 Bingo, we're back at three o'clock rock here on think tech when we're having a show called energy in America. I love that We're gonna talk about energy in America With Lou put it put your AC who was the president of Eprink and Eprink you should know was the energy Policy Research Foundation an energy policy think tank in Washington, DC We are delighted to have you on the show Lou Thank You, Jake So we're gonna call this discussion the realities of renewable energy development and try to you know Make people understand things. They may not overly understand and when we spoke before You pointed out to me that we now have a renaissance in American resources That's a game changer. Can you talk about the renaissance and how it is a game changer? Yes I would say what the first thing we understand about this is that this is quite new and What's unique about this is that historically when we went out to look for oil and gas It was found in what we call geologic traps and those traps were Collected oil and natural gas from migrations from a geologist called source rock Source rock is prolific. It's everywhere and it's everywhere. There's oil and gas production and the Renaissance in the United States and we have some slides we can get to later on this But the renaissance really is the capacity to produce from the source rock and the interesting thing There's a couple of interesting facts about this one source rock is everywhere so we're no longer reserve limited and Second the future of oil and gas prices will be determined not by the ability to find oil and gas Nobody drills a dry hole anymore. Yes, it will be determined by production costs So we have moved from the discovery the expiration process to a manufacturing process And this changes everything and has completely upended the whole notion of peak oil Well, is it now? You know I'm reminded of that movie the marathon man with Dustin Hoffman and the question that they always asked is It's safe. Is it safe? So my question to you is this is the Renaissance safe because we've you know, we've had some some pushback if you will on I think that you do hear people who are concerned of the the production from source rock generally entails drilling a long Virgo hole actually almost sometimes over 10,000 feet well and then a very long A horizontal shaft in which the production process is initiated by putting water Down through the pipe under very high pressure, but that's quite quite deep I mean most of the work by EPA and when suggest that it is quote safe it's not affecting the aquifer and Most of the problems that occur in the oil and gas development occur on the surface Someone spills water, but actually I don't think hydro when people say they're opposed to Hydraulic fracturing they don't know what it but they mean by that what they really mean is they don't like industrial development so if you go to Texas where there's a long history of oil drilling. It's not a problem When it's introduced into new areas or close to residential people don't like the noise They don't like the trucking the hauling of the water It's not the hydraulic fraction I think hydraulic fracturing the people really are opposed to it's the industrial development But if you want economic growth, you're gonna have to have industrial development You just need to do it in a sound way. Well, it sounds like what you're saying is if you have cheap energy You have a better chance at industrial development and that any organization or a society or community that has the Advantage of cheap energy is going to be economically more more prosperous Yes, and what we say is this look You can say you can go around say look, I don't want an offshore drill I don't want hydraulic fraction fraction but what you can't say is it's free to do that because there was a period of time when the world price of oil was a $100 and the actual cost of producing oil in the US was closer to 30 or 40 dollars in there That difference that difference in economic value showed up in higher corporate profits more jobs larger taxes the state and local government and Larger and more rapid economic growth in the United States. In fact, here's an interesting statistic And one of the reasons why the Obama administration never really shut down Hydraulic fraction in the first Obama term in the absence of the North American patrolling Renaissance us economic growth would have been zero instead of two percent and President Obama would not have been reelected He understood this more than his staff And so when when it came down to issue regulations and everything one of the things they wanted to make sure was they didn't kill it The next interesting thing about this development is that the North American patrolling Renaissance took place largely on private land That means all the regulations were promulgated local You did not have to get a what's called a national environmental policy act review. You did not have to do endless Interventions from different environmental groups and public interest groups. So if you look at development on federal land Actually production across federal land in this period of time say since 2006 has declined This took place on private land in which there were private mineral rights and this explains a great deal I wrote a piece in the Wall Street Journal about this in fact. So this explains a lot of what happened so let me just Go back for a minute and make sure that our listeners and viewers understand where you're coming from You're not representing oil and gas interests You are completely impartial and but and unbiased am I right? Yes, so so I should explain our funding maybe that would be helpful the energy policy research foundations been around since 1944 and we're kind of in that space which we call patrol and economics and public policy We actually get funding from the Defense Department We did a big project for them on the strategic implications of the North American patrolling Renaissance We helped the Department of Energy with their quadrennial energy review and our private sector funding is untied So our board and our chairman and I set the agenda We're heavily involved actually in fuels policy as well Well with that with that in mind. I'd like to explore with you the nature of the Renaissance The Renaissance means we found more the Renaissance means we have better technology to You know find find and use and process more What are we talking about in scope here? Is this enough to last for a thousand years? Is this enough to satisfy our needs for a substantial period? So as most economists believe that the notion of peak oil that we would run out as a kind of ridiculous Notion we ran out of whales and we started to run out of whale oil and we discovered petroleum So petroleum oil and natural gas they'll be around to something better comes along Now sometimes the government thinks it knows what's better and tries to force different alternatives and You know we have people forget in the 70s We had the sin fuels corporation and we spent billions of dollars on the sin fuels corporation But it was always five dollars more than the price of oil Never really worked out So one of the big themes in our research is what things cost and really important It's good to spend a lot of time Figuring out what stuff costs. Yeah. Well, so okay. So right now oil is still cheap and Gas is cheaper yet. So how does that comparison work going forward? Will will gas get more expensive will oil get more expensive and what happens? So that's a fundamental issue in all kinds of research is what's the long run price of oil? Yeah, what's the long run price of natural gas now in the United States? We just did a study called shale gas the road ahead and you can pull it right off our website and In it we showed it even at a very very low gas price. The US has sufficient reserves To meet all the coming demands over the next 30 40 years including LNG experts Exports actually many people might not understand we are exporting large volumes of natural gas by pipeline to Mexico Yet the price of gas has remained quite cheap Now if you're talking about moving gas from the United States to other countries There you do need to liquefy put it in a tanker and absorb those costs so but we do know that The long run price of natural gas in the US. I think you take this to the bank is going to be below four dollars a thousand So do you think it'll stay below the price of oil? Absolutely, absolutely now and the oil price may go through ups and downs I'll tell you a good story We had some of the world's best extraction technologists in a room in Houston about two years ago and What my people understand is the big oil companies have only started doing research on shale oil and gas in the last couple of years This is largely been done by independent drillers and small entrepreneurs But what's on the drawing board is incredible? the use of big data very precise location of where you place your your horizontal You know drilling in your your production facilities As I said the we are not reserve limited. Yeah, that vast reserves not just in the US Australia Argentina Russia and those those reserves actually grow with the better technology I can tell you that Hawaii at the University of Hawaii Manoa Has a very substantial Scientific effort going at the Hawaii Institute of Geophysics and Planetology lots of geologists there and they're really at the cutting edge And I think you know just just talking and I do I talk to them every week I feel that the science is growing while we watch and the science affects what you're talking about In terms of identifying getting data and identifying where it is how much of it is there and how we can extract it So this is a moving. This is a moving improving area all the time Yeah, the future price of oil and gas is going to be determined by technology of extraction. Yeah, that's it So let's take a short break Lou. We take a break 15 minutes in and come back and talk about how all this affects our our Our strategies what what kind of strategies we need to formulate who will do that how they will do it And what are the goals in establishing those strategies? That's so Lou pull pull the air pull pull the RC. I knew I'd get that wrong pull the air Polarisie Polarisie of eat at brink. That's the he's the president of energy policy research Foundation Which is an energy policy think-tank in Washington. We'll be right back after this short break Yeah Thank you for watching think-tank I'm Grace Cheng the new host for global connections You can find me here live every Thursday at 1 p.m We'll be talking to people around the islands or visiting the islands who are connected in various aspects of global affairs So please tune in and aloha and thanks for watching Aloha, I'm Carl Campania host of think-tank Hawaii's movers shakers and reformers. I Hope you join us over the next several weeks as we take a deep dive into biofuels in Hawaii And explore the alternative fuels supply chain necessary for the local and global transition towards transportation fuel sustainability Join us as we have good conversations with our farmers our producers our conversion technologies our Investors and our legislators as we try to achieve our transportation sustainability goals See you soon Aloha, I'm kawaii Lucas host of Hawaii is my mainland here on think-tank Hawaii Every Friday afternoon at 3 p.m Start your powhuna weekend off with the show where I talk to people about issues pertinent to Hawaii You can see my previous shows at my blog kawaii Lucas calm and also on think-tanks show sorry We're back. We're live here on energy in America With Lou of Puglia res Puglia Risi the president of the Energy Policy Research Foundation Eprink an energy policy think-tank in Washington DC And we're talking about the realities of renewable energy Development so one of the things we should cover is what you told me before About the realities of diminishing returns because that's got to be factored in any strategy Yeah, so if you if you look at any one of the problems is the relative prices of fuels change all the time and one of the big fundamental shift that's taking place is that Fossil fuels have become a lot cheaper and they're likely to stay cheaper for a long time Just has to do with this technological breakthrough and hydraulic fracturing and the production from source rock and when that happens Sometimes governments have a target like they they want to go to a hundred percent renewables or they want to get 55 miles to the gallon and it sounds like a good idea But the real the way economists think about it and business people Well, what are you buying at the margin? How much does it cost to go from not just a to be but then finally? X to Z and that's what's one of the problems that's happening right now for example in the auto industry The average automobile in the United States is removing 99% of the criteria pollutants that it used to spew in 1963 so we're We've made a long We've made a long road and we've got a lot of success So one of the issues that comes up is okay Do you really need to go that last five yards? Is it really worth it? Maybe that those resources should be spent in terms of climate abatement or whatever you want to do in Something more useful and you can look upon this in the sort of hundred percent Target that the state of Hawaii has for renewable fuel for the power sector You know that strikes me as a very bizarre way to think about the Hawaii's role in climate and and weather and what's going to mean for the cost of electricity in Hawaii What I hear you saying is that at the end of the line when you get close to a hundred percent The cost is so great that you have to make a value judgment an economic judgment on whether it's worth taking that last whatever it is 5% and maybe sometimes you don't go to 100% right you use those resources for something out because the curve is so steep and This is particularly true if you have a model in which you say the long-run price of gas a Long-run price of oil is a lot lower than you thought it was going to be And of course in power sectors a little different than other kinds of businesses You probably do want a diversified strategy because you can't predict the cost of all fuels But and you know there's some probably very good work done at UH I think of the energy and there's an energy research group there. There's probably looked at this a bit Yeah, I haven't seen if they've done anything. I know they've done some interesting work on solar For example, if you do an XL sheet on solar It's a loser It's a loser rooftop solar. It sounds great but you have to look at the cost of the capital and The value it's providing to the customer now some cases in some islands. It makes a lot of sense But in some cases it doesn't make a lot of sense. It's too expensive. It's not yielding enough and And so these are really difficult things because the public gets really fixed on these Yes, well the public it you know, you cannot assume the public has a sophisticated understanding Even at the years of public discussion Let me let me go to one other point that you mentioned which was to me very provocative That is sometimes, you know, people get all fixated on saving the climate When they should really allocate those resources to saving themselves Because in a place like Hawaii, we can't save the whole world, right? We need to save ourselves Yeah, if you think about Hawaii, what's the main economic thrive of Hawaii? It's tourism and It's the natural beauty of Hawaii. Let's say it's the Loa spirit You could say it's just a wonderful destination and if I were a sort of government planner in Hawaii I would say gee why are we spending these enormous resources to end up with a very costly electric grid and And Because we're trying to get you know Hawaii is too small to have any effect on the world climate It will not I don't care what we do in Hawaii. It's gonna have no effect. It's just too small But we're really on the front line of climate, you know, sea level rise storms So at the margin you should be putting your money into Adaption you should be putting your money into preserving the economic base that makes Hawaii such a wonderful place to visit and for the lives of me, I don't understand this miss This imbalance in the priorities among the leadership in Hawaii Yeah, so if you know that it's going to be bad storms and I think we do know that yeah Then you you need to set aside something To deal with climate change to deal with sea level rise to deal with those storms So if I have say a billion dollars left over Then I've achieved a certain percentage of clean energy I should I should take that billion and put it into Saving our economy saving our environment in the face of those storms and climate change. Absolutely if you look at I don't recall the number I think the state of Hawaii budget ban almost two hundred million dollars in subsidies for rooftop solar I I don't know as we call it was a study. I saw a doughnut at UH Manoa, and I think You know, they had to stop issuing those subsidies. It became such a burden on the budget. Yes Those funds would have been much better spent on adaption. It's not a question of What feels good? It's a question of what makes sense for the residents and the citizens of Hawaii so there's a whole bunch of factors including the factor that you that you have to spend a lot of money to get To clean energy. It's new technology. It requires new infrastructure You have to have a lot of people working on it. It doesn't come free. I don't think people really understand that Yeah, it poses a lot of technical and financial risks, which will be borne by the consumers of electricity. Sure so taking all those things together Lou and Trying to fashion at least at least a way of thinking around developing a strategy For the country and I guess for Hawaii. We're always interested in that Where do you see, you know, how should we be thinking about this? Well, you know, this is gonna require a lot of education because people are sort of locked into a certain world view What they need to do, but I do think the governor's position on natural gas is It's a little too restrictive in the sense that he ought to have an open mind about that Maybe you ought to have a separate commission or some outside independent groups. Okay, let's look at 405 strategies going forward including a scenario where natural gas prices are relatively low where some of the financial risks of of the 100% renewables are appropriately evaluated and let's let's see which kinds of options might make sense Even from our sort of risk diversification point of view going forward Now people people in the cost of the people have been talking about this notion of a bridge fuel and I guess LNG would be a bridge fuel in other words keep keep keep things cheap In the period, I'm not sure how you define this period in the period of the middle That it be between the time we start looking for Lots of clean energy and and the time we end up with meeting our goals or at least getting to the year in which We were supposed to meet our goals What do you think of that as an element in building the strategy the the element of a bridge fuel? Yeah, because you know, it's possible that the alternatives What's going on? We have a kind of central planning mechanism the government has decided We're gonna have renewables and these are the renewables. We're going to have wind so whatever and But they may not be the cheapest way to go There may be other kinds of renewable breakthroughs There may be breakthroughs and batteries that come along that to deal with some of the imbalance in the grid But those breakthroughs on here. Yeah, if you look at the US for example, I would say You if you look at sort of solar wind all the different things between the US Clearly biofuels everyone kind of agrees biofuels has been kind of a bust, right? But in you in Washington we mandate the blending of biofuels into the gasoline pool It's actually increasing the price of gasoline by about 10 cents a gallon in the US And by the way in the Hawaiian Islands who are not required by law to blend biofuels That's a self-imposed pain you engaged in in Hawaii You know that you in Alaska were exempt Well, you know the other the other thing about this is things change and You know if we weren't aware of that on any given day the news that day will remind us that things change You can't count on anything staying the same for even half a day even a quarter of a day Just just watch any news source. So if we develop a strategy This is a you know conceptual idea develop a strategy and we and we fix on certain steps over a certain period of time You know using certain, you know certain parameters, I guess and maybe certain variables that change How do we build in a? Complete, you know disruptive change that happens right in the middle for example a new technology and batteries You know for example the graphene graphene batteries come in all the sudden Batteries are a whole new ballgame How do we build that into the strategy? Well, you need you know, you need an open system in which alternatives can emerge over time It's true that if you build a big combined cycle power plant, you're kind of stuck with that right for a long time, but you know Technologies come just what the technologies come along often That's one of the reasons why we should do research and I'm a big believer in basic research and even demonstration research I'm not a believer that the government has the ant that the government knows what the future looks like and should then have a very centralized plan Implemented because once the wheels of bureaucracy get rolling They don't seem to be very susceptible to changes in technology and in forces in the market So who looks at that? I mean, it's just a small point, but in the news today. There is a wind farm in Ola Palakua on Maui where the Forget what you call it the the top part of the windmill fell off and it stopped the whole farm This is a pretty big farm. I don't know how many megabytes, but it's pretty big farm And it was important for the grid in Maui. It fell off. It broke the whole farm is down They're probably trying to figure out how to make up for that loss So maybe this requires Some new adaptation on the strategy. And so my question to you is who decides who should be watching for that? Windmill to fail who should be Commission in Hawaii, I think what it's called and If you go and in the u.s. You know in the u.s. All our Independent service operators we have regulatory bodies in the state. So the u.s. Is a very unusual place The states get to decide what the electric grid looks like the states get to decide how the connections are done and what kinds of Regulatory measures should be implemented because we just have this tradition in the u.s. We do have merchant suppliers in other states, and I don't know what the nature of the Hawaiian System is that much, but if you had a pure market oriented system in Hawaii, my guess is for Oahu clearly you would have some big baseload and Then you would fill it in over time with renewables Maybe you'd have a little bit of an experimental program. I certainly wouldn't be engaged because remember you These are all Interruptible supplies the wind mills a classic case right now a power plant can go down as well But I think you do the wind mills are newer technology that they offer certain risks I would be very cautious about introducing these and I have to quick pace Yeah, one last question before we close Lou and that's this you you're seeing this from a national point of view It's not an international point of view and you know, you know, what is happening in Hawaii? And you know what's happening in other states? Do you feel that there is a national culture of Strategy development and management Emerging these days in the United States and if not should there be No, I think there should be much more attention to cost-based solutions And I think that we've gotten so Locked in to that we know what the right answer going forward is and we're not making the right trade-off We may end up imposing very high costs in the in the price of electricity Without thinking about well, what's the value of that high cost? What are we really buying for that? And as I said to get back to this example in Hawaii It just seems to me quite foolish for the state of Hawaii to put all their resources in trying to have a clean energy grid When in fact the payoff to Hawaii is an adaption That's the economic value of the state That's very fresh thinking and something we ought to consider and I'd like to continue this discussion two weeks hence On a given Wednesday at the same time. I hope you'll be available Lou. I will great. That's Lou Puglirisi He's a president of Eprinck, which is the energy policy research foundation and energy think tank in Washington, DC Thank you so much. I just might leave it with one thing is that all the research can be found on our website Thank you. What is the name of your website website? Eprinck.org. Great. Thank you. Aloha. Thank you, Jay