And you can hedge, you can paydown debt, but we think the most impactful thing you can do to derisk your business is to lower your cost structure. And having a cost structure at $2 is not only going to derisk our business, it’s also going to increase our exposure to higher pricing by mitigating our need to defensibly hedge. So I think we’re pretty good with the strategy right here, and it’s just keeping the track on all the different moving parts and pieces, but that’s sort of the general framework that we’re deploying here.
Jeremy Knop: Noel, think about how much LNG export capacity is being built just in Calcasieu Pass as an example, right? I mean that dwarfs just Freeport alone. So there’s a hurricane or a barge that sinks, so I mean, come up with any scenario, say that is shutting even for a month. The amount of volume that backs up in U.S. storage from just one event like that can be pretty tremendous. So when you think about LNG, I think there’s certainly risk where like the pull could be to the upside. But in terms of what happens really quick, you don’t expect — it’s probably more skewed to the downside, right? So what we’re trying to do with our business, I mean, we make money is price times volume less costs, right? It’s pretty simple.
We want to make sure that no matter what that cost is so low that we don’t have to be chasing after price, right? Because it’s easy to cut production. That’s what we’ve done right now. increasing production is a lot harder, right? So if you run a business model where that thing happens, you have to decline production, a significant amount to remain cash flow positive. But then when prices go up, it takes you 12 to 18 months to ramp production back up sustainably. I mean, prices don’t hang high that long, right? It’s a bit of a chasing after the wind. So we’re trying to run our business in a much more stable way where the downside is not really a big deal. We can still generate durable cash flow. And in the upside case, we’ve got the same volume times the higher price, and we don’t have the huge hedge loss, right?
One of the things that I think is remarkable to us when we step back and look at the last five years even the winners in 2020 were the big integrated companies, right? They didn’t really sweat COVID as much, because they have high-quality, low-cost businesses. The winners in 2022 when you had windfall pricing about oil and gas, were again integrated is because they were unhedged, right? That’s why stock prices are at all-time highs are sitting on a lot of cash. We lost more money hedging in 2022, nearly $6 billion than the market cap we just paid for Equitrans. So just like put that in perspective and think about you go through that sort of cycle again in a world we expect to be more volatile that looks more and more like that more frequently.
If a deal like this puts us in a position where we can emulate the sort of success that those bigger companies actually achieved over that time period, the amount of shareholder value unlocked by doing that is tremendous. It’s a very hard thing to model, right? But in reality, when you overlay psychology and risk management coming to protect against operating leverage on top of that, that’s the result that plays out, right? And so that’s how we positioned ourselves. We think there’s a lot more events like that, that happen again, whether it’s from LNG or something else. Prices will go very low. You’re seeing it this year. Conversely, all of a sudden, demand gets pulled, you have full utilization, you can drain U.S. storage very rapidly.
And it will take production a little while to respond, right? So we want to be in a position where we are best able to weather the downside and capture that upside. And over the long-term, that value will compound in a very differentiated way.
Noel Parks: Great. Thanks a lot. And I totally understand your framing of the factors of data center demand growth, coal retirement. And sort of on the issue of grid-fed fragility [ph], I think, in particular, about the microgrid market. I was thinking back to your deal with Bloom Energy a couple of years ago for RSG certificate sales. And I just wondered if you saw similar opportunities, whether deals like that are kind of a good investment in company time in terms of just what you can capture in terms of sort of economics of those. So any thoughts on that would be great.
Toby Rice: Yeah. Specifically on RSG, and making investments there, we think, producing clean energy and having the transparency backed up with certificates to prove that. It’s going to be normal operating procedure going forward. But if your question is about power generation and partnering with power generating companies like Bloom Energy, there’s really two different worlds that are going to be servicing this data set, this power demand. One is going to be on the grid. And if you want to use that, get in line, you’ve got long queues that you need to work through to get interconnected to the grid, but this other world, which is one of the ones we’re being a little bit more direct with our partnerships to bring solutions to market is behind the grid power generation solutions.
That’s where we can leverage our operational footprint, our existing assets, the pipelines and develop behind the grid energy solutions for customers. We think that could offer a much faster pathway to meeting their energy demands. And as I mentioned before, speed matters. And I think behind the grid solutions will be ways that we can flex some of those partnerships.
Noel Parks: Terrific. Thanks a lot.
Operator: Your next question comes from Josh Silverstein with UBS. Please go ahead.
