Joe Weisenthal: Hello and welcome to another episode of the OddLots podcast. I'm Joe Weisenthal

Tracy Alloway: and I'm Tracy Aloway. So Tracy, you know, the war in Iran is primarily, at least from a commodity standpoint, being understood as like an oil shock. That's the number that most people are paying attention to.

Joe Weisenthal: That is the headline. Sure.

Tracy Alloway: But as we know from multiple episodes we've already done, it's not just an oil region. And of course, we've been talking about fertilizer in one of our episodes. We did the episode on other sort of dry commodity shipping that's affected by the closure or the almost closure of the street of Hormuz. There's plenty there. It's not just an oil story.

Joe Weisenthal: Yeah. The one silver lining of all of this, I guess, is that we're all becoming commodities, supply chain commodities experts and prochemicals as well. I should just say we're recording this on March 17th cuz who knows what's going to happen by the time this episode comes out. But one of the big headlines today is that Iran has just struck one of the big gas fields in the UAE, which is the Shaw field in the sort of empty quarter area, and it's on fire. So pretty dramatic footage which definitely does tend to concentrate your mind on one particular commodity which is gas.

Tracy Alloway: Well, there's sort of like two dimensions of the supply chain disruption, isn't there? Because there is the fact that for the most part there are very few vessels going through these trade form and people are sort of wondering when will when will that open again, right? But then there's the other question of as you just mentioned there's a lot of damage to core infrastructure of various sorts and so setting aside when the straight opens how badly will the production infrastructure be impaired and how long will that go on that's a sort of separate dimension besides just the passing of the ships

Joe Weisenthal: right and I think nat gas in particular had these sort of geopolitical connotations even before the war with Iran we're all used to thinking about you know big strategic pipelines and thinking about potential disruptions to those. Back when Russia invaded Ukraine, there was obviously a European gas crisis and so everyone's kind of worried about Europe once again.

Tracy Alloway: Yes,

Joe Weisenthal: there's a lot to discuss.

Tracy Alloway: Totally. I saw a headline today also on the train here talking about how like Pakistan is very serious like they have like a month of NAD gas right now and they're heavily dependent on gas from the region. Of course, the fertilizer story as we learned URA downstream from NAD gas etc. Anyway, last year we did our live episode with one of our favorite commodities guests, Bob Brackett. And I recall as we were walking out of the uh theater, I was like, "Bob, we got to have you back on just for like an episode. Let's pick a commodity." And he said, "Let's talk about net. Next time I'm on, let's talk about net gas." And I was like, "All right." [laughter]

Joe Weisenthal: And so,

Tracy Alloway: so it turns out that now is the perfect time for perfect guest.

Joe Weisenthal: The perfect time for the perfect guest. We are going to be speaking with Bob Brackett, managing director and senior research analyst covering North American oil and gas exploration and production and global metals and mining at Bernstein research. So Bob, thank you so much for uh coming back on OLAS.

Bob Brackett: Thanks for having me. Joe, thanks for having me. Tracy,

Tracy Alloway: when I said we should do an episode on one commodity at that time, why did your mind immediately go to Nadas? Why is that the big was that the big story in your mind? So, one, and I've I've told clients this, I am most useful when I am least loved. [laughter]

Bob Brackett: And the problem with being a cyclical commodity analyst is everyone will ask me about whatever is the highest on the screen.

Tracy Alloway: That's the thing that's going to mean revert lower. The money has already been made there. And therefore, you should be looking at the things that no one's really talking about. So I would argue, you know, today Henry Hub, US natural gas, not the LG stuff that's shut in, not other commodities. Henry Hub is unloved.

Joe Weisenthal: Okay.

Tracy Alloway: Sitting at $3 in MCF while we have all of these underlying demand drivers in the US. So it's the forgotten molecule today. The forgotten

Joe Weisenthal: the forgotten molecule. But just broadly though, you were pretty spot on when it came to NAT gas because I remember last year you turned bullish after like 15 years of being bearish, something like that. So I know you're too modest to say that you got that call correct, but directionally things seem to be going your way.

Bob Brackett: Yeah. So I've been at Bernstein covering the energy space, you know, Nion 15, 16 years. And for most of that time we've had these giant disruptions. First, we had shale gas where the entire oil and gas complex was drilling and learning curves of how do you frack gas? How do you get it out? We drove the cost of shale gas down to 350 at MCF. And then shale oil comes along the way and just hands out, you know, gives away the associated gas from oil directed drilling. And so you've had a big chunk of the cost curve that doesn't really care what the price of gas is. It's a byproduct. Waja gas prices go negative at time to time. It doesn't slow down the oil drilling. And then finally, you're starting to see the light where in the same way that the shale oil industry became well behaved kind of in 2018, the shale gas industry and especially the Hannesville shale sitting down there on the border of Louisiana and Texas starts to behave itself. And in a world where you have these really strong structural demand drivers to the upside and you have discipline on the supply side, that's a nice time to come into a sector.

Tracy Alloway: Amazing. Perfect setup. One more sort of setup question. I was sort of thinking about this on the way in. Like when I think about oil, you know, there's various grades of oil and there's various prices, but basically there's one global price of oil and everything trades at a little bit of a spread to that depending a little bit on geography and depending a little bit on grade and light sweet and heavy sour whatever it is. My impression, and tell me if I'm wrong, is that with gas, the story is like there's one type of gas, but there is absolutely not one global market because the exact flip side of oil, the supply chain is just so radically fractured. [snorts] Yeah. If you think about it, a VLCC, very large crude carrier, holds 2 million barrels of oil. And oil today is 100 bucks a barrel. I couldn't have said that three, four weeks ago. And the movement, the cost of moving that halfway across the world's a few bucks a barrel.

Bob Brackett: So for a couple percent, I can take my product, deliver it to you wherever you want,

Tracy Alloway: anywhere.

Bob Brackett: You go to LNG, the cost of getting shale gas out of the Marcelus from 2 miles down and two miles out through these fractures is less than a dollar. Then it's a couple bucks to get it to market Henry Hub through pipelines. If I want to ship it, cost me two and a half bucks to liquefy it. Another buck and a half to put it on a vessel, send it somewhere, and then reg it. And so 80 90% of the cost of gas is in the movement.

Tracy Alloway: Wow.

Bob Brackett: And so in that world, all right, you've got a law of one price for oil, right? Because the relative value of the cargo versus the shipping is trivial. With gas, it's all a game of distance and markets, and therefore there is no one price. Hm. So can you maybe just situate us on Iran's place in the sort of I guess gas complex of the world because you know we think about it as a commodities player but a sort of unreliable commodities player in some respects. You never know what's going to get sanctioned and nat gas as we all know tends to be kind of volatile in and of itself. So what exactly is Iran's role in this particular complex?

Bob Brackett: So we're looking at the largest gas field on the planet and the Qataris call it Northfield and that extends into Iranian territory where it's kind of parsed but you've got something that the numbers get huge but you're we think about a TCF of gas is a huge amount of gas. So think of a LG vessel.

Joe Weisenthal: Yeah.

Bob Brackett: Can hold somewhere the big ones, the QAXes coming out QAR could be six BCF, billion cubic feet.

Joe Weisenthal: A medium one would be four BCF. Got it.

Bob Brackett: And so a TCF would be 250.

Tracy Alloway: Four BCF would be a really good boy band name. [laughter]

Joe Weisenthal: 4 BCF.

Tracy Alloway: Yeah. Sorry. Go ahead. I interrupted.

Bob Brackett: I wouldn't have gone there, but yes. Four BCF. My daughter might be into that. [laughter] Yeah.

Bob Brackett: A good Hannesville well. A good Marcelus well might produce over its life 20 BCF. Okay. It could load four four or five cargos of LNG. So take that times a thousand and that's the scale of the field of Northfield.

Tracy Alloway: Wow.

Bob Brackett: And it's a gas field. It also produces a lot of condensate associated. And so it's a massive money maker. It sits west of the straight of Hormuz, right? And so all of the LNG coming out of the Gulf except Oman is sort of trapped west of the straight of Hormuz.

Joe Weisenthal: Wait, just to be clear, that field is Qatar and Iran. It goes into both.

Bob Brackett: It's giant structure, largest gas structure on the planet. And it's shared geologically, it's shared. Operationally, it's absolutely not shared. But yes,

Joe Weisenthal: operationally it's all

Bob Brackett: operationally the north field what the Qataris call northfield comes back to Qatar gets liquefied there

Joe Weisenthal: loaded ships east out through the straight of Hormuz typically goes to Asia

Tracy Alloway: this is what I was going to ask so again because it's so fractured where is it all Asia like where's that gas going and who's it competing with what's that market

Bob Brackett: so the global LG market's about 500 million tons peranom all and the the units that will kill you we're going to be converting of a million it's the minute it gets on a vessel it becomes a ton for whatever reason

Bob Brackett: and so out of that you know Qar the three powerhouses of LG are Qatar the US and Australia

Bob Brackett: the Qataris have the lowest cost fields the condensate pays for the fields they could get they're never going to they could give away the gas and they sign these really long-term contracts you know around the world but a lot into Asia the US is the other powerhouse it doesn't long-term contract. So, if you went back in time and let's say you're a Japanese utility and you're sitting on an island and you need something to burn to spin a turbine and generate electricity, you're sort of indifferent. I got to bring a vessel in. I could bring a cargo of crude. I got to bring some fuel oil, some diesel or gas. And so, I'm sort of indifferent. I'll pay roughly the same price for all of those. And so, for half a century, we've always had oil linked contracts for LG. So when we think about JKM, they're often linked to a crude cocktail price in Japan. The US comes along and breaks that and says, "You know what? Just pay me TTF. I'll take Henry Hub. I'll buy Henry Hub off of this flooded market in the US. Yeah.

Bob Brackett: Liquify it on the Gulf Coast mostly. I'll send it to where you want and a bunch of merchants will capture that ARB." And so it's a completely different pricing. It's much more of a spot market than these big heavily contracted Qatari volumes. And so now, you know, Asia is running around saying,

Bob Brackett: I got force majour out ofQar. I don't have this. I got to go burn something else. And maybe I'll burn somebody else's LG, but if not, I'll burn coal. I'll burn fuel oil, diesel. I I need electrons.

Tracy Alloway: So speaking of arbing the price, so with so many different pricing benchmarks and now this dislocation, are you seeing any weird like price movements that people are like starting to look at and take advantage of?

Bob Brackett: We're still well under what happened when Russia invaded Ukraine.

Joe Weisenthal: Huh. So certainly Europe prices and we could call them another alphabet soup TTF or NBP but TTF so a price into the Netherlands has not gotten to nearly the levels it did during Russia Ukraine. Some of that is it always felt I remember in in the end of 2021 people were wondering why Europe gas prices were so high and they're like oh those Russians are terrible they don't know how to maintain production and in fact they were just sort of slowly dialing down the gas in order to tighten the market and then you invade in winter February peak demand

Tracy Alloway: right

Joe Weisenthal: you know now we're entering the shoulder season in the spring and in the fall it's beautiful outside in the northern hemisphere and people don't need that same amount of gas and so shoulder season is normally a terrible price for gas. So that sort of helps and what also helps is you know to a certain degree Europe has weaned itself off Russian gas and it feels like it has more options. We'll see how things turn when we get toward the summer.

Joe Weisenthal: Let's talk about you know one of the stories in the US has been the rise of LG exports obviously the export terminals like how much has that scaled up you know today in 2026 how much more are we exporting versus what we were in say 2016 or 2021 prior to the invasion of Ukraine and what is the how much capacity is going to come online in the coming years.

Bob Brackett: Yeah. So if we wound back the clock, there's an interesting historic anecdote that's coming soon. So right now Qar is not selling LNG.

Bob Brackett: However, there is an LG terminal called Golden Pass. It's 30% Exxon, 70% Qar. It sits in Texas. It's loading now. And so in Mar it might be that the next cargo that Qar sells is a Texas cargo, not a Qatari cargo. And that's because this Golden Pass terminal was an import terminal. Right? So if you go back far enough before shale gas, the strategy in the US was the US is going to run out of gas. It's going to get priced off of the price of diesel, right? I'm going to run out of gas. I'm going to have to need electricity. I'm going to go burn diesel. And so everyone had their favorite strategy. I'm going to build an import terminal and I'll bring in Qatari gas or choose your favorite gas and that'll save my energy bill.

Bob Brackett: And then Shell Gas completely destroyed that strategy. But along the way, Exxon Mobile and Qar had this import terminal and they just flipped the switch and said, "Well, instead of being a reg terminal, let's make it an LG terminal."

Bob Brackett: And so that is loading as we speak. It'll start to sell cargos as early as this month. And right now that's Qatar gas's only source of revenue until things get fixed in the Middle East.

Tracy Alloway: So speaking of shale, one of the legacies of the shale boom is that a lot of energy companies got very nervous about overexpansion and ramping up supply in a situation like this. What's your gut check on how fast LG producers can really ramp things up both logistically and then just in terms of their sheer willingness and I guess in in the face of their shareholders.

Bob Brackett: So the gestation period of a shale gas well if you're super quick might be 2 3/4 realistically. The gestational period and of course these aren't gestational periods of an LG facility is four years.

Tracy Alloway: Wow.

Bob Brackett: So if we anniversary what happened four years ago Russia invades Ukraine. What was the theme that started this year? Oh, there's going to be an LG glut in 2026 and 2027 and and many an incorrect analyst hand raised, you know, has written about the approaching LG glut, right? This event has changed that logic.

Bob Brackett: And so the reason there was a glut this year is because four years ago, everyone ran out and said, "I need LG. I need the cavalry. Quick, call the cavalry. How long is it going to take?" Right? Four years. And so the answer is LG facilities once built run full right there's an ability to debottleneck and run above name plate but basically there is no spare capacity to a certain degree we had OPEC with a bit of spare capacity that they released uh in the first second week of the war there is no equivalent on LNG every cargo would have gotten delivered anyway uh so there's no flex in the system and the [music] system takes four years to

Joe Weisenthal: So one of the stories that after Russia's invasion of Ukraine was that well this is going to be a boon to US gas and we're going to ship are we shipping a lot more LG to Europe than we were

Bob Brackett: and so we go back to this phase where golden pass was an import terminal. Yeah.

Bob Brackett: And then we got to think of US overall gas supply demand is about 120 BCF a day. Couple years ago 10% of that would have been LG exports.

Joe Weisenthal: Okay.

Bob Brackett: Today we just we're getting close to 20B it'll be 20%. Wow.

Bob Brackett: And so over the next you know out to 2030 we'll just be adding multiple BCF a day. And so it is the fastest growing part of US gas demand. One of the controversies with export terminals, as you mentioned, not that long ago, we're absolutely swimming in free gas. And there was this concern that, well, if you start exporting it, it raises the domestic price because then you don't have these gluts anymore. Has the rise of LG exports meaningfully raised the price of domestic gas consumption?

Bob Brackett: I wish [laughter] that's as a ENP investor, that's the dream of all ENP investors. You know, we're sitting here entering the shoulder season and Henry Hub's $3. It got to five. It got to six during the winter where the seasonal demand was the highest. There is no strong evidence that that extra 10 going to 20% of the demand wedge has changed price. Right? What changes price is where supply equals demand. And up until now, the supply side's been perfectly willing to hand the market as much gas as the world wants, as the US wants at 350. I think we think that's changed. I think that's changed. I think you know ultimately certainly on shale oil we're approaching a world where oil your shale oil inventory 5 to 10 years from now looks pretty lean. You're starting to see oil and gas companies say, "Well, what do we do in a postshale world, shale oil world, you know, what can we do? We can go international, right?" So, you've got you can go to the Middle East and certainly there are people there looking for shale oil and or conventional oil like the Shaw gas field today. People are looking at M&A, I'll just acquire my partners. Some people are looking at gas. But yeah, there is a sense that it is a it's always been a finite resource. It had been a growing resource and one where this learning curve had taken cost out every year. You know that chapter has kind of passed and now it's a world if you're in a planning cycle of 5 to 10 years and you look out 5 to 10 years, you got to go replace that stuff.

Tracy Alloway: How elastic is demand for something like Nat Gas? Because I'm used to thinking about it as someone with a house in the Northeast as something that I have to buy every year unless I actually get really good at chopping firewood or something like that. But I imagine there must be some marginal source of demand that actually depends on the price.

Bob Brackett: So there's the demand for that which gas gives you which is electricity. And so there's substitution. So one thing to watch is bubbling behind the scenes. Global thermal coal prices are starting to take off. They're up 30% year to date.

Bob Brackett: What happened when Russia invaded Ukraine? Europe bought every LG cargo they could sucked it all the way into Europe. Asia was left saying, "Well, we're short electricity. Let's go burn some more coal. Let's consume more." And so thermal coal prices back in Russia, Ukraine, 300 bucks a ton.

Bob Brackett: You started the year at 100 bucks a ton. We're up to 130. And so there's always going to be there's some demand destruction, but you know, people really like electricity and air conditioning [laughter] and the things that it gives. And so the answer is you'll start to look for certainly coal is an obvious place and then eventually some demand destruction but that's at kind of much higher levels.

Tracy Alloway: Do you have a read on Tracy has mentioned in the beginning setting aside the straight of hormones just pure infrastructure destruction. Do you have a read on like how much sort Qatari production is going to be impaired and the medium to long term here?

Bob Brackett: So, we know LG terminals have a bit of momentum associated with them. And we've got pretty good experience in the Gulf Coast where hurricanes come through, you bring down your LG facility, and you bring it back up. Same with, you know, oil platforms in the Gulf of America, Gulf of Mexico. Hurricane comes through, you shut in, you come back. And so, in general, oil and gas assets are built, they're built for turnarounds, right? They're built to go down and come back up, especially when you can plan ahead. So you'll get whips saws on the order of weeks. And so if this is over in weeks, right, we'll kind of have a a big wedge of a month of chaos that'll filter through the economy.

Bob Brackett: And if it goes on for months and months, it's something like if we talk about the big three LG, the US, Qatar, and Australia, they're kind of each a fifth a fifth a fifth of global supply. So something like 20% of the LG would be knocked out. M

Bob Brackett: and that's needs a lot of coal to replace or a lot of demand destruction.

Joe Weisenthal: So just on this point, I think commodity markets in particular are very used to fading Middle East flare-ups very quickly. Is there any reason to believe that this time is going to be different? You you have, you know, decades of experience in this space. Does it feel different to you?

Bob Brackett: As a geologist and not a geopolitician, right? I'm not sure I'm the perfect guest for that answer.

Bob Brackett: What the market is saying is that we're returning to normal,

Bob Brackett: right? And so and yeah, so the is the market right or wrong.

Bob Brackett: I have a few signposts and so one of the one I'll use oil as an example. [clears throat]

Bob Brackett: When you take the price of oil and you add in the crack spread, right, which is effectively what does the consumer pay for diesel, for gasoline, etc. When the cost of that gets to 7% of global GDP, right, the world says that's too much and you stop using it. And that's where we got in 2022, right? Today, that'd be about a $120 crude, call it about a $60 crack spread. So on my screen, I can show you oil never works a year forward when the cost of oil is 6% of GDP.

Bob Brackett: And so that's kind of that if

Tracy Alloway: where are we right now?

Bob Brackett: So today we're 100 plus 40. So crack spreads around 40. And these things are moving by the minute, but yeah, call it about 140. So we're not quite there, but there would be an exit alarm ringing if we did get to kind of 180 crude plus crack spreads. And then you'd say, I don't need to be a geopolitician. I just know every time this has happened, the global economy has gone blah.

Joe Weisenthal: That's probably geopolitics is a fake field, isn't it? No, I I I don't know about that. I But geology feels sorry. It feel I think geology is more of a science than geopolitics, right?

Bob Brackett: Well,

Joe Weisenthal: anyone can fake being a geopolitical expert.

Bob Brackett: Geology doesn't change when you talk about it, but geopolitics changes when you talk about it. So, the experimenttor influences the experiment.

Tracy Alloway: You know, here's something I've wondered about. You know, obvious again gas that there's not a global market, but with the rise of LG, have global markets become somewhat more correlated over time? Are we trending towards a global price of gas?

Bob Brackett: Yes. And in fact, if you think of the role that Saudi Aramco plays and when they're setting their official selling prices, they will look east and they'll look west and they'll see what are Atlantic basin prices for oil and what are Pacific basin and they're not going to let anybody arb them away, right? So kind of they help set a law of one price. The Qataris that not only are sort of a fifth of LG today but growing, right, serve two markets. They can look east and they can look west. And so the idea would be we used to have JKM and you'd have an LG market over here and you'd have TTF over here. Theari's role in the market is to say no one's going to arm me. We're smarter. We've got more customers than anybody. And they were going to kind of link the price of LG in Europe to the one in Asia. So we have kind of the law of one seabor price of gas.

Tracy Alloway: And then you can compete against that. Then I can say okay if I build an import terminal here and the shipping is this much and the liquefaction and reg is this much I can do this project right

Joe Weisenthal: what's actually going on with Russian LG in Europe because you hear these very different stories one is they're phasing out Russian imports and then the other story is well Russian imports are at a record high

Bob Brackett: if Russian crude is getting a free pass on this conflict then Russian LG will likely get a free pass and so yeah the answer is the longer this conflict takes right if you are a buyer and who are the big buyers of LG right think about Europe and they're buying it for electricity think about Japan Korea Taiwan and China and one of the strategies is diversity of supply is security of supply right that's kind of been a mantra when you look at the various utilities and that's been proven absolutely correct if anyone said well thearis are giving me the best deal I'm going to be 100% linked to them that was a terrible in hindsight choice. And so diversity of supply means Russia has boatloads yeah of gas. They've got pipe loads of gas now. They've got a customer that they're not friendly with anymore. And so their ability to build LNG and eventually, right, the problem with the pipeline uh is it goes from point A to point B. And so it is a a marriage between the person putting stuff in one end of the pipe and the person taking stuff out of the other end. You can't move that pipe. The beauty of LG is you don't have to get married. You can kind of have lots of customers with benefits.

Tracy Alloway: You mentioned that um and I remember these stories after Ukraine after the invasion of Ukraine and Europe going around and trying to buy every LG tanker that it could on the market and that there were poorer countries that essentially just got shut out. What was the next chapter there? What happened? What did they do?

Bob Brackett: Yeah. And so the challenge is there's probably there are two tons of demand for every LG cargo, right? So there are twice as many tons of regas as there are liquefaction. And the way to think about that is a liquefaction terminal costs $1,000 a ton. And the ones in the Gulf Coast are big 10 million tons. So you're spending 10 billion dollar for this terminal. Regals are a tenth of that cost.

Tracy Alloway: So you invest in liquefaction as

Bob Brackett: liquefaction is the way out.

Tracy Alloway: Yep. Exactly.

Tracy Alloway: And reg is the way in. Okay. So the supplier does the liquefaction. Yeah,

Bob Brackett: the buyer does the reg.

Tracy Alloway: So you can build reg terminals as an option, right? So you and therefore there are twice as many options and so when the market is tight,

Bob Brackett: you can have two people fighting for every cargo, which brings us back to the person that pays the most gets it.

Bob Brackett: And then the answer is you need another form of source of electricity and it's developing economies are generally going to have access to coal, right? they'll have coal and power plants and that's going to be their choice, right? So, yeah, the second place in fighting for an LG cargo is to go buy coal.

Joe Weisenthal: I'm going to change the subject slightly. In the grand tradition of us interviewing Bob, I'm just going to throw out a random commodity. So, anyone who came to our live show last year will know we had a segment with Bob where we just had the audience basically throw out random things and Bob knew everyone

Tracy Alloway: and ask him to talk knowledgeably on each of them for 5 minutes. So, I'm going to do the same right now with sulfur and sulfuric acid. And the reason I ask is because, you know, I was in Abu Dhabi for a while and I remember ADNO, the big energy giant over there, striking some offtake deals for its sulfur. And I was very used to thinking of sulfur as a byproduct of crude oil, like this thing that is kind of useless. But to my surprise, it turns out it is in fact very useful because you can make sulfuric acid out of it. And sulfuric acid is needed for things like etching of microchips. So I'm very curious what's happening to sulfur right now.

Bob Brackett: Yeah. So the craziest thing happening to sulfur right now is this sha gas field in UAE is on fire. That gas field, 25% of the gas is H2S, right? This is a they call it a sour gas field. In the old days, if you ever went out to a well site that was H2S, right, Joe would have to shave

Bob Brackett: because the equipment to cover, you need protective gear.

Tracy Alloway: You would have to shave too, right?

Bob Brackett: I'd have to shave, too.

Tracy Alloway: This is the whole oil will kill.

Bob Brackett: It would take you longer to shave than me. And so, you could always see the folks coming back from a sour gas field cuz they'd gone clean shaven. And so, here we have one of the largest sources of H2S. And also, it's about 10% CO2. Hopefully, it's controlled, but that's an environmental huge safety risk, right? So, that's that's worrying.

Bob Brackett: Now, sulfur in general is is not scarce at all. We got sulfur all over the place. This field produces sulfur. Uh you can see if you ever go to western Kazakhstan, the big tangis chevro field, right? Big piles of sulfur. Also, every copper smelter in the world generates sulfur because you'll take a mineral, you'll take something like a calcyite, kind of the the copper version of fool's gold, and it's a copper sulfide. And so, if you ever visited a smelter, you got this big tower where you're in the old days, you just burn off the sulfur dioxide. You make the tower tall enough so that that acid rain spreads across a large area.

Bob Brackett: Or you can capture the sulfur. So around the world today, copper smelters lose money, right? You don't make money running a copper smelter. They call them treatment charges, refining charges. They're kind of zero and they're sometimes negative. So a copper smelter will ring me up as a copper miner and say, "I want your copper concentrate." You can take that copper concentrate and normally you'll get the precious metals out of it. So I'll squeeze all the gold out of your copper ore and I'll make some money or I'll get an efficiency uplift. I'll pay for 95% conversion and I'll squeeze some out. The other product I get is sulfuric acid. So right now copper smelters are looking and saying, "Hey, we're getting a revenue stream off of sulfuric acid."

Bob Brackett: Most sulfur is going to go into agriculture. So if you've, you know, ammonium sulfate, for example, is an explosive, but it's also a great fertilizer. And so for example, if you in Kazakhstan, the leading producer of uranium uses sulfuric acid in the operations. They compete with agriculture. And so when the market is tight sulfuric acid, you might say, "Hey, I got to let the people making food win." So you can have areas where you're short sulfuric acid. We're taking sulfur off of the market. It's pretty abundant and there there will be sources and there are lots and lots of copper smelters that can help convert it. So, we'll find a way. So, it's not clear to me that we've run out of sulfur. I think it's the fifth most abundant element in the crust.

Joe Weisenthal: I love asking Bob just like this. Let's just do this. Um I know you basically know all commodities, but you're not a soft sky, right? Didn't you like caveat that? So, you're not a

Bob Brackett: things that were once lit. Yeah. If it comes from the earth, I'm more comfortable than if it was

Tracy Alloway: right. The things that are grown from the earth. Got it. when we think about particularly the war right now and we we've obviously oil and gas and sulfur are there any what else should we be watching any other weird I think I saw there was a good headline in Bloomberg about zinc prices have surged but anything else going up and to the right these days

Bob Brackett: yeah so if you think about aluminum's one so if you went back to when Russia invaded Ukraine everyone went and said okay what portion of which element does Russia produce and at the time a lot of nickel out of Russia a lot of PGMs platinum group metals and platium. And so people were like, "Oh, we're going to run out of those things." You know, this time around, the Middle East from a mining perspective

Bob Brackett: doesn't mine a lot west of the straits of Hormuz, but they process a lot. So smelters are basically an aluminum. People talk about aluminum as solid electricity. Most of the cost to make aluminum is the electricity to make it

Bob Brackett: in the smelter. And so therefore you put aluminum smelters where you have cheap energy. And so we have some of the certainly in Bahrain we've got these very large aluminum smelters running off cheap local feed stock natural gas. And you've seen aluminum price take off as a result. Zinc smelters are similar not quite as energy intensive. And so to the extent that the Middle East was both a local and a global source of cheap energy and so those that invested locally are seeing some of those consequences.

Tracy Alloway: All those zinc bar tops in danger. Why did that become a thing?

Bob Brackett: Zinc bar top.

Joe Weisenthal: Is this not a thing in America? In London, it used to be like if a bar had a zinc bar top, it was like a thing, right?

Bob Brackett: Oh, it was like a nice classy.

Joe Weisenthal: Yeah. It was Yeah. And I never I never really understood why people were really into zinc bar tops, but maybe we can, you know, start ripping them out and converting them.

Bob Brackett: Yeah, they probably will. Yeah. You know, whether we're talking about domestic American gas or whether we're talking about oil, etc. I'm curious like over the last year since Liberation Day, one of the stories Tracy and I were up in Alaska. We were at a uh little manufacturer of oil country tubular goods and they were talking about you know the fluctuating price of steel and how this was creating all kinds of issues. What has been the effect in terms of domestic energy infrastructure from the tariffs and just the sheer cost of you know building out the infrastructure

Bob Brackett: for the most part energy has been somewhat exempt from the tariffs. So the metal so what did we have? We had aluminum tariffs in the US and we had steel tariffs. We've had this threat of copper tariffs that I think is distorting copper price. The oil patch, the gas patch, the energy patch mostly been left alone.

Joe Weisenthal: Okay,

Bob Brackett: so that flow through of things like the domestic content of steel, right? That's shown up. But yeah, to first order, if you think about how the oil industry set their budgets this year, it wasn't based.

Bob Brackett: It was based on what was the price of oil on their screen when we started the year. Actually related to this, one of the things we heard from the Trump administration coming in was that they were going to be very energy friendly, you know, friendly to all the molecules, whether it's coal or gas or whatever. Have we actually seen policies that have helped those industries? Do people feel good about it right now?

Bob Brackett: I I would argue bombing Iran is a pro-oil price policy.

Bob Brackett: that took a year and a half but ex war domestic policies I guess

Tracy Alloway: there's this tension between you know the fact that you know one of Trump's mantras seems to be low oil price low gasoline price he's extremely sensitive to that and at the same time he's sort of pro the oil industry that's a very narrow path to tread right the oil industry makes money when oil prices are reasonable now now I would argue that a good midcycle price of oil $75 $5, $80, right? And that's where marginal producers can earn a return. We haven't really had that, right? And undisturbed. We haven't had that since Trump took office or much before. We've been bouncing, you know, below 75. We've had a glut. The shale industry has been remarkably resilient, right, amidst $60 oil. We haven't seen shale oil give up very much. and OPEC has been adding barrels to the market amidst kind of tepid demand. So we've kind of been under midcycle prices for oil through most of the Trump administration. You know, Biden post the solution in Russia Ukraine. So yeah, there is no policy. So the question is how do you get somebody to drill more in Texas? And you know, first and foremost, it's the returns, right? So clarity of policy, permitting has improved. You'll hear folks in the oil patch say right some of the the time you would spend to get things approved permitted has improved but that hasn't changed right the input which is how many rigs are running how many horizontal rigs you know how many frack spreads are out there

Joe Weisenthal: one of the big themes you know of the last several years kind of since we've been doing the podcast but really since co has been one thing after another that encourages basically every country in the world to think about sovereignty resource security and so forth And so obviously co major impetus to like make sure you have stuff then the trade war then Ukraine now that war in Iran etc. Like big structurally when you think about I guess the last six years now are we going to be living with the ramifications of this six-year period for years in terms of global commodity markets.

Bob Brackett: So if you went back to the first world, second world, you had the west and you had the Soviet Union and you had sort of two complete supply chains of all the commodities, right? There were Soviet smelters and there were Western smelters and there was just a lot of redundant capacity. Yeah. Then you sort of got into the '9s and you had the collapse of the Soviet Union and you had at the same time that China rose, you were lucky enough. So the China super cycle, the China demand super cycle came at a point in time where you had all of this excess capacity undermanaged, right? So all you needed was a bit of capitalism applied to Soviet assets and that was sort of the only reason China could feed on consuming half of the world's copper and half of the world's steel and half of the world's etc. Now we're almost flipping that and we'll say, well, you know what? Uh, China has a bunch of rare earth processing, but now Japan and Malaysia will have it. Now the US is going to have it. And people, you know, tariffs on copper. Well, the US needs to be self-sufficient in copper. So, we're entering sort of this long cycle of globalization where are we going to recapitalize the glo this the end of globalization? Are we going to go out and build two smelters in or five or however we're going to divide the planet? Right.

Joe Weisenthal: It's very capital intensive. It's inefficient. It would be powerful for it's inflationary.

Bob Brackett: Yeah.

Joe Weisenthal: And then someday in the next cycle we release it all. Right. So

Bob Brackett: yeah. So that's again a geopolitician's view like is globalization over?

Joe Weisenthal: If if [snorts] a geopolitician convinces you of that

Bob Brackett: then there's going to be a lot of asset investment economy.

Tracy Alloway: All right. I have one last tiny question. Tracy's going to love it. Do you watch Land Man? I have watched I tend to binge watch when I get a chance. So I binge watched the first season. I have not binge watched the second.

Joe Weisenthal: Does it feel realistic to you? Is that a

Bob Brackett: My lived experience uh has you know very little

Joe Weisenthal: Okay.

Bob Brackett: to Yeah. versus Land Man.

Tracy Alloway: I would just like to say a significant portion of my life right now is listening to Joe talk about

Joe Weisenthal: obsessed with the show. I love Land Man so much. Anyway,

Bob Brackett: Bob,

Joe Weisenthal: Land Man is the the Moby Dick of our times.

Joe Weisenthal: [laughter]

Tracy Alloway: Bob Brackett, thank you so much for uh coming back on Opt. Always a a true a true pleasure. Thank you so much,

Bob Brackett: Joe. Thanks, Tracy.

Joe Weisenthal: Thanks so much, Bob. That was great as always.

Tracy Alloway: Yeah.

Joe Weisenthal: God, I love talking to Bob so much. One thing um with a lot of energy episodes is that and I've mentioned it, we both mention it, energy math is not intuitive to me, you know, like I have a very hard time conceptualizing like what is a billion cubic feet or whatever, but it in that gas, especially with all the conversions that happen between the liquefaction, it's like I find it really hard.

Tracy Alloway: It's really hard. No, I sympathize. I was one of those like toddlers that was trying to stick like triangle pieces into round holes. I've always struggled to sort of visualize shapes and sizes. So, absolutely.

Joe Weisenthal: We're word cells and we're not shap.

Tracy Alloway: Yeah, that's exactly it. But there was a bunch of stuff that stood out from that episode. One thing I should just clarify cuz I don't mean to make light of, you know, I asked about the Trump administration being energy friendly to domestic US energy producers and Bob was like, well, the war is very friendly. And I kind of waved it off like it is a huge giveaway to US energy. And you know like Isabella Vber another great OddLots guest had a paper about like where the value of these higher oil prices actually flows to and it's all the US energy companies.

Joe Weisenthal: Trump said it himself. He said it in one of his truth social posts something like that. He's like we're actually going to make more money. You know cuz most people are not oil producers. most people are oil consumers and so people are not happy that gas prices but he like sort of spun it. He's oh look we're going to make a lot of money because we're net oil exporter and energy exporter now between LG and crude. So yes, clearly domestic energy has benefited obviously benefiting, you know, quite a wave that it's riding because obviously the demand for LG after the invasion of Ukraine that just that's a very big story.

Tracy Alloway: Yeah. And I also think this brings us back to the episode we recorded on the impact of the straight of Hormuz closure on China's economy

Joe Weisenthal: and this idea that well the more disruptions to commodity supply you have like this the more you have governments sort of worried about

Joe Weisenthal: choke points materializing the more you're going to see a hastened shift to renewables that might be like more immune from these types of disruptions. I hadn't appreciated at all until Bob said it at the very end that you know like when we think of the early 2000s you know the the commodity super cycle driven by China but that for the first several years of China Chinese opening up they really benefited from the fact that there was just a glut of capacity that the combining of global which I hadn't really thought about at all that is like from an economic perspective there was a lot of capacity to supply China with raw commodities particularly in the mid '90s simply due to the fact that you know as he said apply a little bit of capitalism to those Soviet assets and suddenly you have a lot of production brought online. The '9s were a special time. Everything was just working out.

Tracy Alloway: Peak humanity.

Joe Weisenthal: Peak humanity. I really believe so.

Tracy Alloway: All right. Should we leave it there?

Joe Weisenthal: Let's leave it there.

Tracy Alloway: This has been another episode of the Odd Thoughts podcast. I'm Tracy Aloway. You can follow me at Traceeway. [music]

Joe Weisenthal: And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers Carmen Rodriguez at Kerman Dashel Bennett at D-Bot and Kalebrooks at Kalebrooks. [music] And for more OddLotss content, go to bloomberg.com/odlots.

Joe Weisenthal: We have a daily newsletter on all of our episodes. And you can chat about all of these topics 247 in our [music] Discord, discord.gg/odlots.

Tracy Alloway: And if you enjoy OddLots, if you like [music] it when we get Bob Brackett on to answer random commodity questions, then please leave us a positive review on your favorite podcast platform. [music] And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely [music] adree. All you need to do is find the Bloomberg channel on Apple Podcast and follow the instructions there. Thanks for listening.

Joe Weisenthal: Yeah. [music]