011: Chevron-Microsoft Power Deal, Latin America Exploration Spend, US LNG Flows, AI's Energy Appetite

This is Behind the Data, where I take you behind the energy market analysis I'm publishing online.

Before getting into this week's posts, a quick note: I'm running a market research project on downhole inspection solutions, specifically acoustic devices used for perforation erosion evaluation and well integrity checks. If you work with these tools, I'd love a 15-minute conversation. Reach out on LinkedIn or at jeff.krimmel@krimmelsg.com.

I open with a new LinkedIn poll asking which upstream producer steps into power supply next, prompted by Chevron's 20-year deal to deliver power directly to a Microsoft data center with no utility in between.

From there I cover the results of last week's poll on where incremental oil and gas exploration spend will land. Latin America won by a wide margin, likely reflecting the momentum building around Guyana, Vaca Muerta, and offshore Brazil.

Next I get into my latest paid research post at Foundations of Energy on where US LNG is actually flowing, driven by two questions: how much of it Europe is really absorbing, and what happens to Qatari LNG capacity as facilities recover from war damage.

I close with a post on how AI changes the economy from the consumption side rather than the production side. We end up swapping the demand for housing and food that comes from adding people for the demand for electricity, construction, and water that comes from adding AI.

If you want to get in touch, find me on LinkedIn. My DMs are open. You can also visit krimmelsg.com to learn more about my work.

And if you're interested in my energy community and cohort-based programs, visit krimmelsg.com/energy-boardroom.

Transcript

SPEAKER_00 0:00

Welcome to Behind the Data. I'm Jeff Kremmel, founder of Crimel Strategy Group. Each week I take you behind the energy market analysis that I'm publishing online. What surprised me, what I left out, and what I'm still thinking about. Let's get into it. The first thing that I want to talk about this week is a market research project that I continue to work on that's focused on downhole inspection solutions. And I'm looking specifically to talk with folks who use these downhole inspection solutions. Some of the most common applications are uh, say, perforation erosion evaluation. We also get downhole casing or well integrity inspection that shows up a lot in this space. If you're someone that has familiarity with using acoustic devices for downhole inspection, I would love to talk with you. Just a simple 15-minute Zoom conversation would be great. If you could either reach out to me on LinkedIn, uh send me a direct message there, they're wide open, or you can just send me an email at jeff.crimal at crimelsg.com. Uh it'd be great. I'd love to be able to talk with you. With that out of the way, let's get to my first post that I want to talk about, which was my brand new LinkedIn poll. And there I'm asking which upstream oil and gas producer is next going to step into actual power supply. And I asked that with uh the motivation of the recent announcement from Chevron and Microsoft. They signed a 20-year deal where Chevron is going to make the power available for a co-located data center that Microsoft's going to operate. So we have a case where you have a gas producer that now is stepping into the actual power production process, and they are going to make power available directly to the hyperscaler that is going to run the data center there. This is different than deals we've seen in the past where gas producers have signed up to supply gas to a power producer. That power producer then produces the power that feeds a data center. In this case, Chevron is stepping in and doing all of the from producing the gas through generating and delivering the power that goes directly into the data center. There is no middleman in this scenario. And they're doing it through a wholly owned subsidiary, but still it's an um Chevron endeavor. And that's a new degree of acumen that's involved in generating and delivering power. There's new supply chain elements involved in trying to procure the turbines that you would use to generate all this power. And so I'm really curious to hear from everyone now that we've seen at least Chevron having the appetite of generating this power directly, who else would be that you would imagine would be involved in this? And I'm asking this poll not just for the general curiosity of uh kind of the parlor game element of might it be Exxon, might it be some other major, might it be an independent ENP. I also have an option for there, there will be no announcement. This is truly a one-off thing that Chevron is gambling with that we wouldn't expect any other gas producer to gamble in the same way with. That's a perfectly fine response. So not only am I interested in just people's broad-based read of what might be next here, there's also a profound corporate strategy question that we're asking around the oil and gas domain that we have on the oil side real questions about where global oil demand goes from here. It continues to grow, but for how long and to what extent? And once it does plateau, how long does it stay in a flattish regime versus rolling over and starting to fall? We don't have the same demand concern on the gas side. There's just not as many open questions. It looks like gas demand continues to grow for the foreseeable future. Uh, and so there is this land grab, this rush into the world of natural gas that if you've played in hydrocarbons in the past and you want a plausible growth story going into the future, then you want to connect into the gas side as thoroughly as you can. And then a natural question becomes okay, it's that the gas is an important component, but in a world that is increasingly electrifying, where the AI data center element is front and center, but we're electrifying across the board. We're electrifying light duty transport, we're electrifying uh various industrial processes. It's quite clear that we get efficiency gains through electrification that we don't get when we burn hydrocarbons uh directly. So at least when we talk about the electricity that we might gain through renewables or through nuclear power, there's there's these other um elements where we can uh gain some efficiency advantages uh outside of uh fossil fuels. With fossil fuels, you have the gains around dispatchability and availability, and so each of these technologies brings a different advantage, but it's clear why the world wants to steer more toward uh electrification. And so then the question becomes how much uh appetite do gas producers have for entering this world of power generation? And you now have to generate the power, but you have to deliver it. You make it a lot easier to deliver it when you co-locate the power plant with the data center or with whatever uh industrial load we happen to be talking about. But again, this is a different uh degree of acumen. There's different supply chain considerations, there's different uh capital obligations that are involved here. Uh and I personally am quite curious to see how oil and gas producers want to play that element of the game. So we have the long uh duration agreement signed between Chevron and Microsoft. And now my personal question is who's next? So I put together a LinkedIn poll. If um you get on LinkedIn, please go find that poll and cast a vote. The the more uh results, the more votes that get cast, uh the more robust the results are on the back end. And so just selfishly, I like to be able to uh share even more robust results. And um, when you go cast your vote, you can see how everyone else has already voted, and then I'll write a recap summary post that I'll share uh next week at some point. So I definitely encourage you to find that that post and cast a vote there. My next post was a uh the results of the previous week's poll. And the previous week's poll was uh where I talked about how there is an increasing appetite and awareness around the need to explore for added oil and gas reserves. That uh we are as demand continues to grow, we're consuming more oil and gas by the day. The industry has uh really ramped down aggressively on exploration spend over the last 10 to 15 years. And now that there really is no um uh end to the growth story when it comes to oil and gas demand, at least here in the next five to ten years on the oil side, uh, and with gas demand should continue to grow far beyond that, there's a realization that we will probably need to go explore for more resources. We can't just produce, uh we can't rely just on producing what we already have access to. We'll have to go explore for more. And if there is an actual capital outlay that follows all this conversation, then where will these incremental exploration dollars go? Specifically, I asked in the poll, which region of the world is going to capture an outsized share of this incremental uh exploration spend. So we're imagining a case where not only is the world exploring more, there's more capital being deployed in that direction, but we're also imagining that this these exploration dollars will not map evenly onto the existing reserves and production profiles that exist around the world. There will be some disproportionate spend. We would expect more activity, more exploration activity to land in one place as opposed to uh any other place. Where would that one place be? The results of the poll was overwhelmingly Latin America, which presumably that people are thinking through Guyana, they're thinking through Vivaca Muerta, they're thinking through the opportunities that exist uh offshore Brazil. Uh and so I I asked that that question because, and in part because I was curious to see, okay, how much where are people thinking about where these exploration dollars go if they really do manifest? So putting the poll together sort of encouraged folks to take the next step, which is let's just not talk about the in general the high-level attractiveness of hypothetical exploration. But now, if you actually have to deploy those dollars geographically, where do they go? It just makes it a little more real, um, a little more tangible. And and then the results element of it was very interesting to get a sense of how people are thinking through these geographical distributions. And while I expected the results to be concentrated, you know, and it I I could have made a case for for any one domain. I'm I'm writing from the US, so uh, you know, there's a natural proximity that exists to the Gulf of America here that people could have steered themselves toward. There's um real interesting frontier work being done uh in and around Africa, and so maybe that would have showed up. The the concentration of Latin America was really interesting. It jives with the story that we're hearing. Uh, there's a lot I just see and hear a lot more conversation about Vaca Moretta specifically than I have in the past. So I think there's real optimism growing there and there's real momentum building there, and that could have manifested in the poll results that I had. But it's I I really enjoy uh putting together these LinkedIn polls. It's probably maybe over the past four or five weeks that I've started to uh introduce a new poll each week and then write a summary post the following week. I just have the polls live for one week duration. So the following week I can write about what we learned from the community based on their responses to this poll. I like the polls because, again, they they make some of these hypothetical conversations a little more tangible. It enrolls more people in these hypothetical conversations. I am a big trivia guy. I'm a big um mental models guy. Uh and so uh having those conversations one-on-one is is a lot of fun, and I can have those with uh energy executives, and I can have them with investors and um different people across the energy value chain, whether it's producers or people broadly in the in the service community or in the midstream or downstream space. And those are all fun as one-off conversations. It can make coffees, lunches, happy hours that much more fun to really tease out where we're thinking through um these new uh possibilities and opportunities that inevitably always exist in the industry. The polls are fun because we can centralize a lot of that, pull a lot of people into uh one central conversation, and then I can use some of these polls when I'm having private conversations with folks. Uh, if they had seen the poll to run through, get some more color on their perspective on the back end. So any of these, it's kind of like you know, the card games where if you sit across from someone and you want conversation starters, uh, you know, different questions you can ask to uh learn about how you think through different scenarios in life. I I use the polls similarly, and um the one last week with the um where we should expect exploration spin to get deployed was a lot of fun in that way. Another post that I wrote about was my most recent research post at Foundations of Energy. So Foundations of Energy is my Substack publication, and I run my free weekly newsletter through Foundations of Energy. So if you want to just see a roundup of what I've posted on LinkedIn, and I also share an original anecdote in the free weekly newsletter that I don't share anywhere else. So even if people seen everything that I've shared online, they'll still have something new to read in that free weekly newsletter that I uh distribute through Foundations of Energy. Foundations of Energy also has a paid tier, and that's where I put my research posts. So these are more deeply researched, they have data and visualizations, and um I speculate a bit more in these posts about what the future may hold. There's more uh granularity in the outlooks that I'm offering and the uh circumstances that I'm debating, considering as we should think through how these energy systems evolve. I package all of that into uh the research posts that I share in the paid tier at Foundations of Energy. My most recent post in that paid tier at Foundations of Energy was about where LNG flows are actually going. And here on the podcast, I don't so much summarize any of these posts. The point of this podcast is more why am I writing what I'm writing about, what what challenged me or surprised me or what next steps am I considering having done the research that I've done. The real motivation for where the US LNG post um, where LNG is actually going for that research post was twofold. One is we're hearing a ton of conversation about how much US LNG Europe is absorbing specifically. So that was a main motivation why I wanted to, let's just unpack the data and go through it and really understand how much US LNG is actually going to um Europe versus South America or Africa or Asia Pacific. And so that was a point of the post, and I covered that pretty thoroughly in the meat of that post. The other motivation was what's going to happen to Qatari LNG exports? We see how sanguine speculators are on the oil side, with oil prices uh having retreated all the way down to where they were before um the war started, even though we now have a brand new regime in uh Iran. Well, it's not regime, but a new leadership generation within the same regime that we have. So we have new leaders in place that um may uh assess geopolitics differently than the historical leaders would have had. We had a 36-year run with a single supreme leader that now has been broken, and so we have a new supreme leader, and uh there's uncertainty about what that might mean for the geopolitics. We have continued restrictions and flows coming out of the Strait of Hormuz. We have damage in uh the greater Middle East area of different infrastructures been hit by missiles, and what does the recovery pathway look like there? There's just a lot of uncertainty, a lot of um change. We we were entering the the war with a profound surplus. Now we've had historical draws on uh inventories, and yet oil markets have snapped back to the same pricing that we had going into the war, which tells you that speculators really expect a smooth and abrupt recovery back to pre-war production levels. We should not expect any sort of problems to materialize as a result of having an exceptionally thin cushion on the inventory side relative to what we had entering the war. That there's just a lot of calm and trust that these markets uh operate very smoothly and return to normalcy very quickly from here. On the gas side, though, that it's different because we have this LNG mechanism that ends up connecting these different global uh gas markets. And so we're curious now what happens with Qatari LNG specifically. Um that we've heard there was damage going on. The the Qatari leadership said it was going to take years to repair all the damage that exists there. Um it'll take weeks, if not months, for all the facilities to come back online thoroughly since we've exhausted storage levels. The the vessels were trapped in the goal for a long period of time. And so, how quickly do these flows start to normalize? And where does Qatari LNG capacity go? And where do we see those vessels flow? All of that was a big motivation for why I wanted to unpack what's really happening to US LNG right now, and that's the reason that I covered that portion of things. The last uh post that I want to talk about was I wrote a post about how AI is changing the economy, where I focused on how AI, what exactly AI consumes. Because when we think in the past about how do you add more cognitive capacity to an economy, one path is you can add more people to that economy. The other path is you can add AI into that economy. And those come with all the implications that we know through the debates with what's AI going to do with jobs and what does that mean for people. Very important conversations and conversations that are well uh trafficked at this point. I wanted to flip it on its head a bit and talk about, okay, then we can add uh cognitive capacity through either of those channels. But what happens based on the consumption that changes? When you add new people to an economy, you now get demand for housing and food and clothing and education and transportation. When you add new AIs to an economy, you get more demand for electricity and uh construction and maintenance and water. Uh so the demand profile, the consumption profile of the economy changes materially, even though what you're just trying to add is this cognitive capacity that you can steer in all kinds of directions. All people can specialize in all sorts of things, AI can specialize in all sorts of things, but the consumption side on the back end uh changes materially. And as we add more and more AI, as these powers grow, we add more of them to the economy, the consumption profile of the economy changes dramatically. So even though we can talk about a wave of AI demand right now and this wave of data center construction efforts, this is something that's structural. So, yes, we do have a wave that's going on, and we can debate about whether there's a near-term bubble that's happening. The economy is structurally shifting. As more and more AIs come, more and more of the productivity uh will be weighted toward these AIs, that means more of the consumption pattern will be levered toward these AIs. And so we should expect our economy to be much more energy intensive and much more water intensive and much more maintenance intensive, industrial maintenance intensive, than we've had in the past. And that's part of the reasons that uh a lot of investors and executives are bullish around the broader energy and industrial domain. So I wrote that post thinking more about the consumption side of the AI story rather than the production side of the AI story, because I hear a lot of the production conversation, less so about the consumption. When we do hear about the consumption, it's real near-term um considerations. And so I wanted to talk about the long-term implications that we should expect as a result of AI having a very different consumption profile than humans do. Uh, thanks a bunch, as always, for listening to the episode. If you want to get in touch, uh find me on LinkedIn. Open DMs there, easy to get a hold of there. You can also visit criminalsg.com. That's the KSG website. You can learn more about what I do. You can contact me directly through the site. Again, thanks a bunch for listening, and I'll see you in the next episode.