Speaker 1 (00:01):
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Hill Vaden (00:30):
All right. Welcome back to Energy Cents, an S&P Global podcast, where Breanne Dougherty and I consider the topics lying on the intersection of energy and finance. And any topics, I guess, in the sense that interest us. And hopefully will interest all of you, our listeners. Today, we've got two great guests, Michael Stoppard and Roger Diwan to talk with us about global oil and global gas, and the interconnection of both. But I guess, before we get into that, Breanne, Peter Frampton has a new autobiography out. Is this the hit that he's been waiting for, for the past 40 years?

Breanne Dougherty (01:08):
Where do you even ... I want to know, either you read every single newspaper, or watch every single ... You are always a wealth of knowledge of random things, particularly music related. For those of you who don't know, Hill knows everything related to the underbelly of the Houston hiphop 90s circuit. If you're ever looking for somebody to really round out your trivia team. I did not know any of this about Peter Frampton, by the way. Interesting little note. So, his biography. Does he have a lot to talk about? I mean, I guess?

Hill Vaden (01:48):
I've read a little bit of it. Well, I read the review. It's surprisingly interesting. I mean, the obviously one, and I imagine that any of you can guess with the title, what he has chosen to title his new autobiography. Any of you? Do [inaudible 00:02:05]?

Roger Diwan (02:07):
Who is Peter Frampton?

Hill Vaden (02:07):
Who is Peter Frampton? He is the-

Breanne Dougherty (02:07):
You don't know Peter Frampton? Hold on, I'm going to-

Hill Vaden (02:12):
He is the most famous one hit wonder in the world. And he had this great, I guess double album in '76 or '78 or something, and has been waiting to follow it up with a hit since then, and has never realized that hit. And apparently, in the autobiography, his manager or something, or his producer was in all sorts of debt to the Mob.

Breanne Dougherty (02:40):
No way.

Hill Vaden (02:41):
That's-

Breanne Dougherty (02:43):
Now that you've said this, I'm probably going to read his biography. I love reading musicians, and all of a sudden, this got interesting. He did Baby I Love Your Way, which one of my favorite movies is High Fidelity. And that song is a very important part of the whole High Fidelity movie and book.

Hill Vaden (03:06):
Was that on I Am In You? The follow up to Comes Alive?

Breanne Dougherty (03:11):
Maybe, I have no idea.

Hill Vaden (03:14):
All right, [crosstalk 00:03:15].

Breanne Dougherty (03:16):
Now all of a sudden, our knowledge has hit its limits on exactly where this goes. I just know of Lisa Bonet singing Baby I Love Your Way in High Fidelity and it being an iconic moment in the movie.

Hill Vaden (03:32):
It's a Cameron Crowe movie, right?

Breanne Dougherty (03:33):
It is Cameron Crowe, and it's amazing. The book is also [crosstalk 00:03:36]. And then, interestingly enough, so Lisa Bonet sings in High Fidelity, right? She sings that song, she plays the singer. And then, in the series that they did, Hulu series starring Zoe Kravitz, her daughter who was the lead plays John Cusack's role in the Hulu version. And I was extremely worried about this Hulu version series, because I mean, the movie's iconic. I actually thought they did a really good job of it. Unfortunately it got canceled after one season. A lot of this has to do with the global LNG and oil market, in case you were wondering.

Hill Vaden (04:10):
But before we put Michael in the hot seat, is this going to be the hit that Peter Frampton's been looking for? Is this book going to save him from one hit wonder-ness, Breanne?

Breanne Dougherty (04:27):
No. I think, do you know what? Sadly, I think there's just so much going on right now that I think this book's going to fly under the radar and it's going to go relatively unnoticed.

Hill Vaden (04:35):
All right. Well, maybe with that, Michael, not a one hit wonder.

Michael Stoppard (04:40):
Well, let me just say, thank you very much for inviting me back for a second Energy Cents, because I thought maybe I was a one hit wonder myself, you see? So, it's always great to get a second invitation.

Hill Vaden (04:54):
Neither of us are in debt to the Mob, at least that I know of. So, we're doing this with pure intellectual curiosity.

Breanne Dougherty (05:01):
Yeah.

Hill Vaden (05:03):
Well, Michael, I guess first, so you have released a paper called LNG And The Capital Divide that gives a handful of ideas for reshaping the commercial model of the LNG industry. But before we get into some of the details of that, this has been, I guess, a big couple of weeks for LNG on the back of the ENGIE announcement. And then obviously with all the attention to oil prices, and Russia's much larger role in OPEC or now OPEC Plus. And of course, we have Roger on the line as well. So, looking at them together, global LNG, global gas, and global oil, how would you see Russia's involvement and strategy in both really shaping, I guess, first gas markets in the immediate term, and LNG specifically?

Michael Stoppard (05:57):
Well, thank you. I think Russia, the potential for Russia to influence the European market has been a perennial of the last 20, 30 years. It's always the biggest uncertainty in any European gas analysis. There's significant overcapacity in the ability of Russia to supply the European market. There's plenty of pipeline capacity in place. Of course, much of it transiting the Ukraine, and part of it transiting Poland, much of it now going through the Black Sea directly into Turkey and into Europe. And there is, of course, the Nord Stream Pipeline going through the Baltic Sea. With the Nord Stream Two Pipeline currently blocked, 94% complete.

Michael Stoppard (06:48):
So, there's a big infrastructure in place for Russia to come into the market. And we have seen Russia acting in a partial swing role this year, responding to weakness in demand and oversupplied markets. So, we did see a fall off in Russian volumes into Europe in Q2 and Q3. And indeed, as is quite normal and quite common, beginning to see a big recovery as we move into the winter period and demand begins to pick up.

Hill Vaden (07:19):
And so, Roger, Russia's been a big force in, I guess the balancing from OPEC Plus. I guess, between the two of you, do you see the gas affecting Russia's strategy as it pertains to oil?

Roger Diwan (07:36):
Well, when you look at how people perceive what Russia is doing within OPEC, everybody talks about oil prices and micro-issues around the oil market, and that Russia is important and plays a big role, etc. But if you know Russia and the importance of energy and the strategic views that they have about energy being oil, gas, different markets, Europe, what SHale is doing, the impact it has on the Middle East, etc. etc. The OPEC decision is part of that whole strategy, right? So, it's not just about oil market or oil prices. It has to do about the linkage between oil and gas prices. It has to do with the price that you believe you need in the oil market to put Shale in a certain position in term of prices and ability to react. That has impact on associated gas. It has an impact, indirect impact on LNG.

Roger Diwan (08:37):
All of these things are thought ... I mean, I can't imagine Russian delegation thinking about the oil market in Europe and their market share battle with Libya that that's their motivation, correct? Their motivation is much broader. They are strategic thinkers. And when you see the Russian delegation, how they work their OPEC strategy, and how they signal it, how they work within the countries, it's fairly sophisticated. It has a very different feel than the traditional OPEC games where you're on in Saudi Arabia going after each other. It has a level of sophistication for me, which tells me the whole energy strategy's included.

Breanne Dougherty (09:24):
Because, Michael, I mean, you mentioned there, one of the things that's interesting about Europe is, when we look at, for instance, what happened in 2020 and the Russia pipelines really got pushed back. Whereas, US LNG volumes continued to flow into the European market. And even as we look forward, US LNG is expected to continue to ramp up, with respect to its share in Europe, etc. I mean, that has to be at the forefront of Russia's mind when it's thinking about what needs to happen as far as a containment strategy within the US Shale development, I would guess.

Michael Stoppard (10:04):
Yes, I'm sure that Russia's looking at this in the round, taking in the various considerations, including oil and geopolitics. But there's no doubt that one of the metrics it's very focused on is, what is our market share in Europe? And by Europe, they do mean west of Russian borders, so that includes Turkey. It's not necessarily European Union calculation. They're interested in their market share there. And they're interested in the absolute volume. And yes, they have seen a huge influx of LNG over the last, almost two years now, coming into Europe and taking market share.

Michael Stoppard (10:44):
But let's be clear, the pain ... I mean, the question a year and a half ago was very much phrase in, who's going to have to curtain supply? Will it be Russia? Or will it be US LNG? And let's be clear, the result turns out to have been both. I mean, it's been very evenly shared with the cut back of supply. And I expect the United States to be pushed back into a flexible role again next summer. We shouldn't be taken in too much by all the trade press, excited trade press reporting that we see every day about the fact that gas prices are moving up and the market's tight. Yeah, we're in November. If there's going to be an oversupply, it's unlikely to be in November and December. It's going to be felt as we move into the spring. And March and April will be, again, the testing time.

Hill Vaden (11:32):
What about the trade or the, I guess, general press headlines around the ENGIE impact of the concerns around shale gas. I think it was methane emissions related shale gas and the ability for Europe to consume that. And it was something on the order of ... What was it? 8BCM or something? It was a, I'm sorry, eight billion dollar long term agreement that is now at risk, is that right?

Michael Stoppard (12:04):
That would be the size of the ... I think that's maybe the size of the 20 year contract that was under discussion, reported to be under discussion between ENGIE and the US LNG developer NextDecade. The US LNG developer, NextDecade, reports to be having a number of combinations with a number of customers around the world. The French Government, which has a seat on the board of ENGIE, decided to halt for the time being at least, signing a contract until the Europeans had a better understanding of the methane emissions involved in LNG development in the United States. So, that's the backdrop there, Hill.

Michael Stoppard (12:51):
I personally see this as part of a much wider phenomenon. The European Union, the European Commission is pushing forward with something called CBAM. Do you know what CBAM is? Carbon border adjustment mechanisms. Carbon border adjustment mechanisms is going to be an important piece of jargon we need to get used to. And so, we are hoping to move forward to a system in which the carbon content of imported fuels is somehow captured in the price coming into Europe. The French Government has short-circuited that whole process and said, "We don't need to wait for those full procedures to be in place, because we are able to influence this particular decision." Now, this particular ... about methane emissions, rather than carbon. But it's all about measuring the greenhouse gas emissions and importing LNG into Europe.

Breanne Dougherty (13:53):
So, do you think that this is a one-off situation? Or do you think that we can expect more of this intervention? I mean, obviously not every entity has a government ownership of it.

Michael Stoppard (14:06):
Exactly.

Breanne Dougherty (14:06):
So, I guess that's one factor to keep in mind. But do you think we can expect more?

Michael Stoppard (14:13):
So, I think you're absolutely right that normally you wouldn't have a government entity having a say in a commercial decision. So, in that sense, it's irregular. But in another sense, there's no doubt there's going to be an increasing trend to examine the GHG content of imports into Europe. That's only going to grow, and so we're going to hear more of this. The surprise was that the focus has been very much, first of all on steel, on cement, and to some extent on chemicals. And direct energy commodities coming into Europe were not seen as front and center in this process first of all. But they're going to be brought in sooner or later. The Europeans, we want to know the GHG content of what we're buying. We're not going to be in the business of reducing GHG, greenhouse gases at home, only to import them from outside.

Hill Vaden (15:15):
And so this is potentially, while it's France right now, a bellwether for all of Europe for any sort of shale gas sourced LNG?

Michael Stoppard (15:24):
Yes. I mean, it's not surprising again, perhaps that this has started in France, which has perhaps a higher level of skepticism about shale gas than some other places in Europe. Doesn't have a deep oil and gas history, although in part of the country in the south, it does, but not generally. But I do see other European countries following suit and also having a significant interest in what the GHG content is of that LNG. It's not particularly about the United States. It's about all LNG. It's about pipeline gas and other commodities.

Breanne Dougherty (16:05):
From a foreign policy perspective, start talking towards things like this. This sounds like it would have huge implications with respect to international relations between some countries. Do you-

Roger Diwan (16:18):
It does. But that whole notion of carbon adjustment tax is coming, correct? So, it's also in the Biden plan, by the way, to have a carbon adjustment tax for imported goods into the United States. Again, what Michael said is the key issue. If you have an administration in the United States which is willing to push climate change and attack emission, they're not going to allow to have that loophole that you can import it, correct? So, the same idea that we will have in Europe, if you're serious about the climate policy and the reduction of emission, you are going to somehow make sure that you're not importing it and bypassing it. So, it's coming.

Roger Diwan (16:59):
I think everybody understands that. China is understanding that. And when you see a 2060 net zero commitment and the pace at which they're building renewables, batteries, reducing coal, etc., has to do with that, right? But at one point, you're going to need to decide how you import cement and steel, etc., which do have a very strong carbon content. And you really need a flame. So, you don't have the electricity possibility here. So, how do you treat these things? But these debates will happen only in a way in a global forum. And you need the United States engaging to that. And if the United States is not engaging to that, what you're going to see is a lot of fractioning of the world, and delays, and probably more use of this kind of measure unilaterally.

Roger Diwan (17:56):
So, I think convergence or no convergence really matters, because if there is convergence between Europe and the US, you can bring China. You can actually have a constructive dialogue with China within that energy confine. And it's one of the two or three areas where, right now, we could have a dialogue with China because there's so many others that we cannot, right? On the security issues, on the data issues, value, trade, etc. There's no solutions. Climate, [inaudible 00:18:31] obviously pandemic.

Roger Diwan (18:34):
But I wanted to come back to Russia a little bit. What I find interesting is, Russia doesn't have a carbon strategy really. And that's important because it also tells you something about their strategy. I mean, they're not going to renewables, they're not doing research on battery. They're not touting themselves to be the most carbon footprint or more efficient like Aranco. So, their strategy is ... that's one point, is, "Let's produce as much as we can before that carbon constraint comes." And that's also part of the strategy we need to think about.

Hill Vaden (19:07):
And there would seem to be somewhat of a relationship, at least, with at least some of these North American producers, because some of their strategy, I think, has also been pushing that gas, you know? These independents that are not playing the noble scheme, right? They're still putting holes in the ground to get oil out or to get gas out. And a lot of that gas market is seen as now on the water continuously coming into Europe where, if this legislation or if this resistance to shale gas pushes that back, and there's already the financial problems for those independent producers.

Roger Diwan (19:45):
Yeah, but I think what you're seeing here is, when we had the ENGIE news, a lot of companies said, "Well, we capture methane. And the problem is, you're putting us with everybody else who doesn't." So, some producer, and the large producer in particular, can't afford that type of methane leakage, especially when they're talking about net zero, etc. And these leakages is not very expensive to fix. I mean, that's the problem in a way, when you reduce the standards, you allow more competition. You have more smaller companies with lower cost, or willing to take that type of environmental risk. So, again, if you have a change in administration, you will have a methane policy. And I think it would be very strong. It will be perceived as providing jobs to the service sector, actually. Go plug everything. And in terms of cost, it's not prohibitive. And the large companies will be pushing for it, correct? I mean, they will be lobbying in town. That's one way that the stimulus package will impact the oil and gas industry.

Michael Stoppard (20:53):
Yeah, Roger, I think it's pretty exciting when you look at how the technology is developing for methane detection. I mean, there are rival companies. And indeed, the long term European invested Galileo Project in competition with a number of private players in the US. And this is a very fast moving area. So, not just is it relatively low cost problem to fix, but the NGOs and the environmental organizations have been very clear, you need to demonstrate, you need to prove that you're fixing the problem. And the technology's advancing very quickly so that we can reach that stage. Quite an exciting opportunity, I think.

Roger Diwan (21:33):
And you can calculate it. You can see it. I mean, this is an area where you can show that you're spending X and you're getting Y.

Michael Stoppard (21:40):
Absolutely. You can see the environmental damage. It's been on the front of newspapers, the flaring. This is what the politicians in France and elsewhere have been reacting to. But these detection technologies, I think in particular the satellite technology, will also be able to demonstrate the improvement that comes, and identify those who are letting the overall side down, the bad apples, as we say.

Breanne Dougherty (22:04):
So, when we think of ... We've obviously mentioned France, and this is something that's very much at the forefront of European policy right now. Michael, can you [inaudible 00:22:16] is it? What's the [inaudible 00:22:23] look like in Europe? Just give a little bit of framework of the general needs?

Michael Stoppard (22:27):
So, we see the European, and indeed the wider global market, as pretty well oversupplied, if you're talking short term, the next couple of years. I continue to see more LNG supply coming into the mix, coming into Europe and competing with Russia, looking to maintain its market share. So, we see plenty of competitive pressure in that marketplace to keep prices on the hook. And we also have this very significant storage build, which we were all talking about throughout the summer. And as they say, it's difficult to walk and chew gum at the same time. So, we seem to be talking less about the storage inventory as we like to talk about other things.

Michael Stoppard (23:16):
It's still there, just to remind everyone. European storage levels are somewhat significantly higher than they've been at any other time before. It's certainly above any in the last five years. And the Ukrainian storage system has now become ... part of it has become integrated with the EU system from a market point of view. So, we've got a lot of storage sitting there. We've got more LNG coming onto the system. So, I think the storage should help control prices in the winter period, and potentially lead to quite a weak market as we come into spring and summer.

Michael Stoppard (23:54):
I have to say, I think I said this on my last podcast, I say this all the time, depending upon the weather. I mean, the weather does make a huge amount of difference. But frankly, even if we have a one in 20 cold winter, modeling suggests that storage levels will still be historically normal levels. So, that tells you something about the storage buffer that we have.

Hill Vaden (24:23):
How about lockdown? Has any of that ... So, today, we're recording this the day before a US election, and on the back of a weekend where there's been more stringent lockdowns across Europe. Is that going to impact gas markets aggressively in the immediate term?

Michael Stoppard (24:41):
Well, I was looking forward to comparing that with Roger's view on how lockdowns affects oil demand, because I think it might be slightly different. I think the point to remember is, from a gas perspective, that lockdown in November is very, very different from lockdown in May. In Europe, gas demand because of the heating season will be about three times higher in December than it will have been in May. And if we're all staying at home heating our houses, and if we're also keeping offices open for skeleton staff, the utilities are pretty excited. They could see quite strong gas and power demand this winter. There are lots of trade-offs. But broadly speaking, you can see a possibility that extra heating demand in homes could offset any loss in the service in commercial sector this way through. So, a November lockdown looks very different from a May lockdown. How does that compare to oil, Roger?

Roger Diwan (25:50):
Well, so we're seeing first, the lockdowns really impact commuting, work commuting. It was already low, so the lockdowns are having an impact in France and the UK, but a small impact because already the demand was pretty low. In the US, where we have weekly data and we can have a good sense, we haven't seen a big increase in lockdown. But what we've seen is the demand away from normal, with about minus 15% in October and we're closer to minus 17% right now. So, we can measure, there was about a two percentage increase in the impact on gasoline markets. It's small, but I think it's not recovering. And the market is looking at Europe, is looking at the US and starting to understand that second wave. I think it's underestimate ... The narrative is very much on that.

Roger Diwan (26:45):
But what we've seen though is, in Asia, demand has recovered and growing. So, there is a post-COVID potential to think about. But the market is really not focused yet on that. It's really on the negative story for the moment. But the demand is doing well in Asia, and that will compensate.

Michael Stoppard (27:07):
Yeah, demand is also very strong for gas and LNG in Asia. And we've seen quite a surprising spot prices breaching the oil parity points. So, actually LNG a week or so ago was actually trading hands above oil prices, which is quite an irregular situation. So, you have a situation in the global gas market, where you have quite a weak European market and a very tight Asian market. And if we believe that the market is truly global, that can't last. One of those two has got to pull the other one towards it.

Roger Diwan (27:45):
Yeah, it's not as positive on oil because the Asian market is very well oversupplied, correct? I mean, we have built a huge amount of storage in China, off China at sea, and the Middle East is kind of pushing back all its cargo on the other side. We have significant amount of spare capacity in the system, about eight million. And Russia really is making a big sacrifice in terms of market share, both on the oil and gas side into those prices. And that, I think, is what's also interesting is Russia now is a big global player in restraining supply in both markets in this crisis. So, it will want to recover market share. And the question is, will it want to recover market share at lower prices than some of its competitors?

Breanne Dougherty (28:32):
So, I think that's really interesting. So, this market share conversation from both a gas and an oil perspective, that is forefront of the Russian mind right now, right? And where's the right price that makes that capturing market share, because it all comes down to revenue, right? It can have a small market share, but if it's really high priced, or whatever the sweet spot is. When it comes to oil, where do we think the Russians are kind of happy?

Roger Diwan (29:02):
Yeah, so, the Russians basically sterilize all revenue into a sovereign wealth fund when oil is about something like $45, okay? But they have big budget deficits, so they're suffered through this crisis on oil and gas. But I would say the price they're trying to get, and to which they say there's no reason to really restrict supply in a meaningful way is what they will consider the marginal price of shale or something like that. So, I would say in the $55 brand, Russia doesn't see strong incentive to keep supply shut in.

Roger Diwan (29:41):
How it brings it in, how it negotiates with Saudi Arabia, how more aggressive it's going to be. My point is, because it has two million barrels per day, and it's in a strong geopolitical position, they will impose their will, correct? And within the OPEC coalition, other countries will come with them. And in a way, it creates a ceiling to prices until you absorb a lot more spare capacity. And then, to go to that $65, let's say, you would need to have eaten in most of the spare capacity within OPEC, and certainly of Russia. Then, are they trying to grow their capacity beyond that point? Are they willing to invest and get 200,000 or 300,000 barrels per day of growth in their oil supply? And if they do at these prices, then you're taking half of global demand, potentially, in those years at these prices.

Roger Diwan (30:40):
So, it creates a ceiling. It's a moving ceiling, depending on how aggressive they are on their market share. But it makes a 65 plus oil prices, even on seasonal basis, difficult to imagine for quite a long time.

Breanne Dougherty (30:56):
Anything, Michael, on the gas side with respect to ... I mean, I think, and correct me if I'm wrong here, but Russia is not really setting gas price in Europe in the same way OPEC's obviously involved with respect to the oil market. So, is there a price, assuming Russia [inaudible 00:31:17] are cheap, is there a price that doesn't make sense for them? Or is it something that doesn't need to be worried about because gas prices are strong enough?

Michael Stoppard (31:23):
Well, I think the first thing to say is that the prices that we saw of $8, and in Asia, LNG prices of $10 and $12, we've said goodbye to them. I'm not saying it won't happen tomorrow, but on any kind of sustainable basis, because the Russians have learned in Europe and the Qataris in particular have learned in LNG that $10 gas means Australia overtakes me as the world's number one LGN player, and the United States come in and overstates me.

Michael Stoppard (31:54):
So, ultimate, you get the same calculation, both the Qataris and the Russians are asking the same question for gas as Roger said for oil, "What is the marginal cost to shale gas out of the United States? Because I can't have an infinite amount of shale gas being exported from the US into the international market." Then it becomes a question whether you price up against that, or whether you price below that. But that's the starting point. And that probably leads you to a discussion of whether you think you can manage to get as high as eight, or whether you want to go in much more aggressive and come in at six to really try and tackle LNG.

Hill Vaden (32:36):
So, we've talked a little bit about the countries and some of the big players in this. Michael, your paper, LNG And The Capital Divide is focused very much around the international oil and gas companies who are another big strategic participant in this, but both having interest in the shale gas, both having interest in the conventional projects, and even partnership with some of these countries. The model for LNG, your paper says that, "The dynamo of LNG supply growth is broken. There's a lot of pressure under here, and it seems to be some new opportunity for potentially financial players to get involved in a different way." Can you summarize a little bit about the paper and some of these strategies? I think it was five strategies at the end that might become a lot more relevant.

Michael Stoppard (33:24):
Sure. Let me start by saying why I said the dynamo is broken. I would argue that most LNG projects over the last 10 years came about with the support of at least one of the international oil and gas companies, or basically the super majors, with possible exceptions, particularly out of Russia. But the international oil companies have played a key role, both, and this is the key point, not only in monetizing their own gas reserves in association with national oil companies, but even in buying LNG and offering their balance sheets with a 20 year contract. They've done that around the world, but most forcefully and most noticeably in the United States, where to develop LNG in the United States, a key factor for success has been to sign a 20 year contract with a super major.

Michael Stoppard (34:20):
Now, the independent oil companies or the super majors are in retrenchment. That option is much less available, at least for the time being, and probably for a significant amount of time. So, that's why I think the dynamo is broken. Now, to move into how do we mend it? The idea that really I wanted to sort of flag or float in this paper to get people talking is, there is a community out there. It's a community that Roger knows particularly well, the financial community, thinking pension funds and private equity and sovereign wealth funds in particular, who are potentially open to investments. They do probably view this sector with extreme skepticism. And they do not like the look of the commodity price risk or the construction completion price risk of the LNG business. But there may be ways, by changing the model, disaggregating the model, in which we could see greater penetration of these types of sources of finance and capital into the business. So, that was the idea of the paper.

Hill Vaden (35:35):
So, for years, LNG or gas was the bridge fuel to a cleaner, greener world, right? And finance has in particular, pushed pretty hard, most visibly this year, against oil in particular and shale, and shale I guess most definitely. Is LNG sitting in a bit of purgatory? Because gas is better than coal. But is it good? And do you sense finance will get involved after this, call it a wait and see moment?

Michael Stoppard (36:14):
Well, of course, LNG and gas is half good, isn't it? From a global warming perspective, it can help enormously by switching from coal to gas. That can halve emissions. But it is still attributing greenhouse gas emissions into the atmosphere. So, the question becomes how much? What is the right amount of LNG? But also, the timeline. Most outlooks, most analysts suggest we need more gas in the next 10 to 20 years, but that we need less gas in the next 20 to 30 years to be compliant with Paris. How do you reconcile that with a liquefaction investment which has a 25 year life, and a pipeline that has a 40 year life? And so, I think what the financial community is increasingly doing is, they're basically shifting from stress testing investments on price to stress testing investment on asset lives. That's the way this is going.

Breanne Dougherty (37:21):
I think what's interesting is, 2020's obviously had a huge amount of uncertainty in it. And through 2020, we saw FID decisions get delayed, maybe some cancellations. But in general, a huge number of delays.

Michael Stoppard (37:34):
We certainly did.

Breanne Dougherty (37:34):
But if we look to 2021, everything you're talking about right now makes me think to myself, "Well, who wants to take an FID next year either?" With this uncertainty, is 2021 going to be as slow of an FID year as 2020 was, potentially? I mean, we can't keep kicking the can.

Michael Stoppard (37:53):
Yeah, I mean 2020 we haven't really seen a ... We haven't seen an FID on a liquefaction plant in 2020. We may just see one small one may creep in before the end of the year. 2021 is not going to be a great year for LNG investment decisions, with one major exception. It does look as if the Qataris will not be derailed from their plans and from their belief in the long term growth of the market and their determination to be a leader. And, I think, their determination not to make the mistake of the past, people jump into a gap. Their view is, "We are the lowest cost LNG player. So, if there's going to be some kind of oversupply, that is other people's problems." And they are very aggressively going for market share, or at least, of course, that's the message. The big discussion is as to what extent they will actually pull the trigger on that. But it's our expectation that we will see a major final investment decision coming out of Qatar in 2021. What do you think, Roger? Yeah.

Roger Diwan (39:06):
I think it's very interesting, what we both are saying is, we're saying that it's becoming both oil and gas is a marginal cost business. To invest in this type of return where you don't have a lot of growth, you really need to get good return with lower risk. So, you need high single digits, maybe more, but with less volatility [inaudible 00:39:31] commodity price. So, basically, companies need to return above a certain price. And the only investors who are willing to go forward are these national oil companies, like Qatar, maybe like Russia, and like Saudi Arabia, you're right, which have no other option, are low cost, and will have to bring the capacity.

Roger Diwan (39:52):
It tells me, to be able to finance things from the public company or private company in the United States, the only way you can justify these things with this type of return is, one, low interest rates will help you. But two, I think you need to increase the financial sophistication of the instrument you're providing with different type of risk, different type of returns. And be able to find different set of investors, family offices, the public market, the private equity, the pensions who are looking for different type of risk profiles and return, other than what you have right now. It's a big project, correct?
So, I think that sophistication of the energy industry needs to happen. It exists much more, I would say, on the power side. But it's going to need to come into the oil and gas side.

Hill Vaden (40:40):
All right, I think this is a good place to leave it, and a great place to pick it back up on another podcast to be. So, again, to remind listeners that we are recording this the day before a presidential election in the US. We have carefully not made any predictions on what happens tomorrow or the next day or anything after that. But I think all of what we're talking about is going to become much more of a center of focus, no matter who's in office next week or the week after that.

Breanne Dougherty (41:15):
And I'm pretty sure we'll probably have both Michael and Roger on soon enough, once those election results are in, which ... Hill, are they going to take weeks to come in as the final election result? I mean, I don't know. I'm not confident we have an election result come Wednesday morning. But maybe others are more confident than me.

Roger Diwan (41:37):
I just want to say, unlikely that Peter Frampton has been ... I've been invited many times, but I still don't have a hit. So, I think you are going to need to start giving the baseball numbers for me, rather than ... you know, like how many times at bat you need to bring in [crosstalk 00:41:50].

Breanne Dougherty (41:50):
They're all home runs, Roger, every single one of them.

Hill Vaden (41:54):
You need one of those cool talking guitars like Peter Frampton had. You just need some sort of novelty. All right, well with that, I will hit stop on the record button. And we look forward to talking with you all both again soon.

Michael Stoppard (42:08):
Well, great. Really great to catch up with you guys again. Thanks a lot.

Roger Diwan (42:13):
That was fun.

Speaker 1 (42:17):
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Speaker 6 (42:38):
This podcast contains information and insights copyrighted by S&P Global. To learn more about S&P Global energy solutions, visit ihsmarkit.com/energy. That's I-H-S-M-A-R-K-I-T.com/energy.