 Okay, we're back. We're live. We're here in America. And this is Energy in America. And we have Jeff Kissel, Distinguished Fellow at EPRINC, Energy Policy Research. What is it, Jeff? Energy Policy Research? Foundation. Foundation. Okay, there's Jeff. And we're talking to him on Skype. And we love having him on our show. We love talking about energy with him. Welcome back to the show, Jeff. Thanks, Lou. I just put my paddle down here at Laguna Beach and came in from the ocean so I can talk to you. Thank you very much. Oh, my God, that's dedication. So anyway, so let's talk about, let's talk about Harvey. Everybody's talking about Harvey. We should talk about Harvey, too. We should talk about the effect of Harvey on world markets and the effect of Harvey on Hawaii. So, you know, tell us. We're talking about economics. We're talking about energy. Give us a praisey on what's going to happen now that Harvey has wrecked its havoc. Well, I think it's important for Hawaii to look at it from two perspectives. First, the immediate impact. And second, what would happen to Hawaii if a natural disaster struck closer to home? And that natural disaster, you know, may be physical in terms of storm, maybe political in terms of the current administration, it could be any. So that's what I'd like to talk about today. And that's how I'd like to kind of talk in terms of what we're going to discuss. If you put my little title slide up on the screen, it's understanding the impact of Hurricane Harvey and Hawaii's exposure to world markets. Yeah, we're looking at it now. Hawaii sits in a wonderful place and looks out on beautiful blue Pacific Ocean waves, but it really does play a huge role in and of itself in the world community. And of course, it's impacted by the world community. Whether we like it or not, we're in an interdependent relationship with a lot of places and with the world community, the world economy, certainly the world markets. So, okay, so where do you begin unpacking that, Jeff? Well, let's unpack it first by setting the stage. Hawaii is a vital part of America's defense, not just in the Pacific, but for the continental US. So Hawaii's defense establishment, rightfully, will have a priority on essential materials in the event of a significant disaster. So let's bring this down just for a moment to what's happened with Harvey and the Houston area. And if we go to my second slide, what it is is a quick analysis of what's going on with crude oil as a result of the shutdown of the refineries and the disruption to shipping on the Gulf Coast. Just a footnote to that is that Texas is one of the biggest refinery areas in the country, isn't it? About a third of the nation's refined products are produced in Texas, at the Texas refineries. And they're all close to Houston, right? They're essentially they're on what's called the Houston Ship Channel, which is a waterway that was constructed that is kind of like Route 66 of the inter-coastal waterways. It goes from the coast all the way inland and carries billions and billions of dollars of bulk cargoes, mostly oil in and out of that bay for refining and for conversion to petrochemicals, fertilizers, and other essential products for the economy. So there's got to be a significant effect because of that. It's enormous. What you're seeing here on this first slide, though, is if you look at it on the surface, you say, okay, Houston shut down for a while. That's backed up crude oil. So that lowered the price of crude oil. But what really happened was it raised the price of refining products. Now, eventually, the demand supply balance, and we're talking about a week, not months or years, is going to kind of come back. And the demand for crude oil and crude oil products and natural gas is going to return to its normal levels. And not much is going to happen. So our listeners and viewers are going to see crude oil prices remain relatively stable as the result of Harvey. That is not the time to relax. You know, this is kind of like the duck. Tom on the servants and paddling like hell underneath. And you've got to look at the snippers to figure this thing out. Because it's not the crude oil, which is what the benchmark is in world markets, especially for Hawaii. It's the refined products. So let's go to the next slide. And you see my little gas pumps there. Oil is made up of crude oil is refined into a lot of different products. Gasoline supplies have been interrupted as a result of this event. You recall hearing that the colonial pipeline was shut down. That's the main artery to carry gasoline from the Gulf Coast to the East Coast. Asia then becomes a secondary supplier. Because you've got to get the products moving into the markets. If you're out of gas, you want gas today. You don't want to wait a few weeks or five weeks. Remember Hawaii is dependent on Asia for oil imports. Right. We take Indonesian oil, right? It's all over Asia. And that's where most Alaskan oil is no longer coming to Hawaii in any reasonable quantity. So it's coming from Asia. It's coming from a little bit from Saudi Arabia, not very much anymore. And some of it's coming from South America, but again, not very much anymore because of the troubles in Venezuela. More importantly, Hawaii is totally dependent on Asia for its low salt or fuel oil that it uses to make the bulk of the energy that is consumed is electricity and corn. So Hawaii's prices, if you consider what happened after Katrina, which was a similar kind of event, Hawaii's electricity prices are likely to increase. Hawaii's gasoline and transportation fuel prices are likely to increase. Yes. Jet fuel prices are likely to increase, but that shouldn't really affect Hawaii very much in this case because the airlines are flying full and people are not as price sensitive to airline ticket prices as they were before. But again, look beneath the surface. Let's look at the next slide and see what happened after Katrina. After Katrina, crude oil prices remain stable. This is 2005. It was a long time ago in our standard. Gasoline and diesel prices went up a little bit, you know, 20%. We can deal with that. Power fuel prices went up by 50%. That hits Hawaii's working population right in the wallet. And that's the cost of your electric bill, is that right? Exactly right. It hits Hawaii's small businesses very, very hard. They can't raise prices to recover that. It hits Hawaii's government institutions, schools. Any institution that is dependent on electricity for air conditioning for utilities, it hits them very, very hard. But then Hawaii is dependent on its next largest industry outside of government construction. Take a look at what happened after Katrina to Gypsum for a drywall, 150%. Wow. And that's the drywall we see incorporated in every construction project. Every construction project is underway. Construction steel, these are rebars and steel reinforcing beams and the like up 65%. Lumber up 125% for framing homes. Construction labor, because Hawaii has to import a lot of its construction labor because it lacks the specialty skills that it once had when it had other industries that were supporting these skilled people. 30% and specialty trade labor, welders, machinists, people who were master pipe fitters, 175% after Katrina. So explain to me why those last three items, that is lumber and construction labor costs, increased so much after Katrina and how that's connected to Katrina. The United States, like so many places, is part of the global economy and it doesn't continuously produce enough of these raw materials to satisfy its own needs. So if you have a massive event like Katrina that destroyed thousands and thousands of homes in New Orleans, the demand for all of this spite, the crisis spite, you take Katrina's damage to New Orleans, which is a relatively small city without a huge industrial. And you multiply that by a factor of 10, 15, or 20. That's what Houston and the surrounding area is all about. This kind of logic is very solid. It seems to me and it also seems to me that you can draw the conclusion that we're going to have a worse time following Harvey than we did Katrina and it's going to affect us in profound ways. But I guess the question I would put to you, Jeff, is when? When are we going to see these kinds of effects happening in our market here in Hawaii? It's happening right now because the shipping capacity has been diverted to Houston and the Gulf Coast. So even though we have dedicated shipping to Hawaii from the West Coast, those containers are going empty because they can't fill them with the necessary supplies. Home Depot is diverting its drywall to the Gulf Coast. Home Depot and Lowe's are diverting their lumber to the Gulf Coast. So the price of these materials is about to rise significantly as the current inventories are sold off in Hawaii. The Asian shipping that used to come directly from China to Hawaii is being diverted on a temporary basis to the Gulf Coast. The construction projects underway are bid at fixed prices because everybody thought that inflation was low and construction costs were going to remain stable. Well, the price of these materials are going way up and the contractors are getting squeezed. And if what is happening here on the West Coast happens to Hawaii, you're going to see construction contractors and financial trouble. You're going to see prices for home renovations that people thought might be $150 or $200 a square foot jumps to $350. And that's going to impact cost of living in Hawaii. Right now, people are buying water in Florida by the case lot because they cannot get it. Well, guess what? That's diverting water from markets like the West Coast where I live, bottled water, of course, and water from where Hawaii is. This is hurricane season in Hawaii. People hopefully have already laid in a supply of essential goods, including some water. So it's really important to understand this is not an event that occurred 6,000 miles away. This is an event that impacts Hawaii today just as surely as the sun and the tides and the surf do every single day in Hawaii on the shores. I don't think people realize this, Jeff. I think this is revelation, what you're talking about. It's kind of a scoop on what's going to happen in the future. And I'd be really interested if you could sort of draw, at least in words, the chart. Does this start and go straight up logarithmically? Does it start slow and reach a peak? I mean, what does it look like if you can try to describe the timeframe in which this increase happens? And I suppose also, big question is, how long do we have to live at these high prices? When is it going to come down and what factors play in there? Well, Jay, you know, the disaster is a funny thing. We're all kind of resilient in our personal lives. Somebody dents our car, we're okay, you can send it to the shop. Somebody dents both our cars. Somebody damages our house. You know, it compounds. Well, unfortunately, what's going on today is we had clarity, we've got Irene, we've got Jose, and we've got yet another storm forming out in the Atlantic, headed for the United States, Maine. We don't know what storms are in the Pacific now that might hit for a while. So the compounding effect is what could hurt us, not pass the decision. We're going to weather this storm in the classic sense. You know, maybe it'll be a month, maybe it'll be three months, maybe it'll be six months. And maybe, yeah, overall, it'll raise the cost of doing business in Hawaii five to seven percent if it's just the effects of Harvey. But if it's the effects of Harvey, Jose, Irene, and some storm in the Pacific, it's really important to remind everyone that it's time to prepare. And it's time to prepare both physically and economically. Oh yeah, that's what it sounds like. Well, let's take a short break. My head hurts from this. And I want to take a moment to, you know, for some relief. We'll come back in a minute with Jeff Kissel, a distinguished fellow at E-prink. And we'll talk some more about Harvey's effect, not only on global markets, but on Hawaii itself. Pretty scary. We'll be right back. This is Think Tech Hawaii, raising public awareness. Freedom, is it a feeling? Is it a place? Is it an idea? At Dive Heart, we believe freedom is all of these and more. Regardless of your ability, Dive Heart wants to help you escape the bonds of this world and defy gravity. Since 2001, Dive Heart has helped children, adults, and veterans of all abilities go where they have never gone before. Dive Heart has helped them transition to their new normal. Search diveheart.org and share our mission with others. And in the process, help people of all abilities imagine the possibilities in their lives. Okay, this is Think Tech. This is energy in America, but energy in America has a distinct effect on Hawaii. And we have Jeff Kissel, who is a distinguished fellow at the E-prink Research Foundation. And he's telling us something that we didn't know. He's telling us about effects that we are going to feel that we are already feeling from the impact of Harvey and other storms. So this is really important to understand. We are not in a vacuum. We are not alone. And we are not in any way, you know, protected from the global cumulative effect of these storms here in climate change. So Jeff, back to you. We were talking about the cumulative effect. We were talking about how this all works together. Can you describe, you know, the process by which this accumulation of effects takes place? We already talked about the fact that we have the shortage of construction materials. Construction slows down. The price goes up. We have a shortage of labor. Labor slows down. The price goes up. But you know, if we have two, three, or four storms, and we get one through Hawaii, that's when the old adage that you can make, you know, the successful parachute should jump, or has to jump all 100 times perfectly. 99 times makes enough effort. So that's the issue right now. If there are problems, and those problems compound, and we're not prepared, remember three things. First, the Korean Peninsula is unscable, and Hawaii is a first line of defense against the problems of instability in Asia. Hawaii's military will have a first claim on essential resources. And that's a hard fact that everyone has to kind of understand. Remember two. And that is so whether or not there's actually a debacle. That is so in the preparation. That is so in the military buildup that I would expect to happen now with all these increased tensions and threats. So we don't have to have a war. All we have to do is have the prospect of war, and those resources are going to be drawn down by military that's right here. It's a very good point. Thank you. The second, and you will recall, of course, when the Asia Pacific Conference was in Hawaii, they stacked up container after container of essential supplies, water, powdered milk, powdered eggs, and the like. Inflated like to be a mining park. It was inconspicuous, but it was there. And if something had happened, those supplies were going to go to the delegates, not the population. Yeah, right. It's Hawaii has a very large population of people who need assistance. These are people made of Hawaiians, Micronesians, people who are disadvantaged. These people will deserve it, require essential care. And their needs must be met by a relatively small number of resident individuals in Hawaii. And the third thing to remember is that Hawaii already has an allocation formula for essential resources in the event of a severe emergency. People need to familiarize public knowledge. People need to familiarize themselves as to where they stand in the event they need help and they need to know how to get it. Well, you know, it strikes me that we have a fragile economy to start. We have a polarization of wealth. We have great disparities here. We have some people who are living on the edge from, I would say paycheck to paycheck, but sometimes it's not even a paycheck to paycheck. They're homeless and they have no money. We have people who can hardly afford to buy food. And when we start adding dramatic changes to the prices, when we start adding, you know, supply shortages as you're talking about, that's going to put all kinds of stress on our economy and our social fabric, don't you think? Well, take a look at the next slide because it's possible we don't even have a choice. Look at what, look at, and these are statistics that are published by the Hawaii state government. There was an article in today's West Hawaii Journal that talked about. So look at, look at this, the, the day's supply of food stocks on the left side of my chart. Got five, five days worth of eggs. Well, people can say I can go without eggs. Okay. 10 days worth of fresh produce. 18 to 20 days of fresh meat. 15 days of bottled water and 30 days of grains and cereal. Think about that. You know, you're in a desert. You run out of water. You've got five days to live. You may be fine through the fourth day, but in the sixth day, you're dead. You know, these, these are, these are real numbers. And there are, this is really serious, you know. And not only that, let me add this thought, that these expectations from the state government, you know, they may be not completely accurate. And they may be, if you look at it from a realistic point of view, even a pessimistic point of view, they won't even last this long. And so these, these shortages will appear very quickly after they begin to appear. That's exactly right. And you remember, it takes oil to pump water into your house. We have 20 to 25 days of fuel on the island. Once we run out of that fuel, the water stops. So even if, you know, even if you can survive the, the generation, the fuel that it proved and make that go further, less than a month after the event occurred without electricity, without pumping stations, there is no water. And, you know, there are people who are dependent on medication. Nobody knows how much prescription medication is available in the life of somebody that has, has bothered to study that seriously. But we know for sure, the FDA has already told us, there are fewer than 10 days of generic medications in Hawaii based on the, they can support consumption rate. Well, you know, you can, you can stock up on eggs and produce, you can stock up on water, but it's hard to stock up on generic medications because you may need a prescription for that. So I mean, this leads us to a discussion of what, what to do, what to do. Because not only do we have, you know, Harvey, not, and the other storms you mentioned, and what was the one that's brewing now in the Caribbean? And Jose, we have the possibility of a storm right here at home, such as, such as the ones we've had in the past, which could wreak havoc on Oahu, which they missed in the past. So when you put all of that together, what the picture you're describing could be worse. And the reality then is that prudent planning requires you, you make a list and you check it twice and you go down a safeway and get stocked up. But I don't know how, I don't know how that would work. Does Safeway have a supply now that people could use to store these critical, critical supplies at home? Well, you've got to, you've got to buy them when they're available. You know, we're way beyond filling up the tank, buying rice and toilet paper. This is, this is real serious stuff here. So that's, I mean, that's an important message coming out of a hurricane, Harvey. And if you go to my last little slide, I kind of summarized the total economic impact on, on what could occur, even if there is no disruption to Hawaii from a direct hit from a storm or some other event. So you've got to consider the cost. And that's, that's money out of Hawaii's economy. We can sit here and say, oh, crude oil prices aren't going up, but product prices certainly met. Shipping costs that rise because of the availability of cargo and competition for fuel from the Gulf Coast in our own Asian marketplaces is likely to raise the cost of electricity and transportation. So your message earlier a minute ago about keep the reserve of food and water at home is spot on check. Yeah. Well, you know, one other thing I wanted to ask you is let's assume that people in government, government officials, elected officials are listening or somehow aware of this process you're describing, these risks you're describing. What should they do? Talk to them for a minute. Will you, Jeff? Well, you know, Hawaii has one of the most caring and concerned governments I've had experience with it on a personal level, both in the utility business and elsewhere. Hawaii has a very caring and concerned government. They are making plans. They are doing the things that they are in the best interest of Hawaii. But this is a tiny little speck of land in the middle of a great big ocean. And government can't do it all. The individuals and people who live in Hawaii have to do it for themselves. And in doing it for themselves, they'll be able to help one another in the community, which is the spirit that we all have cherished, living in Hawaii and working in Hawaii and raising families there. Jeff, I think that's such an important point that, you know, when it comes down to it, and this to some extent is happening in Texas, is we've got to be working together. We've got to care about our fellow human being. We've got to, you know, we've got to have aloha, deep aloha to deal with crises like this, whether they be the storm or the aftermath of the impact of the storm. We in Hawaii, we are isolated. We have to find aloha together. We can never forget that. When we forget that, we're at much greater risk, don't you think? Absolutely, Jay. And, you know, if there's a single message that comes out of our discussion today, it's prepare not just for yourself, but for you as a part of the whole community. Yeah. Well, thank you, Jeff Kissell. It's been great talking with you. This is so important what you've said, and it's a really valuable analysis you've made. We are indebted to you for your suggestions, your thoughts, your analysis today. Greatly appreciate you coming on the show. It's been my pleasure. I hope to be back there soon to do this in person. Yes, sir. Count on it. Be well, Jeff. Aloha.