 Okay, four o'clock rock. I'm Jay Fidel. Welcome to Hawaii, the state of clean energy. Our show today is called Fueling Hawaii, the role in the future of hydrocarbons. We're going to talk to Jeff Ono, who is my co-host, and we're going to talk to Lance Tanaka, who is at my left, and we're going to talk to Al Chi on the telephone from the west coast. Talk about Hawaii fuels for the future. So Al Chi is the president of, let's see, of marketing, retail marketing, and community relations at Island Energy, formerly Chevron. And Lance is director of government and public affairs at PAR Hawaii, P-A-R Hawaii, formerly Tesoro. And Jeff Ono is a lawyer with Watanabe Ng and my co-host, and he's the one who's going to describe to you now what our series here in April is all about, here on Hawaii, the state of clean energy. Thank you, Jay. Thanks, Lance, for being here and welcome Al on the phone. As people who watch this program know, this Wednesday four o'clock show has been dedicated to clean energy. And so what we're going to be exploring this month for four shows is the role hydrocarbons play in this clean energy transformation. So this week we have the two representatives from our two refineries. Next week we'll have Shasha Feshiraki, who is an expert consultant in petroleum and gas worldwide. And Mark Glick, who is now with Hawaii Natural Energy Institute. Formerly he was the energy administrator at the Department of Business, Economic Development and Tourism. So that'll be next week. One big happy family, no? We certainly all know each other. As we forget, Jeff used to be the consumer advocate here in the energy world for a long time. Anyway, okay, so Lance, let's talk to you first. I remember when you stood up and said, you know, the oil companies, including at the time, what was it, Desaro, Desaro, you know, have to get on the bandwagon here. The state of Hawaii is going to do all those renewables. We have to find a way to comport our way of doing business with these goals of reaching renewables. And I thought that was really inspired and important, but how do you do that? Can you talk about it? Well, Hawaii truly feels that if you're going to be deeply entrenched in the state, you're going to have to be very understanding of the state's policies and goals regarding renewable energy. And so it behooves us to work with the state to see how we can help the state achieve its goals. It's renewable energy goals. Because really, we do want to help the state achieve their goals. But for now, we are the fuel that will get the state to where it wants to go right now. Yeah. And Al, are you on the phone? Can you hear us? Welcome to the show. Al Chi. Hey, thanks, Jay. Yes, I can hear you guys loud and clear. So I have one question I want to ask you. You know, after Lance made that statement, how much of what he said do you agree with? Actually, I agree with it 100%. Our business is really not unlike other businesses. We're there to respond to the demand of our customers. So as we plot along today, as our customers' choice of fuel is hydrocarbon, that's what we're here to serve. As things evolve, it's incumbent upon us to evolve with the marketplace. So I think, just like Lance said, we support the energy goals of the state and we look forward to continuing to do that going forward. You know, the one thing that interests me in this context is that we have goals. We have 100% by this. And everybody agrees exactly when that should happen. Or how it should happen. And we have a plan. I know there's a plan. It's the PSIP plan. It's out there. And the PUC is considering the plan. Nobody knows exactly what's going to happen and how fast. And so you're in an interesting spot because you're trying to comport your market, your oil market with a moving target where you don't know exactly how fast it's moving. And you may find it moves faster. You may find it moves slower. And so it's incumbent on you to figure that market out so that you can make your plan around it. This isn't easy. I mean, how do you do that? Is there a computer program, maybe an app that helps you with that? Well, you're right. We have to adapt to the state's goals to be able to remain viable. And the ways that we look at doing this is to continue our investing in our training and of our people because this is going to be a big challenge. And also upgrading our physical plans. You know, such as what we just did this past summer in 2016 when we did a major turnaround and also other opportunities that we're looking at to see if we can leverage those to remain viable in the future so that we can continue to provide fuels that are reliable, available, and affordable. Okay, so we're not necessarily talking about renewables per se, but we're talking about fuels. That's Jeff's concept for this month. It's fuels, and it could be really anything that works in the global marketplace. But I wonder if I can ask you this, Al. So here we are in 2045, and we've had a good run. And we're actually, you know, one day away from, say, the end of 2044. We're ready, you know, for the magic moment. January 1, wasn't it? Of 2045, we're going to be all renewables. Where are you guys then? Where is, you know, your two companies, namely Island Energy and Parahauai. What are you contributing to the fuels mix in this state at that magic moment in 2044, December 31? Wow, that's a pretty tough question because I don't think anybody, I can certainly speak for myself, but anybody on the call or in this forum could say they can actually predict the future. But you know, it would be great if we could and if we could plot ourselves along so that on that final day, we knew it was our final day. And the next day, we all woke up to a different reality. Because that's not reality, I think the important thing now is to continue to collaborate and work with other energy providers in the space and try to understand and plan for that eventuality. I can recall having many discussions. Jeff mentioned next week you're going to have Mark Glick, well, Mark Glick's former career, heading the state energy office. This is something we pondered over many discussions. How do we get from where we are today in the most orderly fashion without any disruptions to Hawaii's economy, to people's lives? How do we make that transition a successful one as if we could cut over on that faithful day very smoothly? Well, that's where things like today's forum, what the Hawaii Energy Policy Forum provides, a forum for people to discuss and plan for that to happen. Yeah, thank you. What kinds of alternative fuels would you consider? I mean, it's possibilities not to say that you necessarily have done this or that you would walk into a situation where you couldn't predict the future. But what kinds of things might you consider as alternative fuels? The outlook says that we will continue to use liquid fuels well into the future and biofuels of different grades will probably be what we are going to try and produce, a drop-in replacement where we could use our existing processing units and our distribution. Oh, that would be very efficient. Yeah, it would be. And I think that would be, in our belief, the way that we would want to proceed in collaborating with the state and producing a fuel that's renewable into the future. You've both used that word collaboration. In line, Zai, how does that work going forward over, say, a couple, three decades? Well, for part of Hawaii, collaboration is hooking up with companies that have a goal of meeting the state's energy goals and we being the enabling business to help them do that. And so, you know, I can say right now that we are talking to several biofuel companies, but it's too early to disclose any details on that. But still, you know, we have a minority interest in Pacific biodiesel, so we understand the importance of being able to jump on the wagon sooner rather than later. And I think we're the only network that offers biodiesel right now at Retail. So we certainly believe that's going to be part of our future and the more we can embrace it in an economically feasible way, I think that will help the state in addition to furthering its goals. Yeah, that's a notable point. And I wonder for you, Al, do you see the possibility of investing in other companies that produce alternative fuels of actually, you know, because there's nothing so sincere as an investment. Are you in an investment now, like Lances, or do you contemplate them in the future? We're not in any investments at this time, but under that idea of collaboration, whether we're investing in a company or just simply partnering, you know, we just transitioned, most recently, Island Energy is a company that's been on the ground and continuing the business of Chevron for now four months. But you know, I was with Chevron for 18 years and I recall during one of those spans we worked with, you know, agricultural interests, algae growers right in our refinery to look at how we could use some of the gear out on the plant or other processes to aid partners. So we may not be investing, per se, our dollars directly, but working with people to make things available to them that they need in order to move forward their own science. Yeah, from your point of view, the world is your oyster. What do you say, Lances? Well, I can appreciate where Island Energy Services and Al are today because we were there not too long ago as well in 2013. It seemed like a few years ago, but it seems like only yesterday where we got the news that par petroleum, now par pacific holdings, was acquiring to sort of Hawaii. And you know, employees, I guess the one saving grace for both of our companies, I believe, is many of our employees, in fact, the majority of our employees decided to stay on with the organization. To your credit, they're engaged. It was actually the critical linchpin, I think, to making the ventures survive and succeed. Best thing for continuity for sure. So this is the time where we're going to contemplate taking one minute break, Jeff. So you can ask some cross-examination if you want. Or you can summarize if you like up to this point, or you can try to put it in perspective for us before we take the break. I want to ask this question. Hawaii's policy is to move toward the electrification of motor transportation, as well as to, both of you know that there's a bill that's going through the legislature to be 100% off fossil fuel for motor transportation by the year 2045. So my question to both Al and to Lance, one is, what was your position on that bill that's going through the legislature? And then secondly, if we do that, if we start to move toward 100% off fossil fuel for motor transportation by 2045, what is it going to mean for cost to the consumer? I was the consumer advocate after all. You cannot take that out of Jeff. Al, why don't you go first? Okay, so we have not taken a position publicly on that particular measure. It sets that as a goal, and it helps us as a business plan between now and then. So working towards those goals, like I mentioned, collaborating with others, trying to find how do we transition to that state in the most economical and the most less disruptive way. That's the key. Our advocacy, and this is part of the Hawaii Petroleum Marketers Association, which for Hawaii is a member. We have been advising and commenting on the bill to say, please don't forget to include the petroleum fuel industry in these discussions as you set metrics and other goals to achieving this. While we're not here to tell the state whether or not they can set a goal of 2045, we want to make sure that there will be some feasible way of getting there. And what we want to avoid obviously is unintended consequences that impact consumers unnecessarily. So we would like to be there to help in getting the group that is deciding on these metrics to put down things that are doable, practical, and achievable. Yeah, so you should be at the table on that for sure. You're part of the formula. Another part of that is we ask, please put some provision in these bills that gives some evaluation to the economic viability of doing X, Y, or Z as opposed to just saying let's put it out there and hope that everyone will achieve that. Because we're talking about enterprises and consumers that could stand to be adversely impacted by policies that really hurt more than they do help. You want to add anything to that, Al, before we take our break? Yeah, as Jeff mentioned, how will all of this at the end of the impact cost the consumer? So we have to do this thoughtfully. We have to do this in an engaging way. And there's no easy way. There's no silver bullet. But as Lance mentioned, we don't want to reach a certain point and then be surprised that even though policy said we were supposed to be here, that we're not there. So it's really, really important that we plan this transition and that we keep an open mind and remain flexible because it probably won't happen the way that people have dreamed it up at this point. And we've got to avoid disruption and instability. So, Jeff, we're almost there taking our break. And I don't want to, in any way, discourage you from continuing this line of questioning right after we come back from the break. That's Jeff Ono, that's Lance Tanaka, and that's Al Chi. We're talking about fuels and hydrocarbons in the years to come. We'll be right back. Aloha. My name is Reg Baker, and I'm the host of Business in Hawaii with Reg Baker. We're a show that broadcasts live every Thursday from 2 to 2.30. We highlight success stories in Hawaii of both businesses and individuals. We learn their secrets to success, which is always valuable. I hope to see you on our next show. Aloha. Aloha and Happy New Year. It's 2017. Please keep up with me on Power Up Hawaii, where Hawaii comes together to talk about a clean and just energy future. Please join me on Tuesdays at 1 o'clock. Mahalo. Aloha. I'm Dave Stevens, the host of the Cyber Underground on Think Tech Hawaii. This is my co-host Andrew Lanning, the security guy. Every week at 5 p.m. we'll be discussing cybersecurity, the things to look out for, and the things to do to keep yourself safe. Check us out on Think Tech Hawaii 5 o'clock Fridays. Thank you. Bingo. We're back. We're back to the continuation of that line of questioning and more from Jeff Ono, the Lance Tanaka, and Al Chi. Okay, your turn, Jeff. Well, just before the break, Jay, you mentioned disruptions. So I wanted to talk a little bit about the Refinery Task Force. Al Chi, Lance Tanaka, and I were on the Refinery Task Force. That was put together by our previous Governor, Governor Neil Abercrombie. One of the outcomes of that Refinery Task Force was a report that came out in April of 2014. And the principal conclusion was that by the year 2020, just three years from now, one or both refineries would shut down. But a lot of things have happened since 2014 to the present. So I want to ask both Al and Lance. Number one, do you think that 2020 date is realistic for one or both refineries actually shutting down? And then secondly, what has changed to change that date if you think that the date is inaccurate at this point? Well, I feel I should go first because to several Hawaiians, the closure of the refinery sort of kicked things off. That's what spurred the Governor to convene his Hawai'i Refinery Task Force. You know, things are very different today, obviously, after having undergone an acquisition. And by the way, we actually grew in 2015 with the acquisition of impact petroleum. So we added about 120 people to our Ohana and also about 100 fuel outlets to our network. But back then, you know, it was really a case of understanding where Hawai'i was going to get its fuel if to sorrow a refinery had shut down or gone out of business and would that leave our existing refinery, the Chevron refinery exposed to possibly closure as well. The 2020 date was obviously based on input that the consultant had gleaned from all of the stakeholders that were part of this rather large task force. And so it based its findings on that and really the forecasts of how things were going at the time. But I think part of the turnaround was with people in an independent company like Park Petroleum Pacific coming in to see what it could do to keep the refinery viable. And we operate under very different principles now than when we were to sorrow Hawai'i. You know, one of the things that we've had to learn to do is be very nimble and flexible so that we can take advantage of opportunities as they present themselves. And, you know, when we look at back then what it really required us to do, well, the market cycle is always up and down in petroleum. So you have to be very fleeing on your feet to make sure that you are able to generate cash flow when the market is down and when the market is going up. You have to be able to capitalize on those opportunities and maximize profitability. That's really how you stay nimble. And that's where my earlier comment about making sure that you invest in your employees and your physical plan to make sure that you're there spot on to take advantage of all these opportunities that come up. What a great answer. What a great question. But what happened? Al, you have something to add, don't you? Yeah, so as all of this is proving, change is the only constant. Because back when we convened the task force, as Lance mentioned, it was really kicked off with the Soros announcement that they were going to close. Since then, 2014, look at what's happened to the other guy, my company. Chevron had a 135-year existence in Hawaii, and as a small, tiny collection of assets in the Middle Pacific, in a big, large portfolio, it just didn't make sense for Chevron to continue. So within that same year of the report coming out, Chevron announces they're going to be going to look for, see if someone else can find value in the facility. Out of that exercise came our parent, One Rock Capital Partners, who decided to buy the kit. So I can tell you right now, the principles of One Rock Partners did not think that the place was going to go and close down in 2020, but it would not have stepped in. So that's where we're talking about people got to keep an open mind. They got to look at the circumstances. They got to draw upon expertise, their own, and others to find their way through all this craziness. I mean, back in the report contemplated that what would cause the refineries to close were things like the importation of LNG, which was a significant part of HECO's demand for fuel. We know there's a lot of talk, a lot of energy put into that, but that has not materialized. HECO themselves faced with some regulatory constraints which they have since cleared. And so there were things that, yes, would cause experts consultants to believe that the refineries would struggle, but those things either haven't materialized or solved in a different way. And that's allowed us to continue to operate. You have more, Jeff? Well, I have this question for Al. You know, Al, when the refinery was doing business as Chevron, when it was owned by Chevron, you know, we had a certain security knowing that Chevron was network worldwide, could get supply of petroleum products worldwide. So how is it with island energy? Have we lost some of that energy security that Chevron was giving us? Or do you feel confident that you can still get, you know, crude oil at fair reasonable prices? Actually, I would say today Hawaii has not lost any ground in that regard. In fact, we might be better off, because just like Lance mentioned, now that we're owned by a smaller entity, much smaller, we have an absolute razor focus on the Hawaii market and serving that Hawaii market where we don't have to worry about what's happening halfway around the world. Okay, so our focus is Hawaii. When it comes to the crude trading, the procurement of products, especially if there should be an issue where a refinery goes down and we have to source product and bring it in, one of the nice things and why our owners, one rock capital, were excited, they have a very strong connection with Mitsubishi. Mitsubishi Corporation in Japan is one of the five largest commodity traders in the world with a focus on the pack room. So we're actually as well, if not better positioned, to work with the commodities trading and the sourcing of product, either going out of Hawaii or coming into Hawaii. In that regard, we're actually better off. Yes, I agree with Al that really this is probably our principal asset for the company for right now. And because of that, obviously we are going to make decisions and optimize our operation so that we can take advantage of optimizing for this particular market, not elsewhere. When we were to sort of Hawaii, they had a seven refinery network for which they had to optimize and when we were put up for sale in 2012, they were having to focus all of their energies and resources on the mid-continent in the west coast of the U.S. And that's where returns of investments are probably greater and that probably came at the expense of the operation in Hawaii where we operate in a confined market here. So again, this is where the company has to look at how to optimize for this particular region and that goes for even our community investment and our philanthropic efforts. We want to invest that here in this community because it's our home too. Yeah, and you've been important in the development of the state, both of you. And you have done a lot for the achievement of our economy as it is. But I would put this question to you. You know, we want to avoid disruption. You know, I think it's been clear and I mean, people should understand that companies stay in business because they make profit or not. And you've got to do that. You've got to make a return on whatever the investment is. And you're in the market now. I think that's also clear that we can't predict exactly what's going to happen. Both of you are in a market that is slightly, if not more than slightly unpredictable. So is it possible that one or the other of you might fold up your shop, you know, fold up your tents and leave town at some point along the way on this continuum. And if so, what would the scenario be by which you would do that? This is not an easy question. No, it's not. And it certainly isn't our intention. It isn't our Hawaii's intention to leave. We will do all that our business acumen calls for to remain viable in this market. We do want to remain here. And to do that, of course, invest in growing your operation and making it as efficient as possible. But you know, what will happen in the future, as Al said, that it's really hard to predict. What we try to do is adapt to the state's policies and work collaboratively to help the state achieve its goals while still being fair to our shareholders and of course, be there for our consumers. So yes, it's not an easy question, but again, the effort will be placed on staying here and remaining viable. Is that the same for you, Alche? Yeah, absolutely. Like I said, we have a single focus now as Island Energy where, you know, locally managed, locally headquartered and everything and every decision we make is about our operations in Hawaii. And Hawaii is a very competitive space. I mean, beyond PAR, Hawaii, and now Island Energy, you've got other players in the marketplace. And to some, on any given day, we're fighting for the attention of the customer for market share. And so Hawaii itself is a competitive place, but let's not forget, even more so today, Hawaii is in a global market. I mean, there's competing interests from refineries around the pack rim. Also, it's really, really important that we remain focused on our base business, that we deliver the service and the needs of our customer to earn their business, and we look for ways to continue through innovation to improve our business, lower our costs, and to maintain our viability. So actually, Jeff, we're about the end of the road on this. And, you know, I think it would be a really good time for you to try to make sense of all of this conversation and to hit the high points and to do that kind of special analysis that you always did. What do you say, Jeff? I think there's a need to have a follow-up to the refinery task force. I still think that Hawaii is facing the risk that one or both refineries will shut down at some time in the future, maybe not in the year 2020, but at some time in the future, and I think we need to be prepared for that date. Well, I've certainly enjoyed this discussion. Jeff Arnold, thank you so much. Lance Tanake, thank you so much. And Al Chi, thank you so much. That brings us to the end of the show. We have a fueling of Hawaii, the role and future of hydrocarbons, and we'll have more of that in the weeks to follow. Thanks to our production engineer, Zuri Bender, our floor manager, Rich Pruppuz, and all the people who care and contribute to our ThinkTech productions. If you want to see this show again, go to ThinkTechAway.com or YouTube.com and ThinkTechAway, where there will be a link to more shows just like this. Thanks for watching. We'll see you next time. Aloha.