tv The David Rubenstein Show Peer to Peer Conversations Bloomberg May 18, 2019 2:30am-3:00am EDT
alix: trade war reignites. and -- lng and soybeans are driving deeper into the battle between u.s. and china as china raises tariffs on key commodities. driving into the future, electric buses and cars will take over the world faster than you think with china leading the way. the hotspots for oil. tensions flare in the persian gulf. saudi arabia confronts trouble. where is the risk for oil? ♪ alix: welcome to bloomberg "commodities edge." 30 minutes focused on the companies, physical assets and training behind the hottest commodities with the smartest voices in the business.
first, we kick it off with spot on, our take on the big stories. joining me from jacksonville, florida is a senior fellow at the atlantic council and author. also here with me is the head of oil and gas at credit suisse. our spotlight, geopolitical tensions in the middle east. here what we know. uss abraham lincoln and b-52 bombers are making their way to the strait of hormouz. sunday, two saudi vessels were sabotaged headwaters -- in waters off the uae. two days later, pumping stations connected with the pipeline in saudi arabia were hit by drones. the saudi's blame it on rebels in yemen. president trump to comments about sending troops into the region. >> would i do that? absolutely, but we have no plans for that. hopefully, we will not plan for that. if we did it, we would send a hell of a lot more troops than that. alix: we have oil jumping on that news. is this a legit threat? >> i think what we are seeing
now is tensions are rising in the middle east between iran and saudi arabia. in terms of the actual threat to oil supplies, the events we saw, the sabotage of the ships and drone attack on the pipeline, didn't early do anything to oil production or oil transportation. that pipeline was barely out for 24 hours. what we are seeing is saudi arabia using this attack as a way to pin iran. we saw the deputy saudi defense minister, the brother of the crown prince, come out and say, basically the rebels and the iran revolutionary guard corps, they are the same people. they are talking about responding with strikes and newspapers called for a surgical attack. we are seeing rising tensions affecting oil prices. alix: from your opinion, how much geopolitical risk is in the oil price? >> thanks for having me.
in prior discussions with you, i pretty much said a couple of times i think the energy world pretty much ignores geopolitics. it's only in times of extreme crisis or perceived extreme crisis that you see a major move. i would argue there's a lot of other bigger news in the world right now, but the things you have to be careful about is the black swan event, because these countries are not necessarily in control of all of the various elements out there, including our own. secondly, it is always in a hotspot. this is a tight space. anybody that flew over the straits of hormuz knows how narrow that is. it is still a very substantial part of the world's production and reserves. i think we have to be aware of it, but i don't think it is a major crisis at this point. alix: oil prices tend to agree with you. if you look at brent time spreads versus the overall oil price, 1-3 months time spreads were tightening, but that could be an overall supply issue
versus the flat oil price. in order to shake the market, what would be a major risk or major crisis? ellen: i think we saw very minor, if only nothing, reaction to some of these events. in order to really bump up prices, we would have to see something like major troop movements to the middle east, not just a report of maybe considering a contingency plan. we have to see major troops moving to the middle east. we would also have to see the united states confirming from the president or secretary of state, not just an unnamed official, confirming that iran was linked to the attacks and we are not getting that. i think oil markets are recognizing this and recognizing that this is a lot of drumming up the war drums and making things into a bigger issue than they actually are on the part of the saudis and iranians and other media. particularly the lebanese tv has played a big role in making this seem like a much bigger deal than it is.
alix: fascinating point. if you look at the supply and demand of fundamentals, the back of the curve is not moving at all. if you are an oil company, what do you think? osmar: i don't think big oil companies generally react to short-term events. the plan is very long-term. they would make sure they have supply available from other locations, if necessary. again, you will have to run to refineries and those sorts of things, but i don't think they are terribly concerned. this is the nature, part of what of what happens. there are many more hotspots. alix: to be sure. venezuela is another one. -- is a huge one, right? my question becomes the backend of the curve. why has that stayed so stable when there is tightness, trade issues, are concerns out there not related to iran? osmar: i agree with what ellen said earlier. this is not a major crisis at this point, so the market is not reacting to it. it's not always supply.
it is demand. there is a lot of concern about demand. what could happen to the chinese economy, for example, and things like that. we have already had major supply issues. you mentioned venezuela, how much their production has dropped. you have to look at it from a global perspective. i don't think the long end of the curve, for people who invest in that and the global energy companies and consumers are reacting because there is not anything major yet. i don't think we others are sending troops without much more evidence and much more escalation of activity. alix: irrespective of that, we brought up venezuela, the markets were already tight. what we have not seen is russia and saudi arabia ramp up production to offset the tightness we have seen. what is your read on that? ellen: russia has its own set of problems with this oil contamination it is dealing with in one of its major pipelines. they have had to curb their production to deal with that. i do think all eyes should
really be on the upcoming opec meeting. there's going to be a minor meeting this weekend of the joint ministerial monitoring committee meeting to look at how the opec deal is functioning and where production levels and oil stocks are at. i think everyone is going to be much more focused on what opec decides to do, whether russia and saudi arabia can keep the deal together or whether they go their separate ways. after that, that meeting happens on june 25. after that, if russia decides it is out, they could ramp up production by then. alix: you're talking to companies and clients all the time. what are they saying about the opec plus risk out there? what is the biggest concern? osmar: the concern is more global economy, consumption of the energy along various forms, not just oil or gas. i don't think they are that uptight about the supply. the world is not short of oil,
at this point. i am not saying it is overflowing, but there is a relative balance right now. absent a major change or shock, whether on the supply or demand side, i think they are running their business the way they normally do. alix: good perspective, thank you, you guys. great to see both of you. coming up, crops in the trade crosshairs. commodities from pork to cotton is taking a nosedive after china saying it will raise tariffs on u.s. goods. we are telling you what flaring trade tensions meet for farmers. -- means for u.s. farmers. break, thead to african swine fever is now a national crisis in china and it is spreading, hurting countries all across the globe. the consequences could last for spreads,the disease boosting demand for everything from pork, chicken, to beef. this is bloomberg "commodities edge." ♪ ♪
alix: i am alix steel and this is bloomberg "commodities edge." time for the data dig. we delve deep into the market trends of the week. first up, you have got oil inventory numbers. overall, with the crude 5.4 billion barrels really pushed that oil into storages. particularly, cushing, i want to highlight the highest since their numbers in 2016. a very tough week for whether ford. the company is planning to file for bankruptcy and they are not alone. overall bankruptcies last year hit a four year low but they are rebounding this year, second only to those in discretionary consumer goods sector. watch that space. and turning to trade, china is raising tariffs on u.s. lng imports. this could really hurt. this chart shows the breakeven price, which includes delivery, from projects around the world. the orange bars are the projects in the u.s.
they are higher than any other project elsewhere. this has substantial consequences for trade flows and the buildout of lng export facilities. i spoke to a chairman and asked if he was concerned. >> this is a classic case of cutting your nose to spite your face. the $10 is going to be spent by chinese consumers, not anybody else. it's not a question of whether we want to export, we have to export. it is not simply an american issue. it is a global issue. if we don't export, we will add one million barrels per day of oil production per year for the next five years. alix: let's get into the ring. i'm joined by sterling smith. china canceled pork purchases and scale the back on soybeans. can they get it to zero? >> they can get it to zero. the chinese have been very resolute and they cut soybean exports from 26 million tons.
we have only sent them 6 million tons. they are going to be tight. the pork story is something that is growing and they may have to buy pork from us. we are going to be the group of last resort for them. they are not going to want to aggressively buy from us until we get some sort of resolution with trade problems. alix: cotton was down earlier in the week. soybeans hit a 10 year low. sources say the administration wants a $15 billion aid package added onto the $12 million of subsidies. do farmers like it and does that help them? sterling: we have a more looming crisis and bigger problem on the farms situation. we are having severe planting difficulties. i was in omaha the last couple of days and there is still water left over from the floods in february. right now we only have 30% of the corn crop planted. we should have 66% planted. in illinois, they only have about 10% planted. in indiana, they only have two weeks left and it is not any
better and we are looking at more rain. farmers are looking at not only losses from the soybean situation, they are looking at real crop losses with the corn when they may not be able to get corn planted. that may result in soybeans the planted instead. so we have a very sensitive situation going on in the farms are now. alix: what is the dynamic? is their acorn shortage and an extra soybean oversupply? sterling: i don't think you will see a corn shortage. you will see a reduced corn supply, which will raise prices a little bit. potentially if they do plant soybeans, you can see an excess amount of soybeans, which we already have a record carry out this year and potentially next year. we could see a situation where we might see a little better corn prices, which will help them a tiny bit, and noticeably bean prices- putting the whole market out of balance. alix: sterling smith, thank you so much.
really appreciate your perspective. time for the note of the week. it comes from the iea and their world energy investment report. it showed flat spending on everything from green power to home insulation last year, and the number needs to grow. he says quote there are few shines to expect a shift to -- signs to expect a shift to renewable technologies if they're not huge changes in -- if there are not huge changes in regulatory policies. many investors are a bit tired of stop and go policies of the government. coming up on this program, a chief technology officer shows -- shares how his technology is helping optimize drilling operations. coming up next on "commodities edge." ♪ ♪
alix: this is bloomberg "commodities edge." time for the bnef brief, that gives you in-depth analysis on clean energy, transport, and emerging technologies. passenger electric vehicle sales will rise to 56 million by 2040 according to a new report by bloomberg nef. that outpaces internal combustion engines by 2038. joining me now is our next guest from bloomberg nef. walk me through this inflection point we will see. colin: great to be on the show. what we have been doing over the last few years, we have been tracking electric vehicle sales and they have risen dramatically. you've gone from a few thousand to 2 million last year. each year, we try to do an -- a forecasting exercise where we look at everything from
battery costs, to all of the policies in place, investment from the automakers. we piece that together into a long-term outlook and that is the numbers you quoted at the beginning. we are expecting a pretty dramatic rise in passenger electric vehicle sales over the next two decades, but we also expect it to spread. not just passenger vehicles but things like vans, light commercial vehicles, medium size commercial vehicles, and even into the heavy commercial vehicle segment. alix: let's talk about buses. you have a great chart that shows buses leading the ev segment. i would not have expected that. walk us through why that would be. colin: that is driven out of a big policy change from china. many big chinese cities said we would fully replace our internal combustion engine buses. -- bus fleet with electric buses by 2020. two cities have already completed that. that is a big enough share of the global bus market to drag all of the numbers up. we are starting to see activity and europe and north america, and an increasing number of cities are making commitments to
change over their fleets, driven by urban air quality concerns, but also by economics. these buses are in use a lot through the day. while at electric bus has a higher upfront sticker price, it has lower operating costs over time. there is a savings from an economic point of view as well. but a lot of the pressure is coming from urban air quality. cities like london and other parts of europe especially. alix: we have a chart showing the countries in the lead, china and then europe, they kind of vy for the lead in the world, and then the u.s. and the rest of the world. why is china going to stay farther ahead? colin: china is the dominant force in this global push for electric vehicles. there is a few reasons for it. china set a number of targets around electrification that are aggressive. they are doing it for different reasons. one is an industrial policy angle. trying to create new national champions that can compete on the global stage in the electrical vehicle market. but also, things like reduce oil imports and this urban air
quality in big cities is also playing a role. there's a few different reasons for why china is pushing so hard. in europe, there is also a big push coming and we will see a lot more from european automakers in the 2020's because there is a european level target for reducing co2 emissions by 2030. to do that, you have to add plugs to your vehicles. it is very hard to get that level of efficiency improvement without moving toward electric. alix: really appreciate it, a really great report. now we turn to commodity in chief. we focus on an executive in the commodity world and today is greg lavelle. first, a closer look at the company. there's one big problem for any shale producer, fracking too hard too fast. it is the stress of a parent-child relationship. the first well you drill is the parent and any well drilled within 1000 feet in the same zone is a child. a couple of bad things could happen.
a loss of pressure. parent wells drawdown reservoir pressure as they produce. when a child is fracked, it may not be as strong. also, a child's fluid gets mixed up with the parents', hurting production and reserve. it can be two fracks in the same layer or two different layers. in essence, it becomes one big reservoir. phillips.co they have big plans. the balkans are late cycle. the permian is early cycle where they are still working out how to drill the well. they're playing with different kinds of completion techniques to increase the amount of oil they get out of the well and contain the parent-child wells with less interaction as big oil becomes big tech.
i recently caught up with greg and asked him how technology was improving drilling performance. >> we are seeing big impacts. it is something where you don't have to wait multiple years to test an idea. the thing that really helped, is that we went from a world where it took maybe half a decade to a decade to bring a concept or technology out of the lab and into the field, to a place where we are doing it in a matter of months. some of the buzzwords with shale in the u.s. are things like spacing, how far can you space them apart, do it remotely and drill remotely, recoveries increasing the amount of oil you get out. what are technologies you're looking at to help in those areas? greg: we have been able to put together a series of technologies around completion design, stacking of the wells or how we lay them out geometrically in the subsurface. by doing that, we have been able
to increase our recovery factor tremendously. we are getting over 20% recovery factor in eagle ford, which is astronomical. most people were thinking this was a single digit type of recovery you would get out of these rocks and we find we are able to do much more than that by combining a number of different technologies. alix: that leads me to, where do you see the savings? is the payback just due to getting more out of the ground? is the payback just overall lower cash costs? greg: we use a metric that tries to take into account what we spend to produce a barrel of oil and how many barrels we produce per well. we have been able to find ways to do all of those things. we are getting more per well, spending less money doing operations we did certain ways a few years ago. when you look at the industry, the pace of advancement has been really quite rapid, and the scale of the improvements are quite large. alix: how easy would it be to take the technology and move it
to the permian or somewhere else? or outside the u.s.? what is the through-line? greg: most of the technology are ones we can use across the entire unconventional reservoir space. there are some which are very basin specific, but in general, most of what we develop we can use whole or in part as we move to other areas. would have big positions in the eagle ford, the permian, and up in canada. we are finding ways to use those technologies in all of those areas and new areas. alix: what about digital? greg: we break it into three big buckets. one is data analytics. second one is back office focus, merging digital technologies. those are things like digital robotics to handle inventory, management, things like that. accounting principles. we are also looking at operations focused emerging digital technologies. all of those areas are areas which are maturing rapidly. we are working with technology startup companies, with the big
cloud providers, aws, microsoft, google, working with traditional emp service companies. we are taking a best in breed approach so we are not locking ourselves down to just one company, but really trying to find the best. alix: that was my interview with greg lavelle, conocophillips cto. it is more sought after than dorothy's ruby slippers. and a whole lot sweeter. ruby chocolate is set to make waves on the palate of american consumers, joining the ranks of dark, milk, and white chocolate. the treat will soon be sold by a chicago-based company. nestle was the first adding it to its kit kat bars in japan. ruby chocolate is a cocoa bean with the natural berry flavor found in the ivory coast, ecuador, and brazil. in the u.s., the fda has not approved it. fingers crossed this has a sweet ending. that does it for bloomberg "commodities edge." for next week, make sure to tune in on sunday with the joint oil meeting with opec-plus. next week, we also have bp and
♪ >> welcome to "bloomberg businessweek." i'm taylor riggs come in for carol massar. >> i'm jason kelly. we are here at bloomberg headquarters in new york. >> this week, the costly farewell brexit is having on business. >> also, the price of all the wrong bets that a u.s.-china trade war would be short. >> in the global story -- the cover story, we