The Whole World Is Fighting About Energy

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Today, AI, Iran, and energy.

One goal of this show is to cover the biggest stories in the world.

And so what are the biggest stories in the world?

Judging by newspaper headlines, you'll probably say that at this moment, it's two.

Number one, the war in Iran, and number two, artificial intelligence.

But if you dig just underneath that headline, if you poke and prod until you get to what

those stories are really about, I would argue that at a fundamental level,

they are both about the same thing.

And that thing is energy.

I'm recording this at 3 p.m. Eastern time on Monday, April 13th.

The top story in the New York Times is, quote, US begins blockade of straight of

Hormuz.

And why are we blockading the straight, a straight that theoretically we want to open

on account of its original closure, its original blockade, drove up the cost of oil

and natural gas and created all these problems throughout the world?

Quote, Mr. Trump wants to prevent Iran from profiting from oil exports and force its leaders

to accept American conditions for ending more than a month of war.

And quote, so this is actually of its stranger than it might initially seem.

What happened is we attacked Iran, Iran blockade of the straight of Hormuz to hurt us.

And now we're blockade the straight of Hormuz to hurt them.

Putting aside the logic here, both sides are using their militaries to wage war on the

other side's energy economies.

This is an energy war.

And then there's artificial intelligence.

This morning, the top story in the Wall Street Journal homepage was quote, AI is using

so much energy that computing firepower is running out.

In the last few months, demand for AI agents has exploded upward so quickly that companies

like Anthropic are struggling to keep up supply, namely computer chips.

But computer chips are energy intensive to make, and their top manufacturers in Taiwan

and Korea face energy shocks from this war.

The data centers that computer chips live in also require tremendous amounts of energy

to run and keep cool.

I think it's important to remember that not every tech wave is like this.

The consumer tech revolution of the 2010s, Facebook and Instagram and DoorDash and Airbnb,

those companies were not in the energy business.

They were not fixated on scaling software to build a global consumer base.

Today's tech story is fundamentally different.

Yes, the demand side is important, getting people to use, clawed or chat GBT matters to

the revenue picture for Anthropic and OpenAI.

But more than the tech waves of the past.

AI is about supply.

It's about making chips, buying chips, building data centers,

powering them with electricity.

And all of this is a story of making stuff in the physical world that requires molecules

from oil and gas and electrons from solar and wind, which is to say AI2 is a story about energy.

The author, Vuklev Smil once wrote that, quote,

energy is the only truly universal currency.

And nothing from galactic rotations to ephemeral insect lives can take place without its transformation.

And quote,

it has never been more true that every story in the world is fundamentally a story about energy.

So I felt the time was right to bring back our plain English energy,

the consigliary, Nat Ballard, the Singapore-based energy analyst.

Today we talk about Iran, AI, and why energy continues to be the story that explains the entire world.

I'm Derek Thompson.

This is Plane English.

Nat Ballard, welcome back to the show.

Derek, it is great to be back.

I think this is our third time having this conversation.

Number three, yeah, this is the Ballard trilogy, and I'm excited to complete it.

Awesome.

So I've been meaning to have you on for a while because it seems to me like the two biggest

global stories in the world right now, the Iran War and the artificial intelligence build out,

are not just, it's not that they're exclusively energy stories.

It's just that they are unusually energy stories because not every war is an energy war.

Not every technology boom is about the supply of energy that goes into that technology.

But this is an energy war and this is a supply side tech boom.

And so I figured, you know, we haven't done a single episode using energy as the lens to

explain the most important stories in the world.

So I thought who better to do it than with you.

Let's start with the war as an energy guy.

What do you think is the most important story of the Iran War?

So we are in a position where there's this physical gate check on the flow of hydrocarbons

around the world.

And it's been there since the time that hydrocarbons started flowing like 90 years ago out of

the Persian Gulf.

This is stuff that I studied as like a student and was the kind of thing that any war college,

army and Lieutenant Colonel would have looked at.

Anybody the Navy would have known about anybody in hydrocarbons would have known about that

like at the moment about a quarter of all, look, a financial gas and about a quarter of

all seaworn oil flow through this one tiny checkpoint and they have done so generally

peacefully for a couple of decades.

There's a whole bunch of associated stuff that goes with that energy derived products.

So fuels that are refined from oil and also chemicals that are created with oil and

gas and precursors to all kinds of other industrial products.

They've all flowed through there and now boom, all of a sudden that flow has been stopped

completely.

And it's a supply shock that we haven't had honestly ever.

It's like a bigger shock to supply for these flows of things that people I think especially

in the Western world kind of take for granted and view as a sort of luxury and privilege

to not think about are suddenly right in the frame for everybody.

So that's kind of like the global thing about this.

Honestly, Derek, this is like the kind of thing that when I was in grad school, you

might try to war game this scenario and people be like, this is ridiculous.

Okay, this is never going to actually happen.

We don't need to talk about it.

Then there's the sort of more to the ground way that this instanciates itself in different

markets.

I'm coming even from San Francisco today, but I live in Singapore like your erstwhile

guest, Alex Turnbull.

And when we talk about this conversation amongst each other over beer, it's incredibly

acute in terms of what this means for the country where we live and all of our neighboring

countries.

And I want to sort of reemphasize some of it.

Alex talked about a lot is that this is not any kind of an abstraction for countries

that import a lot of will, a lot of refined products, a lot of liquefied natural gas.

And then a lot of the chemicals that go into things such as fertilizers and into industrial

outputs and things like that.

It's just big.

It's profound.

Like in the sense of it has depth to it.

It is also open-ended at the moment.

I mean, as we have this conversation, there is apparently 15 warships, Lothilla from

the US Navy that it's preparing to or maybe is blockading the straight of foremost.

Even if you were to snap your fingers and make all of this stuff go away instantly, we're

not really in a position where the flows are going to instantly come back.

There's going to be a lot of gap in the system that needs to be filled.

And then there's a longer term question about how much supply is going to ever come out

of a region like this because of the way that people configure their demand.

Is the flow in and out of the Persian Gulf considered as reliable as it used to be?

Is a blue water US Navy considered to be the guarantor of free and safe passage?

There's also things to be considered right now.

And I guess it's really important to emphasize how early we are in kind of determining the

contours of the future based on this.

One thing I always struggle with when I'm analyzing something that Donald Trump has done is

this is sort of phenomenon that he's going to essentially delete and it will be remembered

in history as a two-week, two-month, six-months phenomenon that had no ripple effect in the

world.

Or is this something more like the tariff policy, which might live on in American economic

policy for decades, or the shift in Europe toward getting that continent to spend more

on the military, which also seems to be a kind of secular trend that could absolutely outlive

the Trump administration.

In thinking about the long-term implications of the closure of the straight-of-formers,

I know this is difficult to say right now because by definition we can't see the long-term.

But you're the energy expert.

But I am not.

What's the sort of thing that strikes you as a very plausible long-term multi-year consequence

of this work?

The first most, so to speak, would be to reduce dependence insofar as possible on the fossil

fuel imports.

But you're going to run it at structural limits of how little you could do.

There are things that we currently do not make without hydrocarbons.

And it's specifically liquid hydrocarbons provided and go cost.

So there's as much substitution as you will do as quickly as possible in places like

the power sector.

So you want to do as much renewables as you can so that you're not dealing with important

fuel.

You will also, and we might talk about this later, amplify your consumption of coal, which

can often be a domestic resource, or is not blocked up by the straight-of-formers.

You can electrify light-duty transportation.

It's fancy we have saying, get a bunch of electric vehicles into the hands of consumers.

But you're going to run into limits of how many there are to buy.

And then also what kind of infrastructure is going to be built to integrate them and

energize them at various places.

So that's like the easy stuff.

The long-term question is, where do you then shift supply?

Because you cannot automatically delete this much energetic demand in the global economy

without it being really, I think, catastrophic.

So where would that flow then go elsewhere?

So that's domestic sourcing insofar as possible in other countries.

It's sourcing from other countries for seaborn trade.

That's, as Alex Terrible talked about, that's countries that are not able to be blockaded

by anyone in the Navy.

So that would be places like Brazil, Argentina, potentially Mexico, definitely Canada.

It's also a big question for other countries that want to import from the United States.

So the US is a export on a sort of a flow basis, not on a certain, like for various

compositional reasons of where refining stock is and what we produce and what we consume.

We do export oil and we export oil products.

We export loads of natural gas.

We are the world's biggest exporter.

The question will be, how much do you want to rely on the US as a reliable exporter in

this situation?

And you disentangle the corporate interests of a non-state run energy sector in the US

from the foreign policy implications of the current presidential administration.

And then, you know, your point about tariffs, I think it's great.

It's funny.

Relatively speaking, tariffs are a fast-moving, free radical in the system, to my

mind, compared to thinking about energy.

And so they can be undone at the stroke of a pen.

And then it's a question about how much industry will feel the confidence to come back in and

do something.

I mean, what I think we could say with a slightly wider aperture here is that, you know,

we've seen, we've seen, we've seen countries in a particular US kind of whipsawing back

and forth in policy with a sort of an impedance mismatch.

So the policy mechanisms can be agreed and then disagreed in the course of a couple of

years while trying to inspire or create manifest effects in infrastructure and in industry that

are meant to last for decades.

And I think that that's the biggest question for everybody is, how much long-term decision

making can you make in a situation like that?

Even though this might be inspiring really big long-term changes, how well are you able

to make long-term decisions that you feel like are both you're confident in them, you're

comfortable about them and you feel like they're within your control?

We're going to return to the subject of renewables in just a second, but I wonder if 10, 20 years

from now, you think it's plausible that this war is seen as an inflection point.

There's all sorts of things that have been tailwinds for their renewable revolution and

headwinds for the renewable revolution.

Tailwinds, the declining cost of solar, the declining cost of batteries.

Headwinds, you've got the Trump administration coming in and just being at the very least

chaotic when it comes to the balance of pro-renewable versus anti-renewable policy.

And it worst actively against offshore winds specifically.

But maybe 10, 20 years from now, we say, you know what, policy under one administration

can be short term.

This war scared so many different countries away from their overreliance on ocean-bound

hydrocarbons that you saw this global acceleration of solar and wind and whatever else that could

essentially be in-sourced, right?

The solar panels are right there in Brazil or Australia or the US wherever they're powering

households and air conditioning.

So there is a possibility.

It seems to me like 10, 20 years from now.

This is seen as an inflection point.

Is that polyannish?

Is that overly hopeful or do you think this war really could re-excelerate the global

renewables revolution?

So I actually think it's fairly realistic with the caveat that you're creating a different

kind of potential trade dependency as long as you're not providing that capability domestically.

And there's two ways to view that.

One is that a big country out of the United States and big industrial countries, Japan,

Korea, Germany have the capability to basically manufacture anything that they would choose

to do on their own.

It is a policy decision to do so, but you could return to what Germany had, which is a fully

domestic solar supply chain in the United States.

Korea and Japan are capable of doing this on their own, clearly China is capable of

doing it on their own.

But what's the sort of thing that we're bound on that?

Brazil has had lots of local content requirements.

So it's India to be doing a lot of renewable resources inside the country.

But is Australia going to do that?

Is Argentina going to do that?

Is Mexico going to do that?

And then as you go further out, you're getting to countries that have essentially no industrial

capability.

And the ability to import whatever they need, but they were trading one kind of import dependency

on a flow for another import dependency on a stock.

Like I think that they need to buy and build and own.

And so I feel like there's going to be some parlay between that in certain countries

that comes right back around to my policy question.

Like that's only going to happen if you've got policy support to do so.

Do you feel like there's enough of a long-term window for that?

But for the tradable goods, I would say this is probably a positive for a very long time.

The tradable goods, IE the thing that you sell to provide energy that's solar, wind,

and then the batteries that back them up, the EVs that charge off of them.

I feel like this is probably a positive.

And I also think there's an opportunity here where it kind of jumps past the policy blood

brain barrier.

And that would be part of my hope, I think if we want this to be durable in the long-term

as it's a decision that people are making at the country level, at the company level,

at the individual level to say, there's an opportunity here to minimize this dependency

and so far as possible with technology, to trade resource for technology.

And again, with a caveat that you can only do that for so many things.

You can't magically wish away a monoproduction, right?

That's not something I can do with an electric vehicle.

Yeah, I was thinking, as a way to sort of round out this section on the effects of the

Iran War on artificial intelligence, I'm thinking about the ways that it might

derbly destroy demand and the ways that it can create demand.

So, what's destroying demand is especially across Asia and Australia.

You've got political leaders that are essentially telling their populations, like use less

there's less to use, don't turn on the air conditioning, don't drive, work from home,

take Wednesdays off, cancel school once a week.

I mean, that is a catastrophe.

In parts of the world, maybe like the US, it's merely a crisis.

In parts of the world where you've got governments canceling school because of the lack of inflow

of hydrocarbons from the straight-up formuse.

I mean, that is reaching the level of national catastrophe.

But that's just where demand is being destroyed.

And what I'm taking from you is that there's also ways in which the Iran War might induce

demand for different sources of energy, right?

If there's this elevated premium on ocean-bound oil and natural gas for the foreseeable future,

because we're just so scared of another crisis breaking the ACL of the straight-up formuse

again, then you have more countries essentially saying, okay, well, if we can't rely on that

as cheaply or as automatically as you did before, well, we have to find some other way to

get energy.

And that some other way is going to be more local.

So it's going to be buying solar panels or buying batteries, potentially from China.

We'll get to that in a second.

Maybe turning on the nuclear power plants.

And there's all sorts of ways in which I see new kinds of or other kinds of energy being

demanded more because of this war, which might accelerate some kind of transition.

Before we move on to the connection between the Iran War and artificial intelligence,

it'd be any last ribbon to tie on this section as you see it.

So I'm broadly in agreement with all of this.

I think my only caveat is that we need to remember that there are some things that we can

solve through physics, and that's basically anything that's already electrified that

can then be further electrified or electrified a new with renewables, and then there's chemistry.

And that's the world of molecules.

Alex Terrible talked about this a lot more eloquently than I think than I can.

And your audience, therefore, has probably already heard a little bit about it.

But like you just can't wish.

You just can't wish away things that require breaking molecular bonds that come from a

fundamental energy source and require different types of energy inputs to make them.

You can't just wish them away.

And what's the most example of this?

And an example of that would be making fertilizer, for instance.

Like this is a process that does require quite a bit of electricity, but would it really

requires a front of natural gas?

Making urea and ammonia, for instance, are the result of petrochemical processes.

And those things then flow back into becoming part of fertilizer and making food.

And there are technologies that do this by the way.

Like I know of companies that will use renewable technology to fix nitrogen and therefore be able

to start making fertilizers.

But not in a kind of volume that feeds eight and then nine billion people.

And so I just I want us to remember that like the concerted efforts need to happen to

solve chemistry problems, not just physics problems.

Like we get very easily attached to for good reason, solving the physics problems because

they're solvable in many ways.

But the chemistry problems are really, really tricky.

And they're the thing that requires, that requires either like complete reimagination and like

a, you know, root and devil science way.

Or they require us to think very differently about what we do and what we use.

And it's tricky.

Yeah, I think it's excited as anybody can be about the acceleration of solar and wind

and geothermal and all of this.

There's just some stuff that we don't know how to turn into an electrification process.

So people need to eat eating requires fertilizer, that requires natural gas.

There's a lot of plastic in the world.

That's also a hydrocarbons business.

Stuff is made with concrete.

We don't know how to make concrete in a low carbon way.

It's an incredibly carbon intensive thing to produce.

It is necessary in order to put up buildings.

I'm sure people are familiar with it.

They're looking at vacations for this summer or you know, later in the winter of 2026.

What's going on with jet fuel?

Plans are amazing.

We don't know how to power them at scale with electricity.

We just don't.

They require hydrocarbons and they probably will for the next few years, if not decades,

if not maybe century.

And so there's all of these enormous systems where notwithstanding all the incredible things

that are happening with renewables, we just don't know how to move the dial there when

it comes to pulling back our dependence on hydrocarbons for now.

Maybe we're going to get at the end of this interview too.

The sparkling potential future of electrifying the world.

But I guess to round out your point, there's just some stuff that we don't know how to make

do without oil and natural gas and sometimes coal.

To build a bridge from the consequences of the Iran war on the energy picture to artificial

intelligence.

At what point do you think this war starts to meaningfully impact the economies of Taiwan,

Korea, countries that are critical for international supply chains of necessary chips, memory chips

for the construction of artificial intelligence in the US.

At what point do you think it will be factual to say this war is clearly hurting the AI economy?

Well, I mean, this is a really big fundamental question and I think it's important that you

phrase it this way in terms of thinking about it as these critical path inputs that themselves

are easily bottlenecked just by the fact that not that many companies make these things.

And also by the fact that they themselves are very dependent upon both energy and chemical

inputs that are part of the flow that comes out of the Persian Gulf.

So soon potentially, I don't have a great answer to that because it's a prioritization

question within countries.

And sort of analysis to what I think we'll end up talking about regarding AI and the great

American consumer in a minute.

But at what point do countries decide it's air conditioning in the summer or it's running

this TSMC fab?

What point do you make this decision that you have to do one critical thing for the global

economy or one critical thing for your own economy?

And there's always going to be a high willingness to pay for AI's inputs, certainly, which is

partly what complicates this conversation like because these things are so critical to AI,

AI build out in training.

There's every reason to pay.

There's every impetus to bid prices up.

You have like the world's biggest and most cashed up corporations capable and interested

in doing so.

But you've also just got limits in countries where they say like there's only so many people

that work at this fab.

There's only so much GDP that comes from it versus suffering through a hot summer.

So look, we sort of haven't tested this yet.

It is mid-April.

It is not yet July.

It's not yet August.

I can tell you that if we're already in the process of wearing shirts, sleeves, and government

offices and reducing school hours so that you can reduce energy inputs, nothing will

be immune from this pressure.

But it will be highly concentrated, which is I think part of the point.

This is specific pressure points on specific companies and specific places.

It's interesting to think of artists' intelligence being akin to a mouth to feed in a place like

Taiwan in the near future.

Do we feed the people, which is to say give them air conditioning, or do we feed artificial

intelligence again with the same electrons that would otherwise go toward air conditioning

for human beings?

There's a way in which that trade-off is already being felt or observed in the US.

If you look at the last 15 years of private fixed investment in the US, we're seeing a

world where private fixed investment in the US that's not artificial intelligence is

declining while investment into AI is absolutely surging.

This is a chart in your presentation for folks who are watching on YouTube, respite

a fight.

You can now see this chart before we talk about it.

Tell me a little bit about what we're looking at here or for those who aren't watching.

What we're talking about here because this is an incredibly unique moment where it almost

seems to me, and this is where I want you to edit my language.

It almost seems to me like the AI boom is stealing resources from the rest of the economy.

The AI boom is an unusual thing in the big booms and capital expenditure in the US.

We've got half a dozen of these things over the course of the last couple of centuries.

Railroads, interstate highways, the Apollo program, building out broadband and fiber networks.

The one that always gets memory hold that was actually until now, probably the biggest

and nominal dollar terms, which was upstream oil and gas exploration and production during

the shale boom.

What's interesting about all of those things is that some of them are providing capacity.

Building broadband is clearly about providing new capacity to an economy.

Oil and gas is clearly about providing new energy to the system.

The highway system is about creating connections.

Obviously you're creating connections through AI, but the biggest thing that I can think

of about this in terms of way to measure it is that you measure it based on the energy

input, the dollars that go into it and the energy that goes into it.

The economy is themselves, it's fascinating.

They look at this from a perspective of energy, not just obviously a function of compute,

the amount of computational power that's being provided.

When you spec out a data center, it is specced out in terms of the amount of energy that

it requires.

That's unusual.

It's this boom that really does draw fundamentally from everything else as a first order requirement

for what it is.

In terms of what's being built, what you're seeing is basically declining fixed asset

investment.

That's like anything long dated.

That's power, that's energy, that's infrastructure.

That stuff is sort of coming off the boil with the exception of AI-related stuff, which

is basically the driver of a lot of capital expenditure in the US.

The CapEx boom, I talked about elsewhere in the deck and other places, is right now

the second largest capital expenditure as a share of GDP in the US ever, bigger than the

railroads in the 19th century.

Second only to the Louisiana purchase, which I would say is debatably a capital expenditure.

By the way, in nominal dollars, it was only $25 million.

We have to adjust that for GDP.

It's just unusual.

I think it's really important to think about it this way, is that it's a thing that first

and foremost requires all of this input in order to happen.

Requires the money, which any capital boom does.

But then it requires energy in order for it to work, as opposed to money creating energy.

It's money creating demand for energy, I guess we could say.

I want to understand how we are powering these data centers right now, and whether the

popular understanding that artificial intelligence is gobbling up electricity that might otherwise

go to consumers, thereby raising the cost of energy for Americans, is a narrative that

you think matches up with the evidence as you see it.

How are we powering these things?

Is it indeed a fact that powering them is driving a energy cost for everybody?

You can hear the sound of a thousand power analysts knuckles cracking, as I sort of

leave in here, and try to do my best.

So I think it's important to step back.

The demand for electricity in the US had a 15 year plateau.

Almost my entire career was at a time when power demand was not growing.

Across the country, the annual total consumption was pretty much flat.

Of course, and it's important to get the groundwork here.

Part of that was like a lot of efficiency.

Weird, and none of it was like, you know, for the lesson and then LED lighting.

A lot of it was a more efficient economy.

A lot of it was to be honest and underperforming economy, I think, for a lot of that time.

I sort of quasi austere economy in the 2010s.

In that context, today's hyperscairers were able to get whatever power they needed from

a system that had ample supply, and their demand was relatively no compared to the total

demand that's there.

Then you have a situation where demand is growing in a second or way.

It's not just data centers.

We did build a lot of new manufacturing capacity, continued moving to the sunbelt, drives

up demand for power for air conditioning and things like that.

You have a little bit of growing baseline and then you've got a lot of this growth on

top coming from AI.

It's like, let me potentially say 4% of US power demand right now coming from that.

It's non-zero and it's growing in a system that's also growing.

It's growing on a growing base.

That means that it's inevitably going to have some interaction with the rest of the system.

This is where things get a little more nuanced, I think, which is that the costs that rate

payers are paying is a function of the fuel inputs or the energy inputs that are providing

the electricity and then the cost of the system itself, the infrastructure and the network.

It is those costs primarily that are going up.

In fact, if you look at the biggest grid in the US over time with the exception of massive

storm events and real energy disruptions, it's like a monotonic function.

The declining cost of the energy that goes into the system.

But the cost of the network is what keeps going up.

When you say network, what are you talking about?

The wires just keep going.

The transmission, so the long distance stuff and the distribution, which is what delivers

power to the end user.

Those costs are going up and those costs are rising faster than the rate of inflation.

Also, that's what you need to build to provide access to a data center or for that matter

of hospital or for that matter of factory or for that matter of stadium, whatever it might

be.

But those are the prices that are going up that are kind of inescapable.

The question is how much of that is intensely local lives in an area where people feel

that either directly or semantically, however you want to say it, in terms of what they're

rated, they're rated as going to be.

I see a $10 billion data center.

I see a billion dollars with a power infrastructure that needs to get built for it.

I see my rates going up.

This is to an extent, there's an element of this that is just an unavoidable math.

There's a lot of nuance underneath it, such as utilities, utilities essentially asking or

forcing data center operators to pay their own way.

They pay for their own power.

They pay for their own infrastructure.

That really does remove that impact on ratepayers, but it doesn't remove the physical substantiation

of this stuff.

People still know that it's there.

They still feel it.

They also feel the fact that new things that are manhattan sized infrastructure projects

are being built in places that previously had very little or any of that kind of infrastructure.

Let me get that you're answer.

It's so complicated, right?

Let me try to make it simple.

We named this show for a reason.

Let me try to make this a little bit more simple.

Let's go.

I think a lot of people believe that energy prices are going up for the quote unquote exciting

reason, which is that AI is the demon and one of the demons' faculties is making everybody

to pay more for energy.

You're telling me no.

Energy is not getting more expensive for the exciting reason.

It's getting more expensive for the boring reason, which is all of those boring little

machines that go into an energy grid, the transformers, the wires, this, the cost of these

machines, the cost of making them, citing them, getting them integrated into the system.

That is what is principally driving up the cost of energy.

Am I right so far about the same thing you said in the previous episode of The Quarantine

and the question, which is why is this happening?

Why is the cost of the wires, the transformer machines?

Why is that going up?

Is that more about it's more expensive to build these things because we can't get enough

of the materials necessary to build them or we can't make enough of the plants that are

necessary to build them?

Or is this a function of citing?

It's harder to actually put these machines, which we can build where they need to go,

whether it's because of FERC or NIMBIASM or something else it has to do with the geographical

distribution of building out the grid.

Okay, so let's talk about transformers first.

You know, the critical thing to get energy between big system, small system.

Those are way up in fundamental costs because tight supply chains, tariffs, low capacity

to actually build and a lot of demand.

There's no wishing that away.

Not a great satisfactory answer, I think, for a lot of people because it seems so like

far away in abstract, but that's true.

Cost of wires goes up because of the material that goes into them, copper, steel, also,

both things that are subject to tariffs.

The cost of labor has gone up.

That's a post-COVID effect on a lot of these things where I am right now at the moment

of California costs go up because there's a need to secure this system against wildfire

impacts.

There's like tens of billions of dollars of spend that has nothing whatsoever to do with

generation of power or with the consumption of it, but entirely that makes sure the system

is as fireproof as possible.

And then there's also the fact that a lot of this was effectively deferred.

If you don't grow for a long time, it's hard to justify a lot of investment.

So there's been some deferred investment that needs to happen now that therefore is

more urgent and is therefore more expensive.

I think this conversation connects to politics.

But now to be an energy populist, the easiest card to play is to say artificial intelligence

is raising energy prices.

We need a moratorium on data center construction.

We need to stop the construction of the machines that are powering artificial intelligence.

What I'm hearing you say, and you're the expert here, I'm not.

I'm just trying to recapitulate accurately.

You're saying that's exciting.

That's an exciting answer for why energy is going up.

The boring and more true answer for why energy is going up isn't that we can't make the

machines that make artificial intelligence is that we can't make the machines that make

energy for consumers and artificial intelligence.

And what a kind of wise populist might try to do here is say, my fellow Americans, you're

right about the cost of energy.

You're right to be upset.

The enemy here is not the data centers.

The enemy is the materials and policies that go into the construction of the transformers

and the wires.

I mean, I'm not sure that's the very, I'm not encouraging anyone at the political level

to pick up this language.

I'm just interested in understanding the landscape as you see it.

Is it fair to say that the politics, the data center moratorium are going after the wrong

culprit for the rise of final energy cost to consumers?

They're going after the most visible, the most easily, the most easily rhetorically

addressed challenge that's out there.

This thing didn't exist and now it does.

It requires a billion dollars worth of infrastructure in my community that will be distributed across

everybody who pays the power rates.

Therefore, I don't like it.

I would argue that the truest possible, strongest possible response is, I believe there was a book

about this, just think about it being abundant.

Would you really need to do is be building more of everything?

You actually need to be providing more capacity faster for everybody in a way that will ensure

the cost come down.

Build more renewable power that will know where the actual energy cost of your energy

builds.

What I did do is much coordinated buying and building of infrastructure as quickly as

you can so that the costs are more easily distributed across everybody who's paying for power.

Do what we're starting to see within the politics of the data center, which is work with the

providers that themselves are sourcing their own power and are paying for their own infrastructure

so that it is not pushed down on the on the rate pair.

But these are all very kind of tactical kinds of solutions, but are they easily expressed

in a political context?

And I appreciate you wanting to have them expressed that way because I think it's really

important.

And everything is, everything is politics when it comes to this.

And when I talk to the data center, the biggest and best of them work, not just hand

in hand with their energy provider, but integral to their process.

They don't exist without each other.

And they're all looking to move as fast as they can while minimizing or completely eliminating

any of the costs that could be passed on to the wider community.

And trying, as far as possible, to get in front of that message where it helps, but it's

a challenging one, I think, to make for a number of reasons.

You've said two things that I want to put set by side.

One thing you said is that a lot of these data centers are trying to go behind the grid,

they're trying to provide their own power, where they are agreeing to provide their own

power to avoid the reality or the perception that they are absorbing electrons that would

otherwise go to cooling the bedroom of a sleeping five-year-old child.

We also have, on the table, the fact that there are more and more politicians from the

left and the right, becoming AI populists and arguing for a moratorium on data center

construction.

Is there a way in which the solution to the data center moratorium moment is for all

of the hyperscalers to essentially say we now promise to provide all of the energy inputs

to our data centers, to guarantee that none of the local consumers are going to be harmed

or affected by the energy that we're supplying?

Is that an answer to the AI populism of the moment to some calling it or is there a way

in which that creates its own problems?

So I could certainly see this kind of approach taking hold at a kind of concerted and consolidated

level.

It definitely happens at local levels all the time, like these are the kinds of things

that people do.

And to go along with them, what other actual positive investment that is outside of this

particular domain can you make?

Are you supporting local emergency services?

Are you supporting local public goods and things like that?

This has long been a part of the tradition, by the way, of building infrastructure everywhere.

If you're making a $10 billion capital commitment, how else can you extend that capability into

supporting a community in other ways?

So certainly the politics of that, I think, are possible to be extended.

But it is something that seems to be, and to my mind, a little bit weird being both

right and left, AI populism at the moment in the US.

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Can we make a prediction here?

I want to understand what you're seeing sort of at the edge of the present.

So no need to go, you know, five years down the road.

I mean, who the hell knows what artificial intelligence is going to look like in five

years.

But where is this going to go in the next, say, 18 months?

I mean, we're going into a midterm.

We're going into a period where both parties are going to have presidential primaries where

I cannot imagine artificial intelligence not being absolutely core to every single televised

debate.

Where do you think this is going to go with regard to data centers, the energy question?

I think it will be sort of what you've already suggested.

I think you will see every bit of effort to get in front of this as a potential issue

and to point as operators to as much positive impact is going to be done.

Like how are you eating a reducing cost, complete you to the consumer and be how are you

going to provide something else to the community as well?

So that's what I would imagine.

That's what I would imagine we see in that next 18 month window.

Of that, there's a lot of more technical stuff that I see coming, but I think in that

window, this is probably where you would see it settling in and shake out.

Moving to the US, I want to talk a little bit about the vibe shifts of the last few years.

I feel like we've gone from a period of maximal ESG investment, tons of money flowing into renewables

and renewable projects and pro renewables venture capital firms.

And that's a lot of that is reversed.

More of fewer mentions of ESG in corporate earnings statements, outflows of investment

income into this general space.

And yet at the same time, solar and battery seemed to be being built.

I mean, if you look at, I think it was Texas that just recently set an all time record

in terms of the share of electricity that's being generated by renewables, famously climate

change obsessed with Texas.

So something is happening here that's kind of interesting where on the one hand, renewable

energy as a vibe seems like it is insignificant decline.

But renewable energy as a material phenomenon seems like it's continuing to move forward.

How are you seeing this picture?

100%.

So if you asked any of my friends associates who develop energy for a business, renewable

clean energy, batteries working, actually, if you go, so please don't make this an ESG

thing for me.

Like, I build stuff.

I'm a chemical engineer, right?

I do trillions of dollars, annually, collectively and annually worth of hard infrastructure

for energizing the world.

And I do it in a way that happens to be lower zero emissions.

ESG is like 50 if on the set of concerns, considerations and inputs for that process.

It's really a thing for certain elements of kind of financial positioning in rhetoric

more than anything else.

And it's weird that we're in a good way that the kind of decline of ESG as this investment

focus or particular driver has had good old to no impact on the deployment of capital

and what I would consider to be environmentally positive assets.

There's a whole bunch of things.

I don't want to, again, given the name of the show, I don't want to say ESG back and

forth without defining it.

This is these are investments or this is a category of capital that is pro environment,

pro social, pro governance.

And what does social and governance mean?

It's up to you.

But it is from my perspective, thought of it's like it is sometimes thought of as goody

two shoes liberal capital.

Well, is that is that a little unfair?

It's what I would say is fair unfair.

What I would say is ininnovatively fraught marriage of things that have nothing to do

with each other.

Like, I'll be more blonde about it.

You can have companies with a great environmental record and okay social record and a very bad

corporate governance record because they have golden share shareholders who control the

board.

Okay.

Why have these things been allied together?

I honestly don't know if I could go back in time and get the foundational document or

a consulting power point that annealed these three things into one I would not define it.

But they have nothing to do with each other to be very clear.

And this is why to my point, like the people that I know who build a lot of these things

like please don't put me in this in this bucket.

Like that's I don't raise capital based on that.

I don't deploy capital based on that.

And I'm not interested in being part of a conversation that has anything to do with any

of that.

And so yeah, I appreciate you making me step back in to kind of disambiguate this stuff

and make it like into these real terms.

But in so doing, I actually find it really, really helpful.

Like one of the things very quickly is in a slide that I used to do in my previous life

when I would do big conferences about this stuff is I would make all the participants

define every acronym.

And if they couldn't immediately do it, then they weren't allowed to talk about it.

Like we have ways of.

That would definitely explain my I never talked about ESG because I had to confess.

I never quite understood what it meant based on the particular audience I was hearing

it from.

But I don't want to move this conversation too far away from your underlying question,

which is this schism between the way renew the vibes recession around renewables, which

seems to be happening at the same time that solar and batteries are still booming in parts

of this country.

So I wonder sort of how you see this gizmo.

Well, these are the lowest cost, quickest to build new ways to add either generation or

capacity for power to the grid.

That's it.

Right?

And like that, that's the simple reason that even in the current administration, the US annual

energy outlook from the government, the energy administration, information administration

says like we're going to have declining fossil fuel burn for power, declining fossil fuel

consumption and transport in every scenario that we can think of in the future.

This is just the math thereof.

And it's funny because the vibes, it's funny.

The vibes are really kind of political while the actual flows and numbers are financial.

I wonder what you think is the biggest energy challenge of the US in 2026 versus in the

next decade.

I mean, there's all sorts of things that are happening at the same time here.

So you've got a wide buffet to choose from.

There's the Iran war.

There's the fact that, and again, this is from your report, global gas turbine manufacturer

capacity as well below current demand.

So this incredible source of energy that we've had for the last few decades, which is natural

gas is having some of its own challenges.

There's the continued challenge to add renewables if Donald Trump has decided that he absolutely

despises wind and from time to time hits solar as well.

I wonder how you would answer this though double barreled question.

The biggest energy challenge for America in 2026 versus the biggest energy challenge

for the next decade.

2026 is very simple when it's one word, it's cost.

You know, like like it's in the abstract we talk about rising costs, but there are, you

know, double digit percentages of US households that report difficulty paying for their power

bill right now.

Right.

And that's that's within economy that is not in a recession.

It's easy to look at scants at people who, you know, bought an F 250 for as they're

daily drive and I might be now paying five gallon, five dollars a gallon for gasoline,

but they have no flexibility in the meantime in terms of what they can do, right?

These costs are passed through instantly and they're the, they're, they are the most

important things for people to pay.

Perhaps besides food, right?

You pay your power bill and you pay your, your, your bill for gasoline because you need

these for transportation and you need them to actually live.

And so like we have an exorbitant privilege in the US relatively speaking, which is we're

not going to have deep molecular shortages based on changes of flows in and out of the

streets of our moves.

But prices for many of these things are set globally and then there's all the other factors

that I mentioned about why costs are going to go up for things like electricity and they're

very real.

And I think there are oftentimes people in more analytical roles that tend to easily dismiss

this because you can, you can math the heck out of it to find ways to save it.

Like we don't spend a lot on this or that of the other.

It's not that big of a deal.

But if you are in lower income, you spend a much higher percentage of your income on energy

and on food and on transportation.

And you cannot wish those away completely as either income changes or as costs go up.

So that's the biggest one I think in the next year is just costs for everybody.

Thinking further ahead, the biggest challenge is deciding what we want to be when we grow

up.

Like what does the system want to be?

Does it want to be big?

Like do we want a power system and an energy system in the US that's 50% bigger than it

is right now?

I would say yes.

Like like go cost abundant and ideally very clean energy is the input to some of the

things that we want to do in the future.

The other question is like how much do we want to be within our own domain?

Like we manufacture that ourselves.

We keep critical stocks and supplies of all of the inputs that we need.

We try insofar as possible to be carbonized as much as we can because that's better for

reducing reducing risks and potential shortfalls.

These are all like big questions that are kind of higher in level than just what engineers

and planners can do.

They're almost like societal questions about how we decide what we're going to be.

And so that's our big challenge I think looking at 10 years.

I want to close by asking you a couple of questions about the automotive industry.

This is a fact from your deck that hopefully people on Spotify and YouTube can look at.

Before COVID China sold hardly any electric vehicles to the world like maybe one or two

million to the world.

In 2026 China is expected to sell more electric vehicles to the world than the US buys vehicles

entire.

So like the Chinese export market will be larger or manufacturing industry will be larger

than the market of American demand for cars.

This is extraordinary and you have all sorts of other charts showing that BYD the largest

EV manufacturer in China has now clearly surpassed Tesla when it comes to global production.

The US auto industry just looks like it's in a ton of trouble.

Is the American car industry kind of doomed?

So actually I think the US auto industry is really challenged by new technology and by

the whips off policy back and forth.

First being told to go well all in on EVs and then being told not to do any of that.

It's also we're also like a weird eyeing in terms of the type of cars that people buy

in the US.

I don't see a lot of people in Vietnam driving F250s.

I just don't.

And while I do see all kinds of pickup trucks, they're not quite the same thing in Thailand

as they are in Texas.

And weirdly I think the US is somewhat more insulated than others, but it's islanded

like it's a smaller and smaller potential share of the global market.

And that's been going up for decades by the way.

The bigger challenge is for everybody else facing down the Chinese auto making and Chinese

auto exports Europe, Southeast Asia, Latin America as well.

And then the related question is like does the US get the chance to take advantage from

a customer and consumer perspective of low cost high quality high performance EVs made

in China in the future?

I see Chinese EVs everywhere in Singapore.

The one is the biggest seller of cars full stop in Singapore.

And they are delightful as a driver, as a consumer.

They are more economical than anything else.

They obviously have to have a lot of infrastructure built around them to go.

But they're an experience for drivers that I think is self evident in so many different

places and in so many different ways that the US is just sort of walled off from at

the moment.

So weirdly, it's the rest of the world that's feeling this impact first, but it has major

implications for like the future of US auto making as an export market.

You know, are we are we are we just making things for this particular island of hours?

So to speak, or are we making things that are fit for the rest of the world?

I think I remember the last time that we spoke, you said, you know, these cars, B Y D and

what's the name of had had you pronounced the name of the other manufacturer that begins

with an X?

Xiaomi.

Xiaomi.

If these cars just absolutely extraordinary and I almost thought when you told me this a

year ago, it's almost like a reverse Gorbachev that rather than like Gorbachev come to

the American grocery stores and say, oh my god, like you have 27,000 different kinds of

cheese and you know, 29 different kinds of Heinz ketchup.

It's it's like that for electric vehicles.

We're like for an American to go to Singapore or maybe some other Pacific Island.

I don't know, China itself Vietnam and be able to experience these B Y Ds and Xiaomi

cars.

It's it's a bounty of EV choice and diversity that maybe they just don't have in the American

market.

And so it might be one of the one of the rare consumer markets in the world where Americans

clearly don't have first class access because first class is just barred by a extra

export import law to be available to American consumers.

I agree 100%.

Like I live in like I this is my nipped experience every day in Southeast Asia that the best

new cars on the road by far are all electric and they're almost entirely Chinese and they're

not coming here anytime soon.

And for American consumers that are that are trying to decide what new car they want to

buy at what price points.

Actually, there are plenty of low cost EVs right now.

They're quite good.

But the the the F for essence, the like, you know, huge volume of these and the styles

and the fit and finish of what you can get go to a shopping mall in China and you will

find a Xiaomi dealership where you customize everything as you do with a Tesla dealership.

But more color ways, more custom treatments, more wheel types, all being done there in

house, all basically on demand and in the vehicle that you can have specced out to Ferrari,

Gavall, driving specifications if you want or at low cost, still like better driving specifications

than almost anything you can get elsewhere.

Do you think it's possible that the next few years the American auto market and the Chinese

auto market might have to converge in a way because if America is making expensive trucks

for Americans, so high profit margin trucks for Americans in order to stay alive as a company

because they can't export the rest of the world.

No one else wants or is buying these F these F 150s.

Whereas in China, you've got these companies, BYD, Xiaomi, who are barely making any profit

as I understand it, like they're working at like the slimmest of all possible margins in

order to eke out advantage and a really, really competitive industry.

Is there a world in which like we just might need some conversions?

These Chinese companies are going to have to raise the price of their cars in order to

actually be profitable enterprises that don't exist because of a circumstance that's drawn

up by the Chinese government.

While at the same time, eventually like Ford and GM have to discover that there is a benefit

to making cars for consumers that don't live in the United States.

Is there a possibility that though right now it seems like the gap between American and

China, like could not be any further, there might have to be a little bit of convergence

within your future.

It really is going to be consumer-gun to my mind.

What's the consumer demand?

And this is to your Gorbachev point, like well, how do we know?

Like I get to see Chinese TV all the time.

If you were to have a Chinese electric vehicle barn storming tour of the United States,

let's imagine that this is the early 20th century all over again and you're basically doing

like whiz-bang demos of these stuff.

It's like a world's fair.

Yeah.

I imagine him as an electric toothbrush.

No, precisely.

Come on.

Look, it's an electric car.

Sit in and do the acceleration test and have it peel the Namel off your teeth.

But then also, see how well it does is the entertainment system check out how easy it is to clip

in a car seat.

How many groceries can you fit in the back?

I think people would be surprised.

The perception in many ways is lagging the reality in terms of what's being built.

And to your point on the Chinese companies, they're basically competing in an auto industry

at Tech Hardware manufacturing margins, right?

At smartphone margins, X Apple and X Samsung.

And that's a tough spot to be in.

And there are dozens of Chinese EV manufacturers, which is also probably not the steady state

in the long run.

We had hundreds of auto manufacturers in the US a century ago.

It Europe had a similar number.

There's a reason that we sort of co-own that's around a smaller number of bigger companies

over time.

So to an extent, I kind of view this as an inevitable shaking out without having to propound

one company or another as like a lightning winner.

At any given moment, some of them seem great, but like the Xiaomi that you mentioned,

those cars, they didn't even exist a couple of years ago, right?

This is like a smartphone and home goods company that is made what is a really lovely car

and driving experience.

Well, Netballard, I always appreciate talking about the world of energy and always appreciate

you making me feel unbelievably jealous about the automotive abundance that you live with

in Singapore.

It sounds tremendous.

It sounds tremendous.

One day we might have it.

Good.

Thank you.

Hey, sweetie.

Your mother showed me this Carvana thing for selling the car.

I'm going to give it a try.

Wish me luck.

Me again.

I put in the license plate.

It gave me an offer.

Unbelievable.

Okay.

I accepted the offer.

They're picking it up Tuesday from the driveway.

I haven't even left my chair.

It's done.

The car's gone.

I'm holding a check.

Anyway, Carvana, give it a whirl.

Love ya.

So good.

You'll want to leave a voicemail about it.

Sell your car today on Carvana.

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