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tv   The David Rubenstein Show Peer to Peer Conversations  Bloomberg  March 9, 2019 2:00pm-2:30pm EST

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cobalt rich opportunity. billionaires are investing in a startup. , is a critical part in using batteries. approval to export lng. i sit down with the cofounder. new shipping rules take effect next year and create winners and losers.
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i'm alix steel. welcome to commodities edge. first we kick it off with spot on. our take on the big story and the spotlight is on the u.s. china trade deal. we have you covered from all angles from soybeans to metals to lng. mike, it you cover agriculture. what happened with soybean prices? they went down. >> they are giving up the ghost at least in the short term. they want to see exports to think it is a matter of time. the key thing to remember is they are stuck in the narrowest
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range for the last 36 months and 56 years. it is waiting for concrete data on this agreement. >> look at what you are looking at in terms of exports. what do you notice? >> i went to an agriculture conference last month in the heart of the corn belt. i see this chart shows clearly what is happening. there is a strong trend in exports. prices are stuck in a narrow range. agriculture exports remain strong. at some point, prices will catch up it is just a matter of time. >> let's bring in our managing editor for energy and commodities. will we see numeral back on the tariffs for steel? >> today they were talking about the demand for aluminum picking up a little bit. you are not seeing that in the prices so far.
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it is been the same issue as mike was talking about. they are not moving on trade talks. on both of these commodities they are looking at a broader economic picture. the question is will the global growth continue apace? it could be too late. even if there is a trade deal, the effects are already there. >> the metals did not move on that. >> not to pick on aluminum but we have had two conflicting reports today. we had china's top reduce or not being quite so bullish in terms of the demand growth going forward. if you look at china's pmi data that came out on monday, that indicates weakness.
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that is not great if you are looking to sell a lot of construction materials. >> now turning to lng. what struck me is that a company was mentioned not just lng. >> the big thing is the market is talking about how this company was close to an $18 billion long-term deal for lng sales. if the trade deal takes place, you will see deals like that go through and others follow suit. >> china needs lng. the impression was the negotiation was going on before the trade dispute occurred. it likely was taking place beforehand. china is the fastest growing market for lng demand and that is likely to continue. $18 billion is a decent amount for lng projects in the u.s..
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investment particularly from one of the largest growing economies for lng is a big deal. >> thank you. coming up, a change in the global shipping industry. new regulations limit the amount of sulfur a shipping vessel can emit. also, venezuela oil exports -- >> colombia has become a reliable predictable source for heavy crude in the market. we have strong ties to the u.s. refiners in the gulf coast. we have strong ties to refiners in china. people the by crude in singapore. we want to continue to be a
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reliable source of crude for the world. ♪
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i'm alix steel. it time now for the data dig. first up, the oil inventory numbers. we saw a large crude build. the market focused on the bullish part which is the draw in product stocks. meet could be the winner on a trade war resolution. brazil was china's top supplier last year selling them to percent more than 2017. the u.s. shipments fell by the same amount. does that reverse if a trade deal is worked out? the permian playoff. exxon versus chevron. they are betting the farm on the permian and both had different results. you can see how they diverged
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over those days. chevron shareholders get buybacks now, with excellent you have to wait. today, we are introducing a new series called seachange to highlight a new role -- rule that has the power to disrupt the shipping world. >> 15 at large container vessels give up as much pollution as millions of cars. that is about to change. new international maritime organizational rules limit the sulfur content and maritime fuel. there is a grace. but the rules are here to stay and you cannot cheat. here are your options if you are a shipper. you can buy and exhaust scrubber which cleans out the sulfur dioxide. the most popular ones release a sledge into the ocean. certain countries like china and singapore are banning those. or, you can use low sulfur
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fuels. analysts say the demand for these products could grow by as much as $2 billion per day. those supplies are tight. refiners can run like crude and get diesel but you get gasoline as well. or they can choose other crude but that is in tight supply. anyway you slice it, the result is not enough product, too much demand, and sky height margins. shippers lose money. or worse, they go bankrupt. crude and products spreads go higher and companies turn to other products like lng. >> earlier this week, i sat down with the ceo of chevron.
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>> the market has been preparing for this for some time. there are a lot of different options for compliant see. it will create some turbulence in markets as we get close to it. we have seen a specification changes like this before. i think it will be winners
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particularly refiners who are able to reduce the sulfur content in their fuels. people will make investments to respond to this over a few short years. we see it as creating market turbulence for a. of time but not a sustained issue. >> for more now, we bring in our intelligence analyst. some say this is not a big deal and it will only affect refiners and shippers. >> it is a supply chain issue. how will people adjust the way they crack crew? what is the availability? you have shippers that are rushing -- will they be compliant with fuel? will they install scrubbers? you are getting late in the game to install a scrubber. is there going to be enough fuel to meet the demand as this rolls out? we need to make sure the ships can run on the compliant feel. >> what we are going to hear is that if you have an open loop scrubber, you are going to be fine. then we have these countries that wind up rolling them back. what is the implication? >> it is bigger as you go forward because the payback. will adjust. you have the eca which have been at .1 sulfur across north
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america and europe. it will help -- hurt the open loop scrubber. you cannot burn high sulfur fuel. you have to burn low sulfur fuel and at the end of the day, it will be a bigger problem because the effluent is a big question. is this going to damage the sea or not? where each one has its own components, i would say the scrubber bands will expand. >> if they expand, they will move to later suffer -- sulfur fuel oil products. they are always at $21 per barrel. how bad can it get? >> it can get much worse. what kind of crude are you running? what is the actual slate of crude because the lighter the crude, you will make good diesel but terrible gasoline that you have to get rid of. if you run have your crude, you can make a better mix but at this point, it will be a mixture -- what is gasoline going to do?
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>> shippers say we just pass on the cost. do they, and it does that mean the end user gets hit with it? >> it is a bigger problem depending on the shipments. if you are moving large cargo, there is more product to spread the cost around. when it is a more fixed asset, you will have a bigger cost. the shippers will struggle to pass through the holocaust because you will have their clients pushing back saying no you already hit me with other cost. how will you pass this through fully to realize the outlay that you will have to do either being compliant or installing the necessary infrastructure to run a cheaper fuel? >> time now for our note of the week. it comes from goldman sachs. they are turning cautious on the
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commodities. they write that returns will have to be further evidenced -- we recommend a neutral portfolio position in commodities. coming up, lng has a stamp of approval. we will talk to the co-ceo of the company next. that's next on commodities edge. ♪
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>> i'm alix steel. this is bloomberg commodities edge. we turn now to commodity in chief. today it is mike sable from venture global. >> here is how you export natural gas. you pipe gas to a terminal and a facility which turns into liquid. the first company in the u.s. to do this is near. enter venture global. it is looking at a new way to export. small trains. use more of them to freeze an the same amount. it is using 54 trains where another company might use six. the modular trains are made in a factory off-site and the hope is
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that it can reduce costs lever and project delays. the company passes have of these cost savings on to their companies -- customers. it is still expensive. a project in the louisiana will cost $15 billion. >> the department of energy gave a comes up for the company to export 600 billion cubic feet per year of lng. i recently caught up with the ceo in italy. >> we saw the going larger in scale, the benefits got overwhelmed with the cost because the construction got so massive and complex. also risky as it relates to potential cost overruns. our approach where you capture manufacture savings and also shift massive construction activity on the site into a factory, the savings depends on which market you are comparing two can be 50%.
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>> can you give me more examples of inefficiencies for big trains that you get to weed out? >> when you go giant in scale, things get more expensive. a 65 megawatt motor compressor, that is fairly exotic. there are not many suppliers. as a result, you worry more about redundancy and backup. that adds to costs as well. when everything is smaller in scale, when you have a 25 megawatt motor compressor, you might have five or six suppliers that have competed for decades. the cost comes down in the ease of construction is lower. another big one is the size of your labor force. the u.s. gulf coast projects are looking at peak labor 10 to 13,000 people. because we shift our process
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into factories, our force is 2200. that is a 75% difference which is a massive difference in people cost. it also lowers your risk. the real risks are delays. >> can you help me compare and contrast how long it would take one company to get a train up and running versus you guys? >> we are 36 to 39 months from start to finish for construction. most projects in the u.s. have
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been 50 to 60 months. >> is there anything you miss out on by not having the scale? >> we don't think so. our efficiency in terms of the fuel that we use is about the same. a lot of the trains have turbines directly -- you connect the torque to the compressor. it is a simple cycle turbine. it is more efficient. in our case, because the motors are smaller it is easier to make them electric motor driven. we take the power and put it into a combined cycle plant which are much easier to build in the u.s.. so it is less expensive but also more efficient. >> a pass in louisiana is sold out. we have sold 8 million tons. that is sufficient for us to build a facility. we started early works -- the early non-flight related activity.
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we are just a few months away from completing the project financing. we should be deep into construction by the middle of the year. our first shipment is went for 2022. for our mississippi river project which is twice as big, we are on schedule their to start construction in the fall. >> for more on lng, i am joined by an engineering analyst. for perspective, how big of a year could this be for lng exports? >> it is going to be a big year. we will probably grow by five. it is going to be double or more what we grew last year. these are big numbers for sure. >> the question for me becomes -- we might get approval for the terminals.
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is the export terminal availability there? where is the bottleneck? >> a lot of our clients are concerned about that. we need to be careful about where the gas is coming from as well as where it is going. the lng plant is -- it has to be attached to a supply source. we have been lucky over the past years. we had a located -- well located supply source. the other pieces that will be required are being able to move gasp from the midwest down through this pipeline network that has historically moved guess the other way. bringing northeast gas down to
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the gulf coast. >> what will be the biggest exporter? >> it is a good question. a lot of it will come from the permian basin. a lot of it will come from appalachia. it is a combination of those two. a lot of it depends on the resource quality and the relative rankings of these basins as well as producers specifically within the subbasin regions. that is why the question becomes complicated as to who will be providing the molecules they get exported. it requires a lot of analysis and data science. >> the other part of the story is do we need to export that much or keep it here for our own domestic use? >> the question around over exporting or not stems from a
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fundamental resource level understanding. what is the actual quality and inventory of the resource? how long can it be producing at this rate? our estimate is that it can be producing for a very very long time. at current levels for a long time. >> thank you. how about hunting for cobalt? billionaires are behind a startup that is trying to build a google mass for the -- map for the arts trust. this demand is being driven by electric vehicles. the price has more than quadrupled from 2016 to 2018. here's what is on my radar. that does it for bloomberg commodities edge.
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be sure to catch me every thursday. this is bloomberg. s ♪ this isn't just any moving day.
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jonathan: from new york city, i am jonathan ferro. bloomberg real yield starts right now. coming up, a solid wage picture. chinese exports fueling worries about the global economy. the latest central-bank u-turn. concern stimulates more than markets. we begin with the big issues, the payrolls number. >> a little surprised. >> the market was surprised. >> it is a one, but a shock. >> this is an odd jobs report. >> i do think this is a shutdown effect. >> people are looking at th

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