Interviewer (Heatmap News Host) (3:54)

John Arnold, welcome to Ship's Key.

John Arnold (3:56)

Great to be here.

Interviewer (Heatmap News Host) (3:57)

So my colleague is reading Lloyd Blankfein's memoir and found out in the memoir he confesses he still trades every day that he can't get away from it. You're one of the great energy traders. Are you still trading on a day to day basis?

John Arnold (4:12)

I do not trade on a day to day basis. I still follow the markets on a day to day basis. I think I've become every year a little bit more separated from what's actually going on and what I don't even know, I don't know, increases. I will trade a few times a year though.

Interviewer (Heatmap News Host) (4:31)

Do you feel in like moments like this one or in, I don't know, March 2020, did you feel the pull to get more involved or were you like, oh my gosh, there's stuff happening, I have to be there. Or was it like, oh no, there's too much, I can't possibly trade in this moment.

John Arnold (4:47)

Oh, for sure. I think, you know, in moments of panic, I think is when the best opportunity exists, particularly for somebody who's not in the day to day of it. And so you really have to choose your spots about when that chaos comes in and the market might get mispriced. And that's the opportunity for someone like me at this point.

Interviewer (Heatmap News Host) (5:07)

Speaking of which, let's talk about the current moment. So how do you read this current moment in Global energy, I would say, in oil specifically, then we can get to natural gas. And maybe crucially, is the way the oil market is behaving in response to the Strait of Hormuz closure and this kind of prolonged ceasefire that may be breaking down literally as we record this. Should oil be higher and is the movement of oil confusing you or do you think kind of makes sense? Yeah.

John Arnold (5:35)

There was this man market chaos whenever I think there was the understanding that the strait was going to be closed for some period of time. And that's when you saw Brent shoot up to $120 plus at least intraday, and really had the whole panic because this is what the oil market has been fearing for decades. And obviously in retrospect, that move had gone too far. I think a few things happened. One one was it's three weeks to get cargoes from the Middle east to either East Asia or to Europe. It took three weeks for the end user to really stop receiving new cargoes. The market was already soft at the time, so there was some kind of looseness in the market. The commercial inventories were healthy and the steeply backwardated curve created a tremendous incentive for anybody with those inventories to try to sell them onto the market. Strategic reserves started getting sent out. There was a little bit of demand destruction. You had. The administration was making all sorts of rhetorical claims that this would end soon or that there was a way to open up this trade. So I think that whole combination of things has been weighing on the market. The Saudis and others found ways to reroute a number of the barrels, but now you're a little bit more than two months in to the straight being closed, and you still have this kind of 10 to 12 million barrels a day that's off market. And that's really starting to add up. And the commercial inventories are being worn down. The three weeks is up, so people are not receiving their cargoes that they were expecting. And so I made this comment before, but each day that goes by that there's not a settlement, that this trade is not open and the fair value of oil goes up and you know, it's not going to be a straight line up, it's going to bounce around. It bounced up today, bounced down on last Friday, but you are on this upward trend. And I think the problem gets harder with each passing day. And that's not a controversial opinion, but I do think it just starts getting to be the real dilemma, especially with both sides thinking that they can play the waiting game. And neither side really has a good card to play as to what to do next.

Interviewer (Heatmap News Host) (8:03)

What's the most plausible end game? Because, I mean, you just observed that basically neither side, I think, feels like it's winning or losing. It's a real stalemate. But meanwhile the physical market is deteriorating. What makes maybe what are the scenarios you're thinking through in your head?

John Arnold (8:21)

It has to end with a negotiated settlement. I think it's easy to say. It's very, very difficult to imagine how that happens, especially how emboldened I think both sides are. Right. This notion of Iran's access to nuclear material that can be used to make a bomb has been a stickler for the west for now, decades. And you've had many, many administrations saying that Iran cannot be allowed to get the nuclear weapon. And you know, so the question is, how does this end in a better spot with respect to access to nuclear material than when it started, especially with how emboldened that Iran feels today. And I think that is kind of difficult to imagine. And if I had the answer to this, I would maybe be on National Security Council. But it's, we're kind of in this spot where I think had one war, gamed this out beforehand and there was some probability. You get to this point and you would probably say, like, let's just hope that we don't end up there because there's no easy way out.

Interviewer (Heatmap News Host) (9:30)

I was talking to a few foreign policy people who worked in the past administration over the weekend and one of them said something like, you have to say the president has somewhat succeeded here in managing the market so far because when Russia invaded Ukraine, Brent went to 140 on fears of a supply disruption. But then a supply disruption never really materialized to the same extent that it has today. Well, today, Obviously we're losing 10 million barrels a day. There is a real supply disruption. And you know, prices are like flirting with Brent, in this case is flirting with 110. It kind of goes up to 120 and comes back down. Do you think that the administration, the president, kind of deserves credit for managing prices or is this all going to backfire as this continues and we don't see a supply response from say the US because prices have remained depressed.

John Arnold (10:26)

Yes, and yes. Right. So I, I think he has done a good job of talking down the market to date. And you hear the, yeah, open the straight or we're going to blow you to smithereens. Open the straight or we're going to blockade. Open this straight or we're going to escort from these ships through there's the. We're very close to a deal that gets talked about. Oftentimes these statements get released on Sunday before markets open. And so in that sense, I think those who are along the market live in fear of one bad headline and you lose $10 and there's just an air gap in the market. And so I think that provides a level of fear and maybe the risk averse are less comfortable in trying to bid up supplies. That being said, the purpose of prices is to allocate, you know, scarce resources. And to the extent that we need higher prices in order to create more demand destruction, we're not getting it today. And again, each day that goes on, the market gets even tighter and tighter physically. And those who had commercial inventories that they drew down or they bottom back a month or two deferred in the financial markets because you could make 7 or 10, $15 by just playing the curve. But then you get to the point where, okay, now you want your barrels. And so to some extent that gets met by the release of strategic reserves. I think countries get more hesitant over time to put out those barrels. But you do end up with, I think keeping prices lower in the short term means higher in the medium term.

Interviewer (Heatmap News Host) (12:15)

If we get there, we're getting into kind of full on oil analysis territory. But like, when would higher prices begin to fetch more supply? Because I was at Sierra Week a few weeks ago and it seems like part of the issue the administration faces is that even if we were to bring more supply onto the market, it wouldn't arrive till late, till after the midterms as a salient political touch point. But in the back half of this year, the very end of this year and the beginning of next year.

John Arnold (12:44)

Exactly. And I think that's what makes energy markets fascinating, is that they're relatively inelastic, both supply and demand. In the short term, you have to raise gasoline prices to very high levels to get people to change their driving habits. You have to raise jet fuel prices to high levels to get that to start changing. You know, am I going to go on that plane trip or not? And so demand destruction is limited and very inelastic as well as the ability to bring new supplies on. Plus the forward curve now is starting to give that real price signal to producers. But for, you know, the first four or six weeks of this, the curve was in steep backwardation. And so every producer would be looking at it and say, you know, it's still WTI $70 or below for when I'm actually going to get that oil that I'm investing new Capex in today. And so that wasn't that appealing, even though the short end of the curve was at the 9100 plus level.

Interviewer (Heatmap News Host) (13:59)

Stepping back, looking beyond oil, how are you thinking about the energy fallout from this conflict so far and especially in its long term implications? I think folks like Fatih Birol have talked about this as a inflection point in energy, as a moment when a number of countries, I think especially in Southeast Asia, are going to look at the energy security implications of relying on seaborne oil. There's a story about Chinese EV sales surging. Do you buy that story or do you think there's more inertia in the system then we realize and things will snap back basically once the strait reopens and there might be some change in stocks, but this is not the 1970s all over again.

John Arnold (14:42)

Right. And I think the challenge here is that energy system is enormous. It is long lifed assets that take a long time to build anything new and things happen at the margin. And so if you just think about what would it take to increase EV market share of cars on the road globally, it's an enormous amount of effort that would be required and an enormous amount of time until that starts to become material. The whole stock versus flow issue. Even if you're selling 50% market share of EVs, you're still competing with all the autos on the road today. And I think that metaphor is broadly true across much of the energy industry. You can think about the US generation fleet and while the vast majority of new generation that came on last year was solar and batteries, you know, solar is still a relatively small percentage of the total US system. Right. And so that stock versus flow thing you're not getting away from. And that being said, I think every country is going to value energy security in a increasing manner going forward. Now what that actually means in practice is a little bit harder. And as you said, this is long term ramifications. This is not how's the energy system going to change in six months or even in a few years? We're talking about, you know, how the decisions that get made today that start showing up in any material ways kind of in the 5 to 10 year window.

Interviewer (Heatmap News Host) (16:27)

So you recently went to China for the first time. Lots of people go to China for the first time. They have a kind of eye opening experience. Were you expecting an eye opening experience? What did you expect and what did you encounter?

John Arnold (16:41)

Yeah, I mean the reason I went and I had been kind of embarrassed that I hadn't been previously, I travel a lot, I go international a lot and just never had the strong desire or the need to go to China. And so I hadn't. But I was growing interested in China as it was starting to be at the technological edge on many things. And so if you think about just kind of the industrialization of China know it's kind of went up from kind of low value to medium value. It was producing lower quality goods even 10 years ago, if you mentioned any type of good from China, or most goods from China in the west were deemed to be of inferior quality. And over the past 10 years, particularly over the past five years, I think that's started to flip. And you see a number of industries like EVs, like batteries and solar panels, telecom equipment, et cetera, where China is now on the leading edge, bleeding edge of technology. And they are enormously cost competitive. And so you're starting to see both the world open their eyes to the quality of many Chinese made goods today, as well as the fact that they are often cheaper than one can produce domestically. And I think this industrial policy challenge that many countries, including the US face are very real. How do you compete with China on EVs given the technological advancement they have today, their relatively inexpensive labor costs, the automation in the factories, these very robust supply chains that they have, cheap cost of capital, willingness to subsidize or run at zero profits the industry for a long time. And I think that's true not only of the EV industry, but of many other industries going forward. And what's the right response from the west to a China that now looks like that? I thought that was an interesting question that I didn't, couldn't answer. I'm not sure I can answer that today either.

Interviewer (Heatmap News Host) (19:05)

So those are all the questions in your head. When you went then what did you see? Were you surprised? I mean, were they even more advanced? Were things even more advanced there than you expected? Or did you feel like you were kind of adequately prepared by the discourse? But still, you know, it was striking to see it in person.

John Arnold (19:23)

One of the things that I was expecting was less automation. You should see more automation where you in places and industries where you have high labor costs and China seems to be on the forefront of automation and the robotics revolution. So that was kind of a head scratcher, especially if one of the goals, strategic goals of the country is employment, that they've either been long term planning there to understand that if you're just going to labor your way through this, you're going to be disrupted at some point. But that China is willing to both invest in the robotics and automation as well as try to create jobs for its citizens, I think is very forward looking by the country. I was also trying to just understand where capital comes from, where's the risk taking capital come from and what are the incentives. Both kind of within the province level as well as from any private capital sources. Who is funding this EV industry that has massive overcapacity?

Interviewer (Heatmap News Host) (20:43)

Yeah.

John Arnold (20:44)

And it doesn't seem to be making any money or clearly is not making any money with the exception of maybe byd. And I think that's true of other industries as well. So just trying to understand where's the capital coming from. Are there investment opportunities? Are there, you know, sourcing opportunities for the west, you know, particularly on the electro stack that China is so strong in and that the west, particularly in the United States is now has real shortages of any type of power equipment, the transformers and switch gears and all of that. And China has extra capacity there. And in some sense we are in this race with China on AI. You need a lot of power in order to do that. The supply chain of the power industry is very constrained in the United States right now. There is spare capacity in China. Should we be utilizing that as a country in order to try to beat them on the AI side?

Interviewer (Heatmap News Host) (21:51)

I've heard we kind of are at this point, whether we like to or not, that as the data centers expand, the kind of quotient of where maybe the government or like companies are willing to allow Chinese technology is creeping closer and closer to the chips themselves.

John Arnold (22:06)

Yes. Yeah. The best I could tell was that American policymakers were okay with Chinese equipment at the edge of the grid. They did not want it kind of on the backbone of the grid such that if it ever got turned off that the downside was fairly limited.

Interviewer (Heatmap News Host) (22:27)

Where did you see automation in China? What's an example?

John Arnold (22:31)

So went to the NIO Automation Auto Factory. NEOS produces one of the higher end EVs, generally in the kind of fifty to one hundred thousand dollar range. They've also been at the forefront of the replaceable battery. I think there's a different phrase from that, but one that you can pull into a charging station. The machine removes the battery from the bottom of the vehicle and puts in an already charged battery. So it's a three minute in out process to get a fully charged battery. They had finished a new plant a couple years ago. I think it took them 17 months from breaking ground to having the first car coming off the Line, which is just remarkable.

Interviewer (Heatmap News Host) (23:16)

That's crazy.

John Arnold (23:17)

And was also just surprised at, you know, going through there and touring it, how much automation there was, how few employees there were in the plant.

Interviewer (Heatmap News Host) (23:25)

Okay, so I'm also in the never been to China, but fun find myself talking about China all the time. Kind of embarrassed camp and it's going away. But this idea that China is competitive because of low cost labor is one that I feel like we're gradually realizing is not true. I mean, it's part of the picture, but there's a much wider set of capabilities in Chinese manufacturing now than there were even 10 years ago. As you were saying, did you wind up thinking that the consumers are different too or that maybe the Chinese EV industry has been able to thrive because it addresses a very different need than the American EV industry? I think one thing I've been trying to figure out in my thinking about China is how much the US still has in dollar terms the world's largest market, or it's up, it's close, but there's more consumers, there's far more people in China and they all buy a version of the thing. Many of them buy cars. Right. And that then creates more capacity for learning to scale. Did seeing some aspect of the economy make you realize how difficult or potentially solvable the challenges?

John Arnold (24:30)

I think what was striking was I had a hard time identifying where the weak spot was for Chinese industry, given that they have highly educated workforce, low cost of labor, that there is risk capital that's provided, a lot of it comes from the government, but then flows through to venture capital groups who are making roughly similar decisions with some constraints on where they can invest to the end of the industries. And the geographies as American ones talk about the size of the domestic market, the supply chains there, that they are close both in geography and culturally, you know, without having to do cross border supply chain management. Seeing that and then trying to understand how other countries compete on the electro stack going forward was very challenging. And I walked away saying I'm not sure if China would be a good investment or not for somebody from the West. I'm not sure those companies are ever going to make money, but I would be very hesitant to invest much in manufacturing companies in the west that are competing with China. I think the auto manufacturing industry is fascinating for a number of reasons, but most countries that have a domestic manufacturing industry for autos view that as strategic. It's a lot of jobs, there's kind of this pride of making cars. And so there's always been a lot of export hurdles and kind of fences being built around countries of various heights. And America has this decision to make of do we try to compete with Chinese cars globally or do we build this big wall around our country and say, you have to make it here with American technology? And I think the risk is what you're seeing in Canada. So the Canadian and American car industries were kind of tied at the hip since forever and saw a lot of car parts flow back and forth across borders. The assembly might be done in Canada, but it would use some combination of Canadian and American parts, be done with an American manufacturer, et cetera. You know, the United States is increasingly saying that we don't want that of cars to be assembled in Canada. And so then Canada is starting to question what should its domestic manufacturing industry look like. And if America is not going to be a good partner, would somebody else? And China's raising their hand saying, try us? And so there was a deal recently, in the past maybe six months where Canada started allowing a certain number of Chinese imports that were essentially with, with tariff free, very low tariffs. And the way I read it, I think the way others read it was that China is testing the market, is there demand for the product? And if so, then I think China is going to make a very significant investment in Canada. And Canada is protective of its jobs, its domestic industry. And if America is not a good partner partner for it, maybe China is.

Interviewer (Heatmap News Host) (27:56)

But it doesn't sound like you walked away. I mean, you kind of said this, but it doesn't sound like you walked away with like, okay, there's a clear way that American manufacturing, because it's more than just auto industry. Right. It's kind of this whole set of technologies around electricity at the bleeding edge that I think American policymakers would consider strategic and I don't know I would consider strategic. But it doesn't sound like you walked away with a cleat clear sense of what America could do to compete in those industries.

John Arnold (28:24)

Correct. I think the challenge of industrial policy is that it can end up being zero sum if one country starts doing it and then the next country says, well, if they're doing it, then I have to do it. And you can end up in a end state where there is very significant subsidies coming from each state and nobody's necessarily better off. And that seems to be where we're headed now. Right. And the justification that we're having in America to this is, well, China's doing it. And this was part of the rationale for WTO and trying to standardize what the trade rules were and what subsidies and supports a state could give to industry. And to try to really minimize that has always been tough. There's many, many ways that a state can support an industry. But there's been fights about that and it was relatively stable. It may have been going up slowly but I do think China now being a very hearty, healthy competitor in a number of these areas that are deemed to be the future, including things like drones and motors and magnets, et cetera. There is that question that's happening and I'm not sure what the answer is for the United States besides either we're going to do this as well, we're going to show supports for our industries that we deem strategic and or that the world's going to build these new alliances with high walls around it and we have these trading alliances that get created and there's a lot of trading within those alliances and very little that goes across those alliances.

Interviewer (Heatmap News Host) (30:12)

I think it's hard because it's. We kind of knew industrial policy had this race to the bottom or zero sum aspect but what's new is that it works. What's new is that China seems to be doing it in a way that is working and outcompeting Western companies. It was easy for economists to say oh we shouldn't do this industrial policy when it didn't seem to work because they could say oh it's erased at the bottom and it doesn't work. Well in that case who wants to do it? But if China's doing it and it seems to be working then suddenly we have real issues because an entire set of policy tools that I think both create real negative dynamics in the global market but also have like huge strategic implications for the US suddenly seem like they're back on the table but also not fit for our current the global trading system.

John Arnold (31:02)

Yeah, I think that's exactly right. It's economists will give a hundred reasons why the five year plan should not work and should end up leading to terrible inefficiencies and tremendous waste. But China has five year plans in recent times have seemed to have been working pretty well.

Interviewer (Heatmap News Host) (31:23)

Yeah.

John Arnold (31:24)

And so America is moving a little bit more in that direction than China's moving towards our direction.

Interviewer (Heatmap News Host) (31:31)

Exactly. To be continued speaking I guess of the electrostack so you're involved with a number of companies around electricity fervo grid united on the scale of it's a nuisance to it requires a Manhattan Project like effort. How worried are you about the grid?

John Arnold (31:49)

I think there's a limited Number of technologies or solutions that seemingly don't have any trade off. And you can think about the goals of the energy system and oftentimes you think about something and there's a trade off. Right. And you have trade offs between affordability and reliability, or trade offs between the environmental sustainability versus affordability or reliability, for instance. Right. And there's a limited number that have received really kind of no obvious trade off, you know, at least with respect to the goals of the energy system. And I think about the goals as a lot of people, you know, talk about the four of reliability, affordability, sustainability and security. I would add I think good jobs and I think scalability. So, you know, if you want to bring on a data center, can you provide power for that? And building out a more integrated grid helps on every one of those six factors. I think doing things like demand management also doesn't have obvious trade offs for it. I think adding batteries to the grid is another one of those solutions without the trade offs. And those are the technologies I think I'm most excited about. Again, because if we're in this fight about the trade offs and yes, it's good here, but it has this trade off. Those things are hard to scale or they are very fragile as you change administrations and the prioritization of those goals changes every four or eight years. But if you truly have solutions that are just a net positive, then I think they're much easier to scale, much more durable.

Interviewer (Heatmap News Host) (33:34)

Have you become convinced that like any one grid in the US or area of the US kind of does this right as compared to other parts or other grids?

John Arnold (33:43)

ERCOT is kind of this interesting example. Everybody loves to examine and analyze ercot. It's very good on the scalability of the system, which is why one of the reasons why so many data centers are now being built in Texas, that was not the case even a few years ago. I think they were going in many different places. But that you can add demand and add the corresponding generation relatively easily in ercot, and that you don't have these very long time frames for a great interconnection I think is very positive. But what we're trying to do at Grid United is really go across the seams. So accident of history. We have these three grids in the United States. There's almost no connection across them. And the benefits of trade that you get of increasing reliability and affordability just by making the system more efficient, more optimized are very real. And so that's really where we're focused.

Interviewer (Heatmap News Host) (34:52)

The ironhold foundation, your team is very involved in permitting reflection. Are there particular policies you would like to see or that you think would solve these issues relatively quickly or at least provide a big boost?

John Arnold (35:06)

Yeah. So, you know, it's really kind of a question of how do you get your permit? The certainty that you have, once you've received your permit, and you want a system where people have the ability and right to object, those objections are heard in a timely manner, a decision is made and the project's either greenlit or killed. And that certainty of how that process happens is very important to developers. And then maybe even more important is once you have that permit that you have real certainty that it's not going to get tied up in the courts. Right. That judicial review period is set and again that objections get heard, but after the decision's been made that it's final and we're moving forward. And there's a saying that time is money. It is very true for development that the best way for an objector of a project to kill it is just to keep the delays. And the judicial system as it currently works in practice allows for some types of projects, this never ending series of delays that happen. And so developers don't even start. And you see this not only with energy, you see this with any type of linear infrastructure, whether it's pipelines or highways or broadband. You see this in housing as well. We have less housing because developers know in certain geographies that even though they should have their permit in three months, it's going to take them three years. And the cost of capital makes the project go from a profitable one to a money loser. So they never even started. And so certainly today with the growth in demand and power, we need to be able to build again in this country. And if we're still on this trend of that it's harder and harder to build each project, which makes it longer to bring on and more expensive. Then we're never going to meet the goals of the energy system. It's this remarkable moment where I think almost everybody on the political spectrum recognizes that and recognizes the principles of energy permitting. And they're trying to write the fine print today. But I've never seen this issue has so much bipartisan support.

Interviewer (Heatmap News Host) (37:39)

Do you feel like we're going to get a deal this year or give me the probability that you think there's a deal this year?

John Arnold (37:45)

Yeah. So if I go to the prediction markets, what am I going to see?

Interviewer (Heatmap News Host) (37:50)

Yeah, exactly. I haven't even looked to see if

John Arnold (37:52)

there's a Kalshi There probably is.

Interviewer (Heatmap News Host) (37:55)

I'd be too inclined.

John Arnold (37:57)

I am very optimistic, and we do a lot of policy work at Arnold Ventures. I know how hard it is to pass laws, especially in this era of political dysfunction. The one thing I think almost every member of Congress I talk to understands is the need to do this. There is support from the administration, There is support from congressional leadership on both sides. There's support from the relevant committee heads. So if we can't get this done, then we can't get anything done.

Interviewer (Heatmap News Host) (38:34)

What needs to change or what needs to happen between now and, say, the end of the year for it to actually get done?

John Arnold (38:41)

Yeah. So I think on an election year, it's very unusual for any big piece of bipartisan legislation to get passed really, the whole year. And so what we're really looking at is most likely is that it would get passed after the election in the lame duck period. And so you start working backwards from there. And we really need to have language that's agreed upon in the next 45 days. It's hard to work over the summer. Congress scatters, everybody scatters. Then you come back. There's a little bit of work time in September, and then everybody's focused on the elections. So the bill needs to get written today and then again in the next 45 days. And there's a lot of work happening behind the scenes. So, again, sometimes it's hard to know exactly where it is, but everybody's saying the right things. There's been fits and stops to date, particularly when the administration hit the pause on offshore wind. They've made some changes. They've brought Senator Whitehouse back to the negotiating table, for instance. So, again, like, everything I think is looking good, but getting anything passed in D.C. these days might be a long shot.

Interviewer (Heatmap News Host) (40:04)

Arnold foundation was involved in the methane sat project. And, you know, methane's an interesting problem. I think natural gas would obviously be a much stronger position on, in emissions terms if we dealt with the methane pollution problem. Of course, then the administration came in and removed rules that were set to begin regulating methane pollution from the oil and gas sector. Why has methane proven so hard to tackle in the U.S. yeah, I think

John Arnold (40:29)

it's a question of who pays for it. Right. And so that well that, you know, is 50 years old, that's kind of barely economic today, that's leaking a little bit as a standalone well, but in aggregate, the number of very old wells or near end of life wells that are leaking, the title to those wells has changed hands many times over the years. And so the current owner says, why am I responsible? I just bought this thing a year ago and when I bought it there weren't rules about that. I had to pay for it, otherwise I would have paid a very different price or wouldn't have bought it at all. So I think that's one I think the industry probably has some fear of if they lose one fight on this, that there'll be the slippery slope argument on regulation. My argument to industry has been that if you want natural gas to be viewed as a clean fuel, then it actually needs to be a clean fuel and that there's some low hanging fruit on trying to clean up the industry and it would be good for you economically to make these investments. Now that's true of the industry. I think again you get down to, okay, which company is actually paying for it.

Interviewer (Heatmap News Host) (41:49)

I've heard this theory that okay, the majors might be fine with that. They might say, yeah sure, we can deal with it, whatever. It's the independents who are going out and killing all of this. And the majors don't mind that the independents are killing it, but they, or the, you know, the miners are killing it, but they would eat it if they had to. Do you like buy this, the theory or if you were to lift the lid on any of these kind of big oil companies that have been more facially supportive of the regulations, they would actually be just as opposed.

John Arnold (42:15)

I think a few things are true. Number one is that a newer well has lower leaks than an older well, assuming the infrastructure is built, you know, at times whenever there's flaring. That's not true. But in general, once a well is operational and connected, then the newer it is, especially anything that's been put on the system in this decade is a relatively low leak molecule and that the larger companies tend to be the ones that are doing the new drilling. They have the capital and as wells age, the big companies sell them to the small companies, to companies that have and a lower cost of operations. And so there's that natural trajectory of life of a well. And so I think there is some economic rationale to that. I think the large companies are more concerned about the reputation. I think they're more concerned about what's the long term value and opportunity for the industry. They have publicly traded stocks that, that represent what the long term value of the industry is versus kind of being owned privately and people having a shorter term focus on the financial return. And I think you're probably right that the big guys are kind of happy to have the little guys have this fight so they don't have to be criticized publicly.

Interviewer (Heatmap News Host) (43:50)

I guess into the point we know the big guys names. I couldn't tell you all the name of the independents that would oppose this. Okay. You began your career, Imran, obviously by the end of quite a diversified company, but doing conventional energy trading. What should clean energy companies learn from conventional energy companies or the conventional energy industry?

John Arnold (44:11)

The conventional industry has it's mature, it has low cost of capital, it has the robust supply chains. They are capitalized, right? Yeah. So they're able to do things right. That kind of newer industries not able to. The oil and gas sector has become tremendously efficient at scale. Right. Scaling anything. So if it works, the oil and gas industry can go scale it. And I back up and just say that's something that happens with time. And so I'm not sure that the clean energy industry can just say we should be like the oil and gas industry. We just need to copy their ways. Because they don't have the tools.

Interviewer (Heatmap News Host) (45:02)

Yeah, exactly. I think they'd love the bankability, they'd love the scale. Is there anything they might not think of that they should think about?

John Arnold (45:09)

I think the political power the, the oil and gas industry has and part of that is also time. If you've been donating to a party or to a candidate for three years, that's very different than if you've been donating for 30 years. And so the oil and gas industry just has a lot more political power than the clean energy side does. I think there's just larger policy teams, larger budgets for it. The understanding that collectively the everybody has to participate in those packs and in the trade organizations that I don't think you're seeing today. In the clean energy side, your work

Interviewer (Heatmap News Host) (45:53)

has been really studiously bipartisan. I think there was a phase in the clean energy industry as recently as a year and a half ago where it was not nearly as bipartisan. Was that a mistake? Should it embrace the kind of more catholic position of the oil and gas industry or is it not able to because of the policy landscape?

John Arnold (46:13)

So it's hard because again like the longer an industry's been there, the more ingrained in the fabric of any community it is.

Interviewer (Heatmap News Host) (46:22)

Yeah.

John Arnold (46:22)

And so you still see some democratic states like New Mexico or Colorado that have oil and gas industries and because their representatives in those states have to represent their communities, they end up having to get support or they do get support for it just because again, just like the number of jobs that are there, the political organization that, that they have in those States, the number of companies. And so this takes time. It's like developing and becoming more and more of the fabric. And so the irony is that a lot of the wind producing states, a lot of the solar states are red, but they just haven't been around long enough to really have ingrained themselves into the fabric and into the political institutions in that state. So I think this is just more of a time component.

Interviewer (Heatmap News Host) (47:17)

Last question. So you're a big booster of Houston, and I would say the Houston civic culture city is growing very quickly, of course, has this long term connection to oil and gas. When people visit Houston, what should they do or where should they go to see? Not in a tourism sense, but if they're interested truly in what has made Houston different and what makes it different today, like what should they make sure they not miss?

John Arnold (47:46)

The Menil center is kind of this amazing museum that I think captures Houston's spirit and that the Demenils were kind of part of the Schlumberger founding family that during World War II moved from France to Houston. And so it's this, it envelopes the cosmopolitan nature of Houston that Houston draws from the entire world, often because of the industry we have here, the energy nature of it, and then the cultural assets that we have here. The Chamber of Commerce likes to talk about. We have the second most number of live theater seats, for instance, after New York. The museums we have, it's not New York, it's not maybe la, but it's right there after those two, the theater. It's one of maybe four or five cities in the US with a grand opera. And, and so it has that cultural component as well as this gritty part of being an industrial city. Right. We build things here, come here for scale, and we like growth. There's a number of communities today that fight growth. They don't want to change. Houston does, Texas does. Right. It's a state. It's an area that we want to grow. No politician could take office saying, we want to pause growth. That person would never get elected. And so kind of across the political spectrum, it's maybe, how do you grow? But Houston wants more people, it wants more diversity, it wants more growth, more industry. And that's what's made this community better. It's why people have come here in the first place. And that's what we want to give to the next generation.

Interviewer (Heatmap News Host) (49:39)

Well, there's so much more to talk about, but I'm going to respect your time and leave it there. John Arnold, thank you so much for joining us on shift Key here.

Sonia Norman (49:47)

Thanks.

Robinson Meyer (49:53)

And that will do it for us this week. Thank you so much for listening. If you had thoughts, Comments Some burning question that I should ask John Arnold the next time I speak to him. You can always reach me at Shift keyat Map News. Remember to stick around. After the show we have a special interview with our new sponsor, Salesforce, which

Interviewer (Heatmap News Host) (50:10)

I'm so excited about.

Robinson Meyer (50:12)

Until then, Shift Key is a production of heatmap News. Our editors are Gillian Goodman and Nico Lauricella. Multimedia editing and audio engineering is by Jacob Lambert and Nick Woodbury. Our music is by Adam Kramolow. Thanks so much for listening. We'll see you next time.

Mike Munsell (50:30)

Hi, my name is Mike Munsell and I'm the Vice President of Partnerships with heatmap. For the past couple of episodes I've been talking with Sonja Norman at Salesforce about sustainability and AI. Today we're digging into climate tech, who Salesforce is investing in and the technologies they think will shape a more resilient future. So in our last conversation I know we begun talking about investments and water, but I'd love to just dive deeper into the topic of sustainability and investments. What defines an impact investment at Salesforce?

Sonia Norman (51:03)

We're so thrilled at Salesforce have resources we can invest across education, nature, sustainability and now AI readiness. One of the most incredible things that we feel like we can do is to support what we call early stage ecopreneurs. So these are innovators focused on solving sustainability challenges. They're innovators also that oftentimes lack access to traditional sources of capital. You know, maybe they're not going to appeal to traditional VC because of the expected roi, but are critical technologies for our collective future. To date, Salesforce has given over $34 million in the space of nature and sustainability philanthropy. We also have a Salesforce accelerator where we dedicate our technology and our employee resources to help nonprofits get just incredible mission driven nonprofits that operate around the world. One is good 360 and they're disaster NGO and they route disaster recovery donations three times faster with AgentForce. And time is always of the essence when you're in the disaster space. And then there's an organization called Rare and they're rolling out regenerative agriculture coaching to deliver real time localized guidance to to smallholder farmers in their native language. So automating logistics in the case of good 360 and then real time information sharing and translation with rare. The final thing that we do in the investment space is to invest in ecopreneurs through Our Salesforce Ventures Impact Fund.

Mike Munsell (52:44)

So I know Pano AI is a great example of that impact fund and we're excited for them to speak at our recent Heat map House at SF Climate Week. What made Pano AI's wildfire detection a compelling investment for you?

Sonia Norman (52:56)

When we look at investments through the Salesforce Ventures Impact Fund, we're looking for that magical overlap of financial ROI business that can scale and actually meet the moment from a business model and execution perspective. But also Impact roi. And Panoai is just a phenomenal startup. They are focused on climate disaster resilience and using AI to detect wildfires more quickly. If you think about wildfire specifically, what Pano does is they identify, using computer vision and other technologies, wildfire smoke when a fire is just beginning. Through doing that, they can quickly deploy responders and then the fire ideally is reduced in size or never scales to a true disaster. And some of the impact of that is preserving things like utility lines. So imagine that after a fire, not having anyone lose power, also preserving assets like buildings, you know, agricultural land, forests. This early detection is really, really critical for both the humans and involved. And the environmental assets, they've had impact already at scale, they're monitoring 50 million acres across the US, Canada and Australia. And Panoai is often the first known alert when there is the beginning of a fire. So really, really exciting to see that their technology is working and I hope to see them scale across more countries and regions soon.

Mike Munsell (54:38)

If we have any ecopreneurs, as Salesforce calls them, listening in, what advice would you have? Particularly as it pertains to fundraising and getting in front of Salesforce. What makes a compelling investment for our impact Fund?

Sonia Norman (54:52)

Specifically, we focus on software and we focus on environmental sustainability focused ecopreneurs. And again, like I mentioned, the number one thing we'll want to know is that you have a strong business and a great team. Really understanding the team's vision for how they're gonna meet a market need, how they're differentiated, what their approach is to

Mike Munsell (55:16)

scale, and I guess even within software. What are the areas or technologies that Salesforce is most excited about or most interested in right now?

Sonia Norman (55:26)

A lot of our recent investments that the team has made has been at the intersection of data centers, energy and AI. Emerald AI is one basepower. Crusoe AI.

Mike Munsell (55:39)

Salesforce uses a mix of venture funding, grants and accelerators. How do you decide which funding tool to use for which type of company?

Sonia Norman (55:46)

It really comes down to the recipient organization and where they are in their journey and what they actually need. To scale. The Salesforce Ventures impact Fund is return seeking. We've been talking about that. It's focused on early stage for profit enterprise software companies. We're looking for innovators who have that super strong business model and vision for how they're going to bring financial returns and social and environmental change as well with philanthropic grants. Those are impact seeking, right? We're not looking for a return beyond the impact and change we want to see in the community. And they're a really important lever that we have to support nonprofits who are doing really critical work on the ground, whether that's sustainability nonprofits, educational nonprofit schools, nature based solution organizations, and in the education space. Through our Salesforce foundation, we primarily fund two things, education at the middle school level and AI readiness. Because what we're hearing from students and teachers is that young people want to see a thread between what they're learning in the classroom and the work that they'll ultimately do once they leave school. So they want that career connected learning. In the sustainability space, we primarily look at nature based solutions, clean energy technology, and ecopreneurs. The last program is our agents for Impact accelerator. It's really modeled after Salesforce's integrated 111 model, which is where Salesforce took 1% of our equity, 1% of our employee time, and 1% of our technology for social good. And so we do that same one, one, one for nonprofits. We give them resources, unrestricted grants. We give them access to our technology stack for free agent force Slack tableau, other Salesforce offerings that support their AI use case, and then maybe most importantly, we support them with Salesforce pro bono volunteers. So these are folks like prompt engineers, data architects, people who can help them understand how to actually conceive of their youth's gaze and build out their tech stack so that they can strengthen how they reach their constituents and scale their missions.

Mike Munsell (58:05)

Well, thank you so much for taking the time to chat on the podcast.

Sonia Norman (58:08)

It's been my pleasure. Thank you so much.