 Okay, Wednesday at 3 p.m. here in Honolulu, energy in America, and we talk to Lou Pugliarisi of E-Princk. Every couple of weeks we love talking to Lou wherever he is, and in fact he's been plenty of places lately. Hi, Lou. Welcome back to Washington and to the show. Thanks, Jay. So you came back from Nagoya. What did you do in Nagoya? What was going on there? It had something to do with LNG? Right, so the Energy Policy Research Foundation, or at break, and the Institute for Energy Economics Japan have received support from the government of Japan and the government of the United States to help support the effort on the future of Asian LNG. And on October 22nd, the seventh annual meeting of the world's consumer and producing LNG producers and consumers met in Nagoya to talk about next steps and what we should do to expand world LNG markets and what role the U.S. can play in that. From our early discussions, I would guess this is one of your favorite conferences. And that you participated in this conference. This is a very big deal. It's the second year we have provided some of the analytical basis for the conference. And in fact the government of Japan and the U.S. nominated us to do a third year of the project, so we're quite excited about that. That's great. Let's look at some pictures. We've got some pictures. Yeah, so let's go to Nagoya. So, yeah, so unlike the previous years, this was not held in Tokyo, but moved about two hours by bullet trains south to the town of Nagoya, which is home of a large conglomerate of a Japanese trading organization formed of utilities called Jera. And the first photo there shows, actually doesn't show the castle. If you go to our website, you'll see the castle, but it shows the guardhouse to the castle. It was a very famous castle in the 17th century in Nagoya. And this is just to give the audience a little local color. In fact, the original castle was bombed in World War II, but rebuilt in the 50s. The next photo up shows the sign just introducing all the delegates so your audience can see them for the basic sort of entrance. And then the third photo here shows you how well attended it. In fact, we had slightly over a thousand attendees this year. That's huge. And so we had energy ministers. Yeah, so we had energy ministers from about 10 countries, senior officials from 25 countries, major industry officials. And you can see in this photo, actually, that man with gray hair standing up and getting ready to make some comments. And he is Fatih Birol, who is the executive director, essentially the president of the International Energy Agency out of Paris. It's a big international event. And as we've talked many times in the past, LNG is very important to many Asian economies as a fuel diversity for energy security. And very importantly, either as a resource to be used with renewables or just directly to address air pollution, local air pollution, which is a growing concern in many, many Asian capitals and cities. Well, let me ask you this one. Was China there? Did you see China? Where do they stand in this conference? China was there. No, actually, China was there. They made a very interesting presentation. The Chinese National Petroleum Company, several, many delegates from China were there. And their basic theme was that they were deregulating more and more of their economy, at least the energy economy. And a larger portion of the Chinese economy can, you know, individual entrepreneurs or utilities, local communities can access LNG market without interference from the national government. So that was the question. In the process, did you see anything that reflected a friction because of the tariffs or is LNG something that's not affected by the tariffs? And China is all too happy to be in this organization? No, LNG. So, yeah, LNG is affected by the tariffs. I would say senior U.S. energy officials and senior U.S. energy industry executives and their counterparts in China do not view the tariffs as a long run. It's a short run problem. I mean, they basically have a long view and they believe this will get worked out. Now, I would say the tariffs, which I think can be as much as 10 to 20 percent on LNG do not seem to be affecting Chinese LNG demand. And because the U.S. is just one of several players, like a lot of portfolio players are just swapping the LNG around and moving non-US LNG to China and backing out the LNG into other markets. So far, I don't think it's a big problem. I think it would be a big problem if it persists over several production cycles. But right now, I think most folks think that this is going to get worked out. Now, I do think it was a very interesting report this morning in the financial times, like two well-known Chinese economists who stated that the trade frictions with the U.S. are largely because of the failure of the Chinese government to inform its direct intervention in the economy. And those, and we were quite surprised to see that. And I understand those lectures and those presentations were removed from the Internet, but there was a direct kind of contradiction of the central regime's view on that. So it's like a... I hope that's the end of it. It's quite interesting. Yeah, yeah, yeah. So what I thought I'd do for your audience is just quickly take them through the presentation of the Institute for Energy, Economics, Japan, and everything made at the conference. We only had, I think, seven to eight minutes total. So it won't take long. Okay. Okay, so let's go to the first slide. This is just the title page. We don't need to spend any time on that. And I think the first, you know, the next slide that comes up is what we call wild cars, China and India. And the interesting thing about LNG is that it's a very, what we call in the economics profession, a lumpy investment. It takes a huge amount of capital to get started, and historically buyers and sellers have had to get married and make a long-term commitment and to be very credit worthy to get the banks to put up the money. So, and one of the things, it doesn't, the LNG market historically has not been able to deal with is a lot of uncertainty on demand. So generally, and what is happening now is the market is transitioning from one in which you have these very fixed long-term deals, which buyers want more flexibility. Particularly Asian buyers in developing countries say, well, yeah, we really like the LNG when it's priced right. We don't want to buy it if it gets too expensive. Okay. And then we're going to switch back to coal. Or we want to switch, we want to be able to fuel switch. So, when you talk about Asian buyers... Feeling with this is a real challenge. When you talk about Asian buyers, Lou, are you, are you talking about private companies, state-owned companies, or are you talking about the state, the states themselves? So, yes. You're talking about, yeah, it depends where you are, whether you're in Vietnam or Indonesia. Many cases you're talking about utility companies, which are either owned by the state, are clearly regulated by the state. You can have what they call independent power producers, but still they are in a kind of market regulated by the state. And one of the things we wanted to point out to everyone was that in China, we really do... China is the elephant in the room. They are going to be buying a lot of LNG. When I left the country, I did go to Nanjing for a few days, and the first thing that struck me was that everyone was driving no electric scooters. This local air pollution, everyone in China knows what PM 2.5 is. Nobody knows what PM 2.5 is in the U.S., but in the big cities in China, everyone knows what it is. They can look on their app and tell you what the number is today, so it is a big political issue. And what we just wanted to show in this first slide is one, is that as you go out, the potential variance in Chinese demand for LNG becomes very big. And that's largely driven for the pace at which they introduce new power plants, which generate power through natural gas as opposed to coal. And there's an uncertainty on that rate of development. And India is a bit different. In India, they are going to use coal for electric production, but they will be using natural gas for distribution to cities for residential and industrial uses in the urban centers, and they're hooking up their pipeline. So these are the two wildcars, and one of the things we're going to be doing next year is engaging with both the authorities in both those countries to get a much better handle on what do they need to see and how can they address their requirements for long-term LNG and maybe reduce this uncertainty a bit. So I think that's one of the big themes out of our report this year to the attendees. The next slide called U.S. LNG Supply Security. I won't spend a lot of time on this one. I think we talked about this a lot, but if you look at that squiggly gray line there that shows you the price of natural gas in Henry Hopp. And that essentially is the feedstock for producing LNG in the U.S. And the rapidly rising red part of the graph there is the unconventional natural gas production. And the basic theme on this slide is, look, we have lots of natural gas in the U.S., and that even if the Asian demand gets to be quite high, the U.S. feedstock is not going to go up in price very much. So the U.S. is going to be competitive in these LNG markets if we can get all the other pieces to work right. Okay. Now, I think we had two sets of, we had a set of major findings. Actually, our findings are much longer than this. You, any one of your readers can pull the report up right off our website. It's been posted on there since the day of the conference. But I think the best things is that the, you know, we still are not getting, we believe, although the Canadian, there was an announcement in Canada of a major new LNG facility in Northern, on the west coast of Canada up in Kitimat. But basically one of the concerns we raised is, look, there's this growing LNG to man, but the investment community has yet to commit to enough new projects so that we have a lot of confidence that supply is going to be there. Okay. So we need to find different ways to address these financial risks. Then there's this thing we just talked about, a growing need for more flexibility. We're going to have to find a way for the LNG market to look more like the oil market, which people can ramp up, ramp down, lose supplies around. The emerging buyers of India and China are going to be dominant players in the LNG consumer market, and we better figure out how their demand is going to progress over time, and we're going to have to talk to them, engage with them on a regular basis. Destination restrictions still remain a problem. This is more Japanese than the U.S. problem because the U.S. has no destination restrictions, but we want, if we're going to have a flexible market, countries like Qatar and Australia are going to have to cease requiring buyers to use their LNG and have no option to reallocate it to other destinations. See, there's a big problem for Japan, for example. They don't know the pace at which nuclear power is going to come back online, and so they can make commitments for LNG, but if they don't need it, they want to have the right to resell it into the market. Not a problem for the U.S. The U.S. does not require destination restrictions, but there's still a hangover from the past in places like Qatar and Australia, and the Japan Foreign Trade Council has stated that it is inherently uncompetitive and should be stopped, okay, so that's it. And that the other problem, I think, is in some parts of Asia, Myanmar, Vietnam, Thailand, there still needs to be a lot of capacity building in human capital to learn how to use LNG, how to establish a regulatory framework, what to do about the pricing of it, all these things, and there's a lot of money from Japan, particularly going into this human capital development throughout Asia. Well, this all sounds like it's on the track you described earlier when we started talking about LNG development, global LNG development, and it sounds like this is a conference that is looking at kind of a coiled spring of expansion happening within the next year or two all around the world. I mean, you predicted this, you told us this would happen, that it would go into Asia, that the U.S. would be a big supplier, that Japan would be a focal point in the transshipment. It's all happening, am I right? That's why this conference was so important. It's all happening, and once again, more data that you'll ever want to see is in the report, so I recommend the folks that we'll take a look at it. And then maybe we can quickly just go to the policy recommendations. And so the policy recommendations really follow from the findings. One is we need to get rid of destination restrictions. I think the Japanese Foreign Trade Council is talking to the DOE and the U.S. and U.S. the Federal Trade Commission. We need to have a good benchmark price for gas in the Pacific. And there's a lot of debate on how this is going to happen. But if we have a lot of transparency in the trades and the growing spot market, the growing futures market, both physical and financial markets, buyers and sellers will have more confidence that they can engage in these transactions and hedge their bets. We're going to have to talk to these emerging LNG markets and see if we can come to some better understanding of what their strategy is long term, what they really need. Project development is going to need a lot more fast tracking, I think, both on the receiving side and on the U.S. side. The U.S. side has made real progress with FERF and stuff, but on the other side there's going to be a lot more work needs to be in fast tracking. These projects cannot, you can't dither over whether to do this for years on end, you have to decide quickly in order to start to lock this in. There's going to be government assistance, let's say financial assistance, loan guarantees, traditional foreign trade assistance is going to take place at a much broader scale in terms of export credit assistance in these emerging markets. And then we're going to need new ways to deal with the risk of LNG investment, maybe having investors buy into the whole integrated value chain. And all these issues were discussed extensively at the conference. If I'm an excited investor and I want to get in on LNG, because I can see it essentially exploding globally, where do I look? What kind of security or instrument do I look to? What do I want to examine in order to make an investment? Yeah, so you can do a couple of things. I mean, you can buy directly into a company like Shenier or Tolorean or even Shell or ExxonMobil or Driftwood. There are all these potential new developers in the U.S. Tolorean has a very interesting model in which you can, you know, for the LNG, it's not just related to the LNG community, but LNG buyer can essentially buy into the entire value chain in which the price is fixed. And it's a somewhat, it's a very interesting thing. So in sense, your risk of escalation in the feedstock cost or the risk of escalation in the liquefaction cost are completely covered because you now own a piece of the entire value chain. And so there are folks are addressing these kinds of risks with new kinds of instruments. Yeah. Well, it's like reinventing, you know, all the what I want to call it, the infrastructure of security instruments that we developed in oil. Before we go to the break, Lou, can you give us the name of your website so that, you know, we can look at this report in its entirety? fbrink.org, E-P-R-I-N-C dot O-R-G. OK, we'll take a short break. When we come back, I want to talk about Nan Jing, at least for a moment. That's Lou Puyarisi, president of E-Print, right back after this break. Aloha. I want to invite all of you to talk story with John Wahee every other Monday here at Think Tech Hawaii. And we have special guests like Professor Colin Moore from the University of Hawaii, who joins us from time to time to talk about the political happenings in this state. Please join us every other Monday. Aloha. And Aloha. My name is Calvin Griffin, the host of Hawaii in Uniform. And every Friday at 11 o'clock here on Think Tech Hawaii, we bring you the latest in what's happening within the military community. And we also invite all of your response to things that's happening here. For those of you who haven't seen the program before, again, we invite your participation. We're here to give information, not disinformation. And we always enjoy response from the public. But join us here, Hawaii in Uniform, Fridays, 11 a.m. here on Think Tech Hawaii. Aloha. Energy in America. We're back with Lou Puyarisi. He joins us from Washington, D.C. And we're talking about the trip he made to LNG Conference in Nagoya. So you mentioned the name of your website, which is e-prink.com.org. .org, sorry. .org. Perfect, as a think tank should be. And then you mentioned during the break that you that you had some very interesting articles on the website that we ought to take a look at. Yeah, so if anyone who's interested in this topic, when they go to the website, of course, they can pull down the entire report. But they'll also see that we published my counterpart in Japan. And I published two pieces, virtually on the day of the conference, one in the Japan Times and one in the Nikkei Asia Review, both in English. And I think they give you a much tighter view of policy opinion on what we should be doing. I encourage anyone interested in the topic, we'll find those interesting. This is great. It's great to be able to follow this with you, Lou. So I understand after you left Nagoya, you went to Nanjing. And that's not close. That must be a thousand miles away, at least. And what did you do in Nanjing? I was working three hours. Well, I had actually one thing. I have a son from UH Manila who's on a flagship scholarship there. And I also gave a lecture at the. I want to look on, look in on him, see if he was OK. And then also I wasn't also invited by the university to give a lecture to the International Relations Department and graduate students there. So can you give us a praise? See if that's a whole question. What did you what did you talk about? Yeah, I mean, let me. So I sort of took them through. You know, they're very interested in the questions of tariffs and US and Sino US relations. But I don't think they really had a good context for thinking about it. Right. And so I spent some time thinking about, you know, what is the kind of political paradigm for China and what is the geopolitical paradigm for the US? And I think one of the interesting things that we don't think about is that even though China has traditionally been a very land based, you know, consolidation of the Han protection of the northern, you know, the northern frontier, people forget that China, even though it's a major exporter, it is a huge importer by sea of the of the commodity into China. It's essential for the operation of the Chinese economy. And this is where I think some of the some of the kind of pressure points are arising and that it should be an area where long term, the US and China cooperate, not one which should be viewed as a form of conflict. But I mean, I think both from the US side, we see the Chinese expansion into the South China Sea and the encroachment upon traditional open navigation routes as a part of a power grab. Of course, from the Chinese perspective, they are trying to protect these routes for the importation of essential supplies to run their economy. And of course, the other aspect of the commercial disagreement is the longstanding dispute with China of the heavy involvement in the national economy, which distorts the trading relationships. And the US is not the only one complaining about this. The Europeans, the Southeast Asian countries, lots of folks are complaining about this and how we're going to resolve this. I don't know. I believe we will get there eventually, but it may take some time. Well, it sounds like you're a kind of citizen diplomat, Blue. Go there and talk about things that are somewhat sensitive, but you try to educate the Chinese on things they should know about. Yeah, the students are easy to talk to. They have very flexible attitudes about life. Let's talk about, let's talk about where it goes from here. I mean, we sort of established that this is, you know, it's hastening that the years to come, even with the stresses and strains of diplomatic relations as they presently exist with China, that we're going to be selling a lot of LNG overseas. This is going to be an important thing for the United States. Right. I think more importantly, if you look at the elite here, Europe's up, they're preoccupied by climate, right? Carbon. But in these Asian countries, Jakarta, Beijing, Nanjing, you know, Ho Chi Minh City, wherever you are, the political pressure, the leadership is feeling, is people look outside and say, hey, I can't see the sun. You need to do something about it. And you know, even in these communist countries, they can't kind of ignore this issue because it's really, you know, it's kind of a mass movement. And I find it curious that, you know, we're all preoccupied by climate, but actually what they're doing will have probably a very beneficial effect on climate. But it's not driven by climate. It's driven by local air pollution. And all through Asia, it's a very big deal because people can see it in their daily life. They can see that the air is not clean. Right. Well, what about in the Americas? You know, we just had a show a minute ago with Carlos Juarez, who was our correspondent on a show called Global Connections in Mexico, in a university just east of Mexico City. And I'm talking about the caravans, talking about American immigration policy. What we didn't talk about was Mexican energy policy. And you mentioned before the show began that you have plans for Mexico, Lou. What are your plans for Mexico? So first, we're going to try to... We have a paper that's being produced now. I think it should actually be ready for editing and the review on November 1st to look at the entire energy reform program in Mexico and try to put some estimates of what is the value of that reform program. It's kind of a way to start a discussion among influence leaders in Mexico, particularly the new AMLO, the Obrador administration, on their initiatives to, let's say, alter the reform program. Now, maybe the program should be altered in different ways, but I think the fundamental value of the program is very high. And we should begin to engage them in a discussion in case what is the reality, what is the data tell us about how valuable this reform program is. And the thinking is once we get that paper published in the public domain, we will go down to Mexico City and begin to think about something a little similar we've done with the Japanese is to engage with a kind of counterparty to ours to begin to say, okay, let's go through an agenda of important topics in the energy area and think about what do we need to understand so we can all get on the same page. Because Mexico is very important to the future of the U.S., the U.S. kind of oil and gas production platform. It's absolutely essential that Mexico remain highly integrated. But actually the future of the Mexican energy platform and the cost of gas and gasoline, it's also important they remain integrated with us. So to the extent that folks on both sides of the border have some strange views or views which are not supported by the data or by traditional analysis, we want to get both sides to begin to talk about that buy into it and see if we can find some common ground. Yeah, Mexico is even, you know, despite our current diplomatic issues with them and the President's policies on them, they're our friends and they are, our destinies are intertwined. And your destiny actually, Lou, is to become as global as energy is becoming. You're traveling more, you're engaging more and more places, I notice that. And I'd like to follow, I'd like to follow you wherever you go, Lou. Lou Puliarisi, the President of E-Prick in Washington, DC. Thank you so much for joining us, Lou. Okay, my pleasure, Jeff. Sayonara.