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Welcome to Big Digital Energy with Chuck Yates, Mark Meyer and Kirk Coburn. Weekly news in energy covering oil and gas and cleantech.
0:00 Wow. I knew we'd talk about this at some point, but I kind of hate having to do this just, you know, at the end of the day, war and bombs are horrific and people, even if you don't like their
0:16 governments, are still people. And it's kind of horrifying to see, but Israel launched attacks on Iran last night to get rid of the nuclear capabilities. So we're there. And taking out with great
0:32 precision, a lot of the leadership structure of the IRGC, you know, and I heard, what is it, like six or eight of the top nuclear scientists that they have working on their enrichment and
0:48 weaponization program. And the intelligence operation that led up to that hearing bits and pieces. I haven't seen a full description was Mossad has. you know, flipped a bunch of agents over the
1:02 years or the last couple of years, and they were able to lure
1:08 a lot of these targets into a fairly concentrated location and tick them out with precision strikes last night, which is stunning in its sophistication and intelligence. But if we think about, then
1:23 think back to
1:25 the cell phone attack. The cell phone pager Right, pager attack and the patients and the planning and the black nature of it all where there's seemingly little awareness of what's going on in terms
1:43 of the intelligence that's supporting ultimately what becomes very obvious in the form of a massive strike on these strategic targets which Israel has reiterated that this is military, It's not
1:58 political. I just heard a piece with an Iranian, or excuse me, he's actually a Iranian descent, an Iranian Jew who is with the IDF in Israel and lives in Israel saying that, you know, the
2:16 civilians in the population in Iran are our brothers and sisters. This is against a terrorist regime that has explicitly vowed to exterminate us and we're taking the steps we feel is necessary to
2:34 defend ourselves and make sure that that doesn't involve weapons of mass destruction. So at least initial first reports from what I've read is, to your point, they went after strategic targets,
2:51 nuclear in nature, doesn't look like they've touched oil fields or oil infrastructure, and we've talked.
3:00 on BD historically about that, do you take out a well infrastructure and then leave the Iranian people who you don't have a beef with? I mean, it truly is just their government. Leave them with no
3:16 means to, to in effect, rebuild their lives if somehow you're able to topple the government. The question I had, and Mark, have you seen anything on this, is so they targeted nuclear facilities?
3:30 Don't they need bunker, buster, bombs to be able to do that in all this stuff deep underground? And I don't think the reports I've read, no one said that there have been bunker busters. I think
3:44 there have been some involved just because of the nature of those
3:50 meeting places or the places where they're conducting enrichment, although I did IRGC the of head the was It think I, about talking one see.
3:59 the general that Salami that heads the RGC, they showed an apartment building and it had to be 10 floors up that was obliterated by a precision missile. But I do think that there's probably some,
4:14 if not significant, bunker busting capability because a lot of this stuff I believe happens underground.
4:21 And so,
4:24 you know, it's
4:26 been very targeted I did see something in the back and forth earlier this morning about, you know, Israel's red line is civilian targets, which clearly this indiscriminate lobbying of a hundred or
4:39 so ballistic missiles into Tel Aviv and other population centers is certainly intended to cross that line and some insinuation that an appropriate retaliation by Israel would be on oil and energy
4:55 infrastructure but I haven't seen that verified by any. any sources or data points. So I do think that there is an international or diplomatic fine line that the Israelis need to walk here because
5:12 you do have an at-risk civilian population that has been suffering under this regime for going on 47 years now. And so to do anything to create a significant humanitarian crisis would be, I think,
5:28 a bit difficult position, just given what we've seen and heard coming out of Gaza, etc. So I don't know that the Israelis are going to
5:43 wantonly try and wipe out just
5:48 the necessities or the sustenance that the Iranian people need. Although, as we were talking before, we started recording the poly market has Um. the risk of the Iranians taking out or shutting in
6:01 the Strait of War moves through which 20 of the world's seaborn oil flows or is transported has gone up to 45 in the polymarket.
6:13 This feels somewhat like the good old days. If there are such things of risk premium, I mean, it was pretty breathtaking to watch crude approach 78 last night. It settled back in. It's up about
6:28 five bucks in the 73 and change range last I looked. There was an immediate
6:37 statement out by the IEA suggesting that while the oil markets are well-supplied, we have a significant global strategic reserve of 12 billion barrels
6:50 ready to respond to limit economic disruption. For some reason that motivated an immediate response from OPEC saying that kind of false alarm
7:03 notification or press release is unhelpful. It contributed to volatility back in '22. And I think what OPEC is really saying is that we don't want for political reasons to see this massive release
7:20 of emergency stockpiles that would then create a lot of downward price pressure for OPEC in the midst of its cut restoration program. So a lot of moving pieces, nobody really knows. Yeah,
7:37 a couple of things I found interesting.
7:41 When you look, you're right, oil's kind of73, 74 a barrel right now. That's where it shook off The 60-month strip, so the five-year strip. is still under64 a barrel
7:56 and was barely up 1, just over 1. The
7:59 48-month strip, so the four-year, up
8:04 15, 36-month strip, up about 2. So,
8:10 to some degree, we're still in this massive backwardation at and least the
8:15 market by pricing is telling you, eh, this is gonna be a short-lived thing. They're gonna throw bombs at each other and it's gonna get over pretty quickly. And then the other interesting point
8:29 that I wanted to bring up, 'cause I had James Costa Hertz on the podcast back in December of last year, he called this. He said, you know, we're at our closest point of Iran and Israel going to
8:47 war. And he said, I think it happens and it's just not priced into oil. He said, actually, the 20 of the oil going through the straight, he said, All you have to do is threaten to do something,
9:02 and every note, no ship owner is going to send their ship through there, even if bombs don't go off. All you got to do is kind of rattle your saber
9:13 there. And I think you got two things you're kind of watching for then, that and the fact we're in backwardation Well, it is a major pathway to import through the Iranian people on the Iranian
9:29 government. So if something like a blockade were to materialize militarily, you're putting a lot of pressure on the Iranian regime, you've got essentially 16 to 17 million barrels a day of exports
9:43 that are mostly making their way to China.
9:50 more pressure on there. We know we talked about it a few months ago, right after the new administration took office, that they're really going after the dart fleet that has been moving illicit
10:04 Iranian barrels around in the market. So I actually think maybe the anticipation of this was something that was in OPEC's calculus to maybe do some of this accelerated cut restoration because they
10:24 certainly don't want to, we're not in the best global demand resilience situation relative to a few years ago or pre-COVID, OPEC always watches demand. And so
10:41 I think they want to mitigate that as much as possible. But the notion that there can't be, And Javier Bloss talked about this and a piece I haven't. I haven't read it, I read the summary in his
10:52 tweet, but
10:54 basically pointing out that maybe we ought to think twice about the complacency that there could be some scenario in which there is significant or major supply disruption in the Middle East, which is
11:11 something we haven't seen manifest in the market in quite a while, and what that means for price action and volatility to the upside remains to be seen. We've kind of joked about it in the past,
11:25 all these global conflicts and things that would seem
11:31 to disrupt global crude and product flows have been met with a big shoulder shrug and a lot of times we end up trading lower on the day than we did the day before once the event is known and is
11:45 assessed in terms of what type of impact and health. How far and how long that impact is going to last this is this is this feels a little bit different
11:56 Yeah, it it does feel different though. The one thing I think the the next thing I'm sitting watching is what's the Iranian response it appears to be going on right now
12:10 That there are some reports of bombs actually making it on the ground and and Tel Aviv like you were talking about earlier Uh, but at the end of the day, they only shot a hundred missiles and that
12:25 is real and I And so it's going to be interesting watching that because that was the big question is just how much does Iran truly have left in the tank? Well, they have thousands they have
12:38 thousands of missiles Uh report that I heard the the issue is from a launch capability standpoint. I suspect they've been degraded pretty significantly on their fixed launch sites, which is why this
12:53 analyst, this reporter was talking about, a lot of these are being fired from mobile launchers, which you just can't move them and reload them or rearm them as quickly as you can a fixed site where
13:05 you have this huge stockpile of missiles that you can just launch one after another. And so they're having to scurry around for fear of being targeted, located and targeted and taken out. So a lot
13:21 of this, at least the way I think about it, is being done on a bit of a
13:31 bandaid and barbed wire strategy. But they do apparently have
13:36 stockpiles of still thousands of those ballistic missiles. So I think what we could expect in that model, if you will, is batches of these things. It's 50 to 100, a couple of ways of 50
13:50 simultaneously, is that the peak of their capability and how much
13:58 overwhelming force that they can bring given their degraded capability? Because not only was the Israeli campaign designed to take out the nuclear enrichment sites, but was also targeted at
14:11 ballistic capability, whether that's missile stockpiles or fixed launchers, I'm not sure, but that thinking about it in that way, where they're having to
14:24 use kind of a guerrilla-type missile launching capability makes sense. And I would think you can't get too set in
14:37 your position 'cause the second they see where the. mobile site is, boom, you're either shooting a bomb at it or sending a jet at it. But it didn't look like Iran had anything in the way of air
14:55 defense systems going. Yeah, I don't know what at those military sites, those nuclear sites, what any aircraft or surface air missile capability was. But I have to believe the intensity and just
15:03 the density of the strikes that were going on in the first night of action last night were multifaceted in their targets and probably designed to take a lot of that defense capability out around those
15:30 sites as well as the sites themselves. So one thing that I was thinking about and I did some some searching on it and
15:41 remember that Israel gets about 80 of its gas supply, which is a predominant power generation fuel from those two Chevron platforms. They're legacy noble corporation platforms or noble energy
15:45 platforms in the Med that
16:04 essentially supply 80 of the country's natural gas and there's, you know, 100 to 120 kilometer network of pipes and subsea manifolds.
16:16 I would imagine that that as a strategic target is well protected, but none of the evidence that I
16:27 could find or none of the research that I did suggested any kind of fortification of those platforms I did here one time long ago that they've got 50 caliber machine guns, But that's probably for any.
16:44 random pirate attacks, but
16:48 that's a theoretical or hypothetical point of vulnerability. I just haven't heard a lot of talk about, but you got 80 of your gas supply concentration in those two facilities. It's
17:01 got some elevated risk profile. You could contemplate doing some things sub-c, certainly
17:11 surface ships, et cetera, but they've got it well-patrolled and well-defended.
17:19 No, that's interesting. That's put all your eggs in one basket and really, really watch that basket of that. There's a lot of gas out there.
17:31 So how do you see this playing out in terms of
17:37 where does it go? I'm going to force you to look in your crystal ball and I'll I'll look into mine too, but what do we think happens? So Dan tweeted out, as this was getting underway, what does
17:54 tomorrow bring in terms of Iranian response? Is it targeting of US. assets in the region? Is it Saudi? Is it something else, or is it a big nothing burger? I think we've answered whether it's a
18:01 nothing burger, already because there's more of
18:13 this to come in the days ahead. But my guess is we're gonna see whatever capability they have in their proxies. And
18:24 one thing I mentioned in reply to that tweet was, maybe the Houthis try to somewhat indirectly, but significantly hurt the US because they are, you know, they're claiming that we're in. directly
18:42 involved, the Iranians are, is the Houthis there on the Saudi Peninsula, you know, trying some stuff from their vantage point. So Iran using its proxies to really harass the US and US allies and
18:56 interests in the region. I just don't think they have more direct capability to respond than what they've demonstrated Now,
19:08 on the flip side, the notion that they were, in some cases, days based on some experts to weeks away from having 91115
19:19 nuclear weapons ready to attach to a missile and fire, you know, are we sure we've got track of all of that, you know, and do they have something there that they can advance very quickly. And so
19:37 I think I think Israel is just going to continue to hammer on it to make damn sure that
19:44 what we couldn't accomplish through the last 60 days of negotiation through diplomacy is going to be done through destruction. One of the news sources is reporting that Iran has lobbed a phone call
19:59 into the Trump White House I haven't seen what was supposedly said or multiple reports of that to know it's true, but that supposedly has happened. Well there was supposed to be another I think a
20:16 fifth or six round of negotiations between the Iranians and the US. and was it Oman or Bahrain on Sunday and most people think that that's not going to happen and probably won't I'd also heard
20:34 somewhere that, you know, some of those in the negotiating team taken out in last night's strikes as well, so
20:42 kind of hard to show up.
20:45 Right, if you're not there. If you no longer exist. Yeah,
20:51 so the thing I found really interesting in the very first Iraq war, Iraq launched missiles into Israel and the Patriot missiles shot it down. But somehow the Bush administration was able to kind of
21:15 hold the neighborhood at bay.
21:18 Nobody got involved.
21:22 But what's interesting this time is, you've got on one hand, you had the Abraham Accords, so you've got in effect more peace. if you will, between various players in the Middle East and Israel,
21:43 but to your point, all that
21:48 LNG, Israel doesn't have any LNG import, so, and I didn't Egypt control those two offshore Chevron fields, so you've got all the natural gas, you don't really have a backup, I don't think to get
22:08 in there, so the Egyptians are going to have to play nice. Those platforms are in Israeli territorial waters, so those are sovereign Israeli assets operated, owned and operated by Chevron. Oh,
22:20 okay, so we've got some cover there, but you know, Egypt's right next door, they're going to have to play nice, you've got us having probably one of the testiest relationships we've had with
22:35 Russia given what's going on in Ukraine. And China always wants to be a snake in the grass. And so I think it's gonna take a lot more in the way of getting the neighborhood to play nice, maybe this
22:54 time than in previous times. And that's what's got me scared is, you know, a bomb goes here, somebody retaliates back Putin decides he was 73 and he's about to die anyway. So he wants to get
23:10 involved somehow. That's kind of the dynamics that's worrying me. Well, you know, the Chinese have shown no hesitation to buy Iranian oil
23:23 when nobody else is either allowed to or wants to because of sanctions or threat of sanctions And so as we've seen in a lot of other places,
23:38 whatever strengthens Chinese economic power and their strategic security is what they're going to do, like building two coal-fired generation plants a week. Right. While they build solar and wind,
23:57 so anyway
24:00 So I think we can have equal chances of
24:07 the Israelis took out the nuclear threat and it's done. Iran doesn't have enough in the way
24:17 of mustering an attack on the way back. So a lot of
24:22 saber rattling, but at the end of the day, this blows over in a week I also don't think it's out of the realm that this is World War 3, three months from now
24:36 heaven forbid, I hope this doesn't happen. I'm not rooting for it, but you know, US. troops on the ground in the Middle East again. Yeah, there's 40, 000 of them. There's 100, 000 Americans
24:46 who live in Israel.
24:48 And so,
24:51 there are 100, 000 Americans in Israel. I don't know what permanent residence status versus temporary
24:60 visiting for work or for
25:04 family But, you know, we've got significant exposure in terms of people on assets in the Middle East. And keep in mind, a little over a month ago, the president made a pretty prominent swing
25:16 through key Middle Eastern companies that went very well from garnering support and getting commitments on investment in the US. And as we talked about at that time, But let's, let's, let's.
25:35 Let's look at economic partnerships to strengthen these relationships and maybe turn the temperature down in the region where we can come up with some mutually beneficial investment in economic
25:50 opportunities. And here all of a sudden, you've got something that is, again, a flashpoint. I don't think it's to the experts, I don't think it's all that surprising because I'm guessing the
25:54 signals were pretty strong behind the scenes that the Israelis were reaching a point where we've got to do something because they're getting too close to having a usable or a handful of usable nuclear
25:54 devices, which I don't think Iran, given its history and its rhetoric, would hesitate to deploy And so that's. I mean,
26:28 they literally have a clock in.
26:33 And I believe it's in downtown Tehran that is counting down to what, 20, 40, or whenever the end of Israel has to happen by. And so this, it may not be part of the Iranian people's
26:52 mantra, but it certainly is for their government. Well,
26:56 I think to get back a little bit more of the well markets, there is some related dynamic that we've been talking about, and you predicted, or you have put your stake in the ground that the US
27:10 production has peaked.
27:14 The notion that we may be kind of in warm idle here, getting ready to roll over was at least supported by the short-term energy outlook that the IAA put out earlier this week that said. You know,
27:31 2025 is going to average a bit more than 134 million barrels a day. And we expect 2026 to be a bit less and where they had earlier projected growth in the scenario that they used as their base, they
27:49 didn't, they didn't contemplate
27:52 the velocity and the magnitude of drilling activity reductions that we've seen, you know, all directed rig counts down another three last week, we're down back at 2021 lows. So USL has played a
28:09 pretty,
28:12 a pretty important
28:15 shock absorber for supply side risk over the last decade and a half, and certainly through the conflicts that we've seen more recently. And if the market looks at that and says, you know, we can't
28:27 count on it as much as did in the last few years, if something were to happen where you have a closure of the straight or an attack that ticks out either, you know, Saudi capability from production
28:43 or exporting standpoint or Iran, then, you know, I think we've got a much thinner margin on the supply side
28:54 And so
28:58 I know the president prior to these strikes in the in the upward price action said his event yesterday, which was related to the rolling back of the EV mandate, it's the California EV mandate, it's
29:15 called out or highlighted the fact that Chris Wright was there and, you know, he didn't really like the fact that prices had come back up from, you know, flirting with the 50s, now we were at, I
29:28 think, what, 68. close to 68 yesterday before all this happened. And
29:35 so politically, it's not, it's not a comfortable spot for the administration to be in. But when you combine that with the fact that, you know, okay, on the political and military side, what
29:48 happens if US assets and people are involved in damage, you know, God forbid, killed or injured, what is going to be, what is going to be our political and military response, if any.
30:07 Yeah, no, it's,
30:11 like I said, I really don't like talking about it. I know, I know we have to, because of
30:19 the impact on oil prices, but gosh, it just, you know, I come back. I think you and I've talked about this. I don't know if you talked about it on the air. If I'm a dictator, even of a third
30:33 world country, I think I'm pretty good with all the kavossier that I could wanna drink. And I'd probably have multiple wives and I'd have a nice castle, but I'd be pretty benevolent in terms of
30:46 being a dictator. Taxes wouldn't have to be that high. You'd have a good life. Why do you wanna go to war with the great Satan? I mean, what are those people smoking that you would want to do
30:56 this? And I just don't get it. I guess at the end of the day,
30:60 you know,
31:08 F-A-F-O,
31:10 and you know, and maybe they just didn't believe us, but Trump did say you got 60 days, guys. And at day 61,
31:20 they're catching bullets, which, you know,
31:24 I feel for the people that are on the ground and Tehran, the rank and file citizenry who I think we know from listening to the experts on Iranian society and the population
31:42 that this regime being in place as hardline as it gets for almost 50 years, I think people have had more than enough, but what motivates regime change. To get
32:00 the Iranian people back and to, you know, the
32:07 global society of civilized countries where, you know, their leadership is not helping on things like taking out an entire country's or civilization's population You know,
32:23 I was speaking at a UT law symposium.
32:29 And I haven't looked up what year it was. I've got, they gave me a little paperweight or something. So I can actually go see the year and they asked for predictions. And even back at Caney before
32:42 I was podcasting, I just said stuff that was crazy and to kind of
32:48 cause some buzz. You? Yeah, they said make a prediction. And I said, within the next decade,
32:56 I ran, we'll overthrow its government and they will be our strongest ally in the Middle East. And it was kind of funny and we got followed up. Why do you say that? And I said, well, the Iranian
33:08 people are actually very westernized. Go look at photos from the '70s before. I mean, that looked like America. And I said, more plastic surgery per capita than any other country on the planet.
33:24 very much, I think, would want to be part of the Western world. It's just that government.
33:35 Yeah, I think this has a little duration on it measured in
33:44 several days, if not two or three weeks. Hopefully,
33:50 we can get back on sides with the negotiations, but
33:56 they were accelerating their enrichment and weaponization program despite protestations that they weren't. But when you saw, and the president alluded to it yesterday in that White House event,
34:14 we think we have a pretty good agreement that we can get in place however the Iranians need to do more, well the Iranians hardline has been. throughout all of this, we're not going to stop our
34:27 enrichment programs. Well, why do you need to enrich Uranium?
34:32 It's to continue on the path of building weapons. And that is. Well, there's no compromise there, so. And I mean, the defense to the Iranians on that is we don't want to be kadofi, look at what
34:46 happened. You know, in some degree, you could say, look at what happened to Ukraine when they gave up their nuclear ambitions. So it's never want to be on the side of defending Iran, but. So I
35:03 want to touch on this event yesterday. I watched the better part of an hour and 20 minutes of this press event around the congressional resolutions. There were three of them, but the most important
35:18 one was essentially repealing or rolling back the California. EV zero emission vehicle by 2035 mandate. And the reason that's important is that back in 1970, when the Clean Air Act at the federal
35:37 level went into law, California was granted special status in that they wanted the ability to set more stringent instructor emissions regulations and fuel efficiency regulations than the EPA would
35:56 prescribe federally. And so they were granted that exception. They can request waivers and impose stricter regulations. But the other states were given the ability to tag along any approved
36:12 California measure. And so there were 17 states that were tagging along on the 2035 EV mandate.
36:23 It very quickly became, at least in the last decade or two, became way, way outside of the original objective of giving California that state authority to clean up, you know, a pretty significant
36:39 smog problem that they had back in the '60s and '70s. And, you know, the Clean Air Act did a lot to mitigate that But now it's way overreaching in terms of, you know, states being able to tag
36:58 along. And basically, it was really a discussion or a case for consumer choice, which, you know, 10 years from now, if I can't,
37:11 I've got to have a nice vehicle, a nice powered vehicle. I can't get one in California And I've, you know, I've taken that choice out of the consumer's hand. John Hess made some remarks. They
37:24 had some trucking and some auto industry representatives who were up there very supportive of what this is doing. So basically, this tag along
37:37 of allowing California to impose its own stricter regulations that affect not only its citizens, but also citizens across, at least in this case, 17 states Well, not surprisingly, California and
37:53 I think 10 of, 10 of the other states immediately filed suit yesterday. I'm not sure what the details or the basis of the lawsuit was to overturn this - We're mad, we're pissed. I mean, well, it
38:10 seems like there's a lawsuit filed every day on something
38:17 So
38:21 it'll be interesting to watch. kind of that play out. I mean, I'm generally a state's rights type guy. And if California wants to do it, it's just going to be a boon for auto dealers in Nevada
38:33 who will sell cars and people will drive them across the border. Because at the end of the day, they won't be able to keep them out.
38:42 But it's going to
38:45 be interesting to watch.
38:51 So, you know, it's Friday night, Saturday morning in the Middle East, and as I understand it, there's, you know, ongoing operations by the IDF, we'll see what happens over the weekend and
39:08 maybe have, hopefully have good stuff to talk about that there's, you know, some diffusing of the tension and ramp down in the conflict, but
39:19 what I've heard and read up to this point, it doesn't sound like that's right around the corner either. So be watching oil markets over the weekend Yeah, no, it's
39:34 going to
39:38 be wild sitting there watching it and, you know,
39:43 hate to even have to talk about it and think about it, but at the end of the day. You're right, I hope we find a path to
39:51 peace 'cause
39:54 a lot of people are dying in the world and it's just not good stuff, so.
39:59 All right, Mark, well, good to see you.
40:04 When you back in Houston. See you next week, I'm coming in early Wednesday. Okay, cool. Be there for about a week and a half. Okay, Doc, I may miss you on Wednesday I'm heading to the AAPL.
40:18 Oh, that's right. The Landman Association meeting in Kansas City. I'm actually gonna talk AI and do a product demo
40:29 for the audience. I'll drink all the beer you don't want, so. There you go, it's all yours. Have a good weekend.