Breanne Dougherty (00:06):
Welcome everyone. To this episode of Energy Sense, a podcast where we discuss topics at the intersection of the energy and financial sectors. I have the pleasure today of co-hosting with the ever engaging Hill Vaden. Hill as always. Good to hear your voice.

Hill Vaden (00:20):
Good to hear you and see you, Breanne.

Breanne Dougherty (00:23):
Thank you. And today we're also very lucky to have Ed Kelly and Michael Stoppard with us. They are two of S&P Globals, esteemed gas experts, and we welcome you both to the podcast. I think this is both of your first times with us. Isn't that right Ed and Michael?

Michael Stoppard (00:36):
First time on the podcast. Great to join you Breanne. Looking forward to it, this is Michael.

Ed Kelly (00:41):
This is Ed, first time as well. Thank you very much for having me.

Breanne Dougherty (00:45):
Well, it's going to be an exciting that 35 minutes ahead. So let's see where this takes us. I'm going to dive right in and it's been a pretty interesting, I'd say six weeks after a very quiet Q1 and Q2, which let's be all honest. It was rightfully quiet given all the implications of COVID-19 and the global turmoil that that came off of that. But over the last few weeks, there's been a string of energy deals announced. And it has me wondering actually, if any of these are just one off deals or if we're starting to see some emerging energy investment trends. And of particular note, I think it was interesting that we saw two, $10 billion infrastructure deals done in the gas world. One at the end of June and the other one at the beginning of July. And really is this a bit of an infrastructure frenzy that's emerging?

Breanne Dougherty (01:33):
Is this a trend that we should be watching or were these just totally isolated, opportunistic strategic transactions? For those of you that maybe didn't catch these transactions on June 23rd, a consortium comprising global infrastructure partners, Brookfield Asset Management, Singapore Sovereign Wealth Fund, GIC, Ontario Teacher's Pension Plan and NH Investment Securities, as well as [inaudible 00:01:58], I brutalized that. Which consists is the consortium. They collectively acquired 49% stake in ADNOC gas pipeline assets, which is a newly formed subsidiary in Abu Dhabi, Abu Dhabi's National Oil Company. So that was one deal.

Breanne Dougherty (02:11):
And then just a couple of weeks later on July 5th, Berkshire Hathaway Energy acquired substantially all of Dominion Gas' transmission, and storage segment assets here in the US. So that deal included actually a cost consideration, approximately 4 billion and the assumption of 5.7 billion of debt. So those are two pretty significant deals, again, amounting to just about $10 billion each. And obviously there were some regional diversity there with one being done in the Middle East and the other one in the US. Hill were you as surprised as me to see these two substantial gas infrastructure deals be the first out of the gate, post COVID?

Hill Vaden (02:47):
Yeah, Breanne I was. You and I have spoken a couple times this year about investors kind of general focus on ESP as a priority and hesitation by many to increase exposure to fossil fuels or really anything related to fossil fuels. So, these big investments certainly caught me off guard. And obviously anything from Warren Buffet, which is I suppose, all of our attention and his track was his track record as a valued investor, often leaves many thinking, "What did I miss?" When they look at these type of deals in hindsight. And, "Why didn't I think of that?" So, as a place to start, and if we look at Buffet's, Berkshire Hathaway, that they're already, very well exposed to energy. So, this is not a new space for Buffet or Berkshire. What would you say in today's environment, whether that be fossil fuels, politics, whatever, what is so attractive about pipelines and storage to lead, for him to come and come out of the gate with this. This is really his first big deal in quite some time kind of putting the OXY financing to the side.

Ed Kelly (03:57):
A couple of layers to that. Hill thank you. One is that they are exposed specifically to gas transmission and storage in a material way as Berkshire Hathaway through the ownership of assets and operation of assets, especially in the Western US. This is a familiar space they've earned solid returns off of this familiar space over time because the regulatory circumstance in the US is fairly favorable. You don't have to go in for sequential rate cases the way you used to. The scrutiny on rates is a bit less, the ability to hide returns, therefore, a bit more. The ability to earn those returns on a steady basis, a bit more.

Ed Kelly (04:36):
Secondly, I think he sees legitimately a valued migration to existing storage and transmission assets across state lines. You know, given the shot across the bow that the Atlantic Coast Pipeline cancellation was, and for Dominion to do that at the same time that it's disposing of its gas transmission and storage assets, I think speaks to the growing difficulty of building something new in this space. I think there's a generation left, even in our global energy scenarios, gas still has a role to play in our most environmentally sensitive scenarios. It does not go completely away, existing assets under a favorable regulatory regime in difficult environments to build new assets, have the possibility of throwing off favorable returns for many years to come.

Michael Stoppard (05:29):
So do you think the focus, kind of as a followup to that, that these have been existing pipelines, is that going to be the focus of deals or is there opportunity for investors on Greenfield projects? Whether that be the [inaudible 00:05:43].

Ed Kelly (05:44):
I think Greenfield projects that cross state boundaries under subject to federal regulation on the environmental front have to be considered increasingly vulnerable. Now as an investor in such a thing, I think you have prepare yourself for increasingly intense intervention in your permitting process, and just understand that the timing is uncertain. The route, the establishment of a route may be uncertain. So once you cross that state boundary and you're subject to federal regulatory processes, I think there is greater uncertainty. I don't see that going away necessarily anytime soon. Now, within States and in certain circumstances, there are Greenfield opportunities.

Ed Kelly (06:29):
There were probably 15 billion plus or minus investments going on right now within the state of Texas across the state of Louisiana, from Oklahoma, South getting the gas to the shore, and are getting the plentiful gas inland to the shore. A little bit down to Mexico still, obviously supplying LNG facility. So there exists pockets of opportunity or build still across those state boundaries. And you've got significantly more uncertainty. This isn't a new thing. It's been a number of years developing, but the ACP cancellation really woke everyone up to it. I think the degree of uncertainty that does really exist.

Breanne Dougherty (07:11):
What about the storage component to this? So, I mean, it's been a long time where storage is, let's be honest, fallen out of favor because since Shale gas and the Shale gas revolution, we just really haven't had the spreads to support storage. And so nobody's really been building new storage, but this also had a storage component. Was that just a bolt-on because in order to get the deal done, it was just kind of thrown in with the rest of the assets, or do we think that there's actually going to be a resurgence in some interest in storage given how given the conditions the markets in or where we see the conditions moving?

Ed Kelly (07:46):
I've been looking for that resurgence of interest in storage for close to 20 years I think.

Breanne Dougherty (07:51):
I feel like we were talking about it for 15 years.

Ed Kelly (07:55):
I think so. That said it depends on the price.

Breanne Dougherty (07:59):
Right.

Ed Kelly (07:59):
And Buffet is as good as anyone in the world at discovering that value. These are existing assets some of them they're older assets. These are some of the original gas storage assets in the North American grid. So there is an older operational component to some of these assets, but nevertheless, it is value over time in what may become a constrained area. And our own outlook is that new pipe out of Appalachia is going to be very difficult to get built. So you've got what may become a constrained producing basin, which probably is subject to greater seasonal variance, therefore, as off peak, there's a surplus, wide differentials to Henry Hub.

Ed Kelly (08:48):
On peak, less of a surplus or no surplus, narrow differentials to the Henry Hub, so seasonal spreads could be increasing very significantly. We also think there's going to be some catch up in the overall Henry Hub market over the next couple of years as production declines while demand continues to grow over the next couple of years. So we're going to have to see some increase in the Henry Hub price itself, I think over time value migrates toward that storage as well. So this is a longterm value play and potentially a shrewd one.

Breanne Dougherty (09:24):
So it really sounds, I mean, let's be honest. It sounds like from a pipe situation, it's high utilization is a big part of the support to this type of investment theme. And then the potential for a rise in volatility kind of supports the storage narrative that is also added into this deal. When I think about those two reasonings, I have to assume that it's sort of the same reasoning that was behind the consortium, getting involved with the 49% stake in the ADNOC gas pipeline assets. Do you think that's fair, Michael? Or do you think that there's other motivations driving that particular deal in the Middle East?

Michael Stoppard (09:59):
Well, it really is striking isn't it to be able to raise $10 billion in this difficult environment outside the OECD. I mean, that's the importance of the significance and then to value those assets at $20 billion for the entire thing, because it was 10 billion to the 49% share. And it shows, first of all, the attraction or the strength of those secure cash flows, or what perceived to be, what appears to be a very secure longterm cashflow and that's attractive. So you've got to congratulate the authorities and their advisors on structuring the deal in such a way that it made sense. Made sense both for the financial investors or financial assets, but also interesting to see one industry player also in the consortium. So making sense both for those with an industrial mindset and with a more pure financial mindset. That was one of the things that interested me on the deal.

Breanne Dougherty (10:58):
And I was surprised to see some of the names on the consortium that were there. Most, I won't say most actually, some of which were predominantly, always North American focus in any of their energy investments. I mean, the majority of them have had great exposure to energy for the past. So it's not that this was entirely out of pocket for them. And some of them obviously were our big players on the infrastructure front, infrastructure investment front, but it did seem for some of these investors that came in the regional diversity angle was also very much at play. Were you surprised to see some of these actors who aren't necessarily present or traditionally present in places like the Middle East?

Michael Stoppard (11:37):
I'm not sure I was surprised. I felt vindicated to see it happen. I mean, I feel as if we all know where the investment's going in the future and we know the energy needs of the world are increasingly turning away from the OECD and into non OECD markets. And obviously some of this institutional finance capital is going to be wary and going to areas of high political risk or areas without proper governance or clear regulatory structures. But yes, we will be looking out and sniffing out those opportunities that do exist in the more developed government structure places. And it's a real vote of confidence in the United Arab Emirates and in Abu Dhabi that this money felt that this was an attractive risk reward proposition in place and that the governance was there to a satisfactory degree.

Michael Stoppard (12:33):
And I think we may see more of that, but we don't want to get carried away. I mean, it's going to be less of a community of players who would be prepared to put them on the outside North America and outside of OECD. It's going to be a smaller community, but I think it's going to be a growing one, I suspect.

Breanne Dougherty (12:53):
Well, we know those, sorry, go ahead Hill.

Hill Vaden (12:56):
Well do you see that community, both of these deals, whether Berkshire or kind of the leaders within the consortium are established energy infrastructure, investors, or owners, does this environment favor that group of investors who already knows this space well, or is there an opportunity for people who are perhaps, or groups of investors, who are new to energy and infrastructure to get involved?

Michael Stoppard (13:23):
Well, I didn't know what you'd say on that one Ed, but I would say it very much depends on how you structure the deal. I mean, I think you can structure these deals so that you attract in people who have technical competence, who have a track record, or you position it very much as a pure bond plus type of financial transaction. And that's a decision which sellers need to make when they're thinking about un-bundling an asset and preparing the tariff structure for divestment or sale.

Ed Kelly (13:54):
No, absolutely. I think the analogy into North America holds that it depends on the structure of the deal. I think there are enough assets to the universe of variants among the assets as such that there will be those that are suitable for the passive investors seeking a passive return and a relatively attractive return. And yet there are likely enough for those who do want to own for the long haul and own and operate, but the value difference and the drivers of that value difference can be large from one asset to the next as always. And so it pays to be very intelligent about understanding how that value is moving, whether within the North American grid, through the North American grid or through the global market.

Breanne Dougherty (14:44):
So when we think about, Michael you mentioned that we could potentially see an increase in this type of investment theme across other regions or emerging regions. Do you want to flag some potential hotspots or areas that you think are a natural fit for at least in the early stages of this trend for some of these investment dollars to flow? Do you think the Middle East will stand out as a place amongst within this theme?

Michael Stoppard (15:11):
The Middle East is one of the places that stands out and certainly we've been active and seen some opportunities across Latin America, where there are certainly opportunities. I guess the market that I've been spending some time looking at more familiar is looking at the Indian market, where we have seen initial movements of some entry into that market. We've seen Brookfield Asset Management move into transmission pipelines in India. We've seen I Squared Capital take positions in the distribution grids. It's a very interesting move.

Michael Stoppard (15:41):
And of course, India interests me because it's got this very aggressive aspiration to raise the role of natural gas in the mix from about 6% today, a very low level, up to 15% by 2030, that's very ambitious, and they may struggle to achieve that goal, but the direction of traffic is clear and they will need capital to get there. And of course, whenever one talks about India, the issue of infrastructure is always brought up. We know the latent demand is there. The issue is affordability and the issue is infrastructure. And I think the financial institutions can play an important part of that role in meeting the infrastructure challenge.

Breanne Dougherty (16:28):
So globally, do you think it's not as much, here we talk about in the US that existing infrastructure is really a focus, but globally is the emphasis not as much on an existing, do you think there could be some involvement in Greenfield?

Michael Stoppard (16:42):
Well, of course there's a much greater need for new investment, but I think we have to just go back to basics and just remember, we must make this distinction between bundled and un-bundled infrastructure. And a lot of this financial capital doesn't want to take commodity price risk, sees it as a pure infrastructure game. And those opportunities are limited because I guess most pipelines in the world outside of North America and Europe are still primarily on a bundled basis. And so that's going to restrict your opportunity set.

Hill Vaden (17:13):
Can you expand a bit on the bundled versus un-bundled? In terms of, you mentioned the price exposure, I guess, within the bundled approach?

Michael Stoppard (17:23):
So because in North America, for some decades, now the player who is owning the pipeline is not the person who owns the gas that's going through the pipeline is selling to the final consumer. That is also the case across Europe and the European Union and the United Kingdom, but in most markets, as it started out in Europe, as it started out, I think in North America, the person who builds pipeline generally own the molecules going through it and is making money from the combined operation of transporting the molecules and selling them into the market. And those are the two very different businesses, which is why over the years they've been separated. But so long as they're not separated, you're not just in the business of taking a regulated return for transporting molecules. You're also in the business of a sourcing gas, selling gas, dealing with commodity price risk, and volatility and all that. So it expands massively the task you're taking on and typically would favor an industrial player more than the pure financial.

Ed Kelly (18:31):
And I would point out that there were hybrid circumstances. I would consider Mexico a hybrid circumstance, and they are going through the throws of an un-bundling process still after a number of years, simply because Pemex has such a degree of really legitimate use of the pipeline infrastructure. But as a result, they have a large degree of market power in certain parts of Mexico and unpacking that is challenging from a Mexican perspective. In other areas of Mexico, where Pemex isn't the only game in town, there's a fair amount of competition and a fair amount of established un-bundling that existed to some extent in Monterrey, for example, and underway more effectively now. So it's very much a patchwork even in Mexico, within North America in that circumstance. So the investment horizon and the fundamental nature of an investment in those two environments are very different as Michael points out.

Breanne Dougherty (19:29):
So where has un-bundling taken hold, obviously, North America, you spoke of Mexico, it's taking hold there. Where else could it be?

Michael Stoppard (19:37):
I really want to signal, you started off with the comments about these two huge pipeline transaction deals of $10 billion, but there's been a third, very exciting development just in the last week, which we'd be remiss not to talk about. And that is the creation of a national pipeline company in China. And what is extraordinary about this, the pooling of assets between national oil companies to create a company with $70 billion registered capital.

Michael Stoppard (20:06):
Now, I don't think there will be any opportunity anytime soon for a foreign money to invest in that. I think we're a long way off from an IPO, and that will be largely for Chinese investors, but this is an extraordinary example of un-bundling creating a pipeline that is agnostic in many ways about who's sourcing and who's putting gas through. And it's very exciting from a market perspective if not from an investment perspective, because there are challenges, but potentially it really brings a whole ecosystem of Chinese buyers into direct contact with the international gas market and the potential to be able to do direct deals through this un-bundled pipeline network. So I think that's also another very exciting-

Breanne Dougherty (20:55):
So it's a first step you would say towards...

Michael Stoppard (20:59):
Well, though the interesting thing is the way things are done in many other markets, particularly in Europe, is it came very late in the regulatory process. It was resisted by the incumbents for as much as possible. And therefore the intent to create an open market with competition was held back because the company that owned the pipeline always had a vested interest in keeping control of the market. China has cut through that quite early on in the process, and that makes it very interesting, but they still have a lot of detail to work through, that's for sure.

Ed Kelly (21:38):
I would just add a comment or two if I may. And that is that there's an economic fundamental behind this. The more grids developed, the more markets develop no matter where you are in the world, the more producers become comfortable with the fact that they can get a fair market value for their product without owning and operating downstream infrastructure. So that process occurs to varying degrees and varying speeds throughout the world, is occurring in the LNG space would argue, and Michael can certainly opine on, but as the markets develop, as infrastructure develops, then producers fundamental interests. If they want to remain a producer, begin to diverge from the midstream players and their interest in actually owning and operating midstream assets becomes less and becomes less critical over time. So that opens these assets to the investment community by degrees, in fits and starts. But I would argue there's an economic fundamental behind that, that will translate globally over time and at different speeds.

Hill Vaden (22:45):
Will we expect other-

Michael Stoppard (22:48):
Yeah. And I think we need to remember here, that the oil and gas companies by and large think of investment in pipelines and in regas, I'm tempted to use the phrase a necessary evil, and that's perhaps going a bit far, but for them, it's just something necessary to monetize the reserves, which is their core business. If they can farm that out to somebody else with lower cost of capital, that's very attractive to them. And at a time when they're so conscious of returning cash to shareholders and reducing CapEx expenditure. It would seem to us at the time is really here now to see if we can free up some capital in that part of the value chain, where they don't see that they have a particular competitive advantage or core skills, and they don't see it as a core business, but they do sit obviously as a necessary part of monetizing their upstream reserves.

Hill Vaden (23:40):
So do we see people following China's footsteps? And is there more un-bundling to come, are there other significant areas?

Michael Stoppard (23:48):
This tends to take place over years rather than months I'm aware of the patience of people looking for investment opportunities. But I think if we think in terms of years, we absolutely can see a clear trend and people are looking at what's happening in the world. Or they've certainly looked at the un-bundled experiences of Australia, Europe and North America. North America and to a lesser extent Europe, have always been taken as the template to follow or not to follow as the case may be. And now we're beginning to see other examples around the world, like Abu Dhabi, like Mexico, like China, and other countries are taking notes and working out what is the right business model or structure for them?

Breanne Dougherty (24:33):
No, do we think it's gas, obviously both of these deals were gas that happened this year, but I do want to flag that ADNOC had done a similar deal on its oil pipelines early last year with a different consortium. So not with the exact same consortium, I think there were some crossover in players, but so it's not just gas or are we agnostic to being gas oil? Do we think that gas actually has the better potential to be the investment theme? Or do we see as much interest and potential in oil pipe or oil infrastructure in general?

Michael Stoppard (25:06):
Many of the drivers are the same. I'm just, I'm smiling here remembering one famous senior gas executive who said, "Look, it's a hollow cylinder made of metal." So in that case, oil and gas doesn't make that much difference from the point of view of the drivers in place. I'm not sure not sure.

Ed Kelly (25:25):
Not fundamentally. I mean, the regulatory structures can be very different. I think the economic fundamentals and drivers are the same. They want to monetize their product at fair market value. And to the extent the infrastructure exists so that they have confidence in doing that, then they're more willing to let go of control over that infrastructure. But the regulatory structures can be very different and that creates a different incentive for participation in that part of the value chain. So, I mean, they tend to maintain the oil producers and liquids producers, just sort of the liquids part of the chemical chain, tend to maintain control on a lease basis over that pipeline infrastructure, because pipes otherwise on the regulatory system in much of North America, they maintain a fair amount of market power over the movement of liquids, but isn't necessarily matched on the net gas side.

Breanne Dougherty (26:22):
And what about, so just kind of circling back to, we talked about the storage and the potential importance of it within the North American space and its component in the Berkshire Hathaway deal. But Michael, we know that gas storage, it's basically a North America game and a European game at this point. Is there something on the storage in any of these emerging places or potentially in Europe, for instance, where there could be some appetite from the investor community to get involved in storage?

Michael Stoppard (26:53):
By Ed's comments about storage, because in Europe we've also been a long anticipating and waiting to see the value of storage returned. It's been a long wait, but we continue. I mean, if you look at the market fundamentals, and we're constantly asked, is the market tight, loose, or balanced. And as we look at it, and there's a strong case to say, the market is balanced or tight at winter and loose in summer. And if that doesn't tell you there isn't a potential investment signal for storage there should be some opportunities there.

Breanne Dougherty (27:30):
Why are people so hesitant on the storage front? Because I mean that's the bottom line is you look at the seasonality of natural gas. You look at the fact that the global natural gas market is growing, but we haven't really grown storage. To me that's cycling a bigger market through a smaller safety net.

Michael Stoppard (27:49):
Well, the reality is, most of the forward price projections I see show significant seasonality, but none of the looking back on history shows the same level of price seasonality. So it's always a hard sell to say, something's different this time going forward.

Ed Kelly (28:06):
I was just thinking 15 times burned, perhaps 30 times shy on the value of storage. Also, we've had a huge build out in North America, especially in pipeline infrastructure itself, because to monetize these shale reserves 365 days a year, producers have seen the kind of the scale of the asset that they have in the ground. They've been willing to add pipe to that. They've overbuilt pipe out of certain areas, arguably speaking. And guess what flexibility in the pipeline grid competes with storage. If you have extra pipeline space in a daily market, you can get interruptable gas supplies as you need them more reliably than if you don't have extra pipeline space.

Ed Kelly (28:51):
So there's that competition for storage that as built out as the shale gas has been monetized in North America. Mexico is an interesting storage opportunity. I would argue difficult regulatory environment, but basically they are swinging off of US storage now, and there's zero storage within Mexico. So at some point there was a policy driver within Mexico to build storage. So at some point I think the Mexican storage will be part of the investment equation.

Michael Stoppard (29:21):
And then of course, storage Ed, is a big portmanteau word.

Breanne Dougherty (29:25):
And that's what you're seeing this summer.

Michael Stoppard (29:26):
That actually covers many different assets that do many different things.

Ed Kelly (29:30):
Well, absolutely. I mean the performance of each storage asset can vary and its uses vary a great deal, obviously from high deliverability above ground tanks into LNG facilities, I would argue now are a material and growing part of the US storage grid, high deliverability salt dome storage, to reservoirs that can't do anything but seasonal variance and have some trouble doing that in some cases. So the quality difference the performance difference is very great.

Hill Vaden (30:05):
As we look at some of the timing of these, there's a lot of focus right now on investors looking for yield, as traditional yield investments are not generating a lot of yield. How much of this, I think Michael you mentioned the cashflow certainty, or relative certainty from some of these pipelines, is a lot of this driven by the backdrop with rates as low as they are globally?

Michael Stoppard (30:27):
Their driven by the backdrop of what, sorry?

Hill Vaden (30:31):
Rates, global rates being as low as they are. And or negative. Does that make pipelines more attractive than they are in other types of-

Michael Stoppard (30:39):
Yeah, I think the answer is clearly yes, but I think there are drivers coming from two directions here. I think that the availability of capital, the low level of rates, make the financial sector have to take this opportunity seriously and look out opportunities. And at the same time, as I mentioned before, the traditional industrial players in the opposite direction have very good reasons to want to exit. So, you have potentially the commonality of interests between the players who own the assets who want to get out and free the capital and the financial sector with financial reserves, potential looking for opportunities to enter. You can see the potential deal to be done. The question I come back again is whether we can structure the risk profile correctly because energy of course is in competition with other asset classes for capital, obviously.

Breanne Dougherty (31:33):
And where do we see the risk in these types of investments? I mean it can't be just guaranteed money, right? Otherwise everybody would be doing it. So where does the risk come in? Everybody with both these deals, predictable cash flow was mentioned by every participant related to the deal. Is it really as predictable as it said, or are there risks?

Michael Stoppard (31:57):
I think the two main risks are the future of demand or utilization load. How can you keep that up? Is it realistic and the regulatory risk and just on the regulatory risk? I mean the classic famous warning example is what's happened in Norway when the oil company sold out their shares of the offshore pipeline system, arguably the largest offshore pipeline system, [inaudible 00:32:22] single offshore pipeline system in the world and it was bought up by the usual consortium of sovereign wealth funds, pension funds and private equity. And soon after the acquisition, the regulator and the Norwegian government cut part of the tariffs, which was not foreseen by those buying in. And it did go to arbitration and to court. And I think reading the ruling on that court would be recommended reading for many, but the court did decide that the government had every right to change part of the tariffs. And so that's a real indication of regulatory risk.

Hill Vaden (33:03):
Well, what about, so one of the other kind of pieces of this, I remember years ago when the Rockies Express Pipeline was, I remember being at a conference where somebody says that Rockies Express Pipeline is the most important US energy news since the death of the dinosaur. And pipeline [inaudible 00:33:27] Neil comes along. All the ideas of investment pipeline is originally designed literally backwards. These cashflow certainties, Michael, you mentioned that the regulatory risk, there are governments around the world right now, trying to create jobs in a post COVID world. And governments love to build infrastructure to create jobs. Is there a chance that there is more and more pipeline and in an energy transition world do these pipeline investments, is there more to this perhaps that people don't anticipate right now and in the certainty of these cash flows, I guess we'll start Ed with you and then take it globally with Mike.

Ed Kelly (34:10):
Well, I think there is, I think obviously if you take at face value, the goals to go carbon neutral and more and more jurisdictions within North America, there's very clearly a demand risk associate associated with transporting fossil fuels of any sort, I think over time. Over time being a key metric there. So you have to be careful in terms of the cost structure of the asset you're taking on, where it goes from and to, is supply sustainable and competitive, is the demand sustainable in the collection of markets that are served. And I think you have to be more careful than even in the recent past, along those metrics. Absolutely. So if you're speaking longer term, if it's a 15 to 30 year money that you're talking about, then absolutely there's a risk.

Hill Vaden (35:08):
And Michael, you see that at risk in the US and outside the US or some of these-

Michael Stoppard (35:13):
I would say Europe, while I'm sitting here in Europe today in London. And I would say that risk is in spades is that risk squared here in Europe, where we have this increasing commitment, more governments month by month committing to net zero, net zero emissions by 2050, and basically an elimination of fossil fuels from the mix, unless they're in combination with CCS. But the question is, what does that mean for the future pipelines? And there is clearly a growing momentum for saying that pipelines will play a critical role in this energy transition. I mean, they will either be decommissioned or they will be repurposed for the hydrogen economy. And there's a growing focus on repurposing for hydrogen. So here in Europe, just in the last two months, we've had the German government, put out its hydrogen strategy, the Dutch government put out its hydrogen strategy.

Michael Stoppard (36:15):
And now the European Union also publishing its hydrogen strategy. And there's been a real change of mindset over the last three years. I think if three years ago it was all about turning towards a hundred percent wire's power future. What's the vision in many of these policymakers, and it's now I think quite widely accepted that we don't want to be for many, many reasons. We don't want to be a hundred percent wires. We want a wires and pipes future. If you want fossil fuels out of the mix, that's going to be bio gas, renewable gases or hydrogen.

Breanne Dougherty (36:54):
But they still require infrastructure is the bottom line on that.

Michael Stoppard (36:58):
And they require investment. And what's interesting is that some of this money that entered Europe, entered it on the understanding that they'd have a nice cash flow. It didn't need to do anything. It didn't need to inject more money in it, but that it was a sort of dying asset. And then the owners or the operators of the assets, went back to the investors and said, "You know what? You've had the opportunity to keep this asset going much longer and even have potential upside value if you spend money, repurpose the asset, but it will require more capital to do that." That was not the deal in which some of the initial financial investors went in, but it still may be an attractive option for them.

Breanne Dougherty (37:42):
Well, Michael, I think that you just might have provided Hill and I with another idea, or two, of things that we can talk about on future podcasts. I like this idea of energy transition, but still emerging themes and infrastructure and investment that come off the back of it. Because as you said, if Europe doesn't want to be all wire, it's going to require something. And obviously that story doesn't just apply to Europe. It applies to many places around the world as they explore the energy transition opportunities and challenges that come ahead. So I guess that's probably as good a place as any to finish off because we can definitely pick that up on a future podcast. I want to thank both of you, Ed and Michael for joining us, needless to say it was an engaging conversation. And I learned a couple things and it's always good to talk about where the investment trends might be going. So I really appreciate you guys joining us today.

Ed Kelly (38:33):
Absolutely happy to here.

Breanne Dougherty (38:35):
I'm sure we'll have you back to talk about-

Michael Stoppard (38:37):
Very good.

Breanne Dougherty (38:42):
And yeah, for all of you listeners, please watch this space because we'll be back with a scintillating topic soon. I'm sure. And I'm with some more of our experts around S&P Global. So please stay tuned and we look forward to hearing from everybody in the future. Thank you very much.

Hill Vaden (38:58):
Thanks guys.