Oil & Gas Economics: What the Future Holds feat. Robin Winkle

We've got another really great episode for you today. We brought on an amazing guest, Robin Winkle, who works at Glenlock Energy, which is an oil and gas advisory firm. And he's really been tracking what's going on in the energy markets. So we've been— have kind of a series of these podcasts on energy as we're kind of uncovering some of these very unique things that are going on. And so some of the things Robin talks about are his kind of forecasts for the near term, kind of the next year. But really, we spent a lot of time on the long-term forecast of the demand and the supply and what's happening not just in the US but globally and how the maps are being redrawn. And it's a really fascinating discussion. Another just angle to view this, this series on energy that we've been doing for a little while. Bob, did you get anything else out of this interview?

This is a, this is a must, must listen if you want to understand what happened in the oil industry and what is happening and, and really along with our view of that energy is really going to be a great place, a long-term investment for the foreseeable future. So you got to hear it from the horse's mouth, an energy analyst who has been in the space for decades.

Awesome. Hope you enjoy the episode. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we are joined, uh, by Robin Winkle on the podcast. Robin, thanks so much for, for joining us today.

Well, thank you very much, Ben and Bob. Thanks for the opportunity to speak.

Yes, so Robin is a managing partner at Glenlock Energy, and he's been in the energy space for many decades and really has an expertise on the, the market and the economics surrounding the oil and gas markets, which is something we've been talking about for a while And if you listen to some of the recent episodes that Bob Fraser and I have done, we've been talking about some of these things that are creating potential long-term systemic challenges in the energy space. And we're, you know, even calling it energy crisis, you know, or budding crisis. And we wanted to bring on an expert that has a background in this space to talk more about what's going on. So Robin, give us a little bit of background on you. How did you kind of end up where you're at? And Excited to jump in.

Oh, well, thank you very much, Ben. It's always a little concerning when you start to think that you've been doing something for decades, but it is true. I mean, if I think back to where I started, I'm a Brit and I'm an engineer by background, and I was kind of interested in working internationally. And so, you know, at the time I graduated, which was decades ago, oil and gas was a good place to go. So I spent most of my career working overseas. Mainly for Shell. So I spent time building offshore platforms and planning offshore platforms, and then I moved into more business development type roles, you know, around economics and so forth. So I did that until, until about 10 years ago when we landed in Houston. And by that time I got married, had some kids, decided to stay. Shell had some different ideas So they thought perhaps overseas again. And, uh, you know, I decided that was maybe, maybe the time to leave. So I then left. I worked for a company called Lukoil, um, for, um, about 4 years. And they, they— Lukoil is a Russian oil company I'm sure you're familiar with. And they had, um, they had bought a US company with a lot of exploration acreage in West Africa, and they needed someone to build the development capability for them. So they brought me in to do that. I did that for a few years, and then I decided to go back to school, did an MBA, thought, well, start consulting company while I'm doing that. And I never really kind of stopped. So I've been doing this business for about 5 years now. And yeah, it's, uh, it's had some good years in 2018 and '19, and as you can imagine, some not so good years in 2020 and '21. But I think things are starting to look up again. So it's, it's, it's good to be back out there and talking to people about these things.

I mean, we're in such an extraordinary time right now, and, um, I think oil, for most people who are maybe not really in the middle of observing oil, it got pretty sleepy. The market was kind of like, yeah, there's oil there, and, uh, and but what's happened is with oil prices suddenly rising and, uh, and then Then on top of that, the Russian question, it's on the top of everybody's mind. And as we've started to do research, we've uncovered, you know, you know, kind of woken up to the fact that there's some real issues in the oil sector and real opportunities. And so it's kind of a, kind of a shocker, as I've discovered really since 2015, the amount of investment in the oil sector globally has dropped by over half.

Yeah, and correct.

And that's, that's insane. I mean, that's nuts because unlike any other sector, right, this— it's not like building bridges or something. If you're not investing, because it's a depleting resource, right, if you're not investing, you're losing, um, you're actually losing ground. So in, in current production, and so, so what How do we get there and what's happening right now?

Well, I think if you go back to, you know, you talked about 2015, so the kind of crest of the wave in terms of investment was 2014. And if you go back to the early 2000s, which was when I started the industry, you know, the industry had come off a period of very low prices where it had basically, you know, it wasn't investing enough. And then through 2000 through to 2014, you have this huge expansion. And you may remember peak oil. I'm not sure if you remember that phrase. So sure, around the 2000s, peak oil was the issue. We were going to run out of oil, right? That didn't happen.

But what happened was the shale revolution happened instead.

Exactly. In the course of that, you know, huge amounts of investment poured in, both conventional and unconventional. Until you had a, you know, a situation in 2014 where the market was basically oversupplied. And, um, you know, when that happens, prices fall, and it obviously takes a while for that to correct. So 2015 through 2019, you had this, this, this, this big drop-off in investment, as you said, you know, by about half. And that kind of corrected that glut. Um, if you go to where we were you know, 2019, I would say things were, were not that healthy for the industry. We still had oversupply. And then we had COVID, and that was a, a kind of a really dramatic event because, well, in fact, you had two things. You had COVID, and just before you had COVID, you had OPEC sort of declaring a price war on the US. So you had this, you know, if you go back through the 2014 to 2018 2020, OPEC was reducing its production as shale production came on. And yeah, basically early 2020, they said enough is enough, um, we're going to open the taps, we're going to flood the market. The price collapsed, and then COVID hit, lockdowns hit, and demand went from 100 million barrels a day overnight to 70, which has just never happened before. And if you remember, that was also the period where we actually saw negative oil prices.

Negative oil prices, that's something that never happened before. But amazing.

It was quite incredible. So that occurred, and that, I think, that was really when I started sort of looking at things and trying to understand what was going on. Because, you know, where are we? And, you know, that I think served to correct the market. So investment collapsed. So, you know, anyone who could basically shut off investment did. And shale is a little bit different from conventional oil and gas in the response time. It's much faster. So you can turn on investment more quickly and you get production more quickly. You can also turn it off more quickly and that production falls away more quickly. And that's what we saw in 2020. So since then, what we've seen is, you know, OPEC stepped in, they brought production down. And what we're starting to see now is that as demand has come back, you know, supply is struggling to keep up. So I'd say, you know, where we sit right now for 2022, the market is pretty much balanced. So supply and demand, it's about 100 million barrels a day, and, you know, that's about where we were in 2019. If you look at most of the major forecasts of the IEA and OPEC, for example, they're looking at 2 to 3% demand growth next year. That's much more than we've seen historically. Historically, you're talking about maybe 1, 1.2% oil demand growth. So we're seeing, you know, that faster return in demand, but we're also seeing supplies really struggling to keep up. So OPEC is currently producing about 2.9 million barrels a day less than it's supposed to be producing. So it's struggled all year to its quota. And so I think we're in a situation where, you know, in the near term I think we'll look at a fairly tight market. And, you know, there are kind of all kinds of reasons for that. Um, you know, so if you— we talked about investment— so if you invested in oil and gas in the last decade, you didn't do very well. Um, you know, certainly for something that's considered to be— and I, I was at a meeting earlier this year where it was actually referred to as the evil act, the production of oil and gas with the EAVL Act. You didn't gain any kind of investment premium for participating in the EAVL Act. In fact, you probably did better if you stayed out of it. So you're seeing, you know, a lot of the shale companies that you're familiar with, which really kind of flooded the market and saw all of that investment, they've been very restrained in terms of how they've invested and how they've brought that back.

So just to add to the narrative, right? So going back to 2015, there was also, in addition to the to the kind of dynamics that you mentioned, there was also a narrative began to emerge that we had reached peak demand for fossil fuels, right? And it's kind of laughable now, but the idea we're all going green and green is gonna work. And, you know, the developed world is kind of plateauing, of course, that was in the context of a very slow, you know, the Great Recession of the Obama years, as I call it, right? So very slow demand growth. And, you know, so yeah, kind of, we're all going to go green. And then as part of that narrative, all the majors, because of the ESG initiatives as well, started coming to the forefront. They started, they got all the board of directors that were environmentalists, et cetera. And so they've started taking their capital instead of investing it in growth initiatives, right? Development initiatives. They put it into green initiatives, which, you know, you can argue, you know, whether they should have done that or not. But, but, but they, they took away investment from traditional fossil fuel investment into prospective kind of green things that, that have far less, uh, production capacity, right? There's, there's far less impact, uh, doesn't move the needle as far as demand where the fossil fuels would have. So, so, so it was, it's like this perfect storm of narrative that happened, right, to reduce, to reduce the, uh, the supply.

Yeah, I mean, I think that's true. I mean, I think if you look at the IEA's long-term forecasts, they have 3 forecasts. And if you look at the net-zero forecast they have, that's not actually a prediction of oil demand. That's what has to happen to oil demand to achieve net-zero in 2050. So that's a different thing. It's not really a forecast. And that shows, I mean, if you follow that forecast, shows an extremely very dramatic decline in oil demand. I mean, it's declining already. Now, that's not actually what we're seeing in practice, and, you know, I think that as we've gone through from 2015 to today, you've seen the sort of the gap begin to open with what's happening in terms of demand versus what has to happen for net zero. You know, there's this ongoing conversation about sort of keeping it within sight. I think, you know, realistically, if you look at what actually has to happen to achieve that forecast, I don't really think it's in sight.

Okay, so just for the, you know, those of us that don't understand what really net zero is and the EIA, just give us a little bit more background, okay, on the net zero forecast, some of the dynamics there, because I think this is a narrative that most people think that, 'Hey, we are getting green and it's working.' And so, so just give us a little more background on what is net zero, what are the EIA net zero forecasts, and what are some of the dynamics there?

Okay, so the International Energy Agency was set up in the '70s during the last oil crisis. That was the oil crisis that was driven by the Gulf states basically shutting in demand.

Sorry, the IEA, right?

Yeah, the IEA was basically formed with a group of member countries to help manage oil supply. So it manages things like storage, for example. And since then, of course, its mandate has grown substantially, and it's now, it's now sort of main mission is more centered on helping to achieve the goals of the Paris Agreement. So it's talking about helping to basically show the way to get to net zero. So the idea of net zero is that by by 2050, the world should not be emitting any net CO2. So you can still emit some CO2, but you have to then extract that in some way. So that can be either through, you know, planting trees or carbon capture or something like that. And so that is seen to be the target that we have to reach in order to limit global warming. So that's where that framework comes from. And what the IEA has been doing is it's actually got an extremely detailed model, a very detailed forecast that shows you what each sector has to do to achieve that outcome. I'm most familiar with the oil one, but, you know, so I think the IEA trumpeted last year that to achieve net zero, you have to stop developing oil and gas today. So what that means is if you have existing production, Yes, that can continue, but no new development or exploration, so no new wells. And so, you know, as you mentioned, Bob, at the beginning, it's an extractive industry, so, you know, underlying declines are estimated to be about 5% a year, which means that if the world's producing 100 million barrels a day and you stop investing, next year will be producing 95, and then, you know, 90, and so on, kind of falls away. And so that's the kind of, that's the picture.

So Is it realistic? I mean, it sounds kind of insane because there's not enough green replacement, right?

Yeah, I mean, I think if you look at it, I mean, if you look at the IEA's report, I think about 60% of the reduction in carbon emissions comes from technology that doesn't currently exist. And what you have to do in terms of moving the economy to that place in terms of rolling out electric vehicles and renewable energy. And, you know, you start to kind of— you have to restrict people's lives to an extent that I think might be difficult in a democracy. So, for example, you know, do you really need to fly 4 times a year? And you start to get into this, are we going to start rationing flights and that kind of thing. So It's quite, it's really quite an extreme picture. The cost of doing this, I mean, you know, depending how you calculate, is something between $3 and $8 trillion a year. You know, so it's a huge thing. And I think honestly, it's just, you know, you look at it, it's just too expensive.

Okay, and it's too expensive, but is it even realistic? I mean, it presupposes demand decreasing, and it's not. So how do they deal with that, right? Is the idea that, well, no, let's go net zero, and that means we're going to stop investing in energy production, meaning, and then we're going to start seeing declines. Therefore, we will see prices accelerate to the moon, destroying demand, and we will turn our cars in and start buying horses and donkeys, and, you know, we won't fly. We don't fly anywhere anymore. Is that what they're anticipating? Is, yeah, let's destroy demand by destroying supply. Is that the concept?

I think that maybe was the concept because if you look at the—

No one told the American people. No one voted on that. Okay.

No.

I mean, this is just the kings out there, I guess. The wannabe elites, right?

Yeah, I mean, I guess the kind of unfortunate thing about it is when you talk about CO2 emissions, you know, the oil production of oil and gas does not emit a lot of CO2. It's using the oil and gas as it's supposed to be used that emits CO2. And so that means if you want to stop emitting CO2, you need to— well, basically everyone needs to stop using oil and gas. And that's— there's not really in my opinion any way to do that, a very good replacement for that right now.

No, there isn't.

But so, you know, from a political point of view, rather than saying to everyone, you need to stop using oil and gas by imposing, say, a tax on carbon, which would be, you know, a rational way to do that, they, as you've said, they've basically attacked supply through a combination of regulation some pretty ferocious rhetoric as well about, you know, we're moving away from—

Yeah, the evil activity here. You're a fossil fuel extractor.

Yeah, an all-out push to try and remove investment. So, you know, to de-invest from the industry.

I mean, wasn't John Kerry, you know, running around trying to get banks to defund and not fund new oil and gas investment?

Yes.

I mean, isn't this just still ongoing? I mean, he's still doing this?

Yes.

Oh my God. I mean, while they're asking Venezuela to boost production with all their human rights horrible track record.

Oh my God. So, I mean, that's the problem. I think you hit the nail on the head there. If you impact supply, before you reduce demand, you have what we have today, which is skyrocketing prices.

So it's kind of the secret agenda. No one talks about it. They just whisper, hey, this is what's going to happen. And we all know, but no one's ever saying that.

Yeah. Well, I think Joe Biden did. I think he was in Japan and he sort of accidentally admitted that high oil prices are going to be required to— Yeah. —to get you to net zero.

He said it's going to be tough for a while, but we're going to get there. It's like everybody's like, what are you talking about? So it's this kind of elite, the Davos crowd, if you will, are kind of creating the secret agenda. And it involves basically we're going to take oil prices to the moon and that'll destroy demand. And it will. I mean, it will.

Oh, absolutely will.

If it costs you, you know, $500 to fill your gas tank, you're not going to be driving very far. Well, no, you might start— you might start looking at donkeys and horses, you know, to get around town.

Yeah. I mean, that's exactly right. But I think— I mean, I think this year perhaps I'm a little hopeful. There's been something of a realization that people are just not going to—

they're not going to go this way.

Yeah, they're not going to go there. Doubles or not. Right. Yeah. Once it starts— because the thing about oil and gas is they feed through to everything. So whenever you transport anything, plastics, any kind of mobility, I mean, those costs will eventually feed through the system.

If you look at inflation, the largest component right now is energy. And energy is— I call it the mother of all commodities because Everything takes oil. If you're going to produce grain, well, you're going to use diesel-powered harvesters. You know, everything takes oil and transportation, even windmills. You're going to put in a new windmill. Well, you're going to create that steel in a blast furnace that's coal-fired. And then you're going to transport that on a convoy of trucks that are all diesel and hoist it on a diesel-powered crane. And you're going to do that every 15 years. Um, to, you know, it— so it takes this massive amount of oil. And so if oil prices are high, um, what— well, one, if, if oil is not around, you can't even do grain, and at this point at least. And, and if oil prices are high, everything is going to be high. So in doing this, you're basically ensuring an elevated, uh, uh, price regime and a very inflationary price regime, and And so this is kind of what, where we're ending up. And it seems to be this is by design, you know, at least partially.

Well, I think, you know, the narrative has been that green energy is not only clean, but it's also cheaper. And in order to present it in that way, yeah, you've kind of got to be very selective in how you look at what it costs. Yeah, so, um, you know, take wind power for example. You know, it probably is cheaper to build a windmill and have it run for 15 years. It's probably cheaper than building a gas-fired power station and buying the gas to supply it. But that doesn't account for the fact that you have to have a redundant source of power for when the wind is not blowing. And so if you factor that in, I mean, I've seen estimates in The Economist, for example, that that wind power is close to nuclear in terms of cost. So, you know, I think people have been told this is cheaper, but I don't think it actually is. And if it was, we'd be doing it already.

Yeah, and, you know, solar's coming along, but it's still more expensive and takes a lot of real estate, and there's only certain geographies that are suitable, right? People forget this. They're trying to put solar in northern Germany. Good luck. I mean, that's, that's like the North Pole practically. There's not a lot of sun up there, you know. And so people are— there's, there's kind of wishful thinking more than there is mathematics sometimes in, in, in the, the green crowd. And Amy, here's a stat that I ran across. So Last year, 4.4% of new vehicle sales in America were EVs, 4.4%, but used 65% of global lithium production, which was a record. So, and, and it was, I think, is the EIA that was saying we need a 40x, uh, growth in lithium and something like 20x in copper, um, and which is all— are all very dirty industries, by the way, and require oil.

Very energy-intensive industries, yes.

And, and so, you know, so we're seeing again there's this, this reality that you can't get a lithium mine permitted right now. There's 2 lithium mines in America that can't get permitted because of environmentalists opposing it. And but these are the same environmentalists that are, that are telling us we're going to be all in EVs that you can't create without lithium. So, so there's just really it's some nonsensical thinking that's happening. I'm an engineer by background, so I just think practical. I mean, idealism takes you so far. Idealism gets you excited, but it has to be workable, right, at the end of the day. Yeah. Um, and so, so, so we're kind of missing the mark in, in, you know, I mean, everyone wants to be green. Who doesn't want to be green? I want to be green, but it's not ready yet.

And, uh, yeah, I mean, I think there was a paper earlier this year by the Baker Institute at Rice, and they talked about the, um, the kind of valley of death for the energy transition. And so, you know, the risk is that you kind of overpromise these things and you subsidize the wrong things, and then you, you see kind of what we're seeing now, that there's not enough oil and gas supply, costs are going up, people are talking about brownouts and blackouts. You know, people can't buy a vehicle that they can afford without subsidies and so on. So, you know, the kind of— it's overpromised. And the overpromise and the implications and impact of the overpromise may actually set back the whole transition significantly. Right.

Where normal people say, no, I don't want a green transition. I need to put affordable fuel in my car to go to work.

Yeah, I'm happy, for example, to fund the green transition, but not if it costs me $5,000 or $10,000 a year to do it. Right. You know, that's just not something I want to do. So go ahead, Ben.

I was going to say, it's interesting going back to one thing you said earlier, where the IEA has 3 different projections, right? And the one you spoke about, which is the one that's, you know, purporting this green energy transition is is pretty unrealistic. And that's, you know, to satisfy all the, you know, the green pundits, so to speak, and to satisfy this narrative. But the reality— and you said earlier that demand is actually projected to increase. So it's this, it's this false narrative that, hey, this is what we're doing, this is good, but it's, it's, it's separated from reality. And, and the fact that they have 3 different projections is, is kind of comical to me that Right.

You have your wishful projections and your real ones. And let's plan on the wishful ones, you know, have no basis in reality.

Well, the real one is called stated policy. So the real one is basically, you know, it's supposed to reflect what's currently happening in the world. And that projects demand will continue to grow to the mid-2030s. And at that point, OPEC and the IEA, they kind of just it kind of flatlines, like they're not really sure what's going to happen next. I mean, projection— projecting is difficult, so I think I give them that. But the, um, yeah, I mean, they are generally speaking looking at demand growth for at least, you know, 10, 15 years.

I think I'd like to transition there. You know, we've talked about kind of the current environment, but where do you kind of see this going long term? You know, say 5 to 10 years in this kind of current environment that we've kind of talked about, you know, undercapitalized reinvestment into new production, and kind of this, this forced transition to green that may be unrealistic. And meanwhile, we're already sitting at pretty elevated oil prices and gas prices. You know, what, where does it kind of go from here? Right. I mean, I've been seeing headlines of, oh, energy prices have eased pretty heavily since the highs a month ago and we're kind of going back in the right direction. And so it's kind of like, oh, we kind of got over that hump, but are we over the hump or is this, you know, what's going to happen from here?

Well, I think you've got sort of, you know, you've got a couple of things there. So what's kind of medium term, so say through the mid-2030s, but you've also got the kind of, you know, the oil price will bounce up and down throughout the year, you know, based on events. So if we think about the medium term first, I think my expectation is we are going to see steadily increasing demand, and I think we're going to see a return in investment. So I think we are going to see money going back into oil and gas. And I think if you look at, you know, some of the signals coming from Europe, for example, you know, take Shell. So they had a field called Jackdaw in the North Sea that was not permitted. So it's a gas field and it was not given permission to proceed. And that was reversed by the UK government. So now it is, it is permanent. It is going forward.

Once they turn off the oil from Russia or the gas from Russia, they're like, Russia, hey, maybe we need gas from somewhere else. Yeah.

So, you know, so there is that kind of switch. You know, it's just, it's the reality. As you said, Bob, you're an engineer. It's kind of, you can take the politics of it so far, but eventually, yeah, you need the fuel from somewhere. And so I think we are starting to see that happen. I think, you know, one of the interesting things is what's going to happen to the big international companies. So I think, Bob, you made the point earlier that they have been trying to transition. Some actually, they've been trying to transition at different speeds. So the European majors have been going further and faster, I think, because the political environment they exist in is simply demanding it. Whereas if you think about Exxon and Chevron and Conoco here, they've been more, okay, we'll maybe look at things that are adjacent to our competence, but we intend to remain as oil and gas companies. So I think you do have a kind of divergence there. I think some of the hostility perhaps to the industry has maybe started to ebb a little bit. So I think you are going to see more willingness to invest, certainly for the next decade. I think what you're going to start to see with international companies is they're going to start thinking about their exploration portfolio around the mid-2020s. So if you think about the life cycle of oil and gas projects, If you start exploring for something in 2025, you maybe expect a discovery in 2030 and it maybe comes on stream in the late 2030s. That's, that's perhaps as late as you want to think about doing things. So I think you're going to see a continued reluctance to explore outside existing basins, but I think you're going to see some more money going to development. So I do expect supply to come back.

I think— but that takes a while to hear.

Oh yeah. That takes a while. I mean, what we've seen with shale is, you know, after a very sort of, you know, drill baby drill period, which was, you know, quite well documented, where it was all about growth and land capture, it's now much more of a mature industry that's really throwing off cash. So I think you can—

Well, you see now they're not cranking up production because they got punished for doing that twice. Right? By the market got the smackdown and they're like, okay, you know, fool me once, fool me twice, but I'm not, I'm not going to do this again. Yeah.

I was talking with a guy who's a consultant in the energy space and he was saying a lot of the kind of majors are reluctant to, you know, lever up. So basically to add debt to their balance sheets to create more cash because they, you know, they're a little gun-shy after what happened a couple years ago and then just the overall kind of narrative toward not drilling. And so they're more reluctant to maybe drill because debt can be used to accelerate the drilling and other things. So there still seems to be a reluctance that may take a while to kind of shift back to the exploring production mindset. I mean, are you kind of seeing that as well? You're on the advisory side.

Yes, I mean, that's true. I mean, if you, you know, if you're an oil company, um, one, one great way to boost your cash flow is to stop investing or just blow off cash. And, uh, and that's, that's what everyone's been doing. And so what happens when you have periods of high prices, um, you know, that cash starts to build up, you return it to investors, you pay down debt. And then you start to think, okay, you know, what do we do now? And, you know, you've probably seen some of the headlines, you know, in recent weeks about, you know, oil companies are profitable, prices are very high, people are suffering. That's, you know, having record profits while people are talking about an energy crisis is really not a good place to be. So I think you're going to start to see I think you are going to start to see increased investment.

Yeah, just because no one likes the narrative.

Yeah, exactly. No one likes the narrative. And I think, you know, you have Joe Biden going to, as you said, Venezuela and Saudi Arabia and saying, can you please boost production? Um, you know, I think there is, that there is a sense that perhaps the hostility of the industry is, is kind of beaming back a little bit because You know, there really is no alternative right now to that oil and gas supply, and so demonizing the industry is just gonna— it's just gonna drive up prices. So I think you are going to see investment return. Now, is it going to be $1.1 trillion a year? That's probably more than we need, but it's probably going to be more than it is today. You know, one of the other things to think about is who is going to be making that investment, because A lot of the, the major oil companies, um, it really isn't greenwashing. They are very serious about this transition. They're sort of turning themselves into utilities almost in an attempt to survive in the long run and using the legacy oil and gas business to kind of fund it. So you might see some new entrants coming in, but you may also see national companies, I think, kind of stepping in, and they may be the really big winners here. They may be the ones who, uh, who actually end up sort of holding the lion's share of the production.

And then the national companies, meaning, meaning who?

Uh, national companies. So for example, um, you know, Saudi Aramco, um, you know, it's, it's an extremely well-run company, very capable. Um, you know, um, you also have, I mean, you know, there are lots of them there. Petrobras, for example, in Brazil is, is their own production. So, um, yeah, I think you might see those companies because they have, they have capability and they also don't have the same sort of pressure, uh, ESG pressure to, to exit the industry. I think you also see, I think perhaps Exxon and Chevron. I mean, there's a question mark in my mind about whether the competence you have as an oil company really transitions to being what is essentially utility You know, is that, is, is that a viable shift for the company? Right. And I think that's maybe still an open question, and that's why you start to see— agreed, agreed. How these companies are working.

So now your, your kind of near-term outlook is a little different, uh, than what I've, what I was expecting and what I've been reading. So I don't know if you've seen the latest, um, research from Goldman Sachs. I mean, they're calling for $140 a barrel oil. They're, they're basically saying for the last 2 years years production has not matched, um, demand. And that we're, we're basically on, you know, the inventory has been steadily declining for a little over, over 2 years now. And in fact, that mark— the market is so tight right now, that's why you're seeing pretty much the most extreme contango in the futures markets that you've ever seen. And that's because, you know, basically the, the oil for near-term delivery is much more expensive than oil for long-term delivery. Yeah, because of the tightness of the market. And every time that happens, they point out— their traders point out that that basically is signaling higher oil prices. So, so my expectation has been for higher oil prices in the near term because of basically the shortage in inventory. And their, their, their, their statement also is that they don't believe production can be increased in the near term. Right, that there's no, there's no more spigots to turn on, that it's, it's been turned on as much as it can do. Of course, you know, the wild card is, you know, Iran. Um, people think that Saudi Arabia can, but I don't. Uh, they did— I think they're at max production. And then Russia. So, so what, you know, why are we, are we differing in our, in our, in our near-term view?

So I think if we set aside— so let's set aside things like Russian sanctions. So I think, you know, what we have is, as I say, it's a market that this year is essentially balanced. I agree it is tight. I think things have come down a little bit recently because people are expecting lower economic growth over the next couple of years, perhaps a recession in the US. And so demand estimates have been edging down. But I think this year, I think, I think we're more or less okay. I think the next 2 years is when we're going to see things get, get really tight because we're seeing that demand growth come in, that 2 to 3% demand growth. And I do agree that's a really big question mark about— so the only people who really have spec past Europec Plus And there's a really big question mark about how much spare capacity they genuinely do have. And that's because there's been this lag between what, what we've said we can produce and what we are producing now. Most of that lag. So most of the Gulf states are hitting their targets. So if you think about Saudi Arabia, the Emirates, Kuwait has struggled a bit. I think they have some spare capacity. But we don't know how much. I think what really kind of throws things off though is you take that base picture and then you bring in what's happening with Russia. So, you know, you go back 3 or 4 months, the IEA expected Russian sanctions to knock 3 million barrels a day off global supply. And that, you know, there really is no replacement for that. And so what we've seen is that really kind of hasn't happened. So what's happened is the oil has sort of, you know, it's maybe been sold somewhere else, it's maybe been sold at a discount, but the, the market's kind of rotated. So rather than selling to Europe and the US, Russian crude is flowing now to India and China. If Russian sanctions ramp up So if there really is that kind of, you know, if they really can't stop those exports, yes, I think you'll see $140. You'll maybe see higher than $140 because you'll actually be, you'll be seeing physical shortage. And if you look at, you know, global storage, it is, it's now below sort of 5-year average, I think. So, so yeah, I mean, there's not much of a, much, much of a sort of margin there.

Okay, so we're just coming up to the end of our time here, but So the energy map is clearly being redrawn. So let's talk about Europe. I mean, you're a Brit, right? So you've got a little bit of the North Sea oil, but the rest of Europe pretty much, you know, there's no energy except what comes a little bit from America, a little bit from Africa, a little bit from Saudi Arabia, and most from Russia. That map is being redrawn and the Europeans have, I mean, it's suicidal what they've done. As far as their, their support for Ukraine. Suicidal economically, I mean, as you know. And if they, if they continue on this path, which it's— I don't know, my tea leaves don't tell me which way they're going to go, but they're, they're literally— there's going to be a massive energy shortage. There isn't— you have to take oil from, from, uh, from existing places, primarily Asia, as the only place that, you know, the that they're going to lose their oil supply. So it's clearly the energy map is being redrawn. And as a Brit, maybe you can speak to, you know, what is— is Europe going to stand fast on this? And if so, how is the global energy trade map going to shift? And can it even sustain this?

I mean, I think that's an excellent question. So if we kind of think about Europe right now, you have to differentiate between oil and gas. So oil is much easier to store and transport than gas. And so it's much easier to redirect those flows.

But somebody still has— somebody's a loser.

Somebody is a loser, yes. But you can ship oil from the US to Europe, for example, far more quickly than you can ship LNG from the US to Europe. Right. And so, you know, Europe is in energy production terms now a net importer. Norway is really the biggest producer, Britain is the next, and beyond that there's not a lot of domestic production. Groningen, the biggest onshore gas field in Europe, has been closed or is shutting down now and probably won't reopen. And so the kind of crunch for Europe right now is really gas and how you kind of redirect gas flows. And the unfortunate thing is you can do that. So you can take supply from the US. So you can build an LNG facility. You can take supply from North Africa.

But even that takes years. I mean, LNG facilities are massive, expensive, difficult to make.

That is the problem. So it's not just— so say it's a 4-year build, but you also have to permit it, which is, you know, not an impossible— it's years to get these things off the ground. So there's no kind of quick LNG solution. So, you know, there's buildouts going on in Qatar, there's buildouts going on here, but that's not going to deliver things quickly. Pipelines are quicker, but you You know, again, not immediate. So I think what they're facing in Europe now is the reality that, okay, maybe we're looking at coal again, maybe we're burning oil in gas-fired power stations, nuclear, you know, so the nuclear fleet needs to be extended. But I think, you know, you're also going to have to see changes in behavior, you know, so, you know, talk about they're not heating swimming pools and, you know, turning down the lights thermostats and that kind of thing. I think that's a reality. And the unfortunate thing about gas is because you're pipeline-linked, buyer and seller, you know, in the main in Europe to Russia, you really don't have a lot of recourse. And the unfortunate thing is Russia makes far more money from oil than gas, so, you know, it can afford to—

They turn it off, they don't lose, but Europe loses. I mean, it's It's— I don't see how this doesn't create an economic crisis in Europe, just the loss of gas alone, because it's so neat, it's so used in industry, right? And in, you know, all kinds of plastics production and all kinds of industrial processes. And there is no replacement. So you're going to see a major kind of industrial setback in Europe. And I don't see that global supplies can fill the gap, and gas or oil. So I mean, you know, do you think— I mean, you're, you're not a politician. Do you think Europe is going to stay the course and stay the, stay the sanctions route, support sanctions? And, uh, and, uh, and, and if so, can they weather it?

Um, I'm not a politician. I, I think they will. Um, I think they will stay the course.

They do seem very resolute.

Yeah, well, you know, so it's a continent with a lot of history, and, um, you know, when, when things like this happen, people can still look back and remember, you know, the '40s and the '20s. And I, I, I think there will— of course, I think there will be a tremendous amount of pain, and I think, you know, what they're going to have to do for power generation and heating is really going to— I mean, you're going to be forced to move actually away from renewables to dirtier sources. You know, coal, for example. Coal? Yeah. And you're going to have to accept nuclear power, I think, as well. I mean, you know, if you talk about CO2 emissions, ultimately the baseload solution currently is nuclear.

So power is one thing, but what about oil? I mean, oil is the— there's no replacement for oil as far as transportation, right?

No, not today, no. But as I say, oil, you can redirect oil flows relatively simply. But from who? From where? So what ends up happening is that, you know, Russia sells its crude instead of selling it to Europe and the US, it sells it to India or China. And the crude that China or India would have bought from the US or West Africa is redirected to Europe. So you see this kind of rotation in supply.

So it's a little bumpy, Your view is they can weather it, but it's going to be very painful.

I think the gas is much more of an issue. It's going to be very painful. And I think it's really brought security of supply to the forefront, which is something that in the US, you know, the US has a tremendous strategic advantage. It's the world's biggest oil producer. It produces vast quantities of gas. That's an incredible advantage that Europe doesn't have. And actually that China doesn't have either. Yeah. So, you know, I think it's important to remember that because— yeah, there is—

the big winner is going to be the US. It really is. It should be. And US energy, because yeah, we don't have oil transportation issues, right? And, um, wow, so interesting.

It should be, as long as we don't sort of hobble the industry over the next few years. Uh, you know, it's important to remember that being self-sufficient is— it's, it's valuable. And, uh, yeah, awesome.

Robin, this has been very, very enlightening and really appreciate you coming on the podcast. Um, if you're okay with it, I, I love the white papers that you wrote kind of on your 2022 forecast and your long-term demand, um, for oil. And we might put those in the show notes for our listeners to be able to read and see some of the work you've done. And then what's the best way for folks to reach out to you? Is it just glenlochenergy.com and reach out?

Yeah, they can go on the site. There are links there. They can contact me. And yeah, so thank you. Thank you very much for the time. I thoroughly enjoyed the discussion. Thank you. Thank you, Bob.

Thank you, Ben. Thanks, Robin. Wow, that was really fun. That was a great conversation. A lot of meat. My head's kind of spinning with all the things that he was saying. Just really kind of looking at, you know, these pieces, these layers that are just continuing to add to the dilemma that we are seeing and unfortunately will probably see for some time. It's, it's really fascinating times. So hopefully you enjoy this episode. And as always, we appreciate your support. If you could leave us a review, that definitely helps us get more visibility to share this content with more listeners. So Thanks again. Tune in next time.