 Okay, we're back, we're live, we're here, and today we're doing Community Matters with Mike Hansen, and he runs the Shippers Council, the Hawaii Shippers Council, which involves people who ship things, especially on the ocean, to and from Hawaii, and he follows what's going on for the Shippers. Hi, Mike. Thank you for coming down. Oh, thank you for having me, Jay. I enjoy being here. And your piece this time is about LNG and the Jones Act, and a move that is contemplated by the President Donald Trump. Can you talk about it? Sure. Basically, it is the President proposing to make a Jones Act waiver of 10 years to allow for a foreign flag LNG or liquefied natural gas carriers, those are a kind of ship, to transport LNG from one place in America to another in contravention of the Jones Act. Yeah. The inter-coastal trade. But, you know, one thing I get is that seems to assume, go ahead. The inter-coastal trade is a legal term that applies to trade from one part of the United States to the other through the Panama Canal. Ah, okay. Thank you for that. Okay, that would have a big effect on things if it works. But let me just say that, you know, when you frame it that way, it seems to make the assumption that the United States is not in a position to build LNG ships. Is this true? Right. First of all, let's maybe a quick review of the Jones Act for people who may not remember. The Jones Act is a common reference to various maritime, domestic maritime laws that is used informally. If you look in through the U.S. code, you'll not find a single statute that includes the term Jones Act. So it's an informal term. What's the legal term? Generally worldwide, these kinds of laws are known as maritime cabotage, and in American jurisprudence, they're known as the coast-wise laws of the United States. But everyone uses the term Jones Act. And the general rule of the Jones Act has been since the 19-teens somewhere, 19 what? 19-20. When Jones Act is used in the narrowest common sense, it generally refers to Section 27 of the Berkshire Marine Act of 1920. That applies to the carriage of cargo by water between two domestic points. And you can't do it unless the ship and the crew on the ship and the flag on the ship qualify under the Jones Act. There's two parts to that, really. One applies to the vessel, which is the purview of the coast guard. And that is, the ship must be built in the U.S., registered as a vessel of the United States, i.e., U.S. flag, owned mostly by U.S. citizens and crewed mostly by U.S. citizens. A small part of the crew can be green card holders or resident aliens. The other side is done by customs, or the customs and border patrol today. And that is the movement of ships and cargos domestically, and they're in control of that. And basically, a foreign flag vessel can make multiple foreign calls in the United States on a given voyage. And it can discharge foreign cargo loaded at a foreign port. And it can load export cargo for a foreign country. But it cannot deliver cargo from one port to another. It cannot load domestic cargo at one U.S. port and transport it to another. And the purpose of all of that? Well, the purpose, people think that this originated in 1920. It didn't. It originated in the – there's two laws early in our history, in the country's history. One was passed in the first session of the first Congress after ratification of the Constitution. And that was basically a law that established a customs service and a vessel registry. And to register a vessel as a U.S. vessel in 1789 required that it be built in the United States, owned wholly by U.S. citizens, and mostly crewed by U.S. citizens. Cabotage. That was not a cabotage law. That was for any vessel to be registered U.S., whether it was in domestic or foreign trade. Okay. 1817, after the War of 1812 there was a dispute between the U.S. and Britain regarding U.S. ships taking cargo into the British West Indies, which was a big trade in colonial times. The British had – after the Revolutionary War had excluded the U.S. from that market. While the Americans had continued to allow British ships to carry cargo domestically within the United States, finally the U.S. – they attempted several times to work out a treaty to sort this out, didn't work. And so in 1817 the Congress passed a true cabotage law that excluded foreign ships from domestic trade. So between those two laws we have the parameters of what we know today as the Jones Act. But the Jones Act in 1920 you said was at least in part for the preservation of the shipbuilding industry in the United States, right? There were 39 sections in that law, two of which were cabotage. One was section 27, which applied to the movement of commodities and goods by water. And the other one which extended the coast-wise laws to all of the island dependencies of the U.S. Okay. So moving from there to LNG, we now have a huge LNG supply in this country. Our technology has found it and can process it. There are global markets which are worth billions upon billions. If we can deliver LNG overseas. And we can't manufacture – we just don't have the capacity to manufacture the big tanker ships for LNG. Domestically that would qualify under the Jones Act. First of all, LNG refers to liquefied natural gas. And to ship natural gas you need what's known as an export terminal. And an export terminal, an LNG export terminal, marine terminal, consists of a liquefaction plant to take natural gas from its ambient temperature and pressure to liquefy it. Make it a liquid and then you actually store it as a liquid on the ship. It will have to be stored on the shore first. So when the ship arrives there's a cargo there for it to load. And the LNG now is at minus 260 degrees Fahrenheit. And you have to keep it cold. It actually keeps pretty cold itself. Most of the LNG carriers, these are the ships that actually carry the LNG, are basically giant thermoses. And those are tanks, round-circle tanks. That's on the ship. Those spherical tanks are old style and the new ones are not in that configuration. What do they look like? They're actually rectangular. They are above deck or below deck? Oh, below deck, yeah. And they've got special kinds of insulation so that, you know, if the LNG ever touched the steel in the hull, the steel would crack so cold, so it's got to be insulated. And so for an LNG, not only do you have to make an LNG transaction by water, you need the export terminal where you can, it turns natural gas into LNG, stores it for loading on a ship. But then on the receiving end you have to have an LNG receiving terminal that will receive the LNG cargo, store it. And then we gasify it so it can be used as natural gas. This is really, this is very important to the American economy because we have so much of it and because it's such a market overseas, we could make tons and tons of money. Are we making any money with LNG overseas now? How do we do that? There are three operating terminals, export terminals now, LNG export terminals, two on the Gulf and one on the East Coast. So we're already doing it? Yes. And what kinds of ships are we using to move it? It's all moving by foreign flag or foreign LNG carriers. So what's the point of having the waiver so that you can move the LNG from port to port around the country? That's correct. That's the point of it. Well, you can have the foreign flag come in, pick up the LNG and leave again. The natural gas is moved by pipeline across the contiguous U.S. That's the lower 48 or the mainland U.S. As gas. Right. As gas. It's usually moved under some pressure, but normally at ambient temperature. And there's no real gasification process at the other end. So you save all the money of those processing plants? No. You never have to liquefy it. Turning it into an LNG is very expensive. It's much more economical if you can simply move it by gas pipeline. Aren't we able to do that right now, moving it around the country? Yes. But of course, the non-contiguous jurisdictions, Alaska, Hawaii, Puerto Rico, Guam, don't have pipelines too far away. So you have to use LNG to reach them? It has to go to LNG, on a ship, and then to them. Is that what this waiver is about? Well, there's also places in the United States that are not really served by gas pipeline. For example, New England. Much of New England is not served by gas pipeline, or not sufficiently served. And they end up having to import natural gas from foreign sources. And we have so much of it here, that's really silly, isn't it? And the one that raised everybody's hackles is last year, they actually imported a cargo of Russian gas from the Arctic. When we have so much gas right here. Right. And so you don't have any way of getting the gas from the export terminals that are already in existence to receiving terminals, whereas, for example, Puerto Rico uses a large amount of gas for electrical production. And they have a receiving terminal on the island. And most of their gas comes from Trinidad. And yet on the Gulf Coast, which is, what, less than a thousand miles away from Puerto Rico, you've got two operating LNG export terminals. But no ships. At a much lower price than you can obtain this stuff from Trinidad or other places in the world. But no ships. So why isn't an American entrepreneur a shipbuilder, and there are shipbuilders in, what, Louisiana? Why don't they get some plans to have these container ships fitted for LNG and move it around on an American hull? And not a container ship, but a cargo ship. The LNG carrier is a highly specialized cryogenic tanker. And we don't have any of them? There are zero in the Jones Act fleet. Now that's worth thinking about for at least one minute. Let me say it again. I'm just quoting you, Mike. There are zero LNG carriers that qualify in the Jones Act fleet that qualify in the Jones Act. Think about that. Zero. This is the most economically productive and successful country in the world. We have zero LNG carriers in the Jones Act fleet. We'll be right back after this short break. Aloha. I'm Cynthia Sinclair. And I'm Tim Apachella. We are hosts here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii non-profit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Thanks so much. Aloha. I'm Lauren Pair, a host here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii non-profit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Back to community matters with Mike Hansen, who leads the Hawaii Shippers Council. So yeah, I'm thinking about it during the break. It's no less stunning after the break that we have zero Jones Act LNG ships, zero. Why? Not only do we not have any at the present time, we've actually never had one in the Jones Act fleet. And we have no plans, either. That's correct. Why? One of the factors that make that separate us from the possibility. First of all, you have to be able to qualify as a Jones Act ship. It has to be built in the United States. That means that you have to have a shipyard capable of building this vessel. Don't we? We have at least two major shipyards in Louisiana that build military ships. At some kind of a commercial cost that's palatable, you know, otherwise. Too expensive. Yeah. It doesn't pencil out. Well, not only does it, there are, in the United States today, there are seven what are known as major shipbuilding yards in the United States. And these are yards that are capable of constructing self-propelled, sea-going ships of a thousand gross tons and over. Three military ships that are that big? Yes. And of the seven, four build only for the Navy. Okay. Two build only commercial. Why don't we have more? Isn't there any money in this? I mean, other countries are building ships like hotcakes, Korea, for example. Yeah. Well, two can build, two build commercial. And one of those is attempting to convert itself from a commercial shipbuilder to a military shipbuilder. That's the one that delivered the last two new mats and container ships. Because the Jones Act fleet is built out. The problem that we have in the United States is our shipbuilding industry, major shipbuilding industry, is very inefficient. Our cost of construction is about five times that of South Korea. And it's never going to pencil out. And the only way, and for example, this is the Philly shipyard in Pennsylvania, which delivered the last two container ships for Mattson, the Daniel Kanoi and the Kaimanahila. There are no more commercial orders available for the yard to build. Wow. Because you have to look, the major shipbuilding, not tugs and barges, but the major shipbuilding industry, self-propelled seagull and ships. This is like the airline industry. You have around the world, you've got what, Boeing and Airbus building the big planes. Right. You have to be able to build for export and sale on the international market. These, between Japan, South Korea and China, they build north of 95% of all of the large seagoing ships in the world. It's extraordinary. You wonder why we don't have manufacturing in this country, because we're inefficient. Well, in this particular sector, yeah, we're efficient in some other sectors, but not this one. Yeah, and we wind up building for the military, and then that means the military is paying way too much, doesn't it? That's why we can't maintain the fleet level we need. Because each vessel consumes so much of the budget that you don't have anything left over. Let's take a magnitude issue on this. If I'm building, say, a Matson ship, I don't know, what is that, 1,000 feet, something like that? Yeah. A 1,000-foot Matson ship. What you want to do is talk about the capacity. The capacity of the last two Matson ships was 6,600 20-foot equivalent units. That means the ship can carry 3,600 20-foot shipping containers. So that ship, 3,600 20-foot containers, what does it cost me to build it in the U.S. or the U.S. shipyard? What does it cost me to build it in South Korea? Those two ships were delivered for 205 million a piece. The shipyard lost 60 million building those two ships. How did it lose 60 million? Because they underpriced it. It would have been more had they priced it correctly with their own costs. Exactly. It would be 235 million a piece. What about South Korea? You can buy that same ship in South Korea for around 40 million. So that's 25 percent. Yeah. Wait, I get that right. Wait, less than, it's like 15 percent. It's less than a fifth. Less than 15 percent. Less than a fifth. Then would you have to pay in the American industry shipyard industry? No. The ships, the two ships that were delivered by Philly Shipyard to Massive, they were designed by a shipyard in South Korea. The main engine was provided by that same shipyard. Most of the deck equipment and other equipment was purchased from Europe. What I get out of this is that our ship industry is propped up by building military ships at way too much money. And commercial ships for the Jones Act. Commercial ships for the Jones Act because they have to be built that way in the U.S. for Jones Act. No. The GAO estimated you can get a large LNG carrier built in South Korea with about a two-year delivery time for around 200 million dollars. If it were to be built in the United States, nobody knows what the cost really would be. But the GAO is estimating 700 million. What I hear from you is that five years' delivery. And I know people who are going to pay that. I know people who are in the business of ship construction and that sort of thing and know both U.S. and South Korean yards, they say it will be a billion. Oh wow. Nobody's going to pay that. It's not going to pencil out. It's not going to, you know, you get no return on your investment. And the delivery's on the never-never. So who knows? Yeah, yeah, yeah. But 200 million is a lot of money in South Korea. And that what you're really telling me is that to build an LNG ship. And wages in South Korean yards are comparable to those in the U.S. today. Interesting. So the inefficiency is really rampant in the U.S. Using the same wages, see, they're over the hill. It's what it is. They're over the hill. I've done some tracking on the production of these large ocean-going self-propelled ships. The U.S. has since 2000, the U.S. has delivered around 2.75 commercial ships per year. In Asia, there are dozens and dozens of them. World production is 1,500 ships a year. 1,500 ships a year. Not dozens at all. Yeah. In fact, it sounds to me like we've lost that game. We've probably lost the expertise, we've lost the infrastructure. Unless you can X, you have to be able to build for export because you cannot rely on the Jones Act market. Right. It's insufficient. It's artificial. But it's insufficient. Yeah. The business of building large commercial ships is a worldwide business. We've lost it already. We're riding on an artificial momentum and the world has taken our industry by storm and it's our own fault. Anyway, let's go back to the main point, though. We don't have the ships to do the inter-coastal, may I use that term again? Coastal. Coast-wise. No, coastal. Coastal trade. You've got coastal, which refers to east and Gulf Coast. You've got Pacific Coast. Yeah. And then you have via Panama Canal inter-coastal. Inter-coastal. And then you have non-contiguous trade. Okay. All right. But within the United States kind of trade, okay, however you want to classify that. We don't have the ships to do it. Yeah. We don't have really any ships, zero ships to do it. We must rely on foreign carriers, foreign ships that don't qualify to the Jones Act. And therefore, this administration is contemplating a waiver of those ships, foreign ships, for carrying LNG. Right. Okay. What is the reason for all of that? What is the administration saying about it? Where is the political pressure coming from? Can you talk about it? Political pressure is, well, this was all started by a request from the governor of Puerto Rico, Rosello, who needs the gas to run electrical plants in Puerto Rico. That's correct. Lord knows they need fuel. Yes. And they can source LNG cheaper from the existing two LNG export terminals on the U.S. Gulf Coast, as opposed to importing it from ... And Lord knows they need to save money. They don't have any money. From Trinidad. Yeah. Yeah. And then there's also in New England, during the winter, they have insufficient supply of pipeline gas, and they have to import LNG. And instead of importing LNG from foreign sources, they would like to be able to buy the LNG from the Gulf, which is a very reasonable thing. Yeah. Okay. So the administration hears the voices, and they're persuasive voices, I guess. Well, not only are there people who are interested in receiving the LNG, but there's also the people who produce the LNG. Want to sell it to Asia. They would also like to sell it to other U.S. citizens. Got it. Got it. Into those inaccessible places. Right. And then there's a question of Alaska. Alaska is developing a gas pipeline from the North Slope to parallel the oil pipeline. They've got enormous reserves of conventional gas on the North Slope. But no pipe. No pipeline and no export terminal. Right. So if they're going to build an export terminal, they've identified a site on Cook Inlet. They would like to be able to export LNG to California and Hawaii. Made in the U.S., yeah. And Hawaii, for sure. Okay. There's so many reasons. It's really tragic that we have to rely on foreign ships to do this. But I guess that's the motivation. It's sad that we don't have our own ships. It really is. Why 10 years? Is this supposed to be a significant window in order to permit them to do it? Are we going to be able to catch up in the 10 years? This was the request of the governor of Puerto Rico. They requested 10 years. And the reason they did that is because they have to sign what are known as off-take contracts from the export terminal for the fuel, for the LNG. And they need to be able to contract shipping. And much of this has to be done on a multi-year basis. And so by having a 10-year window, they can accomplish this. Now, this means something to Hawaii, because if you start giving a waiver, well, first of all, we have a waiver on LNG, even though the state of Hawaii, under David Ige, doesn't like LNG, there's still a possibility under another governor, another administration, we would get to like it. Well, we want to take a look at the AES Coal plant whose permit expires, I think in 2023, I think it is. Yeah. They're the low-cost producer, very low-cost. They're the ones who are keeping a cap on our electrical rates. The AES Coal. Yes. Once they go away. We better find something else. We're going to keep the prices down. Yeah. The people are leaving to go to the mainland now. So we would benefit, assuming we can find a way to accept LNG and leave Coal. You have to build an LNG receiving terminal. Like 10 million, 20, 30. Closer to half. Half a bill. Half a bill. Because you have to have the birth. You have to have the storage tank and the re-gasification. There's a big problem. That's a lot of bread. And then you have to have the pipelines. Huge. Huge. And it has a bridge fuel for us, right? But there's companies in the world that will install this. Mitsui's one of them. Yeah. Yeah. Okay. But it's still so much money. But over time and the amount of fuel that it's ... Okay. All right. I'm sure it's a large amount of money. One last question before we break, before we finish. As you said at the beginning, this would be a good move by the Trump administration and quote, if it works, there's some question about whether it would work. Yeah. What they're talking about using, there's an existing statute waiver of the navigation and coast-wise laws. And under that, there's two sections. One that applies to military cargoes and the other one that applies to commercial cargoes. And basically on the commercial side, it says if there are no existing coast-wise eligible ships, then you can get a waiver. And it doesn't state the period of time. It doesn't say how restrictive it has to be. It's really wide open. All the waivers that have been issued in the past under this second section, which and the first waiver was just after 2000, the year 2000, have been very short term. They've generally specified where the load ports were, where the discharge ports were, and given a week or two to complete the process of loading and discharge. So very narrow. Trump administration is looking at, since there are no real limitations in the statute, we go ahead and do a blanket waiver for 10 years. And if during the 10 years, we could find qualifying ships? Someone would have to build it. So would somebody oppose this? Would somebody take this to court? Of course. The Jones Act industry will take it to court. And they'll sue the administration. Oh, the shipyards. Not all the shipyards, but the shipowner, the Jones Act shipowners, they're all represented by an organization known as the American Maritime Partnership. And they would oppose it? They started life as the Maritime Cabotage Task Force. And they would oppose any exemption, any waiver of the Jones Act they would preserve it everywhere? They generally oppose any waiver that's even granted now under very short term. They should lose that case. Right? Mike Hansen. You're the lawyer. Hawaii Shipyards Council, thank you so much for coming around and helping us understand this. We'll see what happens. Thanks for having me, Joe. Aloha. Okay.