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- [00:00]
IBM Representative
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- [00:29]
Wise Advertisement Host
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- [01:53]
Todd Woody
in San Francisco yesterday and went past a service station where the cheapest gas was $6.61 a gallon, which translates into about $100 to fill your average car.
- [02:04]
Sarah Holder
California has some of the most expensive gas in the country, but since the US And Israel attacked Iran in late February, the average cost of a gallon of gas in the US has steadily climbed. It's now nearly $4 a gallon, up from a five year low as oil and gas supplies are disrupted and conflict continues in the Middle East, Bloomberg reporters Todd Woody and Akshat Rathi are tracking how consumers around the world are starting to feel the effects.
- [02:33]
Akshat Rathi
European gas prices have gone up 30, 60, even 100% depending on where it's being consumed. In Europe, the worst hit, I will say, are Asian economies. Places like Pakistan, which depend a lot on LNG coming from Qatar, Bangladesh, Japan, South Korea, even China.
- [02:55]
Sarah Holder
To some extent, President Donald Trump has been sending mixed signals about whether the war with Iran is going to drag on or nearing its end.
- [03:05]
Akshat Rathi
We have a very serious chance of making a deal that doesn't guarantee anything. I'm not guaranteeing anything.
- [03:11]
Sarah Holder
On Monday morning, Trump posted that the US has been having, quote, very good and productive conversations with Iran about a resolution to the war and that he had instructed the Department of Defense to postpone strikes on Iranian power plants and energy infrastructure for the next five days. The price of oil dropped on that news. Then Iranian media reported that there are no talks between Tehran and Washington. Oil prices climbed a bit. The turbulence in the oil and gas market and uncertainty over how high prices may climb has gotten some people thinking about energy alternatives.
- [03:48]
Todd Woody
I think one thing it's hard to really quantify is what is the psychological effect of these wars and this, the general instability and chaos over the last couple years, regardless of whether they see really high gas prices at the moment. They think I really should get ready for the future and I really shouldn't be so dependent on energy systems that could really drive up my bills.
- [04:14]
Sarah Holder
I'm Sarah Holder, and this is the big take from Bloomberg News today on the show how shocks to the oil and gas market are driving interest in electric vehicles and solar panels and what prolonged conflict in the Middle east could mean for the future of renewable energy. Akshat Todd, you've both written about how people are responding to these higher oil and gas prices and these shocking headlines about the potential for them to get even higher. Some of these people are taking it as a sign to think about weaning off gas and go out and get an electric vehicle. Todd, what has your reporting found about the spike in interest in EVs and where is it showing up?
- [05:02]
Todd Woody
There's definitely been a big spike in searches for EVs and hybrid cars since February 28th. We don't have sales data yet know if that's translating. Anecdotally, people are more people are showing up at dealerships to check out the cars. But economists I've spoken to say that people tend to really pay attention to the gas prices around the time they're thinking about buying a car. So that could change if these prices become sustained over a period of months. Then you might get people thinking, oh, maybe I should switch to an EV versus having that as an option at the time they need to replace their car.
- [05:39]
Akshat Rathi
The story, I think, is more attractive for Asian drivers because regardless of the price of oil, uptake of EVs has been higher in many Asian countries than even European or American markets. And I think that is likely to accelerate. We've had reporting from our colleagues in Asia showing that, yes, again, number of people showing up to showrooms has gone up. But actually some of the early sales figures that we're getting from anecdotes are showing that numbers of cars, electric cars being sold, has doubled or even tripled in some markets.
- [06:13]
Sarah Holder
One of the things that could shape our understanding of how this oil price hike might affect the EV market is looking back to history, right after Russia invaded Ukraine, for example, oil prices spiked. Were more people looking to buy EVs in the US and did they?
- [06:29]
Todd Woody
There was about a 66% spike in sales in 2022. I think it was probably a bigger shock also because gas prices had been low before that time. And so when they really shot up in 2022, people really switched to EVs. And at the time there was, you know, a $7,500 federal tax credit for the cars. I think one factor that's different this time around is that there is increasing supply of used EVs, which are quite cheap because EVs have a huge depreciation loss after they're sold. So it's quite possible to buy a used ev for like $30,000 that's two or three years old. I think that's probably going to drive sales as well.
- [07:10]
Sarah Holder
This new consumer interest in EVs is coming at a rough moment for the EV industry. The Trump administration let the EV tax credit expire. We've seen some auto companies walk back their plans for EV investment as sales were laggin. How big of an opportunity then does this moment represent for these businesses?
- [07:29]
Todd Woody
Automobakers have long time spans, so they're not going to change their plans because of a spike in oil prices, gasoline prices right now. I mean, in fact, it was sustained for a much longer period of time. But they've just taken huge charges against their EV businesses to discontinue some models and reconfigure factories. So I don't believe they're going to turn on a dime. They say there's sufficient supply of BBS right now, so doesn't seem to be an issue. And I don't think you're going to see them, U.S. manufacturers, at least change their plans immediately.
- [08:04]
Sarah Holder
What about in markets like in Asia, Akshay, where there's a different story playing out. How might this change longer term plans for those companies?
- [08:13]
Akshat Rathi
So we are already seeing one of our colleagues went to a car dealership saying that our waiting list is growing and our Biggest challenge now is ensuring that we get enough supply. Now that anecdote also is reflected in stock prices. We've seen Asian electric car stock prices really rise over the last month. So there is clearly a growth story for Asian electric carmakers that I suspect the European automakers, if not the American ones, will be looking at and they might factor that into their longer term decisions because we are seeing the Asian automakers start to take on on parts of the market that used to belong to the Japanese, to the European, to the American auto companies.
- [09:00]
Sarah Holder
Well, I also want to talk about some of the other ways consumers might be shifting their habits or thinking about shifting their habits to adapt to rising energy costs. Are you seeing people look into alternative ways to heat, cool and power their homes?
- [09:15]
Akshat Rathi
To some extent. So we have reporting here in the UK and in Germany, again two places that have healed in recent years seen power prices spike because of gas prices spiking. And there has been more awareness among the people that there are alternatives available in heat pumps in rooftop solar. And so we've seen something like a 30% increase in interest among buyers for these products. But there is still a challenge that there are not enough installers. People are still not aware of the quirks of moving from a boiler to a heat pump. They don't know whether they'll be able to get repairs done as easily as when the boiler breaks down because there are more boiler engineers available to fix things. So there is still a public education that needs to happen. But power prices do factor in to their decisions. And again, like in the EV story, if you're about to replace your gas boiler because it's old now, this would be the moment to speed up that decision.
- [10:20]
Sarah Holder
Todd, how might people's calculus around buying an EV or installing a solar panel change? The longer this conflict goes on, there
- [10:29]
Todd Woody
will be knock on effects. So right now no one's going to go spend $50,000 on a solar array on their house, even if they're sort of nervous about the future. However, if people start to buy more EVs, what tends to happen is they charge at home, discover the electricity bill has gone up 30%. That's when they get solar. So the solar installers that I talk to expect that to happen as it happens in the past when people buy cars, then once they put on the solar panels, then they go, oh, I should get a heat pump because I'm basically powering everything from the sun. So if prices stay high for months on end and there's definitely a spike in EV sales, you'll probably see down the line a spike in solar installations and heat pumps and other electrical devices as they replace natural gas appliances.
- [11:18]
Sarah Holder
Coming up as the price of oil surges, the math on renewable energy is changing for governments around the world.
- [11:31]
Akshat Rathi
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- [11:59]
IBM Representative
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- [12:28]
Public Advertisement Host
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- [13:33]
Sarah Holder
We've talked about how consumers and companies are responding to the high price of of gas right now and these energy price spikes. But Akshat, how do you see governments thinking about this moment as it relates to energy policy at a high level? Are we at the point yet where leaders are looking to shore up alternative energy infrastructure, or are they more focused on finding other ways to bring gas prices down?
- [13:56]
Akshat Rathi
It really does depend on country to country. If you are a country that is immensely dependent on importing almost all of your fossil fuels, then yes, you are Looking for alternatives in other countries, like in India and China, for example, where there is an alternative available to gas in coal, you will see increase in coal burn. We saw that during the last gas price crisis after Russia attacked Ukraine, that coal burn went up in India, it went up in China, but it's only available to the countries that have coal in their mix. And so we are going to start to see governments make those choices now. Do they make policies that last long and do they make policies that would sustain the momentum for these clean energy products? That remains to be seen.
- [14:46]
Sarah Holder
Did we see this dynamic after Russia invaded Ukraine in 2022? And how long did the interest in alternative energies last at the consumer level?
- [14:57]
Akshat Rathi
At a country level, we can see the data. And it's actually quite clear because what happened in Europe specifically is that there was a concerted understanding among governments that they want to get rid of their dependence on Russian fossil fuels. And they had really three options in front of them. Try and get fossil fuel from other places like the US which would come in the form of liquefied natural gas, which is more expensive. And so they did, and they paid a lot of money for that cut the use of gas, which also they did. Some of the industry shut down, but really households also reduced their gas use. But it's really, this is the first type of energy crisis where there's this third option of going to clean energy. And Europe really did manage to pull off an accelerated deployment of renewables in that time. So Bloomberg NEF data that we've looked at showed something like a 40% spike in solar panel deployment the year after the Ukraine Crisis. So in 2023, and it's not a story that just remained in Europe, we also saw this happen in developing countries. So Pakistan has had some of the most spectacular growth in solar and then a year later in batteries, purely driven by a gas price spike.
- [16:15]
Sarah Holder
What does history tell us about how long or how quickly these energy adaptations can happen and how long they can help countries be resilient?
- [16:24]
Akshat Rathi
So one of the things that analysts always complain about is that countries tend to forget the lessons of a crisis. So solar installations in Europe have largely plateaued from the time when they spiked after Russia attacked Ukraine. We also know, for example, in Pakistan, despite this amazing rollout of solar and batteries, it's actually causing all sorts of problems on the grid because suddenly people are prod so much of their own power that they're consuming less from the utility. And the utility has all these fixed assets in the grid, in power plants that it's built that it needs to find ways to pay for, and it currently doesn't. So now the utility is looking to lobby the government to slow down this rollout of solar that is happening in the country, which is essentially a chaotic transition rather than a much more planned one.
- [17:16]
Sarah Holder
So there are all these reasons governments could be moving towards clean energy right now. The US Though, appears to be doubling down on oil. The Trump administration temporarily lifted sanctions on Russian oil. Already in transit, it's releasing more petroleum from the strategic reserve. What could the longer term effects of these kinds of moves be? Does it further solidify the U.S. s reliance on fossil fuels even in the midst of these energy price shocks?
- [17:45]
Akshat Rathi
So these are short term measures to try and tame the price of oil. When the Strait of Hormuz has been closed for three weeks, something like 8 million barrels a day of oil supply is not available. That is about 8% of global oil supply. We know prices are rising as a result. So what can you do in the short term? Well, you can try and inject some of that available oil outside of the Strait of Hormuz into the system. So taking off sanctions from Russian oil allows for that. The Strategic Petroleum Reserve, which exists now in many countries because the International Energy Agency was created after an oil crisis, specifically with a goal of having this reserve to avoid dealing with these kinds of crises, is being tapped, but it is also still very limited. It might provide maybe 200 days worth of oil supply if everything is tapped. That's covering you for a few months. There's also some conversation now to try and remove sanctions on Iranian oil that again will help you tame some of it for some time. Those are all short term fixes that will run out eventually.
- [18:57]
Sarah Holder
I just want to pause and reflect for a second that we've been talking almost exclusively about the economic motivations driving the adoption of renewable energy, not the environmental benefits. And that strikes me as a big shift from the conversation even a few years ago, 100%.
- [19:13]
Akshat Rathi
Because in the initial parts of trying to build the energy transition and clean energy products, solar and wind power and batteries and electric cars were just a lot more expensive than the alternative. And so governments had to find ways to subsidize it, force either states or their own grids to become cleaner. And those were just expensive ways of trying to get to a place where we are now, where these clean energy products are cheap and are affordable and are even the economic option for you. And so we are seeing an adoption at a level that is driven by economics first and climate second, that we hadn't seen in the past.
- [19:58]
My Policy Advocate Advertisement Host
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- [20:02]
Sarah Holder
this is the Big Take from Bloomberg News. I'm Sarah Holder. To get more from the Big Take and unlimited access to all of bloomberg.com, subscribe today@bloomberg.com podcastoffer if you like this episode, make sure to subscribe and review the Big Take. Wherever you listen to podcasts, it helps people find the show. Thanks for listening. We'll be back tomorrow.
- [20:33]
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- [21:36]
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