I think this administration is focused

very heavily on geopolitical security in

particular energy security. The biggest

hammer they have is oil prices. I'm

looking at Venezuela and I'm looking at

OPEC spare capacity. I'm looking at lack

of shale discipline. I'm thinking we're

solving for the wrong problem. and we're

looking in the rear view mirror focused

on oil when we actually need to focus on

natural gas.

>> Welcome to Monetary Matters. I am joined

today by Michael Cow, CIO of Aanthos

Capital Management and the Cow Family

Office. Michael, thank you so much for

joining me today.

>> Thanks for having me. It's been a long

time, Max. It's great to be back.

>> It has been a long time and what a

timely moment to have you. I know we're

going to be talking about the US and how

we are strapped for energy. Obviously,

there was a huge geopolitical event that

happened to start this year off that

pretty much screams that the US is

concerned about uh where we are going to

get our energy and that is the removal

of Maduro as the head of Venezuela and

basically the administration outright

saying we're going to go there and we

are going to pump oil. uh what did you

make of this move by President Trump and

and his administration? I

>> if we play our cards right in the longer

term and that's that's a big if, right?

because you know I I think the US has

had a a checkered history with respect

to you know la you know enacting lasting

regime change right um I I do think that

it could be a gamecher in the long term

because you know look we it's well known

that Venezuela sits on the world's

largest reserves but it's also well

known that their infrastructure is

somewhat antiquated and degraded right

um you know yesterday last couple of

days I've been on numerous Nous uh calls

with various you know energy CEOs uh

macro strategists and whatnot and um the

the consensus you know my favorite um

oil analyst I I quote from Capital One

Laxshmi she thinks that uh in the near

term uh in the next 3 months or so we

could see in a a potential addition of

maybe 3 to 500,000 barrels and but

within the next year the max we're going

to get is about call it an incremental

800 100,000 uh barrels per day. But then

that gets us to around 2 million barrels

per day of production at in Venezuela.

And to get the incremental 1 million

barrels per day to 3 million barrels per

day, that's going to take some doing.

She thinks that it could take uh an

investment an aggregate investment of

close to 100 billion over the course of

a decade to get there. So um but but see

what I what I find ironic about all this

is I think that the US has already been

shifting away from a a hydrocarbon

dependency on oil for some time. I mean

most obviously from um the shale

revolution of the last of the last

decade, right?

um um something like a Venezuela will

will really sort of you know hammer that

home that we're not as nearly as

dependent on oil or on OPEC as we were

in past decades. But um you know what I

find ironic though is that I think um we

have traded one hydrocarbon dependency

for another and the other one is the one

that I'm kind of interested in right now

which is natural gas.

>> You already talked about it's going to

take a while to get this oil pumped. Um

what about the break even price? Is it

even economic to ramp production as much

as you're saying? is is this hundred

billion dollar investment that is going

to be required to ramp up that

production is that even economic and is

it going to come from the US government

or is it going to come from uh the

private

>> I think so I think it's going to it has

to come from uh private companies

ultimately um and and yeah I think that

from from what I understand the ultimate

um lifting costs will be much lower than

than shale um right but but again these

are conventional longived projects that

take a lot of initial capex up front and

a lot of the capex is going to be uh for

for the uh uh the transport

infrastructure as well. So, so um yeah

so but but it the resource is definitely

there right um and it's a different

resource than what we have here uh in

the US. What I think is kind of

interesting though is, you know, for

years I've talked about this elusive uh

oil supply demand singularity point,

right? which is, you know, this this mo

this magical moment where, you know, if

you're an oil bull, you're hoping that

at some point uh when um the spare

capacity of Saudi Arabia runs out um and

um at the same time you have uh uh you

know coordinated central bank easing at

you know you have this you have this

potential inelastic response in price.

Um the issue I see with that and it's

exacerbated by this this uh Venezuela

news is that right you know right now

there's there is uh a lot of concern

over when the Perian Basin uh is going

to start declining right the Perian

Basin is really the it's the most

prolific shale basin and it's the only

basin that's technically not in decline

yet. Every other major basin is. So when

the perian finally declines, right, um

there's going to be a huge gap in

supply. But uh see if it if it's going

to take 5 to 10 years to develop say

Venezuela and and here's the biggest uh

and the fact that OPEC spare capacity is

still sitting at 5 million barrels per

day. Well, it it gives enough time

there. A lot of time will pass before

that spare capacity gets eaten up and

then by then um a country like Venezuela

may have already made those investments

and now that resource is now starting to

come online. So you never get to that

that perfect oil, you know, oil uh

supply demand singularity point, right?

And so that's what makes me structurally

uh bearish on oil. Um I and I also think

I mean I know we're going to talk about

it but I I also think that just the

electrification economy

um fundamentally and not just here in

the US you know China especially right

is shifting the demand picture away from

one hydrocarbon to another one. We're

looking at like $62 Brent right now. If

you listen to to Trump, he says he wants

them to to drill and pump and get the

prices lower. I would say prior

administrations would have loved to see

oil prices at $62. Like, how low do you

think oil prices can go? And obviously,

if you are one of those companies that's

going to be expected to invest this

hundred billion, uh you want oil prices

higher. How are the dynamics between the

companies that want structurally higher

prices and an administration that wants

structurally lower prices going to play

out?

>> See, here's the problem, right? So, we

had we had it we had lack of discipline

in spades in the in the um early years

of the shale revolution, right? I'm

talking about that period of time

between 2014 and 2018, right? And the

the oil bulls will tell you that now,

you know, everything is different. and

everybody's much more capital

disciplined and whatnot. Well, I can

tell you that like this week um I was on

a on a conference call with uh with uh

two prominent oil CEOs, one one of a

private and one of a public company. And

I thought what the public CEO said uh

really struck me which was hey years ago

when we um when we uh you know basically

you know laid down some rigs and cut

production uh to show that we were you

know disciplined um the capital markets

really punished our stock for it. And so

you know he was expressing frustration

at how public market investors kind of

speak out of two both sides of their

mouth. They want capital discipline but

then when it happens and production

drops they punish the stock. So then the

next comment was was that it forces us

uh to do things that we don't

necessarily want to do meaning

continue to produce and complete wells

in in a in a environment where you know

WTI is like 56 57 right. So, so what

what the the message that I got from

this is that in in this no man's land

here, a lot of these public CEOs are

still pressured to continue producing,

they might be laying down rigs, but

laying down rigs, gi given the amount of

amounts of efficiencies that have that

have uh uh occurred uh in the in shale

technology, um what you really want to

see is what they're doing with their

completion crews and their frack fleets.

And so they're not necessarily um laying

down uh enough of those fleets right now

to really make a dent in production. So

this this Perian is about to roll over

story keeps getting extended and

extended and extended. Um so you know

I'll see it when I believe it. At some

point it will happen. I mean it's a it's

a shell resource. It has to happen. But

I I actually think that you know it it

they they could continue on like this

unless oil WTI I'm talking drops into

the 40s drops into the 40s um you know

this this CEO would tell you that oh at

that point the whole industry will lay

down their frack fleets right because

you know now the whole industry is in

pain but we're not at that point yet and

and that's that's what's uh makes me

kind of wary on oil even after uh you

know it's it's you know been in this uh

this you know sub60 range.

>> Yeah. And I guess one of my questions

would be we just saw the uh executive

order where he talked about a $5 million

cap on executive compensation for

defense contractors. Um could you see a

world where the administration says we

want you to pump and those compensation

structures which used to be tied to

production at any cost which have moved

more towards you know returns for

shareholders start to move back towards

production at any cost because that's

what the administration's goals are and

more of the state capitalism starts to

come into play. I think the Trump

administration, right, is very very

focused on trying to get to this nirvana

of disinflationary

growth. Okay. But to get there when you

have a pre-existing inflationary

backdrop, you need to have a

deflationary playbook to kind of

counteract that, right? To to get to

like a neutral disinflationary growth

objective. And I think the biggest um

hammer the biggest hammer they have is

oil prices. Now I on this call I had uh

yesterday I kind of wondered out loud

what I wonder what the uh how NBS is

feeling about this because it's a little

bit reminiscent of the what I call the

infamous Trump rugpool of Q418. recall

in in 2018, Trump had just taken us out

of JCPOA, right? And you know, you saw

uh oil prices start to move higher uh

because he said that, you know, there

would be no uh waiverss on sanctions on

uh um on Iranian crude, right? But then

he waited till the last minute after he

got NBS to flood the market to offset

the Iranian the loss of Iranian barrels

and he grants 11 waiverss and um um so

the price of oil then collapses. Right.

Well, here um you know I think that he

has uh convinced NBS to uh loosen to to

roll back a bunch of these unilateral

cuts that they made over the last

several years, right? and gotten oiled

down into the 60s and now now 50s, but

now all of a sudden we just decapitated

the head of the snake in Venezuela. So

that's a that's kind of like a different

version of a of a of a Trump rugpool,

right? So I don't know that that Saudi

Arabia is necessarily happy about that.

>> Obviously, there is an energy component

to this show of power, but you are

somebody who focuses on more than just

that in the geopolitical space. There's

already talk about Greenland, maybe

Cuba, the broader Donroe doctrine as

it's being called and and exerting um

exerting his influence over the Western

Hemisphere. Like do you think this is

just the start? Last year I wrote two

pieces about how you remember like

especially in the wake of liberation day

uh there were so many um uh criticisms

how about how this seems like just

random policy and I said no no no I

wrote two pieces saying there's a method

to this madness because if you just take

the tariff strategy in of it of itself

there's a heavy heavy geopolitical

component to the tariff strategy. It's

not just that we want tariff revenues.

No, I think I I almost think the tariff

revenues are a sideshow relative to um

the using using tariffs as a cudgel to

basically get companies to make these

big reshoring commitments commitments.

So big in fact that like when I tabulate

the the headline numbers across all the

different uh deals, it's something like

12 or 13 trillion. Now you can haircut

that a whatever haircut cut it by 70

80%. It's still a huge number. So I call

I've I made a term for it. I call it the

reverse Marshall plan. And I think

that's very very significant. And and

with respect to these other geopolitical

flexes, it really it it it all dovetales

together in this sort of uh this America

first playbook. I think it I think so. I

think this administration is focused

very heavily on geopolitical security

and in particular energy security.

>> Now, there is a level of energy security

that you don't think we have. So, you

think we're we're pretty set on oil,

especially with this move in Venezuela,

but you're concerned about natural gas.

>> That's the irony of it. Um, so let me

let me just start here. I think that,

you know, if you look at

my my thesis on natural gas is

predicated on on three uh pillars,

right? We over the last 10 years, we've

had this massive ESG inspired uh push to

electrify our economy, right? Um and you

know, you know, in in my re most recent

piece, I call it the uh the US energy

Achilles heel.

I basically said that look, reasonable

people can agree to disagree on whether

or not um the right variable to solve

for was the removal of atmospheric

carbon, right? Um but I think what is

kind of unequivocal is uh the lack of

consideration of downstream effects of

premature electrification, if I might uh

use that as a little pun.

So premature electrification

without thinking about the downstream

effects means that we have a we have a

state of uh of

grid fragility, right? Um there's a

great book that I recommend people to

read if you're interested in this sort

of topic of grid fragility. It's called

Shorting the Grid by Meredith Anguin. I

read that book years ago when I was

writing my sort of uh West Point policy

paper about national security issues and

and it comes down to this that you know

when you have like you take a state like

my home state of California where you've

had this unconstrained growth and

rooftop solar now think about what so so

solar and wind are what we call

intermittent sources right so they

cannot not be reliable base load

capacity because let's face it, the sun

doesn't always shine. The wind doesn't

always blow, right? And so for every

iota of these renewable intermittent

sources that you add and connect to the

grid, you have to add an iota of peaker

capacity, usually uh natural gas to fill

in the gaps. But it creates all this

volatility within the grid. But

underneath this volatility, you have to

still have a bed of stable base load,

what we call base load generation,

base load generation. You know, in my

research for this piece, I basically

came came up with basically there really

only four viable sources of base load

generation. There's coal,

which is a non-starter for us here in

the US because of ESG mandates. and you

know we're decommissioning coal plants

while China's you know building uh as

many coal plants and nuclear plants as

they can. The second source is nuclear.

Um but nuclear has suffered from this um

forever um nimism where you know despite

so many talks about the nuclear

renaissance if you look at the relevant

charts of uh of nuclear's share of

electricity it's basically been a

flatline for decades. Okay, there's a

new technology of uh of geothermal

essentially basically repurposing sort

of uh fracking technology to drill down

into the earth's core, right? That's

still relatively nent. But then there's

natural gas. Now when you look at these

four bases

uh sorry four uh sources of base load

generation

what really stuck out to me was that in

all cases whether it's upfront costs

uh whether it's levelized costs on an

ongoing basis and whether it's time to

market all roads lead to natural gas.

Natural gas has the advantage uh on in

all of those fronts. First of all, this

ESGmandated

premature electrification, okay, has

ironically resulted in two big

dependency shifts. one, it's that it's

that it's shifted our our our

traditional

um in an effort to get away from uh a

historical

dependency shift on OPEC, we've now

ironically become more arguably more uh

geopolitically dependent on China

because a lot of the green economy

requires rare earth elements and we all

know about China's chokeold on rare

earth refining, right? Like 90%. So in

my West Point paper, I basically said,

"Isn't it kind of silly that, you know,

we're concerned about a quote 40%

OPEC dependency, right? Even though

we're producing more oil than Saudi

Arabia, but then now we've traded it for

a 90% dependency on rare earths." So

that's that's a nonsensical

uh tradeoff in geopolitical dependency.

But then the other dependency is this

trade-off,

this shift from a hydrocarbon dependency

on oil to a hydrocarbon dependency now

on natural gas. Because I just explained

to you how all roads tend to lead to

natural gas as like the lowest common

denominator for the the uh the the the

uh I guess the lowest hanging fruit for

base load capacity. Now, so that's

that's pillar number one of my thesis.

this whole premature electrification

thesis, right? But pillars two and three

are that well number two is the obvious

one of AI, right? Everybody's talking

about all this massive AI data center

land grab and um a as we all know AI

data centers require 247 base load.

You're not going to you know you're it

cannot be powered by intermittent

sources, right? um nuclear would be

ideal but we we talked about that as

well right um um and then the third the

third pillar to my thesis is LG export

capacity so I think this is also very

interesting because um years ago when LG

first sort of got developed as a

technology if you remember like you know

Shener energy you know these guys

basically built all these regas

facilities here we were we were set up

to import LG and then the shale

revolution happens and it turns out that

you know with oil comes all this

associated gas we have this surfitit of

natural gas and so they they basically

retoled all of those facilities for

export right um now enter the Russia

Ukraine conflict of 2022

the Europeans found that holy maybe

we shouldn't have decommissioned our

nuclear holy maybe we shouldn't

have become completely completely

dependent on Russian gas. So now there's

this whole this this big push to build

LG export capacity here and LG um uh

regification

um capability in Europe, right? As a

from a it's a this is a geopolitically

inspired uh situation. So you take all

three of these things combined and these

are

new sources of demand pull on natural

gas that we've really frankly never seen

before. So in my piece I rely heavily on

a lot of the um analysis from JP Morgan

Michael Sembleis who I have a lot of

respect for as a deep thinker. um in

early 2024 he put out this very

comprehensive paper called Electrovision

and in it there's a chart that I'm going

to refer to where he talks about how

electricity demand has basically been

flatlined for 15 years from the period

of 2000 uh 2005 to roughly 2020. During

that period of time electricity growth

was around like 0.5% per year. Now, in

the last several years, and we're not

even counting this what what just

happened in in the latter half of 2025

with this mad rush towards AI data

centers. Just in the last three years,

um various energy think tanks and uh

agencies have had to revise up their

growth. The latest forecasts that I've

seen are are saying that energy

electricity demand is now likely to be

to average between two and a half to as

high as 5% over the next decade. If we

hit the 5% mark, think about it. That's

a 10x from 15 years of essentially

flatline.5%

electricity growth. And by the way,

here's the other chart that I'll

reference at my piece. There's another

chart that shows how natural gas is now

the dominant share of electricity in the

US at around 43%

compared to you know coal, nuclear,

renewables etc. So natural gas has grown

steadily as the dominant share of

electricity generation here in the US

and that's happened despite the fact

that we've had flat electricity demand.

What will happen if we actually have a

10x

uh demand growth in electricity? What

will happen to natural gas? Right? So,

so, so, so that is basically the crux of

my thesis here. Um, and why I'm I'm sort

of I'm I'm I'm looking at this and I'm

looking at Venezuela and I'm looking at

OPEC spare capacity. I'm looking at um

lack of shale discipline. And I'm

thinking we're solving for the wrong

problem again. We're looking in the

rearview mirror um focused on oil when

we actually need to focus on um on

natural gas. Now to put it into starker

relief, it's the equivalent of adding 15

New York City's worth of electricity

demand by 2030.

That's that's staggering.

>> Yeah. But my question would be all right

so natural gas has been taking share it.

Yes you're talking about a higher level

of overall electricity demand but even

with that gain in share outside of the

the spikes that we saw around 2022 and

the invasion in Ukraine

the price has been kind of around it its

historic price. So are you worried about

a price spike? How is this going to play

out? Henry Hub first started trading

around 1991. And I remember this because

um I had just started my career at J

Aaron at the time. I was trading GSCI

futures and I remember the uh the

natural gas desk was very much a naent

desk um at the time. So anyway, so Henry

Hub only goes back to that period 1991.

And if you look at this long-term chart,

u you know, for for the first from 1991

to call it, you know, year 2000, you

know, natural gas kind of stayed

between, uh, I'm going to say two to,

you know, three two to four bucks per

MMBTU, right? And then during a period

between, you know, 2005

to 200,

you had a couple of big spikes. uh there

were they were weather related,

hurricane related, etc. And then the

shale revolution happens in the 2010s

and then you had um a period of low gas

prices again and then you don't have

this big spike again uh uh above solidly

above you know 567 until the Russia

Ukraine uh um war started right but if

you think about Henry hub natural gas is

is a totally different animal than oil.

Oil is what I call a global commodity

because you know the the oil uh

basically gets transported by barrels.

Oil tankers traverse the world around.

There's a very well-defined spread

between you know WTI and Brent, right?

That arbitrage is fully open. Natural

gas is what I call this provincial

commodity that's basically landlocked.

It's because it's primarily transported

by pipeline. And it wasn't until the

advent and the invention of LG where

where hey we can actually

make it transportable by barrels by LG

tankers. But it's expensive because you

first need to freeze natural gas, take

it down to -260 Fahrenheit, make it uh

liquid. So that's the liquefaction

phase. Um and then you have to transport

it and then on the other side you have

to regassify it, right? And then put it

into pipelines. So the cost of that

combined toll, okay, if you will, the

liquefaction plus transport plus uh

regification toll is anywhere from like

250 to $3 per MMBTU. So at current uh

natural gas prices of around like call

it 350, that's a 70 to 100% toll on on

on on being able to transport it. But

we're still not to the point where we

have a global arbitrage, right? So right

now I believe again referencing the

numbers that I came up with in my my my

piece I believe the export capacity is

between 16 to 18 BCF and there's a lot

of uh uh capacity coming online between

now and the end of the decade that's

almost going to double that roughly 30.

So people don't think that the the

global arbitrage will be really fully

open and that we'll have excess uh

export capacity until the end of this

decade.

But I I the other thing the other nuance

about this is that even when we have

even when we have that

um um that excess export capacity

um in many cases that that arbitrage is

unidirectional. So remember I talked

about how like some of the early

projects like Sabine Pass um had

originally built for uh import. They had

the regas facilities built and then they

shelved those and then they tacked on

the liquefaction trains, right? Well, if

there there ex turns out to be um a a

global gas glut um um those facilities

could potentially be retoled for import.

So we could potentially, you know, wind

up importing, right? But again, remember

the there there's this transport toll,

right, of almost 100% to current prices

with respect to transporting natural

gas. But the here's the other point

that's only part of the facilities. A

lot of the newer facilities um don't

have the birectionality of it. So for

now um the the arbitrage is is

unidirectional. So it's it the it only

results in demand pull. It won't have

supply push unless there is a very long

period of protracted glut in global gas

that exceeds Henry hub plus the the

transit and liquefaction and reef

gasification toll. Do you see what I'm

saying? And you believe that that glow

would only occur if there's a sustained

period of high prices that would bring

the the capacity or the production

online

>> glo. Yeah. Exactly.

>> Okay.

>> Exactly.

>> So, I know that this is something you do

have some new irons in the fire and with

the caveat that none of this is

solicitation or investment advice or

anything like that. This is something

that you're you're putting your money

where your mouth is and and trying to uh

make investments in this. what what are

you thinking about in terms of how to

play this this potential shortage of

natural gas that you see?

>> I've thought about this um a lot and um

yeah, the the the irons on the fire you

speak of or that um you know, I I

recently um um partnered with a with a

uh natural gas

minerals fund. um basically whose

strategy is to go and acquire

uh minerals interests um in natural gas

and the the reason why I like this model

for I mean look let's let's talk about

the alternatives first right you could

go trade Henry hub right but I remember

all too well the uh the blow up of

amarant in 2006 natural gas is often

referred to as the widowmaker commodity

it's a brutally volatile commodity

especially when it's still in a a uh

provincial commodity uh like it is where

it's subject to to weatherprone

volatility. So that's a non-starter for

me. Um related to that are um you know

the associated equities which can also

be very very volatile. But a a big

lesson I learned during the the bare

market in oil from the period of 2015 to

2018 is that especially in the commodity

sector where the macro risk itself

is already sometimes very hard to

analyze, you know, especially when you

talk bring in geopolitical factors like

the affforementioned Trump rugpool,

right?

it it makes it even harder when you then

add on idiosyncratic capital structure

considerations with individual companies

and also what I call capital

reallocation risk. So one of the one of

the big problems that I saw during the

oil bare market

um um between 2015 and 2018 was that a

lot of management companies were just

their incentives were all wrong. they

would make nice cash flow margins um at

the drill bit um but then redeploy the

that hard-earned cash into

um inferior projects squandering that

cash so the investor never actually saw

the cash right the reason why I like um

um uh playing via minerals is that it's

kind of it's a pure play but it's a it's

a it's a pure play but one that's not

volatile like trading Henry Hub itself

because if you think about for those of

uh you that aren't um familiar with

minerals the the US is has what's called

kind of a split estate system where if

you own

the land if you own real estate let's

say farmland in Texas right and um

you've had uh geologic studies done on

the subsurface All right, you as the

land owner can actually get liquidity by

selling off some of your subsurface

mineral rights. These mineral rights are

perpetual.

Um so you know they you know you could

have a um you could lease your land to

an operator uh which now has a you know

a working interest. uh they develop the

operator has uh basically the uh they'll

typically only get involved if they have

at least you know 70% of the underlying

mineral rights um to make it worth their

while but they're the ones that

determine how much money to spend and

when to drill. Now if but you there's

also a separate market for just minerals

right there are people out there that

buy minerals. So, like my my my new um

uh venture here is that they're they're

basically acquiring minerals um and not

having to take the capex uh the capex

risk. That's a both a blessing and a

curse because when you buy minerals,

all you can do is buy at the right price

and try to underwrite for try to try to

assess the probability of when

uh the acreage will get drilled. And

that's so there's both art and science

to it, right? The science comes from

analyzing the type curves and looking at

the geology,

determining whether or not if you as an

operator uh if if you're an operator,

whether or not you would drill that that

acreage in the first place, right?

That's the science behind it. The art

behind it comes from really

understanding

the operator behavior in the basin that

you're looking at and and looking for

other clues on whether or not you know

they are you know they're about to

drill.

So um so so that's the reason why I like

that particular expression.

Excuse me. And when you're talking about

buying at the right price, are you

assessing uh mineral rights on a, you

know,

dollar per million BTU basis?

>> So that so that actually is a great

question because some people ask about,

oh, what's the dollar per, you know, net

royalty acre and blah blah blah. And I

know that my partner Ralph would say

that, you know, the

not all acreage is the same, right? So

the the the re the real way the

consistent way to look at it is where do

you think you're creating natural gas

reserves at? So again, if you go down to

like a dollar per MCF or dollar per

MMBT, however you want to look at it, um

the idea here is to buy to create

reserves below $2, right? And again,

when I referring back to that long-term

chart of natural gas, right? you see

that even during the the the worst of

times in terms of gas fundamentals, you

really never saw natural gas uh stay

below 250 per MMBTU for for very long,

right? It it it definitely trended along

there for long periods of time. But if

you can control h your how well how how

cheaply you acquire and essentially

create your reserves um then that's

that's the risk mitigation aspect of it

right

>> you talked about the oil rug pull from

the Trump administration and we we

talked about the difference between oil

and natural gas why if you believe this

is so important

natural gas is increasingly important

Why won't there be another rugpull from

the administration? Why why aren't those

same levers that are there for oil there

for natural gas?

>> No, they're totally different levers

because there is no first of all, it's

not a global commodity. There is no OPEC

of natural gas with a ton of spare

capacity that they can just unleash on

the world, right? I guess the closest

thing would be cutter, right? Um but

again, there is it's it's there is no

global arbitrage. So even if uh cutter

all of a sudden unleash was able to

unleash a huge amount of gas onto the

global market a there is no global

arbitrage yet and even and b when there

is a global arbitrage by the end of the

decade it's mostly going to be

unidirectional out of the US and not

back into the US right so it will take a

long period of time and a very

protracted period of depressed

uh uh sorry protracted period of global

supply glut for for that to to happen

for for basically for the um uh the

facilities here to get retoled to to be

able to import. Remember it's not

transporting gas is not nearly as

straightforward as transporting oil

because you have to have to have a truly

uh birectional global arbitrage. You

need to not just have liquefaction on

one end and re gas on the other end. You

have to have both liquefaction and regs.

And right now we're just in the process

of building liquefaction on on this side

and regification on the European side.

So So you see what I'm saying?

>> Yeah. So do you think do you think this

is understood at the highest levels?

>> There is the concern, you know, some

people will say that in addition to the

base load generation bottleneck that I

that I talk about,

what about this transmission bottleneck,

right? Um, one chart uh that was very

scary in that Michael Sembleis piece

from JP Morgan was that there's been a

complete lack of uh investment in

transmission capacity over the last 40

years. It's been a consistent decline

and won't um one of the questions that I

get is, you know, won't we hit the

transmission bottleneck before we really

even have a generation bottleneck? The

reason why I don't think we will um is

because if you look at the hyperscaler

behavior right now, you're actually

seeing them recognize that there is this

transmission bottleneck and there's this

trend towards what is called behind the

meter collocation, right? So they're

actually if you look at like Meta, you

know, a bunch of these these

hyperscalers, they're not figuring out

where they want the data center and then

bringing the gas generation or the

electricity to the data center. They're

figuring out where the lowest hanging

fruit sources of energy are and then

reco relocating the data centers there

behind the meter behind the grid so that

they don't need to worry about

transmission bottlenecks in the first

place. And that's the reason why

Haynesville's become kind of popular for

natural gas is that Haynesville is one

of these areas where unlike West Texas

that is subject to West Texas in the in

the Peran Basin and the Midland in

particular, you you've probably heard of

certain basis blowouts and the Waja

basis and whatnot. And that has to do

that comes that results from the fact

that in West Texas most of the drilling

is is for oil, right? Shale oil, right?

Um and the with shale oil, a lot of

associated gas comes out. And in West

Texas in particular, there are some

offtake bottlenecks sometimes for that

associated gas. So much so that a lot of

times the gas has to get flared and just

wasted, right? Well, in the Hannesville,

you don't have that problem. Um the

Hannesville is has happens to be located

pretty close to uh the Gulf of America,

right? All all of the LNG export um

terminals. So, so there there's easy

offtake and that's the reason why I

believe like for instance like the meta

data center is being they're located

right next to the the Hannesville. If

I'm right that our

geopolitical dependency is moving away

from oil and oil is in a potential

structural bare market for a while and

to the extent that that actually results

in even lower oil prices and reduced

drilling for oil here in in US shale

that will actually lower the amount of

associated gas that's being produced.

So, so it potentially lower oil

potentially exacerbates a coming crunch

in natural gas, ironically.

>> So, what you're saying is that a fall in

oil prices actually would result in less

production of natural gas. The exact

amount

>> in certain in certain regions certainly

certainly in West Texas that would be

the case.

>> Is it a problem in the areas where the

data centers are going?

>> The data centers are all over the place.

So, so it could impact certain areas.

Um, but I I would imagine though that,

you know, given the amount of money that

they're that they're spending. Um, if

Okay, so here's a chart. In my piece, I

actually have a map of the data centers.

And I I I think what is interesting

about this caption is that it says the

plan data centers are located near major

natural gas producing uh uh basins.

Right. So, so um yeah, so there's there

is a lot of this data center collocation

going on to to avoid what we talked

about with the transmission bottlenecks.

>> Are these narratives about green energy

powering the data centers, nuclear

powering the data centers? Is there any

evidence that that is coming to fruition

or is it pretty clear that the industry

has settled on natural gas?

It's not clear that the industry is

settled on natural gas. Uh in that if

you look at where the hyperscalers are

are are placing their bets, it's

honestly all over the place, right? Like

Microsoft, you know, did this three-

mile island restart. And by the way,

most of the uh the nuclear deployments

that I think you're going to see that

will succeed are these restarts because

that's the lowest hanging fruit. It

doesn't cost that much. But a a green

green green field starts are are

extremely expensive and take a very very

long time. So for instance like a green

field start um would would you know

potentially take 10 plus years um and

whereas you know to to start a a uh

natural gas um powered plant uh takes

maybe like three years right so so it

just depends because like Microsoft

opted for this uh three-mile island

restart um you know Meta is all over the

place. Meta notoriously is pursuing the

shotgun strategy where they're doing

some geothermal, they're doing some

nuclear, but they're also doing a bunch

of natural gas. Um Elon Musk's XAI

recently deployed 33 natural gas

turbines. Um, so they're all over the

place. But one thing that we didn't

mention that I think um that I think is

worth mentioning is that in this massive

data center uh land grab, you've seen

for the first time some of these um uh

hypers hyperscalers go from a net cash

position to a net debt position. And I

posted about this a couple of times

where I used a picture of Arnold, right?

The the the governator. I call it the

debt governator. The debt governor. um

things change you know when you are when

you are fueling all of this with funny

money equity investments

it's one thing but if you start fueling

these data center buildouts with debt

and prodigious amounts of debt enter

what I call the debt governor because

it'll it'll shine a spotlight on ROI and

time to profitability for these projects

in such a way that I think Again, for

all of the affformentioned reasons of

both time to market as well as lowest

cost, I think that's what favors natural

gas over all of the other sources of

base load.

>> You talked about the funny money, the

equity funny money. I think anybody who

is skeptical of the AI buildout would

say that that's one of the bigger risks

to your thesis.

How much of the thesis is tied to the AI

data center buildout? And if we do see

negative return on investment and a

slowdown in this buildout, are you

concerned about NAT gas or is the

overall electrification demand mega

trend enough to power through a popping

of an AI bubble?

>> I actually think that in 10 to 20 years

time, we might have a glut of compute

and a glut of energy overbu. We very me

very well may end up in that period. But

in the shorter term, in the 3 to 5 to

7-year period, I think there is the

potential for a real squeeze on our grid

and there and therefore natural gas. So,

so I I think that the the reason why I

think that the uh demand is going to be

relatively inelastic in the short to

medium term is because of these these

three factors coming together at the

same time. Remember, I keep going back

to that chart that says for 15 years,

we've basically had flattish electricity

growth, right? For the last three years

running, we've had uh um consistent

upward revisions and now people are

thinking uh that we could have two and a

half to 5%. And that's you know to use a

to to use a pun that would be a real

shock to the system. And so if that and

and each one of these trends, each each

one of these mega trends that I

mentioned, this electrifi, this

premature electrification,

the the AI data center land grab and the

LG export, each one is a formidable

tailwind in and of itself. But to have

three of them, to have the whole

trifecta come together at the same time,

I think is um is going to be

problematic. And that's that's what

inspired me to write the the whole piece

in the first place because I just find

it just so ironic that um in an effort

the you know to decarbonize

we have essentially created two

tradeoffs that are um the geopolitical

trade-off and now this hydrocarbon

tradeoff. of the three sort of

tailwinds, the electrification one is

happening no matter

>> has has happened um and is going to

continue to happen.

>> Yep. And then you have the the export

the import export aspect to it which as

you said is going to take years to fix

and it's likely only going to happen

after a price spike occurs and you have

a glide. I think that it's going to take

years to get to unidirectional arbitrage

and then for us to have true birectional

arbitrage capability and have natural

gas be like uh you know uh WTI and Brent

like right now we've got TTF and in the

EU we've got a different metric you know

a different uh benchmark in Asia

different benchmark in the North Sea

right so all of these are provincial

provincial commodities and the reason

why they don't track like WTI and Brent

is because there is a lack of global

arbitrage.

>> So the one that actually could

potentially come undone the fastest

would be the AI data center buildout

that in theory they could all decide

tomorrow

uh we're we're turning off the the

capital spigot. So of the three that is

the one that is the most timesensitive

probably

>> and that's again

the reason why, you know, I've thought

long and hard about my choice of

expression for this bet, right? If I'm,

let's say I'm completely wrong about

these these mega trends and none none of

it happens or the AI bubble bursts and

we go into, you know, uh, and natural

gas never takes off. And by the way, I I

don't expect a I'm not calling for a a

straight shot bull market in natural

gas. I the way I characterized it in my

piece is I expect there to be kind of

like a rising saw tooth pattern where

maybe a series of higher highs and

higher lows. I because we after all when

it's still proincially trapped when it's

still a landlocked commodity you're

going to have those spikes. But but as

we near the end of the decade and we get

to the point where we have global

arbitrage at least unidirectional

arbitrage I would think that some of the

weather volatility begins to medi

mitigate and it becomes it takes more it

takes on more of this characteristic of

a global commodity. So I kind of expect

a rising sawtooth uh type of bull

market. But let's say it doesn't happen.

My point is that even if it doesn't

happen, if you look at the longdated

chart again going all the way back to

1991, right, you just don't see natural

gas going below $2 per MMBTU pretty much

ever.

>> Yeah. Like you see 50 in the worst

times.

>> Yeah. Not really. Maybe for like a

millisecond that it doesn't stay there,

right? And so this is why I think the

role of underwriting and and price

discipline, acquisition discipline is of

paramount importance because if you're

able to create, you know, my my partner

Ralph thinks that we can create acreage

or sorry reserves anywhere between a$160

to $2 per MCF, which is close to per

MMBTU.

That to me is a margin of safety. a

decent margin of safety. So like we

don't care, you know, the the if the

worst that can happen is that you are

making less money,

then I'm then I'm really happy, right? I

just don't want to lose my shirt where

where where that and that definitely can

happen if you're actually trading Henry

Hub or investing in public equities.

>> Okay.

>> Right.

>> And so obviously there's the price

discipline. How much are you thinking

about geography?

>> I'm not going to speak for for Ralph.

This is where I think the there the art

versus the science comes into play. But

uh um what my partner would say is that

it's not so much chasing data centers as

it is really trying to figure out

knowing what the operator behavior will

be. like there's certain operators that

might have the reputation of hoarding

inventory and and you know filing a

drilling permit without necessarily

wanting to to drill imminently. And so

it's incumbent on him to know that and

to sus that out and to figure out, oh,

you know, maybe there are other what

other clues can we glean? what do we

know about what he's done in the past um

um to to to underwrite that risk? Right?

So that's so I I think it's such a

fascinating asset class because

you have to both think like an operator

from a geology standpoint and figure

out, okay, is this rock that I would

want to drill? And once you pass that

test, now you have to put on a

completely different hat and say, I have

to now guess

what,

you know, what the operator of this in

this drilling unit will likely do and

when.

>> And that's and that's that's the part

where that that's that's Ralph's

competency, not mine. In a scenario

where this all works out, are you more

likely to get paid on continuing

>> cash flow from these rights or the type

of thing where you're getting bought out

by these operators that you're talking

about? What what does a a winning

scenario look like?

>> Once these things go into pay, um it

follows a the life cycle of like a

typical shale well. You have initial

flush production. So you know first

couple of years you have a you know very

high payout and then with a very fast

decline and then by the time you've

let's say distributed out um you know

2thirds of your production right you go

into this what I call a tail period

right where where the last third comes

out um and it it asmmptotes out over a

long period of time and you know what

I'm also learning that's that I find

fascinating is that the market

for mineral tales is actually more

liquid than the market for working

interest tales. And the reason why is

because mineral holders have a perpetual

call option on the future production

that comes from these minerals. Whereas

if you're the working interest holder,

right, you have all your your

optionality can get shut off because of

economic constraints. What you know,

your capex constraints, where oil prices

are, whatever, right? But if you own the

underlying minerals, right? Even if the

operator of your drilling unit says

shuts the weld down because of low oil

or low gas prices,

you as the minerals holder still own the

future uh call option in perpetuity.

It's truly, remember, you and I have

talked about perpetuity options in the

past. This is a true perpetuity option.

It is an option that extends forever.

And so so because of that perpetuity

option component of it, the market for

the tail for these mineral tails is more

liquid and tends to pay a hash a higher

cash flow multiple

than working interest tails. You see

what I mean? So like with working

interest tales you usually once you get

into this tail phase right you could

either hold these interests forever and

just collect smaller and smaller checks

or you can basically just try to sell it

to this market of there there is a whole

market place of buyers you know it could

be say like a royalty trust for instance

buyers that basically assemble these

tales because of their predict

predictability and cash flow stream,

right? That's a whole other that's a

whole other uh market, right? Somebody

wanting to buy the tails.

But because of that, right, because of

the perpetuity option aspect of it, it

provides a nice exit strategy once you

get to the tail phase. The big question

that you haven't asked that I'm going to

anticipate is and I've wondered this

myself is that look at some point right

um if if if prices if natural gas prices

really do uh go like if if you call the

current floor 2 and 1 half to three and

a half.

>> Yeah.

>> And let let's say that we reset to a new

floor of 4 and a half to six and a half.

Right.

>> Well, do you expect minerals prices to

go higher? Of course I of course I do,

right? But my understanding

um from my partner is that the the

prices they they tend to be kind of

sticky above and below certain break

points. And he he would say that unless

you see a protracted period of you know

strip pricing, not just spot pricing but

the entire strip.

um staying above call it four and a half

to five bucks per MMBTU

these the marketplace for especially for

smaller deals these smaller minerals

deals uh it it tends to be pretty

sticky. It it doesn't it doesn't like

necessarily eb and flow and so so you

have total control over your your your

discipline and the smaller when you

underwrite smaller deals you're able to

have more underwriting alpha right

versus

buying like a, you know, a package of 20

million of minerals, right? Because when

you're underwriting smaller deals, you

can cherrypick the acreage.

>> You did anticipate my question of the

world, like the world of the current

floor and then maybe a future higher

floor. Uh, what is the risk that we

reset to a lower floor? I invite you to

tell me what would cause it because if

we haven't seen that since 1991

um a lower floor meaning you know below

two bucks what would cause that? And you

know, I I suppose you could say that,

okay, let's say we're 15 years down the

road. Um, and hopefully, you know, this

this, by the way, this my thesis right

now is really for the next 3 to seven

years really. But let's say we do get

into this s sort of energy overbuild

situation. Well, then, you know, that's

that's that's the scenario. I don't I

don't necessarily think that you want to

be in this play, you know, 15 years out

because I do think that there is the

potential for an energy overbuild. There

are some real dollars and cents uh

considerations, right? Especially when

you factor in the amount of debt being

thrown at these projects because I just

think that, you know, it it it none of

the other sources of base load are going

to do the trick. And if they are if they

are spending, you know, trillions of

dollars on these data centers, um um

they're going to need this this energy

at some point. And and but but again, I

again that's only one part of the

trifecta, right? There's another chart

in my piece that quant tries to quantify

it. Um and it it basically says here

from and the source is the EIA. Um it it

shows you that the demand pull from LNG

exports is significantly higher than the

demand pull from AI. The reason why I

think that this thesis

works is because you need all three of

these things to to really fail

uh you know at the same time and and

when when the opposite is actually

happening right we've had this

electrification trend we have AI and LG

all happening at the same time so we

haven't we've never had a period of of

electricity demand going down that's the

other thing right even even during the

flat period of 05 to uh 2020 it was 0.5%

electricity growth with demand natural

gas powering the majority of that

electricity demand right so so you take

that and you and you overlay it on your

on on that 1991 to present chart of

natural gas prices and you see that okay

in that flat period is when we've had

we've had all this weather volatility

but in that period of flat growth

You've never seen natural gas really dip

below 2 and a half per mm BTU for

sustained periods of time. So the

question I ask is now what happens when

this trifecta happens to electricity

growth and the only real lowest the the

the lowest common denominator or the

lowest hanging fruit from a base load

generation perspective is natural gas.

>> Yeah. Well, I think that's a great place

to leave it, Michael. Anybody can read

this write up that you that you wrote on

your Substack, which is uh Cowboy

Musings, and your your Substack handle

is urban cowboy. It makes it easy

because that's also your Twitter handle,

urban cowboy.

>> Yeah, my Substack is actually urban

cowboy.com, so it's the same. Yeah.

>> All right. Well, we'll leave it right

there, Michael. Thank you so much for

joining us. Thanks for having