Listen: Commodities leave crisis era as demand booms, economist says

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Dan Testa:

Hello and welcome to Energy Evolution, the S&P Global Commodity Insights podcast, bringing you weekly episodes featuring conversations with experts and industry leaders about the business of transitioning to cleaner energy. Now this episode is part of a special series, bringing updates from the floor of the S&P Global Sponsored CERAWeek 2024 Industry Conference. My cohost, Taylor Kuykendall, is lucky enough to be reporting live from the show. Here's Taylor with today's guest.

Taylor Kuykendall:

We are here at CERAWeek 2024. I'm with Saad Rahim, Chief Economist at Trafigura. For those who don't know, Trafigura is a leading supplier of commodities all around the world. It connects producers and consumers across this really big, deep logistics chain. Very complicated business to be in. Saad, welcome to the show. Tell us a little bit about your take on CERAWeek so far and what your experience has been like.

Saad Rahim:

Great. Well, thank you for having me, first of all. So yeah, this is I think probably my, maybe 15th CERAWeek. So I've been a regular here.

Taylor Kuykendall:

Veteran. Yeah.

Saad Rahim:

Yeah, I think it's amazing to see how the conference has grown from where it has been. You can just tell from the popularity, from the attendance, just how important a conference this is. But I think what's also interesting is the evolution that has happened over the last years, where it's really gone from being very much an oil and gas-focused conference and really also focusing more on the upstream side of things, to really expanding into other areas, but now in particular seeing the growth of the Agora, the innovation hubs, and really kind of bringing the energy transition piece of it to the forefront, as well, where I was just attending a panel where our CEO, Jeremy Weir, was talking really about the challenges around delivering the supply chain needed to get towards net zero. So, really that's a metals panel that's focused on that, and that's not something I think you would've seen a few years ago at CERAWeek, but I think it just tells you how we're looking at a much more integrated energy system and looking at, again, the challenges across all of this. But I think it really is, it's throwing up challenges but also opportunities, and I think it's really interesting for us to look at that.

Taylor Kuykendall:

Yeah, I'm for sure. I'm glad that on the more metals and mining focus, gives me a reason to be here and get to enjoy this humongous show. I did a little bit of an intro to Trafigura, but tell us a little bit more about what you do, what kind of expertise you need to do that, and where you kind of fit in, in the energy sectors.

Saad Rahim:

Sure. Great. So, Trafigura, really, we're a logistics provider. As you said, it's really about connecting producers and consumers and sort of sitting in the middle of that. So we don't really own much in the way of production, producing assets, whether it's oil or metals. We do have some investments here and there, but really that's not the core focus of our business. We're also not, on the other end, we're not on the consumer side. So, really, for us it's about getting physical access to these commodities and then helping deliver them to where they need to get to. So you can imagine, being here in Texas, so taking production from West Texas, out in Permian, and you have small producers who are saying, okay, look, we're doing great at getting this out of the ground, but how do we then move it over to maybe a market in Asia?

Well, let us help put it in a pipeline through a terminal onto a ship and then get it to where it needs to go, to a refinery in Europe or in Asia or wherever it may be. Similar story again on metals. So, working with the mines, taking that supply, maybe storing it if it's needed for a little while and then delivering it to where it needs to be, making sure we can blend it to the right quality. So again, a very different, I think kind of business model from what people would expect when they hear commodity trader. This isn't about sitting really behind a Bloomberg screen. It's really about working with counterparties customers to, again, make sure really the world gets what they need in terms of these absolutely critical commodities that fuel everyday life.

Taylor Kuykendall:

Yeah. And I imagine it's probably a good space to be in whenever there's times of geopolitical turmoil, and I think probably you agree, maybe that we've definitely had plenty of that, in recent years.

Saad Rahim:

It's been an interesting few years, for sure. And I think what we always say, though, is really, our job is to address dislocations in the market. If you had perfectly efficient markets, producers maybe would sell directly to consumers. You wouldn't need somebody in the middle to help do that. But as we know, that's not the case. And because, as we have seen, and really not even going back to Covid, but even before that, we had the trade war that was happening, that shifted a lot of flows. We saw sanctions on Rusal for the aluminium side, and then we saw big changes, things like IMO 2020, which was a big fuel spec change on bunkering. We've all forgotten about that, given what's happened with Covid. But then you did have Covid, you did have the reopening, you had the Ukraine invasion. So as we see, these things do always kind of come up.

And again, really our job is to make sure that these markets continue to operate as efficiently as possible within the constraints that are there. So you would've said a few years ago, really, that if we'd had the kind of disruptions that we have seen, that we would've seen much more disruption to the actual physical flows, let alone what's happening on prices. But we as an industry, I think, have really seen a little bit of self-healing that has happened in these markets. Again, feels like a long time ago now, but the idea that oil went negative, WTI went negative because of the physical constraints at Cushing, but the industry as a whole was able to step in and resolve that, in a way that didn't end up bankrupting a lot of producers who normally you can imagine if you had to pay somebody to take your product, that could be very tricky.

But I think really coming down to, again, the ability and the footprint of commodity traders, physical traders, be able to come in and say, okay, look, we'll work with the producers, we'll work with the physical constraints to say, do we need to reverse this pipeline, for example, and actually get the flow out? Do we need to bring truck actually from all over the United States to come and actually physically take this oil away? And that requires a certain skill set, a certain access to finance, logistics to be able to do that. But that's how we've done that. Now you look at the same thing with what's happened with the disruptions around Russia with the Red Sea, all of that. Again, the market has managed to absorb all of this to a degree that I think would've been difficult to have foreseen a few years ago. And I think it's a maturing of the industry, and I think it's a maturing of the role of all the people who are in the middle of that.

Taylor Kuykendall:

Yeah, that makes sense. And I'm glad you mentioned the negative oil prices because that did feel like a really long time ago, even when you just mentioned it just now. I was like, that was only a couple of years ago. Yeah, that's incredible. I want to turn to, Trafigura had record profits, 7.4 billion last year. I think that was the fourth year in a row of setting a new record, right? Or something like that.

Saad Rahim:

I think, probably. Yeah.

Taylor Kuykendall:

Yeah. And just wondering, I believe we're looking for a slower 2024, right? Can you tell me a little bit more about why that is? A quick background on why it was such a good couple of years and why things might be slowing down, looking forward?

Saad Rahim:

Sure. I think as an economist, we love to use the word "unprecedented," but I think we did see some unprecedented volatility in markets. And again, we've just listed a few of these, the trade wars, the attack on uptake, if you remember that, that was a disruption. Obviously Covid reopening the sanctions and price caps. So all these have reordered commodity flows in different ways. And obviously with that, there had been these sort of disconnects and dislocations in the market. I think now we're coming back to a little bit more of kind of normal operating, I think, or the market has at least managed to adjust to some of these changes. Now we never know what we don't know, and I think that's been the key lesson, I think over the last four years is every time you think we know exactly what's coming, then things change.

So I think for us it was just saying, look, at some point we think the volatility maybe just normalizes a bit, but the question is, what are normal levels of volatility now? And maybe that changes, going forward. But I think again, it's getting back to the idea that it wasn't so much us stepping in as saying, okay, look, there are these breaches in the market that need to then be healed, and how do we step in and help do that? And I think that's what we and our peers have done, really, to try and do that, to make sure that the world didn't run short of anything. And I think, again, if you think about it, if you'd said a few years ago, missiles being fired at oil tankers, at bulkers, at container ships in the Red Sea, you would've said, okay, that's going to obviously lead to some significant disruptions. And instead, while it is taking longer to deliver things, I think we're able to still make sure that everything is kind of running according to how it should be.

Taylor Kuykendall:

I'm sure this is a really complex answer, but can you maybe walk us through, how have you been able to continue to deliver things with all the disruption we're seeing in the...

Saad Rahim:

So for us, I think it's been really important for us to have, really our own freight system built up. And I think we've invested a lot of resources, whether not just capital but personnel, time, all of that focus to really build that system up. So we're the largest, I believe, charter out there, at least on the wet side, in terms of wet freight. And for us, it's been important to have that piece of the logistics puzzle really locked down. And that's really gone from being effectively a service center to really becoming a profit center in its own and becoming a core competency for us, to manage that on our own. Because that allows us then when we do have these disruptions, to be able to respond in a way that, again, we would not have been able to do before. So if we take the example of what's happened with the Russia price cap and sanctions, that's led to some very different flows.

And part of that has then said, okay, well, Europe now needs to import products, refined products, from much farther away. So instead of moving it on smaller vessels from Russia, you're going to have to bring it from somewhere else that requires a larger vessel. Okay, well, again, having the flexibility and the ability to do that, having the global footprint, I think really is very important. So then you can be able to source material from... And whether it's on oil or metals, we found that over and over again is, having that footprint for us is critical, right? Because then when you do have a disruption, because again, if we talk about the mining side, what you've seen there also is you're saying, okay, well, we've seen disruptions there, we've seen outages there. Okay, well, how do we then make sure we can still deliver what the customers or the consumers need, whether it's bringing it from somewhere else out of inventories, whatever it may be.

So I think having that global footprint, I think having built some resilient systems, and I think also having access to financing, I think has been critical. We have spent a lot of time building up our banking relationships. We work with, I think it's over 150 banks globally, so that way we can make sure that when we do have issues like as an industry where we saw that price spike in March, 2022 across things and margin calls are going higher, okay, well, we have that relationship, we have that balance sheet, we have the assets, to be able to respond to that. But that's not something that comes overnight. And that's where we have spent a lot of time investing across all these different spaces to be able to do that. And it's ultimately, it's things that maybe don't seem as exciting, but are critical, which is building your systems internally, your IT systems, your compliance systems, your reporting systems, all of that really to make that investment to make sure that this all runs smoothly.

Taylor Kuykendall:

Yeah, very interesting. And so I know you got a lot of background in oil, so you could probably tell me a whole lot about it, but I'm wondering if we could get a quick outlook for 2024 and maybe some of the major points you're watching. Let's say we're about 13 floors up, what's the elevator ride outlook on oil?

Saad Rahim:

Well, look, I think first of all, I think I'm struck by the difference in this year's conference versus last year's conference, in terms of CERAWeek. Because again, it feels like a very long time ago, but we started actually last year's conference at around the same price level, around $86, $87 and then SVB, Silicon Valley Bank, happened, and we dropped, I think it was $10 or $15 virtually almost I think over the course of the conference, pretty much overnight. And at that time, there was real concerns, not just about recession, but in fact about the sustainability of the financial system as a whole. Are we going back to a 2008 type of cascading event? And here we are this year, and the mood is completely different, mainly because I think people, it's no longer the recession talk, SVB was a symptom rather than a cause, but it was everyone... If you recall last year, really the concern was about recession, demand fears, growth fears, and in particular on oil.

And now it's the opposite, where people, we came into the year, I think, thinking we would be relatively balanced, consensus projections, I think were for about 1.1 million barrels a day of demand growth, 1.1 million barrels a day of non-OPEC supply growth, so that's very balanced. And that 1.1 million barrels a day of demand growth, half of what we were at last year, which is about 2.2, quite a step down. And yet now what we're saying is actually the demand forecasts are all being revised upwards. And we heard the Aramco CEO today saying they think it's at least 1.5 million barrels a day. You're seeing a lot of the other forecasters who are then saying similar numbers, some with further upside to that, potentially as high as 1.7 million barrels a day. That's a very different picture. And I think as opposed to maybe the last couple of years where a lot of the expected upside, I think was coming from supply disruptions, this is really about robust demand.

And what's interesting is I think the last two years we've had very robust demand, but it just hasn't either been recognized as such, or it's been offset by an increased supply. This year, I think people were saying, okay, this is really resilient demand in the face of everything else. And I think that's a different story. And I think part of it has been, look, the US economy has proven to be just about bulletproof the last few years. But now what we're starting to see is demand, actually, and growth picking up in other areas. Europe has been very, very weak, the last couple of years, really since the invasion of Ukraine. Partly because energy costs have been so high and power costs. But power costs in Europe have normalized back to where they were, pre-invasion. That's a big tailwind for Europe. We're starting to see industrial demand, industrial production, actually start to pick up a little bit.

And China, I think China has been sort of real bugbear for commodity markets. And I think for a lot of people, commodities equals China, China equals property, therefore China property is weak, commodities have to be weak. And for us in particular as physical players in this market, we've had a different view on China, where we keep saying, look, yes, Chinese property, but in particular Chinese property sales are weak, but if you look at other areas, that weakness has been more than offset in other areas. If you look at China last year, copper demand hit an all-time high, aluminum demand hit an all-time high, oil demand hit an all-time high, and gas demand hit an all-time high. That's not an economy that then seems to be in the sort of massive contraction that I think sentiment and headlines would have you believe.

And for us, what we're saying is, again, if we take the example for copper, so copper demand in construction did fall if we look at 2021, as '22, we had the Covid issue in China. So copper demand between 2021 and 2023 in construction dropped by 600,000 tons, which is significant, but it grew by 1.4 million tons in grid, renewables, and EVs. So you've more than doubled that drop from property, yet people weren't willing to really to give that story credence. And again, we could see it because we could see what's happening in inventories, we can see what's happening.

Now, across commodities, it really feels like people have started to pivot away from the big macro headwinds really around the fed, dollar, those kinds of stories, the interest rates, and moving back to looking at what's actually happening on the micro level, on the fundamentals. And that's, again, if you look at what's happening with copper, you can see, because there's a lack of concentrates, what's happened to prices there and smelters having to cut, you can see what's happening with the physical tightness in oil markets. We're about 70 cents backward on the front spread. Cracks are good, margins are good, inventories are low. All of a sudden, people going, wait a minute, this looks like a very tight market.

And I think that's, I think, really been the story. I think people came into this year thinking we're going to get six, seven, maybe even eight cuts from the fed, and they've now dialed that back, really to about three, maybe. And I think that's because they're saying actually growth is holding up really well. That's a very different story from where we have been, definitely since last year, but I think even over the last few months.

Taylor Kuykendall:

Yeah. Yeah, for sure. And you mentioned copper, so I wanted to kind of revisit that idea. Dan Jorgensen here does a lot of the panels on the show and he started talking about big shovels and comparing that to big oil. I want to hear from Trafigura's point of view, what's it going to take to ensure those commodities are available and that they don't necessarily cause a bottleneck for the energy transition that everybody's striving to make happen?

Saad Rahim:

Well, it's a good question because I think this is a concern of ours, because copper, I would say really has a 30, 40, 50 problem, meaning what? Each copper project on average is about 30% smaller than it was, over the last decade. So therefore you need a lot more projects. And some of them, because of the scale, are going to be run by maybe operators who don't have the scale or the history that some of the big miners have had. You have a 40% problem, which is that your average cost, at least on the CapEx front, is at least 40% higher than it used to be, and the 50% is it now takes at least 50% longer to bring these projects on. So you talk to a company like Rio Tinto and they're saying, look, it's going to take us 17 years to bring on a new mine, because of the challenges around permitting and development and everything else.

So if we're looking at just out to 2030, we're saying that supply gap that exists is about five to 6 million tons of demand or of supply, to put that in context for the oil market, I would say it's like blowing a 20 million barrel a day hole in the oil market. That's what you're losing, is it's as if you lost Saudi and Russia by that time. But like I said, the problem is, at least in oil, for example, you do have resource that you can bring on relatively quickly, whether it's in the US, you can imagine a scenario in which maybe Venezuela comes back or there's other things that change. You don't have that in coffee, right? And that to us, says, look, there's a real issue that's coming up, then. And as you say, the bottleneck word, I think is right.

And that's before we even start to add in new sources of demand like AI. AI has just come on the scene, I'd say in the last almost few months where people are suddenly saying, hold on, the amount of copper we now need to feed the data centers is enormous. Microsoft's saying, look, they're requiring 30% more power for the AI piece of what they're doing. On data centers in general, I think a staggering stat to me is that in China, power demand just for data centers last year was equivalent to the UK's entire power demand, last year. And that is today. That is only set to grow. And yet we do have an issue around being able to deliver this. Now, there is resource out there, so it's not like something where we're saying, well, we've run out of it, but there is... So it's not a peak supply argument as much as is a peak deliverability argument, as in, again, can you invest enough in time to deliver when you need it?

And to be honest, across commodities, and I think where we started talking about this really has been the story of underinvestment, where you're seeing the prioritization of buybacks and dividends, and that's not a value judgment, that's what shareholders have told management that they want. In a sense, they've gone from saying, how many barrels or how many tons are you producing, to purely, how many dollars are you producing? So in a sense, I think shareholders as a group, are saying, we don't care if you produce one barrel or one ton, as long as you're returning cash to me, then that's what I'm going to value. And I think you can see that in the sense of, if you look at, for example, the oil companies, the seven largest oil companies over the last decade have grown their net income, on average, by about 30%, some of them even more.

And do you know what the market cap change of the group is? Zero. Well, okay, I exaggerate a little bit. 2% on average as a group. So you're not getting rewarded for being much more efficient and making much more cash, or at least not from a shareholder return perspective. And by the way, that's with them doing almost a trillion dollars worth of combined buybacks and dividends. So you can imagine if they hadn't done that and they just invested in more capacity, where their share prices would've been. So again, as management, their responsibility to their share shareholders was to say, okay, well, we need to do this. So the question now becomes is, the solver for all these deficits, for this underinvestment, is always going to be time and money, meaning, money being priced. So at some point, there's going to be a price signal that says to, not just to companies, but to the shareholders as well, that, okay, this is something that we need to then invest in, and produce more tons and more barrels, but we need to get to that price first, and then you need time to solve it.

Because again, it does take time to bring on these projects. And we've been talking about copper, but if you look at oil as well, okay, well, how much growth can you reasonably expect out of the US, going forward? Because that's been the big solver. Certainly, we surprised the upside last year, but we're seeing a step down in most companies' forecasts for this year. So it's still growing, but at a much slower rate. And going forward, I'd say even the most optimistic still see growth, but at a slower rate going forward. So then you say, well, where are we going to get that next from? And a lot of that may have to come from more traditional projects, but then we raise the point, which we haven't really talked about, but across all these commodities is now, it used to be that interest rates were zero, your cost of capital was almost nothing. Right? Now all of a sudden we're back to a world where money costs something, which it should. So that, though, is affecting project economics, that's affecting rates of return, and it's across everything. So you can see it on renewables as well, and what's happening with some of the wind projects, and things like that as well. So it's a real question, how do you get the financing you need, to be able... And to get companies to invest where they need to invest, to where we need to go.

Taylor Kuykendall:

Tell me a little bit about how this kind of concept of big shovels and the growing demand for critical minerals, how is that changing the way maybe Trafigura does business? How are you readying for that?

Saad Rahim:

I think for us, because we're not on the upstream side, so not really on the mining side of it. We do have some investments in mining projects around the world, but really for us, our business model has always been to be more asset light, but I think it's really working with our counterparties and with the producers to create these relationships that then say, okay, look, we're going to be the people who can work to then deliver this material which is going to be needed in ever-growing quantities. For us, you look at copper and it's amazing because no one is ever going to say the phrase "peak copper demand," at least in my career. Every forecast is some level of up and to the right. And so for us, it's really about, again, sitting in the middle and saying, how do we help ensure that the material gets to where it needs to go? But also, we are working, and we've done this throughout our history, but working with producers, some of them to say, okay, look, maybe there are financing deals or prepayments or whatever it may be, to help bring some of the supply on.

And again, we do that across the board. We do that on oil as well. We have a credit fund that has been set up under our asset management arm to help step in to be able to say, okay, look, people can't get access to financing, maybe we can play a role there that then allows some of these projects that we think we need to come on, to come on. We're just not the operators, but we want to make sure that there's enough supply in the world for this.

Taylor Kuykendall:

And we've mentioned copper a few times, but are there any other kind of metals that Trafigura's involved with, that you also maybe have similar concerns around a bottleneck?

Saad Rahim:

Yes. I think aluminum actually is a very interesting one, partly because effectively all the production capacity or smelting capacity that's come on in the world has all come on in China, really since the 2000s. And now China's put in place a production cap to say, we're not going to grow a capacity above this, or production above this cap. And we're at that cap now. Now, the upstream side of aluminum is a bit different. It's, again, the resource itself, the inputs itself, is fairly plentiful, but it is a question, actually, then of getting the energy, because as somebody put it, I think, aluminum is basically energy solidified. So how do you do that? Now, it's not quite as much as you would think, but again, if we look at the power of demand globally for everything, every incremental source of power demand just adds to what is already a very tight situation.

And the question becomes, okay, well where do you put this capacity? How do you power it? In China, historically, I think a lot of it had been coal-powered. Now they've moved much more to hydro. But then they're seeing issues with that, where the last few years they haven't had sufficient hydro power, they've had to cut back capacity. So again, it's one of these where it's not the metal, I think where people are most focused, but you're saying, actually, we could get very tight on that in the next few years, unless we see some ramp-up of capacity. And what's interesting is because for copper, really the only realistic substitute possibly really is aluminum. Gold is a great conductor, but it's going to be very expensive if we were to make everything out of gold or silver. So for us, it's a bit of a concern to say, okay, again, we just need more capacity across everything.

Taylor Kuykendall:

And when we think copper and we're thinking a lot of new energy resources and the whole energy transition conversation, that contrasts a little bit with oil, that business, more of a conventional fuel. Tell me just your view of, when we have all this conversations about energy transition, where does oil fit in, long-term? Is it a concern that everybody wants an electric vehicle, for example? Does that pose a threat to Trafigura?

Saad Rahim:

No, I don't think it poses a threat. And I think for oil demand, I think our view... Well, at least my heuristic on this is we shut the entire global economy down in March and April of 2020, we still used 90 million barrels a day of oil. Now, if the shutdowns had lasted, I think, longer than that, we would've seen obviously oil demand drop further. But you can see the economic costs that we had of doing that. Now, I think obviously what we are seeing is a very rapid pace of transition in certain regions. And I do want to always differentiate, and it sounds like an obvious point maybe, but I think just in people's minds, there are different parts of the energy transition. So there's a power gen side, where that's where renewables really comes in, and then there's, I would say the transport side. And these things are more and more interlinked because you're using more power and you're using renewable power that then goes into powering these EVs.

But they are different. And so for example, we have been, I think stunned by the pace of solar rollout globally. And so that is moving... Actually in renewables in general, today you have as much renewable power capacity as you do thermal power capacity. It's just obviously your utilization rate is very different. But I think that's a stunning stat. And by 2027, we think you'll have as much solar capacity alone as you have thermal capacity today. So that's moving much more quickly than I think we thought. I think if you look at EVs, it is moving very quickly in Europe, it's moving very quickly in China, although I would say this year you are starting to maybe see a little bit of a plateau in terms of, you're not continuing to grow that penetration rate of EVs. And again, if we look at China alone, China is still selling 17 to 18 million gasoline-consuming vehicles a year.

Now, let's say you're 7 million or replacement because you're retiring old ones, that's still leaving 10, 11 million. And I'm talking mainly gasoline, internal combustion engines, but also plug-in hybrids. Because the hybrid vehicle thing, I think is also interesting. And I think what we're finding overall is if you look at everyone's projections, I think for us when we really dig into those, I think there's some very small tweaks that really change how this thing looks in terms of, again, using your replacement rate of vehicles. And if we use what has been used historically, then I think you end up with a very different picture from what people maybe have in some of their models. One of the big changes could be in the US that if work from home, maybe we see, as labor markets maybe loosen, people or companies rather say, we need you to come back in maybe one day a week more than you are now, that has the potential to change quite a bit around some of this.

And then for us, so much of this growth is really taking place in emerging markets. And I think one of the stats I always use is, the largest city in the world by at least 2100, but probably by 2050 is going to be Lagos. And then Kinshasa, Dar es Salaam, and these places. Karachi, Mumbai, Dakar. These are all places where we haven't seen that demand growth yet. We don't have the right kind of grid today to be able to support massive EVs. And maybe we will get there through distributed generation, renewables, and everything else, but we're not there today. So I think you look at it and you say where the population growth is, where the income growth is, these all people are going to be moving up from basically really below the poverty line up into sort of middle class, emerging global middle class.

That's going to be where the demand growth is. But even in the US, and we look at it and we go, in the US it's interesting because in the US, I think the story maybe a little bit is that it's not that people want an EV, it's that they want a Tesla. Because 80% of EVs are Tesla, and you can see-

Taylor Kuykendall:

Pretty cool-looking vehicle.

Saad Rahim:

Well, that's it, right? And I think it's a technology and it's exactly like the iPhone versus something else. That's what people want is that premium sort of thing, at least in the US. And I think what you're seeing now is the response from a lot of the vehicle makers, and you'll get Ford saying, well, we're going to delay at least 12 billion of the 15 billion that we had allocated towards this, and maybe even delay the rest of it a bit more, simply because we're just not seeing the appetite for this.

And look, if there's a change in administration, there's a change around some of the tax credits or the charging infrastructure investment, whatever it may be, that maybe takes a very different kind of approach to here. So again, I think there's, because dealing with the future is always so uncertain and so very small changes at the beginning in terms of certain percentages of this or that really change where you end up in 10 years, I think that matters. And I think none of us know. But I think what is more interesting to us, and I think one of the things I always say is, it's always less interesting to discuss or debate whether something is going to happen. Because none of us know. I think the question becomes, well, what would you do differently if that thing happened? So we... Or not we but I think the industry as a whole, a lot of that has been peak demand sometime between 2027 and 2030.

But okay, but if it's not, and if it's, let's say 2035, do you have the capacity to feed that? And again, I think for me, peak demand is a misnomer. I think it's going to be more like plateau demand, because as these other regions, let's say Europe, China, maybe even the US, do fall off a little bit or see some replacement of the demand, you are going to see then, demand coming up in these other regions, which we think will keep demand relatively stable, wherever it ends up. But it will stay stable at that level. And again, for me, the concern then is, do we look at where, not just the upstream, but look at the refining capacity... We've taken out a lot of projects, we have very little refining capacity that's being added after this year. You're adding some but not commensurate with a picture that is still growing in terms of demand. So does that force a rethink? And again, how do you get, then, companies to come back and invest in capacity and they said, look, we're moving away from that, and investors and banks and everything else.

Taylor Kuykendall:

I've got one last question, just because I don't think anybody's watching geopolitics closer than Trafigura, so it's a big election year in 2024 around the world. Is there anything in particular you're watching, whether it's the elections or is there any other maybe big events that you're trying to keep an eye on, or trends that are troubling or encouraging?

Saad Rahim:

Look, the election, at least from today, it's, whatever it is, six months away. That's just a lifetime in politics. So who knows? I think for us, I think people expect there to always be really big changes if there's a change in administration or if there's not. But I think for us, it's going to really be interesting around some of the demand side policies. If there's a change, let's see what happens there. But I think overall, we have seen geopolitics coming back as a big concern in markets globally. And again, I think the market and the industry has managed these risks and these disruptions, I think very well. But the pressures are there, they're building. And again, we've managed to be pretty self-healing around it. But we haven't had, again, a major disruption in, let's say Libya. We haven't had something in Nigeria or wherever with these traditional hotspots.

If we start to see that come up, if we start to see maybe a wider conflict in the Middle East than what we've seen to date, thankfully today it doesn't seem like that but if it does escalate and we start to see other parties come in, or shipping out of the Gulf there start to get impacted in a scenario, do we have enough, then, cushion to deal with all of that at the same time, is going to be an interesting question. And I think one interesting theme going forward, and we can see this on energy, on trade in general, with the tariffs, but then also even on the energy transition side with EVs and renewables, is going to be how the US and China interact with each other going forward. I think a lot of concerns raised at this conference around, you have concentration of some of these supply chains in China today.

You can make your own judgment on that, but that's certainly something that people are raising as sort of a question. And if the relationship does turn a bit more competitive, then how does that play out? So I think there's everything from very local political issues, again, or maybe not that local, but let's say if you have protests or outages in Libya, all the way up to potential emerging, great power competition. So it's a whole spectrum of things that then we have to keep an eye out for. And I think for us, it's impossible to tell. All you can do is invest to be as resilient as possible, and make sure that we continue to supply the world as they need.

Taylor Kuykendall:

Yeah. Well, great. Well, thank you, Saad, so much for coming on Energy Evolution today. It was very insightful. I appreciate it.

Saad Rahim:

Thank you for having me.

Dan Testa:

All right, that's going to do it for this episode. Now, before we sign off, I want to just give a shout out to our other podcast team members. That includes my stalwart co-host, Taylor Kuykendall, Camilla Naschert, Camellia Moors, Christopher Coats, and Karen Willenbrecht, as well as our agency partner, The 199. Now, to stay up to date with upcoming episodes, be sure to subscribe to Energy Evolution on your favorite platform. And if you've got any ideas for future themes or guests, we'd love to hear from you. Please shoot us an email at energyevolution@spglobal.com. If you like what you heard today, consider sharing our podcast with others, or leaving a review on your preferred platform. We look forward to bringing you more deep discussions in the future. Take care, and we'll catch you next time on Energy Evolution.