YouSaid · the spoken record

Dan Yergin

lines on the record: 26
first: 2020-04-06
most recent: 2020-04-06
sittings or episodes: 1
sources: podcast

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“With alternatives like electric vehicles, which suggest that we will need to see capital invested in these carbon producing industries such as oil and other fossil fuels, and that will likely redirect capital that would otherwise go towards renewables and other assets. And that will likely slow the transition to more environmentally friendly energy sources.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Want to spend money on rebuilding these fossil fuel based industries or spend money on the energy transition? I would probably argue that from a demand perspective, many of these sustainable behaviors that we're adopting right now, some of them will be kept. But the longer this goes on, the more likely that the sustainable behaviors become persistent. To give you an idea of the magnitude of them, When we look at airline travel, it's roughly 8 million barrels per day or 8% of the market. We look at commuting. It's also about 8 million barrels per day or 8% of the market. So between the two of that, that's 16% of oil demand. So you can see if people end up cutting their commute by just one day, they can have a significant impact. However, when we think about the supply side, unfortunately the technologies are still too nascent to be able to replace all that oil consumption.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“What's interesting about the current crisis is that it is the unsustainable industries that are being hit the hardest. Think about airlines, autos, oil, cruise lines. But it doesn't just stop with the oil industry. When you look at 50% of meat consumption occurs in restaurants. And so we're seeing livestock herds hit. Also think about fresh food. It requires jets and it requires migrant workers, both of which have been slowed down under the current measures. So the net of this is if you look at carbon emissions globally, right now they're down probably as much as 20%. The key issue is when we begin to see the normalization process and have to spend money to begin to rebuild some of these industries.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Delayed the inevitable. And we like to argue that the OPEC production cut actually created inefficiencies in the market by allowing producers to continue to operate that would have otherwise shut down since those production cuts in late 2016. The cost to equity in debt holders is in excess of a trillion dollars. And so given the depressed oil prices, The lack of access to capital, we're going to see that much badly needed rationalization and consolidation of the industry. Now, when we go back to that whole point that the market is likely to see a significant deficit as demand begins to normalize, the key is where are you going to find an immediate source of supply? Shale is fast cycle production. It's the one that can respond. To say it when you look at the outlook once again, shale is going to be the winner here.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Assets don't go bankrupt. Only management teams in balance sheets. It's not about the supply and demand of the barrels, but rather about the supply and demand of the capital. And what we're witnessing right now is a sharp reduction of the capital to the sector. Ultimately, those assets are not going to go away. What goes away are the balance sheets in the managements. And we'll likely see substantial consolidation and rationalization of the industries as these assets move to better balance sheets and more efficient producers. Now, going back to 2015, we expected this rationalization process to occur in a substantial increase in shale supply in the collapse of prices then. However, China stimulated OPEC cut production and the US employ fiscal policy, all of this”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Potential for a bigger deficit down the road and potential upside the prices. And so when we think about the velocity of the surplus, the harder and quicker you hit these capacity constraints, the quicker and more violent the adjustment process is likely to be.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Velocity of the surplus that we're talking about coming through those pipelines will create a traffic jam and get clogged. Now what's interesting here is it's going to force the shut in of these landlocked crudes. The irony of this is the most flexible fields are the offshore fields as well as the Middle East fields. You can turn them off and turn them on very quickly. Why they have very large reservoirs. When you turn onshore The fields are much more mature, they're older, they're very tight reservoirs that's really critical here because you're going to end up with these big shut-ins on land or inland and you're going to end up damaging the fields. And so when you begin to see demand recover as the system begins to normalize, demand will be a V-shaped recovery. Supply will likely be an L-shaped recovery and it creates a potential.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“The key to understanding why these prices in places like Canada and Wyoming are so depressed is to understand the difference between what we call landlocked crudes and waterborne crudes. You take a Brent market. It's what we call a waterborne crude. It's priced up in the North Sea on the Shetland Islands. I like to say the Brent market is 500 meters from the water. That water is important because it creates flexibility. You can bring ships in there to take the oil away and that flexibility is not constrained like a pipeline that sits on the land. And now we turn and you look at WTI, it's 500 miles from the water. It's priced in the middle of Cushing, Oklahoma, with pipelines coming in and coming out. And as a result, think about it. It's like a freeway where you get congestion and you can have traffic jams. And when you have a”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Running that surplus. And once you completely breach the infrastructure, supply has to equal demand. And that's really the key here is that ultimately we're going to have to shut in enough production such that the supply equals the demand. And to achieve that, you're going to have to see prices drop tremendously. In some cases, you can see prices go negative because producers do not want to shut in because it's very expensive. And as a result, they would pay somebody to take that oil away in a truck or some other type of alternative transportation. So that's the environment that we're in right now and it creates lots of downside risk. Prices in many of the landlocked areas are already at extremely low levels. And Wyoming, you already have prices at minus 19 cents, oil up in Canada is trading around $5 a barrel.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Oil demand is down roughly 25%. That is unprecedented, even unfathomable. The key here is it is the velocity of the surplus that matters here. And to understand why the velocity of the surplus matters is to understand the unique characteristics of oil and energy. First, let's think about it in the context of metals. I like to say with metals, all you need is a parking lot, a chain link fence, maybe a guard dog to protect it, and you're good. You can stack the metals to the moon. There's nothing to stop you from running a surplus. Energy, on the other hand, is constrained by its infrastructure so that surplus has to be accommodated within the pipelines, the refineries, and the rest of that infrastructure. However, once you begin to breach that infrastructure, you begin having problems.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“even if OPEC Plus was in place and everybody was doing what they were supposed to be doing, you'd still have a lot of extra oil pouring into the market because of the collapse of demand. So we're going to end up with high inventories anyway. And those inventories will have to be worked off when recovery comes. And you'll have a lot of oil inventories sitting on the back of the oil price.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“It is an election year. There are 38 electoral votes in Texas, almost twice the number as in Pennsylvania, Illinois combined. And I think domestic issues will loom, though Washington is going to become even more engaged in this, and it will be a factor in the overall Saudi-U.S. relationship. In other words, the oil market is not going to be over in its own playing field. This can be part of a larger playing field. Something we'll give here because the world oil industry is going to run out of storage space, and that is going to be a very serious issue for everybody. And I think the stakes will continue to go up. You can feel the pressure rising in the U.S. in this, but this is not an easy problem to solve. And as always, there are multiple voices in Washington urging in different directions. But by coincidence, the chairman...”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Jurgen for his part is more mindful of the geopolitical consequences of the current strategy, especially given the U.S.'s growing focus on oil as the U.S. shale industry, which is centered in important electoral states, is now getting pummeled by the oil price collapse. Here's J ⁇ r”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“million barrels a day in June of nineteen eighty five. And I remember that quite vividly because Prince Abdorzis, who's the current oil minister, was in my office in New York in June of nineteen eighty five. We were discussing what to do given the circumstance that the demand for the raw had dropped so dramatically. And it was clear the only answer, the only solution was to allow prices to go down. And that's in fact what they did in 1986. They adopted a market share policy and a net back crude oil pricing policy. prices declined dramatically. And over time, the demand for oil picked up quite a bit, and we saw the slowdown in non-OPEC supplies and market share for OPEC. started increasing again. So it's not shocking to me that when you step back then you think about what OPEC is facing, that this policy makes some sense”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“And what's the best way to do that? Competitor, very low oil prices goes a long way in increasing oil's relative market share in the global energy balance. Now we saw this back in nineteen eighty five. In nineteen eighty five and nineteen eighty six, OPEC was trying to maintain price and they continued to cut production. Initially, they were replacing Iranian oil because it was Iranian interruption and they ran Iraq war. But they were also getting hit quite dramatically on the demand side from nuclear and natural gas expansion. And then on top of all that, you had the North Sea and expansion of Alaska at that time. So all this combined to lead to a dramatic decline in sorty production to try and balance the market from 10 million barrels a day back in 1979 down to as low as two and a half.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“I think there's another broad point to be made here, and that is that if you're a producer, a major exporter, and you're looking at the global oil market, and now you're suffered a demand loss, you're not sure how big it is. In addition, you've seen Shell take your market share, while at the same time major exporters are not exporting. Iran is not exporting any substantial amounts. Libya is not exporting at this time, Venezuela, and exports have been dramatically curbed. So you look at that and you say to myself, my God, we need to grow this market. At the same time, you have the forces of renewables in ESG, which are bearing down on the fossil fuel market, including oil. And you say to yourself, we have to somehow expand this market to make room for additional oil and slow down this demand erosion.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Reduction has been taking market share from Russia. Also, Russia has built up a bit of a war chest, and they do get this side benefit to the extent that U.S. shale oil production goes down. That should also lead to shale gas production going down, particularly associated gas, which is quite a bit of it. And that should help the gas part of the Russian energy balance in terms of pricing. The Russian producers have very low cost structure, so they can survive this, and they use the rupel as a mechanism to protect their industry, a decline in the rupel while they're still exporting in dollar terms reduces the effective cost of production. In Russia. So there's a lot of different reasons that you can make the argument that Russia wouldn't cooperate. But to be honest, I thought that they would at the time, but again, I wasn't surprised that they did.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“I was surprised because I would have thought it's in the broad interest of Russia to continue to cooperate since they haven't really been cutting very much in any event. But on the other hand, I wasn't all that surprised, knowing how they think, I was involved in trying to get Russia to cooperate with OPEC back in 2001, in 2002, post-9-11, and also in 2009. I met with high-level Russian officials in the government to try and convince them that it was in their interest to work with OPEC. And it was very strong negative reaction from the producers in Russia. So I'm not really shocked from that point of view. I'm also not really shocked because I think Putin is quite angry about the U.S. sanctions. And I think the companies have been making the point, and I think he's sympathetic to this, that US shale.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“I think for the Russians, those sanctions loom pretty large. Sanctions have become kind of a major tool of U.S. foreign policy, and they've been facilitated in terms of oil by And by the way, there's talk of new sanctions, which in my view would be counterproductive and would be logs under fire in terms of being able to find some path towards stabilization. Sanctions are stick, and the history shows that Putin does not respond to them. I think all it does is gets him to spend more time with Xi Jiang and strengthen this relationship between China and Russia that has been developing in common cause against what they see as U.S. unilateralism. You have to go back to the relation with the Soviet Union in the early 1980s to find relations this bad. So I think the U.S. doesn't have a lot of leverage and sanctions. They're only going to make the situation less amenable.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“For market share before, but it's pretty bizarre to have one in the middle of what could turn out to be the worst economic crisis since World War II, this oil war is exacerbating the turmoil in the financial markets and the credit markets. So it's not something that's just happening over there in the corner in its own little box. This has global ramifications at a time when it's already very difficult for countries to collaborate to find solutions.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“U.S. oil production had increased almost sixty percent since this OPEC Plus was created, and the U.S. in February ironically reached the highest point ever of its production, 13.1 million barrels a day, almost 2 million barrels a day more than the Russians at that point, and three and a half million barrels a day roughly more than the Saudis were producing. And I think the Russians had come to see the issue not only as a market share issue, but also in the context of the strategic rivalry and competition with the United States. But the abrupt way it ended and the oil war that started, I think that was not anticipated that it would be this violent in particular in the middle of what is a global health crisis and a global economic crisis. There have been oil market wars before.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“It was already clear that the OPAC plus agreement, which was really an agreement between Saudi Arabia and Russia, was already frayed because of different perspectives, different needs of the two countries. I think the Russian position is we shouldn't do anything now. Let's continue this to June and see where we are. And it was notable that the Russians had already canceled the St. Petersburg International Economic Forum, which was scheduled for June, which is their really big economic event, because I think they thought this thing was going to get a lot worse. I think the Saudis were much more focused on market share issues, and they had borne the brunt of the cuts up till then, and the Saudi policy since 2014 is we won't do anything without the Russians. They saw themselves giving up market share to the United States. And it was quite striking to see that you...”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“And then all of a sudden now you face a crisis situation where it's clear that demand is going to be declining quite rapidly if you consider that transportation fuels 60% of global oil demand, it's not surprising it's taking a huge hit. So the sorties are looking to get in front of this and cut substantially and of course the Russians have kind of hemmed and hoard and basically didn't really want to cut because they have strong historical aversion to cutting. But basically Putin decided to get involved with OPEC maybe saw that there were other political gain as he looked at his role in the global stage, his involvement in Syria and his involvement in Libya and looking to have a broader role in the Middle East.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“and every oil exploit's point of view, it makes sense to cooperate on volume because the oil demand is relatively price inelastic. So from a small reduction in supply, they all gain revenue from that. This was the game plan, and they were successful in bringing the Russians in. To be honest, the Russians have not really cut all that much. You never really know what they're doing. And the sense is that they have not been cutting very much. Their view has traditionally been that we don't have to cut. It's more an OPEC's interest. And if we don't cut, then OPEC at the end of the day will do the cutting and we can be a free rider. The officially agreed COTS of OPEC and non-OPEC have been a total of about $1.7 million a day. And Saudi Arabia alone has cut over half of that. So they've done this.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“Saudi Arabia, OPEC has been trying to manage the market for a long time, and it became more and more difficult as non-OPEC production has continued to grow. If you just think about an OPEC, who really cuts? It's Saudi Arabia, Kuwait, and the UAE are sort of the three core members of OPEC were cut. And if the Saudis are doing 10 million barrels a day and the UAE is doing three and Kuwait's doing two and a half, that's like 15.5 million barrels a day while World Crude Run call it is something like 85 million barrels a day and total global demand is something like 102 million barrels a day she can see how extraordinarily difficult it is to steer the world on market and control prices so they've tried to broaden as much as they could the manager of the market and they brought Russia in and from Russia's point of view”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT
“This is the biggest oil shock because it's global and it comes at a time when the global economy is largely shutting down. I think the one that's most analogous to it in some ways is 1998 when oil production was going up just into the Asian financial crisis and demand was going down. And basically the global industry ran out of places to store oil and oil went to $10 a barrel. Right now we're seeing the biggest drop in oil demand in modern times.”
2020-04-06 · Goldman Sachs Exchanges · Oil’s Seismic Shock · IDENTIFIED FROM THE TRANSCRIPT