Navigating Uncertainty in the Energy Market

Guest

Javier Blas

Opinion Columnist, Bloomberg News

Transcript

Javier Blas: The industry has said now, we do one thing well, which is oil and gas, and we can do things on the proximity of oil and gas where we can invest, where we have expertise and we can make money, but we are not going to do all of the above. We are not renewable companies.

Jason Bordoff: To limit global warming to 1.5 degrees above pre-industrial levels, emissions should already be decreasing and need to be cut by almost half by 2030, which is just six years away. But fossil fuels experienced continued demand and revenue growth in 2023. Here at CERAWeek, the world’s largest annual energy conference in Houston, the energy transition is at the forefront of conversations, but energy security and different pathways to our net-zero goals are also themes of the conference. And many companies have been recommitting to their traditional oil and gas businesses even as they invest more in clean energy. So how do we navigate the path to a clean energy future? What is the outlook for energy prices and markets? What impact will today’s geopolitical challenges have on the transition and what impact will the many elections around the world have on the energy sector in the years to come? This is Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff.

Today on the show, Javier Blas. Javier is an opinion columnist for Bloomberg, covering energy and commodities. He was previously at the Financial Times where he held various positions including his roles as the Africa editor and the commodities’ editor, having initially joined the newspaper as a commodities correspondent. Javier is co-author of the book, The World For Sale: Money, Power, and the Traders Who Barter the Earth’s Resources released in 2021. As we recorded this interview from Houston, I brought Javier in to talk through some of his recent coverage, including the last week he spent touring the Permian Basin here in Texas, shifting political attitudes in Europe. OPEC’s moved to extend cuts in oil production through June and the outlook for critical mineral commodity markets. I hope you enjoy the conversation. Javier Blas, welcome back to Columbia Energy Exchange. Great to see you early here in Houston at CERAWeek.

Javier Blas: Thank you for having me again. My pleasure.

Jason Bordoff: So CERAWeek is just kicking off and the whole energy world seems to be here. So just as a scene setter, I guess, this will probably air tomorrow. I’m curious what you are looking for. What do you think the major things you’re here to pay attention to are?

Javier Blas: I mean, it’s a very interesting moment because the last few years was all about the energy transition and ENG and we were all talking about emissions and how the industry was going to reduce emission and the whole particularly fossil fuel industry, oil and gas producers were fighting for relevance. They were struggling to get investors attention. They were under pressure from governments to do more on the energy transition. And then the last two and a half years happened with the invasion of Ukraine by Russia and then very high prices, OPEC production cuts, and perhaps a realization that the transition is going to take a bit longer than we initially thought, that it’s going to be a bit more difficult than we thought and certainly it’s going to be a lot more expensive. So you have particularly among big oil, they’re coming back swinging. They find themselves relevant again, the share price is up on the market.

Their market capitalization is surging. They are paying dividends like never before and buybacks like never before. So I’m going to be very interested to see what is the message of the oil companies now that they feel themselves a bit more safe on the ground. What is their message for what they are planning to do in the next five to 10 years? And we have already kind of [inaudible 00:04:14] of that coming, particularly from shale where it’s a bit more oil than we thought, a lot more gas that initially they said, and while everyone is saying, “We will be net-zero by 2050,” they’re all saying, “Our emissions are going to be a bit higher in the next five to 10 years.” So it’s kind of kicking the calm down and it will be interesting at the same time how that message is received by policymakers, particularly American and European policymakers.

Jason Bordoff: Yeah, I think that’s a really interesting point and I’m wondering, as you know, I’ve been writing for a while about a growing, not shrinking gap, between ambition and reality, pledges and targets that are not consistent with what today’s energy situation looks about. So you hear increasing talk in circles like this one about, “We need more realism, we need more pragmatism.” And of course it is good to be realistic and know what the world looks like, not just have promises and hope, but for many that is seen to mean, “We need to move more slowly.” We simply can’t move as quickly toward this transition and we’re faced with a reality of worsening climate impacts. Where do you think this puts the conversation about whether the oil and gas industry has a role at the table, should have a role at the table? Is this going to be perceived to answer your own question by the environmental community, by policymakers as an argument that that’s not going to be possible?

Javier Blas: Well, I think that they deserve a role on the table. They need to have a role on the table. I don’t think that we can have a conversation about how we are going to be transitioned without listening to the companies that they are today supplying most of the primary energy for the world. If you put together oil and gas, it doesn’t mean policy makers need to accept every premise that is coming from the industry. I find very sad, for example, when the industry is pushing back… Or some parts of the industry, at least, not everyone, but when parts of the industry push back, for example, about methane emission regulation, I mean this is probably the easiest way that the industry in the world has to tackle climate change. This is something that should have been done already years ago and there is a big role for these companies to do a lot more on that.

It doesn’t mean that tackling methane emissions means that you are reducing investment in oil and gas, but the two things could come at the same time. And I think that the difficulty over the next few years for the industry and policy makers is when we look at that famous triangle of energy between prices, the cost of energy, the supply of that energy, the safety of supply, and also the environmentally impact of that energy, how we keep those three things working together.

Because one of the things that we have seen and perhaps one of the biggest dangers that I see on the energy transition and perhaps is unbiased because I’m based in Europe, is when you forget for example about prices, you start risking a massive backlash because people bought into the energy transition on the premise that it was going to be green and cheap and when you say is green, but perhaps as expensive as before, then people… The reaction that we have seen in a number of elections that we have seen it even in governments, in places where they have been very [inaudible 00:07:46]… The fight against climate change like in the United Kingdom at the forefront is starting to roll back on some of those targets because they believe that [inaudible 00:07:55] are not there yet. And I think that that’s a big danger.

Jason Bordoff: Yeah, I saw a poll recently, in the US, only 38% of Americans said they would pay a dollar a month to address climate change, and that figure’s down 14% since 2021. Maybe a recognition of increasing economic stresses people feel with rising inflation and other economic trends. Do you see that in Europe? There’s a lot of discussion of the rise of right-wing populist parties. We saw the election results in the Netherlands, although the winners had trouble actually forming a government, big EU parliamentary elections coming up in June. On the one hand, you might expect that the shock of Russia’s weaponizing gas exports to Europe would make people realize if we move faster toward a decarbonized energy system, you might be less dependent on globally traded hydrocarbons exposed to geopolitical risk. But as you talked about, I think there are reasons why some people are worried that a jagged disorderly transition is impacting them in the pocketbook in ways that are weakening support and maybe fueling some of those parties. Is that what you see?

Javier Blas: Yeah, I think that you are right and yes, that’s absolutely what I’m seeing. I think that the cost of energy have become a big problem for many families and yes, it should be an incentive to move away from fossil fuels, but at the same time, some other sources remain quite expensive. And when you look at the cost of an electric vehicle, a brand new one in Europe or the average one compared to a gasoline or a diesel car, you see that this is still a big gap and it’s a bag that when you look at the mean or median average salary in the UK, that’s a significant expense for many families.

I think that the other source of… There are two areas in Europe that have been very important. One has been the farming community. I mean farmers will be allies in on this revolution and the way that perhaps was done, just kind of forgot how we produce food in Europe. And we turned farmers from allies on the energy transition and protecting nature that by essence farmers are very close, they are the closest people on our society close to nature. We turn then almost against the energy transition and climate protection. And we have seen that in a number of elections in Europe. We have seen that play-

Jason Bordoff: Is that because of the impact on fuel prices-

Javier Blas: [inaudible 00:10:22] is the impact on fuel prices is the impact on pesticides and on fertilizer regulation and perhaps it is also just generally an attack on a way of life that an imposition from the cities into the rural communities. I don’t think that has been handled very well. And it is a problem because when you look at the background of many of the policymakers, elected officials in Europe… It’s a bit different in the United States, but in Europe, very few have a farming background, not even the relatives, perhaps the grandson of a wheat farmer. So I feel more attached to it, but I think that when you talk to farmers in Europe, and I do spend a bit of time doing that, particularly when I go back home, you realize that they feel that no one really understands their plight. So I think that that’s one. The other one that to me is absolutely crucial, particularly on the thinking of the current European Commission, is the impact of the European industry of climate change.

Not just because Europe has been losing some energy intensive industries hit by the increasing cost of natural gas and electricity and those are relocating in some cases here, to the Texas area, Houston, others to China. But I think that there’s a realization in Europe that the energy transition could mean at the end of certain industries in Europe, at the hands of Chinese companies, particularly in the automotive sector. And that has triggered a lot of concerns of countries like Italy and Germany about what is the future of national champions like some of their car manufacturing brands, how those companies will survive on an energy transition. And that’s another reason why I think some European politicians want to slow down because they feel that China has made the energy transition part of this industrial policy and Europe [inaudible 00:12:31] losing during the transition a lot of business and a lot of jobs. And I think that this later point about the industrialization and the suffering of big European industrial champions is really playing a big role at the mind of top of governments, certainly in Italy, certainly in Germany, increasingly in France, also in Spain.

Jason Bordoff: It’s interesting you say that because I feel like when I talk to senior European officials, often what you hear is sort of taking a victory lap for how successful Europeans feel they were in getting off of Russian gas. You remember the horror stories about how impossible it would be to cope without Russian gas. Now they’re even talking about maybe limiting or banning Russian LNG into the European market. In other words, we can go even further than we have already, which seems maybe intention with what you were just saying, which is this wasn’t entirely voluntary efforts to reduce gas consumption. This was high prices destroying demand and in some cases industrial activity leaving. Where do you think the European policy discussion is on that?

Javier Blas: I think that you hit a very important point because as you earlier were talking about the gap between ambition and reality on the energy transition, I find a very interesting gap between what some European policy makers say in public and what they are saying in private. And I think in private there is a more realization that Europe did a fantastic job of getting out of Russian gas, that a lot of the measures were that renewables, particularly wind and solar are playing a huge role. But there is also a realization that Europe got very lucky with the weather over the last two winters, it have been warmer in part because of El Nino, also climate change playing a role. And also, when you look at industrial consumption of natural gas down 20% from pre-crisis level and then you look at industrial activity in Europe, there is an impact and there is a lot of less consumption because there is a lot less activity. And in private, that is acknowledged as not a great outcome.

Jason Bordoff: And you still have, I guess… I mean you still have high energy prices. It’s maybe not five and 10 times what it was before the crisis, but at least twice as much as it was before the process.

Javier Blas: Yeah. And I forgot that. I think that we tend to tend that all journalism is local, people are interested on local news because it’s close to them. So I just give you my personal example. I am paying roughly this winter about double the price of energy that I paid before the invasion of Ukraine by Russia and that is a significant cost for many families and that’s not going away. And relatives asked me, “When we are going to go back to normal?” And the sad answer is probably never. I mean this is a structural move in the cost of energy that probably is going to stay with us. I mean gone are the days… And it is not only on natural gas, it’s particularly acute on electricity, which is going to be the future for… If we electrify everything. But pre-crisis, we were in the kind of range of 35 to 45 euros per [inaudible 00:15:43] hour. We are about double those levels. And that is a significant cost for families, that’s a significant cost for businesses.

Jason Bordoff: Talk a little bit about what you see more globally. We were talking about Europe, but just in the global market right now, oil markets seem relatively calm about conflict in the Middle East. Prices are rising to some extent. OPEC extended its cuts, a lot of uncertainty about the demand outlook, our electric vehicles exponentially growing, hitting an S curve, what’s going to happen to the Chinese economic outlook. We just saw government and China sort of put out some targets that made people concerned maybe they wouldn’t stimulate the economy as much as people thought. So I’m just give you a high level sense and then we can go a bit deeper on some of the factors underlying the supply and demand side of that.

Javier Blas: I mean we look at fossil fuels. I mean I think that the first point I will make is that demand for fossil fuels and that includes coal, gas, and oil continues to increase. The energy transition in some ways have not really started in the way that we are not yet eating away our consumption of those fossil fuels. That continues to go up. I think it’s particularly concerning that we have not peaked yet on coal which will have been the first fossil fuel that which will have peak. The International Energy Agency believes that we will peak on the three sources of fossil fuel energy before the end of the decade. I think that the industry is rather skeptical about it.

They see more a peak going into the 2030, but I believe that perhaps the big shift on the debate about the peak on fossil fuels has been paying less attention to the actual day when fossil fuel demand will peak and more about what comes after, what is… Because if we are going to meet some of the most ambitious climate change targets, we need a peak that looks like a peak or something, a mountain. You go up on one side of the mountain, you go down on the other side of the mountain and both look relatively similar in terms of how steep they are. I think that the consensus now across, I would say, almost everyone on the industry is that we peak and then we plateau and stay at the very elevate number for gas to come.

And that really changed completely the dialogue in terms of the amount of investment that is needed but also in how likely is that we hit some of the climate change targets post 2030 where I think that the gap between what I will say is ambition and what I see potentially happening, it’s much larger than what we see right now in 2024. So that kind of will be the big picture. Demand wise, I think that we continue to do well in terms of… Or bad. You looking on that sense for climate change, I mean the demand continues to increase. And you think about the oil market, we are back to the historical trend about one and a bit percentage wise of annual demand increase.

That is not to me a weakening. I mean, the last two years were the recovery of COVID-19, we are back to trend. We have not seen really a deceleration of oil demand growth. And what is very concerning to me is that oil demand growth continues to be about above 1% per year despite the fact that the Chinese economy has slowed down dramatically over the last few years. And I wonder what will be happening with fossil fuel energy consumption if China was firing on all his cylinders as it was doing five, 10 years ago.

Jason Bordoff: Where do you see that growth coming from? What do you see also as the prospects for electrification and transport? There are sort of headlines about rental car companies and car makers that are pulling back on some of their EV plans at the same time. China in particular, I mean when you look at how large the increase has been in the share of new vehicles sold that are electric or the share of global spending on energy that is going to clean versus fossil fuel, people forget sometimes nearly half of that is just in China alone, which does seem for reasons of energy security and local pollution to be pushing pretty hard on electrification and to try to own some of these supply chains globally.

Javier Blas: So we think about oil where that demand is coming from, first and foremost, is the petrochemical industry. That’s where probably 40% of the consumption currently is coming. So we are demanding more of all-

Jason Bordoff: Of the growth you mean.

Javier Blas: … Of growth. So more plastics just… Essentially more plastics. And that is coming from a more affluent middle class everywhere, the moment that you reach certain thresholds has happened before on every other country, you start consuming more plastics. So that’s one. The other one, and perhaps this is a bit counterintuitive, is gasoline. And gasoline should be the first place where we should be witnessing the impact of the energy transition because electric vehicles literally go against gasoline. That’s where they hit harder. The International Energy Agency about a year ago put out a report that said that gasoline demand at the global level peak in 2019 just pre-crisis or pre-COVID and that consumption will never recover about that level, which was about around close to 27 million barrels a day, which is about a third of global oil demand is gasoline, a bit less than a third.

And what we have seen since then is that global gasoline demand in 2023 rose above the level of 2019 and global gasoline demand continues to increase in 2024. It will be interesting to see when the International Energy Agency updates his kind of medium time outlook the next five years where they put gasoline demand. And the problem with that is… The reason for that is… I think it’s twofold. One is that diesel is losing market share in Europe and a lot of consumers are ditching their diesel cars, but rather than shifting into an electric vehicle, they are going back to gasoline cars, which is problematic, and that’s the reason that you see gasoline demand in some European countries like France or Spain at the highest level in 15, 20 years. I mean at the moment where gasoline demand will be going down, we have gasoline demand in France the highest it has been in two decades.

So that’s one reason. The other reason is that despite increasing sales of electric vehicles, the global stock of internal combustion engines continue to increase. Yes, we are selling more electric vehicles, but we continue selling and outselling gasoline cars everywhere and they consume a lot. The other reason on gasoline, which I find very interesting is I don’t know what car I buy next. I have a gasoline car I want to change to an electric vehicle, but I’m kind of thinking, “Well, there’s so much innovation, perhaps if I hold the car for another six months or 12 months, I’m going to get a better car that they’re coming on the market. All these European brands have announced new models for 2025, prices are coming down so holding back a bit on buying perhaps is a good idea.” And when you have million of people doing exactly the same thing, waiting for more innovation on electric cars and prices to come down, what you do is that more people are running older cars which are less efficient than newer cars.

And I think that that is also… We have kind of a slow down the improvement in fuel efficiency that we used to have. In some countries, that has completely stopped and that’s having an impact on gasoline demand increasing. On the flip side, we may have a big increase in electric vehicles all of a sudden and all at the same time when a lot of consumers like me say like, “Aha, look now I have a lot of choice because a lot of electric vehicles have come into the market, prices have come down, this is the moment to buy.” And then you have a big chunk of the population all in almost one go shifting from gasoline into electric vehicles. But we are not there yet, neither in Europe, not in America.

Jason Bordoff: The trends you’re describing, maybe at some point that changes with the tipping points for EV, you were talking about, even with slow growth, demand is rising, what’s happening in China, gasoline use rising, all of that sounds bullish and it feels like everyone says, “Prices are about to go through the roof six months from now,” and they’ve been saying that for a while and they’re not low, but they haven’t gone through the roof either, in the 80, 90 range. So what’s your outlook for the oil market and why are prices not spiking the way some thought they might?

Javier Blas: Well the answer to that is found here in Texas, is the Shale Revolution. I think that if we were not to have the shale production, we will have much, much higher prices. But I describe an environment for oil demand that in any case will look healthy, robust, reasonable, demand is growing. There is no any problem. And similar to last year, the problem for the oil market, for the bulls, for Saudi Arabia, it’s not demand, it is supply, and we have a lot of supply coming from the United States. We are going to have this year extra supply from Canada with the opening in a new pipeline that is going to alleviate some of the bottlenecks of the Canadian oil industry. We will have the typical, what we have got now used to, that is that Guyana is putting every year extra oil into the market and we get more oil from here and there altogether means that non OPEC supply is more or less enough to cover all the incremental increase in oil demand and that’s why the market is taking it quite easy.

I mean there is a lot of spare capacity in Saudi Arabia. If any surprises, the Saudis can put more onto the market. I would not say that oil is cheap, however. I mean we are as we are speaking around $85 brand, which is… Yes, perhaps we could all the inflation accumulator has lost purchasing power for oil producers. But $85 is a pretty good price for some countries. I mean Saudi Arabia probably would like it to see even closer to a hundred dollars. But I have been talking here in Texas in the last few days with oil companies and I tell you, everyone is making a lot of money and everyone seems to be extremely happy where prices are.

Jason Bordoff: So you just spent a week in the Permian. I want you to talk a little bit about what you found. As you said, one of the factors, maybe along with weaker demand in China for the fact that prices aren’t higher is shale, what, roughly doubled at many people’s expectations the last year?

Javier Blas: Last year, certainly double most people expectations. I think that in some cases from the people who work more [inaudible 00:27:23] on oil supply from the US probably triple the expectations. There was a flood of oil into the market that forced Saudi Arabia into cutting production quite aggressively to maintain the market where the Saudis want, which is around on a floor not lower than 75 to $80 brand.

Jason Bordoff: And that was at a time when everybody thought the days of a million, a million and a half barrels per day per year growth were a thing of the past.

Javier Blas: Completely over.

Jason Bordoff: But are we going to keep doing that? How long can we do that?

Javier Blas: Well, I think that the biggest concern for OPEC today should be that the shale oil industry can do all of the above. In the past, shale companies could do one of two things. They could grow production or they could pay shareholders, but they couldn’t do both things. Right now, and the big change of last year was that the shale companies are not only growing production and growing production quite aggressively, but they are also paying their shareholders. For the very first time since the shale revolution started more than a decade and a half ago, Wall Street is making money out of the shale industry. Shareholders, bondholders, everyone is making money. And that’s what we are seeing investors going back because there’s a recognition that the companies can grow unpaid dividends if prices stay at current level, and I think that that should be very concerning to OPEC.

I think that there were a number of one-offs last year in terms of the growth in the US perhaps from the private sector, the companies that they’re not listed on the stock market, they have a huge interest in trying to increase production a lot because a lot of them were for sale and nothing gets you a better price than a lot of production growth. So that probably kind of used up the increase in shale. But even if we don’t see the industry growing a lot, I mean from my conversations in Midland Capital [inaudible 00:29:31] in the last few days, I think that 400,000, 500,000 barrels a day of annual average increase is almost a given. I mean even in the industry doesn’t grow much from where we are today, we will get already 300,000 barrels a day just because you do the annual average of 2024 against the annual average of 2023 and the beginning of 2023 was a much lower level.

So we are going to continue seeing a lot barrels from the US but the shale industry remains as sensitive to small changes in prices as it has been. So at 80, you have healthy grow but nothing to write home. At 85, you have massive increase in production, and 90, you have even much higher increase in production. You go down to 70, the production growth stops, below that probably we start seeing a drop in production. So at the end of the day, a lot of my commentary here is going to depend on what the Saudis decide and how they decide to keep the market. And at the moment they are opting for a very tight market and higher prices, which is going to mean more production from the US.

Jason Bordoff: What did you make of their, and by the way, just on shale, what will be the consequence? And again, you just spent a week in the Permian, the wave of large mergers, we’ve seen Exxon pioneer Chevron has Occidental crown rock. Does that mean more stability in the production outlook? Does that change how responsive shale is to changes in price?

Javier Blas: I think that shale will remain very flexible and that’s what everyone likes of the shale industry, allows you… One of the problems of a CEO on what we’ll call the oil industry was that once you approve a project, you were committed to that project for the next five to 10 years and it was very difficult to reverse course or kind of fine tune your plans midway. You were all in, it was a $10 billion program and no matter what the oil price was, you needed to go ahead with it. Shale allows you to flex up or down very quickly and that’s why everyone is investing on shale because it allows you a lot more reaction to the market. I have thought that-

Jason Bordoff: Is that higher now because of these uncertainties about the demand outlook you talked about before?

Javier Blas: I mean, that’s one of the reasons. You are running a big international oil company, let’s say Exxon or Chevron and you don’t know what the future looks like. Everyone has their own models and their other scenarios, but there is a range of uncertainty about what the oil demand is going to be 10 years from now. Shale gives you a lot more flexibility if you need to accelerate production. As today, we are consuming more oil that we thought only a few years ago, but that may change very quickly. Five years from now, we may need less oil. And then shale allows you to adapt. I mean I have said that some of the mergers that we have seen in the Permian were particularly [inaudible 00:32:39] oil have bought into big shale operators. It was about future-proof, their business model, allowing them to react both sides. They have the flexibility if oil demand remains more robust that previously thought, it allows them to cash on that trend.

But if oil demand surprises to the downside, that also allow them to adjust. All together, I will have thought that the consolidation of the oil industry should mean that companies are going to be a bit more prudent trying to not float the market. But I think that on the Permian, even despite all the consolidation that we have seen, there are so many companies, so many operators and so many of them are so hungry to increase production that there is still more than enough to keep the market going and provide a boost on to American production.

Jason Bordoff: You mentioned OPEC and Saudi Arabia, so just say a little more about the strategy you see there, OPEC Cohesion, OPEC+, does Russia really play a meaningful role and in particular for Saudi Arabia, with the decision to hold a lot of spare capacity, keep prices at these levels and Saudi just recently scrapped plans to invest tens of billions of dollars to increase how much oil it could produce. Is that because it suddenly thinks electric vehicles and the transition and the IA forecast are correct or is that for another reason?

Javier Blas: I think that there are two reasons for the Saudis to have announced the scrapping in the expansion of production capacity. One is because I think that they recognize that the world perhaps is not shifting away from oil, but certainly shifting away from Saudi oil for now because there is plenty of new supply coming from the Americas, not only the US but Canada, Brazil and Guyana. That means less demand for Saudi oil. The other reason is that for domestic reasons, they do need the money so they can’t spend it somewhere else. We can’t debate whether current spending trends in Saudi Arabia are great when they’re just buying international soccer teams in Europe or golf players, et cetera, et cetera, where that is good use of money for a country that needs a lot of development in Saudi Arabia rather than subsidizing, I don’t know, golf tournaments overseas. But the Saudis do need the money and I think that that’s a recognition of that.

It seems that the Saudi strategy and that’s the OPEC+ strategy at the moment is to play the long game. They are thinking that oil demand will remain more resilient, that the International Energy Agency thinks and they are thinking that at some point the US shale industry growth will slow down and that will create again an opening for Saudi Arabia and his allies to return millions of barrels of oil into the market. It’s risky because we don’t see yet signs of that. We see 2024 to be relatively well-supplied from non OPEC actors. The same thing looks like for 2025 and the longer than the Saudis wait for that kind of alleluia moment where there is an opening for the oil, the more the risk that oil demand growth starts to slow down significantly as we get closer to 2030 and beyond.

So I think that it is interesting, I have described the Saudi strategy as a bit of wait and see. In 2024, I have also said that it’s a year of hope because by, I think, the end of this year it will be clear whether the strategy of playing the long game is working or not. And I think that the risk for the Saudis is that… I think that there’s a strategy that it could work, but it very much depends on what price they’re targeting. I think that certainly the Saudis could see and create a slowdown in US oil production growth by keeping the market, say, at $75 a parallel. But if they try to keep the market at close to 90 or higher as they seem to be doing, it’s going to be a lot more difficult for the Saudis to engineer a slowdown in US shale growth.

And the other problem that they have is not just the US shale industry. I mean, one of the things that I have been most fascinated in this visit to Texas is that US Gulf of Mexico is again on an expansion growth phase. Big oil companies are putting money in the Gulf of Mexico, new geological place are coming or are going to be coming onto a stream relatively soon. And we are talking about companies making final investment decisions in the Gulf of Mexico that we have not seen for 10, 15 years. At current prices, the industry is investing because it’s making money.

Jason Bordoff: What I hear you describing is a set of company strategies reflecting where the world seems to be today and is headed that are I think fundamentally inconsistent with meeting anything close to the climate goals that the world has committed to. And so it’s always hard to generalize and paint a broad brush and say, “The industry,” but broadly speaking, and it would be helpful if you kind of disentangle that a little bit, what do you see for major companies for maybe European versus American, what’s happening with national oil companies and is there an evolution there?

But I think what I hear you describing as a strategy of increasing investment in clean energy and picking spots where those can be profitable, but fundamentally investing in oil and gas business in a way that presumes that oil and gas demand is going to continue at today’s levels or maybe even more for a very long time to come, which means we’re not achieving the goals we talked about. Is that what you see? How does that look different for different players in the industry? And what does that mean for how you think? As you said earlier in the conversation, policymakers and others are going to respond. The idea that we’re just going to talk about these climate goals but not do very much about them for a long time to come.

Javier Blas: It is how I see it. I think that a big change over the last three, four years has been that the industry and some policy makers have embraced this, have been able to flip around the argument. The argument particularly from activists on climate was, “Let’s hit supply and we will force demand down.” So it was just, “Reduce investment in oil, keep it on the ground, divestment policies,” and so on. I think that the industry certainly always disagreed with that and they said, “Well, you need to reduce demand. If you reduce demand, we are going to follow because we are not going to invest for something that is not consumed.” I think that they have been able to win that argument with policy makers and you hear more and more policy makers admitting that you cannot just reduce supply and do nothing about demand because then you end with a very imbalanced market and you make the energy transition significantly more difficult.

I think that you have been writing at Columbia very good papers about this topic earlier than many others. So I think that that’s absolutely crucial. I mean, the industry feels that they want that argument, that they want that debate and they are just now saying, “Give us the demand and we will meet that demand. If it’s lower, we will meet a lower demand. If it’s higher, we will meet that higher demand.” But it’s not for the industry to set the level of what oil is going to be consumed. I mean you could make the argument that the industry is doing his best to try to use that demand, keep prices affordable, et cetera, et cetera.

The other thing that to me has been quite interesting is, and with a lot of different graduation, this is not a black and white, but I think just generally, the industry has said now, “We do one thing well, which is oil and gas, and we can do things on the proximity of oil and gas where we can invest, where we have expertise and we can make money, but we are not going to do all of the above.We are not renewable companie.s and we may do things there, but that’s not going to be our core.” So that’s what you see a big retrenchment from investment in wind and solar to invest perhaps more on integrated electricity that includes also gas-fired power stations, a lot of trading around that, but less investment in solar panels and wind parks.

You see a push into biogas or… Yeah, biogas, where they feel that they have an adjacent expertise and they are doing electric charging networks, particularly in Europe because they also see a natural extension of their traditional gas station projects. But just generally, I think that the companies and their shareholders have understood that they’re good at one thing and then they’re going to let the rest of the market to figure out how to do the transition. That creates also great opportunities for green companies because they have less competition there. But it’s also clear that the oil companies… And that is also exacerbated by the fact that profits in renewable energy over the last three, four years have not been nearly as good as expectations.

Jason Bordoff: What do you see happening in the global gas market, the IEAs projection of peak gas demand? Is there something you think is missing in that on the supply side? Are we headed toward a glut in LNG by the end of the decade? Are we short of gas in the next decade? What impact… Maybe talk a little bit about Qatar’s recent announcement of expansion and also the US decision to put a pause on new LNG permits, export permits.

Javier Blas: So on LNG, what is clear is we’re going to have a lot more LNG coming into the market in the next five years. I mean, that’s going to be, what I think, is the third phase of the expansion of the global industry coming and Qatar is going to play a massive role into that expansion. I find one… I can’t believe that either coal or gas demand are going to peak in the next few years before 2030, but I find difficult to reconcile that both are going to peak. I think if gas doesn’t do as well as the expectations of the oil and gas companies, that’s going to be positive for coal and really bad news for the planet. I think that if we get a coal demand suppressed, it’s going to be in great part because we’re going to be consuming more gas. But I find very difficult to have both coal and gas peaking at the same time.

Jason Bordoff: Even with huge growth in renewables-

Javier Blas: Even with huge growth in renewables because you look at certain countries, even with the huge growth in renewable production in China, China is still generating north of 50% of his electricity burning coal. The numbers are higher for places like India. I mean the important point for these expansion in renewables is that in those developing countries is that at the moment the expansion is meeting the incremental demand of electricity and electricity demand on those countries is really rocketing. So we have yet to start reducing the use of, say, coal into the base load production. The other very important point, and it has come to as a surprise to many, and I don’t know how this is possible, is the electrification of everything is going to trigger an increase on electricity demand. And that seems very obvious, has not been obvious in part of the debate. So we are going to have to invest-

Jason Bordoff: Along potentially with data centers and AI, which is-

Javier Blas: Data centers, artificial intelligence, doors are all very energy intensive applications, but just generally electrifying everything. It’s just going to require more electricity. And during the energy transition, we have put a lot of emphasis on the generation side of electricity. We have not yet put enough emphasis into the distribution side of that electricity. That’s the grid, the network, and particularly even not even the high voltage grid. Sometimes it comes down to the local grids. I mean I live in West London, an area of London where there is a cap on development of new housing projects because they cannot get enough power to them because of the local electricity distribution network is completely saturated.

So that is going to require a lot of investment, public money, that governments have not really thought about what it was going to need. And it’s disruptive, it means just kind of… Putting pylons that no one wants, it’s breaking streets to bury new cables, et cetera, et cetera. And that’s all going to take time. And I think that the trends are right, the electrification of everything is going to continue, but again, it just takes a bit more pain, a bit more time and a bit more money than expected.

Jason Bordoff: You co-authored a great book about commodity markets and so metals and minerals are incredibly important for the transition. Everyone’s projecting shortages in the years to come, but prices are going down, not up. So you know more about commodity markets than I do, but explain that to us and where you see the investment going forward.

Javier Blas: We have already a lot of investment in metals markets and just painting every metal market the same way is impossible. But we see a lot of demand for copper in part linked to the expansion of electricity grids, which is not only the big high voltage cables, but it’s mostly the kind of the in town, inside the city’s networks of distribution that’s going to require a lot of copper, a lot of appliances for houses, et cetera, et cetera. All copper intensive electric vehicles that are all copper intensive. There are not that many projects on copper coming on the stream. And those projects are complicated. They’re in more difficult areas of the world, et cetera, et cetera. And that’s why we have copper around $9,000 a ton, which is historically a very high price. We have other commodities that we were… [inaudible 00:47:35] expression, freaking out that we were going to run out and we kind of labeled critical minerals.

I thought that they were far less critical than we thought. And there are plentiful in supply, cobalt, lithium, nickel, and a lot of these projections assume that we were not going to get smarter in the use of these metals in battery chemistry. If I have learned anything from the oil and gas industry is you give enough time and enough money for an engineer to adapt. They will come with fantastic technological innovations that reduce the consumption of everything and make things cheaper and more efficient. Engineers are fantastic at that. And the same thing is happening on the battery sector. Engineers are re-engineering the chemistry of batteries, reducing the use of certain metals which are scarce, and that is also triggering a slam in prices.

And everyone invested on the base of these very rosy outlooks for demand for lithium, cobalt. And then now they’re realizing that everyone did the same investment and the demand is not as high because the chemistry of the batteries is starting to change and all the sudden, voila, we have much lower prices. And the industry is a cyclical one. It’s a boom and bust and that cannot be changed. And there are times where, for example, nickel, we were really worried that we were going to face a shortage, then some technological technology advances and we discovered new ways on the metallurgic of nickel to make it in a much cheaper way, perhaps not in a very environmentally friendly way, but certainly on a cheaper way in Indonesia. And all of a sudden, all the supply that we thought that we didn’t have, we have it and prices have collapsed.

Jason Bordoff: We need more batteries, EVs, minerals, solar panels. We want those to be as cheap as possible, but in many countries, if that means they come from China, that’s a problem. That’s a bad thing, not a good thing. Talk about the rise of industrial policy approaches in the US and in Europe. I saw even in Brazil the other day expressed concerns with anti-dumping allegations against the Chinese. How do we accelerate this transition and get the commodities you’re talking about if… How is the competition with China going to complicate that or is there a way to square that circle?

Javier Blas: Well, I mean it is a very important question because if you think about where we are on climate change and you believe… We need rapid action, we need to move away from fossil fuels as quickly as we can. We need to electrify everything. I mean, the Chinese have some of the answers, have very cheap solar panels, they have cheap wind turbines production, they have the cheapest electric vehicles that they are right now on the market at size, as like being able to produce them in significant quantities. And at the same time, we are slapping tariffs on those electric vehicles. So are we worried about climate change or are we worried about climate change as long as it doesn’t hurt national industries? I mean China is ahead of the western world in certain areas of the energy transition manufacturing, and I don’t see how we can meet quickly on our climate change targets unless we embrace that Chinese manufacturing.

But doing so means providing a massive industrial win to China. And that was seen a few years back as well, that’s the way it’s going to be. I think that that has changed completely both in Europe and the United States. And that is another reason why I think that the West is going to be a bit more slowly in climate change targets because we are going to try to do climate change alongside protecting our industrial activity and industrial base. And my belief is that policy makers, at least in private, when you talk to them, have already made their minds that on that balance of what is more important, accelerating climate change fight or protecting national industries, I think that clearly protecting national industries is going to come first.

Jason Bordoff: Javier Blas, such a busy week here at CERAWeek, but really appreciate you making the time to be with us and share your thoughts and insights. I always learned so much by talking to you and reading your columns, so we’ll keep doing that, so much more we could have talked about, but we’ll read your columns to see your thoughts on all of that and have you back again soon, hopefully in New York. So thanks for your time.

Javier Blas: Thank you so much.

Jason Bordoff: Thank you again, Javier Blas, and thank you for listening to this week’s episode of Columbia Energy Exchange. The show is brought to you by the Center on Global Energy Policy at Columbia University School of International and Public Affairs. The show is hosted by me, Jason Bordoff and by Bill Loveless. The show is produced by Erin Hardick from Latitude Studios. Additional support from Caroline Pitman, Lily Lee, Jocelyn Tarbox, and Kyu Lee. Roy Campanella engineered the show. For more information on the podcast or the Center on Global Energy policy, please visit us online at energypolicy.columbia.edu or follow us on social media @columbiauenergy. And please, if you feel inclined, give us a rating on Apple Podcasts, it really helps us out. Thanks again for listening. We’ll see you next week.

To limit global warming to 1.5°C above pre-industrial levels, emissions should already be decreasing and need to be cut by almost half by 2030. Although this target is just six years away, fossil fuels experienced continued demand and revenue growth in 2023.

At CERAWeek by S&P Global, one of the world’s largest annual energy conferences, the energy transition is at the forefront of conversations. But energy security and different pathways to net-zero goals is also the theme of the conference, and many companies are recommitting to their traditional oil and gas businesses even as they invest more in clean energy.

How do we navigate the path to a clean energy future? What is the outlook for energy prices and markets? What impact will today’s geopolitical challenges have on the transition? And what effects will the many elections around the world have on the energy sector?

This week host Jason Bordoff is at CERAWeek talking with Javier Blas about the path to a clean energy future.

Javier is an opinion columnist for Bloomberg covering energy and commodities. He was previously at the Financial Times, where he held various positions, including his roles as the Africa editor and the commodities editor. Javier is a coauthor of the book The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources released in 2021.

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