 Okay, we're back live. I'm Jay Fidel. This is Energy in America, and we are delighted to be in touch with Skype, with Lucien Pulirisi, who is the CEO of E-Princk, and he's in Japan right now at an important conference there. Welcome back to the show. We'd love to talk to you, Lou. Okay, I'm glad to be here, Jay. So you're there for a reason. Yes, thank you for that. You're there for a reason, though. This is not just a vacation for you. This is a major conference, a major initiative. Can you talk about why you're there in Japan right now? Yes, so I'm at the sixth annual meeting of the world's producers and consumers of liquefied natural gas. And this year, through some changes that are taking place in the LNG market, the U.S. and Japan have begun a process to both ensure that the U.S. can expand LNG exports and with the cooperation of Japan. They're also working on an initiative to expand the use of liquefied natural gas throughout the Asia-Pacific region. And in attendance yesterday, which was Wednesday, were the energy ministers of the Philippines, Vietnam, Thailand, India, Mozambique, Indonesia, and of course Japan, Taiwan, and Korea. And each of them gave their vision of LNG use throughout the Pacific Rim. So I mean, this is a big deal in the sense that this market has not really been supplied with a large supply of LNG up to this point. And you are working with a Japan think tank organization to create a policy around that. We've got a joint project with the Institute of Energy Economics, Japan, a very big research group, much bigger than us, and Air Prank, and a project which was supported both by the governments of Japan and the government of the United States. The Ministry of Economics Trade and Industry provided some funding, as did the U.S. Department of Energy. And our task was to look at two fundamental issues. What is the future of Asian LNG? What are the constraints? And second, what is the capability of the U.S. to provide greater supplies of liquefied natural gas to the Asia Pacific region? And finally, what should both countries do on a policy level to cooperate and to actually expand the use of LNG in the Pacific Rim? What a great conversation. It's so logical. All those questions relate to each other. I wish I'd been there. Next time you have to take me, I'll carry your bags and help you out. So I think we have some slides and pictures here. One of the things we did on this project is we held four workshops. If you look at the first slide, that shows you a workshop we held, the initial workshop which was held at the Willard Hotel in Washington, D.C. in September, early September. And we subsequently held after that three more workshops, one in Tokyo, one in Bangkok, and one back in Washington, D.C. And the purpose of the workshops was to gather survey data information, hear presentations from both academic researchers and industry on the nature and uncertainties regarding the capacity of the U.S. to produce more LNG and the capacity and the policy issues in Asia to increase demand. And if you move to the next slide, this is a picture shot from the back of yesterday's meeting. There were actually 2,000 delegates at this event. So it's a major event here in Asia. And at the event we were very, the Deputy Secretary of Energy, Secretary Perry didn't make it, but the Deputy Secretary of Energy for the Department of, U.S. Department of Energy, Mr. Boulette came, and he did speak favorably of the work both IEJ and EPRIC had done in this regard. Well, that is something. So the administration is supporting your project. The administration is supporting the export of LNG to Asia. And so I thought what I would do for your audience today is sort of, in just a brief number of slides here, take them through some of the basic issues we have looked at and what this tells us about the future. Yes, let's do that. Let's start with those slides. So the first slide shows you what has happened in the United States through around 2017, getting into 2017. And you can see the blue and the red partitions of this slide. And I would like you to look at the red part. That is the result of the shale gas revolution in the United States. And in a relatively short period of time, the United States has now become through the use of hydraulic fracturing and horizontal drilling and big data and sophisticated techniques, extraction techniques, has now become the largest natural gas producer in the world. And there's no chance anyone's going to catch us. And there's plenty left, too. It's got useful life for many years. So that gas has to go somewhere. We can't use it all here. We can't export it all to Mexico. So the first thing we did in our project was reviewed all the data and research on the size of the US resource base. And then we made a number of policy recommendations in the report, which is actually available to the public on either the IEJ website or the Epic website. So this report is available for everyone to evaluate and look at because in it are a series of policy recommendations for both the Japan and the US. What was the sense of the meeting about the amount of gas that the US could deliver and the amount of gas that Asia and all these countries, and I would like you to list them, all these countries could take? I guess that was discussed at the outline that you mentioned. Yes, and we have a little picture on that. But I think that one of the issues in Asia is historically the main countries, 70%, 75% of world LNG consumption takes place at only three countries, Japan, Korea, and Taiwan. So those are the three major. But now, because of concern, mostly not climate, but actually local air pollution, India, China, Vietnam, Thailand, the Philippines, Bangladesh, all these countries are showing a growing interest in to get access to US LNG. US LNG has to come a long ways. It has to traverse the Panama Canal. It has to remain and another major event that was discussed is that the Japanese government has said that destination restrictions, historically LNG contracts required the buyer to agree not to resell it anywhere else. Those have now been ruled as anti-competitive in an attempt to make the market more liquid and more transparent. Yeah, this is very interesting. Just to summarize something you mentioned during the break, or rather before we started, is that there is a number of countries, dozens of countries involved. And when you say Asia, you mean all the way from Eastern Asia, as we know it, to the West Coast of Africa. There's a huge amount of the world is involved in this market you're talking about. And that means a huge amount of the US is likely to be a big supplier of this market. And the reason that's the case, if we go to the next slide, is because even if you look at this slide here, you can see as US production grew, the blue section of this graph, the price which is shown in red has, of course, fallen dramatically. And the historic relationship of natural gas to crude oil or to oil separated in the US. The US operates strictly on what we call gas to gas competition. So the value of gas in the US is only tied to the market for natural gas. And so because the US is a free market, an open market, Henry Hub, this price you see there, which is called Henry Hub, which was a main trading location in the US, is likely Henry Hub plus transportation, plus liquefaction plus transportation, is likely to be the new index of the future. And that's going to determine the world price of gas around the world. Well, it looks like the gas price, aside from that blip around 2000, gas prices are pretty stable. And I guess that also means that they're way cheaper than other fossil fuels like oil. A lot cheaper than oil, probably not as cheap as coal, but a lot cleaner than coal. Yes. And attractive in these days of consciousness about environmental issues. But I also wanted to ask you, and it's kind of an interesting thing that your partner in this is a Japanese company, or a Japanese think tank, and Japan is a critical player in all of this. Why is Japan a critical player? Why, for example, can't the US market directly in these countries? Yes. So there's two reasons. One is political and one is technical. The Japanese have a history of using LNG going back over 50 years. So they understand its properties. They understand all its application. They understand all about shipping it and consuming it and distributing it. They have a good sense of this, all the infrastructure requirement because they've been working with it a long time. But the political one is after the TPP, what we call the Trans-Pacific Partnership, the free trade agreement that had been negotiated extensively during the Obama administration, with most of the countries in the Pacific Rim except China, when that fell apart through the sort of populist movement of the Trump presidency, right? Prime Minister Abe visited the White House and Mar-a-Lago and suggested to President Trump, look, just because we're not going to do the TPP, or as the Japanese say, just because we're putting it in the fridge, there's no reason we shouldn't find something to work on that can help expand trade and help both our countries. So Prime Minister Abe suggested that, look, let's look at how we can expand U.S. LNG exports in the Pacific, and let's look how Japan can be a facilitator of that since we bring so much expertise. Well, if we have all the LNG, and I guess we have lots of it, and the market is so robust throughout that whole area, the huge area, half the world really, that sounds like we're going to make a lot of money selling LNG. But how is Japan going to make money? Why is facilitation so profitable and interesting to them? Well, because right now, there appears to be a growing glut of LNG, long-time horizon. And to get this, so if you decide to build a liquefied natural gas processing facility, it can take you well over $10 billion and could take you anywhere from five to 10 years. So they're very long-term planning. And one of the issues is how do we look way in the future, which 10 years is a long ways in most markets, and say, well, what's happening now may not persist longer term. And I think that's one of the big issues on why you need some kind of two aspects. One part of it is that Japan and the U.S. can bring technical assistance and some, let's say, government financing to underwrite infrastructure in parts of the Pacific, which do not have an existing natural gas infrastructure and are highly reliant upon coal. Yeah, right. So in order to convince them to become part of this market, somebody has to help them build the processing, storage and distribution facilities in their major cities anyway. I just wonder, though, what about the ships? You have to transport this gas through highly specialized storage ships that store gas. Those are not cheap. So LNG carriers have been around a long time. One of the issues that's come up is whether, as the marine fleet faces more coastal restrictions on the use of higher-suffer fuels, whether LNG bunkering is going to be also required and whether it's going to grow. And when I say LNG bunkering, I mean new transport ships, cruise lines, that some of these newer ships are now looking to convert, particularly if there's a new build, to convert from traditional diesel fuel or heavy fuel oil to LNG as their main form of fuel propulsion. Is that going to be cheaper for them to operate these ships? I think it's going to be cost-effective. It may be cheaper than putting a scrubber or buying very expensive low-sulfur diesel fuel, which they will have to do under a decision made by the International Marine Organization, IMO, which is a UN international body, which has already decided that by 2020 all shipping, international shipping, will have to operate on very low-sulfur fuels. That's Lou Pugliarisi. He is the president and CEO of EPRINC, and EPRINC NG Policy Research Institute out of Washington. And he's in a conference in Japan now, in Tokyo, where his organization and the Japan Economics Think Tank participating in policy discussions around bringing American LNG to Asia through a relationship with Japan. Very exciting. It's a look into the future. We'll take one minute and then we'll come back and talk about the future in this project. This is Think Tank Hawaii, raising public awareness. We all play a role in keeping our community safe. Every day we move in and out of each other's busy lives. It's easy to take for granted all the little moments that make up our every day. Some are good, others not so much. But that's life. It's when something doesn't seem quite right that it's time to pay attention. Because only you know what's not supposed to be in your every day. So protect your every day. If you see something suspicious, say something to local authorities. 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 Dive Heart.org and share our mission with others. And in the process, help people of all abilities imagine the possibilities in their lives. Okay, we're back. We're live. We're here with Lou Pugirisi. He joins us by Skype from Japan. He's there in a conference discussing bringing American LNG to Asia through relationships in Japan. And when I say Asia, when we talk about Asia, we're including Asia and points west, probably half the world involved. So this is a huge project with huge prospect, not only for Asia, but for the U.S. as a salesman of LNG for many years to come. So Lou, you have some more slides. Let's talk about those slides. Okay, let's go to the next slide. This shows what we call natural gas prices in four regions of the world. And you have to remember that natural gas was a kind of worldwide, because it was not subject to traditional arbitrage and shipping, you could have wildly different prices for natural gas. It could be quite expensive in one region, be expensive say in Europe and quite low cost in the U.S. But the growth of world LNG markets, and particularly the entrance of the U.S. into the LNG market is starting to bring a convergence in world LNG prices. And you can see here from this chart, right, that at one time the price Henry Hobb, which is a marker here in the U.S., and the price of Japan LNG was hugely different. You go back to 2012, 11, 12, 13. So that's quite, and that's because almost all LNG was historically priced based on crude oil. And they were long-term fixed contracts in which the buyer could not resell that gas somewhere else in the market. So it was a highly controlled and restricted market. And is the entrance of the U.S., which has no destination restrictions on its LNG shipments, which is beginning to revolutionize this market. Yeah, we're starting a new chapter here. You have more slides. I thought you had one or two more. Yes, yes. But I just want to say one more thing about this slide. Because these projects are quite lumpy and they take a while to develop. They can come on to the market when the market is either oversupplied or undersupplied. It just depends. And right now these projects are coming down the market in a period which we believe will be quite short-lived, which is oversupplied. So you can see prices are down across the board. What you don't want to happen here is for investors to say, oh my God, I'm going to stop. I'm going to shut down. I'm not going to build any more LNG facilities. Because the longer-term outlook is quite robust. So if you go to the next slide, that shows you how quickly the U.S. is building out its LNG capacity. And you can see that between 2016 and 2020, the U.S. will ramp up its world production, up to nearly 70 million tons a year. This is quite big. It's 10 times what we have now. Yes, and it's also as much as Qatar sells in the world market, the biggest one. So let's, so you can see there we have had a very robust program, and we can easily double that amount. The next slide, which is the last one in this series, shows you that, yes, if you look at JKT, you see the blue JKT? That refers to Japan, Korea, and Taiwan. And they are the traditional users, but their demographics are slow population growth, and they are, you know, their energy use is not going to be dramatically growing over time. Japan and Korea, it does depend a little bit at the pace at which nuclear power is retired, and both are the pace in Japan at which the nuclear plants come back online. But if you see the red section in these graphs, you can see that it's the non-Japan, Korea, Taiwan, parts of Asia, where the demand growth is going to come from. And here it's very important the U.S. remain competitive, because they will be competing against coal and also some renewables. So what's the future of all of this for the U.S. market itself? For me, buying LNG for my utility, or who knows what? Well, you live in Hawaii, so you're not going to be buying any LNG. No, not under this administration. Who knows? Maybe something will happen in the future, but right now, you're right. Absolutely not. But I think that I do think the growing concern in the big cities in Asia over local air pollution is actually a bigger driver than climate. People can't really see climate, but they can see if they can't see down the street. And this politicians react to. And renewables can be helpful, but renewables have something we've talked about many times, a big problem with intermittency and natural gas, if you can figure out how to build out the infrastructure, the import, receiving facilities. And there's a lot of innovation taking place. Used to be you had to spend a lot of money on a fixed base import terminal to regasify it. But now we have these floating storage regasification units. They can be built through a modular design in a shipyard and then floated out to different facilities. And if someone doesn't pay the bill, you can float it back out of it. That's good business. So how do you get the gas off that modular facility back to shore and how do you distribute it? So in some cases, you just build a pipeline to a power plant. And the power plant develops electricity and distributes it through the grid. Now, in some cases, there may be industrial facilities that can use the gas, petrochemicals, other kinds of, depending which country you're dealing with. In that case, you would have to build out some more infrastructure. Well, the last item on your agenda that you read earlier, in terms of the track of the conversation in this conference and in those meetings, and I'm sure everybody did a lot of reading and research and talk about it, is what policy steps would the United States take, the Department of Energy? What policy steps would the government in Japan take in order to make, to realize this vision of the marketing gas transformation? We have a long list of policy recommendations, but I think we can boil them down to just a couple here. For the U.S. side, we need a predictable, responsible and regulatory program in which interveners can't stop every small project because either not in my backyard, or we need to keep fossil fuels in the ground. I think this is a battle that's going to go on. And the Trump administration is offering a wide range of regulatory reforms to ensure that the resiliency and redundancy of the U.S. natural gas distribution network remains intact and actually becomes more resilient over time. So that's the first thing. We probably need to do a little bit better job of permitting and standardizing designs and things for building LNG facilities. So we don't have long delays between final investment decision and regulatory approval. And I think within the Pacific Rim there's going to be a lot of engagement of countries like Thailand and Vietnam, the Philippines on what kinds of capacity building does Japan and the U.S. need to provide to help your regulators, your business community, your government decide whether this is a good idea. And if you decide it's a good idea, how do you go about doing it? What sort of technical assistance makes sense? How do you actually build? How do you decide how to price this stuff? Where do you place the power plant? Which kind of distribution networks make sense? Where should you place these things? Lots of these countries, they have no experience with this. And so they need to build up the capacity to make an intelligent decision. And Americans, American experts could participate in that process. The American and Japanese, the Japanese have been doing this a long time, so they are prepared. And actually, I forgot to mention it, yesterday at the meeting, Minister Seiko announced that the Japanese government has committed $10 billion to this program. Very good. Very good. Now I have one last question for you before we're out of time. And that is, you're talking about a pretty dramatic change in world markets on energy here. And I mean, there are a lot of implications of that. I mean, going to other possible fuels and businesses that are designed to mine and distribute other possible fuel and process other possible fuels. But the one question that comes to my mind is, so in the U.S., we have this whole new, huge prospect of selling huge amounts of energy to Asia as never before. How is that going to change the industry in the United States over the foreseeable future? Will there be consolidation? Will new leadership emerge? What are the investment possibilities? Who is going to provide the capital and so forth? Do you have any thoughts about that? So I think the, of course, we're going to have more projects that people are proposing than the capital markets will actually build. But that's not necessarily a bad thing, because people do have to make some hard-hitted decisions on which projects make sense and which ones don't. There was a very interesting presentation, however, by Tellurine yesterday at this, a new company that is actually giving, they're going to the Asian customers and saying, look, we bought the upstream natural gas assets. We are going to give, how we're going to sell this to you is, you can take an equity position in this. So you don't have to worry about the price of gas going up and down. You become a participant in this project, and you take a piece of the gas reserve itself. And we'll underwrite the liquefaction cost and the totaling cost of turning to gas and even shipping it through the Panama Canal. So there are interesting financing and equity strategies to deal with this problem that you've raised, which is the price might look good today, but for natural gas, for an LNG facility to make sense, I need to commit for 20 to 30 years. So I think you're going to see different strategies for people to deal with that risk of a rising price. Well, Lewis, this is a fabulous, fabulous conference you're talking about. It's a fabulous initiative. I am so happy that you're right square in the middle of it. I'm sure that it will define a fair amount of your time going forward. And I hope we can talk about it some more in the future, because these ripple effects, these side effects, and all the things that will happen emerging from this initiative will certainly occupy the American gas market and energy market for a long time. So I say congratulations to you. I also say we've got to do it again. We've got to talk some more about this when you're back in two weeks. Okay, Lou? Okay, see you, Jake. Thank you so much. Aloha.