The Offshore Energy Podcast
Offshore energy and ocean innovation in the United States is transforming the way we power our nation. Join our hosts Ian Voparil and Jim Bennett as they discuss current events, innovation, technology, and the future of the offshore energy ecosystem.
With decades of combined experience, these two industry veterans bring a unique blend of expertise, humor, and captivating stories from the high seas of offshore energy innovation.
Whether you’re an industry expert or just starting to learn about offshore energy, The Offshore Energy Podcast provides a platform for meaningful conversation and exploration. Tune in to enhance your understanding and stay updated on the latest advancements in this exciting field.
Let’s embark on this journey together!
The Offshore Energy Podcast
Billion Dollar Bets: Navigating Offshore Energy Project Finance
What happens when you bring a billion dollars to the high-stakes world of offshore energy development? According to Allan Marks, one of the world's foremost experts on project finance, success depends on navigating a complex web of technical challenges, regulatory frameworks, and financial structures tailored to fundamentally different risk profiles.
Offshore energy development—whether wind turbines or oil platforms—faces universal challenges. Projects must withstand harsh marine environments, secure federal permits across multiple agencies, use specialized vessels, and construct elaborate transmission networks to bring energy ashore. Yet beneath these similarities lie striking differences in financial approach.
Oil and gas developers typically maintain tight control over technology and operations, keeping risks on their balance sheets while riding the volatile waves of commodity markets. When prices surge, these projects generate extraordinary profits. When markets crash, they weather the storm through diversified portfolios. The opposite holds true for offshore wind, where developers aggressively shed risk through contracts with equipment manufacturers and other partners. With fixed-price power contracts providing stable revenue, wind projects can support highly-leveraged capital stacks—often 60-70% debt—maximizing returns through financial engineering rather than commodity speculation.
The current political climate creates particular challenges for U.S. offshore wind. While projects with existing leases continue development, regulatory uncertainty affects the entire supply chain. Each delay increases exposure to inflation, interest rate fluctuations, and supply chain disruptions. Meanwhile, America faces growing competition from both Europe's mature offshore wind sector and China's explosive growth, which has added more capacity in 18 months than Europe built in two decades.
Government support remains crucial across all energy sectors. Long-standing oil and gas tax benefits like the intangible drilling cost deduction (established 1916) helped enable America's shale revolution, while the Inflation Reduction Act's decade-long tax credits aim to provide similar certainty for renewables investors. Allan emphasizes that effective energy policy must transcend political cycles, allowing companies to make confident long-term investments in America's energy future.
Hey listeners, if you had a billion dollars burning a hole in your pocket, where would you invest it? Would you invest in offshore energy development, for example, with its long lead times, technical complexity, high cost and massive scale? Or maybe you'd rather put your money in NFTs? Just kidding, to tackle these kinds of formidable decisions, one needs a masterful view on risks and potential rewards, along with commercial and contract strategies to improve value and protect investments, and Jim and I are thrilled to have Alan Marks, one of the world's experts on energy project finance, come join us to share his view on the current state of the markets and challenges in front of us. Let's go.
Speaker 3:I'm Jim Bennett and I have over 40 years of experience developing energy in the ocean.
Speaker 1:I'm Ian Vopero and I've spent the last 20 years developing offshore energy projects around the world. And this is the Offshore Energy Podcast. Hey, jim, good to see you, good morning.
Speaker 3:Good to see you too, Ian.
Speaker 1:How's your week going?
Speaker 3:Busy. I commuted up from Virginia today and put up a whole new setup here, but it seems to be working, so we're ready to go.
Speaker 1:You look and sound great, jim. It's good to have you. I've had a really fun beginning of the week. My son is on a reverse spring break my oldest son and so he goes to school somewhere warm and sunny and he returned here for spring break to the cold, dreary, gray New England weather. So somehow that's fun for me. I have a feeling he's not having quite the time he would if he was down somewhere else, but it's great to see him. Shall we get into it. We've got a great podcast to record today.
Speaker 3:Great podcast, great guest, great subject in finance because, despite all of the business arrangements and all of the technical aspects, if you can't show me the money, it ain't going to happen.
Speaker 1:We're thrilled to have Alan Marks joining us today. Alan, great to see you. Hello, I hope it's warmer where you are.
Speaker 2:Hi Ian, hi Jim, oh, I'm in sunny California, it's always nice here.
Speaker 1:I recall, I recall, Alan, you know for some of our listeners. Would you mind giving a brief introduction to yourself?
Speaker 2:Sure Happy to. I'm a senior fellow at the Columbia Center on Sustainable Investment and I also teach at the law schools at UCLA and Berkeley. I, for 34 years, was a lawyer and partner at Milbank, working in our global project finance group, representing both developers and lenders for complex projects all around the world, mainly in energy, but also in other sectors water, digital infrastructure, transportation and so forth and then also did related M&A and corporate transactions around those kinds of assets.
Speaker 1:And you also didn't mention, but many of our listeners may know, you're one of the OGs of energy and infrastructure podcasting. I know you were hosting your own podcast, law, policy and Markets, for maybe the last five years and you're certainly a frequent guest on many of the podcasts around our topic and the broader energy markets. So it's great to have you and we're glad we can take some time together. Well, thank you, ian, it's a pleasure.
Speaker 1:Yeah thanks, Alan. I'll start off. We have you here on the Offshore Energy podcast and so can you help some of our listeners with the key elements of the framework for project finance. We want to try to keep our discussion focused on the offshore part. I know that you have vast experience with other types of projects, but because our listeners have this passion for stuff that's offshore and hard to do, we thought maybe we could focus in there. So what are some of those key levers in the framework that you see for offshore projects?
Speaker 2:Sure happy to do that. I mean, first off, offshore energy, whether that's oil and gas development offshore or offshore wind, or maybe the more experimental technologies that people have talked about in the future, all of them are facing some of the same challenges. The first one that, of course, is obvious is that you're in a marine environment and marine environments are harsh. You have to do with saltwater and any kid who's ever built a sandcastle on the shore.
Speaker 1:And then watch the waves come and wash it and you start over again.
Speaker 2:If you're digging into the ground and you're underwater, you already have challenges, but in a more complex way, there are other systems that you're going to bump up against. In developing an offshore project, you probably have to get your energy whatever you're developing to shore. So you need a pipeline or you need a transmission cable of some sort. So you're not just dealing with the location where the energy resources are being exploited, but you're also dealing with that transportation issue getting it to shore and where you're going to land it and all of that requires port facilities to be developed. Shore and where you're going to land it and all of that requires port facilities to be developed. It requires vessels, usually very specialized vessels, to go, both during construction and operation, from sea to shore. Communications has to be developed.
Speaker 2:Impacts on marine systems, marine wildlife, for example, marine mammals in particular, but also, in the case of offshore wind, avian species in the marine environment. All of these things have to be taken into account with a level of complexity that is significantly greater than if you were developing an energy facility onshore. And then, lastly, I'd say there's a regulatory overlay to these things that is different In the United States relate to these things. That is different. In the United States, the near shore waters are state waters, but as soon as you get further offshore you're dealing with the federal government. The Bureau of Ocean Energy Management or BOEM, within the US Department of the Interior, is the agency that regulates and I would say, historically very well regulates offshore energy. That includes leases for oil and gas exploration and production.
Speaker 2:It also includes offshore leases for offshore wind which obviously have had more political flip-flops, I'd say over the last, say, dozen years here in the US, so that regulatory and now, even political overlay is important.
Speaker 2:So, since you're in federal waters, regardless again of the type of energy project you're developing, that subjects you to a higher level of scrutiny on environmental compliance as a condition for the federal leases. And that means that BOEM will be the lead agency, but there could be many others. Department of Defense, coast Guard, but there could be many others. Department of Defense, coast Guard, agencies responsible for marine fish and wildlife. Myriad approvals that are needed, and that process has to be shepherded and coordinated in a way that allows stakeholders to have a say, that allows for the appropriate scientific studies of the impacts or potential impacts from a project and then, of course, compliance with all of those conditions or rules once the permits are issued.
Speaker 3:Hey Alan, those are great points. I appreciate what you said about BOEM.
Speaker 1:I saw you smile, Tim.
Speaker 3:I spent many years there. I know BOEM has always both in the legacy oil and gas going back into the 70s and the 80s and as well as the relatively new program in wind has always tried to be on top of things, and they do have those two different issues to deal with. As a regulatory agency, they have to straddle the issues surrounding the politics of oil and gas versus renewable energy, but I think they do a great job doing that. So let's focus a little bit on wind, if we could. What are the issues developers are facing right now with regard to wind? Without going into a history, which I'd be happy to do and take everybody's time, but without going too much into the history, where are we right now with the developers and offshore wind?
Speaker 2:So, as we're recording this right now, in March of 2025, I would say US offshore wind is in a very different place, mainly due to politics than it was before January 20th. So you know, just a few weeks, a couple months ago. So if you ask yourself, well, what does that really mean, I think some of the reactions to it are either overblown or misunderstood. So, as it stands right now, the United States has had for many years a policy and it was, of course, pushed more during the Biden administration than it was during the first Trump administration or than it is now but they've had a policy going back even before that of developing our offshore energy resources, including offshore wind, offshore wind. Offshore wind is a very long lead time, like most offshore energy projects are a very long lead time development cycle. So, in order to develop a project, the first step is to get the lease area and BOEM has auctions from time to time both for wind and for oil and gas leases offshore the governing statute OX, uh, for environmental compliance and permitting NEPA mainly, but there are other statutes that are relevant, but those are the main ones, that that that dictate that process and the lease areas, once purchased, still have to go through an environmental approval process that could take three, four or five years, uh, before you're ready to to do anything. Uh, in parallel with that, uh, there's a need to determine the technology and lock in contracts with vendors and technology providers for a myriad of equipment. It's not just the offshore wind turbine generators. They may have different anchoring technologies. You have to optimize the layout given the size and design of the machines, all of which has to be finally approved in your permit so you can't make a change later.
Speaker 2:Once you've made that final decision, you have to get a transmission route for your subsea cables that will go from the offshore substation from which all the power is collected from your array of offshore wind turbines, into this cable, either one or two, sometimes in parallel, that will come from that offshore substation to an onshore substation. So now you need to figure out where that's going to be and get the land rights for that. You need interconnection agreements with the local grid. Typically, the onshore substation is located proximate to an existing substation, but you need grid capacity. There's congestion, concerns, all the things to go around. Interconnection for any electric power generating facility matter, but of course you're more constrained as to where those onshore landing stations could be, and you're crossing not just federal but also state waters, so you have to deal with the state approvals for the transmission right away and for the landing sites. So all of that takes time.
Speaker 2:The engineering, the design, the procurement, the permitting, the land rights, specialized vessels that can go out for construction. All of that takes time and, as a result, any temporary pause, for example, in the government issuing new leases the pause itself does not affect projects that already have leases that are going forward. Any government pause in granting permits for example the approval of the construction and operating plan, the COP permit, which is the major one at the end of the main review cycle under NEPA any delay in getting those permits will affect projects that are at an advanced stage of development but are not yet ready to start construction or close their financing. For any projects that are in earlier stages of development, such as the offshore wind projects, say, in California there's five of them on lease areas. They're very early stage. They may not be at a point yet where they need that. So I think I think the jury is out on what the impacts will be, alan I just Alan.
Speaker 1:I just wanted to add to, although the project itself may not be impacted much beyond a delay, I think what we see in contracting both for services and also for equipment there's usually a pretty long lead time. Contractors want to book the business and then build the facilities to go create the equipment for sale. That also gets delayed, and so we see a little bit of a compounding effect of delays at the top level with project authorizations and permitting.
Speaker 3:that transfers down the supply chain where you know contracts to build, for example, you know equipment facilities might also now be delayed and that has a little bit more of a non-linear effect also, um, I appreciate that you mentioned specialized vessels, because it points to the whole aspect of ports and the like, which is, of course, a very big part of making all of these things work and come together. Maybe you could talk a little bit about the differences that we're facing, the difficulties we're facing in the US, versus the experience over in Europe with regard to development. Any thoughts on that?
Speaker 2:Yeah, jim, I can look at that comparison between the US and Europe as it relates to ports and other things. And also, ian, to your point. I want to stay with that for a moment, if I may, because it's a long lead time. If you add regulatory uncertainty, or even if you add a pause or a suspension for a period of time, say up to four years, just to pick a random number right to pick a, you know where there won't be any new permits, there won't be any new leases. That has a chilling effect on everybody, not just because they need those federal actions to happen, but because any time you have a long lead time project, you're exposed to supply chain disruptions, you're exposed to inflation, you're exposed to variable interest rates which may be different than you expected. When you come finally, to your financing plan and we saw even before January 20th, we saw write downs by developers of some of their projects because they were more exposed to higher, for longer, interest rates, because they were exposed to inflation that was higher than they expected. Even before that, a few years ago, we saw some projects that had to be rebid for their off-take contracts in order to make sure that they had pricing that would allow their projects to be feasible because of inflation, and delays increase inflation risk, especially in the current economic environment. So that's a major one. And, as I said, supply chain disruptions have been an issue, not just oil and gas or offshore wind but across a number of industries. If you lay on top of that tariffs and kind of the uncertainty around tariffs and we're seeing them on steel and aluminum and announcements to go back and forth that significantly increases cost and therefore the uncertainty about cost will be. So I would say it's the uncertainty about cost, the uncertainty about timing of when construction and therefore revenues would start, the uncertainty about permits and regulation all of that significantly compounds the risk of these projects. That's why you're seeing developers write down the book value of some of the projects that they're still pursuing. There's a myth that if you write it down you're quitting. That's not true. We've seen write-downs, for example, by Shell and EDF of Atlantic Shores of about $900 million equivalent each. We've seen write-downs by Orsted. We've seen write-downs by Ocean Winds, south Coast Wind. All of those write-downs are just accounting adjustments because of uncertainty for various reasons that they've announced, not just regulatory uncertainty and that does not mean they're not pursuing the projects, they may still be actively engaged in it.
Speaker 2:Jim, to your question about Europe versus the US, I want to look not just at port capacity and vessels but I think for something very specific on vessels and then something more general about the two markets. So for vessels in the United States we have a law called the Jones Act which is designed to encourage US shipbuilding and also US crews for US flagged vessels. And the Jones Act basically requires that if you have a vessel that's moving a commercial voyage between two US ports it must be a US vessel. So I went to a shipyard in South Louisiana and Houma where a number of the crew transfer vehicles are being built for Orsted and for Equinor for their US offshore wind projects. They're being built in the US because they will go from servicing. Once the projects are operating they'll service those projects from US ports. So if just you take, for example, equinor's Empire Wind Project under construction now in New York, take, for example, equinor's Empire Wind Project under construction now in New York, once it's built the crew transfer vessel will come out of the South Brooklyn Marine Terminal, a new port that has been built bespoke for offshore wind. It will come out in fully electric power, so environmentally clean and green, until it gets outside the port boundaries. And it will go out back and forth over the years of operation of that project, bringing technicians and engineers and so forth, out to operate and maintain the field. Because the offshore wind project is in federal waters, that vessel is going from a US point to a US point and has to therefore meet the Jones Act requirements because it's under the jurisdiction of the Jones Act.
Speaker 2:In Europe you don't have that problem.
Speaker 2:So imagine for a second that you're in the North Sea or in the Baltic and you're developing an offshore wind project and the best and most available ships are from Italy or from Singapore.
Speaker 2:Fine, you can hire them, you can charter them, you can lock things up and get your prices down as much as possible. If you have to build new ones and they're bespoke and they have to be built in the United States that would of course limit and constrain your choices. Some of the projects in New England, for example, during construction, are actually basing their home ports for some of the construction materials in Canada so that they can bring it down to US offshore waters because of the Jones Act, because they don't have the availability, we just don't have it in our market because we're a newer market of the vessels that would be available. For that, absent the Jones Act, we might see less investment in US shipbuilding but we might see more US home porting and more onshore manufacturing facilities, because then you could move things back and forth using non-US flag vessels from a US port to US offshore wind project.
Speaker 2:The last thing I'll say is, Europe is a significantly more mature market. If you look at installed capacity, Europe's been building offshore wind for a very long time and if you look around the world, China has added more offshore wind capacity in the last 18 months than all of what was already built in Europe over the last 20 years combined. The United States is very late to this offshore wind party, so we do not yet have the domestic manufacturing base, the domestic vessel fleet and so forth, specialized labor forces that are able to do these projects, and I think a stall in the market uh, in back to your point we'll make it harder to do that and harder to compete in the future.
Speaker 1:So we'll just be left further behind and and Alan, just to make sure I understand the points that you hit along the way.
Speaker 1:There too, it's those stalls don't only um hamper our domestic opportunity to create energy, hamper our domestic opportunity to create energy, some of them make it more expensive for us to potentially create in the future, and the point that I really want to hit is that it's also then very difficult for us to export our technology, our know-how, our workforce, because we're not in the pole position, we're not leading in this technology space at this point.
Speaker 1:That's right, and I want to, I think, maybe flip now to talk about oil and gas offshore, because that is, in fact, one of the technologies and one of the ways of production of energy that the US did lead in after World War II and has continued to lead in the advancement of production of energy. That the US did lead in after World War II and has continued to lead in the advancement of technologies that are now deployed around the world by both international companies but also US companies and US workforce and US specialists. So I always want to keep in mind this economic engine around energy that we're talking about. But help me understand how you see the difference in challenges, from what offshore wind is facing to that for offshore oil and gas.
Speaker 2:Sure, I think you know there are a lot of similarities, right? They're both capital intensive, they need specialized equipment, they're in marine environments which are harsh, both in water and in air, and with salt corrosion, and all of that they need specialized workforces and they need onshore facilities to which they can connect and then export whatever it is they're producing. So those things are kind of similar. You know, having worked many years ago on offshore oil and gas facilities, on FPSOs, not just in the United States but also elsewhere also, uh, elsewhere in the world, um, I'm I'm familiar with some of the special challenges that they face and, to my mind, I'd break it up between technology and markets. Those, those are different.
Speaker 2:So, from a technology standpoint, uh, you know, if you're in harsh Marine conditions and you're doing oil and gas, as you get progressively into deeper and deeper water, where the United States, for example, along with other countries like Brazil, you know, and some of the European major oil companies had significant expertise as you get into deeper water, that gets a lot harder.
Speaker 2:So, just to give you one example, if you're in deeper water and you have, you know, a higher temperature, high pressure field, and you're pulling that out and you're putting it into. You know, whatever riser technology you're using right and the water deep is really cold, you know you're going to have issues with hydrates, you're going to have issues with wax deposition. There's things that you have to solve. So how do you solve it? You solve it with materials improvements. You solve it with improvements in riser technologies. If you're coming up to a floating platform, semi-submersible, or an FPSO now, you have other issues with respect to how your wet tree is going to function and how you're going to adapt to currents and things moving around that you don't have. If you're closer to shore and you're using dry trees and you know simpler wells Technologies.
Speaker 2:You don't have the same extremes that are, you know, temperature or depth dependent. All of these things have technical solutions, so the technology requires Significant capital investment. It means early projects may not be as successful. I was in Brazil. It means early projects may not be as successful. I was in Brazil around the time that one of their floating platforms I think P36, sank and that was a repurposed platform that had originally been used elsewhere in the world and was then brought down to Brazil. They redid the top sides and blew out a pressure gauge and the thing started listing. It was very dramatic, I'm sure.
Speaker 1:There's some pictures.
Speaker 2:There's some good pictures of this and then it tipped and sadly some people did die. You know there are real risks to being out there. I think another difference into technology, of course, is you're dealing. If you're dealing with hydrocarbons, things can spill. Deepwater Horizon will blowout, for example, in the Gulf of Mexico is a very well-known in the US example. And then there's different impacts on the environment when you have that kind of a massive oil or gas leak. As I mentioned, I'm in California and grew up with the memories of Santa Barbara and also Unical, you know. Further up the coast, you know, with some of those spills, that attracts a lot of attention from people, appropriately, because of the toxicity of it. Offshore wind doesn't have the same issues with respect to that, although we have seen with you know, during the construction stage, a blade failure in vineyard wind which resulted in some fiberglass washing up on a beach. Ok, that's an environmental impact, and if that's your beach, that's a real problem. So none of these things are immune, but they do have very different, I think, scales of potential impact that matter. Potential risk profile, yeah, yep.
Speaker 2:And then, lastly, the market. You're selling a commodity with oil and gas, so you're subject to the boom and bust cycles. You know, some of the projects that are done with these long lead times are assuming a certain production curve and they're assuming a certain resource that's available. That may be a little more speculative in oil and gas you know, for example, than it is measuring a wind resource for an offshore wind project. But assume that what you think is underground is there once you go down through the water and then below the seabed and assume you can get it outed, and assume you can get it out, and you assume you can get it out at a price which isn't, you know, extraordinarily expensive by the time it comes to the surface and then gets to shore, uh, what are you selling it for? Well, that depends what oil prices are, and oil prices could be higher than you thought they'd be, and great, now you're rich. Or they could be lower.
Speaker 2:And now maybe shut down and not produce because you don't want to produce at a loss, or maybe just produce at a loss because some of them have to, because once you've tapped into a well and changed, you know you may have to continue production. It's not so easy to shut it off and now you're selling at a loss. So that's. You know, that's a very different set of economics. Offshore wind projects typically, by the way, mitigate that by having fixed price contracts, contracts for differences, whether that's true of a power purchase agreement with utility, a corporate PPA. We're seeing different trends in contracts between the US and Europe, for example in offshore wind.
Speaker 2:But at the end of the day, you're really hedging your revenue risk. Your demand is very predictable as far as volume is concerned. So if you've solved volume, you've solved price and you know your resource with a high degree of confidence. Given your technology, there's a lot less uncertainty. So offshore energy is very different from, I think, the economics of what you're looking at, as to whether it's potential boom and bust, which includes booms, or whether it's something which is much more like a typical rate of return low single digits return that a utility would expect.
Speaker 1:Yeah, I appreciate you framing that like that. We would call a lot of those revenue risk obviously reservoir risk, field life risk, commodity price risk is very common. Everyone's quite familiar with it, and so setting the stage of risk management between the different sectors offshore, wind and oil and gas Do we see that reflected in the particular financing structures that people are using? Do we see it in interest rates or in the credit worthiness of particular partners and projects?
Speaker 2:Yeah, I think so. I think you see, for example, in a project financing of a renewables project generally but this is also true of offshore wind there's, generally speaking, the desire to drive costs down, because you're selling into a regulated market where affordability is key. Power should not be too expensive anywhere. So to generate power you have to drive costs down with established technologies not a lot of experimental technology, relatively speaking and squeeze as much risk out of the system as you possibly can. Sometimes that means shedding risk through contractual risk allocation to third parties operators, contractors and so forth, OEM manufacturers of key equipment like wind turbines to shed that risk through contracts so that they're responsible for being on time, being on budget, for reliability, for efficiency and so forth.
Speaker 2:By way, in the legacy oil and gas business, you do the opposite. You try to control all the risks yourself Absolutely, because you have a verdict-making company. You don't trust anybody else. You maybe have proprietary technology of your own and you don't shed that risk, so you're keeping that risk on your balance sheet. That's the difference. That means cost, by the way, in cost management maybe is not, frankly, either as important or at least not as disciplined for a company doing this on balance sheet to the degree that they may be able to, to recover it when times are good and there's some scarcity and commodity prices are high. So that variability means they have to hold on their balance sheet. And that means you're in corporate finance. You can project finance, discrete facilities, but usually that's still going to be at some point backstopped by someone who's either an oil and gas company or an oil and gas trader with suitable credit. And the return is the return on the investment, driven by profitability, because your production costs on a long-term life of field basis, your production costs are significantly lower than what you're selling it for and your as-delivered price difference creates profit with a return on assets.
Speaker 2:In an energy situation and this is true of any power plant, but let's look at offshore wind because you have to keep your costs down, because your revenues are relatively fixed and because you're shedding costs to third party, the profit margin on the assets is actually almost negligible. I mean, the return on assets is actually quite low, but because you've driven the risk down, you can borrow more money. Borrowing money requires you to de-risk. Maximizing debt capacity then means you have a return through leverage because you've pulled your weighted cost of capital down.
Speaker 2:So by making the capital cheaper, by de-risking, you not only in fact have more predictable cash flows and less material risk that your business might fail, for which you've given up the upside of windfall profits or even the potential for them, you've changed the capital stack completely, so you've ended up with, you know, projects that may have% 30% maybe, because offshore wind is more risky than say, onshore maybe 40% equity initially, but the majority of the capital stack is coming from debt and as time goes by and if it's successfully installed and operates and has an operating history, you can refinance that over and over. All of that, by the way, is true anywhere you do this in the world. If you throw on tax credits. When we look at subsidies later, both for wind or for oil and gas and other sources of energy, that calculus changes and the financing structures would change.
Speaker 2:But, generally speaking, the idea is how I laid it out Back on a technology point.
Speaker 3:I can't help but draw the analogy about how the industry, the oil and gas industry is so many decades ahead and the technology has driven things into deeper waters and enabled a lot and brought down some of the finance costs and in general, the wind market in the US is quite a ways behind that, similarly in the deep water technology aspects. But do you anticipate that? You mentioned the cost of capital just a few minutes ago. Do you anticipate that that's going to be a rapid catch up with offshore wind as far as the technology is concerned and the de-risking of activities, or is that going to be much more similar to the long term of the oil and gas industry in the Gulf of Mexico?
Speaker 2:It's a good question, jim. I'm really not sure, I think, if I look at cost curves and how they've declined for other renewable technologies, like you know, wind for example. I mean I did my first wind farm transaction in 1991. And at the time the industry was quite fragmented. There were a lot of companies Clipper, flowin, kenetech you know companies that aren't around anymore that were manufacturing. They all had wildly different technologies, you know, within the constraints of building a wind turbine generator and they had gearboxes that froze and they weren't very efficient and they killed too many birds. I mean there were a lot of problems with them.
Speaker 2:When later you get consolidation and relatively few very large, well-capitalized manufacturers are able to build very tall, sleek steel towers not open latticework towers when the swept area of the blades is significantly larger, because you're using taller machines with longer blades and you use advanced aircraft design, as you would for a jet aircraft wing, to design those blades in ways that not just reduce turbulence and therefore the sound associated with it, but really increase the efficiency and how you can capture that wind resource. And offshore that's especially important because there's so much more wind and it's so much more consistent at higher speeds and higher altitudes. You know, the ability to do that required a consolidation among manufacturers. It also might have benefited from computer-assisted design. So if you could use CAD designs and prototypes, experiment with how different materials might function or different shapes might function, you don't have to waste all that money building physical prototypes. So that was a huge savings in design and as a result, you get more capacity, more efficiency, more reliability and those combined, you know, eventually bring down the cost, the installed cost and the levelized cost of energy from projects that are using that technology.
Speaker 2:Solar has come down, but I think for a slightly different reason.
Speaker 2:It's not just technological improvements, especially in PV cells, so they don't degrade as much as so that they have higher capacity and efficiency, and other technologies like thin films and things that I think we'll see more of, but it's also their scale right.
Speaker 2:So and you cannot not mention China here, because China has devoted so many resources to boosting manufacturing capacity that at times it's created a surplus and that also drives down prices globally of the huge economies of scale associated with the massive build out of solar, we've seen prices come down to where now solar is usually the cheapest levelized cost of energy comparator, and even in a state like Texas, which is trying to subsidize onshore oil and gas or onshore gas I should say gas-fired generation and having a hard time finding a lot of takers. Some companies have pulled out. Solar is producing a lot of the power during the day and that's because there's a zero marginal cost of generation, so it's pulling down average costs on a grid that still relies on nuclear gas and coal, along with wind and solar. So I think the cost curve coming down for offshore wind is going to be harder.
Speaker 3:Okay, okay, okay. On the aside from the technology and the financing and the risk that we talked about, is there anything you want to add with regard to the regulatory differences before we leave the topic? But, ian, did you want to stay on that topic for a question?
Speaker 1:Well, I just, alan, you mentioned something about the cost of solar and the competitiveness of solar, and I think one of the other key things, and a theme maybe here that we need to continue to explore, is onshore solar projects are also relatively fast to deploy, and so solar is not only the lowest cost to produce energy or I should say electricity specifically, because you will never produce oil and gas with solar but it's also fast to do and often is done not on federal lands, but on private lands or private other infrastructure. Lots of folks are putting solar on their homes in lots of parts of the US, and so there's a lot of clear competitive advantages for that generation source of energy to keep increasing its share of US energy production. Right, and so, just to you know, that theme of the difficulty and the time and the duration the long duration to deliver offshore projects isn't necessarily true for other technologies when deployed onshore, and I think we all keep that in mind during our discussions of our energy mix in the US.
Speaker 2:I think it's true, but, ian, I think it's also important to look at scale.
Speaker 2:Offshore wind gives you just bucket loads of power real quick once it's on it just takes you a long time to get there, right, indeed, but I think the other is, you know, locational specificity. So if, for example, you said to me, well, what's better, should I build solar or should I build a natural gas power plant, the first thing I have to ask you is where you are. Because if you're in a place where there's no sun, you know, if you're near the Arctic Circle half the year, that's probably not the best place to maximize the use of solar power. If you're in New England, where there's no gas pipelines, the sufficient capacity coming in, probably not the best place for a gas fire power plant, right? So look, how do you connect? Are you using solar for CNI or for residential or for smaller microgrids where it's distributed? Are you building a big utility scale solar plant that requires transmission capacity?
Speaker 2:And what does storage do to that? Because storage is another one where there's massive investment, where the cost is falling rapidly, where there are operational improvements not just in the batteries themselves but also in the software that manages them. And AI-enabled grids that take advantage of storage, coupled with intermittent resources, are very reliable and very inexpensive marginal cost of power. I think offshore wind still has a role to play in that, especially in areas like the US Northeast where you have large population centers that can benefit from that type of reliable resource to supplement the grid and because offshore wind often blows at night, that actually does a very good job supplementing what otherwise might be more solar penetration as an intermittent resource during the day.
Speaker 1:You know, alan, we're we're definitely on the same page around the need and the opportunities of offshore wind for the US. Fully agree, alan. Do you see? What's your take on the other inherent risks between the sectors? We've talked a little bit about operational risk. We've talked a little bit about regulatory risk and actually operational risk you brought up. Are there other key risks that we want to make sure the public is aware of and the differences, and maybe sometimes those risks aren't as significant as we think.
Speaker 2:You know, other than the operational risk around both commodity pricing and environmental impacts, or you know possible catastrophic events, which those I think are the major ones once these projects are up and running. One of the things I'd look at, with offshore oil and gas too, is the mix of what's coming out of the field, because a lot of the gas is associated gas really for oil development, and it'll be interesting to see what happens over the next, say, two decades with oil demand and oil demand destruction and natural gas, because we're in a point right now where oil demand growth is either going to fall and be negative or at least go up at a slower rate and it's been sort of flat for the last 15 years already and with the increased electrification of transportation, with other liquid fuel alternatives and with not using oil as much for power generation as we did, say, before the 1970s, oil demand growth will be slower than natural gas demand growth and natural gas demand growth is high and projected to remain there, not just for power generation but also for hard to abate sectors like industrial heat generation, but also for hard to abate sectors like industrial heat, whether that's coupled with better methane monitoring and capture, whether it's coupled with carbon capture and storage. The jury's out on where that's going to go, at least in the United States, but I think globally those trends are certainly apparent. But I see gas demand continuing to rise. The mix of what's actually being produced when gas and oil are in the same place causes a challenge for that.
Speaker 2:Let's look, for example, at the Permian Basin, just onshore for a moment in Texas. If you wanted to sell that gas, what's it worth? What's the cost? What's the value today? Well, you could look at the Henry Hubb price for gas and that tells you something. You could look at whether the globalization of gas prices because of increased LNG exports into Europe especially, but not only into Europe, will affect US domestic prices of gas. At the moment it's too small to do that. But if you're at the Permian, you might also be selling it to California and the California gate price on gas is high and it's higher. It's one reason why California power prices are higher, not the major one, but a contributing one.
Speaker 2:But at the source, in the Permian, there are times recently where the gas price is negative, and it's negative because there isn't sufficient pipeline capacity to move it out, but it still has to be produced because it's associated gas from oil production and that oil is profitably produced.
Speaker 2:And so now, what do you do with all that gas? So midstream investment in pipelines and in gas storage you know the risk of negative pricing because of under under capacity or congestion on transportation for gas mirrors exactly the the power sector issues of well, where do you put your storage if you have intermittent resources? And what about transmission constraints? And you have negative pricing on wind coming from West Texas, sometimes, especially at night, because you're producing it to get your production tax credit but there's not a sufficient. You know demand for it because it's nighttime or there's a high demand for it, but can you know congestion on the transmission lines? You know, during the day. I think all of these things become a real challenge, but the mix of oil and gas and how that economics feed into future offshore developments in that area is another one that I think bears some examination.
Speaker 2:And it's different between oil and gas than it is in wind.
Speaker 1:It's one of the fascinating parts of the complexities of the different markets. There's always opportunities somewhere for something, which is one of the reasons why I find it fascinating to work in energy.
Speaker 2:I remember taking a visit to an offshore platform in Brazil that we'd financed, uh, our clients had financed, and, uh, you know, flying in on the helicopter to the, the beautiful Petrobras, you know, uh, yellow and and and green platform, brightly painted because it's brand new. Uh, the sky was beautiful blue, the water was beautiful blue. Uh, they were very excited about opening this new platform, and that's all well and good, I suppose. But what was not so well and good is the heat that we felt physically inside the helicopters. They landed on the landing pad coming off of a flare because all of that oil production was generating associated gas. That offshore had exactly zero value because there was no pipeline. There was no way to get it to shore. Later they did build one, but at the time you couldn't, and so that wasted flared gas, aside from the disastrous environmental consequences of it, economically was also a huge waste of value because the gas in that location, middle of the ocean, was worthless because the gas in that location, middle of the ocean, was worthless and historically just for our listeners.
Speaker 1:Oil and gas exploration and development offshore usually picks one and focuses on one because of the complexities of the system that have to develop in order to get it to somewhere, either for refining or for market. So of course, in the Gulf of Mexico we do also have there are oil and gas pipeline systems connecting different assets, and so Absolutely.
Speaker 2:And the nice thing about.
Speaker 1:You have to make your connection.
Speaker 2:Yeah, and become, you know, because you know crude crude oil is a liquid. I mean it's viscous and yucky, right, but it's a liquid. You, there's different ways you can get that to shore. You can offload it, you know, from an FPS, a floating production storage and an offloading platform and FPS, so you could put that into a ship, take the ship to shore short haul and then they put into the system. You can build a pipeline collector system. There's a lot of things you can do with. Liquids are pretty easy physically. With gas, if you don't have a pipeline, you're a source of production and you have to liquefy it before you can then regas, if I it that's. You know, the LNG project chain. That may be economic for large LNG cargoes. It is not economic for, you know, field production kill production facility, associated gas production.
Speaker 3:Right Great point Well, I'd like to shift to a hot topic these days although almost there's hardly a topic that isn't hot these days but and I have to use the S word subsidies in order to do so- that's a better S word than I thought you were going to do.
Speaker 3:Yeah, but I think it's important to point out that the term subsidies and we debated over the use of the term because sometimes it's pejorative and derogatory, but it's not necessarily a four-letter word, it is one of the it captures the overall legitimate fiscal policy and tax code that may be surrounding some of these projects, both in oil and gas and wind. But I do think that, as best I could tell, not a lot of people, including a lot of the people that are making decisions, have a really good handle on what these subsidies are. So, alan, could you comment and describe the subsidies of offshore wind and oil and gas, insofar as it's possible, and I'd like to discuss that a little bit.
Speaker 2:Sure, I mean not all subsidies are economic either. So let me look at the economic ones. For wind energy, offshore or otherwise, the subsidy systems around the world are different. In the United States we tend to bury our subsidies in the tax code, so we create tax credits investment tax credits, production tax credits. Because of the expense that we've talked about of offshore and complexity of offshore wind, usually the investment tax credit right is almost always the way to go. More than a production tax credit is worth more and depending on a variety of factors under the Inflation Reduction Act, which of course may be changed by Congress, we'll see. But right now, if you're producing any kind of clean energy and wind falls into this category, you can benefit from those tax credits at varying degrees depending on if you comply also with labor standards, for example on apprentices and paying prevailing wage, whether you're located in an energy-impacted community, by the way, you might say well, how can an offshore wind project be in an impacted community or a community where you can benefit from the maximum credits? And the answer is it has an onshore component and so where that onshore landing station or substation is located, that's the test as to whether that's an impacted community, because obviously not too many people are living 25 miles offshore. So those credits are in the tax code and they require to be. If the developers cannot use those credits themselves, they need to find a way to monetize them, either by transferring them to somebody else, where you then have to take a discount, or by inviting in other investors called tax equity investors. Typically they're financial institutions that have the tax capacity to take those credits and use them to offset other unrelated income that they may have. So that's the major one that gets a lot of the attention.
Speaker 2:I think you know if you look outside the United States, usually the subsidies are probably a little more transparently put on the revenue side. As a revenue support sometimes what's called, for example, a feed-in tariff you may also find state support, not federal support, here. And analogously, among European utilities for contracts or differences. In New York State, for example, nyserda enters into contracts to provide for ORECs and are essentially, through a combination of tax credits and price adjustment mechanisms, guaranteeing a floor price for the offtake. That gives the state then, and its utilities that are actually taking the power some certainty that that supply will be available. But it's different than a capacity payment. It's simply a way of making sure that the energy payment is predictable and either fixed or fixed and indexed or fixed and escalating with inflation, or whatever the particular contract might require, depending on where you are. We'll see, by the way, in California whether there's a centralized procurement for offshore wind which provides similar stability or something else more like. You know the traditional power contracting regimes for onshore facilities, but overseas the feed-in tariff for revenue support would be more common.
Speaker 2:Oil and gas subsidies exist as well, so you so, especially if you're in the offshore environment. The first thing that happens is you have to get your lease area and when you get it you have to pay a royalty rate for your production. So if you're bidding to get your lease and paying whatever that is, and then you're paying a royalty on your production, which only happens if you actually produce, if the royalty rates are very low and have not been increased meaningfully for decades, or if you look at, for example, an onshore oil and gas on federal lands they were increased it might come back down because the administration has talked about that. You know, royalty rates are a real good subsidy because you're not really paying much for what's in the ground. You're paying for the cost of exploring and the cost of producing, but you're not paying for the commodity itself. That's a gift of what in other countries would be patrimony, and in other countries the royalty rates might be significantly higher. If you're looking for a market comparator, what would the market pricing really be? Compare royalty rates across countries. They vary widely. You could also look, for example, at the cost for the leases themselves that are bid into auctions when the Bureau of Ocean Energy Management as I'm sure you well know from when you were there, when they would come up with their periodic auctions.
Speaker 2:Most of the lease lots that are put up for auction are identified by industry participants, most of them over time there's been no one bidding on because no one wants them. Or there's been a single bidder for each lot. Guess who wins right? Or the bidder, maybe that single bidder that takes the lease and doesn't pay very much for it because there's not much competition in the auction. They may not develop it because very few of them actually are economic to develop.
Speaker 2:So over time, you know, a lot of people argue back and forth about should we be guaranteeing more lease areas? Should we, you know, to drill baby drills, we put out more areas for lease. It's not clear the industry wants them or that if they got them they'd be paying much for them, if they got them, even for very little money, that they'd actually develop them. Those things are all dependent on market economics, and the market economics, you know, don't suggest that we should be developing everywhere we possibly could, because it probably is not economic to do so. But by hedging the downside risk and and making the barrier to entry very low and making the royalty rates very low, it's a massive subsidy for the fossil fuel producers.
Speaker 1:Alan, I think, and it's it's important to state to you that the US government is serious about energy production and has been for more than a hundred years, and so the policies that potentially industrial policy and also including tax policies help incentivize continued investment in the upstream side of the business, and we could say the same for offshore wind, you know, in the generation of energy. They're really good incentives there in the, in the particular tax breaks that you mentioned, as well as in a number of others, and that's okay. You know the energy development. There's this trade-off, there's this balance that policymakers have to make around the security of domestic sources of energy, energy production to meet need domestically, et cetera, et cetera. You know economic opportunity and how do you drive employment and other tax basis revenue generated off of payroll taxes, other tax basis revenue generated off of payroll taxes. So we're not saying either is bad, oh no, you're right. It's just important to be clear that these frameworks exist. Let me be clear.
Speaker 2:When I talked about, for example, the declining cost curve in wind energy over the last 15, 20 years, that was mainly because we had strong incentives, not just federal tax credits but also state renewable portfolio standards and other things that drove that, basically created a market and then allowed that market to bring down costs and increase reliability and efficiency. I think energy security hugely important. You know, if you look at I like to look at the 1970s you know we had oil price shocks. If you look at I like to look at the 1970s, we had oil price shocks. We had oil scarcity in the United States. We had a perception, which turned out to be wrong, that globally we were close to peak oil and we're going to run out of oil anywhere to develop. That turned out not to be true and we weren't so confident about oil and gas generally, not just oil but the gas piece. But there was a thought that if you increased gas production and under Jimmy Carter, even if you increased coal production, people forget that you might increase US energy security because of the lack of oil. So we shifted from oil to increased reliance on coal we already had it, but much more reliance on gas as a cleaner, more efficient resource. We had federal subsidies for cogeneration of gas and process heat, all of which designed and actually successfully designed to create US energy security, so we didn't have to repeat the impacts of the oil crisis that we'd had.
Speaker 2:And at the exact same time 1978, we enacted PURPA, which demilopolized power generation, especially for small generators, co-generators and renewable energy so early wind and solar projects here and that created a market. It also created tremendous diversity of supply, and that resource diversity increased the reliability of the grid at the same time as it was driving costs down and it gave utilities much more flexibility, although some of them still fought it. But in places where we deregulated the utilities in the wake of those legislative changes, texas and California are the best and biggest examples, because they account for half of our additional capacity. You know just those two states. You know we've seen tremendous improvements in both energy security, energy affordability, energy reliability, because of those policies. So you're absolutely right. I think these public policies subsidies, tax credits, other drivers of regulatory design and market design have been hugely beneficial. Yeah.
Speaker 1:And Jim knows I'm the one who is always a little bit I don't know what is the right word for current day triggered by the use of subsidies, because I think it's. You know, we want to make sure that we recognize that we use these different subsidies for good purpose, you know, in the common good, in the national good. We just have to be clear about how they're used. But all of those benefits we're talking about have come from different types of energy development that has been incentivized by these different subsidies and, in some cases, tax policies.
Speaker 2:yeah, so let me stand that for a second, because I think you're hitting something really important. Not all subsidies are bad, not all subsidies are good, yes, you know, right. So if a government is doing things by the way, I mentioned non-economic subsidies, right. So liability for oil spills, how is that handled? Well, differently than liabilities for a nuclear accident at a nuclear power plant, because there's a, there's a liability shield under federal law for owners of nuclear power plants, also very different than, for example, wildfires triggered by utility equipment, you know. And ignition, you know, in California the utility is on the hook for that under the inverse condemnation laws. That's another reason, by the way, why power prices are higher. It's not because of intermittent resources for stranded assets, for wildfire risks and wildfire hardening, for imported gas being expensive. I mean, there's other things going on. If the subsidy or the government policy is enabling economies of scale and innovation in a market that create market opportunities at appropriate cost, that's a good one. If, instead, it's impeding private investment, impeding choice in ways that otherwise would be, beneficial, that's bad.
Speaker 3:Yeah, that's a very, very good point, and certainly subsidies can be either good or bad. In cases where they advance the technology, in cases where the market in a sense, they can be very, very good. I guess I'm getting to a more fundamental level as to really knowing what they are, because you talk about cross subsidies and everything else, and I don't think we have a good handle on that. I frankly think that we ought to have some kind of GAO or CBO study on exactly what the subsidies are for the various industries and, in that way, engage in intelligent dialogue, as opposed to simply saying on one side none whatsoever and the other anything and everything, and I think that's a problem, jim, I couldn. Problem.
Speaker 2:You know, jim, I couldn't agree more. The other thing I think is is important and it's nuanced. I know nuance is maybe falling out of fashion, but you know how do things impact each other. So what is the intersection between energy policy, subsidies or other things and trade policy? You know, if a tariff is going to increase the costs across the board oil and gas, gas generation, renewables, wind and solar, whatever it is, and how that ripples through then who's going to bear that cost? Is it going to be rate payers for power? Is it going to be people at the gas pump? How is that going to affect investment? What about demographics? What about immigration and the effect on labor policy and the availability of skilled labor? I mean, all of these things impact each other and also exist in a broader context.
Speaker 2:You know someone was asking me will the Inflation Reduction Act, tax credits, be repealed by this current Congress? We have a big tax bill coming up, but I can't predict what they're going to do. What I can tell you is, if the corporate tax rate drops to 15%, tax credits aren't worth as much. I can also tell you if there's a recession, no one needs to buy credits because they're going to generate their own losses. Thank you very much. They don't need tax credits. So the broader macroeconomic, demographic and policy frameworks, I think, matter more than the nuanced little arguments that a lot of us and say energy deeply are focusing on, as if we were in some kind of an isolated bubble of ideal public policy which we just aren't.
Speaker 1:We haven't got to yet, but we continue to strive Right, yeah, and what that may be kind of a more fundamental question For offshore, for oil and gas, for offshore wind can any of it survive without government support? What would you want to see from government support?
Speaker 2:Let me look at it. I think the tax credit piece is the first thing that comes to mind for that.
Speaker 1:And.
Speaker 2:I think, as technologies mature, as they come down that cost curve, especially if there's consolidation among manufacturers, you know, I think the need for the subsidy should roll off right. They're not meant to be permanent. They're not meant to be permanent. By the same token, I think some of the market design, some of the rules, for example, that FERC is coming up with for interconnection and interstate transmission, and easing the pathway to get projects on, I think some of the permitting reform that's been talked about on both sides of the aisle in the US and that's also, frankly, an issue in other countries I was dealing with a European project Permitting reform was on top of people's minds, because they were dealing with all of these cumbersome regulations and having a hard time figuring out how to get their project done because of it All meritorious public policy goals, but the overlay of these it was, like you know, like barnacles on the hull of a boat. They were accretive and not in a good way. They were accretive and not in a good way. So I think there's a question of how these things work together. I've still come back to the idea, though, that subsidies should not be permanent. They should have a defined policy goal and once that goal has been met. They should roll off, but they shouldn't also be too short term. We ran into that for 15, 20 years with, for example, the production tax credit and the investment tax credits kind of coming and going or being about to expire, and that ends up with very lumpy investment decisions. Allowing them to go out at least five years gives you some runway to build manufacturing capacity.
Speaker 2:I think one of the most important parts of the Inflation Reduction Act, as it related to credits, was not the credits themselves. Those are important. Inflation Reduction Act, as it related to credits, was not the credits themselves. Those are important. And we haven't talked about hydrogen or other things nuclear, which also benefited carbon capture and storage, which then can lead to blue hydrogen.
Speaker 2:There's other things in the bill that were also popular among non-renewable energy developers, but if you look at all of those and how they function, you were given a 10-year runway at a minimum, when you knew with confidence as an investor those credits would be available if you qualified and all you had to do was do the right things to qualify to maximize those credits. And then you're off and running, knowing you had 10 years, combined with the industrial policy behind onshoring manufacturing embedded in the IRA, combined to build or would have had it continued build confidence in the market that justified long-term investments in manufacturing capacity and that would also then have reduced cost over time. And then, 10 years from now, you see if you need it, maybe you don't. So again, they're not meant to be permanent, but they are meant to have defined goals and then have some consistency and certainty, or at least predictability, that investors and lenders and technologists can use and rely on to make long-term business plans.
Speaker 1:That sure seems to be a common theme of discussion currently. Right Predictability, stability and the opportunity to develop projects that take longer than an administration is a theme that we just keep coming back to, and we keep finding ourselves in complex situations here in the US. Absolutely.
Speaker 3:Yeah, and not to belabor the point, but the predictability and reliability is certainly something that is good or the like. That does provide predictability when these subsidies or tax incentives are going to expire, enables industry to be making decisions in an informed way, as opposed to the last minute changes and decisions that come out of Congress.
Speaker 1:Hey, jim, you know I'm thinking of an example and I was actually reading something this morning that really was insightful and I posted it on linkedin for folks. Um, I just wanted to zoom in for one little case study. Um, the intangible drilling cost tax deduction that's applicable for oil and gas has been on the books federally since 1916. That seems like a long time ago, if you ask me. That specific drilling credit. By the way, intangible drilling costs onshore are often about 70 to 80 percent of the total costs of drilling, exploration and or development wells, and so that's a very significant tax benefit right for exploration production companies.
Speaker 1:That credit was one of the driving economic wheels behind the shale gas revolution in the United States in the mid-20 teens and ultimately, you know, has now led to the US being the world's largest producer of oil and gas since about 2018. I'm quite sure the legislators who put that on the books in 1916 didn't foresee this opportunity to deploy it, but I do think that what they probably thought about was the way that this kind of incentive can help speed technology improvement, can speed redeployment of capital towards, you know, specifically towards drilling and exploration in the United States. And so here we are a hundred years later, having found really the opportunity that unlocked the next leap in US energy production. I find it fascinating.
Speaker 2:It seems like based on the right fundamentals. It was Also the Energy Policy Act of 2005, creating the exemption from the Clean Water Act for subsurface gastrulling. That also helped.
Speaker 1:These are all timely, right. These have all come together in certain ways, and I hope that our policymakers are now thinking about putting the right incentives in place and not just picking and choosing sides.
Speaker 2:Yeah, by the way, that shale fracking technology now is also holding some promise for advanced geothermal something that the new Secretary of Energy, chris Wright, is familiar with and has talked about.
Speaker 2:Just as a footnote, my father-in-law was a mathematician and developed with his team a software called Seismic Unix which allowed for subsurface 3D modeling in ways you know. I talked before about the advances of computer design and wind turbines, you know, for gas oil and gas subsurface development and now we're actually, frankly, for anything subsurface. You know the availability of those technology and computer tools. You know, 20 years before AI is being deployed, those were really important innovations and a lot of the funding for those things, including what led to gas fracking, came from federal government grants, including to what became NREL and some of the other national labs. That is hugely beneficial across the energy spectrum.
Speaker 3:Hey, Alan, are there any technologies that we haven't touched on that you wanted to mention?
Speaker 2:Well, look, I think, onshore or anywhere.
Speaker 2:I'm pretty excited about battery technologies, no question, and also making grids smarter, making industrial heat smarter. There's improved nozzle technologies, for example, that you know turbine manufacturers are coming up with to make combustion more efficient and therefore reduce emissions as well energy space. So you know we've looked at other technologies like tidal stream technology that you know converts the very slow but very strong tidal movements and very predictable tidal movements coming in and out Hard to maybe do that at scale without jeopardizing marine life. Or, you know, dealing with some of the corrosive impacts, especially in estuaries where the water quality may be and maybe saltwater inundation is an issue We've looked at.
Speaker 2:Many years ago I was doing a project and this is on a remote island where it made some sense to look at tidal, not just tidal energy, but wave action. So if you look at waves going up and down and you could imagine, by co-locating that with existing offshore energy facilities and taking advantage, if you're already connected on shore, to the marginal additional power generation you might get from wave action. There are some more experimental technologies dealing with thermal planes with saltwater, freshwater interfaces, but I think those are still, you know, more in the research stage for sure, and a long way away from being commercially deployed.
Speaker 1:Alan, it's been great to have you. Um, you know, in thinking about our conversation, we've really covered a lot of space. You you covered the, the, the key elements of project finance and frameworks around project finance covered some of the trade-offs between the opportunity for external versus internal funding, especially for large companies like the one I used to work for. That makes a lot of sense to me to understand a little of that perspective better, and we talked an awful lot about the different incentives for different types of offshore energy development and why it's necessary and desirable for our government to do that in ways that allows the market to really unleash. Do you have any other points that you'd want to communicate to our listeners in our conversation here?
Speaker 2:The only thing I'd say is keep your eye on the long-term goals, keep your eye on the long-term market trends and try to distinguish signal from noise, because a lot of the things we see you know day to day. I don't know about you.
Speaker 1:My phone keeps lighting up with headlines and you know we all react to the one way or the other. You know.
Speaker 2:Try to avoid overreacting to short-term flux. And nowhere is that long-term orientation more true than offshore energy, For sure.
Speaker 3:That's such a great point. I mean separating the signal from the noise in order to be moving forward. I think is an excellent point, yeah.
Speaker 1:And Alan, every podcast episode we do a last drop in the ocean for the week and that's our opportunity just to mention anything else that's topical around offshore energy in our podcast but that we haven't talked about. Is there anything that you've seen lately that you would like to flag for our listeners to go take a look at?
Speaker 2:Yeah, I mean, look, I think, globally, bear in mind, this is a global industry and if you look at where the investments are being made, where the technology is coming from, who's deploying capital, I think it's important for people to also take off the blinders and look at what's happening in other countries and other regions. It's critically important. And that's my drop in the ocean after our deep dive.
Speaker 1:Yeah, well, and you did mention the rise of China into the offshore wind space, in particular over the last few years too. Yeah, jim, how about you? Any last drops?
Speaker 3:No, I really don't have anything beyond what we've talked about. It's been a very rich conversation and, of course, I'm taking away the things about subsidies the good and bad subsidies and I think we just need more and more specific information to be making intelligent choices.
Speaker 1:Well, and I've got one last drop in the ocean for this week too. You guys know, and listeners know, my own personal passion around the blue economy, and March 18th I'm participating in Possibility Ocean, which is a virtual summit to discuss some of the shared opportunities between sectors for the next generation of ocean development. This includes defense and energy, and fishing and aquaculture and transportation. It's a broad view of the blue economy and how we can all work best together. For those interested, possibilityoceancom broad view of the blue economy and how we can all work best together. For those interested, possibilityoceancom.
Speaker 3:You can go, check out the agenda and register and come listen. We've got more events coming up over the course of the summer that are going to be great opportunities for participation and expansion of what the possibilities are. Indeed, I think we need to ask all our listeners again to post anything, any suggestions that you have about the podcast, and please feel free to send in topics and identify special guests.
Speaker 1:Yeah, alan, you came up to us through a recommendation, and so we really wanted to thank you for joining us today, too, well, Ian and Jim, thank you very much.
Speaker 2:It's been a real pleasure.
Speaker 1:We've had over 1,200 downloads, which I think is not bad for a podcast that we started less than six months ago. Thinking about those other topics, jim, that might be really popular. What if we do like offshore energy, ultimate fighting championships, or offshore energy and beer? I'm not sure. Do we have?
Speaker 3:a good combination in there. That's exactly what I was thinking of, Ian. That's incredible.
Speaker 1:We're going to have to start recording in the evenings, Jim, so we can do offshore energy and beer and whiskey sampling podcasts.
Speaker 2:I think that'll change the kinds of last drops that you get from your guests.
Speaker 1:There you go. Maybe we just stick for offshore energy for now, and thanks to you guys.
Speaker 3:We can figure something out.
Speaker 2:Yes, your cup runneth over.
Speaker 1:It sure will.
Speaker 3:Okay, Well, thanks everybody.
Speaker 2:Yeah, thank you very much.
Speaker 3:And also to our listeners as well.
Speaker 1:And until we meet again on the next Offshore Energy podcast.