You are listening to Redefining Energy. Your co hosts from Berlin Gerard Read and
from London Laurent Sagan Laurn. Happy Christmas. It's the last episode of the
year. It's been a good year and lost and lots of different ways.
And I believe have passed one million downloads. Amazing. Yeah, in twenty
three we will have four hundred and seventy thousand downloads, which is up thirty
four percent compared to tour twenty two. So I like really to thank all
our listeners. I still can't believe that people actually tune and listen to us
every week. Thank you very much, everybody. It's great. We'll having
fun still. And there's one in particular, Jan Cornelie, who says I've
listened to every minute of the show. Well done, Yan, well done,
An well done. But first over from our partner. Equittter Capital is
a sustainable investment company headquartered in Hamburg, Germany. Equit a capital investment real
assets such as clean energy, sustainable infrastructure, energy efficiency and growth private equity
on behalf of its clients. Lauren, And we have a big announcement for
next year. Yeah, we go weekly. Wow, Well, explain what
that means we're going to merge this show with our second show, which is
called Redefining Energy Minutes. We created that little sister show two years ago a
bit of a separate experiment, and because we've been pleased with the progression,
I think it's time for the Minutes to go mainstream. He looking forward.
So how it's going to work is we still have our main show, but
it's not going to be the first under of fifteen of each months. It's
going to be the first and the third Monday of each months, and then
we will have the Minutes, which are just you and Meat ten minutes every
second and fourth Monday of each months. And the all idea is to have
a just to of us, a free, willing discussion on the news or
a certain topic. Exactly looking forward, Okay, the title of this episode
is Weaponizing Energy the en of Innocence, Jard. I don't want to growth
how great we are. We are great, You're great, You're great,
You're great. Okay, Okay, good. We saw it coming, Charred.
Remember two years ago in October to twenty one, we did the episode
sixty called the Nutgas Pokealypse, and as a guest, the picture was put
in it's crazy. And by the way, that was five six months before
the war broadcast. Yeah, exactly. Personally, I support Ukraine one hundred
percent and on what they've been doing, We've tried to help. We had
the CEO of d Tech Ukrainian Utility on the show. Our heart goes with
Ukraine, especially through another hard winter, right, Yeah, very tough.
So two years into that weaponization of energy, I think it's time for us
to look back and assess what I've been the short term impact of the crisis.
How are the responses and type of market supply chain, government behavior of
fuel choices. Did the energy system show an incredible resilience or have we just
been lucky? I'm looking forward to have this discussion, my friend. So
how are we going to bring in the show. Well, we're going to
bring a super expert called Andy Summer. Andy is head of fundamental Analysis,
modeling and Meteorology at Axpo. An Expo is a Swiss based energy, utility
and trading business. Yeah, it's really on the top of it is responsible
for the short and mid term analysis of all global energy markets. So not
only we're going to talk on boild energy, We're going to talk about oil.
We're going to talk about gas, We're going to talk about coal emissions
and everything. So let's bring them on the show. Andy, welcome to
the show. Thank you very much, and thanks for having me. Good
and it's good to see you. So let me kick off by just asking.
I mean, if I reflect over the last year and a half,
it's for me it's been the most incredible period in terms of energy price volatility.
Just as we enter this winter here, it all seems pretty calm.
I'd love to hear your thoughts because you've been in the midst of this over
the last year and a half, and your reflections and what you see going
forward. Yeah, indeed, it was a very, very crazy ride.
Analyst, market observers, everybody around energy was extremely busy. Yeah, it
was a very interesting period. I'm more than thirty years in a business and
haven't ever seen a situation like that, even during the COVID times. So
tell me just if you look back with that, what surprised you and what
didn't surprise you over the last year and a half. I think surprise was
basically the complexity of the whole system, how it evolved. We've seen politicians
jumping into trying to steer energy markets, partly with success, partly making matters
worse. We've seen developments like Russian GUS flows that never happened before even in
other crisis times. We've seen not only market impacts prices gone crazy, we've
seen a very direct impact on the macroeconomic picture on energy flows that effected suddenly
not only European continent, but a global energy world from China to the US,
and a huge volatility that actually reached every part of our society. And
the end of the day, right the first events start swilar to twenty one
when the Russian flows stopped arriving and Russia decided to weaponize the gas and you
know, left their German storage empty. For me, that's a trigger point.
And of course that was six months before the invasion, so there was
in my opinion, it's not a coincidence. And then of course when the
it's the fan, you start having other factors like low hydro availability, the
debacle in the French nuclear fleet that we addressed the months ago, and weirdly
the system managed to survive despite those three shocks. How do you analyze the
resilience of the system. But of course we had to pay for that resilience,
absolutely, and I think that was the biggest shock to the world in
itself. We had that happenings at the same time that, as you said,
Russian reduction of energy flows. It was not only gas. It was
also from August twenty twenty two onwards, the stop of all coal deliveries to
Europe because the EU was banning that. We've seen a strong reduction of electricity
flows to Nordic countries for example. We've seen a reduction of oil flows to
Europe. We've seen a reduction of wood for biomass power production, and a
lot of different topics on the supply side, and a macroeconomic picture had to
react to that, not only via significantly higher energy prices in itself, but
also simply to rebalance demand and supply. That consumption site had to take a
good hit a brunt of that imbalance as well. And so at the end
of the day, it also came down to a recession in many countries around
the world, at least a very very very strong job in economic activities.
And I think that was the other main consequence of that weaponing of energy as
you called it. Can I ask you look at the day. You're working
for a big energy trader, right and your job is to see the future
and then to help your company through it. So when did you see what
was going on and what did you do to manage the risks in and around
your own business. Of course, we did see those very early warning signs
that something is happening. As you described correctly, GUS from suddenly slowed the
storage injections in its German storage sites. Then later on GUS prompt came up
with all that new contractual requests payers in rubles instead of dollars or euros and
all those kind of stuff. So it developed over time. We always followed
that we were surprised by many of those actions, to be honest, but
in order to react to that to make the right or strategic decisions, of
course, we had spent a lot of hours in those months in working groups,
in strategy groups, on the financial side, on the operation side,
across all the different desks, and that was very busy times, of course,
with many many many in our sitting in those rooms and discussing strategic consequences
and positioning and how do we handle and operate around all those issues that suddenly
we were facing everybody of us. The question is, how do you realize
or when do you realize that you're not into a plus thirty or plus forty
percent, which already would be in the normal courses of things enormous, But
you're in a times two times three times four literally something you've never seen in
the past fifteen years. So at what moment you realize that you are opening
a totally new chapter in the way those markets and prices are opening. It
was latest when Russia started invading Ukraine in those moments that it's not only kind
of a threatening there is actually military action happening. Then later on when all
those first requests for changing contracts arrived, when we saw really or so direct
flows of energy commodities into Europe starting to slow down, starting to reduce,
and the highlight was, of course, then later on that explosion of the
nord Stream gas pipeline. That was basically the tipping point, the highlight of
that saga. It came along already with that strong increase in prices way beyond
everything that is clear from a pure demand supply cost of supply classic consideration side,
there was a lot of risk premium put in us, so there was
a lot of last minute buying from different other sources are suddenly coming into the
market. That added to that pure classical drivers of the market. And that
was exactly then, laters. That was the point where it was very clear
we are living in new times and the world will in the next coming years
not look nearly the same as it did in the past. Yea. And
of course that's the moment where government's step in. Correct. Governments have a
relatively light touch in well supplied markets, but in crisis they step in exactly
and their job is basically to distribute the pain. How much can they take
on themselves taxpayer? Are they going to bail out companies? Are they going
to pass through to consumers or not? Who to shield? And of course,
for better or worse, trying to tweak the market rules because they don't
believe that the market is delivering the good signals. So how do you analyze
that? Was it coordinated or a bit of a panic mode? It was
panic somewhere. Absolutely. We from the analytical side, from the trading side,
of course, we try to keep a cool head around, tried to
observe things, tried to be as close to the decision makers in Brussels as
much as as what we can do, so we tried to understand firsthand what's
going on. We also tried to discuss with the politicians as much as we
could in order to avoid worse decisions. But you said it, politics were
extremely active around the time, not always in a very coordinated way in itself,
and this was another topic, another layer of complexity to the markets as
we knew it. You said it correctly. Politics came in and made a
lot of different decisions that again affected both the consumption side, both the supply
side of all those markets, sometimes not necessarily so sometimes of course with the
good thought in the back. And we tried to make sense out of that
from analytical side, tried to really understand that complexity that was brought in additionally
and take our strategic decisions around it. And the one of the reflections I
have was how well we've come through that this crisis. I mean, that's
the reflection I have was when it started, it could have gone anywhere.
We could have had blackouts across Europe, we could have had not been able
to heat our homes, but we had very mild winter. Let's be really
really clear. We're speaking now and I'm looking where I live outside Berlin,
it's minus fourteen degrees a year ago. We never hit minus fourteen degrees where
I live. So one other words, the weather is different this year than
it was last year. And I suppose the question I'm asking is, really,
is this crisis over at this point in time that we all sort of
sleep well now for the next year and a half, or how are you
looking? So, first of all, reflection on last year, we made
it through last winter mostly also with a little bit of luck. All that
weather that you talk about. It was milder and normal last year. We
were lucky that it was this way. The other point, also concerning last
year was from that point of view, we were lucky to some extent that
China was still in its own corona shut off crisis mode, did not need
an awful lot of energy for itself because their microeconomic situation was not good at
the time already. So that left Europe with a good bit of overhang in
terms of oil, coal and LNG that we could pick up over here us.
That came in our favor that China was still at that stage. Over
the course of the year twenty twenty three, China also again is a continuation
of that. They opened the country, but they're struggling to really get the
car on the road. The microeconomic picture is still rather muted. I would
say, it's not coming in like a big boom. Of course, the
Chinese would that take on more energy for themselves from their long term contracts,
but they're not that desperate that they have to buy a lot of flexible volumes
aggressively. And again that leaves and left us in Europe with the ability to
pick up cargoes at fairly good prices. That's the one. The other point
really when we talk about security supply this winter and also the next one or
two more winters to come. Besides the whole weather topic, is as one
consequence of that war and all that happened over the last two years, we
have to keep in mind that we lost a big bit of flexibility in Europe's
energy system. We used to get a lot of supply increases in winter time
from places like the Netherlands, they just a couple of months ago closed that
joining in gas field gone. We used to get winter profile from the Norwegian
Troil gas field, which now runs runs baseload at maximum capacity, so has
no possibility to really increase output when it's cold, when demand is picked up.
And we lost Russia, who worked as the single largest supplier of winter
flexibility in the past, we don't have all that anymore. That means the
big short term balancing item for the European energy system are the gas storages plus
the LERG with a little bit of a time leg to it, And that
means weather is becoming a significantly more influential factor, not only European weather,
but also global weather because it affects on how much LLG coal oil is available
to us. And the other point is really that the market is still very
very tight in terms of demand versus supply. It doesn't need much to bring
the market back into a deficit that is very hard to feel. From currently
unutilized sources. There are simply none of those. So we are depending on
availability of energy supply. We are dependent on weather. Globally, we are
dependent even more than in the past on global macroeconomic situations and of course global
policy decisions as well. We are now starting the winter on a very good
footnote here in Europe, but it doesn't mean that we can write off the
winter already as success. There are still a couple of weeks and months to
come until we end the winter, and then can really look forward into the
new year, can know and have a better view of how much energy do
we have to buy during twenty twenty four to make sure that enter next winter
on a similarly well prepared state as we are now. I understand your conscious
because that's your daily job, and me I'm not such a granular analyst as
you are. But if I look at the picture where we at the end
of two twenty three compared to where we were at the beginning of the year,
I'll tell you, Wow, hydro reservoir full again. The new clear
is progressively getting better nuclear availability. The price of gas. We end up
with a price of gas at the lowest level in the year. The price
of oil has gone up and down during the aul year, but finishes in
a well supplied market to the point that the Middle East have to reduce production.
And it's probably at the same time you have the US who are bumping
out like never and other new players like Brazil. So if I look at
the big picture, I say, well, out of the woods. So
am I too optimistic? I think you are too optimistic on that end,
You're absolutely right where today at a significantly better situation compared to where we've been
a year ago. Absolutely the corerent aligned on that end. Again, what
I'm saying is the system is right now not so well prepared and not well
buffered that we can withstand a prolonged cold period or that we can withstand without
any problem an unexpected supply disruption from somewhere. So the system is still very
sensitive to any demand supply deltas and situations, and the buffer is not that
big. If all went well, if winter turns out to be close to
normal here in Europe and around the world, if we don't see unexpected supply
out diaches, yes, you are right, then we also will end the
winter on a very comfortable level than we have. But it's too early to
say so. We still have two three more months to go through the winter,
and a lot can go wrong, and that's my message. We are
not so safe in that respect. Talking about the future, what do you
think market participant and governments have learned from the weaponization of energy by Russia,
which apparently has failed. I believe the whole European society's point of view and
with that also, a lot of the politicians focus we see it in many
of those recent elections in different European countries shifted from focus number one on the
priority list energy transition to towards energy security. I think that's the big society
shift in focus right now, and that means we are a bit more cautious
in terms of investments in green energies directly because we also know that this brings
us into other layers of dependencies, especially with China and their hand on many
of those transition fuels and commodities and components. It also brings us to a
level where policy is shifting the focus to how can we secure demand. We've
seen a strong increase in public support public opinion again towards the nuclear topic.
For example, when we look back two years ago, most of the service
across Europe by tendency where neutral or bias towards no new player. Now,
if we would do that service, it swing to the other side. And
so that is for me a signal that policy, society, industry shifted as
a consequence of that last two years. So Ali, maybe just to wrap
up, we obviously want to talk about the future, but what I'd really
like to ask is Laurent has talked about the weaponization of energy. I like
the phrase he uses, and I'd be interested to know what long term impacts
do you think this whole crisis with Russia is going to have. And I'm
coming from because I feel that the people in the street don't realize the extent
of the crisis, and there's been a lot of reasons for it. One
is because the governments have done a really great job of intervening in the market.
But the other thing is the governments have basically sheltered the customers from price
volatility. Right, you can't subsidize customers forever, so you have to stop
that. Yeah, so I'm be interested to hear just what you see what
happens next. People are now much more aware of energy costs and deprices,
energy relationships, Who is producing, who brings us energy into the system.
It's not only that, yeah, power comes from out of the world in
my house. It's people are more educated on that, and probably people will
react more sensitive. I would hope, and I would expect that this whole
development gave us a boost in terms of working more efficiently with our energy sources.
That this stays in the minds of many people, I hope. So
it definitely already led to a shift in energy intensive industries out of Europe into
other places in the world that we then have to re import with all that
negative consequences for the employment and economic situation that we have in Europe. We've
seen that politics increased targets in terms of wind, solar, new energy technologies
as well. Also that is here to stay. Hopefully it works out in
a way that the acceptance in the society on renewables, building wind farms,
building solar parks is increasing and will support that transition as well. And the
discussion around nuclear energy is picked up. It's a slow discussion definitely, but
it will stay with us the coming couple of years. And also that is
back on the agenda definitely. Well Andy, thank you very much for this
great panorama on the weaponization of energy and how we sometimes by luck, sometime
by market forces, sometime by technology invention, we go through it. And
it was a great last episode of two twenty three, so hopefully we'll have
a better tour twenty four. Thank you for coming. Thank you very much,
Thank you, Thanks all, Alie, great Chile. Did you enjoy
the conversation. I didn't do it, absolutely, it was good to recap
on what's happened over the last period of time. Yeah, how about you?
What was what was your takeaways? What I really appreciated is how that
impact shock of weaponizing energy has allowed us to reframe the eternol debate between climate,
security of supply and affordability. That's number one, And what we've been
saying for quite some time now is the new one physicism security of supply.
That's how about the whole area renewable What was your thoughts there? What we've
seen and that was also part of the conversation is now the absolute complexity of
the energy markets. They're very important. Why because they can move points of
GDP from one country or one zone to the other in a matter of months,
which is probably the only thing that can move points of GDP, you
know, make nation rich or poor very very rapidly. After ten years where
the markets were very very well supplied, now that they are shocking the system,
the JEO politics is back in the game. Of course, no doubt
that. As we speak at the end of this year, the system is
easy. If I look at the open market, we get TTF below fortop
or maya what hour, which has not happened for quite some time. We
have German power of futures back below one hundred euro. Of course that's still
very expensive, but you know it's not a crisis anymore. I agree with
you that I think the thing that I reflect on is is still the power
the fastil field industry and particularly oil industry. We can think of it like
with OPEC. Plus you know, they really can, whether we like it
or not, they can decide that the price of a power of oil is.
What they do is reduce supply and increase supply, etcetera, etcetera.
That's number one I take out of it. And I was also the power
of innovation, if I may say, because let's be clear, could we
really have predicted in two thousand and eight the United States would be the biggest
fossil fuel produced from the world. And by the way, if we didn't
have it, I'm sicken. In terms of liquid oil on top of biofuels
and all forms of oil, I think they must have been about eighteen million
barrels a year. This is just just my motive. Really, what they've
done innovation. So they're the two things and by the way, I say
that, and as we talk about the whole shale gas without the United States,
we would have we've been a real mess in Europe. That's what we'll
just say, which means that and I also called you episode the end of
Innocence. We need to face the fact that now we're in a cold war
with Russia and it's ally Iran. Iran is providing the drones every night who
are trying to destroy the infrastructure of Ukraine. Iran is providing the weapons to
the Yeminese who are shelling boats in the Red Sea. Whether we can consider
that we're not at war with them, they consider that war with us.
I'm always infra solutions, So let me give you a little bit of a
solution. I think North America and Europe have to become much closer together.
I think over this decade we're going to move towards some form of energy between
North American and Europe with no choice, and there's win win for everybody.
In the United States obviously is a big producer of fossil fuels of huge amounts
of renewables kinda the same thing. And then it's all about getting the energy
from east to west. And west to east. Yeah, and look,
I mean going back to Russia and Iran, action for decades have been to
push their own interest. They are run by thugs. Okay, they use
thirty percent of their GDP to oppress their population and reach a clique. Store
problems everywhere. But why do they do that Because fifty percents of their resources
is to sell us energy plus dirty energy. Okay, using that lever to
corrupt politician to try to blackmail us into submission. Who is creating problem on
this planet? These are autocatic regimes who have oil. So I would say
enough, if it is enough, I am sick of being an herbivore dealing
with carnivore, so I would say gloves are off. And here I'd like
to quote the US Deputy Secretary of State for Energy Resources, Jeffrey Payette,
and he said, the United States government aim to halve the Russia oil and
gas revenue by the end of this decade. Well, thank you very much,
Socretary Payette. And this is exactly what we need to do. And
not only is going to be good for Europe for the US, is also
going to be good for India and China. We need to import all that
dirty energy from those thugs. By the way, I like that statement because
let me just go let's talk about the howard that and the how are that?
For me? Is innovate, innovate, innovas That's what we have to
do. And it's not the energy transition or energy security, it's both.
Because it's great that on one hand the US pump more oil because that's going
to keep the price down. But on the other hand, we need to
embrace renewables. We need to embrace evs. We need to reduce our consumption.
They want to weaponize energy supply. We're going to weaponize energy demand.
I like it. Good way to finish here, my friend. Oh yeah,
I'm on fire. Okay. Chard a few announcement. We thank our
long term partner, Aquila Capital for supporting the show. Thank you, guys,
it's been great. We love you, and I talk to you the
second of January, and we have a special guest and we do all our
predictions. We see who has been forecasting properly or not. And I can
tell you one of the two of us got it right and the other one
totally wrong. I have to go and look them up again. I can't
even remember yeah, prepare Okay, cheers, Enjoy Christmas. Thank you for
listening to Redefining Energy. Don't forget to read the show and subscribe on Apple
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