What So Many People Get Wrong About The Energy Transition

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

Tracy, you know, the high price of energy, obviously, has put a lot of increased interest, once again, on energy transition. Cleaner energy, cheaper energy. But the thing that strikes me about 2022 so far is the world is using more coal than ever.

Tracy Alloway (0:34)

Right, I think if there's one thing we can internalize from the lessons of 2020 to 2022, it's that A, things we expected to happen have not happened. And B, on that note, the energy transition is just a lot messier and a lot less linear than I think a lot of people expected. People expected, like, you know, once EVs became widely available, someone somewhere would flip a switch, everyone would shift their dependency away from gas into electricity, and the problem would kind of be solved and all these dirty energy industries, like coal, like oil, would be resigned to the dustbin of history, I guess.

Joe Weisenthal (1:16)

Yeah, and I think the 2010s sort of lulled us into maybe this sense of complacency about the future of fossil fuels or dirtier sources of energy. And I think, you know, we had, especially starting in 2014, this big drop in the price of oil, combined with the boom in electric cars. And I think a lot of people sort of thought like, okay, well, this is like, this is the final chapter of the oil era or the fossil fuels era.

It's gonna fade over time. You know, people over a long time into oblivion, but it's sort of this linear down. And of course, now oil is exploding and not only that these other, you know, sort of coal has bounced back and there's sort of this very intense impulse now to expand production, at least in the short to medium term of energy sources to bring prices down.

Tracy Alloway (2:14)

Right, I think a couple of years ago, no one would have expected governments, you know, liberal governments from Europe to the US, the Biden administration to basically say like, we need more energy. We need more oil to be drilled.

We need more energy coming from somewhere, preferably cleaner energy. But if we have to, we will also look at dirtier forms of energy as well. Like that was totally unexpected.

Joe Weisenthal (2:35)

Right, and everyone long term is like, yeah, electrification of everything and hopefully more renewables, maybe even some nuclear and stuff like that.

But in the short to medium term, suddenly there's just this big urge to get the price of energy down. So it raises the question, if we were like lulled into this sense of complacency last decade, like, what are we getting wrong in our thinking? And what will the energy transition ultimately look like?

Tracy Alloway (3:03)

Absolutely.

Joe Weisenthal (3:03)

All right, so I am very excited about this guest, someone who has been talking for many years, long before the 2021-22 cycle, who has been making this argument that people are wrong about how energy sources die or wrong about how commodities get replaced by something new. We are going to be speaking with Bob Brackett. He's a senior analyst covering natural resources at Bernstein, and he's been covering the resource space in various capacities for about 30 years. So Bob, thank you so much for coming on Odd Lots.

Bob Brackett (3:37)

Thank you so much, Joe. Thank you, Tracy, for having me.

Joe Weisenthal (3:39)

So how is that, that like, people have been wanting to kill coal forever, it seems like, and there's been so little funding of coal, like all these banks got out of like financing coal. Everyone's like, this is over. I remember, you know, big thing and like last decade was like, what are we gonna, you know, let's train all the coal workers to learn to code and things like that.

And yet here in 2022, the world is using more coal than it ever has in history. Like, how did that happen?

Bob Brackett (4:10)

So it happened, it's sort of on the supply side, and it happened on the demand side, and on the demand side, the reality is energy transitions just take time.

If we think about coal, clearly on the demand side, there is just an inherent demand for the utility that coal provides. Nobody actually wants to consume coal. No one wakes up and says, I wish I had some coal. People wake up and say, I want electricity.

Joe Weisenthal (4:38)

Right?

Bob Brackett (4:38)

I want the things that lifestyle that electricity engenders. And so if we can't provide that electricity from other means, because we can't ramp renewable spending, capital fast enough if we can't tackle issues around intermittency and security of supply, then you fall back on what's available and that's coal. And so that's the call of demand.