Adam Rozencwajg is a managing partner at Goehring & Rozencwajg, a New York City-based investment firm that focuses on natural resources. In this episode, he explains why the “undercapitalized and underloved” oil and gas sector is going to continue seeing big profits, why rising interest rates and higher commodity prices are slamming the renewable sector, why EROEI — energy return on energy invested — is key to understanding our energy and power systems, and why, in his words, “nuclear power really gives me hope.” 

Episode Transcript

Robert Bryce 0:04
Hi, everyone. Welcome to the power hungry Podcast. I’m Robert Bryce. On this podcast we talked about energy, power, innovation and politics. And I’m pleased to welcome Adam Rosen swag is a managing partner at gearing and Rosen swag in New York. Adam, welcome to the power hungry podcast.

Adam Rozencwajg 0:20
Well, thanks so much for having me today.

Robert Bryce 0:22
Now, Adam, I didn’t warn you. I warn most of my guests, but I didn’t warn you guests introduce themselves. I’ve said you’re a managing partner at your firm. If you don’t mind. Imagine you’ve arrived somewhere you don’t know anyone you have 60 seconds, please introduce yourself. Sure.

Adam Rozencwajg 0:35
So, like you mentioned, my name is Adam Rosenzweig, and I’m a managing partner gearing and Rosen swag, associates. And we are a natural resource focused investment firm. So we invest money for our clients, we have a mutual fund for our US clients, we have one process of having a fund for international clients as well. And what we do is we really try to do the best and most original research that we can possibly do, and then use that to drive our sort of long term buy and hold value investment strategies dedicated to the resource markets exclusively. It’s all we do. And my partner Lee’s been doing this for about 32 years. I’ve been doing it for 16 years. And we’ve been working together since 2007, and independently is gearing and Rosenzweig since 2016. So that’s really who

Robert Bryce 1:26
we are. Gotcha. And you’re based in New York City. We are based in New York City. So will you beat me to the punch on this, but so your long only then you don’t short you don’t short companies, your your buy and hold your buy, buy and hold investors?

Adam Rozencwajg 1:38
That’s right. In the past, we’ve operated hedge fund, we’ve had a long short strategy since 2016, that we’ve been long only. And really, you know, what we had not come to notice in the past was that the vast majority of our value add going to our clients was all coming from our long portfolio. And so we said, Well, why not offer that in a as easy and as low cost product as possible? And so that’s what we did.

Robert Bryce 2:06
Gotcha. Well, so I know that you will, let’s talk about natural resources. I’ve been looking at your market commentaries and quite like them. Your latest one was issued November 24. And it was entitled, Why won’t energy companies drill? And what’s the answer to that question?

Adam Rozencwajg 2:22
Well, it’s all about incentives. And that’s true. You know, it’s probably a blanket answer for anybody anytime about any topic, but it is all about incentives. And the incentives just really aren’t in place today. And what I mean by that is, there’s really kind of three main pillars to those incentives that are telling the energy companies to basically slow down their drilling activity or grow at a much more measured pace. And instead, all the money that they’re making diverted, to returning that, that capital to shareholders. And the three incentives that we identified, and there’s probably more, but these are the main ones, I think, the first is political. And, you know, you’re still seeing a huge amount of rhetoric coming from the administration, both here and throughout Europe, to move away from fossil fuels and hydrocarbons. And so we get asked the question all the time, well, now that there’s an energy crisis, and now that the government is, you know, aware of this, certainly these things are changing. I said, Well, certainly not, you know, that there’s really no indication that there’s been any change in rhetoric or any change in sentiment coming from the administration’s at all. And if you look at, you know, all of the responses to the energy crisis, they’ve all been fairly antagonistic towards the energy companies themselves. And so what I mean by that is, you know, they talked about releasing oil from the SPR to bring prices down, they talked about potentially having an export ban, removing, you know, neither of those would obviously have any, do any benefit to an energy producing company, talked about removing taxes, gasoline taxes, and diesel taxes, again, you know, the energy company producing oil and gas doesn’t see any advantage to that. And, you know, the inflation Reduction Act has huge subsidies for wind, solar electric vehicles, so nothing they’re in favor of doing. So really, all the signals that are coming from the administration is still, you know, we don’t want fossil fuels, and we’re going to make life difficult as best we can for the fossil fuel industry. There’s been no change there whatsoever. So that’s number one. Number two, and this one, I think, is quite interesting. Is investors. And what do I mean by that? Well, you know, in the oil and gas industry, has been the best performing sector, the s&p since March of 2020. So you’re coming up on three years, and yet, the multiples of these stocks, the investors interest in these stocks, and the capital coming into the sector has been has been nil. And I’ve never really seen anything like that. I’ve never seen a sector that’s had leadership for three full years, and everyone’s just ignored it entirely. When Look at money flowing into the different energy ETFs. They’ve all seen money flow out over the last two to three years. I mean, it’s really incredible when you think

Robert Bryce 5:10
about is to have this despite this bull market, and despite the huge performance, it

Adam Rozencwajg 5:13
has not been normally you get prices that go up, because you have lots of capital rushing in, that hasn’t been the case, this time it’s been on effectively on liquidation, and the price is still gone up and up and up. It’s either been because of short covering, or it has been just on, you know, the fact that the marginal price has been set higher and higher. But what is left with is it’s left you with these companies that are trading at fractions of what their inherent intrinsic worth is. So if you’re the CEO of an energy company, and your company is trading at five times earnings, and maybe half of its intrinsic value is measured from the cash flows that it will produce, given the oil price. And you have $100 million lying around and you say what am I going to spend this on, your stock price will do better, almost nine times out of 1010 times out of 10. If you take that money, and you buy back your stock, versus put it in the ground, because your stocks cheap. And if you put it in the ground, the markets not going to reward you for it anyway, because they don’t really care about production earnings or net asset value. So the incentive, even though if you were just had your Harvard Business School cap on, and you looked at a single well, and you said should I drill that? Well, you could generate huge rates of return on a single well, even at today’s prices, but nine times out of 10, you’re gonna be better off buying back your stock. And so that’s what we’re seeing these companies do, instead of putting that money in the ground, they continue to buy it back. I’ve never seen an energy bull market like we have right now, that hasn’t attracted investor capital. I’ve never seen a bull market where the industry is not responding. You’re still a good 40% below where you were pre COVID In terms of capital spending in this space, and like 60% below where you were back in 2013 14 and 15. So we’ve just

Robert Bryce 7:04
if I if I could just interrupt for one second, because I think that issue around the buybacks has been something that even the Biden administration says, Well, why are you doing that? Why aren’t you drilling more? So that investment issue is related back to the capital or to the political aspect here as well, right, that that they’re the two interconnected issues there on the political the politicians criticizing the companies for their how they’re spending their money?

Adam Rozencwajg 7:27
Yeah, I look, I do think that there’s just still a really negative rhetoric coming from everywhere that you look, you know, whether it whether it’s the the pundits on TV, whether it’s the politicians, there’s just a lot of negative rhetoric, there’s a lot of feeling that these are going to be stranded assets with with no terminal value, that we’re going to move away from fossil fuels. And no one has really changed that. I think, you know, there’s probably an interconnect there, where if people started admitting that the challenges to wind and solar, which I know we’re going to talk about here a lot, we’re a threat to the long term viability of that industry, in that we’re going to need, let’s say, natural gas for the indefinite future, I would think that that would be kind of the cue for investors to maybe start to invest more in the space, get the multiples back up, have capital come in, and that would make the right incentives for the oil and gas companies to potentially actually drill some more. But as of right now, you know, you cannot attract new capital into the industry, and the cash flow that the industry is generating itself. They’re, they’re not even choosing to keep they’re giving it back. So it’s sort of like a negative capital coming in, you have capital flowing out in the form of dividends, and buybacks. And until that stops, you’re not really going to fix this problem at all.

Robert Bryce 8:44
So now, so you said there were three things. So first political, and then the investor side, what’s that? What’s the third,

Adam Rozencwajg 8:49
the third is is a geological issue. And that’s really important too. You know, it’s the idea that going back to 2005 to 2010, there was a really pervasive view that we had run out of oil and gas, there’s this view of peak oil. Now people talk about peak oil and refer to peak oil demand, but it used to be you talk Peak Oil was the theories ascribed to King Hubbard as an old shell geologist and, and peak oil supply. And then we brought on the shales. And to put the shales into magnitude, you know, the shale oil fields went from zero to like 10 million barrels a day crude. That’s basically what Saudi Arabia as a country produces today. It took Saudi Arabia 30 years to ramp up to that. We did it in a matter of four years. And we also brought on a shale gas industry, that when you convert it from BTUs, from gas back to oil, it’s almost as big as Saudi Arabia again. So it’s like we brought on to Saudi Arabia’s in the same country within five years. And so I don’t blame anyone for not really studying Hubbard peak oil supply during that period because it seemed as though we had a huge abundance and we did you You know, when you look the numbers really go off the chart. But if you were to back out for a second all the shales, which I’m not I’m not suggesting that that they’re not real or whatever. But but if you were to look at conventional non shale production, all of Hubbard’s theories are dead, right? You know, oil supply, conventional oil supply did peak around 2009 2010. And it has been in decline ever since. And the same has been true of peak natural gas. And it’s been back filled by this enormous new source, which is the shales. And it was so big that it seemed infinite or endless. But what we actually started to notice is that a lot of the fundamental tenants of peak oil could also be applied to the shales, you take the shales, stand them alone in isolation, and they also follow these big Hubbert curves. And you can look and you know, some of the early shale gas fields, which are the first ones to be developed, which is the Fayetteville and the Barnett. Those have both ramped up plateaued and are now in decline. Both are like 60%, below their peaks. And we started to look at some of the underlying geological numbers behind when we started to run out of new growth when we started to plateau when we started to decline, and very much follows Hubbert curve. And so we said, Okay, well, where are we then today with the Marcellus, the Haynesville, the Permian, the last shale basins that are still you know, robustly producing. And we came to the conclusion that, you know, most of those, not all those are now squarely in middle life, you know, so they might have a little bit of growth left in them, but not nearly what they were able to grow early on. They’re basically in the plateauing, period and could decline. So, you know, again, these are kinda like, longer term, medium term trends a year, two years, so any given month, you have a lot of noise, and you might get another million barrels over a couple of years, in total, but you know, the days of growing like, 1,000,005 1,000,006, whatever the peak growth was, those seem to be behind us. And so I think, as we now we’re three years into this bull market, and the energy price is high, and you’re not, you’re getting some growth, but very, very little out of the Permian, the Marcellus has basically been flat for six months, the handle now seems to be pretty flat, too. So what does that do to the incentive to drill? Well, I think, you know, if you look, if you’re an energy CEO, and you, you claim to have kind of like a 15, year 10 to 15 year inventory of really good drilling locations left, and you’re running a two rig program, or a three or rig program, you know, if you add two or three rigs, now all of a sudden that 10 years is down to five years, and all of a sudden, in a year from now, your analysts are probably saying, Well, what happens, you know, in 2025, and you have to look and think, Well, how am I going to transform this company? So given the fact that the politicians aren’t giving you any real incentive to drill, and the capital markets aren’t giving you any incentive to drill? Why on earth? Would you go and accelerate that depletion, and pull that forward to today, it’s not like the capital markets, it’s not like this, your stock price is going to rally, if anything, your stock price will probably go down when you announce all this new spending. So I think all those three things together means that you’ve seen a very muted response from the industry. And that’s just make gonna make the problem worse.

Robert Bryce 13:23
And so your your thesis which will Okay, so six months ago, I would have said, Well, okay, yeah, you’re right. Yeah. So you know, gas prices, net gas prices were very high. There was vault, you know, reached $100, roughly per million Btus in Europe. But now we’re having a warm, you’re warm winter in Europe. Henry Hub today is under $4. There are a lot of counter indicators to the what you’re saying, right. I mean, would you accept that? Is that a fair fair statement? What I just said,

Adam Rozencwajg 13:53
I think price is the biggest counter indicator right now I actually don’t see a lot of fundamental counter indicators. Okay. And that’s what’s been really kind of interesting. In the last couple months, we’ve seen a big divergence in price. We can talk about oil first, because natural gas, you’re right, natural gas. Inventories could have been worse by now. But you know, you look for instance, in the US, and natural gas inventories relative to seasonal averages are worse today than they were when the Freeport LNG facility went offline what what it was eight or nine months ago, or maybe longer now. So everyone figured that when that facility that’s an export terminal down in Texas, and if it were gonna go offline, and it caught fire unexpectedly, I guess, I guess you can only catch fire unexpectedly. Unless you’re an arsonist. Everyone said well, now inventories are going to build up in the US and be really hurt in Europe. And what actually happened helped by a little bit of cold weather but but basically fairly average over the whole time has been that inventories have have actually widened their deficit relative to when they started back in back in earlier and 2022. So you know, so to build on

Robert Bryce 15:03
that, if you don’t mind me interrupting here, but you’re saying that instead of having a bigger increase in gas and storage that’s been very muted.

Adam Rozencwajg 15:11
It has been Yeah. So the markets been quite tight, the US gas market has remained tight, despite the fact that the Freeport export terminal has been offline. Europe has had warmer than normal winter. And they they really moved heaven and earth to refill their gas inventories. And we had some, so that’s depressed prices. But I wouldn’t say, you know, thank goodness, they did that. I have had people say to me, Well, you know, look at European gas inventories, they’re, they’re 8995, whatever the number was percent full. And so clearly, you guys must have been wrong as well. First of all, you know, the coal burn in Europe is off the charts. It’s undone. 30 years of green, push. Second of all, they close something like 15% of their industrial capacity. Third of all, they had Russian gas flowing for a good period of that. And fourth of all that a really warm winter. So I mean, I guess it’s good, like, I don’t know that it really makes for a bearish gas market. But you know, yeah, that helped them out all those things. But it just kind of pushes out the real moment of reckoning, I suppose, to 2023. So, look, I think that really the major thing, inventory levels remain quite low in the US both in oil and gas, and globally on oil. They’re at 40 year lows, and they show no sign of improving, you have Chinese demand picking up now as they begin to re mobilize. The Saudis have come out and said that they don’t really have much in the way of spare capacity, the US isn’t really growing. So I would say that the only counterpoint to our thesis from four or five months ago has been the price. And you know, the price will do what it’ll do. The paper oil market and the paper gas market are multiple sizes of the physical underlying market. And I think that there’s been a lot, a lot, a lot of selling, net short selling, frankly, by speculators in that market. So you know, we’ll have to wait and see how the fundamentals resolve we are of the opinion that over the long term, the fundamentals will always carry the day. But that doesn’t mean that traders can’t go in and really move markets. And I think that’s what we’ve seen in the last three months or so.

Robert Bryce 17:17
So let me just throw a couple of things at you here. And I think, you know, your analysis, I can’t argue with that. I you know, I’m not I’m not a markets guy like you are, but I was just downloaded some an EIA spreadsheet and about the inflation adjusted price of oil. And last year, the average price of crude was about $95. In 1979, again, on inflation adjusted basis was about 89. So you mentioned Hubbard M King Hubbert, who came up with Hubbard’s peak in 1952, something like this. Isn’t it true that the more oil we find the more oil we find it? But are you saying that that the the these other indicators, the political, the investment and the in the the geology have been fundamentally changed that those incentives so there’s the incentives to go out and find more oil aren’t the same? Is that is that a reading back that it? Can you? Is that a fair way to think about what you’re saying?

Adam Rozencwajg 18:14
Look, I think I think a major criticism of Hubbard peak has been that there’s always been new technological advances that have helped us either find more oil or increase the available recoverable reserves. And for your listeners and viewers who might not be as familiar, you know, some of Hubbard’s theories basically revolve around the fact that there’s a relationship between the total recoverable reserves and what a field will produce. And that I mean, how can you argue it that if you have more oil in a field that should produce more oil on a barrels per day basis at a peak than then another field that has less oil? I mean, that’s kind of stands to reason. And and he posited that, you know, in an unconstrained idealized fashion, you would produce out of that field in what basically looks to be a normal curve, right. So it kind of like a bell shaped curve ramps up, you know, plateaus. And then and then its fall is basically a mirror image of its ramp up. And, you know, there’s lots of fields that have followed that. You know, there’s fields in Russia, there’s fields in the Gulf of Mexico, there’s fields in the North Sea, where you see a really clear Hubbert curve. Now, the pushback has always been, well, you have a moving target in your recoverable reserves, because what a recoverable today wouldn’t have been recoverable 1020 3040 50, however, many years ago, because of both technology, and then ultimately price as well. So you know, there’s a price element to it also. And there’s some truth to that, you know, if you look at a perfectly idealized Hubbard’s curve, the right hand side where that production declines, tends to be stretched out a little bit, it tends to be, you know, over, you know, overshoots, the model produces more than the model would suggest, and the wedge between an idealized curve and that longer curve, we call technology, you know, that that’s the impacts of technology. So that’ll definitely continue to be true.

Robert Bryce 20:04
So to paraphrase there, Adam, so you’re saying that technology increases the length of the tail is that it does

Adam Rozencwajg 20:09
Yeah, it does, it increases the length of the tail. That’s, that’s a perfect way simple way of putting it. But, you know, what it doesn’t really usually do is it doesn’t allow for new peaks. It doesn’t allow for new periods of growth. You know, once you’re in that in that decline phase, it might help mitigate declines, but you very rarely see technology come in and have a huge new period of growth. The big exception, of course, is the United States Taken as a whole. When you add in the shales and the conventional, then you saw a peak in the 1970s decline, and then beginning in 2010, have this major second ramp again. And I would argue those are two distinct basins. They’re completely distinct systems. And and if you look at each of them in isolation, they each tend to follow a normal Hubbert curve. So what I’m trying to say here, more than anything else, is that these assets that 10 years ago, when their ascendancy and were nice tailwind to production growth, now seem to be at the very least in their plateau period, if not in their outright decline period. And you’re going from having had a million 5,000,006 of growth to almost nothing. That was the only source of non OPEC oil supply growth from 2005 to 2020. And you’re underspending in the industry by nearly a trillion dollars. Right? So you’re not working with a lot of house money to try to go and bring on ultra deep water, you know, offshore Brazil or what have you, you have a really undercapitalized industry. And I think you take all those things together. And it’s going to be really tough to see how supply rises to meet the occasion in the next five, five or six years.

Robert Bryce 21:48
Well, I just want to add one quick point there. And I’m sure you know, there’s people listening may not know, but the estimates are that in the shale patch in the US that the oil and gas sector, the EMP sector, effectively just burned $300 billion, right, they over drilled, they spent too much money drilling, they produced a lot of oil and gas to benefit the consumer, but not their own shareholders or their own investors. And so your your your thesis here, in part is that that those days are over that they’re not going to do they’ve seen that movie, they’re not going to they don’t want to see it again.

Adam Rozencwajg 22:18
I think that’s right. And I think you know, one thing I’ll say to temper that, or maybe degrees, I’m not sure. But you know, the oil and gas business is a cyclical business. And eventually this bull market will end. And it’ll end with really high oil and gas prices. And and this is really important, because we did not see it this year in 2022, high oil and gas prices, attracting a lot of capital. And that brings on a lot of new productive capacity now where that productive capacity is going to come from seems really difficult to try to guess right now. But I promise you like any cyclical commodity market, this bull market, too, will end and it’ll end with really high prices, unbelievable enthusiasm, energy, probably at 20% 30% of the s&p. That’s usually where they top out, and a lot of new projects being sanctioned. And so then you say to yourself, is that where we are today? Well, no, the only thing we had for six or nine months was high prices, we didn’t have any of the others we didn’t have any suppliers bonds, no new capital coming in energy as a percent of the s&p is still sub 5%. So you know, we have a long, long, long way to go. And there’s going to be a huge amount of money to be made. For investors, I think they can look out through this cycle.

Robert Bryce 23:30
So we’ll let’s put a point on that then. So are you recommending obviously are year long the US long us upstream companies, EMP companies, any ones that you in particular that you like that you care to mention?

Adam Rozencwajg 23:42
You know, this is all publicly available. So we don’t we don’t tend to talk about stocks all that often. But I’m happy to talk about you know, what, what’s known that we own and what have you, we own pioneer, we on diamond back. We own Laredo, that’s probably our most controversial name. But But what’s interesting is that that’s so unloved that, that it’s just so cheap that I think, frankly, people, it could miss the mark even on people’s low expectations, and it would still be a good investment at this point. What’s interesting about Laredo as a couple years ago, they started to make some really interesting acquisitions in the Midland basin. And again, it was so unloved at the time that no one really realized where they were buying in Midland County was actually quite good. It was sort of in a couple little sweet spots because they’d always had this lousy tier two acreage that no one cared much about. And when you look at how the company has changed, you know, the quality of that assets improved quite a bit and that’s when we started to actually buy it was after that happened. Now whether that’s enough to carry the day or not remains to be seen, but that’s probably our most controversial claim. It’s small. But you know, we have as I said, diamond battle Matador is another big one. What’s interesting, you know, when I think back and we were really early shale investors going

Robert Bryce 24:51
sorry, Matador is that Bill Lee’s old company, was that the one that was in Turkey and he was overseas, is that the same company or is that maybe I’m missing him? To me, that’s it,

Adam Rozencwajg 25:00
I’d have to I’d have to go back and look, we became involved with it as a pure Midland as a pure Delaware Permian player. So but you know, we were really early shale investors all the way back in the in the Fayetteville. We weren’t necessarily in the Barnett quite as much. But we were really first movers in the Fayetteville in the Marcellus, in the eagle furred and then ultimately in the Permian. And so we have a lot of shale experience. And what’s interesting is that for a long period, they’re in the kind of old days of shale from 2010 to 2016. You know, you really had to determine whether or not these high quality companies were overpriced, and it was this trade off between quality and price and you wanted to, for us, anyway, we’re value investors, you wanted to look at the companies that represented good deep value and still had high quality tier one acres. But since the sell off, and particularly since COVID, you know, you have a really wonderful market where you can just kind of by, you know, Pioneer double digit cash flow, free cash flow yields, you can buy, you know, super tier one companies like diamond back, and they’re trading on seven times earnings. So you don’t have to get too creative these days, I find.

Robert Bryce 26:14
So look, I’m not I know enough to get myself in trouble. So the are you looking at EBIT da price to earnings? What, you know, what, what are the key metrics that you’re really looking at? Or if you had two or three, what are those? I know you’re looking at the quality of their acreage. But are those on the on just looking for what retail investors would be looking at? What are those numbers that are the real key ones for for retail investors to look at?

Adam Rozencwajg 26:39
What I find is actually a really instructive one is to look, you know, every US energy company has to disclose what’s known as it’s PV 10 value. So the SEC requires them to take all their approved reserves, including proved undeveloped with a five year plan, that they’re expected to be developed inside of five years, and run a DCF on those reserves, using just actual

Robert Bryce 27:07
discounted cash flow for

Adam Rozencwajg 27:08
discounted cash flow analysis. Exactly. Yep. So so they, you know, the company has to make a model, where they look at what every year the cash flows are going to be from, from the production of the wells, such as they are drilled today, and then plan to be drilled in the next five years, using actual lifting costs and expected drilling and completion costs. And then you discount those back at a cost of capital, which is set at 10%, which you could argue is that true or not true. And there’s the SEC P V. 10, which can be found in the 10k has a lot of limitations, namely, a lot of simplifying factors like 10% cost of capital. However, what’s nice about it is that it’s apples to apples across every country to company in the industry. And it’s pretty neat. And so as somebody who likes to look at cash flow, and free cash flow, and discounted cash flows, to have the SEC mandate that these companies do most of the work for you, I think comes in quite handy. So we like to look at the SEC P V 10 values at the back of the 10 Ks, take out the debt, look at it per share, and how does that compare with the stock price today, and sometimes it’ll, you know, the stock price will be above that. And that’s okay, because those companies will grow, they’ll add on new acreage and they’ll develop stuff that was undeveloped prior to that. But that I think tends to be a good indicator of value. And what we like to look at

Robert Bryce 28:32
let’s go back to the Permian if you don’t mind because I’m I live in Austin, and I’m Tulsa is my hometown. So I’ve been around the oil and gas industry a little bit. By the way. Are you? Is there any any this in your background? How were you trying to do where did you go to school? What do you get your degree and I’m just curious.

Adam Rozencwajg 28:47
philosophy and economics. So maybe.

Robert Bryce 28:52
But you’re also a CFA charter, chartered financial analyst. Yeah.

Adam Rozencwajg 28:55
Yeah. And I spent my entire career in the energy business in the materials business. And I worked for a gentleman who you probably saw crossing behind me here, who’s been doing it for, you know, 32 years. And it’s really his passionate avocation. And so, one of the one of the things that I always I’m really flattered by is when someone in the industry asks if I’m a geologist, or an engineer, you know, to me, if someone if someone ever says, are you an investor say, Oh, my God, I’ve done something wrong in that meeting. But if somebody says to me, you know, are you Where did you study petroleum geology? That’s where I hit my mark. So

Robert Bryce 29:31
you talk the lingo, you know, they

Adam Rozencwajg 29:33
know enough to be dangerous.

Robert Bryce 29:35
Yeah. You speak the lingo. So Well, let’s talk about the Permian a little bit, because, you know, I’m in Texas and there were some issues. In fact, I was talking to somebody here in Austin the other day about constraints on you mentioned pioneer other companies that are being constrained on their ability to drill because they don’t have enough electricity right that their power their shot power shortages in the in the Permian. One of the things that’s driving electricity demand in Texas is this industrial demand, much of it coming out of the Permian and they don’t have enough transmission. don’t have enough generation capacity. That’s a limitation. There’s also the issue of water and produced water. If you were going to look at the Permian as a whole, are what are those factors are? Could be the I mean, you’ve mentioned these, you know, obviously political, the investors the geology, but there are other on the surface issues that are could constrain production growth in the Permian are is why their water one of them electricity availability, what are those other issues that seem to that are clearly looming are already here? Yeah, I

Adam Rozencwajg 30:30
think all of the above and when you do look at, you know, this is an industry that has been left for dead. This is an industry that has seen, you know, peak to trough massive declines on the order of magnitude of 80%. Whether you’re looking at, you know, rig counts and staffing and things like that, now, it’s come back a little bit off the bottom, but you’re starting to run into some real problems. A lot of people have left the industry and I think human capital is a huge issue. We’re seeing, you know, steel, tubulars, and stuff like that, that that are becoming an issue as well. We’re seeing some tightness in the frack market and the frack spread market. We’re seeing some tightness in like you said, you know, bottlenecks and water, and potentially in electricity. So I think it’s going to be a little bit of a game of Whack a Mole, just because this is a really undercapitalized under loved industry, and so you just have kind of been selling it off for spare parts for the last, you know, in some ways, 10 years, but but probably at least 567 years. And, you know, now is, as we try to put our foot back on that accelerator and bring production back up, you’re gonna start to see lots of dislocations. So, you know, none of them are impossible to overcome, and I think ultimately, will and what have you. But yeah, you know, you’re not in a period of time right now, where everything is smooth sailing, you’re in a period of time where you where you have to go against work against that current. And so what the individual things are is probably less important than just a theme in general that, you know, this is a, this is a industry that’s kind of been stripped for parts a little bit.

Robert Bryce 32:04
Sure. So let’s talk about just oil for a minute, because you recently had your, your investor meeting in New York on you called the coming decade of shortages. I want to talk about broaden out our discussion and other commodities, including coal, which is something I’ve been following for a long time, about oil itself the issue. I’ve said if oil didn’t exist, I’ve written this before in one of my books and oil didn’t exist, we’d have to invent it. Because this is such a critical commodity for the global economy. Is that part of your overall thesis that this pot, this commodity just simply can’t be replaced at scale? And therefore, people are overlooking that, or they’ve been hoodwinked or kind of mesmerized by this idea that we’re going to switch to something else, and we don’t need oil? How does that figure into your broader macro? Look here? Oh, yeah,

Adam Rozencwajg 32:51
absolutely. And, you know, there’s a wonderful set of books, for those that are interested by Vaclav Smil writes a lot on energy history. And Richard Rhodes does as well, he wrote two big volumes on the making of the atomic bomb and the hydrogen bomb. But then he also wrote a history of energy, which I find to be really interesting and fascinating. And, you know, you can recast basically all of human history as a search for more and more productive forms of energy. And for a long, long time, you know, almost 2000 years, we use the same form of energy, you know, we used effectively, biofuels, crops for ourselves and our animals and wood for our heat in our building materials. And then, you know, what happened was Britain cut down its last tree, and it had to move to coal, because somebody noticed that this lump of rock could burn as well. And it turned out that the energy efficiency of coal, meaning how much energy get out for every unit you put in to actually harness that energy was much better, you know, almost twice as good at the time, as it was for biofuels. And, and what’s really fascinating is that for 17, centuries, probably longer, but our data only really goes back to around zero ad. So from zero to like, 1650 1700, you basically had no growth, the GDP per capita doubled over almost 2000 years. I mean, that’s crazy. It’s like 0.04% growth, and energy demand was was commensurate with that. So you basically had no growth. And that’s because all of your energy, so much of your energy was going to just making more energy. And then the rest of the energy that you did have was going towards keeping you alive. And moving from wood to coal, the amount of energy needed for energy production sake, the energy to make the energy itself dropped by about half and the amount to keep yourself alive didn’t change. So you got this little surplus, all of a sudden it’s the first time in history had surplus energy, and it was the first time in history had surplus capital. You know, before that, if you wanted to become rich, you had to take it from somebody You know, you had to basically had lords and serfs or you had masters and slaves or what have you. But when when you now begin to develop surplus capital, that began to change, laws began to change, and the concept of Win Win, deals started to emerge, because there wasn’t a such thing as a win win deal before the advent of coal as far as I’m concerned. And then you fast forward a couple 100 years and, you know, now you’re really humming, and then you, you come across oil and natural gas. And that’s another kind of leap forward. And you go from the period of time of, you know, the 19th century, to basically 18th and 19th century to what we know today. And you know, you take your biggest city from a million people to 22 million people. At any one time, you typically had 1 million person city in the world, now you have like 200, and something with more every day, our energy consumption went up 40 fold. And our and our GDP went up dramatically. Infant mortality dropped to you know, basically zero and develop worlds. So all this happened because of efficient, available abundant energy. And when you when you think about how important that’s been. And you’re now talking about moving the whole system, to something new, you would think that a big topic of conversation is, well, what does that new thing look like from an energy efficiency perspective. And it turns out, it’s not very good at all. You know, when you look at wind, and you look at solar, and you look at EVs on what we call an energy return on investment, so how much energy you put in to get a unit of energy out, it drops from about 30 to one, which is what oil and gas is back down to, at the best estimates 10 to one and at the worst estimates like two to one. And that depends on whether you’re in a sunny, windy, windy area or not. And whether you want to account for batteries to smooth out the intermittency, which of course, if we’re going to go all wind or all solar, we’re going to need something to smooth it out. Because the wind doesn’t always blow in the sun doesn’t always shine. And I wish I wish we were into more sophisticated discussions. But we are talking about, you know, the fact that the sunsets at night, you know, this, this should have been kind of dealt with on day one, I would think but here we are. Well,

Robert Bryce 37:14
let me interrupt you there because I think this is a really important point that you’re making. And it’s one that I’ve thought a lot about, and I’ve written a fair amount on this issue. But this history that you’ve just recounted, and I’m a big fan of smell, I have a dozen of his books, I’ve invited him to come on the podcast, but he’s an irascible guy. And he said yes. to happen, right. He’s charming in a certain check way. But he’s you know, he’s, he’s not. He’s not he’s press averse, yes. But those points that you’re making about the energy being the foundation of society. And yet there seems that this kind of glib approach to it, and by this administration, I’ll say, and I’m not a Republican, I’m not a Democrat, I’m disgusted, but that they’re just kind of glib, but we’ll switch to something else. And we’ll just do it wind and solar. Any any thoughts on why this? We’re so that we I’m using the people we hear energy blind or energy ignorant or unaware of this history and the pivotal role that hydrocarbons have played in the progress of humanity? What, Why, why are we here at this place? Why are we getting this so wrong?

Adam Rozencwajg 38:11
I think we’re a victim of our own success in that regard. And I think, you know, when you have a too good, what we’ve had it too good for certainly the last, you know, 10 years, and I think that there’s been periods of time, you know, I don’t know, when smell started writing. And when you go back to past energy crisis, but But certainly, you know, in the 1970s, you had a dual oil shock, from OPEC. And that brought about a lot of sensible thinking about energy. I mean, not not, not entirely but you know, we, we changed the way we drive, you know, the size of cars completely changed. And we changed some of our other preferences as well to be more energy efficient. So I think in periods where energy is scarce, you know, you’re confronted with these realities. And the flipside is also true, when you have cheap available energy, you don’t really have to sharpen your pencil and do such an astute analysis, because because you can waste it. And that’s what unfortunately, what we’ve done, you know, we were given a really great resource in the form of the shales in the US. And instead of utilizing it to bring forward things like nuclear power, which I think has unbelievably high E ROI, very energy efficient, it’s off the charts, in fact, and no carbon emitted. And instead of, you know, taking the time to do that, what we did is squandered it on something that that is very energy intensive, very capital intensive, and ultimately can’t solve some of these problems. And so like, what I like to tell people, is if you go back the last 10 years, and I’m saying 2010 to 2020, the decades of the 2010s was really unique in history for two reasons. It had the lowest interest rates in the history of interest rates. So going back 4000 years and Every major form of energy fell peak to trough 90% 90%. I mean, that’s you basically gave it away, you know, oil went from 145 to negative. So that was more than 100% natural gas went from 15 bucks down to $1.90, coal fell 90%, uranium prices went from 142 to tonight, teen basically down 90%. So you gave away energy for free or 90% off sale, and you gave away capital for free. And so

Robert Bryce 40:30
the shale business could afford to waste $300 billion, making gas well, you know, free, Joe, kind of but I mean, but that these confluence of events allowed this shale boom to happen that great for consumers, terrible for the shareholders. But you’re saying that era is over the cheap capital era,

Adam Rozencwajg 40:47
I am saying that that era is definitely over. And what I was actually thinking more than the shale industry, what I was actually thinking was, that was the wind and solar industry, you know, because you develop these huge, huge, huge new projects that are extremely energy intensive and extremely capital intensive. And I don’t think that’s a major surprise, given that you gave away capital and you gave away energy. I think with the shale industry, look, you know, people talk about how it destroyed a lot of capital. And there’s no two ways about it, there’s people that were out there chasing, you know, the market was was rewarding you for production, right. And so there were companies for sure, that went out there and delivered unprofitable production, because that’s how they got their stock price up. However, there was a lot of companies out there that that were fairly sensible, and still grew, where I think they made their big mistake. And so this is kind of a bone of contention I take sometimes because I don’t, I wouldn’t I don’t know if this is quite the same as destroying capital. I don’t think any of them, you know, from 2010 to 2014, oil was pretty steady at 100 bucks. And then it fell to 40. And it stayed between 14 and 16. For the next six years. I don’t think many companies had that in their models in 2010, when they were underwriting all this new capacity. And you know, should they have? Hindsight is 2020. But you know, there were some guys that were just out there willing to drill any well that they could get to show growth. But I think the bulk of the industry just got blindsided by that major decline in the price. And it was tragic in the capital was written off. But I don’t know if it’s quite the same as you know, it wasn’t a proactive decision, I think.

Robert Bryce 42:25
Sure. Well, so let’s talk about that in the interest rates, because I’ve been watching the offshore wind business, and I’m a longtime critic of the wind business, they don’t like me, I don’t like I’m back. It’s okay. I’m comfortable with that. But we’re seeing already in the offshore wind industry, big projects being cancelled or delayed, or they’re announcing delays or they’re asking for more, you know, higher tariffs for the electricity they produce. It seems to me there’s a combination of high interest, high interest rates and higher commodity prices, higher prices, how do you how do you is that fair? Is that or how do you read this sudden, little ship wreck of offshore wind and put to really mix my use? I think the right word here, how do you see it?

Adam Rozencwajg 43:05
No, I think I think he got a spot on. And we were very early to talking about this. We actually looked you know, everyone loves to put out these numbers. And it’s not just offshore wind, by the way. It’s onshore offshore solar, and it’s also lithium ion batteries. Everyone loves to talk about this huge progress that the industry has made. And all of these technologies, these green technologies, over the last week

Robert Bryce 43:27
costs higher capacity factors. Exactly right. But the material intensity didn’t change, right? No, it didn’t. It

Adam Rozencwajg 43:34
was all these like learning rates, you know, what’s a learning rate? And they said, well, we just get better and better. What are you getting better at? And they said making them was how, you know, you’re welding steel together? What is it that you’re getting better at? And look, there was some improvements, but nothing like what the price would suggest. And the major reason, and we did this model probably 18 months ago, and we wrote about it in our quarterly letter, which is available on our website, we said, you know, how much of the reduction in costs, and these different technologies can be attributable to capital costs and commodity prices, and the embedded energy in the commodities in particular, right. So the steel prices with the steel prices, but ultimately steel is just energy in a transformed form, right? You take you dig up iron ore using diesel fuel to run the trucks, and then you run it through a blast furnace by burning coal to get rid of the carbon or the oxygen rather and make it into steel. So it’s just energy in converted forms. So how much of the reduction in the cost of wind which is a massive steel pylon and a copper laden generator? How much of that decline has been attributable to capital costs and to falling energy prices? It shouldn’t be very easy to do. It turns out that it is it took takes, you know, a week or so of digging through numbers and we conclude did that about 70% of the of the price declines? Were attributable to those two factors. Now, why is that so important? Well, because we’re still even going back a year and a half ago, we weren’t there yet in terms of where we needed the cost of those things to be in order to really, truly compete on an uninterrupted basis. And so you needed that learning curve to continue. And we said, well, not only is the learning curve, not going to continue, but we think it’s actually going to move the other way. And that was like heresy at the time, particularly on the lithium ion batteries, lithium ion batteries went from $1,000 a kilowatt hour to 150 kilowatt hour. And it needed to get to 100 a kilowatt hour in order to really compete, right. And everyone said, Well, it did 1000 to 150. So 150 to 100, should be really easy. We said Not so fast, 1000 to 150, the vast majority of that was cheaper capital and cheaper energy. And if you have both of those reverting, you’re gonna get 150 to 200 to 300, you know, you’re gonna be off by a factor of three from where you need to be. And nobody agreed with us when we wrote that. And that’s exactly what’s happening now. And so I think that, you know, it’s it’s not just limited to that, I think, in general, you know, we have brought on to Saudi Arabia’s in the United States in a period of 10 years that took them 40 years to bring on one Saudi Arabia, right. And no one’s written the book of what impact that’s had on our society, and it’s going away now. You know, so I think we have to start thinking, you know, it has impacts on on a lot of different things, and it’s quite dramatic.

Robert Bryce 46:28
Well, I’ll just add, I think what is GE is renewables business that would have been losing $2 billion this year, something like that.

Adam Rozencwajg 46:33
It’s really shocking how fast these numbers, these these negative profitability numbers stacked up. And some of these things, you know, I suspected that they would turn and stop getting cheaper and start getting more expensive, but it’s like, the offshore wind and Massachusetts, negotiated their tariffs in March and basically said, if we keep this we’ll be bankrupt in November. It’s really, awfully quick.

Robert Bryce 46:59
Quick station break. My guest is Adam Rosen swag. He’s a managing partner at gearing and Rosen swag. It’s an investment firm in New York City. You can find him at go We’ve been talking for about 15 minutes. Now, Adam, and I appreciate your time, I want to talk about three other things. Three other commodities because you your theme, as you’re setting your investor meeting in November, the coming decade of shortages, so uranium, coal and copper, you talk about nuclear in your newsletter in November, you specifically mentioned Poland and its plan to build a three AP 1000s. You said, the recognition that nuclear power represents a highly safe source of carbon free baseload power continues to gather momentum, and that the uranium markets here I’m quoting, are about to flip from a structural surplus to a structural deficit, a huge uranium bull market looms. So my question is, which countries are going to a friend of mine, Mark Nelson said, the nuclear boom is not going to happen in the US because it doesn’t have to happen. It does have to happen in Poland. And you mentioned Poland, Western Europe is under much more pressure to get off of natural gas, we have still abundant natural gas here is nuclear. Here’s the question is nuclear going to? Does it is going to have to succeed overseas before it succeeds. Here, how do you see the rollout of this next generation of nuclear plants around the world?

Adam Rozencwajg 48:23
Yeah, it’s an interesting question. And I don’t think it has to roll out in that in that way, I think that what you need to start to have happen is you need people to recognize the underlying pros of nuclear power. And cons, I suppose. But But I think that the consequences are quite limited. Again, if you look at this energy in energy out, nothing has come close to ever, you know, nuclear power is off the charts, you had biofuels were five to one, five units out for every unit in coal, got that up to 10 to one hydrocarbons got up to 30, to one nuclear is 100 to one on today’s nuclear technology, and close to 200, to one on the technology that they’re advancing now, to the end of the decade. And I’m happy to talk all about that. Because I think we’re in a unique position. We know a lot about the small modular reactors that a lot of people talk about. And I was guilty of this too. You know, up until about nine months ago, a lot of people talked about it, but didn’t know anything about it. And I was gonna say we don’t read what I read in the paper. But we spent the last year or so really getting familiar with these technologies, visiting with them talking with them. Most of them are private companies. And there’s some really interesting things that are being worked on that have near what is the near term end of the decade. applicability.

Robert Bryce 49:44
Well, can we can we follow up on that? Because I’m fascinated by these as well, and we’ve had new scale went public their tickers SMR X energy just announced they’re gonna go public this year. Any of those companies you think are more promising than another? I mean, I’m kind of inclined toward the gas cooled reactor because of higher and topic efficiency. There are a number of other things in it. But new scale has the advantage of being lightwater and getting potentially getting regulatory approval more quickly. Any handy. Any any ideas on handicapping? Who might might prevail in the SMR? Market?

Adam Rozencwajg 50:18
Well, I think that one of the things that will obviously be tricky for all the SMR guys is going to be the Nuclear Regulatory Commission. So I put that out there that that, you know, it, we haven’t, we haven’t approved a new nuclear reactor design in many, many decades, frankly. And certainly nothing as fundamental ly different is what we’re talking about with some of these technologies ever. And so, you know, there’s a little bit that that is sort of out of your control, because it’ll it’ll depend on the regulatory commission approving these new desires. The one that I would say, you know, that we’re think is the most intriguing is none of the ones you’ve talked to the private company is tear power, which is Bill Gates back, sure. Venture and they’re doing a molten salt, fast reactor. So that’ll use what they call high assay, low enriched uranium. And they just announced that there’s a slippage in their timeline for that project, because they were expecting to source some of that Haley you from Russia, they’re the only people that can make it right now, shouldn’t be difficult to make. That’s what everyone’s always said, you know, you just continue to enrich it until you’re in Richard a little bit more. But we’ve never had the need for it. And so we don’t have the facilities here. And so with Russia as a backstop, now gone, they’ve moved their timelines out. But what they’re looking to do there has the major advantage of being low pressure. And so you don’t you don’t have, you know, these hundreds of atmospheres of pressure that you have with light water reactors, and heavy water reactors, Pressurized Water Reactors. And because of that, your still goes down, your cement goes down, your size goes down, everything goes down. And because you’re dealing with high assay, low enriched uranium, your waste stream goes down quite a bit, as well. So that that tends to be really interesting, I think New Scale, their benefit is that they’re doing the least new things, right, and so should be the easiest to get permitted. Their downside is that they’re doing the least new things, and so has, you know, the least amount of benefit over an AP 1000. It’s just, you know, really what new skills, claimed benefit is more than anything else, is that it’s smaller. And instead of building it on site, they’ll build it in, in a fab plant, and they think that that’ll drive costs a lot lower. Now, I’m sure that assembling a nuclear reactor in the field, versus in a facility where everything’s temperature controlled is more expensive to do in the field. Whether that’s enough to carry the day over a decade of permitting, is anyone’s guess.

Robert Bryce 52:43
With that bottom line here, I mean, in terms of commodities, is that you think this is all very bullish for uranium?

Adam Rozencwajg 52:48
I do. And I think that the sentiment is starting to change towards uranium. And so I think, you know, the idea like, you know, all of these facts that I’ve just told you about were true five years ago, but you never would have been able to push this five years ago. I mean, just never just was a non starter in the United States or anywhere in Europe, anywhere outside

Robert Bryce 53:06
of China. But the landscape changed after it has it has

Adam Rozencwajg 53:09
it has. And so now I think if people are favorably predisposed to the technology, they’re willing to look at it with a fair approach. And they’re looking willing to look at the waste issue, which is entirely manageable, the safety issue, which nuclear is the best safety record out of any source of energy by far, you know, and people are willing to have an open mind on that, then the US should adopt it for its merits alone, you know, even if it has a lot of natural gas. So the sentiment is shifting, and now it’s anyone’s guess. So I don’t think it has to be Europe that moves first. I think maybe pragmatically, it might end up being that way. We’re seeing activity already, you know, we’re seeing France commit to a new recommit to its nuclear program, England is gonna have a big build, Belgium just announced that they’re gonna extend their lives. China continues as the Juggernaut in terms of new reactor builds, you know, India’s taking, taking an active role now in Saudi will as well. So there’s a lot going on in an area that was awfully dead, you know, as recently as two years ago. And, you know, we actually made our investments at the end of 2018. And the idea there was not based on any type of a nuclear renaissance in the West, it was just based on the idea that Cameco and kazatomprom prices got so low for so long. You know, you had a duopoly that couldn’t sell product above its cash cost of produce. I mean, a monopoly is supposed to have like all this pricing power or whatever, you gotta you had a monopoly or duopoly that couldn’t, couldn’t even get it have a positive margin. I mean, I’ve never heard of that. And so you had China, which was chugging along, and you had no new mines sanctioned in like 20 years. And so he said, Well, this is this is going to become a bull market at some point. And then, you know, this major nuclear renaissance in the West is just a huge tailwind.

Robert Bryce 54:58
So which countries are going to be the ones that then get to capture that uranium market, then will it be Canada of Kazakhstan? Where do you think that this? You know, I’m not bullish on mining in the US because of all the permitting issues, but where which countries are going to be the ones that fill that uranium that need for this new uranium production?

Adam Rozencwajg 55:15
I think probably the low hanging fruit is Canada, you know, there’s, there’s projects in the Athabasca that, pardon me, that will will likely move ahead. You know, they’re, they’ve been on the, on the drawing board for some time, there hasn’t been any capital or interest or the right uranium price to incentivize that. And I think that’s all starting to change now. So that’s probably the first thing is to move, I think you might actually have some in situ projects that work in the US because I think there’ll be a little bit of a concern for, you know, the security of supply and supply chain and all that whether or not Canada gets counted as America. I’m Canadian, by birth, I lived there, you know, grew up there. So, you know, I know there’s a very special relationship between the two countries, but I think Canada probably is first the United States and Kazakhstan, you know, from an asset the Kazakh asset is phenomenal. From a governance perspective, it’s been quite good. You know, everyone’s just always been like, oh, Kazakhstan, but they privatized the mining assets before this one. And then they privatized because at a problem and we own that, we own we own the Canadian players as well. So I think I think there’ll be room to go around.

Robert Bryce 56:21
Well, so last two commodities then and Adam, my guest again, as Adam Rosen swag. He’s a managing partner at gearing and what Rosen swag in New York City, they’re at go Coal, I’ve been following the coal market. I’ve been writing about it for a dozen years, you know, people write it off. And yet coal demand continues to rise. I was just looking at trading The price now is near still, the Newcastle benchmark is $380 is roughly 8x. What it was in mid 2020. Handicap that market. You know, compared to oil and gas, this has been far more far greater increase in price on a multiple than any of the other commodities we’ve talked about so far. Are you bullish on coal?

Adam Rozencwajg 57:01
Yeah, so I think short term and medium term we are I think longer term are a little bit more cautious. And we talked about why we went into this bull market. Unfortunately, you know, in the past, we’ve had huge coal exposure. In the past, we were probably the largest coal investors in the world in the last cycle when we were Chilton. And basically, we’re out of that market for most of the last decade, decided to get back in about a year ago, to a little bit too little a little bit too late, not too late. But wish we’d done it sooner. You know, a funny fact, going back 125 years, every commodity bull market, over over every commodity bull market, the best performing, not necessarily from beginning to end, but a period in the middle, the best performing sector has always been cold, always in every commodity bull market. So the big question was going to be was it going to be this time as well? Or was this time really going to be different? Of course, this time is never different. And it looks like coal probably be the best performing asset class this time as well. What Why are we cautious sort of long term? Well, I think the reason why we’re cautious long term is if you kind of think about a matrix of what you want in an energy source, you want it to be really efficient. So high E ROI, and really low carbon intensity really low, you know, co2 per unit of energy output. And what you often get, is trying to trade off units of efficiency for units of carbon intensity. And that and that, you know, we can debate that as long as you want. But clearly, if there’s something in the quadrant that is really efficient and low carbon, you should go for it. And if you have really, really high carbon and low efficiency, you should stay away from it. Unfortunately, we’re doing exactly the opposite, right? High efficiency, low carbon is uranium, and we’ve stayed away from that low efficiency, high carbon is cutting down trees and putting them into wood pellets. We’ve been embracing that. But the reason why we’re a little bit cautious of coal long term is that you have natural gas is just as efficient as coal, and it has half the co2 per unit of output. So I think that long term coal is a is a is a shrinking slice of a growing pie. So does that mean, you know, you can’t have years of growth? You absolutely can. But you know, gas should be a growing slice of a growing pie. So we would prefer gas to coal. But I think right now that kind of misses the point, you know, you have a whole continent that that’s, you know, scrambling to deal with their energy security issues, because there’s not enough gas. Sure. So to sit there and pontificate and say, Well, you know, I really think that coal is going away because we need more gas, what they’re

Robert Bryce 59:36
doing is going to be different from what they actually are. That’s where

Adam Rozencwajg 59:39
my philosophy degree would would come out. If I were to do that. I wouldn’t Well,

Robert Bryce 59:42
I coined credit to my friend Roger Pilkey, Jr, the iron law of electricity, countries, people and individuals, and business is going to do whatever they have to do to get the electricity they need and coal. The coal market proves that. Okay, so last that commodity then and then I’ll have two last questions for you, Adam. What about copper? I had a real Some guest on the podcast Simon meesho, who’s does amazing work for the Finnish Geological Survey talking about mining and minerals and demand for copper and the energy transition and so on. You said, the next leg here, I’ll quote from your recent newsletter, in fact, I think it’s the November when we expect copper prices to surge in 2023, as copper traders finally realized inventories can no longer fill the gap between demand and supply. The next leg of the copper bull market is about to start. So your long copper which which countries will be the ones that are going to meet that copper demand and any names in any companies that you like there?

Adam Rozencwajg 1:00:37
Well, look, you know, I think that that’s the really big question mark. Right, is that copper has this long lead time, and it’s like a 10 year lead time from discovery to mine production. And there’s a real hole right now. So on the supply side, things are awfully awfully tight, you know, kamoa kakula, which is the big DRC project that Ivanhoe brought online. That was the last kind of really big project to come on. And it did. It’s ramping up now. So you’ll get some expansion capacity there. The the Cobra Panama, which is, you know, first quantum is project that’s now dealing with huge government issues, and it’s basically being put on temporary care and maintenance, be a massive, massive blow to the copper supply store in Chile in general, is being becoming now a huge problem with both, you know, water issues and labor unrest across the country. So the supply side seems pretty brutal, you know, looking forward. Where’s the next major source of new copper going to come from? I mean, you know, I think you look at some of the articles that get written on Bloomberg. And I think that goes to show you just how, just how tight things are you no one was like a whole new technology that could be used to leach copper out of what would be previously unrecoverable sources. You know, when you start talking about that, that means that you don’t have a lot of good undeveloped deposits waiting in the wings. Right. Robert Friedland is, you know, started this Ivanhoe electric, which we own was full disclosure. And, you know, that’s bought assets in, or vented and assets in the US, which he thinks have been previously undiscovered, because he has this new imaging technology that he uses that can help unlock some of these harder to find deposits. Maybe it’s in our own backyard, who knows. And then just this morning, they announced what I think could be the most exciting long term prospect for undeveloped and undiscovered copper deposits, which is Saudi Arabia of all places. And so here, we’re recording this on the 11th. And that was announced at the future minerals Forum, which is the second annual Saudi mining conference, we went to the first inaugural one last year, we didn’t go back this year, just because their schedules didn’t allow for it. But what’s interesting is that, you know, Saudi has very prospective geology for hardrock mining, but it’s never been explored, because obviously, They’ve devoted all their time and attention to their energy business. So now it’s been you know, they’re calling it this vision 2030 where they’re going to add these different legs to the stool of the Saudi economy, not just be all energy tourism is one they want to push. High Tech is one, but mining is a really big one. And so I’m in electric and

Robert Bryce 1:03:20
then announcement, just to be clear, that wasn’t Ivanhoe was announced. But you’re saying this was the Saudi the Saudi government?

Adam Rozencwajg 1:03:25
No, it was actually Ivanhoe. So Ivanhoe Ivanhoe electric, not Ivanhoe mines, Ivanhoe electric announced this morning that they were entered into a joint venture with the state owned Saudi mining company to prospect on a on a big land package in the country.

Robert Bryce 1:03:40
I see. Interesting. So last a couple things then here. And Adam, you’ve been kind with your time. So I asked these my guests introduce themselves. And I asked him, What are you reading? What are the books on the top of your list? Do you have time to read books? What is you know what what are you what’s on the top of your your list?

Adam Rozencwajg 1:03:58
Yeah, so I’m finishing up. The second volume of Richard Rhodes is atomic bomb. This is the hydrogen bombs dark, dark sun or dark sky can Dark Sun. And that that’s quite good. I’ve been. It’s a big one. So it’s taken me a little while. I just started Robert Kennedy’s book on the Adriatic, which is pretty interesting. It’s a history of the Adriatic Sea. And its role is basically the intersection of the East not not the Far East, but the Orthodox East and the Catholic West, through Europe, is pretty interesting on more on the history side of things, and then the next

Robert Bryce 1:04:38
Do you remember that title and called Adriatic and the author is Robert Kennedy.

Adam Rozencwajg 1:04:44
That’s right. Okay. Yep. And then the next thing I want to read after that is this the blanking on the author but the the myth of American inequality, which is an interesting economic study that shows that Well, you know, once you get out of the top, whatever, I’ll probably get the numbers wrong, but the top 5% of American income earners and you factor in transfer payments. Everyone else the other 95% of the country all makes the same amount of money, that of transfer payments. So this idea of massive American inequality is just the opposite, you know, and that’s led to some of the distortions that we see today.

Robert Bryce 1:05:26
So last question, what gives you hope?

Adam Rozencwajg 1:05:30
Well, I’m actually, you know, through this whole energy crisis, I’ve become incredibly optimistic, and I’ve become incredibly hopeful. And I think that it’s nuclear power, that really gives me hope. Because when you look back over the entire history of humanity, I’ve really come to believe through all my reading and research, that of all things, you know, you’ll die. But moving from wood to coal, has been the most important event of the last 2000 years. And it unleashed all this surplus energy, all this surplus capital. In my mind, it’s part and parcel with a lot of the societal changes that occurred in the 17th century. And it really formed the world we know today. And it’s because we move from a less efficient to a more efficient source of energy. And if we can do that again, then I think perhaps the next 10 to 15 years could be as monumental, as the early part of the 17th century was an usher in a huge new period of prosperity. So I’ve become, I’ve gone from being really pessimistic and saying, Oh, my God, it’s all over to becoming incredibly optimistic. If we can get this right.

Robert Bryce 1:06:39
I like that a lot. I’m adamantly pro nuclear have been for a long time. And as you know, in my view, you don’t have to be pro quo. You don’t have to think about climate change. It doesn’t even have to be part of the discussion. You’re serious about sparing land, reducing mineral, mineral and metal inputs. Nuclear is the way to go. And so that I think that’s I really liked the way you phrase that. Well get at my guest, again, has been Adam Rosen swag. He’s a managing partner at gearing and Rosenzweig. They’re doing some of the best analysis on energy on energy return on energy invested that I’ve read anywhere you can find more about their work at Go. Adam, thanks a million for your time. It’s really been great fun.

Adam Rozencwajg 1:07:14
Thank you so much. Enjoyed it. And all

Robert Bryce 1:07:17
you out there in podcast land. Tune in for the next episode of the power hungry podcast. If you want more of my stuff, check out my substack Robert Okay, all right. Until then, see you

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