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The war with Iran: what does the disruption in the Strait of Hormuz mean for global energy?
01:11:12
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- [00:00]
Ed Crooks
The world economy cannot function if the Strait of Hormuz is closed for any significant time.
- [00:07]
Amy Myers Jaffe
You're seeing countries have to shut in their production because they're running out of tankage to store oil.
- [00:15]
Chris Avisano
Inside the Gulf is about a half a million barrels of naphtha.
- [00:19]
Amy Myers Jaffe
30% of the global market for naphtha comes out from the go.
- [00:24]
Chris Avisano
Ebu is averaging about 730,000 barrels a day lifting, which is, let's call it about half of a VL. Every day since this started, there's been nine VLs loaded with two more loading as we speak.
- [00:46]
Ed Crooks
Hello and welcome to the Energy Gang, a discussion show from Wood mackenzie about the fast changing world of energy. I'm Ed Crooks and on this show we're going to be talking about what everyone's talking about, the war with Iran, and in particular we're going to be talking about the Strait of Hormuz, that critical artery for global energy supplies. And we're going to be talking about what the disruption means for the world of energy. To do that, I'm joined by Amy Myers Jaffe. Amy is the director of the Energy Climate justice and Sustainability Lab at New York University. Hi, Amy, how are you?
- [01:15]
Amy Myers Jaffe
A little bit sleepless, but none the
- [01:18]
Ed Crooks
worse for where I can imagine. Yes, it's a lot going on and a lot to talk about to join that conversation. It's also a pleasure to welcome for the first time another colleague of mine at Wood mackenzie, Chris Avisano. Chris is our Director of Maritime Partnerships. Hi, Chris. Welcome to the show, Chris.
- [01:32]
Chris Avisano
Thanks for having me on, Ed. I appreciate it.
- [01:35]
Ed Crooks
Yeah. Great to see you. Very glad you could join us. You've also got your own podcast, haven't you? Your own award winning podcast. I was just hearing you're the host of the Last Dinosaur. That's a podcast about shipping.
- [01:44]
Chris Avisano
Absolutely. Yeah. We talk a lot about digitalization and kind of how we're one of the oldest industries around and one of the last really, to truly embrace digitalization.
- [01:53]
Ed Crooks
Right. And you've got some fantastic insights to share on the shipping industry. I know, because it really seems to me that when we think about what does the war with Iran mean for the world of energy, it's that maritime issue, the shipping, that is absolutely crucial. That's right at the heart of it. So we're recording this in the afternoon of Monday, March 9th, just in the past 24 hours, we've had some really dramatic developments. When the Asian markets opened On Sunday night, US time oil prices absolutely soared, went to about $119 a barrel. Briefly for a while, since fallen right back again down below 100. Last time I looked, it was only about $92. A bar was only about 4% up from where it was last week when the market closed on Friday. So a lot of turbulence there, not necessarily a clear direction. Natural gas prices are also up very significantly in Europe. Those prices are very much driven by the availability of lng. With no LNG flowing out of the Gulf region, that's driving up the cost of gas in Europe. It's. Last time I looked about $18 per million British thermal units. That's still not quite at the absolutely stratospheric levels. It was up at the kind of $100 per MMBTU level back in 2022 in the aftermath of Russia's invasion of Ukraine. But still it's a very elevated level. It's about double what it was a couple of weeks ago. So, as I say, these very, very significant market impacts, and as I say, it is the disruption to traffic through the Strait of Hormuz that is very much causing that. Now, when I look at all this, given the time I have spent watching energy markets, it feels like the most predictable set of market reactions that there could be. This is not anything like a kind of black swan event. When people talked about risks to global energy supplies, one of the very first things that people always used to talk about is what would happen if the straight or full moves was closed. I mean, this is something, Amy, which you've thought about for a very long time, right? I mean, this is, as I say, this is a risk that has been absolutely built into everyone's strategic planning, isn't it?
- [04:11]
Amy Myers Jaffe
So let me just say, not to date myself, but, you know, 1990s with another professor from Rice University, where I was working at the time, we wrote a chapter in a book published by the U.S. army War College on the Strait of Hormuz. And we had done some work on bypass pipelines, some of which have now been built, and strategies. And at the time, there was a lot of work done then and since, where people concluded that it would be very hard to close the Strait of Hormuz for more than a few days. And there was a lot of work done by different scholars about speedboats and other different kinds of mechanisms. But the, the experience was that the US Navy could do some kind of an escort process, and it would be very hard to have a lengthy shutdown of the strip of the straits. And, you know, one of the big issues, if the Iranians had a nuclear weapon and they Used. They made a nuclear declaration, said, no one's coming through the Straits. You know, would that be a bigger problem? That was something that people gamed out. But I think the problem is, and this goes to the market's sudden reaction, like the market didn't have the same crazy reaction in the first couple of days, and then all of a sudden you saw it really take off. And that's because there's a newer understanding of what these unconventional ways of doing attacks means, whether that's drones or drone boats or all these different sort of digital, you know, one person with a truck and some kind of a machine that could be automated. The technology is so advanced now, just in the last couple of years, that I think the market started to realize that, you know, not your father's Oldsmobile, when it comes to how you close the Strait of Hormuz. Therefore, people are still in the process of adjusting. And, you know, the White House and the US Government is starting to try to assure people that they understand the scope of the problem, they understand the terrorism part of the problem, as opposed to, you know, naval part of the problem. And so I do think that it's not. I think there was a little moment in time when maybe the market was afraid that people didn't get it. And so that's not accurate. But shutting down these more small device elements is harder than the things that people studied in the. In the 1990s and 2000.
- [07:00]
Ed Crooks
Yes, I really want to get into that question of the history of escorting tankers through the Gulf and what that can teach us about the present. Want to get onto that later. Just before we do, just a couple of facts about the basics of the straight of Hormuz. It's what I think about 21, 22 miles across. So that's not much at its narrowest point. And it's even narrower, I think, for the shipping lanes. The shipping lanes that tankers can get through are only about two miles wide. I think there are two of those. So that does pretty obviously create very significant vulnerability, doesn't it, in terms of exposing shipping to attack, is that right, Amy?
- [07:42]
Amy Myers Jaffe
The question really is what can be done from the shoreline and what kind of equipment do you need? You know, are we, in the old days, people worried about missiles? You know, are they placing missiles along the shoreline on the Iranian side or in these islands, that could be disruptive? Whereas in today's world, you know, any individual with a drone can be a nuisance. And so I think it's really a different calculation today and the geography of the width, I think, is less important in the sense that these drones and other kinds of machinery, you know, have a pretty wide swath when you think about where they're going and the missiles, like how far they can go from the Iranian coastline. So, you know, it's different days today, but I think it's good for the listeners to understand that we're not talking about a tiny passageway where only one ship can go at a time. We're talking about a couple of miles. But we're also talking about well within the range of unconventional asymmetric weaponry.
- [08:55]
Ed Crooks
Right, got it. And also then the other crucial basic fact about the Strait of Hormuz is it is crucial to the world economy because about 15% of the world's crude oil flows through it, produced in the Gulf and exported to markets around the world. About 20% of the world's LNG came from there. And for some critical chemicals, it's even higher than that for urea. I've seen different numbers flying around, but maybe 35%, 45%. So this is absolutely critical material for fertilizer. Fertilizer prices already rocketing. People are saying that could be the cause of real problems in the global agriculture industry. And for food supply, sulfur, which is also important for fertilizer, it could be 45 or 50% of all the world's supply of that goes through the Gulf and the Strait of Hormuz. So what you will sometimes hear people say is the world economy cannot function if the Strait of Hormuz is closed for any significant time. And that seems right to me. If the Strait does stay closed for months and years, obviously eventually the world can adjust, but it would mean a very serious global recession as we adjust to those reduced commodity flows, wouldn't it?
- [10:17]
Amy Myers Jaffe
And I think one of the things that's been surprising, but not surprising is that the oil market was super oversupplied at the moment that we went into this process. The Saudis had some oil, as they often do outside the Strait of Hormuz. UAE had oil, you know, down at Fujairah. Right. And so. And they have the alternative pipelines which we'll go into. But so that's why I kind of focus on this sort of terrorism part. I call it terrorism, even though it's a full scale war, because for the market to recalibrate itself, it has to believe that this unconventional attacks could be shut down in some form or fashion, that we could kind of like not be completely back to normal, but kind of back to normal. And I think that Trading companies and buyers and so forth are just having trouble picturing like how we going to get back to that state of affairs. And that's been the challenge in terms of communications from the US government and from G7 countries, you know, giving people the confidence to know that we know it's been a week, but we're on top of it. That confidence level has not come into the market yet. And that's why we see, you know, what we've seen. And today oil prices came down a little bit because there was this acknowledgment that the G7 need to look at strategic stocks. But that's also an acknowledgment that we're not just whipping the tankers through the Strait of Hormuz any day soon.
- [12:00]
Ed Crooks
Yeah. When you talk about the iea, talk about strategic stocks, you mean releasing oil from the inventories that countries are meant to hold as part of their membership.
- [12:09]
Amy Myers Jaffe
Yeah, yeah. In case of emergency. Right.
- [12:11]
Ed Crooks
So in case of an emergency, just like this one, in fact. Yeah.
- [12:14]
Amy Myers Jaffe
Right. And. And one of the reasons why the IEA stocks are important is because member countries are affected differentially. Right. So maybe the inventory position or the refining crude oil feedstock position is different for certain countries in Asia than it is, you know, for the United States or Canada. Right. So, you know, having a coordinated strategic response, you know, puts the market mind at ease. You don't get it leaves this idea that people have to do panic buying.
- [12:49]
Ed Crooks
Right. Yeah, got it. So in terms of what's going on right now then, Chris, what do we know? People sometimes talk about the straight of Hormuz being closed and I've even done that myself over the show. It's not completely closed, is it? There is a little bit of traffic, but really not much.
- [13:07]
Amy Myers Jaffe
And then Chris also like, tell us about the human side because the human side is, is quite dramatic and unfortunate.
- [13:16]
Chris Avisano
Yeah, I think we'll, we'll start there. And I, because I've, you know, being an ex seafarer and I'll, you know, say I, I didn't do for. Do it for as long as many other people. I only did it for about three and a half, four years at sea, not including my time at school. But you know, you kind of have this thought, I remember. I'll go back to a little story a long time ago when you're on the east coast, which is where I think we all are of the US and you say, oh, that storm went out to sea. Well, that's where I was. I remember my mother say, to me, well, that's where you are. I don't like it when storms go out to sea, because you forget about it. Right. And I think that the estimates are around 20,000 seafarers, plus another 15,000 people or so stuck on cruise ships and ferries and all these other sort of things. So you're talking about a lot of people stuck in this war zone. But up until this time, as we're recording here, on Monday afternoon, there were seven casualties, merchant mariners, casualties. These are seafarers who are making money, a lot of times sending it back home. The Philippines, Bangladesh, Eastern Europe. Some of the officers may be a lot of Indian officers, Western European, from all over the world. And they're just making money and sending it back home. And now they're getting shot. So it's kind of insane. So as we go through this, I always like to reflect upon the hard work that they're doing and to think
- [14:46]
Amy Myers Jaffe
about what they've done and the risk that they're taking. I mean, people know that they're taking some risks going to the Middle east in the last year, but I don't think that people imagined, to my point about unconventional warfare, I do not think that people imagined that they were going to get stuck inside the war zone, no, for 10 or 20 or 30 days. I mean, it's one thing to take the risk of being shot at. We saw that with the Houthi conflict, you know, down south. But so people understand that, and they understand that. But that's really different when you're sailing right than to be literally stuck in the war zone. And you think about just the human experience of you're on this ship and, you know, I think of the term sitting duck. Like, you're on this ship and it's just a crapshoot whether you're hit or
- [15:40]
Chris Avisano
not, and it's loaded with petroleum or even just your bunker tank. I mean, it is an unnerving experience, for sure. And one, like you said, it's the human element part that. Yeah, just everybody needs to consider as we're talking about numbers and we see the X number of ships and Y number of ships, and this one snuck through at night and all this other stuff, there's a lot of risk because, you know, with the 25 or so people, give or take, you know, those are 25 people sending money back home and just trying to live, you know, trying to do better for themselves and their families at the end of the day.
- [16:14]
Ed Crooks
Yeah, no, that is a great point. And as you say, it's really important for everyone to remember that, as you say again, these are civilians, these are not people who are competent in any sense, but they have been dragged into this war.
- [16:27]
Chris Avisano
Absolutely, absolutely. But looking at the numbers, I think getting into the numbers, I think, you know, before, you know, using our, the Wood Mackenzie Vessel Tracker Platform, we kind of estimated between 150 and 175 ships per day leading up to this. We did a quick analysis and then you just saw the graph go straight down. Kind of the opposite of what you're seeing with crude oil prices, where it's going straight up. You just flip the graph upside down and that's kind of what your Hormuz traffic looks like. And as of this morning, we ran some numbers and I think we had about five or six known ships with their AIs signal on. And then obviously we're getting other ships that are going through where they shut it off leading into the Hormuz and then turn it back on someplace safely off the coast. Reports of about six or so oil tankers since this started and then another five, I think, of Iranian boats going through as well. So if you think about that, you know, we're 10 days in, we've had 11 ships so far, plus a smattering of bulk carriers. My understanding where they're doing what they've done in the Red Sea, which is where they'll put on their air signal Chinese owned Chinese bulkers to kind of signal to the Iranians, who we're not Western, we're Chinese, and they've done that in the Red Sea. And apparently they're doing it now in the Straits of Hormuz. But again, whatever we're seeing go through are generally smaller and generally kind of general cargo, small ships just trying to get out, maybe just that are more for local, local type shipping.
- [18:08]
Ed Crooks
Right. So just to clarify those numbers, then, you're saying again, in normal times, pre war, you'd have had about 150 to 175 ships going through the Strait of Hormuz.
- [18:18]
Chris Avisano
Correct.
- [18:19]
Ed Crooks
Every day. Correct. And now you're saying what we've had maybe 10 in total. And this is counting the ships that have gone dark and everything?
- [18:26]
Chris Avisano
No, we've had about, we've had about eight to 10 a day going through, plus another 10 or so of the bigger tankers where they kind of go, go dark, which is. So then you're really ramping it up to about 11, maybe 12 a day, give or take. That's it.
- [18:43]
Ed Crooks
Got it. And to be clear about what that going dark means, so the AIs this is automatic identification system beacons. Right. So this is what, what, this is what every ship has that tells everyone where it is. And this is one of the crucial things that ship tracking services like ours use to find where they are. Yeah.
- [19:04]
Chris Avisano
And it also provides data with their, with their radar and it could, I believe it could identify your call sign and the ship and things like that. So it's also an aid to navig safety issues. So when you shut that off, you still can see the ping. In other words, you can still see the radar imagery, you just don't have the associated data with it. I'm dating myself when I was sailing, we didn't have this. So I'm describing on how is it described to me. But think of it like when you see airlines in the black box, it's the same, not really a black box, but when you see the airlines and it has a flight number and it's the same idea for that. And yes, we, we do have that service but, but you could also see on the ship. So when you go dark you kind of lose that ability to know what the other ship is exactly out there.
- [19:55]
Ed Crooks
Right. And you, you're saying you can spoof it as well, that if you're what, not a Chinese vessel, you can say hey, where are we are actually, no,
- [20:02]
Chris Avisano
it's actually apparently the Chinese vessels are doing this. But yes, there is also a lot of spoofing which is going to make keeping track of who's in and who's out a lot more, more difficult. And this is something that we've already started to see spoofing incidences, incidences have gone up and just even keeping track because what happens is, is they start to spoof themselves in clusters. It makes, it makes the counting of these numbers a lot more difficult. And we're seeing that already actually.
- [20:29]
Ed Crooks
And so in terms of as you say, the big tankers, which are the ones that really matter for global energy, you're saying maybe one or two a day. What of oil or of these LNG tankers or these are what, what, what is moving and where is it going?
- [20:46]
Chris Avisano
Do you think it's the crude oil tankers? So the bigger, the, the crude oil ships, I haven't heard of seen anything on the LNG side. And just to give you a reference of what stuck, we did some analysis. We can't count about 25 or so product tankers. In other words, some of the products, refined products. Amy, to your point, you know where they have the double edged sword of the crude oil coming out and the refined product.
- [21:12]
Ed Crooks
And that would be there'll be things like what gasoline or diesel or jet fuel?
- [21:16]
Amy Myers Jaffe
Well, I think the big thing is, I mean jet fuel, you're talking about 1.1 million barrels a day of supply that normally comes out through straight of hormuz. So that's, that's, you know, 17 19% of the market for jet fuel. Yeah.
- [21:31]
Chris Avisano
And we have, what we're counting right now is a total of about 25 ships, about 1.8 million tons. The big chunk that's sitting in, you know, inside the Gulf is about a half a million barrels of naphtha, actually that we have. To your point, we count about 419,000 metric tons of fuel of, excuse me, of jet fuel. That's sitting on this side, on the inside of the AG right now. That's what we're counting.
- [22:05]
Amy Myers Jaffe
And I've seen like Ed, if you look at the charts that people are putting out about what percentage of the global market for different products are being held up, you know, naphtha is at the top of the list. Yeah, right. It's something like 30% of the global market for naptha comes out from the
- [22:23]
Ed Crooks
Gulf, which is typically what used as a petrochemical feedstock. Is that something for the petrochemicals industry? Say you use naphtha for or for refining. Right.
- [22:32]
Amy Myers Jaffe
I mean, it's mostly affects the petrochemical industry. I mean, I think the thing that is sort of at least a little bit helpful is that in other parts of the world, like the United States, as I was saying, petrochemicals were kind of in the doldrums. And so there is supply that can be, you know, you have good production that can be increased in the United States and other locations that can make up for some of that. But for individual businesses or individual suppliers, losing that much, naphtha is a big loss.
- [23:05]
Chris Avisano
And just to give you something, because this sort of came up in another context, which we could talk about in a few minutes and that is to go from the, just, let's just say Fujairah or any center point in the Gulf to Singapore is about 10 or 11 days, give or take. To go from the US Gulf is, you know, about 33, 34 days. So that 21 day delta. Right. Of, of that you can't get supply basically. Right. Because right now you're on the train of, you know, you know, it's a ten day, it's a ten day voyage from load or let's say a three plus week round trip. If you were Just on the same ship doing it over and over. And now all of a sudden that becomes different. So what that does for the shipping market is created a lot of inefficiency, which is driving freight rates up as well. I've read people talk about freight rates being more paper rates because nobody's actually done the voyages. It's just what's being bid right now. But certainly it's going to have that impact.
- [24:10]
Amy Myers Jaffe
Right. And Chris, to your point, people don't even know whether to do it. You know, is the strait going to stay closed for 20 days? In which case they should do it and the US Petrochemical industry should gear up.
- [24:21]
Chris Avisano
Right.
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Amy Myers Jaffe
Or are we going to reopen in three days? In which case that would look like a dumb expense.
- [24:26]
Chris Avisano
Right. And then you're going to have an oversupply in, let's just call it Singapore or a tank terminal in Asia, for example.
- [24:33]
Amy Myers Jaffe
Right. So it's a very, I think as a business proposition, I think it's a very difficult decision tree about what to do.
- [24:40]
Ed Crooks
Yeah, that's a really good point. For as long as there is uncertainty, people have an incentive not to commit to things. There is inefficiency, friction being introduced into the system, delays that pushes the cost of everything up in time. We could adjust, but takes a long time potentially. And as you say at the moment, Amy, we don't know whether to adjust or not because we don't know how long this is going to go on for.
- [25:06]
Amy Myers Jaffe
To that point, Ed, part of the problem with the Russia Ukraine conflict, when it began and we got to early 2022, the market did eventually adjust and that turned out there wasn't really that big a supply change. It was just reasserting like who's supplying whom. In this case it's much more complicated because of the uncertainty. It's not clear, you know, I mean, when the war started in Ukraine, nobody thought that was going to be a fast thing. In this case, people are trying to reassess. Are we talking about a long duration conflict? I mean, the Russian conflict, you know, we're 20, 26 and it's still raging on. So you know, think, trying to think through what the consequences could be and what parties can last and who can't last. And you know, you're just seeing a lot of speculation about that. But we're already 10 days in and the Strait is still effectively shut down.
- [26:05]
Ed Crooks
Yeah, indeed. So just going back, Chris, to what you were talking about in terms of maybe one or two tankers a day going through with the Beacons off and kind of slipping through, having gone dark. Are these the very largest tankers or what a kind of a huge. VLCC carries what, maybe 2 million barrels of oil.
- [26:25]
Chris Avisano
VLS is generally 2, if I remember correctly from my numbers, it was 2 VLS, 3 Suez Maxes, which is a million barrels, and then a Panamax. So that's 4 million plus 7 million barrels, plus a Panamax, which is about 350,000 barrels as well. That's on the sanctioned compliance ships. And then there's some other tonnage. That's the Iranian ships. I don't have any guidance on VLS or Suez maxs. That's generally what they have that have gone through.
- [26:58]
Ed Crooks
Right. But anyway, that is an absolute trickle then compared to that, 15 million barrels a day that was moving.
- [27:06]
Chris Avisano
Correct.
- [27:06]
Ed Crooks
Before the war.
- [27:06]
Chris Avisano
Correct, yeah. And so let's just say we're 10 days out. You're talking maybe a billion, maybe, maybe probably less than that, actually, because they're not all vl, so. Or yeah, maybe a million and a half or something like that. It's not, it's not what it was. And some of it, some of it, you know, could already well be spoken for. So it's not. It's kind of built into the system, not what's coming down the line.
- [27:31]
Amy Myers Jaffe
Well, and I think what's scaring the market is really that you're already seeing countries, Iraq specifically, but now increasingly people are talking about the same thing with Kuwait, is you're seeing countries have to shut in their production because they're running out of tankage to store, to store oil. That worries the market in different ways, because now I'm worrying about, well, how long would it be down and what would be the process to bring it back online? And is there going to be some kind of delay with that? And then, you know, you have the, the example of what happened with Qatar, with lng, where they announced force majeure. They said they're going to be down for some much more lengthy period of time. Not we're talking about maybe a month or two or three, not a week or two or more. And, Chris, you can help the listeners understand what that means, because these kind of facilities, it's not like your light switch where you're switching it on and off. And same thing for the tankers. And so the longer it goes on, the longer it takes to bring it back online. Maybe you can help the listeners understand that in terms of the shipping side.
- [28:46]
Chris Avisano
Yeah, absolutely. And I think it's a real concern, especially when it comes down to the LNG carriers. So when you refer to tankers, you generally refer. Referring to the oil tankers. So whether that's clean petroleum products, like we talked about, Naphtha and other things, or VLCCs, which is generally crude. Suez Max is generally crude. Those are a little bit fundamentally simpler. Again, not easy, but just fundamentally simpler. And kind of the time between those cargoes, there's not that much to do beforehand, right. Unless you're sitting for a lot, like a year or two, then it becomes a different story. But let's say even if you're waiting for three weeks, four weeks, a month, there's not a ton to do as long as you maintain the ship. And you could do a bunch of things internally. It becomes interesting when you talk about LNG carriers and really there's a handful of different, let's call it layups or different layups that they use. And the first one is called a hot layup. And when we talked about this earlier, Ed, it was funny. You kind of said hot should be cold and cold should be hot. I get that. It will explain why in a second.
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Amy Myers Jaffe
Because it's cryogenic, because the gas is
- [30:06]
Ed Crooks
being carried at very low temperature.
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Chris Avisano
So for a hot layup, the engines and systems are live and tested every couple of days. But you could only, you could keep about 40% of your crew, you're at anchor and you can reactivate about one to three days. And I haven't heard of anybody being in the, in any of these statuses yet. For this reason, warm layup is like your next level. And as power sources and systems are stripped back to essential, you have about five people, you're still at anchor reactivation. Now, you talk about one to two weeks ahead, right? Because you got to bring people back in. You have to start to warm up the tanks or cool down the tanks. Excuse me. And then the last one is called cold layup, which is where the power systems are off. You have no electricity coming in, you're at anchor or linked to shoreside power. It's about a month to reactivate. And some estimates are between 1 to 2 million dollars to reactivate. And that's to get, you know, your tanks warm, cooled down. I think all these have a varying capacity of not keeping the tanks absolutely cold. But in this case, you're starting from scratch. And that's the most, you know, expensive and lengthy one for sure.
- [31:20]
Ed Crooks
Right. And so what you're saying is that of these LNG carriers, we don't know which ones might have been put in these Various different kinds of layout but that's going to be important thing to watch presumably when we're trying to get an indication of how long is this going to go on, how long is this expected to go on and in what forms are going to take. You keep an eye on what people do with their carriers.
- [31:38]
Chris Avisano
Right. And I think what we're actually seeing a little bit putting aside what's coming out of Qatar is we're seeing now ships that are were bound let's say to go to Europe from the us but now are turning around and going to, going to the Far east to start to replace these cargoes here. So we're going to start seeing more and more of this right now. It seems to be anecdotal but I'm sure in the next couple of days we'll get numbers about the ships that are doing that very thing.
- [32:14]
Amy Myers Jaffe
So let's talk a few statistics. 45% in recent years of the LNG that was signed up into contracts worldwide went to what we call portfolio players. So that's companies like the shells and BPs that sometimes remarket the barrels basically and sell them to different markets. Right. The interesting thing is the expectations were that 20, 26 we were going to have a 10 or 13 BCM surplus of LNG. Right now we're talking about Qatar's portfolio which before they were starting up the additional expansion of the Dome with North Dome which is their main, which is their only Ras Lafond which was been disrupted by the war. Their export portfolio was 170 to 179 BCM. So and if you think about, you know, well how many months disruption are we talking about? I mean a three month disruption is going to go way beyond this 10 or 13 BCM surplus that people were expecting in the market. And then you're going to add on top of that the fact that there were customers that were expecting to get new contract did volumes from Qatar later in the year. So, so it's really on the LNG side a very big disruption and ironically it's a disruption that's coming into a market where a giant surplus was expected to emerge. And now at least temporarily we're in a very different situation.
- [34:03]
Ed Crooks
Yeah, and I think that's a fantastic point and definitely something I want to get onto in a moment is a discussion of the sort of wider impacts of this disruption on the global energy system. Before we do that though, Chris, I wanted to go back to you about something which is the question of given this traffic has slowed to a Trickle, as we've been saying. Why is that? You hear a lot of people talk about insurance as being an issue and this is something then which the US has moved to address. On Friday we had the US government announcing this $20 billion facility backed by the Development Finance Corporation, essentially insuring ships and their cargoes for moving through the Gulf with the idea that this would then fix that problem of insurance and make it possible for more shipping to move. How big of an issue is, is that really, is it insurance that's been stopping ships moving? And if so, will this new US facility actually help them to get going?
- [35:05]
Chris Avisano
So I don't know the second part to your question. Will it get going again? I think there's a lot of uncertainty in that insurance market. Right. Because there's kind of, and maybe you could keep this in, maybe you can't, but there's in generally, I understand to be three big buckets of insurance. Okay. There's your cargo insurance, which is the cargo, just the cargo itself. There's what they call the hull and machinery, which is exactly what it sounds like. It's the ship itself. And then there's something called protection and indemnity. That's if you have a slip and fall or that's if you have a cargo spill and then you pollute everything. Who's responsible for all that? Right. And you have spill insurance, you have all these other things. So there's all these different buckets of insurance. So I think there's a lot of uncertainty about what, if anything, that the US government will cover on these sort of things. Okay, we could pay for your ship, but we're not going to pay for the oil spill.
- [36:05]
Ed Crooks
Yeah, that's as I understand it, that's exactly what they've said that they've said we'll cover hull and machinery and the cargo, but only those two things. Yeah, but not, not liability.
- [36:14]
Chris Avisano
Right. And if you. Let's take the aforementioned VLCCs, the price of those are 120, 150 million, brand new. At $90 a barrel for 2 million barrels, it's $180 million. So 180 plus, let's call it 120 for easy math because I'm a ship guy, is $300 million fine. But what about the spill resulting in that accident that now messed up somebody's desalinization unit, which we haven't talked about yet. And you've polluted everything in a 30 mile radius. Who's responsible for that? So where does does this fund take care of it And I think that that's part of some of the questions. I haven't heard of anybody on the insurance side, what they're doing yet. I know that the insurance cover, I think stopped on the 5th because you have to give notice. You just can't pull cover. I think it stopped on the fifth. So now today's the ninth. I haven't really heard any sort of changes. It sounds like the cost of COVID has gone up exponentially to make a transit. But honestly, I think I've read somewhere it's like a million dollars or something depending on the size of the ship. But if you're talking about all these shut ins and other things, would people want to do it? Well, yeah, they'll pay it. But then it becomes, do you get the crews on board? You know, it goes back to these sort of things. There are some ship owners who would be willing to pay their crew more and send them through. And that's been well documented. There are other ship owners who do not, who will not do that until they have more assurances in terms of safety, not necessarily in terms of liability protection. And I think that, you know, for some of those owners, the reason why is because their seafarers live in their communities. I'm thinking of Italian and some Greek ship owners. So it's this balance, right? It's a huge balance that they're playing right now. And I haven't really heard much about will people start to move the needle in terms of insurance and want to go through. Amy, it comes back to your point. It's a massive amount of uncertainty, right?
- [38:28]
Ed Crooks
And so then the question is, what can the US do to resolve that uncertainty by presumably using military action to ensure that the passage of those tankers and other shipping is safe? I mean, I think back to the tanker war, the 1980s, there's a possible parallel there, right? When during the Iran Iraq war, the US Navy deployed to the Gulf. It was the largest deployment of the U.S. navy at that time since World War II. And that actually seems to have been quite effective. Wasn't it that the Navy did manage. They had some missteps, there were some issues, but they did manage to get tanker traffic through. Is it plausible they could do something like that again? Amy, do you think? Is that what we're heading for?
- [39:16]
Amy Myers Jaffe
I mean, we're definitely heading for that. And just to remind people, not only did we have this military escort of the tankers through the Strait of Hormuz, but we had these wonderful minesweeper ships that went through and got rid of the mines because the Iranians had mined the Gulf. And so it wasn't even just that you had to worry about being shot at from your tanker. You had to worry that it would hit a sea floating mine. I think, again, not to harp on, you know, how the technology has changed. You know, absolutely. We're looking at different kind of plans for escorts. You have some NATO countries sending shipping down. The intention is to have those European militaries also escort ships through the, through the straits. So I think sort of an escort plan is definitely in the works. And but then I think there's this question and you know, and we've already activated again, which Ed, we can go down that rabbit hole in a minute. We've already activ. Pipeline bypass routes for some of the countries. And of course, a lot of the countries, whether you're talking about Saudi Arabia or Abu Dhabi and Kuwait, they own their own tankers. So there's not one of these ship broker. Can I get someone to commit a tanker thing? They have their own tankers. So, you know, they're making their own logistical choices about how to go to these bypass routes and what that's going to look like. But still, in all the question is, going forward, how does the United States convey to the market that they are taking actions to shut down these other kinds of risks, whether that's for the safety of the seafarers or whether that's because of this, you know, protection and indemnity, which I mean, everyone in the Gulf always 24 7, even in peacetime worries about a spill, especially because of desalination, but also because of the ecology of the Gulf and tourism. And, you know, there's just so many different reasons why the Gulf countries are, you know, unified in trying to protect that waterway. So, you know, how do we get to the point where some of the uncertainty is lifted? So, you know, you're never going to get to the point where you can 100% say there's never going to be, you know, someone with a thing on their shoulder. But, you know, what about sort of really going for a number of days? Like, can we get to the point where we go for a number of days where it's quiet and people say, oh, look, we're gaining on it. I'm going to move my ship.
- [42:06]
Ed Crooks
Yeah. So this is what I really wonder about. And this is what I wonder about, Chris, with reference to the Red Sea that you mentioned earlier, earlier, which is, I mean, it is clear that the US And Israel have massively degraded Iran's military capabilities and if you look at the numbers of missiles and drones that have been launched, those have come right down. It is not clear that Iran's ability to hit shipping in the Gulf has been wiped out and that I don't have a good feel for at all. But I think when you look at what happened in the Red Sea where the Houthis operating obviously on very limited resources and with strikes against them in order to try and suppress them and stop them attacking shipping, they were able to carry on that campaign and stop some ships going through the Red Sea for a protracted period, weren't they? I mean, what, what's your sense of this?
- [43:06]
Chris Avisano
Well, I think, I think it goes back to what we talked about earlier, and that was the supply chain just kind of absor the shock. Right. And that was really more of a container ship issue, which we haven't really talked about, obviously, consumer goods.
- [43:20]
Ed Crooks
Yeah, Sorry, just to be. Just jump in. But to be clear what the shock was. So container ships, what stopped moving through the Suez Canal, The Red seal container
- [43:29]
Chris Avisano
ships were going generally going from Asia to the Mediterranean and then onto Northern Europe.
- [43:37]
Ed Crooks
And has that traffic been restored?
- [43:39]
Chris Avisano
No, not yet. No, there was actually.
- [43:41]
Ed Crooks
Still not to this day.
- [43:42]
Chris Avisano
Okay. There was some talks about those ships at the end of the year in 2025, there was, you started to hear chatter in the market about ships starting looking into going back through the Red Sea. And then this happened and nope, we're just going to keep going around, going around Africa and servicing the markets that way. But really it was a shock of the ships getting to the Horn of Africa and saying, we're not going through there, but we have an alternative and going around. And if I remember correctly, it was an extra 20 to 24 days depending on where you were going. So yes, you would have a supply shock for those 24 days. But then as the ship started to route, as you adjusted your inventories, you were able to, for a lack of a better term, figure it out. I think we're seeing a very little bit of this right now. And talking about, Amy, you mentioned earlier some of the alternative pipelines which came into effect. Obviously the east west pipeline going from the Gulf side of Saudi Arabia into Yambu has basically gone a little bonkers. For example, we have some analysis that we've done internally with our maritime group. Yambu was averaging about 730,000 barrels a day, lifting, which is, let's call it about half of a VL every day. So one VL every two days. In the last since this started, there's been nine VLs loaded with two more loading as we speak. You know, pushing up to somewhere around two and a half million barrels a day. So that's. So it's completely changed. All of those, except for one, have gone north into the Einsuckner pipeline. Again, another alternative pipeline. So all of those have gone north and eventually they'll either continue north via the canal or go into the pipeline and then. And then end up in Sydney, Korea, but generally servicing the European markets. One ship was slated to go to Malaysia.
- [45:49]
Ed Crooks
Right. That's fascinating. So then, because I was about to say, well, is the Red Sea not really safe for tankers either? So they don't want to be coming down out of the Red Sea.
- [46:00]
Chris Avisano
Would they stay north now? Again, so far, eight of the nine that have been fully loaded as of this morning are indicating north. And it sounds like either they'll just drop everything off at Einsuchter and come back, or they'll drop cargo just to get in and then go through the canal. I believe one or two ships are actually just shuttling. They're just going to go from. Drop it off at the pipeline and then go back to Yambu. So there is that happening again, going through the Red Sea, through that choke point where the Houthis controlled it. If it's a ship going to Malaysia, they could maybe send up the same sort of AIs signal that says, we're Chinese, we have nothing to do with this, please don't hit us, sir. And, you know, go full steam ahead. I'm not sure what will happen with that ship, but that's what's happening right now. And again, it's a limited thing, but you are seeing that, that diversion of cargoes.
- [46:58]
Ed Crooks
Right. Just to check the places we've been talking about then. So Yanbu is the place on the west coast of Saudi Arabia where the pipeline ends, the tankers pick up the oil and then they, as you say, sail north up the Red Sea to Ein Sukner.
- [47:11]
Chris Avisano
Einsuckner, which is. Which is on the Red Sea side. Yep.
- [47:15]
Ed Crooks
And that's in Egypt.
- [47:16]
Chris Avisano
Is it in Egypt?
- [47:18]
Ed Crooks
Right.
- [47:18]
Chris Avisano
And then there's a pipeline that goes from Einste to City Career, which is in the Mediterranean.
- [47:24]
Ed Crooks
Right.
- [47:25]
Chris Avisano
And. And you could pick up there a lot of the VLCCs. The big ships can't go in the Suez Canal fully laden, so they have to drop off part of their cargo and they either pick it up or a smaller ship will pick it up and the bigger ship goes on its way. I remember trading when I was a broker. We used to do tons of cargo out of city career. And you would go to places that the big VLCC can't go. For example, Augusta in Sicily.
- [47:54]
Amy Myers Jaffe
So the interesting thing is that the pipeline that the Saudis have can do a lot more volume than two and a half million barrels a day. They can get, I mean, you know, 6, 7 million barrels a day, especially if they use drag reduction agents to enhance the flow rate.
- [48:12]
Ed Crooks
Again, just a footnote, what is a drag reduction agent? So that's a chemical you put in the pipeline. Right. What is that?
- [48:17]
Amy Myers Jaffe
Right. And it makes the oil flow faster so you can get more to flow through with the same number of pumping stations. They use that in Colombia. And places where the pipeline would get blown up and then they'd put in dras, you know, to make up the volume that was lost. And, you know, you have a pipeline coming from the United Arab Emirates. So the question is going to be again, like, how important do those pipelines become? Do they go to full capacity? Do they go beyond full capacity? You know, who's going to buy the oil that way? How desperate are people to get that oil? As Chris is saying, you know, is there. Is it. How fast and efficient can we be, you know, going. Going through a suckner and. And then picking it up again in the med. So I think it was designed to solve this exact problem. So it'd be interesting to see how it turns out operationally the longer things drag on.
- [49:18]
Ed Crooks
Right. But I want to be absolutely killer about this then. So as you say, there is extra logistical difficulty involved. There is friction, there is increased cost. But this is a partial solution. But it's very important to remember it is only a partial solution. This cannot replace the ability to get cargoes out in tankers through the Strait of Hormuz itself.
- [49:43]
Chris Avisano
Right.
- [49:43]
Ed Crooks
I mean, it can mitigate the impact, not wipe it out. Or am I wrong? On. Go on.
- [49:48]
Amy Myers Jaffe
Well, let's be specific. Okay. Doesn't help Iraq, doesn't help Kuwait. Right. There was a time when people talked about building a little spur from Kuwait to the Saudi pipeline. You know, doesn't the UAE pipeline's capacity is smaller than its export rate? I. I think for the Saudis, it won't be barrel for barrel, but if they had, you know, Aramco is an extremely capable organization. I mean, you saw how fast they managed the problem. When the abcake processing unit got bombed in 2019, they repaired it in a miraculous way. They used inventories to keep the market whole in miraculous ways. So I would have confidence in them if they needed to, to use this Yanbu line in a very effective manner. And one would imagine they got the spare parts and whatever it is they need if that pipeline got hit by a drone. Right. I would imagine that they're like in a pretty good shape in terms of really getting them as much oil as possible out that way if it turned out to be a long term thing.
- [51:05]
Chris Avisano
And then the other, the other piece is it's not going to help the other products. Right. So the refined products, not a question. And then the million dollar question or the billion dollar question is lng. Right. It's not an LNG pipeline. This is strictly crude oil. Looking at it from the macro view of the market, we can get some crude oil out that'll like you said, Amy, mitigate some of the headaches, not get rid of it. And the ships are there to do it and they could do what they
- [51:37]
Amy Myers Jaffe
can, like many things. And Chris, I'd love your opinion on this. You know, money's money. You know, at some point, if the price of oil was really high, people are going to take the risk on the tanker. You know, some trading company, I won't name names, is going to say to themselves, we'll find this number of seafarers that are willing to go through the straits, we're going to pay for the tanker. We're going to make so much money getting this oil through, we're going to take that risk. I mean, if we really came to it, I think again, I won't name names. We can all imagine the trading companies that might take on that risk in a long term way.
- [52:15]
Chris Avisano
Yeah. And I think, and I think there's mechanisms for seafarers to, you know, to try to double more pay. Yeah. Double their salaries. And you know, is there some sort of thing in the charter party clause like you're going to indemnify the owner of any spill? I mean, there are all sorts of ways that people can, can work on charter parties and come to agreements between the cargo owner and the ship owner. And even with, just be a little bit careful, even with some of the ships that are controlled long term, you know, by let's say an entity, there's still an obligation with the ship owner. When it comes to things like this. It's not like a carte blanche. Right.
- [52:56]
Amy Myers Jaffe
Yeah.
- [52:56]
Chris Avisano
Understand even when you're building your own ship and you work for that company, you know, there still is the unions and the representation of the seafarers. But in general. Yeah. You should be able, I would imagine at some point you may see somebody waiving a lot of money.
- [53:13]
Amy Myers Jaffe
Right. Especially if we're having convoys and you know, NATO's involved and so forth.
- [53:17]
Ed Crooks
Okay, so put you both on the spot. How likely is it that we will see normal or near normal flows of shipping through the Strait of Hormuz in a month or two month or three months? Is it likely that we will see the flows of trade coming back again? 15 million barrels a day of oil, 20% of the world's LNG within a few weeks, $64,000. Question. I was going to say you're looking
- [53:51]
Amy Myers Jaffe
at, Chris, you're looking at each other
- [53:53]
Chris Avisano
to answer this one expert, not some, you know, ex ship guy.
- [53:56]
Amy Myers Jaffe
No, I'm just tell us from a shipping point of view because Chris, you make a good point, which is not just am I willing to put my physical ship at risk or do I trust some military escort? It has to do also with the seafood.
- [54:08]
Chris Avisano
Yeah, I, I mean, I mean right now there's so much up in the air and we see things are changing moment by moment. I don't know if you guys have this same sort of thing, but a little bit of social media anxiety when you wake up in the morning and you look, check your newsfeed. And I think that that's not just indicative of me as a person, but an industry person. Right. So forwarding this to the human element of a seafarer boy, a couple of months, I mean if I'm a seafarer and I see gray holes around me, okay, I feel a little bit better. Whether they're American or Dutch or, or French or whoever, right? Indonesian. I know they were involved when we had the, the piracy. I think there was some Indonesian navy that was involved when we had piracies off the horn of Africa 10, 15 years ago. So, so do you get a coalition of navy running in and out with kind of these kind of littorials, combat sized ships, you know, you don't need a battleship. Maybe I feel a little bit better, you know, if I'm on a, you know, on a dry bulk ship with, with aluminum or something or you know, something for a smelter, I feel okay about that. Again, lng different story, but I feel we're so far away because the sides just don't feel like they will feel like talking to each other right now. And if I'm a seafarer, you know, I'm very concerned about running through right now. Again, you've had a couple of reports of ships doing it with the AIs turned off, maybe the price was right, or maybe they had an agreement with the owner, that's one thing. But wholesale, I think we're, I feel like we're a little further away than what you think.
- [55:51]
Ed Crooks
Amy, what do you think?
- [55:52]
Amy Myers Jaffe
So what I would say is that there's definitely a military effort not only to think about how an escort system would work, but also to think about units whose job it is to shut down asymmetric warfare. So I think that in the early days, fog of war, you don't see that progress being made. Maybe as we kind of time goes on, you're going to see more and more progress in that regard. And so I think the question, that's why I say this thing, like, how much money does it, you know, does have to be at risk before you start to see people take a different attitude? I think it's really like, how low can we get the level of risk and how high does the penalty of not sailing become? Because it's not just about, you know, you know, we're doing this podcast and a lot of people listening to this podcast and they're sitting in the United States or they're sitting in Europe and we're talking about oil prices. But for the countries in the Gulf, not only is there this horrific human element of, you know, air raid sirens and the kind of things that, you know, come about at a time of war, there's also just the fundamentals how much of your economy and your budget is tied to getting these products out to market and getting that revenue in. And I, I. So I think that decision makers are going to have to this many different things to weigh in terms of the decision making. You know, that's why I think that the pipelines make sense. I think that worrying about civilian targets and worrying about upstream targets, by upstream targets, I mean my critical infrastructure, as opposed to ships or births or some of these things that are kind of maybe easier to repair.
- [58:08]
Ed Crooks
Yeah, so, so that's things like oil fields, gas fields, processing plants, pipelines on land, all of that.
- [58:15]
Amy Myers Jaffe
Pipelines actually are pretty easy to repair. I mean, our experience with war has been pipelines are easy to repair. But, you know, I mean, everybody has to sit and think about their strategies. There's so many things to think about. Can you launch a drone without a truck? Right. So, for example, when you look at, because there's a lot of criticism about whether or not, you know, should they have picked bombing fuel depots or this or that, like, it's hard to launch a drone without the truck platform. And if you don't have fuel for the trucks, then, you know, guess what? Right? So there's many different ways to approach some of this risk. And, and those of us who are watching from a distance and you just wake up in the morning and you immediately go to social media to see if anything get blown up, like, that's strainful. But there are people who are really skilled, you know, working on the problem at many different levels, thinking strategically how to shut it down. So I like to give them credit and hope that, Ed, we're not having a podcast at the same level of intensity in three months than we are now for the next couple of days. But, you know, it's complicated.
- [59:32]
Chris Avisano
Well, no, I think the other piece too is we're talking about getting products and goods on a ship out of the Gulf. But there's a lot of products and goods that aren't coming into the Gulf, particularly food and other things. Going back again outside of the normal field of kind of this discussion, but talking about container ships, msc, the Mediterranean Shipping Company, just declared end of voyage at the end of last week for their, for their car, for their ships, for their container ships. What does that mean? Well, if you have a container that is, let's say in the, you know, in the Pacific Ocean or in the Indian Ocean, heading for Gulf, a Gulf state, they basically said, nope, we're going to drop the container off at the nearest port. We're going to, I think, have a surcharge of $800 for dropping it off early, and that's it, we're done. We're not going to take accountability for this cargo. So I think we've been looking at this problem from an inbound car, outbound cargo point of view of getting exports out, but they need to get some imports in, you know, in order to sustain. So I think that that could be another point of pressure. Does food run out? Do supply? You know, then you talk about medical supply, you talk about food, you talk about all these other things, not just for the Gulf State residents, but the ships run out of food too. Right. Like, so, you know, the crew. So that could be another pressure point of, hey, we don't have stores like, we've run out of fresh milk or we've run out of meat, or we've run out of, you know, usually ships are good for a few weeks. Right. But after a while. So I think there's going to be multiple pressure points here.
- [61:21]
Ed Crooks
Yeah, that's a great point. So look, as a final thought, I just want to ask about what this is going to mean for the future of energy, perhaps in the short term and the longer term. As I was saying earlier, this is in a sense, a very predictable crisis. It was predicted and discussed for decades before it eventually hit. Do you think that the world of energy is going to be very different as a result of it?
- [61:52]
Amy Myers Jaffe
So this is my feeling. This is where I think, Ed, you might not agree with me. Okay, so anytime that. So that started in 2022, I'm India, I'm Pakistan, I'm. I'm countries in Asia and I suddenly realize that LNG was not this reliable commodity that I thought it was, that the prices are crazy volatile. It's messing up my economy. I mean, the Chinese made that decision about oil and gas, you know, decades before. That's why they have their whole program and clean tech. So if I can control clean tech inside my country, then I feel more secure. Once I put a solar panel up, it's there. Once I put a wind installation in, it's there. So there's still this sort of, you know, what's happening in, you know, critical minerals markets. That's still, you know, a thing. But if I have supply chains and I can switch to this thing that I can control, I'm interested. So I personally think it helps clean tech. And indeed, on the flip side of that, you know, and I've talked about this study in the past and I. It's going to be one of those studies that every three or four years I'm going to say, oh, look at this study I did, you know, so together with a scholar from Rice University, we looked at, is clean tech investment pro cyclical to oil? In other words, when oil prices are up, do people invest more in clean tech startup companies and technologies and renewable projects or not? And the answer is yes. When oil prices are going up, people invest more, countries do more, R and D, governments subsidize things more. The American oil companies, the big oil companies, the ExxonMobils and the BPS and companies like that have extra revenue and they use them to invest in new technologies and batteries and things like that technology. So if this turned out to be prolonged, I do think it's actually good for clean tech and I think it's good for the environment. And I think that people might come away and say, oh geez, I want to go towards clean tech. Now the flip side is, let's say it's not as prolonged. I mean, I mean, could we do an optimistic scenario where there's actually peace in the Middle East? I mean, under a scenario where there's peace in the Middle East, I don't know how many years would it take me to believe in that so that I stop investing in cleantech?
- [64:43]
Ed Crooks
I agree, in fact, with the first point you were making, which is that just in terms of risk management, because we're in a position of uncertainty, we don't know what's going to happen to fossil fuel supplies and fossil fuel prices in the future. Diversifying away from them as much as possible in order to minimize your exposure looks even more compelling now than it did two weeks ago. I think that is very clear. If you think about Europe, which is now seeing its gas prices soar again for the second time in four years, the case for investing in renewables, in nuclear power, in more transmission, to connect grids together, in demand response VPPs, all those technologies we talk about a lot on this show. So that case is becoming even more compelling now, I think, because of this. One way to view what we're seeing at the moment is it's a reminder of just how reliant the world is on fossil fuels, just how important they are. That's definitely true. And it shows how completely embedded they are in our economy and how we can't move away from them quickly. It's got to be a slow transition. But even so, it does also tell us that where you can make a transition, it's probably worth doing. And so I think that kind of competing impulse, and as you say, you talk about China, when you think about everything China's done in terms of developing its clean tech industry, investing so much in EVs, the way that EVs have soared as a share of China's vehicle market. All of those moves have been absolutely vindicated by what we're seeing right now in terms of the spike in oil prices.
- [66:30]
Amy Myers Jaffe
And literally, BYD just this week announced some $9,000 vehicle that can charge in like 1/10 the time of, you know, a Tesla.
- [66:40]
Ed Crooks
Yeah, absolutely. And to be fair, you know, BYD has got its problems. It's absolutely not the case that everything about that Chinese industrial strategy has been perfect and brilliant. There have been some real problems with it along the line, and there's some real problems with it now, but it is still at least something which is cushioning the impact of this on China. And so again, when you think about what Chinese policy is going to look like, I'm sure a redoubling of those efforts towards renewables and nuclear. So again, I think it is the case that just putting climate considerations entirely to one side. And obviously coal does nothing for the climate if you're going to burn more of it. But as I say, taking only an energy security perspective, the arguments for diversifying away from oil and gas are very much being underlined by what's happening at the moment.
- [67:36]
Amy Myers Jaffe
And you know, it's very interesting because of course, you know, you're right about the resurgence of coal. The interesting question will be for countries that are climate oriented, would this mean that, you know, CCS for coal plants is going to find its moment? But I think the other thing is the Chinese five year new five year plan is starting to sort of, the details are starting to trickle out. And one of the high points in fact is that China's looking more at pumped hydro as and other kinds of innovative storage off of the electricity system and you know, and incorporating more integration of renewables in ways with into their electricity system is coming out to be a bit of a priority on the energy side. So you know, that's kind of going to be an interesting development. And of course they, once they come up with a solution that's working, they export that solution.
- [68:36]
Ed Crooks
Absolutely. And then another industry that could really get a boost from this I think is green hydrogen. I was talking at the beginning of the show about how important the Gulf and Strait of Hormuz is for the global trade in urea for fertilizer. An alternative route to get that is by electrolyzing water, making green hydrogen and turning that into ammonia and using that. That could be a viable source, particularly in areas that have low cost production, like China, like India. And if conventional sources of fertilizer supply are disrupted, these new sources could come to be increasingly viable. So that's definitely another thing to watch I think. Is that green hydrogen value chain really rising towards commercial viability much more rapidly.
- [69:30]
Amy Myers Jaffe
And I think that Ed, you know, to your point, it's not just that we had the disruptions of 2022 and have this coming so close along in time. There's also Covid which disrupted all kinds of supply chains. So countries again, you know, maybe it's not efficient and there's reasons why we trade globally to, you know, lower costs and you know, hamper. There's reasons we trade globally to lower cost, to dampen down inflation, etc. Etc. But when you have these crises, like even when they're temporary, they have a psychological impact and it does really make politicians focus squarely on what can we do inside our own economy to control this.
- [70:21]
Ed Crooks
So we are going to leave it there. But it's been fantastic talking to you both. Many thanks. Amy thank you. Ed. Many thanks. Chris.
- [70:28]
Chris Avisano
Thanks for having me on. Ed.
- [70:30]
Ed Crooks
It's been a great pleasure. Again everyone. Check out Chris's podcast, the Life's Dinosaur, wherever you get your podcasts. Hopefully we'll get you back on again to talk very soon and we can follow the latest developments in what is obviously a very fast moving story and still potentially big changes to come. Many things Next Door producers Stuart Duffy, Toby Biggins, Gilchrist and Dan Cottrell. And above all, as ever, many thanks to all of you for listening. We really value your feedback. Please do keep that coming and we'll be back very soon with all the latest news and views on the future of energy. Until then, good.