Latest / Bloomberg Intelligence / Elon Musk Pay, Energy in Focus

Transcript

Elon Musk Pay, Energy in Focus · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
0:10
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
0:15
Speaker 1: Eastern on fo card Playing and Broyd Auto with the
0:17
Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts,
0:21
Speaker 1: or watch us live on YouTube.
0:25
Speaker 2: I'm looking at Tesla.
0:26
Speaker 3: That stock has been in the news every day every
0:29
Speaker 3: day this year. The stock is really underperforming, down thirty
0:33
Speaker 3: seven percent, so it seems like an odd time for Tesla.
0:36
Speaker 2: We'll ask shareholders to.
0:37
Speaker 3: Vote again on the same fifty six billion dollar compensation
0:41
Speaker 3: package for chief executive officer Elon Musk that was avoided
0:44
Speaker 3: by a Delaware court early this year. Craig Trudell joins us.
0:48
Speaker 3: He covers all that Auto stuff for Bloomberg. It's just
0:53
Speaker 3: amazing here, Craig, it seems like an odd time to
0:56
Speaker 3: be asking for this monster's payday here.
1:00
Speaker 2: What's going on at Tesla? The board and Elon?
1:03
Speaker 4: Yeah, it's it's not a huge shock in that we
1:05
Speaker 4: we sort of heard the complaining about this ruling, uh
1:09
Speaker 4: as as soon as it hit, you know, we saw
1:12
Speaker 4: it play out on on X as you would expect.
1:15
Speaker 4: But it is I guess I was surprised to see that.
1:18
Speaker 4: You know, their their move here was to take the
1:21
Speaker 4: same plan and just put it back to the shareholders.
1:24
Speaker 4: It's a it's a fairly simple one, but it does
1:27
Speaker 4: seem like a pretty bold one, just given the very
1:30
Speaker 4: thorough uh you know case that was laid out by
1:33
Speaker 4: the Delaware Chance record, uh you know against the company
1:38
Speaker 4: in particular, particularly the board. I mean, the language that
1:42
Speaker 4: Judge Kathleen McCormick used was was pretty uh, pretty notable.
1:47
Speaker 4: She described the directors as and I quote, supine servants
1:51
Speaker 4: of an overwinning master. I mean, she just had a
1:54
Speaker 4: lot of mil zingers about this, about this board. And
1:59
Speaker 4: for them to you know, respond to that by you know,
2:03
Speaker 4: doing it over again is really something.
2:08
Speaker 5: Just to be clear, we're talking fifty six billion, like
2:11
Speaker 5: with a bee with.
2:13
Speaker 4: A bee, yeah, I mean, how do we get to
2:17
Speaker 4: that if you want to, if you want to defend
2:21
Speaker 4: the board here, of course they did. We constantly referred
2:25
Speaker 4: to this pay package as a moonshot award, right, and
2:28
Speaker 4: and it absolutely was. It was setting targets that nobody
2:32
Speaker 4: thought was was at all possible that the company wouldn't
2:36
Speaker 4: be able to pull off. It was it was based
2:39
Speaker 4: on performance of the company and its earnings and market value.
2:43
Speaker 4: And I think there was a combination of Musk absolutely
2:47
Speaker 4: pulling you know, miracles in terms of the earnings performance
2:51
Speaker 4: of this company that no one saw company comping coming.
2:54
Speaker 4: But it was also the case that you know, this
2:57
Speaker 4: company was the sort of poster boy for the zerp
3:00
Speaker 4: Era and you know, a mean stock, right, and we
3:04
Speaker 4: don't get there without you know, the enthusiasm that Musk
3:08
Speaker 4: manage to pull off. In addition to turning this company
3:11
Speaker 4: into a car company to really you know, take seriously.
3:17
Speaker 3: All right, So they're also looking to reincorporate I guess
3:21
Speaker 3: in a friendlier jurisdiction, maybe get out of Delaware and
3:24
Speaker 3: get to the great state of Texas.
3:26
Speaker 2: Is that all tied together with this?
3:29
Speaker 4: They interestingly do lay out in the proxy that they
3:32
Speaker 4: wanted to sort of put this to shareholders together. They
3:36
Speaker 4: didn't want to be perceived as basically running from Delaware
3:40
Speaker 4: in response to the ruling and going to Texas where
3:45
Speaker 4: they would be treated differently. They wanted to have shareholders,
3:49
Speaker 4: you know, get another opportunity to say yay or nay
3:52
Speaker 4: to this and give them an opportunity to weigh in
3:55
Speaker 4: on whether they should change the incorporation. I think it
3:58
Speaker 4: still remains to be seeing you know, just exactly how
4:02
Speaker 4: this can can work out, uh legally speaking, this idea
4:05
Speaker 4: that a court would make this ruling and and the
4:09
Speaker 4: company would, you know, basically just have shareholders perform a
4:14
Speaker 4: do over after the judge you know, said that they,
4:18
Speaker 4: you know, did not look out for the best interests
4:21
Speaker 4: of shareholders.
4:22
Speaker 1: Uh.
4:23
Speaker 4: You know, I guess if if you're Tesla, the argument
4:26
Speaker 4: you make here is that, well, you know, you just
4:28
Speaker 4: exposed this idea that that we apparently did enough and
4:32
Speaker 4: broke it down and uh, you know, pretty damning detail.
4:36
Speaker 4: The investors know. Now the shareholders can vote again, and
4:39
Speaker 4: if they vote in favor, then uh, you know, what's
4:43
Speaker 4: your what's your problem is essentially.
4:46
Speaker 5: Yeah, hither too. I want to transition to Continental, which
4:52
Speaker 5: is an autoparts company really that stuck us down over
4:56
Speaker 5: five percent over in Germany. And I say that because
4:59
Speaker 5: their results were worse than feared, and there's all points
5:02
Speaker 5: to the current auto market isn't doing too great. And
5:05
Speaker 5: then they also ev market isn't doing too great and
5:07
Speaker 5: for Continental, that squeezes on both sides.
5:11
Speaker 4: Yeah, I think they've been a company that really has
5:14
Speaker 4: struggled with this transition, you know, really like very very
5:19
Speaker 4: much been in a position of being caught flat footed
5:23
Speaker 4: in terms of being ready for electrification, and has made
5:28
Speaker 4: a lot of a lot of moves to try and
5:30
Speaker 4: address that that haven't gone particularly smoothly. And so, in
5:34
Speaker 4: addition to this idea that you know, the auto market
5:37
Speaker 4: is showing some signs of strain under the pressure of
5:41
Speaker 4: higher interest rates making it more difficult for consumers to
5:45
Speaker 4: be able to afford big, big purchases like a new car,
5:49
Speaker 4: it's also very much a case specific to this company
5:52
Speaker 4: where they're really trying to remake themselves and struggling to
5:56
Speaker 4: do so.
5:59
Speaker 2: Craig, We're where are we now?
6:00
Speaker 3: Just in kind of the markets perception of overall and
6:05
Speaker 3: demand for evs. I mean, is this just a bump
6:07
Speaker 3: in the road that an industry that's undergoing a long
6:11
Speaker 3: term transition should we should expect to see, or there's
6:14
Speaker 3: something more fundamental going on out there.
6:17
Speaker 4: Yeah, it's a good question, because I think even folks
6:20
Speaker 4: who covered this just religiously are our colleagues at Bloomberg
6:24
Speaker 4: New Energy Financed. I think they were initially reluctant to
6:28
Speaker 4: sort of come around to this idea of an ev
6:31
Speaker 4: slowdown and sort of you know, had a view that
6:35
Speaker 4: you know, people were more more pessimistic than was really warranted.
6:40
Speaker 4: And this was as you know, a lot of headlines
6:42
Speaker 4: were coming out late last year early this year, I
6:45
Speaker 4: think when when Tesla reported their first quarter deliveries and
6:49
Speaker 4: it came in so far short of of everyone's expectations.
6:53
Speaker 4: You know, the consensus was coming down and down going
6:57
Speaker 4: into that report, and yet even then the company came up,
7:00
Speaker 4: you know, tens of thousands of vehicles short of where
7:04
Speaker 4: people were seeing them, you know, report. I think even
7:08
Speaker 4: BNF now is very much concerned about, you know, the
7:13
Speaker 4: magnitude of deceleration that we've seen and the challenges that
7:17
Speaker 4: we're seeing, particularly in a market like the US, where
7:21
Speaker 4: you would think that at this point, you know, this
7:24
Speaker 4: many years into this transition, and with all the investments
7:27
Speaker 4: that companies are making, that surely we would start to
7:30
Speaker 4: see you know, more momentum or at least a healthier
7:35
Speaker 4: continuation of momentum. Instead, we've seen a real slow down,
7:39
Speaker 4: and I think you know, even even Biden's Inflation Reduction
7:42
Speaker 4: Act does a lot of the right things to try
7:45
Speaker 4: and you know, uh, move this this part of the
7:48
Speaker 4: industry forward, and yet executions has been a challenge.
7:54
Speaker 5: Hey, Craig, thanks a lot, Craig Trudell Bloomberg a Global
7:57
Speaker 5: Autos editor. Super appreciated and we are at a Bloomberg
8:00
Speaker 5: Ye ANYF conference right now. But I think, but that
8:03
Speaker 5: does point to the fact that we don't actually know
8:05
Speaker 5: how this will play out, and things are really lumpy,
8:08
Speaker 5: and you can be in a structural shift in different
8:11
Speaker 5: industries and still be a cyclical industry like auto auto
8:14
Speaker 5: industry is cyclical, right, so but you can still be
8:17
Speaker 5: in a structural shift. So all of these things can
8:19
Speaker 5: be true. It's just a matter of then how you
8:22
Speaker 5: price it. If you're an investor, that gets complicated.
8:24
Speaker 2: It does get complicated.
8:26
Speaker 3: And I just wonder to what extent if any, this
8:29
Speaker 3: ev transition, at least in the United States, has become
8:31
Speaker 3: politicized blue red totally, you know, And if that's in
8:36
Speaker 3: fact the case, then that really I think is a
8:39
Speaker 3: significant roadblock for the mass adoption, the mass volume that
8:42
Speaker 3: the economics demand to get the unit profitability there, because
8:45
Speaker 3: it's not you barely make a profit. It seventy or
8:47
Speaker 3: eighty thousand a car, and its Kevin Tyne and a
8:49
Speaker 3: Bloomberg Intelligence points out.
8:51
Speaker 2: How you're going to make a profit at thirty or
8:52
Speaker 2: forty thousand dollars.
8:53
Speaker 5: Yea, exactly, exactly.
8:56
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
9:00
Speaker 1: weekdays at ten am Eastern on applecar.
9:02
Speaker 6: Play and Android Auto with a Bloomberg Business Act.
9:05
Speaker 1: You can also listen live on Amazon Alexa from our
9:08
Speaker 1: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
9:13
Speaker 5: We are at Bloomberg an ef A Summit, Day two. So, Paul,
9:17
Speaker 5: one of my bigger takeaways from yesterday when we were
9:19
Speaker 5: here is that you have a lot of money being
9:23
Speaker 5: spent on stuff, and that's the good part. The other
9:26
Speaker 5: part is there's still a lot of uncertainty in terms
9:29
Speaker 5: of are we spending on the right stuff? Is the
9:31
Speaker 5: demand really there? Permitting is an issue, connection to lays
9:35
Speaker 5: trade issues. There's lots of stuff that we're trying to
9:38
Speaker 5: unpack here. One way to look at it is the
9:40
Speaker 5: importance of big energy in this space. So you need
9:44
Speaker 5: exon Chevron Shell total BP. You need these guys to
9:48
Speaker 5: put money in the right spot to really help turn
9:50
Speaker 5: things around. So one of those individuals we're going to
9:52
Speaker 5: talk to you right now is Jeff Gustavin. Nope, Gustafson,
9:57
Speaker 5: I can't do it. I asked him to say, gust Ofsen.
9:59
Speaker 5: It's V and the s Jeff, this is my problem.
10:02
Speaker 5: He's president of Chevron New Energies. He's been at Chevron
10:06
Speaker 5: for what was it twenty five years?
10:07
Speaker 7: You said twenty five years.
10:08
Speaker 5: We've belt lots of different positions. What brought you to
10:11
Speaker 5: the new energy part of Chevron? What's that like for you?
10:15
Speaker 7: Yeah, well, first of all, great to be here, thanks
10:17
Speaker 7: for having me. We launched these new businesses about three
10:22
Speaker 7: years ago. This is actually our third full year and
10:25
Speaker 7: it's a suite of businesses that support our lower carbon
10:29
Speaker 7: strategy as a company. There's two pieces to that. One
10:32
Speaker 7: is lowering the carbon intensity of our traditional oil.
10:35
Speaker 8: And gas business.
10:36
Speaker 7: The other part is growing new low carbon businesses and
10:39
Speaker 7: solutions to scale, and that's what Chevron New Energies is.
10:42
Speaker 7: We're focused on renewable fuels, carbon capture, utilization and storage,
10:47
Speaker 7: hydrogen carbon offsets, emerging technologies, and everything in between. This
10:54
Speaker 7: is something that's always been a passion of mine, the
10:58
Speaker 7: energy transition and low carbon energy. I love oil and gas.
11:03
Speaker 8: I grew up in.
11:03
Speaker 7: Oil and gas, but now shifting seeing a company like Chevron,
11:09
Speaker 7: with the capabilities we bring to this space, growing these
11:12
Speaker 7: new businesses. I couldn't be more excited about this role.
11:15
Speaker 3: And I always looked to the educational background of our
11:17
Speaker 3: guest because I think that's kind of fun.
11:19
Speaker 2: University of Colorado.
11:20
Speaker 3: He's a buffalo, that's big, and he's also got his
11:23
Speaker 3: NBA from the Red Macombs School of Business at the
11:26
Speaker 3: University of Texas. Red Macombs is a co founder of
11:28
Speaker 3: Clear Channel, little radio company. I took public back in
11:31
Speaker 3: the day, so I know read pretty well. And Larry
11:34
Speaker 3: Mays like this, likes to say, Hey, I got my
11:36
Speaker 3: name on the NBA program in Texas a and in
11:38
Speaker 3: for ten million, Red you spent fifteen million.
11:40
Speaker 2: I got a better deal.
11:41
Speaker 5: You got a better deal.
11:42
Speaker 2: Yeah, Jeff, what is I don't know.
11:44
Speaker 3: If you fast forward five years from now, ten years
11:46
Speaker 3: from now, how do you guys think about sustainable energy
11:50
Speaker 3: as a part of the overall portfolio of Chevron. What
11:52
Speaker 3: percentage do you think that might look like?
11:54
Speaker 7: Yeah?
11:55
Speaker 8: Good question.
11:56
Speaker 7: And when we launched, we announced that we were allocating
12:02
Speaker 7: or guiding to spending ten billion dollars over an eight
12:05
Speaker 7: year period, right, this would be twenty twenty one to
12:08
Speaker 7: twenty eight And that's just the starting point. So these
12:12
Speaker 7: are already a significant part of our capital allocation strategy.
12:17
Speaker 7: We have a very large oil and gas business, which
12:19
Speaker 7: requires a lot of capital to maintain and grow that
12:23
Speaker 7: business to meet global demand. But these these businesses are
12:26
Speaker 7: We're spending anywhere from one and a half to two
12:29
Speaker 7: billion a year to support these new businesses. And my
12:32
Speaker 7: job and our job as a new segment is to
12:35
Speaker 7: find the right opportunities that are investable so we can
12:38
Speaker 7: grow this business even further.
12:40
Speaker 5: So Paul asked this question and break and I actually
12:42
Speaker 5: think it's a good one, so I'm gonna ask it.
12:44
Speaker 5: You're based in Houston, and his question was, are guys
12:47
Speaker 5: like you the new energy people?
12:49
Speaker 8: Are?
12:49
Speaker 5: Are you guys welcome in Houston?
12:50
Speaker 3: Like the oil bar, like the oilman's bar, taking.
12:54
Speaker 5: Like the cowboy guys who stick like a pipe in
12:56
Speaker 5: the ground and get oil. He's thinking those people, are
12:59
Speaker 5: you welcome in those bars?
13:01
Speaker 8: Yes?
13:03
Speaker 7: And I love being referred to as a new energy person,
13:07
Speaker 7: but no, I mean this is I think this. Look,
13:10
Speaker 7: there's three things that we're that we really need to
13:12
Speaker 7: see in order to accelerate the growth of these businesses.
13:16
Speaker 7: And that's a greater collaboration between private companies, between private
13:20
Speaker 7: companies and policymakers, between governments around the world. It's lowering
13:25
Speaker 7: the cost of these new technologies and solutions so customers,
13:28
Speaker 7: large customers, large businesses or individual customers will buy them.
13:32
Speaker 7: And it is bringing capabilities to bear the right capabilities.
13:36
Speaker 7: And that goes to your Houston question. The energy industry
13:41
Speaker 7: possesses a lot of the capabilities, technical, operating, commercial capabilities
13:46
Speaker 7: that are required to grow these businesses profitably, to scale.
13:50
Speaker 7: So absolutely, you know a lot of this, a lot
13:52
Speaker 7: of activity in Houston, a lot of companies engaged in this.
13:55
Speaker 7: So Houston it's an oil and gas capital that's out
13:59
Speaker 7: thought of. It's also new energy capital.
14:01
Speaker 3: So where are we in terms of I've been reading
14:04
Speaker 3: a lot on this, Alex, she knows that she's the expert.
14:07
Speaker 3: I've been reading up a lot on this over the
14:08
Speaker 3: last several days. It seems like the US government's putting
14:10
Speaker 3: a lot of money into this. That's the good news,
14:13
Speaker 3: as Alex mentioned earlier, but I've also heard here of
14:15
Speaker 3: the last couple of days, it's still not easy doing
14:18
Speaker 3: business with the government. I'm thinking permitting for certain projects
14:21
Speaker 3: and things like that. What's been your experience there is
14:24
Speaker 3: to is the government doing the best it can to
14:27
Speaker 3: kind of facilitate some of these investments in transition.
14:30
Speaker 7: Yeah, So collaboration between the private sector and the public
14:32
Speaker 7: sectors fundamental here. It helps lower the cost. Those are
14:37
Speaker 7: you know, advocacy understanding politics, not just in this country
14:42
Speaker 7: but around the world. Is a strength of our company
14:46
Speaker 7: of energy companies, you know, more broadly, so it fits
14:49
Speaker 7: one of our existing capabilities. But that is one of
14:52
Speaker 7: the starting points here. You know, you need the right
14:55
Speaker 7: policy support, the right incentives to get the private sector
14:59
Speaker 7: investing even more heavily in this space. That will drive
15:04
Speaker 7: the technology forward, That will drive innovation, that will drive
15:07
Speaker 7: to building large scale projects which will lower the cost,
15:10
Speaker 7: make it more consumable for the world, and that is
15:14
Speaker 7: a cycle that will then you know, continue. So it
15:17
Speaker 7: starts with policy, but it really is sustained by the
15:21
Speaker 7: investment by the private sector in technology. Government's a very
15:25
Speaker 7: important partner. We've seen We're having really constructive conversations with
15:29
Speaker 7: the government, But you mentioned permitting. There's still a long
15:33
Speaker 7: way to go to make all of this come together.
15:37
Speaker 7: We've shown some progress, but there are many steps in front.
15:40
Speaker 5: Of us, you know, Paulo. To your point, it seems
15:42
Speaker 5: like the good part of this is that energy companies
15:44
Speaker 5: in the new energy world are in the room talking
15:47
Speaker 5: to people, typically the government and oil and gas of
15:50
Speaker 5: a contentious relationship at past in certain administrations, and it
15:53
Speaker 5: feels like in this area maybe that is dissolving a bit,
15:58
Speaker 5: which would be helpful. Something that I've noticed too, is
16:01
Speaker 5: that I think it was like three hundred and three
16:03
Speaker 5: billion dollars has been spent I think it was last
16:05
Speaker 5: year on all these new energy stuff. What I'm also
16:07
Speaker 5: hearing is that demand is a forgotten problem. Like all
16:11
Speaker 5: the money is being spent, all the money, but the
16:13
Speaker 5: money being spent on supplying the stuff and getting that
16:16
Speaker 5: cost down, but not enough it is being spent on
16:18
Speaker 5: demand to incentivize a company signing up with you for
16:23
Speaker 5: esaff for something along those lines. Is that true?
16:26
Speaker 7: There is a lot of money being spent in these
16:28
Speaker 7: in these new businesses. It's actually one point seven trillion
16:31
Speaker 7: dollars globally compared to about one trillion dollars spent in
16:36
Speaker 7: the traditional energy business last year, and we need even
16:39
Speaker 7: more to grow these businesses to scale. And you hit
16:41
Speaker 7: on a very important point. It is, and I'll use
16:44
Speaker 7: hydrogen as an example. It's not hard to produce hydrogen.
16:49
Speaker 7: It's harder to produce low carbon hydrogen at a low cost,
16:53
Speaker 7: something that we're working on using natural gas as a
16:55
Speaker 7: feedstock or using electricity and renewable power as feedstocks to
16:59
Speaker 7: produce low carbon hydrogen. But transporting hydrogen to the market,
17:04
Speaker 7: you need policy support in order to do that. You
17:06
Speaker 7: need technological innovation to do that to lower the cost,
17:09
Speaker 7: and then importantly, encouraging consumers to buy a hydrogen making
17:14
Speaker 7: it easier for them to transition from a traditional product
17:18
Speaker 7: that they're using today to a lower carbon product that
17:21
Speaker 7: comes at a higher cost. That's where demand incentives and
17:24
Speaker 7: policy support will also be required.
17:27
Speaker 3: What's the biggest headwind you guys have been facing over
17:29
Speaker 3: the last three years as you begin this transition. Has
17:32
Speaker 3: it been on the regulatory governmental front? Has it been
17:35
Speaker 3: capital getting capital from your CFO?
17:38
Speaker 2: Where's it been now?
17:39
Speaker 7: There's always a lot of challenges when you're starting up
17:42
Speaker 7: new businesses, but it's very, very exciting, and we're making
17:47
Speaker 7: tremendous progress. We've identified probably a dozen large foundational projects
17:52
Speaker 7: and all of these sectors around not just the US,
17:56
Speaker 7: but around the world. We're the second largest bio based
18:00
Speaker 7: a diesel producer in the United States. We've got a
18:03
Speaker 7: large you know, CCUS hub on the US Gulf Coast.
18:06
Speaker 7: We've got a large hydrogen project in Utah that we're growing.
18:10
Speaker 7: So we're making a lot of a lot of progress.
18:12
Speaker 7: There's always challenges along the way. How do you prioritize
18:15
Speaker 7: the best opportunities, how do you advocate for the right policies,
18:19
Speaker 7: how do you create the right culture to support these businesses.
18:23
Speaker 7: We have a fantastic culture in our company. We're using
18:27
Speaker 7: all of that and more. But you have to think
18:29
Speaker 7: about these businesses in a different way. So there are challenges,
18:34
Speaker 7: but it has been very rewarding.
18:36
Speaker 3: At the same time, He's not going to answer that question, Paul, Well,
18:39
Speaker 3: I stock, I thought I did answer it.
18:42
Speaker 5: We're looking for like, hey, what what's really hard? What
18:44
Speaker 5: stresses you ask?
18:45
Speaker 8: Well, it's I mean.
18:46
Speaker 7: To go, it's all hard, yeah, and so all of that,
18:49
Speaker 7: you know, how can we collaborate you know more uh
18:53
Speaker 7: more aggressively. How can we lower the costs faster? How
18:57
Speaker 7: can we bring all of the capabilities we have to
19:00
Speaker 7: bear here. How do we make sure that everyone remains
19:03
Speaker 7: committed to this, not just us, but everyone in this
19:07
Speaker 7: ecosystem to drive these businesses forward. So those are all
19:09
Speaker 7: big challenges. I'm not discounting that, but I'm very excited
19:14
Speaker 7: about what we're doing.
19:14
Speaker 5: Gotta leave it there, Jeff really appreciated Jeff Gustavenson. I'm
19:17
Speaker 5: going to get it. President of Chevron New Energies. I'm
19:19
Speaker 5: going to work towards that for sure. Thanks so much.
19:22
Speaker 8: Thank you.
19:25
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
19:29
Speaker 1: weekdays at ten am Eastern on Affo car Playing and
19:32
Speaker 1: Broud Auto with the Bloomberg Business App. Listen on demand
19:35
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
19:39
Speaker 5: We're at Bloomberg n e App Summit, Day two. We're
19:43
Speaker 5: in the middle of the pubbabaloo. We're in our Intercontinental
19:48
Speaker 5: Hotel on forty U Street down in Midtown Manhattan, and
19:51
Speaker 5: it's all about getting world leaders and CEOs and thought
19:54
Speaker 5: leaders and analysts together to sort of tackle this energy
19:58
Speaker 5: transition where we are now, and then where do we
20:00
Speaker 5: go to and how do we do that?
20:02
Speaker 4: Well?
20:02
Speaker 5: Doing us now? As our next guest, Andy Vessi, he's
20:05
Speaker 5: president and CEO of Fordescue North America, and he joined us. Now, Andy,
20:10
Speaker 5: good to see you.
20:10
Speaker 8: Well, that's a pleasure to be here and thank you
20:12
Speaker 8: for having me.
20:13
Speaker 5: So I do follow this industry quite closely, and I
20:16
Speaker 5: was like, what Fordescu is a metal company, what's going on?
20:18
Speaker 5: It's based in Australia. What are you doing here talking
20:20
Speaker 5: about hydrogen?
20:21
Speaker 8: Well, Fortia something. Forlidescu was a metal company. In fact
20:24
Speaker 8: it still is.
20:25
Speaker 9: It's the fourth largest producer bron or in the world
20:28
Speaker 9: and the lowest cost operator. What our founder, Andrew Forres,
20:32
Speaker 9: came to the realization that carbon emissions was having a
20:36
Speaker 9: significant impact on the planet and it was happening quickly,
20:40
Speaker 9: and that his business contributed to that, and so he
20:43
Speaker 9: made a commitment that he was going to decarbonize his
20:46
Speaker 9: metals business, scope on and scope to emissions by twenty thirty.
20:51
Speaker 9: And in thinking about doing that, he had to think
20:53
Speaker 9: about all the technologies he needed to make that happen,
20:56
Speaker 9: and many of them were n't available commercially. So he
20:59
Speaker 9: decided that he would is going to create that ecosystem.
21:02
Speaker 9: One component of that was green hydrogen because he needed
21:06
Speaker 9: green hydrogen to do a number of things to replace
21:08
Speaker 9: diesel fuel in his mining operations. But then he realized
21:12
Speaker 9: there were a lot of other things he needed and
21:13
Speaker 9: a lot of more things he needed. So what Fordeskew
21:17
Speaker 9: is today, while it still has a metals group, it
21:21
Speaker 9: now has an energy's group, but we describe ourselves as
21:24
Speaker 9: an integrated green technology, energy and metals group and they're
21:29
Speaker 9: all coming together and it's one Fortescue now. So that's
21:32
Speaker 9: why we're here. And I happen to have the privilege
21:36
Speaker 9: of trying to be on the side of the business
21:38
Speaker 9: that produces green hydrogen specifically.
21:40
Speaker 8: In North America.
21:42
Speaker 2: Is green hydrogen?
21:43
Speaker 9: Okay, well it's hydrogen, but it's made from green energy,
21:47
Speaker 9: which would include solar, wind and hydro So just to alex.
21:53
Speaker 5: Plain Youse, so you have some been called an electrolizer
21:55
Speaker 5: where you get water in and you separate the hydrogen
21:58
Speaker 5: from the water, and how you power that determines the
22:02
Speaker 5: color of that hydrogen. So if you power with say cole,
22:06
Speaker 5: it's going to be gray. If you power with natural gas,
22:09
Speaker 5: it's going to be a blue. If you power with
22:11
Speaker 5: solar and wind, it's going to be green.
22:12
Speaker 2: And there's right, I learned something to get it.
22:15
Speaker 3: But now I'm guessing there's a tax issue here. I'm
22:18
Speaker 3: reading all throughout your notes forty five v. Dumb it
22:22
Speaker 3: down for somebody like me, a media guy.
22:24
Speaker 9: Yeah, So look, the bottom line is that seventy percent
22:27
Speaker 9: of a green molecule made what would be called electrolytic
22:32
Speaker 9: because it uses electricity. Seventy percent of the cost of
22:35
Speaker 9: that molecule is the cost of that green electron. And
22:39
Speaker 9: so if you're going to be in this business, you
22:41
Speaker 9: would say, well, I'm going to go every place where
22:43
Speaker 9: the renewable energy is really really cheap. Right, You're going
22:45
Speaker 9: to go to North Africa, You're going to be in Australia,
22:48
Speaker 9: you might be in parts of Latin America. But where
22:51
Speaker 9: you would not be would be in the US, right,
22:55
Speaker 9: because we know it's expensive. But there's another thing about
22:57
Speaker 9: the US. It's probably one of the largest consumers of
23:01
Speaker 9: gray hydrogen or hydrogen that's produced from methane gas. So
23:05
Speaker 9: there's a huge market here. But the challenge is getting
23:08
Speaker 9: to a price point where people will buy it well.
23:10
Speaker 9: The US government also understood this and understood that to decarbonize,
23:14
Speaker 9: hard to abate sectors, meaning sectors that can't use a
23:17
Speaker 9: green electron to meet emission reduction goals need a green molecule.
23:22
Speaker 9: And so the Bidy administration decided, well, what we need
23:25
Speaker 9: to do is assist in getting the price down, get
23:28
Speaker 9: the industry started, and then eventually, through scale and involvement
23:32
Speaker 9: in the market, the price will come down naturally on
23:34
Speaker 9: the learning curve. Right, So they came up with the
23:36
Speaker 9: idea of providing a tax incentive a PTC that you
23:41
Speaker 9: can get direct cash for it, so it would help
23:43
Speaker 9: lower the end product price to customers. And the maximum
23:48
Speaker 9: you can get would be three dollars a kilogram, and
23:51
Speaker 9: that's based on the carbon intensity of that molecule. So
23:55
Speaker 9: all non gray molecules, right, all those molecules not produced
24:00
Speaker 9: or that don't have carbon emissions at some level, would
24:05
Speaker 9: get a rising incentive.
24:06
Speaker 8: Okay, brilliant.
24:07
Speaker 9: Right Now, companies like Fordesky, who is investing all over
24:10
Speaker 9: the world that sys, we're going to put capital in
24:12
Speaker 9: the United States, right, We're going to develop technology in
24:15
Speaker 9: the United States because this could be a big market. Right,
24:18
Speaker 9: But there was an expectation of how that would come out,
24:21
Speaker 9: and when the rules were written. It's now called forty
24:25
Speaker 9: five V because it's a section in the IRS code
24:28
Speaker 9: came out in such a way that it didn't actually
24:33
Speaker 9: help us to some degree. It hurt early movers because
24:36
Speaker 9: of how strict the rules were.
24:38
Speaker 5: Meaning that from where I understand it is it Normally
24:41
Speaker 5: you could say, look, I'm going to buy this much
24:43
Speaker 5: wind and solar over the course of a year, give
24:45
Speaker 5: me the credit. But they want hour for hour matching.
24:48
Speaker 5: So if you use energy for an hour, that needs
24:52
Speaker 5: to be solar, and that needs to be counted, and
24:54
Speaker 5: that's very difficult because that's not predictable with wind and solar,
24:57
Speaker 5: and you also.
24:58
Speaker 8: Don't have it right. See you underst in as perfectly.
25:01
Speaker 9: That's when that's one of the pillars, right, but probably
25:06
Speaker 9: the most problematic. And I'll give you a reason why.
25:09
Speaker 9: So you said it earlier. We use an electoralizer, right.
25:12
Speaker 9: We take electricity and we split the water into oxygen
25:16
Speaker 9: and hydrogen.
25:17
Speaker 8: That's what we do.
25:19
Speaker 9: In terms of when you're going to be using the energy.
25:23
Speaker 9: That's called temporal matching, and it exists because there are
25:27
Speaker 9: no one hundred percent green grids in the US, so
25:30
Speaker 9: there's always the concern by adding additional load, you potentially
25:34
Speaker 9: are going to use fossil based energy to meet it. Right,
25:39
Speaker 9: So the view is, how are you going to do
25:42
Speaker 9: the temporal matching?
25:43
Speaker 8: Right?
25:43
Speaker 9: So, if I have a one megawatt electoralizer, I need
25:47
Speaker 9: to have three times that much capacity in the market
25:50
Speaker 9: if I'm matching on an annual basis, because they get
25:52
Speaker 9: to average it over the year, and over a year perfect.
25:55
Speaker 10: Right.
25:56
Speaker 9: If you go to monthly matching, you need five times
26:00
Speaker 9: much energy, but an hourly you need seven times.
26:03
Speaker 8: Right.
26:03
Speaker 9: So if I'm building a gigot of electrolyizers in Texas,
26:08
Speaker 9: I may only need a giggot of energy at any time,
26:12
Speaker 9: but I have to buy seven times that to ensure
26:14
Speaker 9: that I have all the probabilities working so I know
26:17
Speaker 9: I can match in that hour, which means that the
26:19
Speaker 9: bulk of what I buy I don't need. So I'm
26:20
Speaker 9: gonna have to be buying and selling energy and that's
26:23
Speaker 9: equivalent to almost, you know, between five and ten percent
26:25
Speaker 9: of the annual I mean the daily load in the
26:28
Speaker 9: AIRCOT system. I mean it's massive. So what are the implications, Well,
26:33
Speaker 9: there are two the way forty five via structure today A.
26:37
Speaker 9: It will absolutely increase the price of the product. Now,
26:40
Speaker 9: remember the whole idea of this was to decrease the
26:42
Speaker 9: price of the product. It will increase the price of
26:45
Speaker 9: the project anywhere between one hundred and fifty to one hundred.
26:47
Speaker 8: And seventy five percent to the consumer. Okay.
26:50
Speaker 9: The second thing is because of the massive amount of
26:52
Speaker 9: energy we have to buy, all right, we have to
26:55
Speaker 9: make the project smaller so you can actually transact that
26:58
Speaker 9: third point. Because of again annually this hourly matching, there
27:02
Speaker 9: are only certain places you can do it, so there
27:04
Speaker 9: are fewer opportunities to get it done right. And if
27:07
Speaker 9: we have to do one other thing, which is part
27:08
Speaker 9: of the forty five E we have to add new
27:11
Speaker 9: green electrons, well that can take years and years. So
27:15
Speaker 9: we are doing everything against the original intent. Right, And
27:20
Speaker 9: why are we doing this Because we're thinking about the
27:24
Speaker 9: perfect solution at the beginning, right, we want the perfect projects.
27:27
Speaker 8: The idea should be.
27:28
Speaker 9: No, we're building an industry which ultimately will work. Let's
27:33
Speaker 9: not handicap it at the beginning. Because like any other industry,
27:37
Speaker 9: the more market interactions you have, the more things you build,
27:40
Speaker 9: the more things that fail. The more supply chains that
27:42
Speaker 9: get created, the more people who get trained. That's what
27:45
Speaker 9: building an industry is. And unfortunately we're thinking about projects. Yeah, right,
27:50
Speaker 9: one off projects, and that's just wrong.
27:52
Speaker 5: Andy, we really appreciate it. It's complex to break it down.
27:56
Speaker 5: There's a lot of chemistry. It's actually weirdly good at chemistry,
27:58
Speaker 5: but it's all forgotten of Cotant. Andy Vz, President and
28:01
Speaker 5: CEO of Fortescue Industries here in North America, really appreciate it.
28:05
Speaker 5: Thank you so much. I guess the takeaway and we
28:07
Speaker 5: have to even dealt with the demand side. Then you
28:09
Speaker 5: have to make the demand be there. People are going
28:11
Speaker 5: to have to buy that product, and that gets really
28:13
Speaker 5: and that's also very difficult.
28:16
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
28:20
Speaker 1: weekdays at ten am Eastern on.
28:22
Speaker 6: Applecar Play and Android Auto with the Bloomberg Business app.
28:25
Speaker 1: You can also listen live on Amazon Alexa from our
28:28
Speaker 1: flagship New York station, Just Say Alexa, playing Bloomberg eleven.
28:32
Speaker 5: Thirty Alex Thee alongside Paul Sweeney. This is Bloomberg Intelligence
28:37
Speaker 5: Radio and we are live from Bloomberg n EF Summit
28:40
Speaker 5: to Day two in the Intercontinental Hotel right here in
28:43
Speaker 5: New York City. The summit really provides a chance for CEOs,
28:48
Speaker 5: thought leaders, world leaders, politicians to kind of get together
28:51
Speaker 5: in a room and talk about the issues facing the
28:53
Speaker 5: energy transition. How you get from zero to one hundred?
28:55
Speaker 5: How do you get from here to there in a
28:57
Speaker 5: meaningful way that is also price efficient and makes profits
29:01
Speaker 5: and does stuff and is cheap enough. We spent about
29:04
Speaker 5: the US, I should say, spent about three hundred and
29:06
Speaker 5: three billion dollars last year's position. Wow, worldwide over a trillion.
29:11
Speaker 5: And there's still a lot of problems, things like but
29:13
Speaker 5: permitting demand trade issues we just saw earlier today, maybe
29:19
Speaker 5: President Biden will look at an increased terror from stale
29:22
Speaker 5: aluminus in China. So how do you deal with that
29:25
Speaker 5: if you're running a company?
29:26
Speaker 10: Well.
29:26
Speaker 5: Anna Moscolow is chief executive vice president of Low Carbon
29:30
Speaker 5: Solutions over at Shell. She's been with Shell for about
29:33
Speaker 5: twenty years and has had many different jobs within the
29:35
Speaker 5: company and has landed here in the past two years,
29:37
Speaker 5: right years, two or three years? Okay, Yes, how's it
29:40
Speaker 5: going well?
29:42
Speaker 11: So it's going well. We are progressing. Energy transition probably
29:48
Speaker 11: is progressing well overall. And we've seen big strides in electrification,
29:52
Speaker 11: but at the same time in my lifetive oil demand
29:55
Speaker 11: is doubled, and we still see sectors like aviation, shipping
30:00
Speaker 11: and commercial road transport buses and trucks where we see
30:03
Speaker 11: demand increasing in the coming years, and.
30:05
Speaker 12: These sectors need the hardware.
30:08
Speaker 11: Sectors need solutions to support that, so biofuels or biogasses.
30:13
Speaker 3: So I think what we've learned maybe over the last
30:16
Speaker 3: several years with the invasion of Ukraine is just an
30:19
Speaker 3: important you know, traditional energy, carbon energy is for the
30:25
Speaker 3: global trade. So as we make this transition to a
30:28
Speaker 3: more sustainable energy grid, we still have to invest there.
30:31
Speaker 2: How does your company think about that? How does a
30:34
Speaker 2: huge company like Shell think about that?
30:36
Speaker 11: It's all about balance probably and making sure that we
30:40
Speaker 11: have probably two things that we pace ourselves with our
30:45
Speaker 11: customers in making sure that we transition with the right
30:49
Speaker 11: pace in different places and that changes by country and
30:52
Speaker 11: by geography, but also that we focus on the solutions
30:57
Speaker 11: where we have a real competitive advantage. If I think about,
31:00
Speaker 11: for example, the LNG market, we've seen LNG actually playing
31:04
Speaker 11: a big role in being providing flexible and secure supplies
31:08
Speaker 11: in the last two or.
31:09
Speaker 5: Three years, and LNG is under your purview right. LG
31:13
Speaker 5: is part yes of these, which is interesting because not
31:15
Speaker 5: every company is going to look at LNG in the
31:17
Speaker 5: new carbon low solutions business.
31:20
Speaker 12: Yeah, so the traditional LNG business does not sit with me.
31:23
Speaker 11: But what my team does is actually using the LNG,
31:28
Speaker 11: for example, the marine sector. So we match LNG and
31:33
Speaker 11: our traditional position globally in LERG trading with customers. So
31:37
Speaker 11: the marine sector sits with me, and we are transferring
31:42
Speaker 11: and selling LNG for the marine sectors instead of fuel oil,
31:46
Speaker 11: and that provides for lower carbon intensity products.
31:51
Speaker 3: Are there certain industries in your customers You mentioned the
31:53
Speaker 3: marine industry and I didn't even think about that when
31:56
Speaker 3: this discussion started ten years ago about how they burned
31:59
Speaker 3: so much fuel. But when I see them off or
32:01
Speaker 3: at on my beach, when I'm sitting on my pitch here,
32:03
Speaker 3: I see the smoke at the back of the thing.
32:04
Speaker 3: So what industries are doing a good job and making
32:09
Speaker 3: the transition and what maybe industries still need some work
32:12
Speaker 3: from your perspective.
32:13
Speaker 11: So, as I said, we've made great progress on the
32:15
Speaker 11: decarbonizing true electrification.
32:18
Speaker 12: The areas that are a bit more stubborn are.
32:20
Speaker 11: The planes, the trucks, the ships, and also the heavy industry,
32:25
Speaker 11: so industry that need high intensity heat.
32:30
Speaker 12: Cement like cement, steel.
32:32
Speaker 11: Fertilizers, chemical industries, and in those cases you need what
32:37
Speaker 11: we call drop in fuels like biofuels or synthetic fuels,
32:40
Speaker 11: whether liquid or gas, so high energy intensity and different
32:45
Speaker 11: sector is moving at different paces in different regions. And
32:48
Speaker 11: of course we shouldn't forget that regulatory environments certainty around
32:53
Speaker 11: how things should develop is very important.
32:56
Speaker 12: Where it is carot or stick.
32:58
Speaker 5: Yeah, we talk a lot carrot and stick on the
33:00
Speaker 5: panel earlier today. You also mentioned when I was talking
33:03
Speaker 5: to you about how you guys look at returns for
33:04
Speaker 5: the different investments. So if you look at oil and
33:06
Speaker 5: gas returns straight up to say fifteen percent plus correct,
33:09
Speaker 5: then how do you judge the returns for different projects
33:12
Speaker 5: in low carbon solutions.
33:13
Speaker 11: Yeah, it's important to recognize that different products and different
33:17
Speaker 11: solutions are available at different scales. So for our traditional
33:21
Speaker 11: businesses we are looking upstream and marketing. We are looking
33:24
Speaker 11: at fifteen plus for biofuels electrical vehicles where we have
33:29
Speaker 11: positions today we are one of the biggest suppliers or
33:32
Speaker 11: biofuels and traders.
33:34
Speaker 12: Today for.
33:37
Speaker 11: Ev we have already fifty four thousand charging points globally,
33:41
Speaker 11: so for those one we are looking at at twelve percent.
33:44
Speaker 11: And for solutions that are not quite there and they
33:48
Speaker 11: need scale, and we've been a bit more selective in
33:51
Speaker 11: our investments like hydrogen and CCS it's ten plus, So
33:55
Speaker 11: we are being targeted around our approach on returns and
33:59
Speaker 11: they are also will change over time as the industry changes.
34:02
Speaker 11: And also when we look at our overall investment profile
34:05
Speaker 11: last year with twenty three percent of our capital was
34:08
Speaker 11: spent in low carbon energy solutions so IV, biofuels, biogases.
34:14
Speaker 12: And renewable generations that was five point six billion.
34:17
Speaker 3: By the way, you know, boy, I'm looking at your
34:20
Speaker 3: revenue contribution where comes I mean, you're truly a global
34:22
Speaker 3: company obviously show with roughly a third out of Europe,
34:25
Speaker 3: a third out of Asian and Africa, and the third
34:26
Speaker 3: out of I guess the America is so truly a
34:29
Speaker 3: global company. Are there certain parts of the world where
34:32
Speaker 3: you have had more success and maybe you know, in
34:36
Speaker 3: terms of making these investments and seeing change versus some
34:38
Speaker 3: other parts of the world, we.
34:40
Speaker 11: See that it's easier when we have clarity from the
34:43
Speaker 11: regulatory perspective. So Europe, US, Canada we've seen whether it
34:49
Speaker 11: is charac or stick, We've seen clarity around mandates, tax
34:53
Speaker 11: incentives and so on. But all this being said, by
34:56
Speaker 11: the way, we are also seeing Asia picking up the
35:00
Speaker 11: way China is going around evs for example, and electrical
35:05
Speaker 11: charging points. We are seeing in Southeast Stasia development of
35:10
Speaker 11: carbon capture and storage. India also, we've made an investment
35:13
Speaker 11: recently in India Spring Energy, where we are investing in
35:16
Speaker 11: renewable generation. So actually Asia and everybody knows that the
35:20
Speaker 11: moment it comes and it picks up, the volumes will
35:23
Speaker 11: be there.
35:24
Speaker 5: What's it like being a company in Europe versus if
35:28
Speaker 5: you were a company in the US. In that Europe
35:31
Speaker 5: deals with a lot of sticks. US typically has the carrots,
35:35
Speaker 5: but the governments are supportive in different ways. It's much
35:38
Speaker 5: more bifurcated in the US. How do you yeah, what's
35:43
Speaker 5: the hardest part of all of that?
35:45
Speaker 11: Probably the hardest part is making sure that there are
35:51
Speaker 11: clear trade offs between sectors. So let me give you
35:55
Speaker 11: an example. If I want to use hydrogen greener hydrogen,
36:00
Speaker 11: do I use it for commercial road transport?
36:04
Speaker 12: Or do I use it for passenger cars?
36:06
Speaker 11: Well, actually probably passenger cars that can use it for
36:09
Speaker 11: ev so making sure that the regulatory environment matches with
36:13
Speaker 11: the sectors you need to address. So hydrogen for commercial
36:17
Speaker 11: road transport in the future or heavy industries, that would
36:21
Speaker 11: be a solution. So trying to incentivize use of these
36:24
Speaker 11: cars agyrogen we will have available, and we have available
36:27
Speaker 11: into the industry that needs it most. And then the
36:30
Speaker 11: other thing is probably the stability. So these are longer
36:34
Speaker 11: term investments. You need to make investments that are multi
36:37
Speaker 11: billion over ten, fifteen years, twenty years time. You need
36:40
Speaker 11: to have certainty of the regulatory environment and direction of trouble,
36:44
Speaker 11: and the industry needs to move in tandem supply and demand.
36:48
Speaker 11: We cannot build projects if our customers also don't invest.
36:53
Speaker 11: Carbon capture and storage is quite a good one where
36:56
Speaker 11: our customers need to invest in the capture of the
36:58
Speaker 11: CO two, invest in the transport and the storage to
37:01
Speaker 11: bring the CO two under the ground.
37:04
Speaker 3: What's the next big road a mile post that someone
37:07
Speaker 3: like me who doesn't follow this day to day, what
37:09
Speaker 3: should I look for? Is there a piece of news,
37:11
Speaker 3: Is there a piece of legislation or something that's going
37:14
Speaker 3: to be a big milepost that. Boy, this industry is
37:17
Speaker 3: continuing to make progress.
37:19
Speaker 11: We would want to see that carbon pricing is reflected
37:22
Speaker 11: in in in and starting to see that there is
37:26
Speaker 11: an opportunity and incentives for people to switch and move on.
37:30
Speaker 11: That that's one one trend that you would be looking at.
37:33
Speaker 11: Then stability of the regulative environment is another one. And
37:38
Speaker 11: then the other thing I would say is there is
37:41
Speaker 11: not a single solution that fits all. So for sect,
37:44
Speaker 11: every sector, we have a roadmap and we work with
37:46
Speaker 11: our customers to look at what is what is available.
37:49
Speaker 11: And again we start from our position of strengths l
37:51
Speaker 11: n G, e V, bio fuels and then building on
37:54
Speaker 11: that with hydrogen ccs and probably in the future with
37:57
Speaker 11: director capture, if and when that will happen.
38:00
Speaker 12: That's Skate and.
38:01
Speaker 5: Thanks so much, super appreciate Ana Moscolo. She is a
38:03
Speaker 5: Shell executive vice president for Low carbon Solutions. Really interesting.
38:07
Speaker 5: You more coming up?
38:08
Speaker 2: I am more coming up?
38:09
Speaker 5: More You into it?
38:10
Speaker 8: I am.
38:10
Speaker 2: I'm getting into it now.
38:11
Speaker 3: You see, you need to get traditional entry companies and
38:13
Speaker 3: new energy companies that got to be together, which they
38:15
Speaker 3: are at this conference at least.
38:18
Speaker 2: So we'll see.
38:21
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
38:25
Speaker 1: weekdays at ten am Eastern.
38:26
Speaker 6: On applecar Play and Android Auto with the Bloomberg Business Act.
38:30
Speaker 1: You can also listen live on Amazon Alexa from our
38:33
Speaker 1: flagship New York station Just Say Alexa, playing Bloomberg eleven.
38:37
Speaker 5: Thirty Alex de alongside Paul Sweeney. We are live at
38:41
Speaker 5: the Bloomberg AF Summit right here in Midtown Manhattan, where
38:44
Speaker 5: we're covering all the top regulators, official CEOs, analyst strategy
38:49
Speaker 5: officers within the energy transition space. How do you get
38:53
Speaker 5: from oil and gas to something different and what does
38:55
Speaker 5: that actually wind up looking like. So here's a question
38:57
Speaker 5: for you, Yep, what is the third best performing stock
39:00
Speaker 5: in the SMP this year.
39:01
Speaker 2: I'm going to guess it's an energy stock.
39:05
Speaker 5: Calls the best. It is Constellation Energy, which is the
39:08
Speaker 5: largest nuclear power facility in the country. It also is
39:13
Speaker 5: the largest provider of power to like C and I customers.
39:17
Speaker 5: And that's really interesting because you have super Marico is
39:19
Speaker 5: the best performing stock, then in Vidia, and then you
39:22
Speaker 5: have Constellation Energy GE and Energy Energy And what all
39:25
Speaker 5: of this has in common is a lot of demand
39:28
Speaker 5: for data centers. A boost and power demand and a
39:30
Speaker 5: need for that power, and nuclear is really front and
39:32
Speaker 5: center for that. So joining us now to discuss is
39:35
Speaker 5: Kathleen Baron. She's executive vice president and chief strategy officer.
39:38
Speaker 5: She joins us now here at the summit. Kathleen, it's
39:41
Speaker 5: a pleasure, Thanks for joining.
39:42
Speaker 10: Thanks, Alex happy to be here.
39:43
Speaker 5: So funnily enough, I talked to her CEO yesterday on TV.
39:46
Speaker 5: So if you guys want to hear more about nuclear,
39:47
Speaker 5: you can check out that segment from Bloomberg Television The Clothes.
39:51
Speaker 5: Let's talk about what other stuff you guys are doing
39:54
Speaker 5: nuclear obviously bread and butter in the energy transition space
39:58
Speaker 5: of which nuclear is a big part. What else are
40:00
Speaker 5: you guys doing looking at paying money.
40:03
Speaker 10: For well, one of the opportunities we see ahead of
40:06
Speaker 10: our country is to find ways to decarbonize austrial sector.
40:10
Speaker 10: It's a huge source of emissions. It's really hard to
40:13
Speaker 10: find a way to run steel, manufacturing, agriculture, aviation, long
40:19
Speaker 10: haul shipping on electricity, right, So we have to find
40:22
Speaker 10: another way to decarbonize that sector and find a liquid
40:26
Speaker 10: or gases or a solid fuel that we're going to
40:28
Speaker 10: have at the ready at any moment to power those industries,
40:30
Speaker 10: and hydrogen has emerged as an opportunity for the US
40:35
Speaker 10: now that the Inflation Reduction Act has passed. There's a
40:37
Speaker 10: production tax credit for hydrogen in that act, and we
40:42
Speaker 10: see nuclear and hydrogen as an ideal pairing because, as
40:47
Speaker 10: you pointed out, nuclear is clean, but it's also firm,
40:51
Speaker 10: it's reliable, it runs twenty four to seven, and so
40:53
Speaker 10: it can be a steady source of power to run
40:56
Speaker 10: into an electrolyzer, split water into oxygen high and then
41:00
Speaker 10: create that clean molecule that can power industrial applications.
41:04
Speaker 5: What color fuel, Well, we're trying to.
41:07
Speaker 10: Discourage the rainbow of colors and just talk about clean
41:11
Speaker 10: versus emitting.
41:12
Speaker 5: But it is called pink for what it's for just
41:15
Speaker 5: to work clear, yep.
41:16
Speaker 2: So I was fascinated to not just I didn't know
41:20
Speaker 2: much about your company.
41:21
Speaker 3: Your company has the largest or the biggest nuclear fleet
41:23
Speaker 3: in the country with twenty one reactors. What is the
41:27
Speaker 3: future of nuclear energy in this country as we again
41:31
Speaker 3: think about more green types of energy sources.
41:35
Speaker 10: You know, it has changed a lot, even just in
41:37
Speaker 10: the last few years in terms of public acceptance for
41:40
Speaker 10: the technology it makes. I mean not just our fleet,
41:42
Speaker 10: but the nuclear fleet generally generates twenty percent of the
41:45
Speaker 10: electricity that runs through this building we're in in our
41:48
Speaker 10: economy every day. People don't really realize that, but it
41:51
Speaker 10: is the backbone of the power sector, and it is
41:54
Speaker 10: carbon free, and as we just talked about, very reliable.
41:57
Speaker 10: It operates around the clock, no matter the weather, their sun, wind, brainstorm,
42:03
Speaker 10: it's still operating. And we own twenty one reactors. We
42:07
Speaker 10: operate T one reactors. We own twenty three and so
42:10
Speaker 10: that's about a quarter of the US fleet. And the
42:15
Speaker 10: beauty of these machines is that they can run for
42:17
Speaker 10: a very long period of time. Most of our assets
42:20
Speaker 10: are sort of in the thirty forty to fifty year
42:24
Speaker 10: old time frame, but they can run up to eighty
42:27
Speaker 10: years according to the Federal Safety Regulators in Washington, and
42:31
Speaker 10: so they are constantly being rebuilt. We put in about
42:35
Speaker 10: a billion and a half a new capital every year,
42:38
Speaker 10: and we're replacing the components. It's kind of like an
42:40
Speaker 10: old car that's having its plate its parts replaced regularly.
42:43
Speaker 10: So these machines can run for a very long time.
42:46
Speaker 10: They abate about five hundred million metric tons of carbon
42:49
Speaker 10: every year, so it's in the nation's interest to keep
42:51
Speaker 10: them running. In with this growing public acceptance, we're seeing
42:55
Speaker 10: interest in corporate procurements, We're seeing interest from governments. We're
42:59
Speaker 10: seeing people valuing this thing that we don't have enough of,
43:01
Speaker 10: which is a clean firm megaal pour.
43:03
Speaker 5: So when we talk about the hydrogen stuff, so pink.
43:06
Speaker 5: So basically you would get the power to split the
43:08
Speaker 5: hydrogen from the oxygen and the electrolyizer using nuclear stream.
43:13
Speaker 5: Does that mean that if I'm building a hydrogen facility,
43:16
Speaker 5: I have to go where your power plant is, or
43:19
Speaker 5: are you going to be building a power plant, a
43:22
Speaker 5: small modular power plant near me, or are we running
43:25
Speaker 5: like a big tube of something in between me and you.
43:28
Speaker 10: So what we're talking about is using the existing reactors
43:31
Speaker 10: to power an electrilyizer, and as you said, split the
43:36
Speaker 10: oxygen and the hydrogen. You could do that right up
43:38
Speaker 10: next to the power plant, so you put the electricity
43:41
Speaker 10: right into the electrolyzer, or you could put your electrolyizer
43:44
Speaker 10: next to your manufacturing plant or whatever process you're trying
43:48
Speaker 10: to use the hydrogen for. 's say you're making sustainable
43:50
Speaker 10: aviation fuel, and we can shift the electricity over the
43:53
Speaker 10: transmission line to your electrolyizer and the dedicated power purchase
43:57
Speaker 10: agreement that sort of hydrogen by wire configuration. So either
44:00
Speaker 10: co located with the plant or through the transmission line.
44:03
Speaker 10: Either way you're going to have that steady source of
44:05
Speaker 10: zero carbon electricity going. It's the electrolyizer every hour.
44:09
Speaker 2: Can I go out and build a nuclear power plant
44:11
Speaker 2: in this country today?
44:13
Speaker 10: There is no reason why you can't. But thank you, Alex.
44:19
Speaker 2: You know, there are.
44:22
Speaker 10: A bunch of reactor technology developers who have new designs
44:27
Speaker 10: you mentioned small modular reactors that are in the process
44:29
Speaker 10: of getting licensed, and there are some utilities who have
44:34
Speaker 10: created relationships with those technology developers for sort of you
44:39
Speaker 10: know co development or you know, an advanced commitment, but
44:43
Speaker 10: none of them are under construction just yet. Some of
44:46
Speaker 10: them are going to be starting soon. For example, in
44:48
Speaker 10: Canada that the Ontario Power Generator has partnered with the
44:52
Speaker 10: GE three hundred megawatt reactor design too, and they think
44:58
Speaker 10: they have been through regular Tory approvals and they will
45:01
Speaker 10: start construction sooner. But in the US we're just we've lagged.
45:04
Speaker 10: I mean, this is happening in Canada's happening overseas and
45:08
Speaker 10: we don't have that market poll here. We don't have
45:11
Speaker 10: commitments as much as we should to get those new
45:14
Speaker 10: reactor designs through licensing and into construction and past that
45:17
Speaker 10: first of a kind cost cycle. That's really the thing
45:19
Speaker 10: that we need to overcome.
45:20
Speaker 5: It kind of jumped over nuclear for a while, right
45:23
Speaker 5: Like when I first started covering commodity seventeen years ago,
45:25
Speaker 5: it was all uranium because of the nuclear stuff. And
45:27
Speaker 5: then it was like, we don't talk about that right now.
45:29
Speaker 5: And even Germany was like anti nuclear for a while.
45:31
Speaker 5: They retired all their fleets and they're like, oops, oops, yep, oopsie,
45:35
Speaker 5: what happens when Russian and Beidess Ukraine? Kathleen, so great
45:38
Speaker 5: to get your perspective. That was really great. Love to
45:40
Speaker 5: see how that relationship pans out between hydrogen A nuclear.
45:43
Speaker 5: Kathleen Baron, she's executive vice president and chief strategy officer
45:46
Speaker 5: over a Constellation Energy.
45:47
Speaker 2: I'm learning a lot this past couple of days.
45:49
Speaker 5: I thought you could be so bored.
45:51
Speaker 2: Sibl. Yeah, a little bit more chemistry than I thought.
45:54
Speaker 2: You know, I didn't think there would be math here,
45:56
Speaker 2: but I'll figure it out.
45:58
Speaker 5: It's helpful with the ag Oh, it's like right, okay,
46:01
Speaker 5: yes to hydrogen one oxygen.
46:03
Speaker 12: We got this.
46:03
Speaker 5: We can do this.
46:04
Speaker 2: Yep, we can do math.
46:06
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify,
46:11
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
46:14
Speaker 1: ten am to noon Eastern on Bloomberg dot com, be
46:17
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
46:21
Speaker 1: can also watch us live every weekday on YouTube and
46:24
Speaker 1: always on the Bloomberg terminal