Nat Bullard: "Capex is destiny" - Energi Talks Live!

Markham interviews Nat Bullard, a senior contributor to BloombergNEF and energy transition consultant.

What is Energi Talks?

Journalist Markham Hislop interviews leading energy experts from around the world about the energy transition and climate change.

Markham: 00:04

Welcome to episode 365 of the Energy Talks podcast. I'm energy journalist, Markham Hislop. My guest today is Nat Bullard, a senior contributor to Bloomberg NEF, and author of the long running sparklines column. He also coined one of my favorite energy transition phrases, capex is destiny. I interpret that as where you invest your capital today determines what your energy system will look like in the future.

Markham: 00:32

If that's true, then recent global trends suggest that the very near future will be dominated by wind, solar, batteries, EVs, heat pumps, and plenty of other clean energy technologies. Because this is an energy talks live event, I'll interview Nat for 30 minutes, then our audience of energy professionals will get to ask him questions for another 30 minutes. This should be a lot of fun. I'm looking forward to it. So welcome to Energy Talks Net.

Nat: 00:59

Malcolm, thank you for having me on. It's a pleasure to be connected. I think you and I had quite a lot of professional overlap for quite a long time, going back to my days at Bloomberg. For the record, I'm no longer I'm no longer writing for a Bloomberg dream, although I did I did do that for nearly a decade. And I think when I did my retrospective in closing it all out, I realized I'd read about 400 pieces, for Bloomberg over that time.

Nat: 01:26

So thank you for anyone who was reading in the past. I still do write in my own capacity, on my own site. Slightly lower cadence than I used to have. I also do quite a bit of publication, speaking and things like that as well as an annual that I that I make free and widely available for everyone. So, yeah, good to be here, and I look forward to the conversation.

Markham: 01:48

Well, I'm very interested in where the, capital flows are going. I think, you know, the IEA, talked last year about how, fossil fuels was about the investment in fossil fuels was about half of that of renewables. And what's your general take on the increasing, amount of capital is flowing into renewables and clean energy technologies general generally, and the decline of money that's being invested in, fossil fuel production.

Nat: 02:24

So there's there's many different things that we need to unpack with this. The first is that, yeah, on the pure pure basis of total invested dollars, there's more of it goes into the clean side of the ledger, at least in the power and the energy sector, than goes into the dirty side of the ledger. The capital expenditure in the the in fossil fuel side of the of total CapEx, peaked almost a decade ago, and it's been declining more or less steadily ever since. And renewables are now about done, the invest the invested capital expenditure as you have from fossil fuels. I would say these are good trends if you wanna think about decarbonization in general.

Nat: 03:05

I think it's important to understand some caveats that happen within that. So I would like to and that could actually focus on the fossil side of things first because I think that's important, which is that there was quite a lot of inefficiency in the the oil and gas investment sector, prior to the even last sort of broad a massive run of, oil prices in a $100 barrel range. That was especially true in the United States, but I think true everywhere. And what you've had is a a massive decline in in the pure invested dollars also a fairly steady amount of investment in productive capacity. And you'll notice that the decline in capital expenditure has not met a decline in the amount of oil shipped, the amount of gas that's produced.

Nat: 03:51

Both of those things are pretty much near near or or well above their their any previous record. And those sides of things, you know, from a flow perspective, in terms of molecular flows, are still very much, you know, all time levels. By the same token, on the renewable side of things, also, any of you basically set a new record every year in terms of the amount of, electricity that comes from wind and solar, the new marginal generation added by these sources. We've never really had a technology that on a pure nameplate capacity basis has added as much nameplate capacity in 1 year of solar. It it's by far exceeded records that we've seen in previous years, and this year, we'll likely see about 600 so 62 gigawatts worth of solar generation capacity added to the global grid.

Nat: 04:43

These are these are all great. They're also the beginning of where we need to be to affect a very deep decarbonization. They're the start or maybe the, the end of the beginning rather than the beginning of the end. We need to not only maintain these levels, but more than double the total invested dollars. We also need to start doing them doing investment in sectors that are harder to they're harder to decarbonize for technological reasons and reasons of chemistry and physics.

Nat: 05:15

And, therefore, I think they're also part of the decarbonize from a capital allocation and a capital expenditure perspective as well. So we we've we've done, I think, a good job of understanding how to do the things we already do well, good for us. We have a lot more work to expand that franchise of wind and solar greatly and batteries as well, but also to to start pointing in new directions in terms of what purpose it serves, and then also start tackling all of the other things that are not so cleanly electrical in nature, things like fuel, things like industrial processes, heat, other kinds of electrical transformation. So there's there's a great deal of work to be done.

Markham: 05:58

Let's talk about China for a moment. I've been arguing for the last 2 or 3 years that China now leads the energy transition. I mean, in terms of, both deployment and in terms of the growth of clean energy industry, the manufacturing capacity in wind and solar and and batteries and EVs and heat pumps in particular. And China has had a very interesting industrial policy. And in that, it subsidizes a large number of firms when it wants to develop a, let's say, automobiles.

Markham: 06:31

There were 700 EV manufacturers at one point. Now there's a 100. And the betting is that by the time everything shakes out over the next few years, there'll be a dozen maybe maybe. But China isn't letting up. It continues to subsidize.

Markham: 06:47

It continues to pour capital into those industries even though, as the US officials have noted a number of times, there's a serious overcapacity from their point of view in those industries. I think solar panels, only 38% of the productive capacity is actually used. What do you make of China's approach to how it deploys its capital in the growth of clean energy manufacturing?

Nat: 07:14

Well, so there's there's there's there's there are goals that are set at this sort of national strategic priority level, which is to have these sectors become, world leading and world scale. A lot of the mending to them, so on the financing that supports them, devolves to more local levels. So there there's a local element to sort of the funding that that supports all of them. This also something to the nature of competition in places where technology moves very quickly, but I think it's important for us to bear in mind. And this is not this is not an an a pure abstraction.

Nat: 07:52

It's it's a little bit it's an we should understand and embrace in terms of talking about these technologies as they apply not just to China. And the formulation is this. The cycle of innovation is very rapid, in terms of improving cost and efficiency for things like battery technology, which obviously impacts automobiles and for solar technology itself. If you are a manufacturer, you will probably only pay off all of your capital expenditure for in the solar sector in a couple of years. And there's sort of one option in your head, which might be, I'll just run this fully depreciated asset as long as I can and extract some sort of alpha in some doing.

Nat: 08:42

But you're doing it with what is fundamentally inferior equipment compared to the. So you'll be shipping a product that is lower efficiency, that is lower throughput, and probably not economically competitive with a brand new factory using the new best in crime, which has its own economy of scale, and it has just simply better technological capability behind it. So the only way to really compete is to continue to expand. There is no winning move where you don't get to play. And and as a result, you have this intensely competitive industry.

Nat: 09:13

And I would argue that we aspire to this we aspire to this sector a concept of overcapacity at a state level, something that we could equally ascribe to simply the nature of industrial competition within these sectors. No one ever talked about us having state sponsored over some overcapacity in the DRAM market, for instance, or state sponsored overcapacity in making televisions when we when we have companies that are forced to manufacture them at cost or close to it. This is part and parcel of an industry that in the long run will have probably relatively low margins, relatively low boat competitively between companies, and a high degree of competition.

Markham: 09:57

What I'm wondering about your opinion on the the flow of capital, into various regions. So, China has, I think, according to the IEA, indicated that, it intends to keep the pedal to the metal over the next decade or so in terms of its spending. The the US has announced that it's now 3, significant acts that have clean energy, manufacturing, implications. And my guess is that, over the next 10 years, it's between a trillion to a $2,000,000,000,000 of public money depending how the tax incentives, play out. And and Europe now has got its green industrial plan and repowerEU.

Markham: 10:46

So it looks like the world is kind of settling into this. China's the leader. The US is spending madly to catch up because it sees it, doesn't want to be dependent on its ad its geopolitical adversary, for key technologies and key, manufactured goods. Europe is is coping is is is still running hard, in 2nd or third place depending on how you, look at the metrics, and then you have the rest of the world. And it looks to me like the rest of the world may not be a big percentage today, but that's the part, the global south, essentially, that China has targeted.

Markham: 11:28

It's not gonna do a lot of business in it's kinda like to sell a lot of solar panels or EVs in the US. It'll sell more in Europe, and and and that's fine. But where it really wants to be is Latin America. It wants to be in Southeast Asia, in India, places like that. Is that a fair way of describing China's strategy, going forward?

Nat: 11:52

So I I wonder if if there's a need to describe it as so much, intention to it as simply the fact that I would argue that competitively priced products are going to want to find the market. And if if a better way to think of it is that we in the US and Europe are sort of putting in interventions that prevent made equipment from getting to market. We put barriers. We we we we impose, we impose midlets and rate rate determining steps on how much can be deployed in the interest of either national security or supporting domestic capability or both. And there will be other parts of the world that may just just may not see themselves as part of that matter or viewing part of those as relevant issues.

Nat: 12:40

If you're going to electrify Sub Saharan Africa, would it be imperative to do it through a domestic industrialization policy versus simply acquiring material that you can get from from a a reputable reputable and low cost overseas producer. I I I I I think that that's an easy trade for for many economies to make. It's in fact only only a few that have the luxury of deciding, deciding that they want to do x, y, or z, in terms of their full domestic policy policy and strategy and competitiveness landscape. So the exceptions the exceptions are really the the small number of economies that can afford to take a strong domestic position on manufacturing, and also on strategic co cooperation competition, and prioritizing security in in the process versus all of those countries that are simply able to do everything like, and and take advantage of what's downstream. This is going to have some interesting implications for economies that might have traditionally moved through certain phases of industrialization, along along their steps of progress in things like electronics and in auto and in auto mobility.

Nat: 14:07

And I think that that's gonna be that's gonna be very interesting to play out in particular in the auto sector as that evolves.

Markham: 14:15

Well, I've been reading OPEC's modeling, its last two, reports, world oil outlook 2045 from last year and 2050 this year. OPEC has actually, sort of doubled down on that analysis. And one of the big assumptions, is that the the global south will stick with, oil and gas, and their, hydrocarbon consumption will rise significantly between now 2050, whereas the global north will decline significantly. And it seems to me that, China is gearing up. I mentioned this, you know, idea of exporting, their surplus products or low cost products out to, the global south, but they're also building factories.

Markham: 15:03

They're also rejigging the belt and road initiative. And it seems like the the government is preparing, to support the move of its companies abroad, whether they're exporting or building factories in, elsewhere. What's your take on that?

Nat: 15:21

So I I think it's important for us to to sort of consider when we when we look at a long term outlook, what assumptions would be needed for it to be true. And you've actually made an effort now. So it assumes, that while the the the sort of global north, so to speak, finds itself slowly ratcheting down its consumption of hydrocarbons, but the rest of the world doesn't. And I think I think it always sees these that kind of elongated concept presupposes that hydro that that energy equals hydrocarbons and hydrocarbons equals energy. The latter half is always true.

Nat: 16:01

Hydrocarbons equal energy. That's that's indisputable. But energy doesn't does energy necessarily well, hydrocarbons is a bigger question. What industrialization path are these countries going to take, if there's an import substitution path that involves, building your own petrochemical complex, then you will be consuming a lot of high hydrocarbons. If you're simply importing the finished products in somewhere else, that's a different matter.

Nat: 16:28

What will be the fastest way to provide electricity or to scale up light, you know, commercial to light industrial to heavy industrial electricity, is that going to be through, expanded natural gas and coal fired power? In places where that capacity, I think, already exists and is being added to the margin, then that's certainly still valid versus prices where it is, where where it has no it does not have a margin of which exists yet. So thinking in particular, but let's say sub Saharan Africa. How how quickly would you be able to provide 10 to a 100 megawatts to a 1000 megawatts of electricity? What would move fastest?

Nat: 17:09

Would it be providing that via solar and batteries? Would it be providing that via combined cycle gas turbines times 2, right, for a gigawatt. Open questions. And and I think we'll see that countries and enterprises begin to make those those assessments on their own. I would say Pakistan is perhaps the best example I can think of in terms of how much solar is added.

Nat: 17:31

It's becoming one of the world's biggest import markets for solar. It's doing so with almost no in fact, definitely with no support from the government. It's doing it almost completely as a matter of private enterprise. And it's materially impacting the shape of power demand from the grid in this country because it's in the best interest of any of its of any of the people that propound solar as an energy source. And it's doing so in almost a permission this way compared to going and building a hydro dam, for instance, or building a fleet of coal fired power plants.

Markham: 18:08

What about the the distribution of, the capex? And I'm thinking in terms of, government capex, private capex, and maybe, individual capex, families and homeowners, that sort of thing. And it seems like this, you know, because OPEC talks very openly about how this clean energy technology and its view is not economic, and therefore, it has to be subsidized. So there have to be a lot of government, money expended, capital expended, but that doesn't seem to be the way it's playing out. It it a very small amount in the US anyway of, government capital crowds in a lot of private capital.

Markham: 18:55

And then you have in you have examples of, where, the, you know, the homeowners, half of the half of the roof the solar deployment in China, is, distributed. Yeah. Homes, businesses, and so on. So, anyway, what about the distribution? This is not a government led necessarily energy transition.

Nat: 19:23

Well, so China's rooftop thing is entirely a matter of policy that is supported by a policy to drive a lot of rooftop solar, addition and uptake, and that's precisely what has happened. I'd like to step back a bit, which is that there's no there is no country for for which energy is not a matter of strategic importance. Either they're strong enough to have strong policies, and they're large enough and rich enough to support, propose, maintain whatever system it is that they're interested in having, or they're to or they do not have that capacity and are therefore at the mercy of whatever whatever they're able to to select from from global or global markets. So, like, the the notion that we somehow have unencumbered markets for energy anywhere is nonsense, frankly. There are things that trade in a liquid fashion that are relatively unregulated, but there's no major there's no major economy that has zero regulation on their energy.

Nat: 20:27

And that energy regulation is a policy choice in terms of what it prioritizes, what it selects for. In some cases, it's much more direct, and it's much more targeted in terms of specific strategic goals that it has in mind beyond just availability, cost, and reliability. And so, I I, you know, I I I I tend to take that view as very limited and convenient on the part of arguing for arguing for resources that are have a kind of baked in policy landscape that have been supported in the same way for decades minimum, and in that particular way, instructed for thinking about what the future might look like.

Markham: 21:13

Now, a a word to our audience. This we're gonna have another 5 minutes of conversation between Nat and I, and then we're gonna open it up to questions. So when the, the bottom of the the half hour, comes along, you can go into, the bottom of your Zoom screen and where you see reactions, Click on that, and then you'll see raise hand, and I'll go down the list, of raised hands and, ope you can open your mic and then ask a question of Nat. So what, what do you make of what's your take on the American economic activity that's been created by the, investment in clean energy manufacturing in the United States? There are 100 of 1,000,000,000 of dollars of various plants that are either being constructed or in the planning stages.

Markham: 22:09

Employment is, running flat out, it appears. Lot of this is going into red states, where Republican politicians dominate, and yet the, the perception seems to be running behind the reality.

Nat: 22:24

Well, I think I think the perception goes behind the reality because a lot of product is not being shipped yet. And, also, we have a mature energy system in the United States. We are not we are not, generally speaking, suffering lack of supply, at a at a at a generalizable level for anything that we need to manage. We produce more oil than we ever have. We produce more gas than we ever have.

Nat: 22:48

We generate more electricity than we ever have. We drive. We we consume slightly less oil that for driving than we ever have now in next order of oil. We generate more solar and wind power than we ever have. We deploy more batteries in it.

Nat: 23:02

So we're not wanting fundamentally for anything. So we have to look past that sort of first of the hierarchy of needs, so to speak, and towards the other more subtle ones. What's the strategic rationale behind it? Is it about local jobs? Is it about international competitiveness?

Nat: 23:18

Is it about, resilience? Is it about optimizing for some particular goal? And we've made the we've made the policy decision, which I think is a defensible one, that the US is the largest economy in the world and richest in the the richest large economy in the world, has the capability to impute other goals, the things besides just simply energy as the physical ability to do work, and what else that implies in terms of trade and competition, but also in terms of labor, in terms of of creating value domestically, where that might be distributed, all of these things. These are decisions that we've made that we've made fundamentally from a policy perspective and some extent from a political perspective, that are taking that are now manifesting in in in the physical world. I think a lot of I I think that those of us in the world of of energy vastly overclock the familiarity that other people have with the inflation reduction act.

Nat: 24:25

It's simply not a not a common thing. I do think that by building and deploying all of this new capability, you you should distribute competitiveness around the country, which is very useful, and hopefully help plan a bit for a future that has more more sources of of of of energy than we have now, more ways of doing transformation, and, ideally, more resilience to resilience to shocks and benefit for the climate in the process.

Markham: 24:57

That we were gonna talk about autos, the auto sector. We haven't done that yet, and

Nat: 25:02

we're do.

Markham: 25:03

Yeah. Let's do. Let's finish up with with that because, big seismic changes, taking place. The OEMs that have been strong in China for a long and China is the 27,000,000, units moved last year. I think it's, you know, it's easily the largest market in the world.

Markham: 25:22

US and Europe each are around 16, 17, uh,000, But now the, the Chinese firms are pushing the OEMs out of the Chinese market, and, there's a lot of consternation, about that back home in, particularly in Europe, within particularly in Germany. So what do you what do you make of that? Is this the the start of a big trend, that, you know, as Carlos Tavares says, you know, some of us are not gonna make it. What's your take?

Nat: 25:54

So it's important to and this is the nice thing that we can do with the auto sector. Just look at it from a product perspective. You know? I have very there's very little hedonic value I can associate with the solar panel or a big turbine. But a car is a car.

Nat: 26:07

People have identity attached to it. They have an experience that they that goes with it. It's it's, for many people, the largest purchase they make besides a home. And the fact of the matter is that the Chinese electric vehicles in particular are very, very good products. They provide a very, very good service.

Nat: 26:23

People like them. I think Singapore, they're all over the place in Singapore. They're increasingly present, in Southeast Asia and in South America and and in Central America as well. And it's important to to begin with the fact that this is not sort of, this is this is not sort of crowding in a bunch of inferior products into the rest of the world's markets, The products that compete on price, and on quality and on providing something that people want, which should sound very familiar for the way that Korean manufacturers expanded in the market and the way that Japanese manufacturers expanded before that. And to an extent, the way that the way that Europeans the European Automakers coming out of World War 2, it's made up in Europe.

Nat: 27:09

So this is classic automobile industry stuff. It just hasn't happened in the working lifetimes of most of us, and especially not in the executive lifetime of most people that would be that would be involved in the process. 2 is that, there there is a really rapid, I think, CapEx cycle in China. And, Pache, in my old CapEx is destiny notion, things move so fast there that they may not be as they may not have as much determination, as we were thinking about what's happening in in Poland or in Canada or the United States. And what I see is, an intense now competition for value between pure electric, so long range plug in hybrid, and conventional fossil fuel, fossil fuel energized cars.

Nat: 28:00

The challenge is that a lot of the foreign companies are tilted towards the the back third of that set of 3. And those are the things that are being, I think, most compressed, and they're finding the hardest ability to the hardest time competing. We do expect to see you know, there's a huge amount of capacity, but some of that capacity will be appreciated time, and it will no longer be there. It's not like it's gonna be perpetually refreshing if it's uncompetitive and underutilized. So in a sense, that will sort of solve solve itself over time.

Nat: 28:31

What I think is interesting is where, you know, where the additional product beyond what the current market can absorb is gonna go and what product is gonna get shipped to other markets. Again, the US, we have we have no Chinese auto market in the US because we have tariffs to prevent it from happening. But almost nowhere else is going to have that is gonna have that case. And I think what's gonna be and I'll give you one thing I would like your your visitors to think about here is, what are the endth order effects that not long from this, which is something that you saw happen in the consumer electronics business. I saw this firsthand when I lived in Hong Kong.

Nat: 29:04

When I lived there in 2012, there was a thriving export business of used feature phones, high end feature phones, and some smartphones leaving the the sort of wealthy parts of Asia and traveling to other markets where they comprise the bulk of kind of new activations of mobile telephony. That vanished very quickly when Chinese companies were able to make a $30 bare bones smartphone as the entry point, into the market. And they said it took overnight vaporize what had been a long thriving business of shipping used product. How is that same thing gonna resonate in the world's used auto markets if the competition is between a $15,000 used internal combustion engine vehicle from Europe, being shipped to, say, sub Saharan Africa versus a similarly priced brand new electric model from China? How is that gonna resonate throughout all of these markets?

Nat: 30:08

I think it's going to be really interesting for us to observe the knock on effects of all of this. If you start to provide distributed, you know, a a new distributed demand source in the form of electric vehicle battery, how are you gonna energize that system? What do you wanna need to do to meet electricity demand that go along with it? What's the what's the new margin the new the new measure and margin of electricity that you can be adding to meet that demand at different prices? And I do to to point, I I do think it's an a valid question.

Nat: 30:43

How all of the world's big incumbent auto businesses are going to are going to thrive in this condition with this new world player in automobile. I, you know, I I wouldn't wanna predetermine what kind of company or what specific company has has the biggest issues, but we've seen this before. And how does this how does this provide a fundamental strategic change for some of these companies?

Markham: 31:14

Well, I guess we're gonna have to keep on talking about autos for a little bit. We haven't got any hands raised yet, so, I'm going to ask again, any of the folks who are watching, who are in the audience, if you can raise your hand and ask a question of Nat, feel free to do so. In the meantime, we'll continue talking about automotives. So, Nat, if I understand you correctly, are you suggesting that the comp the legacy companies, the OEMs that are now strong in the internal combustion engine vehicles, they might turn to the global south as, an outlet for, diminishing markets in China and Europe and North America?

Nat: 31:59

No. I I I would I would put it that that they that the the markets in these other places are going to have a great deal of Chinese supply whether they like it or not. So there's not there there I don't know that that a US manufacturer trying to send a product made in the US to, say, Mexico is going to is going to be inherently competitive against a, Chinese company doing the same thing. I think it's more that you have competition in multiple dimensions here. You've got one competition, which is too early for vehicle count, you know, whatever whatever they might be, and the other that's, a powertrain competition.

Nat: 32:36

Like, how well are how well would US, European, Japanese manufacturers be able to compete with a Chinese made electric vehicle to be sold in the same markets? So you have you you sort of have Western versus Chinese. You have power you have you have geographical competition. You have powertrain competition. And, they're kind of a matrix that will be playing out, you know, place by place in, I think, a very, a very active way.

Nat: 33:08

I think this is the competition of the life we sent me. I was in Brazil 2 months ago, and I ride into the highway at not one, but 2 large billboards for Chinese Chinese automakers. Greg Wall, I'm like, for b one b. So, you know, this is already happening. And if if other company if other if other countries don't have a sort of or companies don't have a new export plan for some of these markets already evolved, they may find it very challenging to to break in there.

Nat: 33:38

And, again, what's the market for new skills? You know, so maybe where I live in Singapore, there's a sort of perpetually refreshing, back end to the market, which is that once products are sort of sort of out of the, you know, the they're they're sort of out of favor or they they've they've kind of run their economic lifetime in Singapore, they get exported somewhere else. What what's the competition? Do they use export from Singapore versus a a new import from from from China. That's gonna be interesting.

Nat: 34:08

I see looks like Mark may have some questions.

Markham: 34:10

We do. Roy, you've got your hand up, and you've got the mic, sir.

Speaker 3: 34:16

Yeah. Okay. Telecom, 3rd world countries, I mean, skipped the whole wired infrastructure deal

Nat: 34:25

Mhmm.

Speaker 3: 34:26

By embracing wireless and cellular, and and and it's still happening, but it obviously shocked a lot. You know? I don't know if you ever read a book called, oh, what was it called? Anyways, I'm not gonna get into that. It's just the fact that I look at what's going on in energy and going, is this gonna continue?

Speaker 3: 34:49

I mean, I mean, it it's like it this is a fundamental change for the people that have always had control of this energy environment, the fossil fuel people, cost a lot of money, drill holes, distribute all this kind of stuff, and all of a sudden people are popping up solar panels everywhere and skipping that whole thing. Is that do you see that happening?

Nat: 35:12

Oh, yeah. I mean, only where in there is, like, for, like, competition. You're not popping, you know, you're not popping up solar panels and making polyethylene. You know, you're not you're not popping up solar panels and producing ammonia via the Haber Bosch process. You know, we're not popping up we're not popping up solar panels to provide, to provide 247 power generation either.

Nat: 35:40

But in places where there's nothing no. We're not growing. Like, you you you can have a super grid that connects power generation across, you know, a very large quality that has plenty of geographic diversity, and, ideally, has 247 some with less enough storage, you can do it. But we're not that's not what we are. But there are places for which if there's nothing that exists yet, then I do think that we'll see things built on the margin similar to the the the mobile telephony paradigm you can slide.

Nat: 36:16

You know, if you're if you're competing with if you're trying to compete with an autonomous system that does everything right now and does a reliably, reasonable cost with the exception of any of the, environment and social issues that may go with it. It's hard that that's a challenging competition because you have to move into this place and transform a very large incumbent system with a lot of existing attributes. If you're targeting place that was nothing, then your your your competition is nothing. So if, yeah, electrification moves stepwise through smaller applications, the larger can larger can larger. So I I I think that that there are there will be places where you find sort of the meat frog of electrification happening, in ways that are, as I say, somewhat permissionless compared to the expected way of building, today the rebuilding today's incumbent system and also fast where things have moved fairly rapidly.

Markham: 37:20

Jim Williams, you've raised your hands, so you've got the mic, sir.

Speaker 4: 37:26

Yeah. I'm just thinking 20 or 30 years down the road. So asking for some crystal ball gazing here. But, what if we think in terms of China, seeing itself as the main provider of decarbonized fuel in the future. It's a big desert, you know, in Uyghur territory.

Speaker 4: 37:57

They're already building some really large solar plants out there. You can do electrolysis. You can do carbon capture. There there's some, you know, forecast of what future energy costs would be in China. They're really low.

Speaker 4: 38:17

And, so you could imagine them having a really big position that I I mean, I think I think the e fuels thing is just maybe a stalking horse for other kinds of conversations about Chinese dominance of clean energy manufacturing. But the question is not next year, not 5 years, but 20 years from now. Do they have the staying power? Is that part of their strategic vision? Are things more willy nilly than that, or is this a place where the world can end up?

Nat: 38:53

I wouldn't wanna speak specifically the Chinese policy in 2 decades' time. I think as a general rule, we would be better off thinking of where where where where the economic and strategic value will be extracted from that. Is it creating fuels for export, or is it obviating, importation? It's the world's biggest importer most of of the oil in particular. Is it is it something that has, you know, that has it has all these different values that can be attributed in various ways.

Nat: 39:26

What's the most important one? I mean, is China gonna dominate it it would would it dominate eFuel's production to the to the, you know, to the to the point of crowding it out in the rest of the world, that would seem pretty extraordinary. The fuels demand is extremely large. Would it be more likely a fuel a a an equipment provider to that process, that allows other countries to go do that on their own. I think that that's more that to me is a more interesting and valid question.

Nat: 39:55

But, I I I would hesitate to bulk out 20 years and and get a specific read on, you know, how what e fuels might happen. And and then the final word is that, you know, the cup the real competition if you're doing electric fuel is not just for hydrocarbon, so with the other use of our electricity. So directly electrifying process rather than using fuel. And I think that that's something that people we we we tend we tend to not do a great job of necessarily considering how those solid distances might shape up. But that to me is one that's most interesting.

Nat: 40:27

It's like, what what's the what's the real value of that electric not not of the fuel to be made, but of the electricity that's being used to make it.

Markham: 40:35

Matt, we're gonna wrap up our conversation with I get you to gaze into the crystal ball again, I'm afraid. The there are 3 world views that we talk about here at Energy Media. OPECs, which is kind of a status quo, in fact, a growth of fossil fuels and particularly hydrocarbons out to 2050. Then you have the International Energy Agency, and I'm thinking primarily of the, announced policy scenario where, for example, you see, oil demand dropping from a 103,000,000 barrels a day today down to 57,000,000 barrels a day by by 2050 and, decline in gas as well. And then you have the Rocky Mountain Institute, which is essentially the IEA, model on steroids.

Markham: 41:23

And the Kingsmill Bond says that, if you use oil demand as an example, he thinks it would be somewhere between, the announced policies and the IEA's net zero at 20,000,000 barrels a day. So you kind of so faster than the IEA, but not net zero. I guess that would be a good way to describe it. Of those three worldviews, any thoughts on which one might be more likely to come true between now and 2050?

Nat: 41:56

In now 2050, I I said this in the case of being a good friend, but and and someone who think I've corresponded for quite a long time in our energy, you know, energy future thinking, ways. If we're thinking in 2050, then I have to I have to say that the technologically determined path is the one to me that seems more likely. That's certainly it's also actually the one that is and King Kimbell himself will say this. The one that is actually the simplistic extrapolation from what we've observed to date with these technologies. In fact, the way that I think about those that type of scenario is that, paradoxically, it does not require a great deal of imagination and has actually relatively few assumptions in terms of what is required to get us from today to tomorrow compared to a lot of contingencies and a lot of sort of if this and that assumptions in the world of analysis policies or the world of, you know, the the the world of maintaining today's current system.

Nat: 43:03

So I tend to think on the long timeline that that it's that it's technology that wins out. That doesn't mean the path is smooth, and it doesn't mean that it's preordained either, because there are policy interventions that can speed things up or slow things down or prevent them from happening. But it's it it that particular view is the one, as I say, that it requires the least amount of imagination and the least amount of assuming what might happen in order to, to make the future happen.

Markham: 43:33

I have a great graph from the US Department of Agriculture on the adoption of tractors, from 1900 to 1950 and the decline of horses and mules over that

Nat: 43:45

I know that. Yes. I know that. It's a good one.

Markham: 43:49

It is a good one. And one of the the lessons from it is during that period, you have World War 1, the Spanish flu, a fairly severe, recession around 1920, the great depression, and world war and world war 2. None of that shows up in the graph. The graph is nice and smooth, the the curve for the the tractors, and, and related equipment, and a lot of noise in that curve that doesn't you wouldn't you wouldn't guess that. And I rather suspect that looking back from 2050, we will see the same sort of thing.

Markham: 44:26

That would be my guess.

Nat: 44:28

Yeah. And I, I I like that assumption. I like that graph too. I know that one well.

Markham: 44:35

Yes. It's one of my favorites. But, Nat, thank you very much for this. We really appreciate your insights, and, we'll look forward to, having you back in the near future.

Nat: 44:44

Fantastic. Thank you all. Bye.