 Hey, it's three o'clock. I'm Jay Fidel. This is ThinkTech. More specifically, this is Energy in America. And that's Lou Pugliarisi, the handsome fellow on the other side. And the title of our show is The International Energy Agency releases its post-COVID world energy outlook. I'm so interested to hear what happened here. But you know, first, Lou, welcome to the show. And second, what is the International Energy Agency? So I thought we should talk about that for a second. So if you recall, perhaps you and I are the only ones who could think back this far. In 1973 and 74, we had enormous gas lines in the United States. I thought you had them in Hawaii, but in the continental United States, in the mainland, we certainly had them. And the United States and much of the Western world who were large net importers of crude oil and petroleum products suffered under an embargo by certain Arab members of the Organization of Oil Exporting States, or OPEC. And that disruption was viewed as a serious, not just an economic, but a security threat to the industrialized democracies. At the time, we were still in a major confrontation with the Soviet Union. China was just a kind of what you call the hidden kingdom or the dark kingdom. We didn't know much about China, except that Mao was there. And there was enormous concern. So Henry Kissinger and the Western began to negotiate a joint agreement between the major industrialized democracies, a kind of subset of NATO, or mostly NATO countries, to share supplies in an oil emergency and begin to undertake collective action, including a lot of research, on what we should do about the growing problem of and the security threat from the importation of insecure and expensive imports of crude oil. And so the IEA was born in that period. And since then, it's a membership has expanded, with the OECD has expanded. It even has a number of associate members and has regular contact with countries who are not members such as China and India. So the International Energy Agency is now the considered many respects, not only the gold standard and what's happening to world petroleum markets, or what's what should we do about policies. It has also taken on the mantle of looking at what does the West need to do to address the climate threat. Oh, interesting. So what influence does it have? What power does it have? So part of its power is that the ministers, the energy ministers or economic ministers of the major OECD countries participate in its proceedings and give policy advice, guide it, guide its direction. So it's it has a lot of standing as a political institution, but it's also it's although we might from time to time quibble with some of their estimates and the kinds of things they work on, I would say they are considered quite authoritative on what's happening in the world energy markets. Not only that, what the future, what does the future look like in all kinds of areas of nuclear power, renewables, oil and gas, what's the nature of the climate challenge in front of us, and what should we be doing to address it? This is major. How often do they meet? Where do they meet? Do they rotate? The International Energy Agency has a full time director, executive director. It's a political appointment that rotates, but it's now by a man by the name of Fatih Birol. He is a Turk. He has been in that position for well over six or seven years. I presume it will rotate at some time in the past. Generally, the way it works is a non US member is the executive director and a US member is always the deputy director. So it's part of our deal with the European tradition. It's been a European a few years ago. We did have a Japanese executive director and it's a very important organization in the world energy community. Does it stand in good graces with this administration? So many international agencies have been shot. As far as I know, yes, it was quite active in the recent negotiations with OPEC. It played a large role in the negotiations with OPEC during the first stages of the demand collapse. DOE and Secretary Broulette regularly attends meetings there. Fatih Birol has met with President Trump. It is an organization that has recorded extensively both the unconventional revolution in oil and gas production in the US and the shale gas revolution. And it is the big proponent of the expansion of natural gas as a bridge fuel for addressing climate issues. Okay, so you mentioned that. You mentioned that they're interested. This organization, let's call it the IEA, has interest and tries to develop policy around climate change. But what about renewables? I hate to use this term, but what about green energy? So it does a lot of work on green energy. It provides guidance on strategies for implementing aggressive green energy strategies, wind and solar. Many of their reports, some of their reports they charge money for because they're suffering a budget constraints like all of us, but much of their work is available in open source material. So either work, they've done a lot of work on and they do these major audits. They do an audit of the other members like Mexico or Switzerland or France and I think they've done some major assessments of China and India as well. And these are public? These are all public. Everything is published. Occasionally they have to pay for it, but everything is published. So if I go to their website, it's easy enough to find it. The International Energy Agency, I'll be able to find a lot of their work there. You will, you will. And we have presented before the staff there and we participated in both OECD programs and IEA programs in other countries. Okay, so let's get to the meat here. This is the outlook, I guess that's a report that they released. This is quite important. Once a year they put together a long-term outlook and they tried to look out 20, 30 years. Looking at 20, 30 years in the energy world is a mug's game, so to speak. It's very tough to do. We are in the process ourselves now at looking at the history of energy modeling and I should have shown you one of the charts. It's just hilarious. The ability to figure out what the future holds, even with a lot of brain power, is enormously difficult and there are a lot of surprises on the technology side, a lot of surprises on consumer behavior and there's a lot of surprises on the supply side. For example, the shale gas revolution in the United States was a major world disruptive event in the sense that I would say five, 10 years ago, 10 to 12 years ago, U.S. energy planners, U.S. capital expenditures were being spent at huge rates including large plans for the U.S. to build importation facilities for LNG and we're talking at one time the plans were for as much as 40 major LNG importation facilities throughout the United States and natural gas now which is priced at $2.88 or $3 was routinely priced in the United States at $10 to $12 a thousand cubic feet of million BTU. So you could think about what the disruptive nature of that is in a very short time the U.S. went from expectations of becoming a major importer of natural gas to now expectations of being a major exporter of natural gas. Yeah it's interesting over the past few years but you mentioned other factors. A little comment in there. All these people who want to stop shale production. Well have they succeeded? They had thought about it. If they knew it was coming and they had been able to stop it 15 years ago, we would be a major importer of natural gas and dependent upon everything from Arab sheathdoms to other less than friendly sources for our natural gas. You didn't mention other factors that might affect the the planning process and I let me throw some things that come to my mind about it. Number one is you do have activist groups around the world. I'm not sure how strong they are relative to a year or two ago. I mean COVID has affected everything but that's a factor that would that would certainly influence planning. The other factor that strikes me is the geopolitical developments. I mean for example hostilities, border skirmishes, you know supply demand. You did mention supply demand but supply demand arguments. For example the pipeline from Russia to Germany. Those things could affect planning and you don't know how it's going to work out. Yes of course the U.S. has taken a very hard line on that. I mean presumably Putin is Trump's friend but he's taken an extremely hard line on that pipeline but Angela Merkel is not going for that. She sees the political relationship with Russia at a different plane than the Nord Stream 2 project which is this pipeline you're talking about as a commercial project which is separate from the political relationship. Hopefully so but let me ask you one more question before we get into the slides and you know a substantive discussion of their outlook on post-COVID. You know we recently had this deal between Israel and the Emirates. How does that and thus a change in the complexion of the Middle East? A change in the tone if you will of the geopolitics in the Middle East have changed. I mean rather quickly and query how does that affect the whole you know energy phenomenon. Actually that's an interesting point that people haven't talked too much about. If you think about the shift in expectations partly because of an a lot not just because of but largely because of the shale gas oil and gas revolution in the U.S. and the U.S. as a energy-dominated player if you like the Trump one but actually a net exporter if you take Canada, Mexico and our integrated market the North America is a net exporter of oil and gas to the world. We are not a net importer so you shift out all the pluses and the minuses more oil and gas goes out of North America then comes in and so that is probably be one of the main features that the long-run price of oil is going to be closer to $50 a barrel than it is going to be 100 and the long-run price of gas is treated in the Asia-Pacific markets probably would be closer to $6 than it is to $12 or $14 and that has had a big effect on many Petro states it's lowered their their outlaw their income it's reduced their their geopolitical maneuverability it's hurt their leverage particularly in regional rivalries and I would suggest it probably does factor into the fact into the I mean Iran does as well but the era I would say the Gulf Arab states very much worried about Iran their ability to wield the oil weapon as a leverage against the Western powers is a lot more difficult and probably making peace with Israel is not a bad outcome for them right now. Yeah okay well let's let's talk about the report itself from the IEA you have a bunch of slides this is going to be really interesting to see what they think and in the context of a very difficult planning process. Yeah so let's take a look first at what happened let's look at the first picture so I think this is very interesting so this shows you what happened in one year and so and that there's several let's say metrics here that are worth looking at the first one as you can see is coal so coal consumption in the world is declined by seven percent in just one year and by the way Eprinc along with probably our sister think tank in Japan and with some experts from China and India are going to do a webinar on is the demise of coal you know the potential death of coal is it overestimated and I think it's going to be very interesting because of the post-COVID era we think there's going to be some resistance to moving away from coal to more expensive fuels and we're going to have a little discussion about that and see here that and by the way these numbers like the reduction in gas the percentage reduction in oil all of these are because demand has collapsed around the world because another all of a sudden people said okay well let's let's save some energy and let's go green that's not what's happening people ran out of money they stopped driving they stopped using factories were shut down and this is what happened nuclear power consumption nuclear powers declined interestingly enough there's continued to be some momentum growth for renewables you can see that here about a one percent less than one percent but total energy demand and by the way these are colossal numbers we have never seen anything like this usually what happens demand might flatten out and people will argue over the whether it's going to go three percent or two percent or four percent to see demand drop like this at a at such a massive amount is really unprecedented and of course one of the benefits of this is we've had a major reduction in CO2 emissions right you can see total energy demand CO2 emissions are down down seven percent so while you're sitting at Starbucks with a new job you can take you can take you know uh solace in the fact that your carbon footprint is going down rarely quite rapidly and then finally the thing that's very worrisome to me is the massive loss in energy investment you can see that as the prices of these energy commodities have declined energy investment is dropped by 18 percent does that mean loss of investment or a reduction in investment going forward yeah so there was let's say we were going to invest a hundred now for the plans were for 2020 this is versus whatever we invested in 2019 we invested 18 percent less so we invested a hundred dollars in 2019 we're down to 82 dollars you know what's interesting about that is investors that investors are always looking to the future they're trying to figure out what's going to happen and when you see that kind of reduction and it's a statement by I guess a lot of investors for a lot of investment where they don't believe that this chart is going to recover back to normalcy and we'll talk about that I do think that there is we've seen this before where one of the problems with oil and gas is it's a long-term play and but what happens is cash does it really fit into traditional economic theory but cash flow makes a difference and if uh if people stop buying your stuff your cash flow falls and your board of directors and your stockholders say look you have to stop the bleeding and you might go around say look you know this is a good idea in 10 years we're going to need this well it's okay let's let's wait a while before we decide that so I do think this is uh a good a good point because we may pay the piper on the other end in terms of higher prices now if you look you know one one thing to ask though Lou is that you know okay so I have less economic activity less emissions and and there's a connection obviously between the amount of investment in energy in general because the demand is so reduced but what was the lag time between the time was obvious that the economies of the world were declining and the time the prices declined and the investment declined did they get it right away or did it take a while it was very of course it took a few it was weeks not months because when the demand that's such an unprecedented you know I've heard one commentary say look it says if the government because they did the lockdowns drove an f-150 through your front window that was a big loss and you took it immediately and this is part of my personal view that lockdown the consequences of lockdown have now become so widespread so devastating no government is going to do it again they might do selected protections of the geyser population you know people like me but they're not going we're not going to see massive lockdowns anywhere in the world going I think it's clear maybe we've learned a few things about hopefully we've gotten smart yeah and it's nuanced or it should be a nuanced approach so if you look at average annual growth going out the neck if you look at the next say the next 10 to 15 years in 10 years the IEA is now looked at a comparison of what they call pre-crisis stated policy scenario so stated policy scenario is what business as usual as we're organized now whatever feed-in tariffs we have whatever we have now that we view that is kind of set nothing new but no rollback so that's the blue bar and that delayed recovery scenario in which we have further development and we don't we're not you know we're actually pulling back a bit I think it's interesting to look at and so if we look at what primary energy demand looks like going forward it gives us a sense of what it's going to take to get back to where we were in 2019 now what year can we get back in 2019 given what's happening now on these two scenarios if you take a look at the next picture but let me ask you one about this so you mentioned that this assumes that there won't be any significant rollback of tariffs and the policy around tariffs whatever the tariffs are now they stay in place I don't think but there may be a significant change with a change in administration but I don't affect the change in the chart no yeah I don't think I think energy demand is not dramatically affected by tariffs unless you could make the case that the tariffs are having such a profound effect in global travel global economic activity tariffs do impose a cost these costs can be substantial but they're not enough to move the meter on this thing I don't think not not enough so that you can really see I mean I think I did see that there's been some research that the tariffs may have taken down a half a percent of GMP in the US I don't think they've had the worldwide effect and these are worldwide numbers so you look here at global primary energy demand growth by scenario and you can see here that if we get on what you may call a stated policy scenario we can kind of keep in place what we've got in terms of encouragement of investment we don't really roll back a lot of our initiatives for building out the new oil and gas development new power development renewable development we're not going to get back to where we were in 20 in 2019 to 2022 and with a delayed recovery scenario and that would assume a lot more lockdowns a lot more constraints on letting recovery in certain segments travel industry particularly we wouldn't get back to where we were until 2024 2025 so the COVID is going to take a very long a long a very near term hit in the world energy growth we had a vaccine come right away not that that's going to happen but we had a vaccine come in the near term and and and we had you know an economy that just took off with you know with pent up demand and pent up desire to make money pent up desire to work you know I mean it's been such a short time we've been in COVID that some of these some of these aspirations are are are huge but you can't realize them because everybody's scared about COVID but if if you if you if you let the thing just go all of a sudden the coast is clear seems to me you would have a remarkable recovery not actually I do think that the IEA is probably too conservative that they're not you know they're trying to pick some mid there's some midpoint consensus forecast but you know I like the your optimism I share it I think that this is a big problem in our whole society that we love these apocalyptic views of the world that we're all going to die and that everything that's happening is bad and in fact there is when inherent in the American system the American people a great deal of optimism and once we get the green light I think a lot of people talk about we're going to see revenge tourism you know people are going to start going places and I do think it'll recover I do think there will be some shifts people have learned how to do meetings with this zoom technology but I can tell you and and we we do we talk to each other we have folks in London and and in Japan and around the world and the zoom using it more has really brought us together as a as an institute but on the other hand getting together in person it's it's not the same and there's going to be a lot of interest in doing that so I think we may get a lot of efficiencies out of business meetings and things like this but it remains to be seen and then even so we go to the next picture one of the things that as we go forward right it's important to remember that we still have a lot of people without electricity so in any model and I think I've talked to you we've talked about this before we should be very careful with a rich man's view of how to deal with climate if we don't get these the carbon control technologies and these efficiency technologies migrated to the non OECD world it's not going to happen it's not going to have nearly the kinds of effect you need and if you think a bunch of people in Africa and you got in the you know the evenly specific countries in Africa which is now 600 million people without electricity they are not interested I think there's enormous opportunities for solar wind and hydropower and we did have a deep dive in Africa today which we could do sometime and I and I think there's a lot of potential in Africa with improving interconnections of the grid and cooperation but it's not a place that lends itself to that but we should talk about it on the show yes we have a very interesting uh program looking at Africa I do believe though that the Africans are going to feel a lot of pressure to accelerate their development of hydropower and they will want to use coal how they use that coal what kind of technologies is very important because they don't want intermittent power I think distributed solar can do a lot in Africa but they need a lot of baseload power okay so now here the next chart I think is a very a very interesting one and this is if we took everything we have operating now and then everything that's on the planning board which will be built in the next few years right and we only did that right that's all we did we just built which we which the for the blueprints the stuff we're going forward and everything that we have now in power industry and other our carbon emissions would not start to decline until not I mean it wouldn't substantially come down until you know 2040 to 2050 now keep in mind that chart on Africa that's not in this chart in other words not only do we have to not only do we have all this built in co2 emissions coming forward we're going to have a lot more so without some massive technological advances we're going to have a problem meeting the so-called you know two-degree targets yeah well that's that's a flip side of the question that I posed to you before I mean how long you know how long is the lag time so if you if you if you if you went to renewables how many years would it take to actually drop emissions on a global basis and that's a that's that's a great concern that it takes so long in fact if you go to the next picture and just to re-emphasize my point the red is what has happened between 1970 and the end of 2019 in co2 emissions for the non-oecd world means not Europe not Japan and South Korea not North America Africa Indo-Pacific Asia except for Japan and Korea but that is where that's where actually the low-hanging fruit is where the low cost solutions to reducing co2 and as I said if you go to my last and you know and so far when I go to these conferences when I talk to everyone it's like the man looking for his keys under the light under the street everybody in the west has got money and they're really good at figuring out transformation costs and how to do things but as as I as we point out that's not really where the play is on co2 it's a global problem so that gets back to my so to my last chart here which is a kind of summary of a recent virtual conference in Athens I will we won't we're probably running out of time here so let's not spend too much time on it but I do think that it's time for the the broader analytic community economics the community that I work to step back and thinking about this in a more holistic approach we have a as I said we have a preoccupation with mandates target and transitioning technologies but we're not really measuring where is the high payoff for the lowest amount of money right you know we're not doing a lot enough on timing of benefits and risk analysis and by the way we need to know about the economic environmental cost of net zero if you remember the little the movie we talked about if you're making those batteries and you're you know digging up all the cobalt mines in Africa with child labor and polluting the rivers and things well you need to know about that you need to include that all so I do and once again I just want to emphasize my view that I don't think supply constraints is a good solution for this this is not how you fix this problem you have to change our consumption patterns and you have to advance the technology and you need to transfer that and get people on board in the non-OC I I think that's really an enlightened loop yeah and this is a perfect opportunity for you and e-prink isn't it because you can see the picture you can see the global picture and now maybe COVID has sort of expanded all of our collective thinking about how to how to handle things going forward and you could be instrumental in taking a close analytic look at that you know but much like the other folks in the co post COVID world I suspect we'll be facing some extreme challenges next year to keep to keep going we have a plan but it's not going to be fun so my last question to you is we've been talking sort of in a combination of thoughts here one is what the IEA you know feels is the outlook and the other is is what Lou Plurici feels is the outlook so how is is there is there agreement between you and the IEA? I don't think they would necessarily disagree with these comments I don't think they would necessarily I think they would say well if we do this stuff in the west then we can transfer it or they can see what we're doing but I as I said before if you look at their documents and there's very little work being done to mitigate on the adaption which I think is really the near-term strategy a lot of people need to think about more clearly because we are not going to make some of these goals you know and we're going to have to adapt as well. This is a positive it's a positive side of COVID it's it requires you to rethink going forward. I agree. Take another look at it. Well Lou thank you very much this has really been very enlightening and I'm so glad we talked about this today and I hope that you can you know cover the the African question in the near-term and maybe the next show if possible. I'll have to take a look at it. Yeah we'll do that. Okay. Aloha Jay. Aloha, thanks so much.