this, like, what would they have said a month ago? What are the type of, of dealers you're talking to? What would they have said a month ago and what are they saying now?

• 20:08Speaker 03

  Uh, I mean, you know, January, uh, when there was, uh, you would see BYD cars, for example, a couple of dealers in Australia. So Singapore, other parts of Asia, they would be on the lot for 25 plus days. So, you know, the inventory turns were kind of a bit slow and the market did look kind of glutted. We're down to single digit days, uh, in most places now. So anything China can produce out of the EV sector, I think will get sold this year. That's just really the, the constraint is on the supply side, not on the demand side now.

• 20:42Joe Weisenthal?

  I don't know the degree of granularity that you pay attention to American politics. Are you familiar with, do you know who Thomas Massey is? Does this name ring a bell?

• 20:51Speaker 03

  Oh, yeah, yeah.

• 20:53Joe Weisenthal?

  He's a Kentucky congressman from Kentucky who drives a Tesla with a bumper sticker that said, this Tesla is powered by Kentucky coal. So he's like, you know, he's a politician from Kentucky, Republican, he's very pro coal, but he's also pro Tesla. So he has his coal powered Tesla. Is that basically the sort of near or medium term future of Asia? Which is like, okay, LNG is impaired, BYDs are flying off the lot. And so essentially, we have a lot of like de facto coal powered Teslas driving around. Or sorry, coal powered BYDs flying around.

• 21:28Speaker 03

  To a certain extent, yeah. I mean, it's also, there's also very hard analytic math behind this in the sense that there are, the Straits of Hormuz do not, aside from the East West pipeline, which looks like it got pretty badly hit today, over the last 24, 48 hours. There is no way for that oil to make its way out otherwise. So this is very different to 2022 where you have sanctions, you have this and that, but the spice will flow if it can physically move or be moved by pipelines, by rail, what have you. And so in 2022, I was pretty sanguine about the impacts on the oil market because Russia's got a lot of pipeline capacity to China, to through Kazakhstan.

• 22:09Speaker 03

  And there was clearly not really the appetite to do full on shadow fleet sanctions that would be required to slow it down. In this case, you actually just can't get it out. That's all there is to it. And so if you look at that vulnerability with oil, where 20 plus percent of the market comes from the Middle East and LNG, which is about the same numbers. And then you look at, say, a big network flow graph model of the global coal market, which I've done, the coal is not really dependent upon choke points. But the biggest producers are places like. You know, first of all, China produces an enormous amount domestically. It's the largest producer. India does too.

• 22:50Speaker 03

  Australia, South Africa, these are all places with access to open ocean, no quirky straits. And so you don't really have to worry too much about whether some geopolitical event takes out coal. The most reliable option, of course, is just producing stuff in country, whether that's solar, wind, you know, batteries, nuclear. But in a pinch, and currently, I think coal is going to have a bit of a comeback for that reason.

• 23:16Tracy Alloway?

  Yeah. Um, setting coal aside for a second, when you look at alternate sources of energy, do you have like, I don't want to say a personal favorite, but which one, which one of them do you think comes out on top in the sort of medium to longer term from this particular situation?

• 23:33Speaker 03

  It's like asking someone, well, you know, what ones should I grow? What, what, what, what should I plant? I'm like, well, okay, we're on. So if you're anywhere close to the equator or have a good solar resource, solar is crazy cheap. And if you've got it year round, batteries are also pretty cheap. That's, that's, that's hard to beat. If you're somewhere in the Baltic or something, then it's weird, right? So I think the appeal with solar, which is that you can roll it out very quickly, particularly with households. And it's interesting, you're already starting to see the impacts of Australia's government pushing residential batteries. And that is that the intraday spreads in power in Australia are very subdued.

• 24:15Speaker 03

  And the gas-fired generators are not really pricing the market anywhere near as often as they used to. And gas burns have actually collapsed, as they have in California. So if you want to kind of decouple from gas prices, batteries plus storage, solar plus storage is, is a very quick fix and can be rolled out very quickly. And it seems to be working very well in Australia. The, the, the price impact of this shock is vastly less than 2022 already.

• 24:45Joe Weisenthal?

  This is really interesting. Talk about that spread. So to some extent, would it be fair to say that a proxy or a gauge of how well solar plus batteries is working or affecting a market is not in lower prices per se, but in a diminishing spread between the highest and the lowest price of the day and that you have this like growing, you know, that it's a sign of a sort of like pure power stability?

• 25:16Speaker 03

  Yeah, I mean, one thing in power markets is the spark spread. So what is the, what is the cost to get out of bed for a gas-fired power plant? So you take the heat rate times whatever the gas price is, and you work out how many hours a day over a week are effectively priced by gas. And what happens, what happened in Australia was we had a lot of solar and not much storage. And still, the peaks were still very expensive because that was, the gas plants knew they could set the price. What's happened with this proliferation of storage is that the gas no longer reliably sets the price in those hours. And particularly in Australia, where it's often somewhat oligarchistic market structure, having a lot of residential batteries tied together in a mesh network, which then

• 26:01Speaker 03

  bids into the market, is really crushing those, those peaky times of the day. And that has a disproportionate impact on average daily prices. The problem in places like the UK is there's a lot of renewables, there's really no storage, and so they're not getting much benefit out of this because they still get priced on the margin by gas.

• 26:20Joe Weisenthal?

  Is it just because they haven't made, they have to bite the bullet and buy a lot of batteries from China? Or like, what is, why is there the lack of storage to complement the renewables in the UK?

• 26:32Speaker 03

  Market structure design. They're fixing this right now, and I'm sure they'll be in a very different place in two years. But it was something of a nervous side, I would say.

• 26:41Tracy Alloway?

  So one of the things that stood out from a previous episode we did on the energy situation with our Bloomberg colleague Javier Blas was he was talking about how the world is still very much divided between, you know, I guess, east of the Suez Canal and west of the Suez Canal. And if you're east at the moment, you have energy problems because of the situation in the Strait of Hormuz. And if you're to the west, maybe the pressures aren't quite as acute just yet. And one of the things we keep hearing from the Trump administration is, well, we have a lot of oil here in the US. We are hashtag blessed in carbons and molecules and all of that. When would you expect, or would you expect

• 27:20Tracy Alloway?

  at all, the pressures from the Middle East to start really filtering into the the western part of the world?

• 27:29Speaker 03

  Well, I mean, like I said earlier, you've already seen it in LNG. So Asian buyers are outbidding European buyers for now. That's obviously pushing up prices for Europeans. You are seeing more and more tanker traffic from the Atlantic basin move towards Asia as Asia just is happy to, there's maybe $10 or $15 more shipping costs, but they are willing to bid those barrels at this point. They they do not care. So the idea that any of these systems are going to be, there are frictions caused by shipping and and time. But if the pull is and the need is that acute in Asia, it will absolutely find its way to the Western Hemisphere.

• 28:24Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, Candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its

• 29:06Speaker 01

  recruiting and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

• 29:47Speaker 04

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• 30:40Joe Weisenthal?

  So there is this view, and I think it really started with, well, some people have had the dream for a very long time, some of the great pioneers of the industry. And then, but then in 2022, with Russia's invasion of Ukraine, there's like, okay, the future belongs to US LNG exporters, that this is Just we are can keep growing export, adding export terminals forever because there's just going to be all that we have all this gas and there's just incredible demand for it all around the world. Is that story at risk? I mean, again, like if part of the thing that's going to happen is that around the world, there is this, uh, and the political appetite for restarting nuclear and so forth is higher.

• 31:25Joe Weisenthal?

  Are there any weaknesses in the US LNG growth straight up lineup forever story?

• 31:31Speaker 03

  I think there's a lot of problems with it, um, but they're mostly due to overall problems with gas. First of all, the gas turbines you use to build a power plant in the major are the same ones you use to build a data center and the cost of a turbine is now, it's over $2,500 per kilowatt. It's was used to be about a thousand. I mean, this is that this crunch in, uh, gas fired turbines is, you know, well, well, well noted, I would say. Then you have the issue of, so you're, you're kind of being, your customers have been priced out of using gas for that reason a lot. Then you have this geopolitical risk attached to supply from Middle East.

• 32:12Speaker 03

  There is no certainty that, that if there is some sort of toll on the Straits of Hormuz, that the Houthis might say, well, I'd like some of that too, please. And then we have another issue in the Red Sea. So I think while US supply is probably low risk, depending on the actions of the US government, of course, people are overall looking at this market and thinking, well, is this really what I want to build my power grid on? And the answer is probably not.

• 32:42Joe Weisenthal?

  I got it. So US LNG, yes, that is a perfect substitute for LNG from anywhere else. The big question is if LNG generally has the potential for such volatility, then maybe a country just decides. Oh yeah. Okay. The US exists, but maybe a country just decides this is not the future of energy for me.

• 33:01Speaker 03

  Yeah, they might just look at this and say, like, I don't, I don't want this. Um, this is far too much crazy in a five, six year period and I, I'd like, I'd like something boring, please.

• 33:13Tracy Alloway?

  We're all full up on crazy. Yeah. Um, so one of the reasons we wanted to speak to you is because you are in Singapore and you know, in Singapore, you can literally see the tankers sitting out there in the street of Malacca. But talk to us about the general vibes in the city as you know, a big hub of oil trading.

• 33:33Speaker 03

  It's, it's very interesting. People in the physical business are saying levels of stress that are extraordinary. And then they look at their phones at equities and just they don't get it.

• 33:46Joe Weisenthal?

  Yeah, we don't get it either.

• 33:48Speaker 03

  And it's also what is quite challenging is people who have been in the physical trade and dealing with this part of the world and have a deeper empathetic anthropological sense of how a toll is likely to be received in a lot of that world, or whether that's a stable configuration. They have their doubts on whether we can get back to normal terribly quickly. So, so there's that. People in government are taking this extraordinarily seriously. They're very concerned. They are, Singapore, I think is more than most places has a real sense of what a wartime economy looks like due to historical reasons from the fall of Singapore and World War II. And so I can tell that there is a, there's a real gravity.

• 34:32Speaker 03

  And then I think that's coming out certainly through some of the comments of the Foreign Minister, Vidiyan Balakrishnan.

• 34:38Joe Weisenthal?

  Do you think, I mean, talking just pure politics, like, okay, the US and Israel, they start a war and suddenly everybody around the world immediately has to do rationing, higher energy prices, et cetera. You know, for years, it was this talk like, okay, the US is going to pivot to Asia and try to have closer relationships with some of the non-China Asia countries and so forth. And just generally, like, does this, we hear, we hear about this, the version of this conversation, we hear most about is in Europe, right? And they're like, what is the future of our relationship with the US? What is the Asian version of

• 35:19Joe Weisenthal?

  this conversation and thinking about the future of the US either as some sort of like business or political partner?

• 35:27Speaker 03

  The problem is this, is that if this is what one side of politics is going to be about on a sustained basis, which is

• 35:38Speaker 03

  Doing stuff which doesn't make a lot of sense and is very damaging and unpredictable. And the other side is maybe a bit of a wet noodle at times, but a bit more predictable. You kind of need to live through the full cycle, right?

• 35:54Joe Weisenthal?

  So Republicans or what you're saying, they're more okay, more stuff like this. And the Democrats, the wet noodles, many people.

• 36:01Speaker 03

  Yeah, maybe.

• 36:02Joe Weisenthal?

  Okay, keep going, but I'm just trying to make sure, okay, keep going.

• 36:05Speaker 03

  Yeah, sorry. So, so I mean, it's a, so, so if there's that perception that there is going to be this regular source of volatility and also, you know, politics animated by things which do not really animate Asia, like evangelical Christianity or a desire for a catacombs or fighting with the Pope. Like, if this is kind of what the US is now, then there is going to be a natural desire to insulate oneself from it as much as you humanly can. And that there are real limits to what you can do. It's a big economy. It's very important. But, uh, you know, food, fuel, you know, basic material flow security, I think, is going to be looked at

• 36:48Speaker 03

  very differently going forward. And, and I think there is a, that that will lead to a drive towards much higher energy security, which is not going to go well with US efforts to promote fossil exports, for sure.

• 37:03Tracy Alloway?

  Is China the natural alternative in that scenario? I mean, we already talked about some shipments from China going to places like the Philippines. Are we seeing the emergence of that sort of energy diplomacy?

• 37:15Speaker 03

  I, I, I think what people, people have not appreciated well is that China responds well to strength. The US now responds well to strength. So who does Trump not mess with? China, because they restricted virus and basically threatened to put Detroit into cardiac arrest and shrug their shoulders. And I think what Europe in particular is missing is that there are hands they can play that maybe are not intuitive to them, but doesn't mean they wouldn't work. The IRGC appears to have beaten the US to the most humiliating geopolitical defeat since Suez and.

• 37:54Speaker 03

  Looks like they're going to get a toll out of it. So what do like, what is the takeaway from how to deal with the US going forward? But similarly with China, I mean, they've been very aggressively coercive on material supply chains with technology. So I think this kind of idea that is a mid-sized power, you should be thinking that you need a pimp to keep you safe on the streets. I mean, actually, all the pimps are bad. We need, we need more Pan Brea.

• 38:23Tracy Alloway?

  All right. You want to leave it there?

• 38:25Joe Weisenthal?

  I think that's a good place. That's a, all the pimps are bad. Strike me as a pretty good place to leave it there.

• 38:31Tracy Alloway?

  True words, true words.

• 38:32Speaker 03

  Sorry, sorry if that's a bit strong, but it's like, sorry.

• 38:34Joe Weisenthal?

  No, no, it's like, it sounds like a good, it sounds like a good spot to leave it. Alex Turnbull, it's always great catching up with you. Really appreciate you taking the time. Very interesting conversation.

• 38:45Speaker 03

  Cool. Thank you. Bye bye.

• 38:59Joe Weisenthal?

  Setting everything aside, and there's a lot in that conversation to talk about, I think a story that I want to do more coverage of is essentially like, how solid is the US energy story actually?

• 39:13Tracy Alloway?

  Yeah.

• 39:13Joe Weisenthal?

  Because I think there is this view that, okay, we're, we have achieved oil independence. Basically, I know we still refine, bring in some blends of crude from, or kinds of crude from anywhere else, but we have plenty of oil and then we're going to have plenty of gas and gas exports are going to go to the moon. And I think that like, you know, Alex presents an argument and there are good reasons to think that maybe the future isn't going to be gas related. And there are reasons to not, for economies to not build an LNG dependent economy. And then, you know, I think there are like questions about like, well, what, what if the oil depletes a little bit faster than people think and so forth? So I just want to do more on actual like, stress testing the, the assumptions about American domestic energy.

• 39:56Tracy Alloway?

  Absolutely. And it's really interesting what Alex was saying about just the EV dealerships, right? Like you can see some of this starting to happen and like the alternative so far is not. You know, turning to US gas, it's not even buying a Tesla. It's let's buy a BYD, right? The other thing, just on like a pure, basic oil and gas basis, I think to Alex's point earlier, like there are these interconnections in the overall market,

• 40:25Joe Weisenthal?

  Yeah.

• 40:25Tracy Alloway?

  which we haven't necessarily seen like the pressure from one half of the world come into the other half of the world.

• 40:32Joe Weisenthal?

  Yeah.

• 40:32Tracy Alloway?

  Just yet. And there's an open question over like how that happens. Sorry. The reason I'm not expressing myself well, but one of the papers I was reading from Alex's Substack, actually, or one of his Substack contributions is a paper from 2022 called "The Myth of US Energy Independence."

• 40:51Joe Weisenthal?

  Hmm.

• 40:52Tracy Alloway?

  And so I think there is this like open question, just on a pure hydrocarbon basis.

• 40:57Joe Weisenthal?

  Yeah.

• 40:57Tracy Alloway?

  How much of the hashtag blessed America story actually is true?

• 41:02Joe Weisenthal?

  Yeah, no, I mean, like, you know, a lot of things don't seem to be going great. Some things are going better for the US than others these days. Some not so much. I do think a lot is like, well, you know, at least we have energy. At least we're not like, it's like.

• 41:15Tracy Alloway?

  On a relative basis, sure.

• 41:16Joe Weisenthal?

  But like, if that were to change, if they, if they were to sort of get a reassumption, a sort of reassessment about America's energy stability or energy independence, or that would be like a very, that'd be a really big story. I also just think, you know, it's very interesting that the nuclear re-acceleration, et cetera, that's happening.

• 41:36Tracy Alloway?

  That there's political will now. There's nothing like an energy crisis to change like political will towards nuclear power.

• 41:42Joe Weisenthal?

  And on that political will, his last point, which is like, what is the lesson that we keep learning is like, strength matters. And as you know, it's like, Trump hasn't gone very hard against China because China went very hard against the US. Iran may end up in a situation in which it comes out stronger than it was two months ago, where it actually is collecting a toll, you know, have getting a cash cow for the Strait of Hormuz. So it's interesting is his point where it's like, okay, Europe, other parts of Asia, like, what is the lesson that they learned from this? And maybe the lesson is that sort of like, Biding your time and trying to be friendly and obsequiously, maybe that's not the answer.

• 42:23Joe Weisenthal?

  Maybe, maybe stronger lines are the answer for global diplomacy right now.

• 42:28Tracy Alloway?

  Also, the pimps are bad.

• 42:29Joe Weisenthal?

  All pimps are bad.

• 42:30Tracy Alloway?

  PSA, pimps are bad. All right, shall we leave it there?

• 42:34Joe Weisenthal?

  Let's leave it there.

• 42:34Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 42:39Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our guest, Alex Turnbull. He's at Alex BH Turnbull. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. And for more Odd Lots content, go to Bloomberg.com/oddlots, where I have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 43:04Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about the future of global energy, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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