 Back to ThinkTech, I'm Jay Fiedel. Here we are on a given Monday. And if you hadn't noticed, ThinkTech likes energy. We cover energy five times a week every single week. We have covered it for 10, 15, almost 20 years. And so whenever we stumble on somebody who can tell us about global energy, we go for that. And we found Hassan Ahmad, who is in Los Angeles now, who is a global energy guy, and he's willing to tell us about global energy. And we are so excited. Thank you, Hassan, for coming on the show. Thank you for having me, Jay. So tell us a little about why you're an expert in global energy. I ended up spending most of my career in the energy industry. I just sort of, I came into finance right, just before the shale revolution happened in 2006. And energy sector, it had a lot of geopolitics to it, which made it volatile, but with the shale, it ended up being a very capital intensive sector. And my background before that was in leveraged finance. So, after in the capital needs of the sector, factoring my leveraged finance background, and we went on a 12, 13 year ride of just tons of debt issuance, tons of restructurings, a lot of volatility in the sector, and a whole new shale industry. Yeah, and you're a graduate of the NYU Graduate Business School down in Wall Street. I used to call it a GBA when I went to the law school there. Now they call it the Stern School, probably because Mr. Stern was very generous in some underwriting he did for the school, but it's a wonderful school. It's probably the best business school in the world. In the world, and we have you here on the show, we're so excited to talk to somebody from the Stern School on oil and energy in general. So let's talk about, what has happened in the, this is prior to now, up till now. What has happened in renewables? And what has happened in oil? I mean, I know the US is exporting more oil now than it was. The US is exporting natural gas to beat the band. So where does that fit with renewables? How has our renewable initiative been doing? I'll start with sort of the technological demand side of the energy equation. Renewables are an industry that is on its life cycle, still in a relatively, you know, stage of efficiency. You need government subsidies to make it functional for the most part. There are places like California, which have so much sun, you know, the Mojave Desert, these different places where the cost of energy has come down dramatically. So much so that it's cheaper than almost any other source than maybe hydro, depending on the amount of things that you get. At the same time, the limitations of, you know, these technologies is storage. We don't have, and we're in the process of developing, you know, storage alternatives for solar. So for example, if you generate, you know, power on the grid from solar sources, you either have to use it in escape or you have to export it. And if you don't have a lot of storage capacity or storage technologies that allow you to use it at different times, it just goes away. That's why we need other, you know, alternative sources like oil and gas, you know, coal, we've moved away from quite a bit in this country, we think we need to do so. But yes, natural gas and oil are gonna be around for some time, despite sort of the limits of solar being and kind of the shape of kind of the mind. Yeah, the Trump administration has been encouraging to oil and gas in many ways. And maybe not so encouraging to renewables, but let me ask you that if you had a president and an administration that was more interested in renewables and you had a Congress that would back them up, you know, financially with tax credits and the like, this is a question that answers itself. Would we be doing better, more, you know, more ubiquitous on renewables? Sure, if you have federal level support, no doubt about it, you will do better. If you look at the states, state by state, you know, California has kind of led a lot of this renewable initiative. We, I'll give you an example of California. 10, 15 years ago, we had a very large, you know, independent power sector, power capacity in the state. If you remember back in the early 2000s, the rolling blackouts, you know, these types of issues, these power plants for the most part, they're no longer needed because we have the solar capacity in this state. So a lot of these power plants have a very profitable, profitable in the early 2000s, you know, late 2008, 2009 type timeframe. They're not even needed anymore. We still have them around because of, you know, we do need spare capacity in the event there is some sort of issue in the state. And the state, you know, like most states, pays these power plants to stay, you know, available. They call it capacity payments, but ultimately we don't need these. So it starts at the state level. And if you do have federal backing, it does make it that much easier. The federal government, unfortunately, you have to focus them on different things. So one of the things that the federal government is really good at doing is saying, here's a lot of money, but targeting it so that it's highly effective, a very different story. So they might put money to the auto sector, for example, to produce, you know, electric vehicles because they like the amount of jobs that come out of that. But they may not necessarily give money to battery storage and these types of issues because they may not produce a lot of jobs. That's really what we need though, right? The ability to store these things and make them more commercial and distributable. Yeah, that's a, I think that's a really critical point. I'm going to put that in my notes. Everybody, write this down, okay? The world of the utility is changing. It changed in California. It's probably going to change everywhere, including Hawaii. The old notion of having, you know, the hub and the spokes and all, you know, the people out there taking power directly from the utility. I think that's changing. It's over. We passed a tipping point. Am I right about that? It's going to be different going forward, isn't it? It's going to be different going forward. We, you know, every state has to deal with its own sets of issues. You know, for example, we go to Ohio. They have, you know, a large limited utility capacity base and some of these regular utility plants are nuclear power plants, okay? Nuclear power plant employs about 3,000 people. A natural gas facility employs about 400 people. You know, a solar panel facility employs very little people. So you're brushing up against these issues. And so the question becomes on every state level, it's not just what's good for the environment, it's also what's good for, you know, local employment. Yeah, is that the best way? Is that the best way, Hassan? Or should we have national leadership on that and do, you know, initiatives that are national? I think you have to establish the metrics for how we all think about things as a society, right? You know, in this country, there's a debate about even global warming, you know, from this to this issue. So that's our starting point. You know, if we all can get behind the fact that global warming essentially seems very, very, very possible and highly likely possible demand, then we can all agree upon some metrics, right? When do we reduce these emissions by? How do we reduce them? Who gets hurt? Who doesn't get hurt? You know, there are a lot of people in West Virginia who have been coal mining, you know, facilities for generations. It's a family thing. And they, you know, are seeing their livelihoods taken away. It's not being done nefariously, it's just being done through capitalism and technological change. And we need to find jobs for these people. At the same time, you know, it's really hard to sell people on changing their lifestyle and, you know, politically, it's a very hard message to get across. Yeah, sure. And we all have that, especially in the time of COVID. You mentioned nuclear energy. And I'm, you know, I'm attracted to a discussion of that. In Hawaii, we have a constitutional provision that prohibits it except on a vote and I think it's three quarters of the legislature. Not likely to happen politically. However, nuclear does have a lot to offer these days. And one wonders why we don't go into it, you know, in larger steps. What do you think? It's a two-pronged problem. One is, you know, nuclear is, from an emissions standpoint, it's excellent. There's very little emissions. From a risk standpoint, nobody wants to have a nuclear power plant built in your backyard. So I don't know the exact number, but I believe it's 25 or 30 years we have not had a new nuclear facility built in this country. You know, in fact, we're being decommissioned. I mean, you're not just seeing them in the States, you're seeing it in places like Germany, places like Japan, out in Fukushima. You know, there is a gap though in what the risks are and what has been done subsequent to these risks being discovered. So technology, from my understanding, has come a long, long way for what we have in the Hades. Unfortunately, they're just politically very difficult to sell back to people. And beyond that, they're very expensive. There's maybe two or three companies that I'm aware of, you know, commercially that could produce them in this country. And these, you know, these costs in the neighborhood of, you know, billions and billions of dollars, they are very capital-intensive, high-intensive, typically lower budget and lower time. Yeah, it's interesting. If we haven't built one since Three Mile Island or whenever that was back in the 70s, I guess, you'd have to marshal an awful lot of talent and resources and retrain everyone in the project. And how to do it, you know, because you really have to be safe and that requires expertise. But let me go back to your chart. You made a chart for our discussion today. Can we call up that chart and can you explain the chart about, I guess it's about oil, yeah? Yeah, I believe you were asking about, you know, we wanted to talk a little bit today about just what oil looks like in a post-COVID world. And like everything, I think we're all trying to figure out what 2021 and 2022 looked like. So what I did here was I sort of gave you what 2019 looked like as a sort of a starting point. So if you look at 2019, you know, we have global demand, which was roughly about a hundred million barrels and spending a million, 20 million barrels. We were producing just about the amount of 2019. So essentially in the industry, we called out, we were in balance. There was no major inventory builds. What the market needed is what the market got and that was the end of it. And then when you get to 2020, you know, we faced COVID starting in March and the fall off was dramatic. So we saw, you know, in the depths of March, Chinese demand fell about 10 million barrels a day itself. You know, it looks like over the course of 2020, the entire world will see demand fall about 10 million barrels a day. To give you an idea, in a normal year, you will see demand growth of about one million barrels a day. So we wiped out about 10 years worth of demand growth. And so the next question becomes, what is 2021? And that's like everybody's question. No one really knows for sure. You know, we are concentrated in what the stock market is showing you on the screens. We're facing a lot of issues. There are four million people who, you know, are in their homes and the ones who are going for it. Eight million people didn't get it in the last month. We have six million people with claims. That's continuing conditions, okay? So these are issues that we're gonna have to deal with in 2021 and it's not just in the state, it's global. There are a lot of countries, you know, suffering still from COVID and their balance sheets and, you know, consumer, corporate, sovereign, they're all in a really bad shape. So the question is, what's demand look like? So what I did here was, you know, we kind of, we looked at, you know, sort of, if we'd went back maybe half of the demand, if we talked about five million barrels a day, just for an example, see, what would that do to oil? Well, obviously demand helps push oil prices up. The real question that becomes one is supply. It's a two problem issue. OPEC today sits on about 12 million barrels of spirit capacity. We're sitting on a lot of inventory as well. At the bottom of that chart, we'll see days in inventory cover, which is essentially, you know, how much global inventory is sitting in OECD countries. It's set up about 10 days from 2019 to 2020. And if you look at, you know, OPEC having about 12 million barrels of spirit capacity, we have quite a bit of oil still in stock to deal with and a lot, you know, more behind it. In case we do that. So if I was going to see a big spike in oil, I would see 2021, sorry, post-2021, Father, will you see it? Because, you know, we will have better economic growth, hopefully by that point in time, and the inventory situation will correct itself. Yeah. I just wonder, this is sort of anecdotal, but so we just had an assassination in Iran, that could lead to further destabilization of the Middle East. I think that was clearly predictable for those who planned the assassination of Israel and the US, although there's general denial about that. And the question is, if we had a destabilization in the Middle East, if we had a war or, you know, some kind of, you know, destabilization in the Middle East, how would that affect supply? Because it used to be, everything had happened in the Middle East affected supply. It's not necessarily the case anymore. So what's the difference? And what would, you know, violence in the Middle East, what kind of effect would it have? The response I'd give is it really depends on the level of violence, right? If we're shutting down, you know, the Persian Gulf in barrels can't leave Saudi Arabia, Kuwait, Iraq, Iran, we have a problem. And so the real question becomes is how big is the violence gonna be? You know, all, without knowing for sure, all signs continue to point to sort of tit for tat type violence. Nobody wants to take it too far because they know the consequences are quite perilous. The nature of where we also sit in the world is, you know, I'll give you a good example. So last, I believe it was last year, early part of this year and then there's so much that's happening in 2020, but you had the attacks on the Saudi and knocked out about 10 million barrels a day. You know, we had a spike for about two weeks in oil and it came back to that again. The nice part about global oil dynamics right now is you have multiple sources, you know, a lot of inventory stored up in different places and our ability, especially in the United States, to respond with shale technology is quite quick. Shale produces the bulk majority of its reserves from a well within the first year or year and a half. So once you put that well online, it begins to produce quite dramatically. Well, that's pretty good. Good to hear. You know, diversity is always good. What about Indonesia? They're coming up in the world of oil. What about Pemex in Mexico? Are they coming up? We have the potential to. Indonesia's oil fields have stayed relatively, you know, tame on the growth side for a few years now. They are not really looking to develop a lot more. I think they've tried to attract foreign capital, but, you know, Indonesia is a difficult place to do business. So you have issues with, you know, not just in the oil industry, if you look at me for Mechmaran, they're in your compromise, these things, there's always, you know, strikes, government interference, so on and so forth. It's a difficult place to get business done. Mexico, also for the same reasons, a lot of difficulty getting business done and attracting capital. So Pemex has a lot of potential, but much of the money has been squandered for, you know, decades through corruption, you know, government interference, red tape. So the good thing from Mexico is they've been able to really rely on U.S. import stream. So, you know, not just, you mentioned oil being exported from this country at the beginning of this conversation, but also refined gasoline. Mexico has a shortage of refined, refined gasoline. How do refined gasoline is making these ways to help as we run into inventory for a supplier? Does Venezuela matter? Venezuela was a supplier now, I think they're kind of neutralized because they have political problems, but do they matter at all to us? They do. They have the largest, largest or second largest oil reserves in the world. So they do matter in the grand scheme of things. Number one, number two, their crude is a very unique type of crude. It's a, you know, a dirty crude. It's not pure kind of WTI crude that you see traded on the screens and, you know, on your exchanges. This is a crude that is actually, it requires a lot more work to be processed, but it trades at a much bigger discount to what you'll see on the exchange screens. So this crude actually is very advantageous to use if your refinery has the capacity to produce it into refined gasoline. Do you actually import Venezuelan barrels every day into this country? And it is very advantageous. It allows to kind of diversify the supply. And their crude is actually fairly easy to source. You just have to deal with the geopolitical tensions between the two countries. And it has been an ongoing battle. So to examine, you know, what happens in the pivot, I call it the pivot around COVID. You know, our lives have changed, our economy certainly has changed. Our use of energy has changed. I mean, one thing was obvious early on is that we're not feeding as much greenhouse gas into the atmosphere now because it's less economic activity, but there will be more economic activity. I wonder what you're thinking is about how our energy use will change, has changed and is changing and will change because of the pandemic and the end of the pandemic. Is it good? Is it bad? Is it neutral? What are the transformations in process? So I think the good place to start is what is going to be the behavior of everybody going forward? If you kind of look, you know, we all know we have vaccines now. I guess the bigger question was the, what is society's belief in? If you look at kind of the most recent polls, we're kind of looking in the range of 50 to 60% of people are willing to take them, which leaves a large chunk of society still not willing to take them. So if you kind of look at that as issue number one, you know, we're gonna be at a relatively depressed phase of, you know, activity that requires energy usage for let's say at least a year and a half until everyone either feels comfortable taking the vaccine or not. So that's the starting point. The second thing is, you know, as you and I talk on Zoom here, there's a large chunk of commercial real estate in this country that will no longer be needed from an office standpoint, right? People have learned that they don't need to go to the office to still do their work. There are technologies available. And there's probably gonna be my guess is, you know, some corporations might go fully work from home. There's gonna be some that say we're never gonna do that and there's gonna be everything in between. What we know though is that ultimately, going from where we were in 2019 to 2020 means less commuting, less, you know, visits to the office, less visits to your customers, more transactions done over the internet. So again, you will probably face an issue with what is our, you know, miles driven every year? How much do we really need that second car and the thing with these types of questions? All of those things, you know, are probably voting to suggesting a world of less energy intensity per person. Yeah, take a small, medium sized business right now, facing the end of the year, potentially a renewal of its lease and the management sits together and says, you know, do we really need this space? Maybe not. We've learned a lot using Zoom. Maybe we can do more or maybe you can do everything by Zoom. So our people won't have to go to the risk and we don't have to drive. We don't have to rent space downtown. There's so many benefits to it that it's inevitable. And the other part is, you know, suppose I'm wrong about this. Suppose I really do need space. Well, I can reverse that. I can go back into, you know, office space later because there will be plenty of it around. Landlords will suffer, but tenants, this is going to be a tenant marketer, I'm sure as we go forward. And it's not going to improve anytime immediately anyway. So the other thing is you're a hedge fund guy. You've been hither and yon, including what is it, Beach Boy, Beach Boy, what do you call that? The Beach Point, I worked for, from Consigna and Getty, so some interesting places. And you're consulting and investing and consulting with investors and the like. So I can't resist asking you, you know, where the gold is, so to speak. Should we be looking at oil and gash? Should we be looking at renewables? Are you optimistic about that? Should we be looking at, for example, we have geothermal and ORMAT. You must know about ORMAT out here in Hawaii. What's, what's, or a basket, a basket of energy stocks. Because it seems to me that, you know, it moves together and it may be moving in a good direction overall. So what do I do if I am inclined to vote for energy with my feet and my money? I would say the first thing to do is just realize we've had some very large moves in the energy sector. I just got done reading, we've had the best month in the energy sector performance-wise. So realize that we've had a big run, we're probably gonna see some pullbacks over the next couple of weeks and months. But if I, you know, if you ask me where would I put my money for the next three to five years, I would actually be looking at the oil sands companies, companies like Suncore, companies like Meg Energy, Husky Energy, these types of companies. The reason I go after the oil sands companies is they really don't need a lot of capital to function. Like I said, you know, with the energy sector, it's a very capital intensive sector. You typically get into trouble because the issue of one of the costs from the drilling programs and then the commodity price collapses and the whole thing becomes unsustainable. With the oil sands companies, they've already, for the most part, incurred the capital loss of the play. So they end up, you know, having these long production life cycles, 30, 40 years from some of these fields and they don't have to put too much incremental capital in them. So if oil prices go up, most of that marginal benefit costs to the investor. Yeah. And gas, isn't it the same thing with, you know, extraction of natural gas? The technology is already there. So it's all profit with greater volumes greater profit without greater expense, am I right? You're right in the sense that the technology is there and they've figured out a way to get it out of the ground fairly easily. The challenge in the United States is that unlike OPEC, we are not an organized, you know, group of producers. So everybody, it's every man for himself. And what ends up happening is any time you have spike in commodity prices, you know, they will all go, put rigs in the field and we need to begin producing again. So these spikes you've seen in commodity prices for the past couple of years, they're very short-lived and they end up kind of causing their own failures because they can't stay disciplined enough. And every year, you know, they say, we're gonna stay disciplined and every year they don't stay disciplined. The unfortunate part is, is that as an investor, if you look at some of these names, they haven't, you haven't done very well, even though natural gas prices and natural gas production has skyrocketed in this country for the past eight, 10 years. You think it'll stay that way? I think so long as interest rates are as low as they are, there's always gonna be investors willing to fund cash burning businesses, which most of the, which most of the shell companies are. What about technology? I'm really interested in, you know, you're talking about how technology is mature for certain kinds of energy, but isn't it so that the world is bristling with technology? It's not just the US and it's not just China, it's everywhere. I mean, it's just amazing what's happened to information technology. You can't find a country where there aren't cells of young people developing specialty software that is world-class everywhere is so interesting what's happening. And so there must be sort of a connection between that, between the information technology, the biochemistry, all that and energy. So there must be people working on better fuel cells, all that stuff. Where does that play in your analysis? So it's, the technology component is actually, it's kind of a long, long way in the shale production cycle. When we started, you know, we as an industry in the shale industry in 2006, we were drilling wells and getting X, what is called X, X amount of reserves per well per day out of these wells. Each well has probably become, you know, 80 to 100% more efficient over that life cycle, fairly from technology. Now we have, we used to have a person who would man the drill above the ground. And now we have an, you know, a computer that has to optimize the drilling path to make sure the cost is as low as possible. To capture the most reserves out of the well, to ensure the life cycle of the wells very long. And from a consumer standpoint, this is excellent, right? You want to have the cheapest cost of energy that wanna waste these wells. We figured out ways to, you know, go from 150 acre spacing between wells to now 75 to 45. So they're increasing not just the efficiency per well, but they're increasing the amount of locations in the field making it the energy cutter. And so again, these are all little technological advances that we've had and they add up over time. So it's been great from a consumer standpoint. You probably remember the days of natural gas being $16, $17 a unit. Even post, you know, pre-08, it was $10, $12 per unit. Natural gas will have moments where it works with $4 a unit and then we're back under 250 or so. And that's been the case for a long time. Well, we'd be able to hold on to the lead in natural gas because of that technology. We're in great shape with natural gas selling everywhere and lots of places we are going to be selling in. Can we stay ahead that way? I think so. I mean, natural gas, the shale rock in the United States is very unique. We don't typically see a lot of other places with high quality shale that we have in the States. So from a production standpoint, there's a lot of opportunity still in this country to find more natural gas and find other places. We also have the technology. They've made attempts, some of the big major companies have made attempts to take other places in the world with limited success. They just don't have the ability to find these types of acreage positions to scale up, to produce from, that you would find over here. So we do have the capability to keep it in this country to continue to grow it. So long as the capital markets stay open and people are willing to fund this drilling programs, then you're probably going to keep seeing growth. So should I be looking at short-term, intermediate term, long-term investments in energy? We have this remarkable transition going on now. And certainly Joe Biden is going to come up with some new policies. Do you have an idea what they might be and who his energies are is, I guess we do know that. And how is that going to affect my investment decisions going forward? I think a lot of every production cycle, we hear so-and-so save the shale industry and so-and-so gave birth to it. I mean, I've heard the last four presidents say that. So it's interesting, right? That when Biden came in, there was a lot of fear-mongering about his desire to take down the shale industry. And I think I'm sure he's going to say to his base what they want to hear, but ultimately we're not going to take eight million barrels a day of oil capacity out of the United States. That would just impact the world economy. So that will not happen. I think the Biden administration, as well as the Democratic Congress, is leaning more towards trying to fund clean energy. We've heard some things about a green new deal and such. We're still kind of waiting on the details for those types of things, right? I do think there's going to be an eye on battery storage, an eye on funding more solar, an eye on subsidizing people from transitioning out of coal mining jobs and from coal power plants to more, I should say less emitting technologies like natural gas. There will be a transition on that. I actually don't expect much to change from a targeting shale or not targeting shale standpoint. It's a big sector. A lot of money comes out of that sector into other portions of the economy. I think jobs and those are very valuable votes, especially in states like Pennsylvania. I have a dream, Hasan. My dream is that not too long after January 20th, we get back together again here on ThinkTech and we have a further discussion of the way it looks, at least from that vantage, because it'll be very interesting to see how things change. It won't only be direct changes by that administration on energy, it'll be the whole panoply of things that happen in other areas of policy that have a secondary effect on energy. So I hope you'll be available to me January, February, March, where we can circle back and continue this conversation. Thank you. Thank you, Hasan. Thank you for coming around. Hasan Ahmad, an expert, certainly global expert, a brilliant discussion on global energy. Thank you so much.