Pod Insights Odd Lots War in Iran Is Redrawing the Map for Natural Gas About this episode Mostly, the world has been watching the price of oil skyrocket amid the war in Iran and the de facto closure of the Strait of Hormuz. But there's more than just oil that comes out of the region. Qatar is home to the world's largest natural gas field, and for now, it's been almost completely cut off from the rest of the world. Not only has Gulf gas supply been cut off, there's also damage to the core infrastructure, which will take time to repair. Meanwhile, the US is rapidly becoming a natural gas export powerhouse, with volumes having surged since Russia's invasion of Ukraine. So, all in all, the world's natural gas map is rapidly being redrawn. On this episode, we turn to the one and only Bob Brackett, managing director and senior research analyst at Bernstein & Co. He explains the impact of the war on global prices, the prospect for further US exports, how the world will adjust to the loss of Gulf supply, as well as the other commodities that are getting squeezed right now. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Tracy 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.
0:26 Speaker 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
1:08 Speaker 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.
1:52 Speaker 02 Bloomberg Audio Studios. Podcasts, radio, news.
2:07 Joe Weisenthal? Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.
2:12 Tracy Alloway? And I'm Tracy Alloway.
2:13 Joe Weisenthal? So Tracy, you know, the war in Iran is primarily, at least from a commodity standpoint, being understood as like an oil shock. That's the number that most people are paying attention to.
2:22 Tracy Alloway? That is the headline, sure.
2:23 Joe Weisenthal? But as we know, from multiple episodes we've already done, it's not just an oil region. And of course, we've been talking about fertilizer in one of our episodes. We did the episode on other sort of dry bulk commodity shipping that's affected by the closure or the almost closure of the Strait of Hormuz. There's plenty there. It's not just an oil story.
2:42 Tracy Alloway? Yeah, the one silver lining of all of this, I guess, is that we're all becoming commodities, supply chain commodities experts and petrochemicals as well. I should just say we're recording this on March 17th because who knows what's going to happen by the time this episode comes out. But one of the big headlines today is that Iran has just struck one of the big gas fields in the UAE, which is the Shah Field in the sort of empty corridor area. And it's on fire. So pretty dramatic footage, which definitely does tend to concentrate your mind on one particular commodity, which is gas.
3:18 Joe Weisenthal? Well, there's sort of like two dimensions of the supply chain disruption, isn't there? Because there is the fact that for the most part, there are very few vessels going through the Strait of Hormuz. And people are sort of wondering, when will that open again, right? But then there's the other question of, as you just mentioned, there's a lot of damage to core infrastructure of various sorts. And so setting aside when the strait opens, how badly will the production infrastructure be impaired? And how long will that go on? That's a sort of separate dimension besides just the passing of the ships.
3:48 Tracy Alloway? Right. And I think nat gas in particular have these sort of geopolitical connotations, even before the war with Iran. We're all used to thinking about, you know, big strategic pipelines and thinking about potential disruptions to those. Back when Russia invaded Ukraine, there was obviously a European gas crisis. And so everyone's kind of worried about Europe once again.
4:09 Joe Weisenthal? Yes.
4:10 Tracy Alloway? There's a lot to discuss.
4:11 Joe Weisenthal? Totally. I saw a headline today also on the train here talking about how like Pakistan is very serious. Like they have like a month of nat gas right now and they're heavily dependent on gas from the region. Of course, the fertilizer story as we learned urea downstream from nat gas, et cetera. Anyway, last year, we did our live episode with one of our favorite commodities guest, Bob Brackett. And I recall as we were walking out of the theater, I was like, Bob, we got to have you back on just for like an episode. Let's pick a commodity. And he said, let's talk about net. Next time I'm on, let's talk about net gas.
4:48 Tracy Alloway? Yeah.
4:48 Joe Weisenthal? I was like, all right. And so.
4:50 Tracy Alloway? So it turns out that now is the perfect time.
4:53 Joe Weisenthal? We have the perfect time for the perfect guest. We are going to be speaking with Bob Brackett, Managing Director and Senior Research Analyst, covering North American oil and gas exploration and production and global metals and mining at Bernstein Research. So Bob, thank you so much for coming back on Odd Lots.
5:09 Speaker 04 Thanks for having me, Joe. Thanks for having me, Tracy.
5:11 Joe Weisenthal? When I said we should do an episode on one commodity, at that time, why did your mind immediately go to nat gas? Was that the big, was that the big story in your mind?
5:20 Speaker 04 So one, and I've, I've told clients this, I am most useful when I am least loved. The problem with being a cyclical commodity analyst is everyone will ask me about whatever is the highest on the screen.
5:33 Joe Weisenthal? Yeah.
5:33 Speaker 04 That's the thing that's going to mean revert lower. The money has already been made there.
5:38 Joe Weisenthal? Okay.
5:38 Speaker 04 And therefore you should be looking at the things that no one's really talking about.
5:41 Joe Weisenthal? Yeah.
5:42 Speaker 04 So I would argue, you know, today, Henry Hub, US natural gas, not the LNG stuff that's shut in, not other commodities, Henry Hub is unloved.
5:51 Joe Weisenthal? Okay.
5:52 Speaker 04 Sitting at $3 in MCF while we have all of these underlying demand drivers in the US. So it's the forgotten molecule today.
5:59 Joe Weisenthal? The forgotten molecule.
6:01 Tracy Alloway? Forgotten molecule. But just broadly though, you were pretty spot on when it came to nat gas. Cause I remember last year you turned bullish after like 15 years of being bearish, something like that. So I know you're too modest to say that you got that call correct, but directionally, things seem to be going your way.
6:19 Speaker 04 Yeah, so I've been at Bernstein covering the energy space, you know, nigh on 15, 16 years. And for most of that time, we've had these giant disruptions. First, we had shale gas, where the entire oil and gas complex was drilling and learning curves of how do you frac gas? How do you get it out? We drove the cost of shale gas down to 350 in MCF. And then shale oil comes along the way and just hands out, you know, gives away the associated gas from oil-directed drilling. And so you've had a big chunk of the cost curve that doesn't really care what the price of gas is. It's a byproduct. Waha, gas prices go negative at time to time. It doesn't slow down the oil drilling. And then finally, you're starting
7:03 Speaker 04 to see the light, where in the same way that the shale oil industry became well behaved, kind of in 2018, the shale gas industry, and especially the Haynesville shale, sitting down there on the border of Louisiana and Texas, starts to behave itself. And in a world where you have these really strong structural demand drivers to the upside, and you have discipline on the supply side, that's a nice time to come into a sector.
7:26 Joe Weisenthal? Amazing. Perfect setup. One more sort of setup question. I was sort of thinking about this on the way in. Like, when I think about oil, you know, there's various grades of oil, and there's various prices, but basically, there's one global price of oil. And everything trades at a little bit of a spread to that, depending a little bit on geography, and depending a little bit on grade, and light sweet, and heavy sour, whatever it is. My impression, and tell me if I'm wrong, is that with gas, the story is like, there's one type of gas, but there is absolutely not one global market, because the exact flip side of oil, the supply chain is just so radically fractured.
8:05 Speaker 04 Yeah, if you think about it, VLCC, very large crude carrier, holds 2 million barrels of oil. And oil today is 100 bucks a barrel. I couldn't have said that three, four weeks ago. And the movement, the cost of moving that halfway across the world, a few bucks a barrel. So for a couple percent, I can take my product, deliver it to you wherever you want.
8:27 Joe Weisenthal? Anywhere.
8:28 Speaker 04 You go to LNG, the cost of getting shale gas out of the Marcellus, from two miles down and two miles out through the fractures, is less than a dollar. Then it's a couple bucks to get it to market, Henry Hub through pipelines. If I want to ship it, it costs me two and a half bucks to liquefy it. Another buck and a half to put it on a vessel, send it somewhere and then regas it. And so 80, 90% of the cost of gas is in the movement.
8:56 Joe Weisenthal? Wow.
8:56 Speaker 04 And so in that world, all right, you've got a law of one price for oil, right? Because the relative value of the cargo versus the shipping is trivial. With gas, it's all a game of distance and markets, and therefore there is no one price.
9:10 Tracy Alloway? So can you maybe just situate us on Iran's place in the sort of, I guess, gas complex of the world? Because, you know, we think about it as a commodities player, but a sort of unreliable commodities player in some respects. You never know what's going to get sanctioned and nat gas, as we all know, tends to be kind of volatile in and of itself. So what exactly is Iran's role in this particular complex?
9:33 Speaker 04 So we're looking at the largest gas field on the planet. And the Qataris call it North Field, and that extends into Iranian territory where it's kind of pars. But you've got something that the numbers get huge, but you're, we think about a TCF of gas is a huge amount of gas.
9:51 Joe Weisenthal? What's TCF again?
9:52 Speaker 04 So think of a LNG vessel.
9:55 Joe Weisenthal? Yeah.
9:55 Speaker 04 Can hold somewhere, the big ones, the Qmax is coming out of Qatar, could be six BCF, billion cubic feet.
10:01 Joe Weisenthal? Oh, big.
10:02 Speaker 04 A medium one would be four BCF.
10:04 Joe Weisenthal? Got it.
10:05 Speaker 04 And so a TCF would be 250 vessels.
10:07 Tracy Alloway? Do you think four BCF would be a really good boy band name?
10:10 Joe Weisenthal? Yeah.
10:10 Speaker 04 Four BCF.
10:11 Tracy Alloway? Yeah, sorry. Go ahead. I interrupted.
10:14 Joe Weisenthal? I wouldn't have gone there, but yes, four BCF. My daughter might be into that. Yeah.
10:19 Speaker 04 Right. A good Haynesville well, a good Marcellus well, might produce over its life 20 BCF.
10:24 Joe Weisenthal? Okay.
10:24 Speaker 04 It could load four, four or five cargoes of LNG. So take that times 1,000, and that's the scale of the field of North Field.
10:32 Tracy Alloway? Wow.
10:33 Speaker 04 And it's a gas field. It also produces a lot of condensate associated. And so it's a massive moneymaker. It sits west of the Strait of Hormuz, right? And so all of the LNG coming out of the Gulf, except Oman. Is sort of trapped west of the Strait of Hormuz.
10:51 Joe Weisenthal? Wait, just to be clear, that field is Qatar and Iran, it goes into both?
10:56 Speaker 04 It's it's giant structure, largest gas structure on the planet.
10:59 Joe Weisenthal? Okay.
10:59 Speaker 04 And it's shared, geologically, it's shared. Operationally, it's absolutely not shared, but yes.
11:04 Joe Weisenthal? Operationally, it's all.
11:05 Speaker 04 Operationally, the North Field, what the Qataris have called North Field, comes back to Qatar, gets liquefied there. Loaded, ships east out through the Strait of Hormuz, typically goes to Asia.
11:16 Joe Weisenthal? This is what I was gonna ask. So again, because it's so fractured, where is it all Asia? Like, where's that gas going and who's it competing with? What's that market?
11:25 Speaker 04 So the global LNG markets, about 500 million tons per annum, all and the the units that will kill you. We're gonna be converting between 10 million. It's the minute it gets on a vessel, it becomes a ton, for whatever reason.
11:38 Joe Weisenthal? Huh.
11:39 Speaker 04 And so out of that, you know, Qatar, the three powerhouses of LNG are Qatar, the US, and Australia.
11:46 Joe Weisenthal? Oh.
11:47 Speaker 04 The Qataris have the lowest cost fields, the condensate pays for the fields, they could get, they're never going to, they could give away the gas. And they sign these really long-term contracts, you know, around the world, but a lot into Asia. The US is the other powerhouse, it doesn't sign long-term contracts. So if you went back in time, and let's say you're a Japanese utility and you're sitting on an island. And you need something to burn, to spin a turbine and generate electricity. You're sort of indifferent. I gotta bring a vessel in, I could bring a cargo of crude, I'm gonna bring some fuel oil, some diesel or gas. And so I'm sort of indifferent. I'll pay roughly the same price for all of those. And so for half a century, we've always had oil-linked contracts for LNG.
12:31 Speaker 04 So when we think about JKM, they're often linked to a crude cocktail price in Japan. The US comes along and breaks that and says, you know what? Just pay me TTF, I'll take Henry Hub, I'll buy Henry Hub off of this flooded market in the US.
12:49 Joe Weisenthal? Yeah.
12:50 Speaker 04 Liquify it on the Gulf Coast mostly, I'll send it to where you want, and a bunch of merchants will capture that arm. And so it's a completely different pricing. It's much more of a spot market than these big, heavily contracted Qatari volumes. And so now, you know, Asia's running around saying. I got force majeure out of Qatar. I don't have this. I gotta go burn something else. And maybe I'll burn somebody else's LNG. But if not, I'll burn coal. I'll burn fuel, oil, diesel. I need electrons.
13:20 Tracy Alloway? So, speaking of arbing the price. So with so many different pricing benchmarks and now this dislocation, are you seeing any weird like price movements that people are like starting to look at and take advantage of?
13:33 Speaker 04 We're still well under what happened when Russia invaded Ukraine.
13:38 Tracy Alloway? Huh.
13:38 Speaker 04 So certainly Europe prices, and we could call them another alphabet soup, TTF or NBP, but TTF. So a price into the Netherlands has not gotten to nearly the levels it did during Russia-Ukraine. Some of that is, it always felt, I remember in the end of 2021, people were wondering why Europe gas prices were so high. And they're like, oh, those Russians are terrible. They don't know how to maintain production. In fact, they were just sort of slowly dialing down the gas in order to tighten the market. And then you invade in winter, February, peak demand.
14:11 Tracy Alloway? Right.
14:12 Speaker 04 You know, now we're entering the shoulder season. In the spring and in the fall, it's beautiful outside in the northern hemisphere and people don't need that same amount of gas. And so shoulder season is normally a terrible price for gas. So that sort of helps. And what also helps is, you know, to a certain degree, Europe has weaned itself off Russian gas and it feels like it has more options. We'll see how the things turn when we get toward the summer.
14:36 Joe Weisenthal? Let's talk about, you know, one of the stories in the US has been the rise of LNG exports. Obviously the export terminals. Like, how much has that scaled up? But you know, today in 2026, how much more are we exporting versus what we were in, say, 2016 or 2021, prior to the invasion of Ukraine? And what is the, how much capacity is going to come online in the coming years?
15:02 Speaker 04 Yeah, so if we wound back the clock, there's an interesting historic anecdote that's coming soon. So right now Qatar is not selling LNG.
15:12 Speaker 04 However, there is an LNG terminal called Golden Pass. It's 30% Exxon, 70% Qatar. It sits in Texas. It's loading now. And so in March, it might be that the next cargo that Qatar sells is a Texas cargo, not a Qatari cargo. And that's because this Golden Pass terminal was an import terminal. Right? So if you go back far enough, before shale gas, the strategy in the US was the US is going to run out of gas. It's going to get priced off of the price of diesel. Right? I'm going to run out of gas. I'm going to have to need electricity. I'm going to go burn diesel. And so everyone had their favorite strategy.
15:54 Speaker 04 I'm going to build an import terminal and I'll bring in Qatari gas or choose your favorite gas and that'll save my energy bill. And then shale gas completely destroyed that strategy. But along the way, Exxon Mobil in Qatar had this import terminal and they just flipped the switch and said, well, instead of being a regas terminal, let's make it an LNG terminal. And so that is loading as we speak. It'll start to sell cargoes as early as this month. And right now, that's Qatar gas's only source of revenue until things get fixed in the Middle East.
16:26 Tracy Alloway? So, speaking of shale, one of the legacies of the shale boom is that a lot of energy companies got very nervous about over-expansion and ramping up supply. In a situation like this, what's your gut check on how fast LNG producers can really ramp things up, both logistically and then just in terms of their sheer willingness? And I guess in the face of their shareholders?
16:51 Speaker 04 So, the gestation period of a shale gas well, if you're super quick, might be two, three quarters, realistically. The gestational period, and of course, these aren't gestational periods, of an LNG facility is four years.
17:04 Tracy Alloway? Wow.
17:04 Speaker 04 So if we anniversary, what happened four years ago? Russia invades Ukraine. What was the theme that started this year? Oh, there's going to be an LNG glut in 2026 and 2027. And, and many an incorrect analyst, hand raised, has written about the approaching LNG glut. Right. This event has changed that logic. And so the reason there was a glut this year is because four years ago, everyone ran out and said, I need LNG, I need the cavalry, quick, call the cavalry. How long is it going to take? Right. Four years. And so the answer is LNG facilities, once built, run full, right? There's an ability to debottleneck and run above nameplate, but basically there is no
17:45 Speaker 04 spare capacity. To a certain degree, we had OPEC with a bit of spare capacity that they released in the first, second week of the war. There is no equivalent on LNG. Every cargo would have gotten delivered anyway. So there's no flex in the system and the system takes four years to fix.
18:18 Joe 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.
18:44 Speaker 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 recruiting and hiring practices. But according to recruiters,
19:29 Speaker 01 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.
20:07 Joe Weisenthal? So, one of the stories that after Russia's invasion of Ukraine was that, "Well, this is going to be a boon to US gas and we're going to ship them." Are we shipping a lot more LNG to Europe than we were?
20:17 Speaker 04 And so we go back to this phase where Golden Pass was an import terminal.
20:20 Joe Weisenthal? Yeah.
20:21 Speaker 04 And then we got to about, and so think of US overall gas supply demand is about 120 Bcf a day. Couple of years ago, 10% of that would have been LNG exports.
20:31 Joe Weisenthal? Okay.
20:32 Speaker 04 Today, we just, we're getting close to 20, it'll be 20%.
20:36 Joe Weisenthal? Wow.
20:36 Speaker 04 And so, over the next, you know, out to 2030, we'll just be adding multiple Bcf a day. And so it is the fastest growing part of US gas demand.
20:46 Joe Weisenthal? One of the controversies with export terminals, as you mentioned, not that long ago, we're absolutely swimming in free gas. And there was this concern that, well, if you start exporting it, it raises the domestic price because then you don't have these gluts anymore. Has the rise of LNG exports meaningfully raised the price of domestic gas consumption?
21:04 Speaker 04 I wish. As the E and P investor, that's the dream of all E and P investors. You know, we're sitting here, entering the shoulder season and Henry Hub's $3. It got to five, it got to six during the winter where the seasonal demand was the highest. There is no strong evidence that that extra 10 going to 20% of the demand wedge has changed price, right? What changes price is where supply equals demand. And up until now, the supply side's been perfectly willing to hand the market as much gas as the world wants, as much, the US wants at 350. We think that's changed. I think that's changed. I think ultimately certainly on shale
21:45 Speaker 04 oil, we're approaching a world where oil, your shale oil inventory five to 10 years from now, looks pretty lean. You're starting to see oil and gas companies say, well, what do we do in a post shale world, shale oil world? Now, what can we do? We can go international, right? So you've got, you can go to the Middle East and certainly there are people there looking for shale oil or conventional oil, like the Shaw gas field today. People are looking at M and A, I'll just acquire my partners. Some people are looking at gas. But yeah, there is a sense that it is a, it's always been a finite resource. It had been a growing resource and one where this learning curve had taken cost out every year. You know, that chapter has kind of passed and now it's a world, if you're in a planning
22:30 Speaker 04 cycle of five to 10 years and you look out five to 10 years, you got to go replace that stuff.
22:35 Tracy Alloway? How elastic is demand for something like nat gas? Cause I'm used to thinking about it as someone with a house in the Northeast and something that I have to buy every year unless I actually get really good at chopping firewood or something like that. But I imagine there must be some marginal source of demand that actually depends on the price.
22:55 Speaker 04 So there's the demand for that which gas gives you, which is electricity. And so there's substitution. So one thing to watch is bubbling behind the scenes, global thermal coal prices are starting to take off. They're up 30% year to date. What happened when Russia invaded Ukraine, Europe bought every LNG cargo they could, sucked it all the way into Europe. Asia was left saying, well, we're short electricity. Let's go burn some more coal. Let's consume more. And so thermal coal prices back in Russia, Ukraine, 300 bucks a ton. Started the year at a hundred bucks a ton, we're up to 130. And so there's always going to be, there's some demand destruction, but you know, people really like electricity
23:39 Speaker 04 and air conditioning and the things that it gives. And so the answer is you'll start to look for, certainly coal is an obvious place. And then eventually some demand destruction, but that's at kind of much higher levels.
23:51 Joe Weisenthal? Do you have a read on, Tracy had mentioned in the beginning, setting aside the straight of hormones, just pure infrastructure destruction. Do you have a read on like how much Qatari production is going to be impaired in the medium to long term here?
24:04 Speaker 04 So we know LNG terminals have a bit of momentum associated with them. And we've got pretty good experience in the Gulf Coast where hurricanes come through. You bring down your LNG facility and you bring it back up. Same with oil platforms in the Gulf of America, Gulf of Mexico. Hurricane comes through, you shut in, you come back. And so in general, oil and gas assets are built, they're built for turnarounds, right? They're built to go down and come back up, especially when you can plan ahead. So you'll get whipsaws on the order of weeks. And so if this is over in weeks, right, we'll kind of have a big wedge of a month of chaos. It'll filter through the economy.
24:44 Speaker 04 And if it goes on for months and months, it's something like, if we talk about the big three LNG, the US, Qatar and Australia, they're kind of each a fifth, a fifth, a fifth of global supply. So something like 20% of the LNG would be knocked out. And that's, needs a lot of coal to replace or a lot of demand destruction.
25:03 Tracy Alloway? So just on this point, I think commodity markets in particular are very used to fading Middle East flare ups very quickly. Is there any reason to believe that this time is going to be different? You have, you know, decades of experience in this space. Does it feel different to you?
25:21 Speaker 04 As a geologist and not a geopolitician, right? I'm not sure I'm the perfect guest for that answer. What the market is saying is that we're returning to normal, right? And so, yeah, so the, is the market right or wrong? I have a few signposts. And so one of the ones, I'll use oil as an example. When you take the price of oil and you add in the crack spread, right? Which is effectively, what does the consumer pay for diesel, for gasoline, et cetera? When the cost of that gets to 7% of global GDP, right? The world says that's too much and you stop using it. And that's where we got in 2022, right? Today, that'd be about $120 crude, call it about a $60 crack spread.
26:06 Speaker 04 So on my screen, I can show you, oil never works a year forward when the cost of oil is 6% of GDP. And so that's kind of that.
26:16 Joe Weisenthal? Wait, where are we right now?
26:17 Speaker 04 So today, we're 100 plus 40. So crack spreads are around 40 and these things are moving by the minute. But yeah, call it about 140. So we're not quite there. But there would be an exit alarm ringing if we did get to kind of 180 crude plus crack spreads. And then you'd say, I don't need to be a geopolitician. I just know every time this has happened, the global economy has gone blah.
26:42 Joe Weisenthal? That's probably geopolitics is a fake field, isn't it? No, I don't know about that. But geology field, sorry, I think geology is more of a science than geopolitics, right?
26:53 Speaker 04 Well.
26:54 Joe Weisenthal? Anyone can fake being a geopolitical expert.
26:56 Speaker 04 Geology doesn't change when you talk about it, but geopolitics changes when you talk about it. So the experimenter influences the experiment.
27:04 Joe Weisenthal? You know, here's something I've wondered about, you know, again, net gas, there's not a global market. But with the rise of LNG, have global markets become somewhat more correlated over time? Are we trending towards a global price of gas?
27:22 Speaker 04 Yes. And in fact, if you think of the role that Saudi Ramco plays, and when they're setting their official selling prices, they will look east and they'll look west. And they'll see what are Atlantic basin prices for oil and what are Pacific basin? And they're not going to let anybody arb them away. Right? So kind of, they help set a law of one price. The Qataris, that not only are sort of a fifth of LNG today, but growing, right, serve two markets. They can look east and they can look west. And so the idea would be, we used to have JKM, you'd have LNG market over here, and you'd have TTF over here. The Qataris' role in the market is to say, no one's going to arb me. We're smarter. We've got more customers than anybody. And they were going to kind of link the price of LNG in Europe to the
28:07 Speaker 04 one in Asia. So we have kind of the law of one seaborne price of gas. And then you can compete against that. And then I can say, okay, if I build an import terminal here, and the shipping is this much, and the liquefaction to regas is this much, I can do this project.
28:22 Tracy Alloway? What's actually going on with Russian LNG in Europe? Because you hear these very different stories. One is they're phasing out Russian imports. And then the other story is, well, Russian imports are at a record high.
28:34 Speaker 04 If Russian crude is getting a free pass on this conflict, then Russian LNG will likely get a free pass. And so, yeah, the answer is the longer this conflict takes. If you are a buyer, and who are the big buyers of LNG? Right? Think about Europe, and they're buying it for electricity. Think about Japan, Korea, Taiwan, and China. And one of the strategies is diversity of supply is security of supply. Right? That's kind of been a mantra when you look at the various utilities. And that's been proven absolutely correct. If anyone said, well, the Qataris are giving me the best deal. I'm going to be 100% linked to them. That was a terrible, in hindsight, choice.
29:14 Speaker 04 And so diversity of supply means Russia has boatloads of gas. They've got pipe loads of gas now. They've got a customer that they're not friendly with anymore. And so their ability to build LNG and eventually, right? The problem with the pipeline is it goes from point A to point B. And so it is a marriage between the person putting stuff in one end of the pipe and the person taking stuff out of the other end. You can't move that pipe. The beauty of LNG is you don't have to get married. You can kind of have lots of customers with benefits.
29:51 Joe Weisenthal? You mentioned that, and I remember these stories after Ukraine, after the invasion of Ukraine and Europe going around and trying to buy every LNG tanker that it could on the market and that there were poorer countries that essentially just got shut out. What was the next chapter there? What happened? What did they do?
30:09 Speaker 04 Yeah, and so the challenge is there is probably, there are two tons of demand for every LNG cargo. Right? So there are twice as many tons of regas as there are liquefaction. And the way to think about that is a liquefaction terminal costs $1,000 a ton. And the ones in the Gulf Coast are big, 10 million tons. So you're spending $10 billion for this terminal. Regas terminals are a tenth of that cost. So you invest in liquefaction.
30:40 Joe Weisenthal? Liquification is the way out.
30:42 Speaker 04 Yep, exactly.
30:43 Joe Weisenthal? And regas is the way in.
30:44 Speaker 04 Exactly. So the supplier does the liquefaction.
30:47 Joe Weisenthal? Yeah.
30:47 Speaker 04 The buyer does the regas. So you can build regas terminals as an option, right? So you and therefore there are twice as many options. And so when the market is tight, you can have two people fighting for every cargo, which brings us back to the person that pays the most gets it. And then the answer is you need another form of source of electricity. And it's developing economies are generally going to have access to coal. Right? They'll have coal and power plants and that's going to be their choice. That's right. So yeah, the second place in fighting for an LNG cargo is to go buy coal.
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33:02 Tracy Alloway? I'm going to change the subject slightly. In the grand tradition of us interviewing Bob, I'm just going to throw out a random commodity. So anyone who came to our live show last year will know we had a segment with Bob where we just had the audience basically throw out random things.
33:16 Speaker 04 And Bob knew everyone.
33:17 Tracy Alloway? And ask him to talk knowledgeably on each of them for five minutes. So I'm going to do the same right now with sulfur and sulfuric acid. And the reason I ask is because, you know, I was in Abu Dhabi for a while and I remember ADNOC, the big energy giant over there, striking some offtake deals for its sulfur. And I was very used to thinking of sulfur as a byproduct of crude oil, like this thing that is kind of useless. But to my surprise, it turns out it is in fact very useful because you can make sulfuric acid out of it. And sulfuric acid is needed for things like etching of microchips. So I'm very curious what's happening to sulfur right now.
33:55 Speaker 04 Yeah. So the craziest thing happening to sulfur right now is this Shah gas field in UAE is on fire. That gas field, 25% of the gas is H2S, right? This is a, they call it a sour gas field. In the old days, if you ever went out to a well site that was H2S, right, Joe would have to shave because the equipment to cover, you need protective gear. You would have to shave it too, right? I'd have to shave it too.
34:23 Tracy Alloway? This is the whole oil will kill you thing.
34:25 Speaker 04 It would take you longer to shave than me. And so you could always see the folks coming back from a sour gas field because they'd gone clean shaven. And so here we have one of the largest sources of H2S, and also it's about 10% CO2. Hopefully it's controlled, but that's an environmental, huge safety risk, right? So that's worrying. Now sulfur in general is not scarce at all. We got sulfur all over the place. This field produces sulfur. You can see if you ever go to Western Kazakhstan, the big Tengiz Cheval field, right, big piles of sulfur. Also, every copper smelter in the world generates sulfur because you'll take
35:06 Speaker 04 a mineral, you'll take something like a calcapirite, kind of the copper version of fool's gold, and it's a copper sulfide. And so if you ever visited a smelter, you got this big tower where you're, in the old days, you just burn off the sulfur dioxide, you'd make the tower tall enough so that that acid rain spreads across a large area.
35:25 Speaker 04 Or you can capture the sulfur. So around the world today, copper smelters lose money, right? You don't make money running a copper smelter. They call them treatment charges, refining charges. They're kind of zero and they're sometimes negative. So a copper smelter will ring me up as a copper miner and say, I want your copper concentrate. You can take that copper concentrate and normally you'll get the precious metals out of it. So I'll squeeze all the gold out of your copper ore and I'll make some money. Or I'll get an efficiency uplift. I'll pay for 95% conversion and I'll squeeze some out. The other product I get is sulfuric acid. So right now, copper smelters are looking and saying, hey, we're getting a revenue stream off of sulfuric acid. Most sulfur is going to go into agriculture.
36:09 Speaker 04 So if you've ammonium sulfate, for example, is an explosive, but it's also a great fertilizer. And so, for example, if you in Kazakhstan, the leading producer of uranium uses sulfuric acid in the operations. They compete with agriculture. And so when the market is tight, sulfuric acid, you might say, hey, I gotta let the people making food win. So you can have areas where you're short sulfuric acid. We're taking sulfur off of the market. It's pretty abundant and there will be sources and there are lots and lots of copper smelters that can help convert it. So we'll find a way. So it's not clear to me that we've run out of sulfur. I think it's the fifth most abundant element in the crust.
36:52 Tracy Alloway? I love asking Bob, just like random things.
36:54 Joe Weisenthal? Let's just do this. I know you basically know all commodities, but you're not a soft sky, right? Didn't you like caveat that? So you're not a...
37:02 Speaker 04 Things that were once, yeah. If it comes from the earth, I'm more comfortable than if it was...
37:07 Joe Weisenthal? Right, than things that are grown from the earth. Got it. When we think about particularly the war right now, and we've obviously oil and gas and sulfur, are there any, what else should we be watching? Any other weird? I think I saw there was a good headline in Bloomberg about zinc prices have surged. But anything else going up into the right these days?
37:25 Speaker 04 Yeah. So if you think about aluminum's one. So if you went back to when Russia invaded Ukraine, everyone went and said, okay, what portion of which element? Does Russia produce? And at the time, a lot of nickel out of Russia, a lot of PGMs, platinum group metals and palladium. And so people were like, oh, we're going to run out of those things. You know, this time around, the Middle East, from a mining perspective, doesn't mine a lot west of the Straits of Hormuz, but they process a lot. So smelters are basically aluminum. People talk about aluminum as solid electricity. Most of the cost to make aluminum is electricity to make it in the smelter. And so therefore, you put aluminum smelters where you have cheap
38:08 Speaker 04 energy. And so we have some of the certainly in Bahrain, we've got these very large aluminum smelters running off cheap local feedstock, natural gas. And you've seen aluminum price take off as a result. Zinc smelters are similar, not quite as energy intensive. And so to the extent that the Middle East was both a local and a global source of cheap energy. And so those that invested locally are seeing some of those consequences.
38:36 Tracy Alloway? All those zinc bar tops in danger. Why did that become a thing?
38:40 Joe Weisenthal? Zinc bar top?
38:41 Tracy Alloway? Yeah. Is this not a thing in America? In London, it used to be like if a bar had a zinc bar top, it was like a thing.
38:47 Joe Weisenthal? Oh, it was like a nice classy.
38:49 Tracy Alloway? Yeah, it was. Yeah. And I never, I never really understood why people were really into zinc bar tops. But maybe we can, you know, start ripping them out and converting them now.
38:57 Joe Weisenthal? Yeah, they probably will. Yeah. You know, whether we're talking about domestic American gas, or whether we're talking about oil, etc. I'm curious, like, over the last year, since Liberation Day, one of the stories, Tracy and I were up in Alaska. We were at a little manufacturer of oil country tubular goods. And they were talking about, you know, the fluctuating price of steel and how this was creating all kinds of issues. What has been the effect in terms of domestic energy infrastructure from the tariffs and just the sheer cost of, you know, building out the infrastructure?
39:30 Speaker 04 For the most part, energy has been somewhat exempt from the tariffs. So the metal. So what did we have? We had aluminum tariffs in the US and we'd steel tariffs. We've had this threat of copper tariffs that I think is distorting copper price. The oil patch, the gas patch, the energy patch, mostly been left alone.
39:46 Joe Weisenthal? Okay.
39:47 Speaker 04 So that flow through of things like the domestic content of steel, that's shown up. But yeah, to first order, if you think about how the oil industry set their budgets this year, it wasn't based on tariffs. It was based on what was the price of oil on their screen when we started the year.
40:04 Tracy Alloway? Actually, related to this, one of the things we heard from the Trump administration coming in was that they were going to be very energy friendly, you know, friendly to all the molecules, whether it's coal or gas or whatever. Have we actually seen policies that have helped those industries? Do people feel good about it right now?
40:23 Speaker 04 I would argue bombing Iran is a pro-oil-price policy.
40:27 Tracy Alloway? Fair, fair.
40:29 Speaker 04 Took a year and a bit.
40:30 Tracy Alloway? Okay, but ex-war, domestic policies, I guess.
40:33 Speaker 04 There's this tension between, you know, the fact that, you know, one of Trump's mantras seems to be low oil price, low gasoline price. He's extremely sensitive to that. And at the same time, he's sort of pro the oil industry. That's a very narrow path to tread.
40:49 Tracy Alloway? Yeah.
40:50 Speaker 04 Right? The oil industry makes money when oil prices are reasonable. Now, I would argue that a good mid-cycle price of oil, $75, $80, right? And that's where marginal producers can earn a return. We haven't really had that, right? And undisturbed, we haven't had that since Trump took office or much before. We've been bouncing, you know, below 75. We've had a glut. The shale industry has been remarkably resilient, right? Amidst $60 oil, we haven't seen shale oil give up very much. And OPEC has been adding barrels to the market amidst kind of tepid demand. So we've kind of been under mid-cycle prices for oil through most of the Trump administration, you know, Biden, post the solution in Russia,
41:35 Speaker 04 Ukraine. So, yeah, there is no policy. So the question is, how do you get somebody to drill more in Texas? And, you know, first and foremost, it's the returns, right? So clarity of policy permitting has improved. You'll hear folks in the oil patch say, right, some of the time you would spend to get things approved, permitted has improved, but that hasn't changed, right, the input, which is how many rigs are running, how many horizontal rigs, you know, how many fracs spread throughout there.
42:05 Joe Weisenthal? One of the big themes, you know, of the last several years, kind of since we've been doing the podcast, but really since COVID, has been one thing after another that encourages basically every country in the world to think about sovereignty, resource, security, and so forth. And so, obviously, COVID, major impetus to like, make sure you have stuff. Then the trade war, then Ukraine, now that war in Iran, et cetera. Like, big structurally, when you think about, I guess, the last six years now, are we going to be living with the ramifications of this six-year period for years in terms of global commodity markets?
42:40 Speaker 04 So if you went back to the first world, second world, you had the West and you had the Soviet Union, and you had sort of two complete supply chains of all the commodities, right? There were Soviet smelters and there were Western smelters. And there was just a lot of redundant capacity.
42:55 Joe Weisenthal? Yeah.
42:56 Speaker 04 Then you sort of got into the 90s and you had the collapse of the Soviet Union. And you had, at the same time that China rose, you were lucky enough, so the China supercycle, the China demand supercycle, came at a point in time where you had all of this excess capacity, under managed, right? So all you needed was a bit of capitalism applied to Soviet assets. And that was sort of the only reason China could feed on consuming half of the world's copper, and half of the world's steel, and half of the world's, et cetera. Now we're almost flipping that and we'll say, well, you know what? China has a bunch of rare earth processing, but now Japan and Malaysia will have it. Now
43:37 Speaker 04 the US is going to have it. And tariffs on copper, well, the US needs to be self-sufficient in copper. So we're entering sort of this long cycle of globalization, where are we going to recapitalize the end of globalization? Are we going to go out and build two smelters, or five, or however we're going to divide the planet?
43:57 Joe Weisenthal? Right.
43:58 Speaker 04 It's very capital intensive, it's inefficient, it would be powerful, it's inflationary.
44:03 Joe Weisenthal? Yeah.
44:04 Speaker 04 And then someday, in the next cycle, we release it all, right? So, yeah, so that's, again, a geopolitician's view, like, is globalization over? If a geopolitician convinces you of that, then there's going to be a lot of asset investment in the physical economy.
44:20 Joe Weisenthal? All right, I have one last tiny question. Trace is going to love it. Do you watch Landman?
44:24 Speaker 04 I've watched, I tend to binge watch when I get a chance. So I binge watched the first season. I have not binge watched the second.
44:32 Joe Weisenthal? Does it feel realistic to you? Is that a
44:35 Speaker 04 My lived experience
44:36 Joe Weisenthal? Yeah.
44:37 Speaker 04 Uh, has, you know, very little
44:39 Joe Weisenthal? Okay.
44:40 Speaker 04 To, yeah, versus Landman.
44:42 Tracy Alloway? I would just like to say a significant portion of my life right now is listening to Joe talk about Landman.
44:46 Joe Weisenthal? I'm obsessed with this show. I love Landman so much. Anyway.
44:50 Speaker 04 Well, Landman is the, the Moby Dick of our times.
44:55 Joe Weisenthal? Bob Brackett, thank you so much for, uh, coming back on Odd Lots. Always a true, a true pleasure.
45:00 Speaker 04 Thank you so much, Joe. Thanks, Tracy.
45:02 Tracy Alloway? Thanks so much, Bob. That was great, as always.
45:04 Joe Weisenthal? Yeah.
45:17 Joe Weisenthal? God, I love talking to Bob so much. One thing, um, with a lot of energy episodes is that, and I've mentioned it, we both mentioned it, energy math is not intuitive to me, you know, like, I have a very hard time conceptualizing, like, what is a billion cubic feet or whatever? But in that gas, especially with all the conversions that happen between the liquefaction, it's like, I find it really difficult.
45:40 Tracy Alloway? It's really hard. No, I sympathize. I was one of those, like toddlers that was trying to stick, like, triangle pieces into round holes.
45:48 Joe Weisenthal? Yeah.
45:48 Tracy Alloway? I've always struggled to sort of visualize shapes and sizes, so absolutely.
45:53 Joe Weisenthal? We're word cells and we're not shape rotators.
45:55 Tracy Alloway? Yeah, that's exactly it. But there is a bunch of stuff that stood out from that episode. One thing I should just clarify, because I don't mean to make light of, you know, I, I asked about the Trump administration being energy friendly
46:06 Joe Weisenthal? Yeah.
46:06 Tracy Alloway? to domestic US energy producers. And Bob was like, well, the war is very friendly. And I kind of waved it off. Like, it is a huge giveaway
46:15 Joe Weisenthal? Yeah.
46:15 Tracy Alloway? to US energy. And, you know, like, Isabella Weber, another great Odd Lots guest, had a paper about, like, where the value of these higher oil prices actually flows to, and it's all the US energy companies.
46:30 Joe Weisenthal? Trump said it himself.
46:31 Tracy Alloway? Yeah, no, absolutely.
46:32 Joe Weisenthal? He said it in one of his Truth Social posts, something like That he's like, we're actually going to make more money.
46:36 Tracy Alloway? Yeah.
46:36 Joe Weisenthal? You know, because most people are not oil producers. Most people are oil consumers. And so people are not happy that gas prices, but he like sort of spun it. He's, oh, look, we're going to make a lot of money. Because we're a net oil exporter and energy exporter now between LNG and crude. So, yes, clearly domestic energy has benefited, obviously benefiting, you know, quite a wave that it's riding because obviously the demand for LNG after the invasion of Ukraine. That's just, that's a very big story.
47:11 Tracy Alloway? Yeah. And I also think this brings us back to the episode we recorded on the impact of the Strait of Hormuz closure on China's economy.
47:19 Joe Weisenthal? Yeah, yeah.
47:20 Tracy Alloway? And this idea that, well, the more disruptions to commodity supply you have like this, the more you have governments sort of worried about choke points materializing, the more you're going to see a hastened shift to renewables that might be like
47:34 Joe Weisenthal? That too.
47:35 Tracy Alloway? more immune from these types of disruptions.
47:37 Joe Weisenthal? I hadn't appreciated at all until Bob said it at the very end. That, you know, like when we think of the early 2000s, you know, the commodity super cycle driven by China. But that for the first several years of China, Chinese opening up, they really benefited from the fact that there was just a glut of capacity, that the combining of global, which I hadn't really thought about at all that is like, from an economic perspective, there was a lot of capacity to supply China with raw commodities, particularly in the mid 90s, simply due to the fact that, you know, as he said, apply a little bit of capitalism to those Soviet assets and suddenly you have a lot of production brought online. The 90s were a special time. Everything was just working out.
48:22 Tracy Alloway? Peak humanity.
48:23 Joe Weisenthal? Peak humanity. I really believe so.
48:25 Tracy Alloway? All right, shall we leave it there?
48:26 Joe Weisenthal? Let's leave it there.
48:27 Tracy Alloway? This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
48:32 Joe Weisenthal? And I'm Joe Weisenthal. You can follow me at theStalwart. Follow our producers, Carmen Rodriguez at CarmenArmin, Dashiel Bennett at Dashbot, and Cale Brooks at CaleBrooks. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter on all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.
48:53 Tracy Alloway? And if you enjoy Odd Lots, if you like it when we get Bob Brackett on to answer random commodity questions, 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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Previous War in Iran is Chewing Through American Missile Stockpiles Next How War in Iran Will Squeeze America's Farmers Even Further Page updated October 31, 2026 · transcript and summary are machine-generated
