 Energy 808, The Cutting Edge on ThinkTech, I'm Jay Fidel, and the fellow who is on the other end in Hilo and Provision Solar is Marco Mangelsor. Hi, Marco. Let's talk. Greetings, my friend Jay. Greetings. There are things happening, and we have to put it in priority here on ThinkTech. We focus on the right priorities, the things that are happening in our world, changing our world probably forever. And we'll have a profound effect on us, which we will see maybe sometimes too late. But one of the things is energy and fuel and oil and gas and the like, which is happening all over the world. We don't necessarily see it here. So let's talk about the headlines over oil, Marco. I'm kind of overwhelmed, Jay. The amount of information that's hitting us and the type of information on the energy scene is, it kind of takes my breath away. And specifically, this morning, I see that for the first time ever, US oil futures plunged below zero, plunged below zero. So last Friday, the West Texas Intermediate, or WTI metric, which is along with the Brent crude, which is typically North Sea oil off of Norway and the UK, WTI is kind of the benchmark that we use in the US for the price of oil per barrel. And on Friday, it closed at $18.27 per barrel. And then Monday, it actually went into the first time ever, today, Monday, negative territory and closed at minus $37.63, which effectively means that sellers, the people selling oil, producers and sellers must pay the buyers to take barrels off of their hands, because there's nowhere else to put it. The tanks are full, the tankers are full, the demand has fallen through the floor. And I mean, this is carnage never before seen, where you have oil producers paying sellers to take oil off their hands, which obviously, you know, is very bad for the numbers, for their numbers, because it has, there's an expense, obviously, in taking the oil out of the ground. Let's dwell on that for a minute, you know, if that's happening with the Fed too, you would get down to zero rediscount rate, possibly coming soon, below zero. I mean, it doesn't sound like it really happens, it sounds like it's theoretical. But you're saying, no, it's not theoretical, a seller has no other place to put it, therefore a seller does better if somebody, if she was, he can't sell it, because he can't store it. So he needs money from the buyer in order to get rid of it, and the buyer is willing to pay him, or rather, he's willing to pay the buyer to take it off his hands. He's willing to pay the buyer. So my question to you is just really happening, are sellers willing to pay $37 a barrel for buyers to take the oil off their hands? Well, this is, to be clear, this is for so-called crude oil futures by contract. Okay, so what does that mean? That means that for May, for the month of May, the pricing for a barrel of oil of West Texas Intermediate crude delivered in the month of May, which is a scant 10 days, 11 days from now, right, that during the month of May, it is believed that demand will continue to be very low. It is believed that the storage facilities, pipelines, and even ocean tankers will continue to be full, or relatively full. Therefore, this oil produced sold, or sold, I should say, delivered next month is meaning negative pricing, with the seller having to pay buyers to take it off their hands for deliveries made in May. Now, if you look further out. That's also real, though. In other words, it's a future, but it's nevertheless a market reality. And so if I'm a buyer, I want the seller to give me $37 for a future in oil, and money is actually passing hands on the basis of the future, because futures are traded, right, actual money passing hands all day long in the commodities market. So that is happening then. Right now, people are paying $37 to take oil off the seller's hands. That is my understanding. And maybe Eric can go ahead and put up the slide there, Oil Prices Collapse 420 on the screen when he gets the chance, because that shows in graphic detail what's going on. And if you look at that graph, you see that for June and November, which are obviously further out in the future, of course, right, for June and November, the pricing for West Texas Intermediate is above water. And for example, for June, it is trending at about $20 a barrel, which is also very uneconomic for oil producers to produce, transport and sell oil. And for November, it is going more in the $30 plus range. Okay, what counts for the variation? What accounts for the variation from May to June to November and beyond is that there's the belief, number one, that the demand will pick up and number two, that there will be storage capacity that will be open for the oil to go somewhere. Whereas next month, it's seen as rather grim, both in terms of demand and also in terms of nowhere else to store it. Well, if I have a place to store it, just suppose I do. If I have a place to store it, I mean, that would be consistent with EPA regulations and all that, then I could make a fortune buying oil and having the seller pay me $37, because $37 is twice as much as it was less. $37 negative is, you know, well more, I mean, lots more. It's like 50 or 60 bucks less than only a week or two ago and was selling for 18 positive price. This is all very bizarre, you know, and it reminds me, I mean, I've got to tell me if this works, of those satellite maps of showing the consumption of energy, the heat, the infrared heat coming up from the planet after corona crisis started, where nobody was doing anything, where no economic activity, no manufacturing, no nothing. If you show the before and after, you see all this activity a month or two ago and then you see nothing right now, and that tells you that nobody is using energy, nobody is burning energy, and therefore this follows. This follows as night from day that the price of oil has to go down. But other factors working, we heard from you, I think, that the Saudis and the Russians were having this little game they were playing on whether to cut production and we heard that the United States under Trump did not want to cut production in order to raise the price. So I think the Saudis and the Russians, they came to some agreement, maybe, I don't know, and that must be a factor, that must be a factor. But what other factors, what factors are in play, aside from, you know, the consumption of energy in general, to make this drop so far so fast? Because of the drop in demand, quite simply, Jay, the drop in demand and if you refer to what the Saudis and the Russians came to an agreement not long ago to essentially and other opiate countries to drop oil production, but I think by, I believe, a cumulative 10 million barrels a day and that has apparently had little to no effect on stabilizing the price of oil because, as we've just been talking about, it's gone into negative territory. So the ability of major players such as the Russians, such as the Saudis and the Americans as well to control this freefall has to date been woefully ineffective in terms of stabilizing the price. Let me give you some context here, Jay, because it's kind of interesting to consider the background. So last year, the daily consumption of oil for the planet, for the entire planet was around 100 million barrels a day, okay, 100 million barrels a day. So just keep that number in mind. Going back about 10, 12, 13 years previous, back in 2008, for example, it was around 86, 87 million barrels a day. So if you go from 2007-2008 to 2019, it was a gradual increase, a little bit more every year, a little bit more, a little bit more. So last year, we were right around 100 million barrels a day, global consumption of oil, okay. As of right now, most bright minds who follow this stuff day and night and somewhere in between estimate the current demand of oil to be between 65 million and 80 million barrels, quite a spread, right, 65 to 80 million. So let's take on the low end. Let's just say we know that a 65 million barrels is more or less the current demand right now. That represents about a third, more than a third of the drop from the daily demand of 100 million barrels last year. That has never been seen before in terms of such an epic drop-off in consumption. And obviously it has to do with power generation because there's less energy being consumed as far as electricity with industries down from left to right, north to south, and it also has to do with transportation, right. I mean, you and I both know that the airline industry has been clobbered like it never has before with a drop of 95, 97% in terms of filled seats, right. That's to say nothing about cars. There's no cars on the road here or in most other places. So my thinking and you passed along a piece by Bill McKibbin who was written on Enviro subjects for quite a number of years from the New Yorker and thank you for doing that over the weekend. And McKibbin says something that got my attention and got me thinking, which is that he's positing that we as a society, as a global community, we may have seen the peak demand of oil that will never be reached again, which I think is rather provocative and I actually happen to like that idea that we peaked as a global society, as a global energy consuming society 100 million barrels a day last year. We're now down to 65 to 80 million barrels a day and that the energy landscape that is all around us as a species on this planet is undergoing a profound and dramatic transformation. Now, what's going to be the end result of this transformation? I'm not a wise enough man to prognosticate that. Before we get to that, I would like to try to prognosticate, but what does it mean to peak? Let's assume we're going down the other side of a curve. So oil will never have a price or a volume as you described last year, but what does it mean in terms of energy to light our homes, to run our cars and airplanes, but to do our manufacturing? What does it mean that we're we passed a peak? Well, there's going to be some type of relative balance between supply and demand, right? So what does it mean? It means that we're going to be figuring out our way collectively into a new supply and demand model that I'm again, I'm not wise enough to see how it's all going to shake out, but you don't want to produce too much because demand will collapse. You don't want to produce too little because the price will be too high. And what alternatives there will be to oil, which has been such a fungible commodity and such a versatile energy source since it started pumping out of the ground in the early 1800s, very parts of the planet. You know, now two centuries later, will we actually begin what has been prognosticated for a number of decades in terms of, well, we'll hit peak oil in terms of production and consumption. And then, you know, it's all downhill from there. So what is it going to mean? It means that, you know, there's a transition underway, both in terms of power generation and in terms of transportation. But for the near term, probably as long as you and I are going to be alive, God willing, you know, oil will still continue to be a very big, big part of the energy picture. Well, I think oil is a part of the world order. I mean, the whole, you know, and you can talk about renewables all day long, but oil is what runs the planet, every country, every society. And renewables is, you know, it's more of an attempt and aspiration as a fuel, as a way to, you know, get electricity that will run the planet. And if you talk about the size of the oil industry, the amount of capital in it, it's just phenomenal. So we have built around oil. We have come up in our lives, built around oil, and we're still built around oil, not only Hawaii, but, you know, everywhere, really. So the question is, if you come down the other side of the curve, if you say that, you know, it has peaked and we're down the other side, aren't we saying, of course, we're saying there won't be as much economic activity, an air go that won't be as much demand for energy for oil. But are we, can we also be saying that we're going to replace oil, at least in some substantial part, with renewables? I mean, maybe the happy thought in that article was, we're going to, we're going to move more toward renewables. I believe that this does continue to present opportunities for more renewable energy, how it's all going to shake out in the weeks and months to come. Again, I feel woefully inadequate in terms of prognosticating, but I see the contribution that renewable energy will play in our energy portfolio, our energy landscape to be nothing but growing. So it's not a question of will it grow or will it not? Will it grow or will it shrink? It's going to be a matter of how quickly or how much it will accelerate given the drama and the turbulence of what's going on in the conventional fuels. Conventional fuels, again, being oil, natural gas and coal, those are really the big three. And they're all convulsed right now across the globe, across the energy chain. So it's not just the collapse of oil pricing going into negative territory for the first time ever. I mean, this is having ramifications for the other energy sources as well, as well, including other conventional fuels and renewable energy. Well, what about a kind of a feedback effect? In other words, it feeds on itself. So right now, we have very low demand. We have very low oil prices. And at least for a while, it's going to stay that way. And then while it stays that way, we're going to do, well, we're all hunkered down here and involved in lockdown. We're not manufacturing much. We're not doing much. We're not, of course, we're not demanding much energy. But over time, that could get to be the new normal. And then the new normal is we don't want as much, and we don't need, you know, the need for as much energy. And so it's a cycle down kind of thing, where the world changes and it's very hard to reverse it up. And in the process, you have this huge enterprise of oil and gas, which the United States, for one, has put in tons, trillions of dollars of investment. That investment is essentially lost. And all these oil companies take a big haircut in bankruptcy or otherwise. And it is hard to rebuild it. Don't you see this as having a sort of a permanent effect on the industry? An effect that is very difficult to reverse. I don't know what the magic date is, you know, whether it's three months, six months, nine months a year, what? But at some point, it's going to be hard to reverse it. Can oil company continue to be viable if it has no sales or worse if it has negative sales? Not for very long, certainly not for an extended period of time. I mean, but you and I both know that when it comes to oil going back over, you know, roughly 200 years that there are boom times and bust times and they happen at somewhat unpredictable bases and periods. But we are clearly into a bust period that is perhaps never been seen before. So, I mean, it also to me, Jay, begs the question of what are considered strategic, vital strategic industries in the country? And what are deemed worthy of support from the federal trough? And what are deemed casualties of capitalism, of survival of the fittest? And I mean, you can make a case, I think a reasonable case of the airline industry, which is part of the lifeblood of our transportation system cannot be allowed to see carriers such as Delta or United or American simply go away. That would not be beneficial and clearly the CARES Act and the two trillion dollars worth of support is going to be giving billions to the airline industry. What about the oil industry? I mean, should they be considered also worthy of federal largesse, i.e. taxpayer support? I pose that question to you. That's a really, really good question, because I don't think we've thought it through. When I say we, I mean, the country, the administration, and I don't think it's thought a whole lot of things through. And of course, Congress, which should be more active on this and exercising its own discretion. But I think if oil companies, oil companies have fixed costs just like airlines, oil companies cannot exist in an environment where they have to pay fixed costs, but they have no revenue. I doubt they have a lot of reserves. They can keep on paying those fixed costs. After a while, your balance sheet goes underwater. After a while, you have to seek the protection of the bankruptcy court. After a while, your assets have to be sold off and new capital concentrations have to be formed. And they may not be the same in many ways. They may not be the same as it was before. The industry will change. And I don't know if they've figured that out, but if you assume that oil is the mainstay of energy in this country, you have two choices. One is put the money into oil, you know, keep it going for a while. It's a high priority, even if you don't like it from an environmental point of view. And this administration doesn't like environment. Or B, put the money into renewables. Take that money, billions, hundreds of billions, whatever it is, and put it into renewables and go on a crash program to build renewables in this country to replace oil or a combination of those two. But I think to answer your question, we need to do something. We have to protect our energy. We must protect our energy. Because if we don't do that, after a while, our cities will be dark. Which brings me to a question for you, Marco. How does this affect a place like Hawaii? Who, you know, gee, we operate largely on oil to light our homes and businesses. We have renewables, but oil is still the mainstay. Oil prices go down, down, down, down. You know, we've been having this conversation about what happens when oil prices go down. Well, you know, utilities buy oil prices in futures too. It doesn't affect them right away, but ultimately it will affect, you know, the price of a barrel of oil, as used for generating electricity. And then, you know, the question is, how does that result? What effect does that have on my electric bill? And the answer is, I get a benefit, but the utility doesn't get a benefit. Because it's passed along. The savings or the gain is passed along to me. And I'm not sure, you know, I guess I would look forward to a smaller electric bill, but I wouldn't want, you know, the pressure to be on our system so that our system is unable to, you know, produce. How does it kind of affect the production of electricity in Hawaii, for example? Well, before I answer that, just a little bit of background. So as I think I mentioned to you a number of times over the years, our state is still dependent on imported petroleum to the tune of more than 80%, 80 plus percent of the state's comprehensive energy needs, 80 plus percent. So clearly, the rise and fall of oil pricing, the availability of oil supplies has a very direct, tangible, powerful impact on the economy of the state, on the people who live here. That's a given, right? Nobody can dispute that. So with oil pricing going to territories, so to speak, that have not been seen in decades, as in sub $20 a barrel, let alone negative pricing, that means that quite an electric KIUC, amongst others, will be paying less for the oil that they purchase for their needs in the weeks and months to come. So that is a good thing for consumers, but it is not so good typically for utility companies that, yes, it's a pass through, but at the same time, they need a certain level of revenue in order to do what they do, in order to keep the ship afloat, right? So with oil pricing going so low, I mean, and what is it likely to drop by? Let's say once these $20 a barrel prices, let's just say it stays stable for the next several months, just for the sake of the something, that's going to bring down the price of everybody's electric bill, right? Is it going to be dropping it by half or 70 or 80%? No, no, because fuel is only a minority percentage of the total electric bill cost per kilowatt hour. So let's say the reduction is going to be 10%, 20%, 25%, I think 20%, 25% is probably stretching it. So that will mean that there will be smaller electric bills and less revenue going to utility companies, which as I mentioned a moment ago- That's economic pressure, but I'll give you one that is even of greater concern to me, it's what we were talking about a little while ago. It's the industry, the oil and gas industry, especially oil, that is under tremendous pressure because it doesn't have a market anymore. And if it doesn't have a market, it can't be viable. If it can't be viable, it's going to go bankrupt and it's going to stop producing. It's going to be a nonproductive sale of assets experience for some of these oil companies if this goes on much longer. And so in that case, there is no supply from that company at any price. It means at least for some of the margins of the industry, there is no oil to be had, not only here, but everywhere. And that is a more profound problem. That's not an internal accounting issue. It's not even a calculation of your monthly bill. It's a matter of not being able to find the fuel on which you have relied in order to provide service. That would be of great concern if we take a longer look at, and I said longer, I mean longer than a few months look at this. So we have to keep on reporting on this. But let me ask you, there were other issues you wanted to touch on, Marco. Can you speak of them now? Sure. But before we close out this subject, I'll just share with you something that was in a Wall Street Journal piece from last week. Russell Gold is one of the longtime energy reporters there. In fact, he wrote a book not too long ago on energy and he's one of the top notch energy reporters in the country as far as I'm concerned. So I'm just going to read a couple of sentences from that piece. Oil prices remain below what most companies need to operate existing wells without losing money. In a recent Federal Reserve Bank of Dallas survey, oil operators estimated it cost them $26 to $32 to produce a barrel from an existing well in the Permian Basis of West Texas and Southeastern New Mexico. At $20 a barrel, operators across the base in the Permian Basis would lose a combined ready $200 million a week, $200 million a week. So again, these numbers are just boggling in terms of what's going to happen and who's going to survive and who's not. But a whole bunch are not going to survive clearly. You can't lose a billion dollars a year and keep going. No, unless you're the government and you can print money, but we know that's another question. Well, I think we're almost out of time. So why don't you frame up the other issues we were going to talk about and maybe we can talk about them next time. Yeah, I found some interesting news that so much of East Asia, and I mean by East Asia, you have places like China, obviously, Japan. If you get down south, you have Vietnam, Taiwan that have very healthy, what I'll say healthy coal appetites, appetites for coal. A lot of it comes from Australia. Australia is one of the major producers of coal across the country. And as far as I'm concerned, coal is about the worst energy source you could possibly want to see burned in a power plant. And what's happening is that the price of natural gas has gone down so dramatically over the past days and weeks that on a British thermal unit basis, which is a metric to measure energy content, whether it's whether it's oil, whether it's coal, whether it's not gas, that on an energy content basis, natural gas now, as I believe for the first time ever, competitive at the same price as coal. So the long and short of it is that countries like China, like Vietnam, like Taiwan, like South Korea, are now shifting or starting the process of shifting away from their dependence on coal and to natural gas, which we've talked before about our government, our e-gaze decision a number of years ago, to reject the whole bridge to the future argument in terms of let's use natural gas as the bridge to the future to renewables in a state. And he rejected that. Well, the reality is that natural gas is cheaper. And the reality is that on a carbon dioxide greenhouse gas basis, it puts out half as much bad stuff in the atmosphere as coal does. So while I'm all in favor of more renewables, fast, fast, fast, I'm also a realist enough to understand that there are things possible and things that are not possible. And I applaud anything we can do in the short term, near term, to get off of coal and to switch to a cleaner energy source as we move faster, deeper towards renewables. So that's the other interesting bit of news. And the happy news about that is the US has plenty of natural gas. We're an exporter of natural gas, as we are an exporter of oil. But we have built an infrastructure to sell it all over Asia and Europe. So it may be a very important piece going forward to try to restore energy even in the decline of the oil industry per se. Well, we can talk about that next time and anything else that comes up, Marco, because I know that something will come up. We are in a completely dynamic time. And what we don't realize is how profoundly important these issues are to our future. And what we don't realize is how fast they are changing. So Energy 808 is more than Hawaii, it's the world. And thank you so much for helping us understand this, Marco. Always my pleasure, my friend, Jay. Thanks so much for having me. Take care. Aloha. Stay safe. Bye-bye.