DIEGO PARRILLA: My name is Diego Parrilla,
I'm a mining and petroleum engineer from Spain.
I did my masters in Mineral Economics in the
Colorado School of Mines and the French Institute
of Petroleum in Paris.
I spent pretty much half of my career on the
investment banking side with some of the leading
global investment banks, such as J.P. Morgan,
Goldman Sachs and Merrill Lynch, where I held
senior roles across London, New York and Singapore.
The second half of my career was on the buy
side, initially with my own fund, and then
I've been privileged to work for some of the
largest macro players before I move back to
Madrid about two years ago, where I'm the
managing partner for Quadriga Asset Managers.
My first book, The Energy World is Flat, I
was lucky to come and present to you, in the
early days of Real Vision, became a bestseller
published in Spanish, English, Chinese, and
led to a number of contributions with selected
media such as two inside columns with the
Financial Times.
My second book, The Anti-Bubbles, I've also
have the opportunity to discuss here on Real
Vision, which deals more with macro events.
So, to refresh the framework of The Flattening
of the Energy World, this is a contrarian
investment thesis.
It argued- remember, it was first put forward
in 2014.
It was a pretty different world, $120 oil.
The perspective of $200 peak oil, and also
we have a very different world across other
energies such as natural gas with LNG at $20
with $2 prices in the US.
It was a very different world.
And the thesis was highly contrarian.
You had mainly two parts.
First of all, what I would describe as- or
the process has two components.
The convergence across energies, this is effectively
crude oil versus natural gas versus coal versus
other pieces, that convergence across energies.
The second one is the convergence across regions.
So, even for the same commodity, such as natural
gas, we would argue for the convergence towards
the lower end, but the convergence globally.
The two together- the convergence across energies,
the convergence across regions- lead to effectively
a world with more abundant, cleaner, cheaper
and reliable energy.
So, it is a good news for the world in general.
But there are obviously major winners and
losers in the process.
The thesis was reinforced and not only proven
but reinforced with the passage of time and
events.
And it was structured with what we call flatteners.
Flatteners are forces at play that contribute
to these flatteners.
They're obviously also inhibitors.
But it's a very comprehensive framework that
understands and analyzes all the pieces.
Within that, perhaps very importantly, we
challenge along with my coauthor, Daniel Lacallewe
challenged a number of beliefs that were held
very strongly in the market, which can lead
to gross mistakes.
So, major winners and losers in the process.
Within the framework, and I think it's timely
to review, I think there are two main pieces.
We've sliced the problem and opportunity slightly
different.
The first one is what I would call the battle
for demand, which is well understood.
The second is the battle for supply.
So, let's look into both of them in slightly
more detail.
Let's start with a battle for supply.
This is effectively some kind of civil war
between, let's say the energy producers and
is generally being a very siloed dynamic.
So, we look at crude oil, for example.
And we have this kind of civil war between
the different technologies, regions and processes.
So, we've seen how conventional crude oil
extraction has been competing with more unconventional
and newer technologies, whether it's Canadian
oil sands, or shale, or others and how the
different countries whether Saudi or Russia
or the US and the exporter dynamic.
So, this battle for supply and obviously,
the long-term impact of the survival of the
cheapest and most reliable one has been very
acute and has been driven primarily in the
last few years with the entrance of a new
technology being shale with horizontal drilling
and fracking.
So, these dynamics, there's been a number
of game changers, which have dramatically
shifted the regime of the oil market, and
I think is worth discussing shale in some
degree of detail and how it's changed the
old regime.
In the olden days, we were pre-shale, we were
looking at processes, where if someone gave
us green light for developing oil in Alaska,
it would take 10, or probably closer to 15
years, since the green light 'til the first
drop of oil is actually in our cars.
These are incredibly long periods.
But this is the reality in the dynamic that
we faced for decades, which forced us to go
into technologies, such as Ultra Deep Oil
where we were looking for oil 15 kilometers
deep with one mile of salt in the coast of
Brazil, for example.
Incredibly expensive technologies that effectively
were economic on a marginal basis in that
old regime.
The entrance of shale was a game changer in
a number of ways.
First, it's large, it's significant.
There's been tremendous debate in whether
shale is a bluff or not.
But those resources are there.
They're huge.
The US is by no means the largest in these
reserves that are reasons why the US has been
leading, but the volume is very large, and
the technology works.
And it's there.
And it works at marginal prices that are substantially
lower as we will discuss in more detail, closer
perhaps or definitely lower than $60 a barrel.
But perhaps beyond the quantity and the marginal
cost, which are obviously game changers, the
key thing is the time to market.
So, we've been seeing a response in two ways.
First of all, from the green light to get
in those drops of oil is three to six months,
which is dramatically shorter than the 10
to 15 years we were used to.
And second, you can also open and close the
top, literally, without hurting the fields.
This is something that didn't happen before
where producers where if you stopped producing
in a low-price environment, you could dramatically
hurt the pressure on the field and therefore,
impact the resources negatively.
So, these dynamics have made shale in my view,
a real contender, a game changer.
And it has changed in the dynamics in multiple
ways.
So, the battle for supply is better understood
on the price section and on how it impacts.
The second part of the discussion in the thesis,
which is less understood is what I would call
the battle for demand.
And this is something that again, we're looking
at effectively different sources of energy-
be it crude or natural gas or coal or others
competing for demand.
And historically imposed, the 1970s, what
we saw is the energy world really divided
into two- the transportation, which has been
heavily dominated by crude oil, and by OPEC
and the other, i.e. mainly industrial and
power generation and others.
In that sense, what we've seen, and very often
when we talk about energy, we're talking about
transportation, we're talking about crude
oil.
That's been, let's say King Oil's turf, pretty
much undisturbed.
And what we've seen through the development
of other resources, in particular, the globalization
of natural gas and the development of the
energy broadband, as I call it.
The impact of the technology, which brought
natural gas in the US through shale to literally
$2/MMBTU which is about 12 to $15 per barrel
of oil equivalent and the fact that we had
Fukushima sending prices 10 times higher $20/MMBTU,
$120 with LNG.
This sharp difference, this sustained price
difference was a very strong price signal
that led to major investment in LNG.
It broke this duality of contracts that were
take-or-pay.
It created singles where we have liquefaction
that would find its way and it contributed
to the globalization of natural gas.
This is truly major, because natural gas went
from being an unreliable regional source of
energy to a more reliable, cheaper, of course,
environmentally friendly, but abundant source.
And that led this globalization of gas- it
has beenor it was in our view, a key challenger
in a number of ways for crude oil's dominance
in the transportation.
So, in that sense, the dynamics on the battle
for supply and this civil war across producers
for a given silo, and the dynamics on the
battle for demand, which are in a way breaking
these silos and interconnecting them, not
only in the power generation, which has always
been there, that dynamic of competition between
nuclear and coal and natural gas, and now,
renewables, but also in the transportation
space, which was pretty much oil's kingdom,
which is being challenged in a number of ways.
OPEC, it's been a major driver of oil prices,
pretty much since its creation in the '60s.
It was obviously behind the lot of the dynamics
that we saw in the '70s and as I just described,
this dynamic where the energy world broke
between transportation and others.
One of the key things that we- the concepts
or the beliefs or misconceptions that we challenged
in the book at the time, and that I think
is still not well enough understood is it's
this perception that OPEC's success has been
driven by an oligopoly of supply, meaning
I have the oil, therefore I control the price.
And it makes sense.
I would argue that the fact that there are
over 45% of let's say production, over 80%
of the proven reserves current that creates
this obvious control.
But I would argue that this is a necessary
but not sufficient condition for the success.
In that sense, we've seen also other markets
with very large dominance, which haven't had
the success of OPEC.
And the real reason is that it is not just
about an oligopoly of success.
It's not about I control oil, I control the
price.
What OPEC's success has been about is a monopoly
of demand.
So, when you have a situation where transportation
has been pretty much oil and oil products
whether it'swe talk a lot about oil, by the
way.
But what we're really using day today is gasoline,
is diesel, is jet fuel, is fuel oil.
So, in that sense, this dynamic where we have
the combination of strong demand growth and
the fact that crude had really no challengers-
for the reasons we discussed- means that the
actual real reason why OPEC has been successful
is the monopoly of demand.
And this can lead us to major mistakes and
so, I hear on a regular basis how people talk
indistinctively about the transportation demand
and oil demand.
Now, one of the arguments used for peak oil
was look, China and India are going to come
in with so many cars, that of course, oil
demand is going to continue to grow up forever.
And this is a basic mistake or misunderstanding,
because effectively, we're confusing transportation
demand, which indeed may or may not continue
to grow with oil demand.
Because it is perfectly possible that this
incremental demand might be met by other sources.
We've seen, obviously electric, but we'll
talk I guess in more detail about other drivers
such as natural gas and how it's played out
in LNG into heavy industries such as being
long-term transportation, and rail and buses
and many others.
So, I would start my- the first thought I
would leave with OPEC is yes, it's been incredibly
successful, but not just for the reasons that
you might think- which is the idea that they
control the supply, therefore they control
the price- but more because of their effectively
monopoly de facto over demand- which I would
question on a medium to long-term basis.
And in that sense, remember, this is really
a marginal barrel game.
So, it's not about- the averages is really
about the marginal barrel.
Now beyond that, and with this very big picture,
let's obviously, in the short to medium-term
OPEC is being and remains hugely influential
for the energy markets.
In particular, we are currently in a process
where OPEC and its current 15 members have
reached an agreement with a number of allies,
which brings them over to 24, including critically
people like Russia- which effectively have
agreed to cut about 1.2 million barrels since
January 2019.
Now, these 1.2 million barrels comes approximately
800,000, from OPEC.
400,000, from non-OPEC, where the big part
comes from Saudi- about 320, and Russia- 230.
So, together Russia and Saudi represent roughly
half of the cut of these 1.2 million barrels
a day with a number of other contributors.
These cuts are meaningful back to my point
on marginal economics, relatively small changes
in the supply can lead to significant changes
in prices due to the low elasticity of demand
on the consumption side- which is last time
I looked, it was about 2%, meaning 100% move
up in prices can actually adjust a 2% reduction.
So, you can see what major impact it could
have.
People talk about this new OPEC Plus de facto
expandingI call it ROPEC, because I do think
that it's really about Russia and Saudi, like
the meaningful players.
And this is something that has the rationale
here, this comes from post let's say 2014-2015,
when they led the market forces play.
Oil goes from 120 to sub-30.
But it broke another of the strong beliefs
in the market, which is the OPEC put, this
idea that Mommy Saudi and Daddy OPEC were
always going to be there able to control the
price.
But we saw that this dynamic effectively broke,
and as the price sold off, producers, who
at the end of the day, care about the fiscal
sidehow much money they earn, were actually
producing more- not less- in a low-price environment,
which effectively accelerated the process.
So, this conception, and this belief, this
misconception of the OPEC put proved to be
weak and something I presented before it happened
as the BTU that broke OPEC's back and something
that remains like a big challenge in the market.
So, I would argue that OPEC for the short
to medium-term will remain very powerful.
But the real rationale following this move
was inventories.
At the end of the day, a scenario where production
exceeds demand or consumption leads to an
increase in inventories.
And this increase in inventories, once it
reaches certain critical levels, and you approach
full storage effectively leads to the collapse
in spot prices- which creates these negative
dynamics.
Now, it was the high level of inventories
that really drove all the OPEC members to
get there and allies to get their act together.
And what we've seen is a normalization of
it's been a big success, is a normalization
of inventory levels closer to five-year averages,
which is the target that OPEC has.
They don't really want to be in either extreme.
Of course, by no means, you always want to
avoid the scenario with full inventories,
that is an absolute disaster for them.
But a market that is too tight, it can also
create problems because effectively, unlike
what common sense might tell you, these spikes
whether are geopolitically driven or other
can actually lead to strong supply responses.
And that's something that I think a lesson
learned by OPEC.
So, how does this translate into the crude
oil markets?
And let's start with Brent, which is a global,
more reliable benchmark, as most of WTI, West
Texas Intermediate, is subject to bottlenecks.
So, it may not be a fair reflection of the
actual dynamics on a global basis.
Brent is widely accepted as a more reliable.
What we've seen is a true roller coaster in
prices.
Over the past five years, we saw $120 oil
going all the way to sub-30.
But even in the last year, we've seen crude
going from closer to $85 to $50.
This, there are a number of drivers that we'll
discuss in more detail, not only micro supply
and demand driven, but also macro.
But beyond the price action in the front end,
I think I'd like to highlight a couple of
things which may not be on the radar for most
of the viewers.
The first one is long-term prices.
So, what we've seen is that whilst the front
has had, in the last year, a $35 range, call
it $32- sorry, $52 to $85, the long-term prices,
the five-year forwards have had a much, much
narrower move closer to about $10, somewhere
in the high 50s to the high 60s.
Now, this is critical to understand that is
a major change relative to previous past moves.
What the market is really telling you is this
dynamic that I described earlier with the
inventories, a scenario where the long-term
prices are more anchored to the 60-odd- around
$60 a barrel.
It's been influenced by a number of things,
but very heavily by the shale producers.
Effectively, they enjoyed the early days of
$120 oil and this almost free money.
The market collapsed and went way farther
than most people anticipated.
That created a mini energy crisis.
And the funding, the ability to actually pursue
these projects has been since heavily influenced
by a much more cautious approach.
So, what we see, and all this debate about
when and what price level is shale, economic
or not, the proofs and the pudding.
At the end of the day, the producers are quite
happy to lock in at this proportion of their
production, prices around $60 a barrel, which
gives you a strong confirmation that they're
actually- they generate profits, they're highly
economical below that.
This has acted as a key, let's say anchor
in long-term prices.
This is different, in some ways to how the
previous spikes happened.
And in particular, I would say 2007-2008.
At that point in time, the rally in crude
oil to let's say 120 in the front had two
key dynamics.
One was a very steep contango, where long
dated oil prices were substantially higher
than the spot based on this perception of
belief of peak oil and panic.
But that was almost free money for people
like Canadian oil sands and others who could
actually hedge in a contango market.
But it was also driven by the very, very strong
track spreads, effectively, the strong premium
and the value of the refined products, which
at the end of the day, is really what this
market is about is what we consume.
So, I would say that beyond the short-term
dynamics and the spot price, we also need
to pay close attention to this backend.
And this is something that I think OPEC- it
actually makes these move and higher prices
much more let's say durable.
It's a much healthier, if I may say, rally,
at least from the perspective of the producers.
Because they're keeping in check the threat
of entrance to some degree of other technologies
by just ignoring or letting the long-dated
prices go pretty much into the flow.
So, whether it is the actual hygiene or there's
a much more controlled process, I think it
works and it creates this dynamic of backwardation,
which is really good news for the producers.
A relatively small cut- we're talking about
1.2 million barrels a day in a market roughly,
let's say 100.
It's tiny.
The fact that Saudi's cut in 320, relative
to the 10 to 11, that there are a million
that they're producing.
It's a very small cut to a much significant
price increase.
So, it's a no-brainer for the producers to
play that game and keep those and enjoy those
high prices.
The fact that they can do that without the
threat of all these other technologies makes
this a lot cleaner.
The third comment I would make is that if
you look at the graph, there's some small
subtle dynamics, but very, very relevant,
which is the shape of the curve, not just,
let's say the front of the five-year, but
the first few spreads.
And the first few spreads in contango, if
we see what happened roughly a year ago, I
think in August, prices were pretty close
to where we are today in the low mid-70s.
But the market was in contango in the front.
Today, we have the same prices, but it's steady
backwardation.
This is fine print.
But it's big difference for the energy markets.
Frontend contango tells you, hey, the inventories
are closer, much more fuller, we are not so
concerned about the physical.
It tells you a little bit about the health
of the physical markets.
And what we're seeing today is with a similar
price and arguably lower forward, we also
see longer forward, we also see tighter spreads
in the front.
It is hugely relevant and significant in my
view.
And it's a key driver to watch.
Because whilst the prices might lie or might
be distorted by other factors, the time spreads,
the shape of the curve is generally a very,
very good and reliable indicator.
So, the fact that the frontend spreads are
backwardated tell me that this is for real.
This is something that is the market's a lot
more robust arguably than it was with the
same price level and contango in the front.
Within the context of OPEC cuts as we've seen
1.2 million barrels, one of the big drivers
and perhaps the wild card in the energy, in
the crude market has been Iran.
We are well aware of the disputes, the nuclear
accords and how Trump decides to effectively
review those and reinstate sanctions.
Iran is not only in reserves, but also in
production is huge relative to the 1.2 million
barrels per day of cut by OPEC.
We're talking about Iran, a country that it's
been producing 3.8 close to 4 million barrels,
exporting under normal conditions north of
2.3.
Trump has been said to effectively want those
exports to go literally to zero.
And it's been a bit of a political wildcard
because as we can see, the impact of switching
on and off Iran is twice bigger in quantity,
potentially, than the OPEC cuts and we understand
the power of this marginal economics.
So, the fact that those sanctions are fully
applied is huge.
It's huge for obviously, Iran, who suffers
in a number of ways.
It suffers.
It's also big news for the marginal economic
of the barrel.
But what we've seen is this wild card being
played also so in the form of waivers.
And that actually contributed heavily to the
speed of the selloff in a way.
Yes, Trump might want to hurt Iran, but then
when this translates into much, much higher
oil prices, then he will agree to do some
waivers which are expiring or have just expired.
So, Iran is and will continue to be a key
driver of the energy markets.
I would say that is very difficult to model.
But I would argue that if prices do spike
significantly, the waivers will come back.
Yes, or yes, in one way or another.
The consumers, whether it's China or India
or Turkey or Greece or even Italy- countries
that would be heavily negatively impacted
by this will have enormous pressure and obviously,
it leads to other questions, such as compliance,
etc.
But we have seen compliance, perhaps taking
place when it's been done.
I would just caution against this wildcard,
which can effectively lead and contribute
to the swings fairly quickly in that sense
that the order of magnitude and the relevance
for crude is very, very important.
Moving from the crude oil side which, as I
said, we talk about crude oil all the time,
but nobody actually buys crude oil other than
the refiners pretty much and the specs.
It's all about the product.
It's all about the refined products.
It's all about diesel.
It's all about gasoline, is jet fuel, and
others.
I've highlighted a couple of key dynamics.
One, in the long term, we've seen the diesel,
Dieselgate, all these scandals leading to
significant debate and policy changes, which
obviously impact gasoline versus diesel.
But these have been pushed out quite a number
of years.
So, they are big changes, potentially.
But more on the medium longterm.
What is really driving- if you speak to anybody
involved in the oil markets from a day to
day basis, the key drivers is IMO 2020.
This is the effectively Maritime standards,
is the biggest change in environmental standards
pretty much ever, which is impacting the shipping
industry by effectively removing the ability
to burn high sulfur fuel oil for imposing
much higher standards.
And whilst the fuel on market is roughly about
7% of the demand, about 7 million barrels
per day, you can actually have huge influence
in a number of ways.
The alternatives and the timeline is really
close.
We're talking about Jan 2020.
We're talking about limited options.
So, if you're a ship, you either install a
scrubber to desulfurize.
There's long queues and prices and bottlenecks
involved in the process.
That's, let's say, option one.
The second one is to go and buy the cleaner
products, which in itself puts pressure on
the refining side where the ability to deliver
these cleaner products is not something that
we can just do like this.
It takes time and prices.
Or third, in the short-term, we could have
other than demand destruction and other drivers
and mix of fuels.
The view is that beyond- there's going to
be a significant impact on the middle distillates
where it's not just about diesel, it's also
about other sectors, including jet fuel.
So, the question is, will it be implemented?
What volume and price impact will it have?
The general view is that environmental issues
are just too high in the agenda, ESG, 80%
of the ships are controlled by about 20% of
firms which are heavily focused on ESG compliance.
So, the general view is that it is going to
be accepted and implemented.
The problem is the numbers vary, but people
are talking about one to one and a half million
barrels of incremental demand for the middle
distillates.
If you add that to OPEC, you add that to Iran,
it really starts painting a pretty one-way
picture in some ways to the point that as
I said earlier, once it starts having a significant
impact, there's always the risk of delays
or other.
So, you are playing once again with a number
of variables that are harder to control and
they can effectively go on and off.
And with significant impact.
What we see in the market in terms of price
action, we've seen the Gasoil diesel cracks
about $12.
It's the medium to lower range of historical.
However, the curve, if you look at the shape
of the forwards is quite reasonably contangoed.
So, medium long-term spreads are closer to
$17 a barrel through the combination of backwardation
in crude and a little bit of flat-ish products
in contango.
This to put it in perspective, in 2007, 2008,
we saw these spreads blowing beyond $40 a
barrel.
So, it is possible that we could see significant
price move and a number of the investors in
this space see some opportunity here, which
again, was we look at the crude oil prices
on a day to day basis, fewer people look at
the actual impact, the real one, which is
crude plus the crack, it's the differential.
So, we could see that it's a significant move.
So, I would say that other than that, the
demand and the demand growth for products
remains robust, inventories remain at adequate
levels.
But this risk of IMO- based on where the spreads
are, where the cracks are, the risk is probably
skewed to higher.
But we've seen this movie before and many
times and we see how, in my view, you need
to watch for that really binary event of it's
not inconceivable to see spike, and then what
I think is one of number one rule of investment
game is they can't change the rules.
So, I think if things go significantly against
the interests of the US and a number of other
key players, then those rules could change.
So, beyond the crude and products, which are
obviously very important, they're very relevant.
And there's obviously the energy space is
much broader, I would highlight natural gas,
as perhaps one of the most important and perhaps
or not well enough understood, and the impact
that it has both on the battle for supply
and the technology and how the dynamics have
resulted in major growth, and also the dynamics
like the flattening of the energy world and
how this has created a much more global and
abundant.
This becomes really relevant when you compare
the current prices and the forwards for crude
oil and natural gas in "apples with apples"
terms.
So, you might see, again, even with the current
lower forward structure as we discussed with
five-year oil around 60 plus, we see how natural
gas in the US- it's roughly in the region
of $12 to $15 even slightly higher, but sub
$20 a barrel of oil equivalent.
This is a major flattener.
We saw, for example, and this is something
I highlighted long before, Warren Buffett,
when he bought the BNSF, one of the largest
railway companies in North America.
At the time, it was the second largest consumer
of diesel in North America, only behind the
US military.
Now, Warren Buffett amongst many other great
ideas and rationale to do this, I think humbly,
it was an energy play.
He knew those trains were paying $160 a barrel
for diesel with 120 plus the spreads.
He knew that natural gas was suddenly shifted
from being the US being an importer and unreliable
and expensive source to effectively having
hundreds of years of proven reserves without
any threat from OPEC at low prices with reliable,
abundant and of course, very clean.
So, the idea of shifting those trains as a
one-off from diesel to natural gas in the
form of LNG makes a lot of sense or made a
lot of sense.
And it's something that I believe he was part
of the idea and it's been done.
But as a flattener, think about the impact
of the second largest consumer of diesel in
North America, suddenly consuming less barrels
of diesel and obviously, consuming something
else being in this case, natural gas.
But all those barrels of diesel that Warren
Buffett doesn't consume anymore, are suddenly
available for somebody else.
And the product experts that did not apply
to products, didn't apply for a while to crude.
But effectively, what you see as a flattener
is that for heavy transport, such as trains,
which go from point A to B, and then they
don't need to stop in the middle for gas station
type.
These guys who can build their infrastructure,
it was a ginormous incentive economy economic
to effectively switch.
And this is a key driver.
Renewables have been also another key driver
and dynamic in the market.
And this is something that I discussed really,
a big picture already a long time ago, when
you look about for example, solar or wind.
I've always been much more positive on solar,
simply in keeping it very basic.
It's almost the difference between physics
and chemistry, right?
When you have wind blowing, our ability to
convert that, the efficiency is already at
asymptotic levels.
We are already- from an engineering perspective,
and for a long time, pretty much maxed out
in terms of how efficient the wind can be.
However, the solar to me, it's been a bit
more like the mega pixels in your phone.
You have seen dramatic increases in terms
of the efficiency and the cost.
So, what we've seen in the last few years
is how solar is actually come in and is now
able to compete on its own.
No need for subsidies.
This is a significant game changer.
So, effectively, we've given preference to
renewables when that means that when the wind
blows, then suddenly, energy kicks in and
with solar- when the sun shines, or in different
ways you get that.
And the fact that we now have volatility of
demand and volatility of supply makes the
balancing act much more difficult.
So, it is fascinating how the dynamics are
impacting beyond crude and natural gas and
renewables.
Coal is really one of the biggest losers of
this, the flattening of the energy world.
It's been hit by environmental issues.
It's been hit by the growth of natural gas.
But ironically, I'm actually very bullish
on clean coal and other technologies.
Because at the end of the day, once coal is
so cheap, that is actually worth burning that
coal, as long as you do something about the
capturing of the CO2 and others.
So, all these dynamics keep pushing us into
number of dimensions, which I think contribute
to the flattening in general.
And in what we've seen is some of these silos
in the energy world, you would have an expert
in crude oil who had absolutely no idea about
the natural gas or renewables or coal.
This is something that we challenged.
And I believe that we are starting to see
much more interaction.
This is not everybody understands how Saudi
might be very successful cutting the marginal
barrel of supply, and therefore creating the
prices high.
But people seem to forget the mirror image,
which is every electric car or every LNG on
the demand side is also one barrel on the
margin.
So, to summarize, I would say that from a
big picture perspective, the flattening of
the energy world is relentless.
The convergence across energies, the convergence
across regions, the battle for demand, the
battle for supply- these are all contributing
in many ways to what most of us or what the
world or something would benefit which is
lower energy prices, abundant, cleaner, reliable.
However, there are significant challenges
in the short to medium-term.
OPEC continues to have a stronger grip in
the market.
Iran, it's a wild card that will continue
to add significant volatility.
And environmental standards such as IMO 2020
will and can potentially add additional pressure
to prices.
So, whilst the long picture might be more
subdued, and lead to this positive news, we
need to be mindful and careful of these spikes
and the potential response which could come
very quickly from the market.
So, I think brace yourself for potentially
more volatility whilst the market keeps advancing
in hopefully, the right way.
