Big Digital Energy

0:00 All right, everybody, welcome to BDE Speed Round. We've got

0:04 a 30-minute clock on us 'cause Kirk's got another call. This is the only important one of the three of us. Mark, lead us off. I gotta talk about a couple of what I call have-nots and have type of

0:22 stories from the suite, starting off with California and it's

0:38 a wonderful refining situation. Apparently the state through the California Energy Commission has been seeking buyers for the Valero refinery in Benesha, which is in the San Francisco Bay Area. I

0:41 think it's 145, 000 barrel a day refinery. Now, I think there were other searches that preceded this one. Latest word is that they've got an approach to Sinclair And so Valero, you know, is.

0:58 has got plans to just cease operations in 2026 and is contemplating the same at Southern California Refinery at Wilmington.

1:11 And so I think I sent this around to the group as a REAP meet so. And so what Refiners are telling you is, along with some other businesses, which, oh, by the way, in and outburger is moving to

1:26 Nashville after being in California since its inception in the 40s. But

1:33 now we see the state government trying to scramble when faced with a pretty imminent reality of, if these closures happen, you're talking about something approaching 20 of the states refining

1:50 capacity. I think the number 17 And

1:54 so, you know, it's. certainly not a wonder in a market that's already, I think last I saw, California average gasoline prices were like445. The national average is315. And we've seen

2:10 excursions8 plus in California. Again, we've got very near term reality kind of hurtling toward us. And now in scramble mode, PSX has got has got some 1266 has got some

2:25 evaluations going on around another refinery in the state as well. So that's our that's our first have not topic. I mean, at the end of the day, what did you expect? I mean, Californians are

2:40 very smart. Silicon Valley is leading the world and innovation and and all these other things. But if you're going to require a specially formulated gasoline. Okay, that's great. Go save the

2:47 planet.

2:57 and folks can't make money, guess what? You're not gonna have that gasoline, so. Anyway, I think it's, be careful what you wish for. He just might get it, you know? I mean, gasoline's almost

3:12 at450 in California where the national average is around

3:15 315.

3:18 I mean, Milton Friedman called it, when you regulate something out of existence, don't act surprised when it's gone I mean, it's classic fuck around and find out economics and they couldn't be any

3:31 dumber, in my opinion. Yeah, I think we're going to see what we're going to see unfold here is some give, if not a total capitulation on whatever the special stipulations are that are making it

3:47 unattractive to do businesses or refinery in California. The criticality of the issue is just too high

3:57 I don't know if that motivates a wholesale kind of electoral change, but this is another example of you keep getting what you voted for. The Oakland AIS moved to Las Vegas because they can get their

4:12 stuff together around a new site and just given primarily the municipal and the environmental pushback

4:22 And on Venetia, there was a European discussion, discussion with a European buyer that apparently was scuttled by the fact that they didn't want to take on some unspecified environmental problem at

4:40 Venetia. I don't know how old that refinery is, it's pretty old. I mean, I remember back in Exxon days, that was part of the Exxon refining portfolio, but I don't know that there's a refining

4:51 site in the country that is not going to have some

4:57 remediation that's necessary. When you think about shutting down

5:21 and reclaiming a site that's been producing a refined product for, I don't know, decades close to a century. Well, you know what this is pushing us towards? You know, we've jokingly said that

5:22 the way to really make our case is, let's just shut down energy one day You know, not produce any electricity, you can't buy any gasoline, you can't use it, and then we'll go, okay, now let's

5:33 talk. Now that you've lived life without it, and let's have a more reasonable discussion, we have always been the bigger people and said we're not gonna do that, 'cause lives would actually get

5:43 lost if ambulances can't run or whatever the case may be. California may be giving us our test case on it that we didn't do. They're doing it to themselves. I mean, they did elect an Austrian

5:55 bodybuilder that took steroids as to be governor to clean up the state. So this is only going to create more wacky results that I'm

6:08 just kind of having a blast sitting back and watching this. You know, back of the remediation, my, you know, the quiet conservative branch of Nantucket as we're looking at these windmills off the

6:20 shore, you know, guys like, Oh, they'll take them down. I'm like, you know, once you build them, taking anything apart is liability. And I think that's been one of the biggest energy legal

6:36 debates is who's responsible when you start doing remediation? Is it the current owner? Is it the past owners? I think the reason why this whole scuttle bud happened with the European contingency

6:48 of looking at this refining was, Hey, what liabilities am I in my inheriting?

6:56 that if I just run the math and let the finance geeks do a little scenario analysis, they realize that it's underwater. There's no way I can make money on this asset if I'm gonna have to pay for the

7:07 next 100 years of cleanup. Well, and what's California gonna make me do? We don't even know. I mean, some old crusty person at the European Refiner looking at this is like, man, Europe's bad

7:22 enough Let's not even go deal with California, you know? The easiest fix is just shut off jet fuel in the state 'cause all those Silicon Valley and Hollywood nerds that have their private jets would

7:35 have nowhere to go. And then that would, that changes everything. The other irony of this is that, you know, the workaround, at least in the short term, is it increases waterborne imports into

7:47 the state. So we can just load up a bunch of product tankers on the Gulf Coast and send them around to California. Oh, wait, we can't because of the Jones light. Ah, there we go. I love it. We

8:00 need it. We haven't done a finger of the week in a long time, but this is a pretty good one. You know, hey, take that. I think you're going to have to, you know, when push comes to shove, I

8:12 think you're going to have to offer any perspective, you know, assuming operator for any of these refineries, you're going to have to offer some type of blanketed indemnification as a start and

8:25 probably a lot of other concessions to keep. Yeah, and how does that work out? How does that work out when the government changes its mind on those indemnifications? Because they're sovereign, so

8:35 they can't be sued, they can change their mind. But let's stop picking on the Californians. There's another mess on the East Coast. What's happening, PJM, Chuck and Mark? PJM has got a just

8:51 conducted a capacity option for 26, 27, demand year. And these are designed, you know, to figure out what what is it called

9:03 base, base residual something. BRA is the acronym. And the market cleared for this capacity option that they had earlier this week at at the FERC approved cap, which is329 a megawatt hour.

9:25 There were spots like the Northern Virginia Duke corridor where there's the huge concentration of data centers. You had them up in, I think above 450 a megawatt hour. And really what this is, is

9:40 assurances for the model forecast of peak demand to

9:47 make sure that you also have the required reserve margin for those peak scenarios. But since 2007

9:59 through 2023, the average bill has gone up, or wholesale prices have gone up 300.

10:06 You also had some projects or some generators that were scheduled to mothball or come offline that have since pulled those mothballing

10:19 applications. And so you're keeping stuff online because of what's coming. They've got another capacity auction coming up in December. And these capacity auctions have

10:33 been on kind of an annual tenor until now, but you've got a rapidly changing demand dynamic with a bunch of generations. that is in flux and the amount of demand that's being added at PGM is

10:51 creating some scenarios that are pretty dire. I read something last week that pointed to durations of blackouts in some scenarios in like 55 hours.

11:03 And keep in mind, PGM in terms of population is the it's a 13th state, 67 million person grid in terms of its its consumers, its rate payers. So, you know, we've been picking on ERCOT a little

11:20 bit here lately. It's just kind of all of a sudden here we here we are with PGM. And I was

11:30 pleased to see that the new generation that's been approved that's coming online or is going to be have ground broken is I think north of 51 natural gas and when the single digits for renewables of

11:44 course that's a bit of a function of geography

11:49 in the heart of the Marsalis, shale, the Utica, but also the fact that it's pretty cloudy. There are a lot of the time. Well, I mean, at the end of the day, when we talk about ERCOT, we

12:01 always have said ERCOT's a leading indicator, you know, and so problems with ERCOT, it's gonna show up other places. The, you know, two questions I have for the group, I wrote a white paper

12:15 back when I was at Stevens and probably '98 or '99, the case for distributed generation. Are we there yet? I mean, are we gonna have to start building, you know, behind the grid or off grid

12:30 solutions for this sort of stuff? And I mean, our economics on a smaller scale where they can compete yet, I don't know that I know the answer to that, but I mean, big, huge. bulky grids.

12:48 We're starting to see a lot of cracks in it. But at the same time, these are the best grids on the planet, you know? So have we maybe just reached the theoretical limit of what a big grid can do?

13:00 Well, of all people, the California

13:05 utilities and regulatory bodies are actually ahead of everyone and talk about part of it. The biggest issue is regulatory when it comes to distributed generation. That's the biggest problem. It's a

13:17 regulatory, how do you price it, how do you settle? I love the idea of distributed generation. It does solve a lot of problems, but it's regularly a mess right now because the grid, it's always

13:31 been centralized production and you distribute it to the nodes. When you have nodes producing power and you're sending it from nodes

13:46 to the center and to other places, our grid wasn't designed to do that. So I think that's the biggest challenge just thinking through, how do you actually price settle? Now there are technologies

13:53 and people that are ahead of this, but regulatory is the biggest hurdle at this point. Good point though. You know, back in the day, the distributed generation clan used to always say, no, the

14:07 grid could actually do this if they'd just allow it to, that the person that operates the wires walks into the regulators and says, hey, the whole grid'll just crash, right? 'Cause they gain

14:21 nothing by doing distributed generation. They lose everything if the grid shuts down, you know? And so it's been chicken little, the sky's falling. I'd love to hear a real engineers take on it

14:36 'Cause you've seen some super grid, smart grid. technology, software stuff pop up. And I just wonder how real it

14:45 is. And God, I hate this 'cause I'm a libertarian, but do we need a national commission on it to kind of just dictate to everybody? Here's what we're gonna do, guys. I think what you're gonna

14:57 see in the near to medium term and it's somewhat related to, and I haven't read the details of the executive orders that President signed yesterday at the on the heels of the AI conference.

15:12 For 100 megawatts and greater, there's at least in the headlines, there's permitting and regulatory streamlining. So

15:25 the incentive to get fairly large chunks of power online quickly, which is the incentive and the motivation for all the AI data center developers anyway, you look at at least some of the anecdotal

15:35 power purchase agreement pricing that I've heard are, you know, between 10 and 20 cents

15:41 And I don't know why as a competitor in this arms race, you'd want to start out with just the inertial entanglements of being dependent upon the grid. And there's a lot of other external factors

15:57 that prevent you from doing your own solution. But I think that's where we're headed. And hopefully, some of these streamlining actions are real, and we can pave the way for some distributed

16:10 generations of off grid stuff. The transmission as well as a big problem is we're growing power consumption and power demand so rapidly relative to the prior two decades where it basically didn't

16:24 grow at all. Kirk doesn't like his windmills. People don't like big wires running in their backyard either, so. No doubt, no doubt. Hey, Trump, I mean, those executive orders, I mean,

16:36 finally, someone who understands Um, you know, that we need to actually fast track these, these power in order to get data centers up and running, etc, etc, etc. My only challenge though is I

16:51 was trying to think about this because we're always pushing our governments too slow. They get in the way of everything. And, and I agree with that. But I started thinking about when was the last

17:03 time government moved really quickly and energy? It was on ethanol mandates. Do you remember this? We ended up with, with corn and our gas tanks, higher food prices, and engines that run about

17:15 as well as a golf cart and surf. So, I'm sort of like, wait a minute, we've got some, there's going to be some unintended consequences that are going to happen because of these executive orders.

17:28 So, just stay tuned. We're going to talk about them on Collide. So, we've got a lot of stuff to laugh about. We need Ohio.

17:38 or New Hampshire or maybe South Carolina 'cause they're the first three primaries, they need something energy-wise and that's how we get the government to move. 'Cause that was all a payoff to the

17:50 Iowa farmers, right? Yeah. Well, hey, look, I'm just gonna remind you guys, it's something, again, I'm gonna bring up Milton Friedman because this is just so good. The government's view of

18:03 the economy can be summed up in three phases If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it. So that's, let's just keep with that in mind. That's our

18:18 framework today. I will say, given these have nots, big huge opportunity for Texas, Urquot's sitting there, a lot of these type problems, we're Texans, we understand energy we should be able to

18:34 do this, you know. data centers out in West Texas, things could be, there could be worse locations for it. So while we're arguing here over, you know, refineries, permitting, what's happening

18:51 in China, Mark? Well, they just broke ground on what will be the world's largest hydropower facility.

19:01 It's called the, help me out here Motuo, hydro. Motuo means death to

19:10 America or something, but let's keep going.

19:16 It's in Tibet. It's

19:19 free Tibet. They're gonna do it? They're gonna do it. Basically going to exceed the three gorges, which started in 2012, started generating power in 2012. It's gonna be three times the size of

19:31 that167 billion, it will

19:37 consume

19:40 the steel equivalent of 66 Empire State buildings, it will use enough cement and concrete to pave a two-lane road around the equator four times, or I just thought an eight-lane katie-free way wants.

19:59 And it's larger than the entire grid of Poland.

20:07 You know, take a country, right? They're going to bore multiple tunnels through the mountains that, through which this river meanders, I say meanders, it's pretty rushing with a 6, 500 foot

20:23 drop and I think 31 miles And of course, on the border with India, they're worried about the river changes names when it crosses the border. You know, they're worried about diversion and rivers

20:36 drying up and all the agricultural impact even further downstream than Bangladesh. But the Chinese are going ahead with this world-class hydro project You know, by the way, that's got the capacity

20:50 to

20:53 deliver electricity 300 to million people. So three times. the size of the three gorges. I think it's 300 billion kilowatt hours capacity. It's massive. I mean, I'm just thinking that could be

21:09 the ultimate water slide. It was approved

21:13 in December and they're breaking ground now. I mean, it's kind of like they're playing, this whole joke

21:23 about Trump playing 40 chess. I mean, the Chinese are definitely playing chess and we're playing checkers I mean, it's almost like they're playing Augusta National while we're stuck on the driving

21:30 range arguing about club selection. I mean, it's just unbelievable. We

21:39 are just men. We're just children playing amongst men. You can't put a wire there. We got to save the Bluntnose leopard lizard.

21:47 No doubt. Nobody out there could even identify a Bluntnose leopard lizard if we put a photo Jacob will you go Google a photo of it and stick it up there. Just it's not only a stupid

22:03 creature, it's an ugly creature. I mean, we're killing the whales while putting in, you know, wind farms offshore. And I mean, no one cares about them, so. So real quick topic one got we've

22:15 'Cause. this do let's, that's not

22:18 on the run

22:20 of show. Real quick, do I get to spike the football? Have we rolled over in oil production now? Did I call it right? Well, according to the DOE report yesterday, you were right year over year.

22:33 There we have. The report is down a little over

22:36 100, 000 barrels a day versus 24. I'd included that as have not number three. I sent around something I think earlier this morning that showed the

22:49 steep decline in oil directed rig count, which I characterize as looking like a double black diamond

22:57 I mean, that's what's 100, 000 barrels a day, year over year, during a deflection moment in a White House press conference yesterday, US. production was characterized as quote unquote, surging.

23:12 I mean, it's almost equivalent to losing a medium-sized oil field or refineries' worth of daily production. I mean, this is a pretty significant trend, not a blep Let's say

23:25 you, Mark, you can clearly see a plateau if you look at the EIA data on US. production on just about any frequency. And so, you know, have we rolled over and are headed down by meaningful chunks?

23:43 Kind of looks that way, but we'll wait for more confirming and refuting data. We're certainly not surging. I can definitively say that. Well, and Doug and Doug and Chris, no. in their heart of

23:56 hearts. And maybe they're not being listened to or whatever. They know at65 a barrel, tariffs, et cetera, we're shutting down rigs. We just are. And they know that and there are a whole host of

24:13 things that we could be doing potentially on the cost side of the equation to make drilling more profitable so we wouldn't see this drop. But we're not doing that either And the hard thing about this

24:26 is fairly easy to drop rigs, hey, when's my contract up on the rig, whatever, pretty freaking hard to gin it back up. Somebody leaves Midland and goes, works a job in construction in Tampa,

24:41 hard to get them back. And you're cutting execution capacity out of organizations. I don't know if you guys saw the heels of the Chevron has merger closing, which we haven't addressed. I think

24:57 there were 400 to 500 Houston-based employees. Just your capacity to kind of manage the AFE generation and execution pipeline is not something that you can switch right back on, AI or not.

25:15 And there's a caution among, particularly on the public side, management teams and boards that don't want to get head-faked into

25:32 committing to a ramp-up. And certainly, as Diamondback characterizes and said, look, this is '65 kind of a warm idle position.

25:42 And we don't start kind of plating, stepping back on the gas until moving toward the '70s, if

25:51 not above. It's the volatility that just keeps everything off balance directionally I think we're. you know, we're in that contraction mode, which

26:01 is starting to show its results in the form of what we're seeing in terms of US law production. I mean, the summary usually is lacking news, but what I've heard to down today's broadcast is, our

26:15 refineries have stopped moving, our grid is barely moving, our oil production's going backwards. Is it time for subsidies?

26:25 When I did the energy policy draft a couple of years ago, Chuck Yeggs needs a job. Brad Olson's policy was just like the old TARP program, the government would loan half of your acquisition costs

26:40 of the government alone at zero percent interest, half of the cost of drilling each well, and eat all the losses on the front end. And so there we go. Drill baby drill with US dollars, Nobody

26:53 prints money like the US. government. We got two minutes left 'cause Kirk's gotta jump. I'm gonna cut, rest in peace, Ozzy Osborn.

27:05 I didn't know who Ozzy was, but when Tipper Gore came out and said that we needed record labels on stuff, record labels all over Ozzy. So that's when I figured out I wanted to listen to that. My

27:18 favorite Ozzy story is he's out on tour with Motley Crew and Nicki Six, Ozzy's a perfect gentleman when Sharon's on tour, tea at three, second she leaves, bags of cocaine everywhere, prostitutes,

27:33 all that stuff. Ozzy's out snorting cocaine by

27:38 the pool, runs out of cocaine, he then starts snorting ants. He runs out of ants and he urinates on the side of the pool and he snorts his own piss. Nikki's like, this is my hero, this is my

27:52 idol. So Nikki goes to pee on the side of the pool before Nikki can get down to snort his own piss. Aussie is snorting his piss and Nikki goes, at that moment I do, I'd always be an amateur. So

28:07 this is great. My friend from Houston is picked up on Jim Rome yesterday on the story. And this is Jim Rome reads his tweet First, from Tim in Houston. First concert ever, 1978, 13 years old,

28:24 junior high. Open her a band called Van Halen. I'll never understand how I convinced my parents to let me go see a band called Black Sabbath. Just me and a buddy, we were scared to death. Rip

28:39 Aussie, I love it. All right guys, peace out, love you guys. Love you too, good to see you. Look man. Peace out there.