“This Is Like Quantum Mechanics: If You Think You Understand It, You Don’t” Featuring Dr. Lars Schernikau and Rob West

Today was a big one – the first regular COBT of the year, and also the second anniversary of Veriten. Accordingly, we thought about something that would be truly special to mark the occasion and reached back for two COBT All-Stars… on the same show!

Today’s episode features two great friends: Dr. Lars Schernikau, energy economist, entrepreneur, commodity trader, strategic advisor, and the author of “The Unpopular Truth about Electricity and the Future of Energy” AND Rob West, Founder and Lead Analyst at Thunder Said Energy (TSE). Rob started TSE in 2019 and provides unique and thought-provoking analysis on energy transition research and technologies. Lars patched in from Dubai and Rob from Tallinn. What a delight it was to have this much firepower in the same discussion.

Our COBT buffs may recall Lars previously appeared on COBT in March of 2023 (linked here). For Rob, today’s episode marks his fourth appearance on the show; he most recently joined in July 2023 (linked here), prior to that in November 2022 (linked here), and first in January 2022 (linked here). We simply thought these two gentlemen together would be perfect for global energy 2023 reflection and 2024 speculation and vision. We were not disappointed!

To start the discussion, we ask Rob and Lars for their view on the most significant macro factors for the upcoming year. Rob discusses the impact of higher interest rates and puts particular focus on the volatility of today’s energy systems. Lars added his concern with our growing energy inefficiency and what that means for costs. Volatility, energy inefficiency, rising costs and government/corporate/investor decision-making wove in and out throughout our conversation today. We touch on weather’s contribution to energy production volatility, recent warm weather and how it may be masking underlying problems, overall trends in European energy sentiment, China’s self-interested energy policies and their control of raw materials, Rob’s recent work on Harmonics, the current state of energy forecasting and the lack of transparency around models, last week’s appearance by Senator John Kennedy (episode linked here) and much more. We were sorry the discussion had to end and wrapped up by asking everyone for the number one thing they are focused on for 2024 (in Bari Weiss rapid-fire style). We can’t thank Lars and Rob enough for joining. We are honored to call them friends and appreciate all the work they are both doing to make energy, the environment, the inherent trade-offs, and decarbonization broadly more understandable.

Mike Bradley kicked us off by discussing key themes for 2024. Economically, he highlighted that markets are expecting the FED will engineer a soft landing and cut interest rates beginning in Q1. He noted this scenario was consensus and that this week’s CPI and PPI prints could be the first true test of this “goldilocks” thesis. From a commodity standpoint, he noted that analyst’s 2024 commodity forecasts are much higher than the 2024 commodity futures curve, indicating 2024 estimates may be adjusted lower and could result in some energy equity headwinds in Q1’24. US natural gas production surprised in 2023, and investors are asking when will natural gas-levered E&Ps begin ramping up activity in anticipation of a 2025 LNG ramp. From a crude production standpoint, he flagged that one of the biggest surprises in 2023 was that U.S. crude oil production growth nearly doubled expectations and that in turn raises questions around 2024 rate of growth. He highlighted that OPEC+ is scheduled to cut by another 0.9mmbpd in January in order to balance Q1’24 S/D, and that traders are skeptical they will deliver in full. He ended by highlighting several energy sector/subsector themes: return OF/ON capital could be lower than expected given commodity futures are lower than consensus estimates, energy M&A could be robust across all energy subsectors in 2024, and that U.S. electricity growth will continue to accelerate, which could really stress the U.S. transmission grid, resulting in substantial electricity price/performance volatility and potentially large financial and political ramifications. Jeff Tillery also joined and added his perspective and questions to the discussion.

As we mentioned upfront, today marks the 2-year Anniversary of Veriten. In COBT history, we have now produced 235 episodes (212 regular episodes and 23 special editions) featuring over 265 guests. We are immensely grateful to the many great guests who have joined us to discuss their views and to the COBT community at large for your support and friendship. We remain committed to bringing you diverse and thoughtful opinions from around the energy world in the years to come!

Our best to you all!