This week Chris and Johan are joined by Marc Ostwald, the Chief Economist & Global Strategist at ADM Investor Services International Limited (ADMISI). ADMISI offers clearing and brokerage services in all major investment markets. The three discuss the latest updates in the energy market and new solutions for efficient energy trading. Listen in to find out more about challenges facing the energy supply security and infrastructure and what impact it has on the energy transition.
ADMISI’s homepage:
https://www.admisi.com
This week Chris and Johan are joined by Marc Ostwald, the Chief Economist & Global Strategist at ADM Investor Services International Limited (ADMISI). ADMISI offers clearing and brokerage services in all major investment markets. The three discuss the latest updates in the energy market and new solutions for efficient energy trading. Listen in to find out more about challenges facing the energy supply security and infrastructure and what impact it has on the energy transition.
ADMISI’s homepage:
https://www.admisi.com
Audio file
Transcript
00:00:04
Broadcasting from the commodity capital of the world, Zurich, Switzerland, this is insider's guide to energy.
00:00:20
Addition to insiders, guide to energy is brought to you by projectors.
00:00:24
Go to www.fedex.
00:00:27
Dot com For more information.
00:00:56
Welcome to insiders guide to energy.
00:00:58
I'm your host, Chris Sass, and with me as co-host Johan Oberg.
00:01:01
Johann, what's happening?
00:01:03
Hey Chris, great to be back on the show again.
00:01:06
I've been a busy, busy times and doing a lot of very interesting shows recently, which leads up.
00:01:14
A little bit to.
00:01:14
Summarizing everything as well and in today's.
00:01:17
So, yeah, today's show is is more timely than a lot of our shows.
00:01:21
A lot of times we're talking about industry and overall.
00:01:23
But there's so much happening in the world right now in in the energy industry and the economy and things, and it's all coming together in thinking about what could happen this winter and where things are going.
00:01:34
Had me thinking.
00:01:35
That inviting this current guest was probably.
00:01:37
A good thing.
00:01:38
To get his perspective as an economist of what could happen and what what we might be should expect from the industry and the economy as a whole through the winter.
00:01:46
No, and I I.
00:01:47
I really look forward hearing more about it.
00:01:49
I I just read a new book which kind of looks at the.
00:01:52
World after the panda.
00:01:53
Thanks and the world of according to this the the globalization is dead, not dead, but is paused at least.
00:02:01
Which means that.
00:02:01
We're going more and more.
00:02:02
Into to our own taking care of ourselves.
00:02:04
So it will be quite interesting to see is this also applying to to energy and not just supply chains?
00:02:10
But how does this going to work not?
00:02:13
Only for microgrids, for countries, for regions you know, for, etc.
00:02:17
Looking forward to hearing a.
00:02:19
Lot more of around than where we're heading.
00:02:21
Well, let's dive into it.
00:02:23
I think to manage expectations, I'm expecting to hear a bit about the UK situation specifically, maybe a bit more European centric.
00:02:29
But we'll see where we.
00:02:30
Go so without us pontificating much longer, let me introduce Marc Ostwald.
00:02:35
Mark, welcome to the program.
00:02:38
So more Johan and I say this in every single episode.
00:02:41
We have a good idea of who you are, but at this point the audience may or may not know you by name.
00:02:46
Maybe it makes sense to just take a little bit and tell us about who you are and what you.
00:02:50
OK, I'm I'm Marcos thought.
00:02:53
I'm chief economist for Adm Investor Services International, which is the.
00:02:58
The, uh, clearing and execution arm.
00:03:01
Of Archer Daniels Midland Adm and we're only a relatively small part of it.
00:03:08
And then I work also.
00:03:09
With the parent company and my interests, I should probably fess up straight out that I'm I'm not qualified as an economist.
00:03:18
I'm qualified as psychologist.
00:03:21
But I think that's probably more useful than anything which is particularly talked in the way of economics and universities and schools nowadays, because it's basically all it is, is advanced mathematics, which particularly in the modern era is not great, I take.
00:03:37
My specialties really are looking at well laterally at the whole complex of commodity and energy markets, but originally I come from our fixed income foreign exchange background.
00:03:50
Come up with something to do with equity markets, but now I tend to.
00:03:55
Just sort of look at the world.
00:03:58
Big strategic picture.
00:04:00
And I'm very.
00:04:01
Much a a critical and natural thinker.
00:04:05
Well, I appreciate that you heard my introduction and expectations.
00:04:10
So let's just start with where do you think we are?
00:04:14
What would you go big picture?
00:04:16
Let's look at energy, where it is today.
00:04:18
What's the current state of the energy mark?
00:04:21
I I think there's a couple of important points, the pandemic, basically, and this.
00:04:26
Is not only.
00:04:26
The energy sector, but it happens to be particularly acute in the energy sector.
00:04:31
What it exposed is we've had this 30 years of technology boom and which has been facilitated by the end of the Cold War and a lot more sharing of technology.
00:04:42
But the whole technology boom that we've had, we have I I don't really want to insult the likes of all the the Samsung's and the Facebook's and the Googles of this world, but we've been fritting frequent frittering all of this technology away on convenience and what we forgot.
00:05:02
To do was.
00:05:03
Look at how we could improve our infrastructure.
00:05:07
And what the pandemic did was to expose just how badly we have been under investing in our infrastructure.
00:05:15
And the energy industry structure.
00:05:19
And now you were mentioning, I think to start with, you were talking about, you know, how globalization.
00:05:27
It you know a.
00:05:27
Lot of people caused the death knell for it.
00:05:31
Yes and no.
00:05:33
The world has always been globalized and the interconnectivity hasn't got.
00:05:41
And it's not going to go and what the pandemic has done is also got us away, which is a good thing from this very narrow.
00:05:50
Of course micro perspective on what we.
00:05:54
You know, if I would almost certainly guarantee that most people had little or no appreciation of how important Nat gas.
00:06:04
Is for the production of fertilizer.
00:06:06
Yeah, that's a one very simple thing and people didn't really understand.
00:06:13
And hear a lot of.
00:06:14
The you know, the the Russian invasion of Ukraine has created a lot of problems, but a lot of what we've got at the moment, particularly in Europe, was already exposed last summer.
00:06:24
For the Russian invasion.
00:06:26
We had already had this expose of how.
00:06:33
Basically, supply chains being disrupted meant that we actually started having laterally encryptic.
00:06:40
Critically, we had to move away from everything being just in time to just in case.
00:06:47
Uhm, we had to understand much better that actually, when we talk about globalization, globalization is as much about the mobility of people.
00:06:59
And we've suddenly had this exposure, particularly with Russian invasion in crunch, for instance, the merchant shipping fleet in the world that the 18% of the staff are either Russian or UK.
00:07:09
Bring it.
00:07:10
So suddenly everyone had to start thinking about, oh, right, how does this work?
00:07:17
And now we're in this situation where we're, you know, people are questioning the Trump transition to renewable energy, understandably so, because compromises are going to only have to be made.
00:07:30
But here that's all part, really, of being a strategic shift thinker rather than a linear.
00:07:38
I don't.
00:07:38
I don't want to insult people, but it is results orientated in rather Pavlovian, uh, type thinker.
00:07:45
You actually understand you look the the supply chain and all the enter connectivities and this is what's being exposed to the moment, particularly amongst the political fraternity and we've moved away from we're going to have a green recovery in Europe.
00:07:59
From the pandemic to come, then how we're going to solve this problem.
00:08:05
So, you know, that's where we're at and we'll hear the other thing, which I don't.
00:08:11
This is probably one talking point which I don't think.
00:08:13
People quite understand its way businesses are run.
00:08:17
And for a long, long time, people assumed.
00:08:22
That you could hedge.
00:08:24
Your energy costs, and we still seem to be in a situation when I'm looking at the market currently, that people want to hedge their energy costs.
00:08:33
And they haven't got.
00:08:35
That flexibility and adaptability which is going to be.
00:08:39
Get absolutely critical to the post pandemic economy, whatever it actually eventually when all the dust starts to settle, you know people need flexibility and they don't need a whole load of up.
00:08:53
I I make this distinction between people understanding processes and then imposing procedures.
00:09:00
The problem with procedures when they impose on the process is they're very fixed.
00:09:05
They start to become immobile because they want.
00:09:08
They're basically a sign that we want to control things.
00:09:11
Now all our procedures in terms of the energy sector are basically being blown up and what we've not understood is the that the processes have been moving.
00:09:20
For quite some time.
00:09:21
So what we needed to do is have some adaptability in our procedures to have a better sense of control, but we haven't done that.
00:09:30
So now we're going through what is a brutal learning process for everybody. And as much as people are focused on the energy crisis in Europe, there's an energy crisis in the UK, in the US, in Canada, in Latin America, definitely in China, in India. This isn't.
00:09:50
Something specific to Europe.
00:09:52
It just happens to be that Europe is so much more dependent on the imports of resources of any type than many of the rest of the world, because they always thought it could trade its way out.
00:10:04
And that applies as much to the.
00:10:06
EU as it does to the.
00:10:08
You got.
00:10:09
You mentioned quick that you mentioned a little bit around hedging.
00:10:12
There's so many questions.
00:10:13
I was kind of just writing my notes all the time here.
00:10:16
'cause, there's a.
00:10:16
Lot of to to to kind of grasp and and to digest around this, but maybe if we touching one of the things you mentioned a little bit about hedging, I just get curious you know we were talking about an energy industry which has a lot of.
00:10:29
Different stakeholders, a lot of different areas, one being of course commodity trading.
00:10:34
So so how if if hedging is a challenge?
00:10:39
At what?
00:10:41
What were the impacts once we come out and the dust settled as you mentioned?
00:10:45
What was that was the impact for energy trading moving forward?
00:10:49
Well, we've got to the point for a lot of traders that hedging actually has become pernicious and you end up chasing your own tail where you hit one interesting comparison.
00:11:00
To make up.
00:11:02
If you look at what happened last year in the in the third quarter.
00:11:06
Where we had.
00:11:07
A big spark spike in natural gas.
00:11:09
Prices in power prices, it was very much focused in the north to one year area, in fact a lot of.
00:11:17
It just, you know, very.
00:11:19
Temporary ah, now what we've got is a crisis which goes much further out.
00:11:23
You've got a five year.
00:11:27
Forward power.
00:11:30
Based powerload are prices which are.
00:11:33
810 times what they would normally be.
00:11:37
So you're then in.
00:11:38
This situation whether you're a utility provider.
00:11:42
Or whether you're corporate, IE a taker of utility provisions.
00:11:47
That you're saying?
00:11:48
Well, how do I should I fix this?
00:11:51
You know, you've gone through the experience of last year.
00:11:53
Oh well, that was just a one off.
00:11:55
Now we're in the situation of, well, actually Russia may cut all the resources off and we're also trying to.
00:12:05
You're looking at changed supply chains.
00:12:09
And and on the other hand, you're also looking.
00:12:13
At the fact that we've got.
00:12:16
An intense period of very bad weather.
00:12:19
Climate changes are very real and so we are getting much more in the way of extreme weather, which in a lot of cases is going to speak, require even more use of energy.
00:12:32
Or will I result in energy outages because of either extreme dryness forcing it new French nuclear industry?
00:12:41
At the moment the rivers are so dry that the nuclear power industry, apart from suffering from the fact that they didn't do the maintenance during COVID, therefore they've had to have.
00:12:52
Unusual maintenance periods are now also saying, well, you know, we can't actually call what were are some of our emissions enough?
00:13:01
So we're going to have to operate at lower base loads and certain suddenly everyone going, oh right, I thought France was meant to be the smart one.
00:13:09
So in terms of this hedging, what we've got is a situation of you either bite the bullet which for utility providers it it's it's a difficult choice because.
00:13:22
What you?
00:13:22
Want is a lot more in the way of contracts.
00:13:26
Suppliers and you need also to be able to lock in more resources as a utility provider.
00:13:35
And you also on the other hand are looking at it whether you're using futures and options or you're doing forward contracts.
00:13:43
You're also looking at and saying yes, but how much?
00:13:46
Should I look in?
00:13:48
Because at some stage you are looking at the current set of energy prices, well ranging from Colab through to nuclear var.
00:13:59
Your renewables and anything else, and you're saying these prices can't last forever if we're going to get the sort of level of demand destruction?
00:14:08
But these levels of energy prices, given that, yes, there's a certain amount you can as a uh, whether you're a utility provider or whether you're a manufacturer.
00:14:19
Requiring, there's only so much you can pass on.
00:14:23
Before, people just say.
00:14:24
Yeah, well actually that doesn't work for.
00:14:27
Me anymore as a.
00:14:28
Business I just, I just can't make the margins work.
00:14:31
And so in terms of your hedging, what you're ending up in this situation with is right.
00:14:38
I need to have some sort of constant in there, some sort of visibility.
00:14:43
This is the problem.
00:14:44
For a lot of.
00:14:45
They haven't got the visibility that they had, and part of the problem is also this idea of what is a constant.
00:14:52
What is a very?
00:14:54
The problem with most economic modeling is that the model starts off with, right?
00:15:00
These are the constants in our business plan and these liver variables.
00:15:04
Now we've got to a situation where half the constants have become variables, and they become so wildly variable.
00:15:11
Uh, but you you then have to basically think about.
00:15:18
How do I adjust to this?
00:15:19
How do I adapt to this?
00:15:21
What assumptions can I make and what instinctively?
00:15:26
And this is this is actually where.
00:15:27
Experience is going to account.
00:15:29
For a lot.
00:15:30
I think people underestimate it, people who have experience of an industry and from not being smart.
00:15:39
But from just being there and having seen previous cycles have a better understanding into it.
00:15:46
Sadly, of what's likely to happen, that's not to say they are Knowles, but it intuitively they can rule out certain things as likely events, and this is the nature of the complex challenge that is out there for everybody.
00:16:02
And it's also the biggest, the biggest problem is we don't have a very good group of politicians around the.
00:16:10
World. Well, that that was.
00:16:11
Going to be what you're triggering as you were saying that, right?
00:16:14
So, so the one variable that is still out there is what policy or what government is going to do, right, so.
00:16:22
You know, if it's free March.
00:16:23
Get I can currently deal and build models to that if if the government is going to step in and change or cap or do things that.
00:16:31
The bets all change is.
00:16:33
That part of what?
00:16:34
You're talking about as well.
00:16:35
Is that is that a major consideration of what?
00:16:38
What policy?
00:16:40
Is reactive policy that may come out of the current situation.
00:16:44
Yeah, I mean it.
00:16:45
It inevitably is reactive policy.
00:16:48
It's also whether people actually can get rid of sacred counts.
00:16:53
Uhm, Jones, Lawrence states would be a classic example.
00:16:58
Repealing that so that you when you do have a problem in Texas, it doesn't start to rate, basically create a whole big load of problems in the Northeast.
00:17:08
So the the problem of it in terms of politicians is?
00:17:13
Most of them.
00:17:14
Are on short term cycles and this is a long term problem.
00:17:17
The solution to a lot of the problems we've got at the moment is not going to come in within one political electoral cycle, whether it's four years or five years or 7.
00:17:27
It doesn't work.
00:17:28
The matter.
00:17:28
So politicians are so focused on, well, what's going to get me re-elected that the risk of making a mistake is actually quite large?
00:17:38
And yeah, so you've got things like running down the SPR.
00:17:43
The SPR is at dangerously low levels.
00:17:45
People now saying yes, but demand is tailing off that, but it doesn't matter.
00:17:49
They're still going to have to replenish.
00:17:51
And then people say, and now people saying, well, hold on, that Saudi Arabia is about is starting now talking about.
00:17:58
Cutting product.
00:18:00
And we're looking to replenish the SPR at levels which are here now. Now we've come down from $130 to $91.00 on WTI, but that ain't 60 where we started the back end of last year. So suddenly you're going, well, that's expensive, would it? You know what?
00:18:19
What's the right decision to make on that front?
00:18:22
And you know, if we've worn down this, what should be buffer so much?
00:18:29
What happens if something else disruptive happens, and one of my maxims of the last couple of years is anyone who says?
00:18:38
Oh well, that couldn't possibly happen.
00:18:40
Any you know, they couldn't possibly do that.
00:18:43
I would just go straight away.
00:18:46
Because if there's one lesson from the last two years, it's assumed people can behave extraordinarily badly.
00:18:53
Assume events can take a walk.
00:18:58
You would say is maybe a one in a million year chance and.
00:19:03
Build that into your assumptions and that's where you need that flexibility to both to respond to good or bad.
00:19:12
But most of all, I I think the evaluation of good or bad government policy is probably the wrong one.
00:19:19
Just assume that you've got a government policy backdrop which can change quite rapidly and your question earlier that the question for businesses is, can I respond quick?
00:19:32
Clear what have I?
00:19:34
Got in the way of flexibilities of my business planning which allows me to say.
00:19:40
OK, right. OK, well.
00:19:42
I think it's good.
00:19:44
I think it's bad.
00:19:45
It doesn't really matter.
00:19:46
You're running a business, so evaluation really bad as irrelevant.
00:19:49
I'll survive.
00:19:50
So you.
00:19:51
You paint a pretty.
00:19:53
Uhm, not exciting picture.
00:19:56
A pretty dark picture perhaps.
00:19:59
So what do you do?
00:20:00
So if you're an energy company?
00:20:01
What do you do?
00:20:02
And what if you're a large consumer user, your large enterprise that uses energy? What? What do you think's going to happen? What do I do for the next 6 to 12 months? What kind of strategy can I do?
00:20:12
Well, one I think.
00:20:14
A lot of people need to realize that.
00:20:17
This is an opportunity.
00:20:19
Yeah, what I'm talking about is the fact that we've.
00:20:21
Got bad infrastructure.
00:20:23
And we have not dated it.
00:20:25
Uhm, the other side of the coin I I mentioned at the start is to do with technology.
00:20:31
I will emphasize this tool to add to my dying day.
00:20:35
We have the technology.
00:20:38
It's a matter of applying it, subsidizing it, so, you know, incentivizing it.
00:20:44
You, your, for instance, you know, whatever the, the.
00:20:48
Devil works that I've seen over the particular last three decades is.
00:20:54
No one wanted to hydrogen because.
00:20:56
It's too expensive and too.
00:20:57
Many risks, blah blah blah.
00:20:59
We abandoned nuclear because we don't like it, you know, Germany was above all at the forefront of.
00:21:04
It it's weak on this.
00:21:06
We we have, uh, obstructed, particularly with all the well, big developments, Royal Bank, EBRD above all African Development Bank have obstructed carbon capture schemes.
00:21:20
Now we're suddenly having to say, well, maybe we need to rethink.
00:21:26
All of that.
00:21:26
There are opportunities for everyone to look at this and look how they they can improve it.
00:21:32
Look how much you know.
00:21:35
As an example, aluminium is incredibly energy intense now the aluminium sector is basically using the production process through.
00:21:46
Processing aluminium to produce alternative energy.
00:21:51
That's all the things that people can do and a lot of it has.
00:21:54
Been it's been sitting there.
00:21:57
But people, well, yeah, but it's not gonna, you know, is that going to fund our next share buyback?
00:22:04
Make next big dividends, another big bonus for the directors.
00:22:10
Now it's a little bit to it, you know intensive now people are going well, maybe we should have looked at that more and so.
00:22:18
As much as the picture I'm painting is of the current situation being quite bleak, I actually would.
00:22:25
Say on the.
00:22:25
Other hand that means there are.
00:22:28
So many opportunities, it's not true and and people just need to get out there and start getting creative.
00:22:38
And looking at how best.
00:22:41
You know, if you're going to have to live with slightly bomb, markedly higher energy costs, other other areas in terms of digitalization of your business, the automation deal business, which there's been a lot of resistance to.
00:22:55
Uh, which could you could use to offset it?
00:23:00
So it it.
00:23:01
Is getting, you know, lateral, lateral and critical thinking and becoming adaptive.
00:23:06
I think the one of the problems we had with old just in time.
00:23:09
Uh, you know, processors and globalized process.
00:23:12
This is as we thought we could do everything when we we had it sorted out.
00:23:17
It's a little bit actually, when one thinks about the pandemic we actually had thought we would really ever be hit again by something like polio or tuberculosis, because we've got it licked while we did, we had, we we had a huge lesson.
00:23:31
In health security.
00:23:33
And we're now getting lessons in energy security, in technology security.
00:23:40
This is really.
00:23:40
It's the wake up call of.
00:23:44
Going against the vested interests which have resisted the deployment of technology in a lot of areas, 'cause, that's very much part.
00:23:51
Of the problem.
00:23:53
They don't really have much for say now because they're not the vested interests.
00:23:57
That's when you seize your opportunity.
00:23:59
That is the opportunity because those vested interests don't have the ear of government pay more because they're not deliver.
00:24:07
So, so touching on this and following up on this, I think I can understand if you're a bigger aluminum plant, you start looking at how can I?
00:24:15
How can I?
00:24:15
Utilize the energy and how can I make my plant more efficient?
00:24:19
My own kind of business?
00:24:20
And you could probably tie that into this quarterly economics for a company you do an investment, maybe even a PPA kind of a setup?
00:24:27
Whatever, whatever.
00:24:28
Kind of a short term solution, alright, it's not going to change the the landscape of energy, but it's.
00:24:34
For you so that that I can understand.
00:24:36
The one thing though is you mentioned there's an infrastructure that we're lagging behind in, at least in many, many countries on the on the actual infrastructure.
00:24:45
You also mentioned that the politics is short term, which I think we all know is it's four years usually and it seems to be turning around quite quickly as well, different different inputs.
00:24:57
So how do you see this mix between we need a long term infrastructure plan because energy is?
00:25:04
Infrastructure in many, many, many ways technologies will solve.
00:25:07
Parts of it.
00:25:09
But who should own this?
00:25:11
Because we had on the show a little bit.
00:25:13
How do we?
00:25:13
How do we solve this as if?
00:25:15
It's an infrastructure problem.
00:25:16
Is there is there an interest for for for companies because there's a very long term?
00:25:21
Or is this actually something for government that changes every 4th year?
00:25:25
Does this in any ideas around this?
00:25:27
It's complex, but.
00:25:28
Well, there's, there's.
00:25:30
Two things.
00:25:31
One, a lot of the the the energy things are concentrated in urban environments.
00:25:38
It does obviously actually impact the rural environment very heavily and you know, the Dragon culture energy costs are absolutely critical.
00:25:48
It's not, but I I think in terms of getting great consistency and this was an.
00:25:54
Idea which was.
00:25:55
Put forward by the United Nations a.
00:25:57
Number of years ago.
00:25:58
Certainly a couple of conferences I attended and.
00:26:02
What we need actually with the local government.
00:26:07
And then in your particularly big cities which have much greater connectivity than people think in terms of?
00:26:12
Government so in New York or Sydney or London or Paris, Air Berlin and and I'm not taking away if if I've mentioned forgotten places in Asia and, well, right, it's not because I'm neglecting the work.
00:26:24
We are focused.
00:26:26
Uhm, but they they have a much greater stability in in government.
00:26:34
And that's really where it needs a lot of the ideas.
00:26:38
There needs to be much greater cooperation at that sort of level to implement this apart from anything else, because it impacts the urban.
00:26:46
Uhm, manufacturing and services environment that much more than to a certain extent the rules.
00:26:53
So there there is that gets over what one has in terms of whether it's the federal or national government and the problems we're dealing with that and those bad cycles and that's certainly something which needs to be built.
00:27:07
But I also think.
00:27:08
So we need to move away because part of the problem here is is lobbying.
00:27:15
Any country you better think of.
00:27:16
We think of it not being mostly in terms of the United States, but it happens in every single country in the world.
00:27:22
And and what we need to probably factor in is, you know, that lobbying to preserve the status quo if no one's learned the particular.
00:27:34
Lesson at the moment.
00:27:35
Lobbying for the status quo is basically regressive.
00:27:42
And at the corporate level, that's where the pressure should be to be, uh, you know, instead of going to lobby governments for.
00:27:50
Keeping your own bit of the pie which.
00:27:53
If you really think.
00:27:54
You can preserve it, and many people have had brutal lessons in the last year.
00:28:00
Well, two years, I should say, since the start of pandemic about, oh, you thought actually you had something pretty much stitched up for yourself?
00:28:08
Well, here's something to come on.
00:28:10
You know.
00:28:11
Question it.
00:28:12
So the lobbying needs to be installed in a different direction and pressure governments, particularly the ones who are dumb.
00:28:19
Very populist and very sensitive to anything that he.
00:28:23
Any opinion polls?
00:28:25
They basically say, right, you know, roll up to.
00:28:27
Your sleeves, because we've got.
00:28:28
A job to do and if we don't do it we are actually going to hit a brick wall and you will be voted out in.
00:28:34
Any case.
00:28:35
But but it seems that sometimes, I mean like bricks it let's take bricks you know sometimes the die is cast outside, right.
00:28:44
I mean that that die kind of get cast there's there's consequences I assume.
00:28:48
So, so how does something like that play into what we're talking about today?
00:28:52
So let's use bricks as a specific example.
00:28:55
How is that impacting maybe the UK compared to some of these other markets you've been talking about?
00:29:01
I don't think, I mean in terms of energy that the, I mean in Brexit impacts the UK above all in terms of the workforce and that's the most brutal part.
00:29:12
Not, and as much as not, I'm not going to be particularly loved here in the UK.
00:29:17
And the fact of the matter is there is being this cycle of of picking on various groups of foreigners in the UK whether it was the West Indian migrants in.
00:29:32
The 1950s, both from East Africa and India and Pakistan and Bangladesh.
00:29:39
During the 60s and 70s.
00:29:40
Whether it was.
00:29:42
The Australians and the Kiwis during the 1980s and 90s and then in, you know, the noughties and 10s against the EU Nationals UK.
00:29:52
Needs those people.
00:29:53
It is very reliant on foreign workers, but that's.
00:29:56
Not the problem in terms of.
00:30:02
That's not, you know, the the problem on the energy side in the UK is the whole privatization process of utility provisions.
00:30:14
Yeah, it's.
00:30:15
It's created a structure which is just basically unviable.
00:30:18
So that ended up with the result that could be in.
00:30:21
Terms of gas?
00:30:22
UK cut because it's basically just, didn't you know, there were no incentives for Centrica to keep all that storage capacity?
00:30:33
Because of the way that the market was being structured and therefore.
00:30:37
They cut their.
00:30:37
Capacity and they believed that they could come.
00:30:41
That they could.
00:30:42
Uh, trade their way out of it.
00:30:47
What they forgot, of course, is you know what happens if everyone needs to go and pick up more gas because the weather is getting that much more extreme.
00:30:58
And we are, you know we've got disruptions of supplies.
00:31:02
So in in terms of the UK, it is much pretty much the same problems as Europe except with a problem of it hasn't actually dealt with investing in its infrastructure, the whole privatization process of the utilities and the provision of.
00:31:18
Domestic utilities.
00:31:21
Is nonsensical to be caught.
00:31:23
So I've heard you say now at least twice in this interview in in the derogatory kind of manner that trading yourself out doesn't seem to work.
00:31:33
It seems to be a a poor strategy. Is that a take away?
00:31:36
Of what I'm hearing from you, well, what I?
00:31:39
I'm saying is if you think you can trade.
00:31:41
Your certain way, way out, you know?
00:31:44
What if you if, if?
00:31:46
That's your working.
00:31:47
Assumption that you can trade your way out which.
00:31:49
In a lot of times you could.
00:31:52
That's very, very true.
00:31:54
But we're not then we're not the in that sort of space.
00:31:58
We've gone from the post Cold War even actually previous previous end of the code.
00:32:04
But I'm told will.
00:32:06
An age of plenty to an age of scarcity.
00:32:09
And so if you're assuming you can, you know if we're now moving into an age of scarcity, of intense competition for resources, which has been flagged.
00:32:20
For a long.
00:32:20
Time, yeah.
00:32:21
If you actually look at what's the impact of China on the whole global economy that's been coming our way and we just were in denial.
00:32:29
About it.
00:32:30
Uh, the stronger that China became as an economy and.
00:32:35
This is also.
00:32:36
True about the other great hope and I really hope that you know India really does come on leaps and bounds to the sort of levels in terms of reducing poverty and providing you know better employment and education and.
00:32:50
Health care systems, better infrastructure, but it does, but that's going to increase, increase their demand for resources such that we're now in a much more intense environment.
00:33:01
So therefore relying on on trade.
00:33:06
I think really the lesson of the pandemic is the other. Well, the other lesson is make sure you aren't, you know, and this is Germany's most brutal lesson. Make sure you're not running concentrations.
00:33:19
If you're sourcing everything from the same place and make sure you have a backup plan, even if the CFO says yes.
00:33:26
But if we have a backup plan and we need to store more that costs more, that means there's not not not so much money for dividends for shareholders and bonuses and blah, blah, blah.
00:33:36
And I don't look so efficient because this is an efficient way.
00:33:38
Well, it is.
00:33:40
Right.
00:33:41
Yeah, this is what you read.
00:33:42
Will you have your alternative supply chains and make sure that those supply chains are much more diversified.
00:33:51
This is really where we're going with all of this that you know we've semiconductors would be the other brutal area we've seen.
00:34:00
We make semiconductors in three countries in the world in terms of mass production.
00:34:05
Uhm, well, my my wasn't that, but that wasn't very, very clever.
00:34:09
Well, there was no.
00:34:10
Thinking this is where you know that the pressure from business on government needs to happen and also internally in terms of way businesses are structured and plan to actually say maybe this isn't a good idea.
00:34:25
The cheapest is best and the fastest route is best and I need to be able to say.
00:34:31
Right, I've got a failure.
00:34:33
I mean if one thinks of it.
00:34:34
In networking terms, what we've done.
00:34:37
Pretty much in a big bubble in the energy sector is we've built this super network and it's got a bunch of single points of failure in which, you know from an IT perspective, yeah, you've got this many simple single points of failure in your network.
00:34:55
Yeah, what are you thinking?
00:34:57
So that's really, you know what this sort of do.
00:35:01
Using the analogy, this boils down to too many single points of failure.
00:35:06
So test on this one really coming up.
00:35:08
On time and but I you know.
00:35:10
These questions are just flowing.
00:35:11
I really appreciate it.
00:35:12
But but maybe just summarizing a little bit.
00:35:15
We talked about India, you know, we talked about China.
00:35:18
Obviously massive economies are growing middle class that the use of energy will be.
00:35:23
We don't need.
00:35:24
I don't even know where it's going to end up, but.
00:35:26
We received demand, then we start looking at the corporates, OK, we we we tend to live in a quarterly economy where we need to deliver on.
00:35:33
A quarterly basis.
00:35:35
So so once we start matching this, and this is a big question, so if you can try to summarize.
00:35:40
A little bit.
00:35:40
So how does this affect?
00:35:42
Right.
00:35:43
In your words, the energy transformation, because we also know, I hope people on this show at least, that we need to move towards sustainable energy, we need to move to a towards so.
00:35:53
So how do you think this is going to work?
00:35:54
A corporate suddenly needs to say you.
00:35:56
Know what I cannot.
00:35:57
Look at this.
00:35:57
Quarterly because I need to make sure that I have a backup or or a diverse.
00:36:02
Planning my energy which would cost me money.
00:36:04
So CFO will be OK, but that's what we.
00:36:06
Need to do.
00:36:07
The developing countries will say, yes, we have a growing area, we would need to do this for sustainability or do you think this be like, alright, we'll do it, but on the on the cost of the energy transformation?
00:36:21
I I don't think.
00:36:22
Should be the cost of the energy transformation, I think there. There should be no sacred cows on this. Yeah, let let's near 84% of the world's power comes from hydrocarbons.
00:36:34
What all this?
00:36:36
Idea like idealized political talking.
00:36:39
It's done you.
00:36:39
Know whether it's.
00:36:40
Glasgow or anything?
00:36:41
Else, you know, it's never actually looked at practicalities.
00:36:45
To create this sort.
00:36:46
Of infrastructure for power supply.
00:36:49
And that's really what it all boils down to.
00:36:53
We are all going to.
00:36:54
Basically have to burn a lot of hydrocarbons.
00:36:58
It really depends on how quickly we want to do it.
00:37:00
So let's plan it and let's get on a good get on with it.
00:37:04
And for corporates, it is this opportunity to actually look at things and say, right, I do need to transition.
00:37:13
So in that process, I need, you know, I need to make sure I've got better alternatives.
00:37:19
Uhm, and also at the same time I'm looking at this and saying OK.
00:37:27
The bulk of power supply for the time being.
00:37:30
Is hydrocarbon based.
00:37:32
How can I at my individual level, my individual corporate level, look to transition that much more quickly?
00:37:41
What can I do?
00:37:42
To facilitate it.
00:37:43
Are there other companies who may not necessarily be competitors in my area?
00:37:48
Who we could.
00:37:49
Club together with.
00:37:50
And look how we could maybe deploy solar power, biomass, I don't know anything, but there are so many alternatives and it is much greater cooperation which is required.
00:38:03
And not looking at it in terms of.
00:38:05
What's going on?
00:38:05
In my industry, this is what I mean by going from micro to macro thinking and saying.
00:38:11
Right.
00:38:12
It's in our interest to make sure our area or region, our country, our state, whatever it happens to be a water level to make it better.
00:38:22
How can we?
00:38:23
Do that, how can we facilitate that?
00:38:25
And by cooperating together with other corporates, how can we then pressure both local?
00:38:31
But and national governments to put in laws because it means a lot of cases of some of the transition to the energy transition, it's because there's no legislation being passed.
00:38:44
I'm Baltic states, there is no biodiesel in the Baltic States.
00:38:50
But because they.
00:38:50
Are against it.
00:38:51
No problem.
00:38:52
Cost legislation.
00:38:55
And that's where the corporates?
00:38:57
Really can come in and.
00:38:58
Say, come on, gods, yeah, sharpen up.
00:39:01
Well, for me, Mark, this has been a fantastic conversation.
00:39:04
We've been all over the place.
00:39:06
It went where I hoped it would go.
00:39:09
We've got a nice perspective.
00:39:11
Uhm, I really hope that we're able to get you back on the podcast again.
00:39:15
I think there's a lot more that we could talk about.
00:39:17
I I saw Johan writing questions pretty much the entire time you were speaking and he only asked a couple.
00:39:22
Questions which we go on is really hard so.
00:39:24
So I I really appreciate you joining the program.
00:39:27
I hope our audience did as well, but thank you so much for being a guest today.
00:39:30
Right.
00:39:31
It's been absolutely my pleasure.
00:39:33
To chat with you both.
00:39:35
And for our audience, we hope you've enjoyed the conversation as much as we have.
00:39:38
We think it's timely.
00:39:40
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00:39:43
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00:39:50
Bye bye.