YouSaid · the spoken record

Henning Gloystein

lines on the record: 24
first: 2021-10-05
most recent: 2021-10-05
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Has started right? So you've seen it in Spain, you've seen it in France, and that further exacerbates the concerns of policymakers on this additional inflation shock. There is one market that we didn't discuss as much is the oil market, right? It's not exposed yet significantly to this energy crisis. There is some, but not too much substitution. But we actually believe that oil prices are said to significantly appreciate going forward. Our forecast for the end of this year is $90. And as a key input to many other industries, that should contribute also further to the rise in headline inflation. And again, as the gas market illustrated, the drivers of that higher oil price forecast, which is underinvestment and strong demand, we're only going to compound going forward. So I think that's the one market to keep in mind. Sure, maybe a mild winter this year, maybe.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“The risk here really is the inherent high volatility that we expect going forward, right? And then every country has on the power side various path-through mechanism. But we're talking 10, 20 percent potential impact next year for consumer power prices to the extent that that is passed on to consumers is less clear given potential intervention by governments in setting power prices.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“It is an important question. So, from an oil market and gas producer perspective, it means probably coming back into the forefront of when investors have to consider in their portfolio as the output of those industries is still essential to global economic growth. It means likely further investment needed on the LNG side. That's a long cycle of investment. And clearly now we need more capacity. It also means as the incumbent source of power decarbonizing oil and gas will be important. Now that could come from carbon capture and ultimately needs a solution. And then finally, as illustrated in Europe recently, relying on renewables does create challenges such as when there's no wind, no sun or not enough hydro and rain. And so storage is also the key to enabling the energy transition to much higher. Usage of renewables.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Upstream mining CapEx and today coal prices are trading at record highs. Now the second key point here is that internalizing our carbon emission is costly, right? We have operated for centuries without that in mind. And today as we have to reflect the carbon content and emissions of what we do, it is proving to be quite expensive and renewables help, but it takes time to scale them. They're intermittent. And that further illustrates that we will need in this energy transition still a lot of oil, a lot of gas, and that those will have to come at a higher price given their inherent emissions. So we are seeing a greater focus of society into fixing those issues, but I think with this energy winter crisis is showing is the cost of making that transition.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“There are two components. The first one, and coal is the example, shows that abandoning too quickly the production of what we consume today, whether it be coal, gas, oil, is quite dangerous as we still consume those commodities, right? So the energy transition has to be much more about solving the demand side than impacting already today the supply side. I'll take coa as an example.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“So, bigger picture to some extent, the broader push to decarbonize. We're hearing so much focus on the shift towards renewable energy sources. That's all limited, as I've heard you say. The production of fossil fuels such as coal. So how will this current energy crunch really affect that energy transition?”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“So the economic impact will be, first of all, from the reduction in consumer income due to higher electricity bills. Our economists for the move, as I mentioned, to $25 gas prices estimated about two-tenth of a percent of GDP growth for one year. Now, as I mentioned, gas prices have rallied further. And ultimately, the real risk is the one we're now seeing in China, where because of energy shortages, our economists had to reduce their year-on-year growth rate forecast by a percent for the end of 21 and the beginning of 2022. That's the real risk to economic growth, not so much prices themselves, but really the point where you are just unable to generate electricity and you are forcing much lower economic growth. Not there yet again, I emphasize in Europe, but it's a risk that cannot be dismissed going forward.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“2022. And because of course this is seasonal, the effect and our forecast point to receding energy prices next year, but because it's also structural and persistent, those risks of another shortage next winter are quite real. And in fact, we could, if winter is cold, end up next summer at still historically high energy prices. So I think that's the key here is, you know, the shock is significant in scale. does have a lag pass-through so transitory yes but still we're talking six month to 12 months impact and then second because we're really not resolving any of those structural issues the risk of that recurring is actually quite high going forward”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“So, there are many moving parts, right? The shock from natural gas prices feeding through power prices will have an impact on headline inflation. Our economists estimated that the move to $25 per MMBTU would increase European headline inflation by 25 basis points next year. Now prices are up another 30% since then, so you can see how those upside risks are building. Importantly, although you see it today in gas, keep in mind it has a slow path through from wholesale to retail prices. If you look at France, there will be a cap on power prices till April. Germany has a slow pass-through. There are really only a couple countries like Spain and Italy where you'll see it now. So already, you know, that shock is here for at least the first half of 2022. I mentioned food prices, the lack of fertilizer will impact planting next spring. So that impacts food prices for all of”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Are trading at their highest levels since 2018, but the stock price of oil producers is still lingering at low levels. They still don't have that signal to actually do more. Now, on the more short-term item of natural gas availability that you mentioned, right? It's an input to key industries. It's a source of power in China. So we will see localized constraints. Fertilizer, for example, so that keep in mind for next year's food prices, aluminum and steel as well. And that's going to happen now. But those markets were just the same facing those structural dynamics already. And now if you look across the commodity complex, we've actually been in deficit for pretty much every single commodity since the middle of last year.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“The supply side predates COVID. If you looked at the oil market, for example, what you saw between 2015 and 2019 was just perpetual capital destruction by producers, focused on growing production at all costs instead of generating corporate returns. And so that has left investors reluctant to invest in natural resource companies. View that as a much higher cost of capital to actually spend money on production. The shift to ESG has exacerbated that, right? Think about oil. It is a source of carbon pollution. And so capital has naturally migrated to renewables, for example. But what that leaves us today with just a lack of investment in recent years. And now that we need that investment, the realization that it takes a much higher commodity price to actually incentivize spending. And case in point, oil price.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so I think what is noteworthy here is the gas shortage is first of all symptomatic of broader trends in commodities of strong demand and supply underinvestment. And then second, lack of gas can indeed have impacts on other commodity markets. So let's start with the structural component. COVID was a hit on economic activity and hence commodity consumption. The recovery outside of oil has actually been spectacular, right? Metals demand is already above pre-COVID level, so is electricity demand. You've had strong consumer spending on the back of government support, and now you're also seeing a focus on infrastructure spending. So that demand side has been strong and in our view is here to stay, right? Policies on fighting climate change all require a lot of infrastructure and policies on reducing income inequality all also tend to support higher consumption.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Okay, Elise had some good news, but related to the natural gas tightness that we are seeing, we are seeing other tightness across the commodity complex in aluminum, in copper. So correct me if I'm wrong, but that is related to the natural gas tightness. And, you know, where do we see that heading?”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. It's not related. Maybe there's a confusion on gas prices being natural gas or gasoline. But in the end, that oil gasoline shortage should normalize incoming weeks, given the UK government responses”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Because there is no fuel. Now, that's not the case today, right? We're heading into winter. We're at the seasonal peak in inventories. They're just very low. But as we go through winter, that's the one to keep an eye out for.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“So, we have no precedence for this situation. We are at record high gas prices. I mentioned the rational last substitution is that to oil, and we've cleared that threshold. And so the last leg higher is the one that actually destroys demand, right? That's classically the case in commodities when you don't have the supply. You can't have the demand. That can take two shapes. The first one is on industrial activity, right? Gas prices in Europe would be sufficiently high that European industries are left uncompetitive on a global landscape. We briefly saw that with the fertilizer sector in the UK announcing reduced rates recently. Other sectors that couldn't be impacted would be steel, for example, paper, high gas consuming sectors. So that's probably the first risk that you see in terms of the next demand adjustment. And of course, the last one is what we're seeing in China this week, which are blackouts, right? Turning off power.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so first of all, let's just maybe reiterate we're not in winter yet, right? So the fact that prices are so high today is just to reflect the potential weather risks through the upcoming winter. If winter is average, we get by, right? We have enough gas in inventory today absent Russia really reducing flows on a sustained basis. But because whether it's volatile, the market has to reflect today that risk. If we do have that one standard deviation colder winter, then we're calling, as I mentioned upon the oil market, but we're probably at that point really testing the lack of gas. That just means running out of gas for power by the end of winter, you know, February and March. So that's a real risk that we cannot rule out yet, weather forecasts only go out two weeks and full winter weather risk is still ahead of us.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Emphasizes this yes, we're reaching for the last possible substitution, but its potential to solve the issue is just not that large, meaning the real risk going forward would be blackouts and outright shortages.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“So energy markets, it's first important to emphasize, are all substitute, right? You can create power from gas, power from coal, power from oil. Typically, coal is the cheapest solution. Then you move to gas. Historically, we use oil, but this is not a very expensive solution. But when you think about the shortage that we have today in both coal and gas, we actually do need to burn some oil. And if you think about where gas prices are today, they've reached a level where that should happen. And so we see that playing out. We see evidence of it in particular in Asia. And that can help. It can help relieve about two BCFs per day, which would be slightly less than a standard deviation called winter in Europe and Asia. But it's not a smooth process, right? Burning oil for power is typically what we call a peaking solution. It's a few days typically at the end of winter. We've never seen an outcome where already in September and October we're having to turn to that solution.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“And then you mentioned the potential to see substitution away from natural gas and into oil in response to these supply constraints. And that could relieve some pressure. So to what extent is that capacity there? How much do you think that could improve the situation?”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“Incremental pipeline so there could be a resolution eventually much higher Russian flows. It probably does take, however, a few deals to come through and leaves the gas outlook into Europe highly volatile and certain in the next several months.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“You're right to point out Russia. Russia provided through the summer expected volumes of gas into Europe, but those volumes have declined recently. And, you know, Russia has also signaled that through October, exports to Europe will be below normal level. Initially, there were actual disruptions. It is less clear now what is driving this underperformance. Russia has been vocal about wanting to see Nord Stream 2, the new pipeline approved by regulators, wanting consumers to commit to multi-year contracts. And so this may be contributing to those lower flows. That's important because as the largest supplier to Europe, continued lower Russian flows would actually create another significant leg higher in prices as it would make the outlook for shortages much more realistic by the end of winter. Now, again, Russia does have that capacity to produce more. It has built”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“An important question, and the key here really is that when you think about coal or gas supply, these are very long cycle investments. It takes five years to build an LNG terminal. And so despite this price signal today, what we're actually trying to solve for is substitution on the demand side rather than a supply response. Now, there will be some China today, for example, just announced that it wanted to see a higher coal output from domestic miners. Some of the disruptions that we've seen are normalizing. Norway is sending a bit more gas. The issue, however, remains the mismatch that we have today between inventories ahead of peak demand heading into the winter.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT
“We got here both because of demand and supply. When you think about the COVID recovery, it's been uneven. And when you think about oil demand, we've seen clear underperformance with people not flying. But that's actually the opposite in terms of power demand. We are at record power demand levels. China alone, for example, is consuming 13% more power year to date than last year. And that's because when you think about this economic recovery, less services, more industry, more people working from home, that's all more demand for electricity. Now, of course, supply has contributed as well. You know, we've seen disruptions in coal production and in countries like Colombia, a decline in coal capacity in China years in the making, and also disruptions on the gas side coming from countries like Australia or Russia. So it's really the confluence of those demand forces and supply.”
2021-10-05 · Goldman Sachs Exchanges · The Impact of Rising Natural Gas Prices · IDENTIFIED FROM THE TRANSCRIPT