 We're back for live at three o'clock rock here on a given Wednesday, just a couple days before the New Year's. And we're excited to be able to talk to LuPuDiRacie again from E-Pring, the energy policy think tank in Washington, here on Energy America, Energy in America. And today's show is called, let's see, Building Up to the Inauguration, because things are happening that will have an effect on President Obama's departure and the inauguration of President Trump. So welcome back to the show, your show, Lu. Happy Christmas and prospectively happy New Year. Same to you, Jay. Same to you. We don't have any snow yet, we actually have quite balmy weather. It's coming, it's coming. So a couple of things we were going to talk about. And I'd like to take this part of the show and talk about one of them anyway. And that is the regulations, they were to call it the midnight rules that the White House under President Obama has promulgated. And what are they, what effect do they have, and what effect will they have on the inauguration? Right. So let's start with, of course, I will have to try to keep this from being too much inside baseball. Every administration tries to ram through a bunch of regulations at the end. But, you know, as we discussed previously, Congress has something called the Congressional Review Act, where they can reach back and get some of these regulations. But some are harder to turn over than others. And I thought it was quite interesting, we could spend several hours talking about so many regulations Obama's putting out in so many areas. But he issued a one quite recently that sort of stunned everyone. That was about last week, where he said he has now decided to take off the table forever. Any leasing for oil and gas resources throughout the entire Atlantic Basin, which is the East Coast of the United States, and a large swap of the Arctic offshore Alaska. And the law is kind of complicated, but it suggests that it talks about how you can ban stuff. But this offshore leasing law does not talk about how you put stuff back in. So I think that the Congress, which is controlled by the Republicans, wants to repeal this particular rule or regulation, because their vision of the future is that the North American patrolling renaissance and the offshore resources in the U.S. are quite valuable, and they will help restore economic growth. So why would the President, why would President Obama do that? It just sounds like he's putting a hot coal in Trump's pocket, and the Trump won't tolerate it and the Congress won't tolerate it. He's really making it difficult for Trump when he first comes back. On the other hand, he is like a moth to a flame. The more he does this, the more Trump is going to get animated and try to do something. Now, I do think that Congress is probably thinking about, at least the Republicans in the Senate, they say, OK, it will take us a while to remove these regulations in the Atlantic and in the offshore Arctic, and actually oil prices are not that high. It would probably take a long time for the oil companies to fix that. We have another problem. The Trans-Alaska pipeline system, which moves crude oil from the north part of Alaska, which is Prudeau Bay, all the way to Valdez, the port, where it's distributed to North America, the Orient, and occasionally to Hawaii, that pipeline, because of the natural decline rate at Prudeau Bay in the North Slope, has gone from moving 2 million barrels a day to 500,000 barrels a day. So that's a kind of problem, because when the pipeline gets to very low volumes, the crude oil essentially freezes. You need the friction to move it through the pipeline. One possibility in which near-term production could be had, in a relatively short period of time, is to, instead of trying to repeal this reg right away through the budget reconciliation process, which does not require 60 boats, but just 51 boats, the Senate might try to open up the Alaska and natural wildlife reserve. Now, if you've ever been up there, it's really a wasteland, but lots of people view it as a, because of its name, a lot of the environmental community will go crazy. So I think this is going to be interesting to watch in the new year. So there's going to be lots of these measures out there. Coal exports. A lot of the coal industry is looking for help on coal exports. This means permits from the Corps of Engineers. And as we discussed last week, I'm absolutely positive Trump will reverse the Keystone XL pipeline and the Dakota Access Pipeline in the first few days. So there's a long list of these regulations, and it's going to be quite interesting to see how Trump and the Republican Congress moves to repeal that. He's made his position clear, hasn't he? I mean, on climate change, on oil and gas and coal, is he going to be able to realize, you know, his statements of intention, changing things sort of back to fossil fuel? Well, I don't think he's tired, of course, because there's some realities we're going to talk about. First, anybody who thinks he's sort of one-dimensional on this has to look at his cabinet, because he has cabinet officers, appointments who have much different views of the world. Russia even has, Tillerson, you could argue, is his pro-climate guy, even though he's the former head of ExxonMobil, he's the only one who's pushed for a carbon tax. Or less said, that climate is a problem we should worry about, so I think that's interesting. So I don't know how that's going to work out, but I think, first, as we talked last week, the states are still driving a lot of the process. And today, today or yesterday, John Kasich, the governor of Ohio, went ahead and vetoed a bill from his own Republican legislature in the state of Ohio, which tried to repeal the renewable portfolio standard for Ohio. And he said, no, we kind of need that. It's good for jobs and advancing the technology, so I'm going to veto that bill. And I don't know if you've seen Jerry Brown. He is now making clear that California plans to engage, negotiate directly with other countries on climate strategies. Interesting. This is all a backlash on Trump's remarks. Right. Well, in terms of other countries, I wonder how Trump's return to focus on oil, gas and coal is going to work. For example, he hasn't made friends with China, and in fact, there's a widening gap there because of his tweets and remarks. And China is a customer, isn't it, of American coal and fossil fuels? Actually, China buys, I think, some metallurgical coal from the U.S. not that much. Australia is probably, maybe some Indian coal makes its way to China. So American coal exports could be competitive in the Pacific Rim by knocking out more expensive and actually more environmentally harmful coal supplies, particularly their mind in India, whether that's possible, we'll have to see. I do think, you know, about China, and I don't know what's inside Trump's head on this. But I think on China, the interesting issue is people come found, soot and air pollution with climate. But you know, all coal-fired power plants in China come with what's called scrubbers, hydroelectric scrubbers. And these scrubbers can remove the particulates. The Chinese just choose not to run the scrubbers because they've heard the edge and seen the power plants. Okay. That's cute. So there is, but there is a slow, a building public, you know, backlash if you like, a concern over smog in China. Yeah, oh sure. People walk around with gas masks. Yeah. And I do think Trump's, you know, the question is, was he like just a lunatic and started talking to Taiwan or was this a planned initiative? I think it might have been planned, just in still China, well, you know, you're doing X and Y out there in the Spratly Islands, I mean, building out these reefs. We have a couple of counter moves we're prepared to make, and it's a kind of like Richard Nixon strategy. I might be crazy, but you'll have to wait and see. That's pretty much Trump's mind, isn't it? Yeah, yeah, exactly. What's interesting is, I don't think he realizes that he may not be able to win these games so easily, and the other thing I wanted to mention and something you said a minute ago suggested that, you know, you think these tweets at two o'clock in the morning are totally accidental? You know, I don't think so. I used to think so. I think public in general must think that tweets at two o'clock in the morning are spontaneous. But I think, no, he's a businessman and he's going to have a plan about this, and he's trying to affect public opinion, and it's all very choreographed, and it doesn't come by accident. And so, you know, the rift between the U.S. and China, that's something that he is planned to do, and somehow he thinks it's beneficial for us. Right. I think as we, I mean, it's clear that his appointment at Peter Navarro, head of this trade council in the White House, and I don't know, have you, Peter Navarro is a economist, Harvard Educated Economist, teaches at University of California, Irvine, and he believes that the Chinese intervening in the currency markets are directly to subsidized exports, and they act with non-tariff barriers and a range of measures to inhibit imports. And he even produced a video, it's quite popular now, called Death by China, where someone stabs a knife in the middle of the U.S. and the blood runs. Okay. That's incendiary. Yes. But he is the guy on this, and so they're going to have to balance this question of can they move China into a trade position that's more favorable without blowing up the whole relationship of trade? And you know, people like to go to the Walmart and buy their 75-inch TVs for $2,000. That will be really difficult. It won't happen anymore. But to talk about going to Walmart, I think Trump is going to the wall. I think that has been his technique in real estate in New York. That's his negotiating style. That's his style on the apprentice. You go to the wall, you push the other guy just as far as you can push him, and you win by intimidation. And the question is whether Xi Jinping is capable of being intimidated. And for one, I don't think he's... I don't think so, but I do think Trump is very transactional. He doesn't really have a sort of Ronald Reagan ideology tear down that wall. I don't think he thinks in the world that way. He sees it as a series of transactions. And so he's not going to have a personal grudge. Back to coal for a minute. Can we do coal economically? Because actually there are dangers in the mines. It's going to cost a lot of money to make the mines really sustainable. Can coal operators actually make a buck going forward? Can we produce all the coal he wants to produce? So the first, I saw a very interesting presentation by Peabody Coal a couple of weeks ago. They had a big event in Washington with all the... What you would call the climate deniers, but let's say the climate skeptics. And actually I don't know that you can grow the coal market all that much, but you can probably prevent it from declining much further or declining dramatically. And even now, natural gas prices have started to move up. They are moving up on the 280 range to the 330 range. You start getting natural gas prices at 350. And the service operators that do the interchange in the utility system in the U.S., they dispatch the cheapest power. There's all this talk about wind and solar and all that stuff. If it's not the cheapest power and they need dispatchable power, they will dispatch the coal. So yeah, it depends what happens with gas prices. And gas prices are going to be moving up a bit. Why are gas prices moving up? I mean there's two reasons. One is more and more the utility sector is using gas. Exports of gas are starting to expand. We're now exporting about three and a half billion cubic feet a month a day to Mexico. And that gas is backing out oil, fire capacity and very inefficient capacity. So from the global point of view it's a good thing. On Hawaii now, I mentioned before the show began that on Friday the utility Hawaiian electric submitted at the request of the Public Utilities Commission a power supply improvement plan. And in that plan, after LNG has been hanging, I should say hanging fire I suppose, that would be a bad pun, LNG has been hanging for, I don't know, three, four, five years as a decision that was never made. Just a possibility that should have been decided or could have been decided. So now the utility has said, we're not going to pursue that anymore. So and the PUC is not likely to raise that on their own motion. It's not clear that anybody will actually pursue that anymore. So it looks like at least for the moment that LNG is off the table. So here's my early forecast, we're going to get to them at the end of the show. Hawaii will be using oil, fire, electricity generation for the next five years and they'll probably not decline at all. You're a real optimist aren't you? I'm just telling you, it can be like you're a dentist, I'm just telling you you need a root canal. I'm not telling you it's a good idea. Well using fossil fuel for the next five years sounds like a root canal actually. That's that's a loop, putty-racy. I'm not the policy guy. I'm just looking at what people are doing and I'm saying, you know, you can live in a dream world, but a parkin' reality's both of them. I love these conversations. That's Lou Putty-Racy. He is the president of EPRINC, which is an energy policy think tank in Washington, D.C., joins us every couple of weeks on energy in America and today we're talking about building up to the inauguration in energy. We take a one minute break, we'll be right back, wait there. Aloha, my name is John Waihei and I used to be a part of all the things that you might be angry at. I served in government here and may have made decisions that affects you. So I want to invite you in. I want to invite you in to Talk Story with me and some very special guests every other Monday here at Talk Story with John Waihei. Come on in, join us, express your opinion, learn more about your state and then do something about it. Aloha. Okay. We're here on energy in America with Lou Putty-Racy of EPRINC, an energy policy think tank in Washington, D.C. He joins us by Skype. We're talking about building up to the inauguration. We've covered the issue about the midnight rules that President Obama issued and what they might mean. And now we're going to cover the second issue and that is, what is Mr. Abe up to in Japan? Yeah, so let's do it, let's start with a little background on this. So the Japanese political establishment, Abe personally, burned a lot of political capital for the TPP. So we hear these discussions about trade and that it's one way, but political leadership in Japan had to take a lot of heat to get the TPP because they had to agree to certain adjustments in their agricultural policy. And like in all countries, farmers have a lot of power and they have a lot of power in Japan, particularly the rice farmers and then the cattle ranchers. And so Abe got pre-approval for all of this stuff. He took the political heat and thinking the TPP would go forward since it was an Obama initiative. But the campaign itself, both the Democrats and the Republicans sort of threw that in the trash can saying, it's terrible, the TPP is just as bad as NAFTA and all these other... I actually don't believe that, but that's what happened, we just can't control it. So I think Abe, he's pretty fast on his feet, was thinking, okay, remember he was, I believe, the first major leader to visit Trump after he was elected. He went to New York and met with him. He's now showed up in your home town at Pearl Harbor, which is at a very visible kind of somber ceremony, quite unbelievable for a Japanese leader. Yes. And now I have it on very good authority that the Japanese will be proposing a major initiative to kind of do a kind of energy TPP, if you like. And my sources are telling me that Abe will probably meet with Trump sometime in late January, maybe as early as January 27. At that point, one of the things the Japanese are preoccupied with is China. And they saw the TPP as a strategic counterweight. It wasn't just the trade, it was the binding of these rapidly growing democratic economies in the Pacific Rim with the United States, with kind of Japan as the centerpiece out there. So Abe, I believe, will be proposing to Trump that Japan help him with his initiative to lift up the North American petroleum renaissance, particularly the natural gas production. And the Japanese will be proposing soft money, loans, direct initiatives to help major Pacific Rim countries get into position to import US LNG. I believe that if this comes to pass, which is a pretty good chance for what I understand, that this will be embraced by Trump in a big way. And what this requires, by the way, is not just the US selling LNG. We have to get more pipelines built in the US. We have to have a better regulatory structure to have more gas get connected. The large gas fields in the Pennsylvania region now have to get connected by pipeline to the Gulf Coast where the LNG exporting facilities are. So it could be a major industrial renaissance in a way, both for Japanese companies with duties built out in the Pacific Rim, but also for US producers. So I believe that this will happen, and I believe that Trump will embrace it in a very big way, and it will have a strategic role for Japan as well. Now, this is a, that's major, and so if that happens, and they come together on this infrastructure question and sort of transporting the LNG around Asia, what benefit is, I guess we have an economic benefit because we've had a renaissance in fossil fuel, and they have a benefit because they have made themselves what the channel, the pipeline, if you will, for that fossil fuel all through Asia, and then of course that means economic boost all over Japan. And they will be backing out largely coal and oil. It's dispatchable power, it might be backing up renewables or something, but some of these things like India, they need massive dispatchable power, and if it can be done cost effectively they'll be able to back out some coal. So Trump could claim, well, I don't really believe in climate, but if you believe in climate, this is good for it. So quick, complain. If this happens, how does China react? I mean, does China doesn't like it because it doesn't like direct relationships? China didn't like the TPP, is it going to like this better? No, they're not going to like this, but they won't be, they don't really have a good counter move to this. They could offer people coal, they could offer nuclear technology, but that's quite expensive these days. So I think this would be a very interesting initiative if it happens. And they might bring China to the table on a broader set of issues. But for the Japanese, I don't think they're worried about that. What they just want to know is that the U.S. is bound to them, and bound to the major countries in the Pacific Rim. Yeah, what's interesting is that China is out there in the Pacific Rim making loans, doing development, you know, trying to help underdeveloped countries become developed, and they're doing it in every country you can think of. And here, Japan will have eclipsed them on energy. That'll be an interesting maneuver, and China will not like that. And as you say, there's not too much they can do about it. Yeah, I mean, it's quite interesting, you know, Japan, which has this really pacifist tradition since World War II, has had substantial increases in their defense budgets for the last three years. And there's another one coming, so. So you said that you thought that this was, you know, this is exactly what Abe was going to suggest to Trump on January 27th, and thereabouts. I mean, how do we know that? Has that been in the paper, or is this just... You heard it, you heard it first here, Jay. Okay, I like scoops. We'll see soon enough, won't we? It should get released soon. It should get released soon, Michael. So, looking at, you know, the power supply improvement plan I mentioned, you know, submitted by the utility on Friday, and now under consideration by the PUC, and the fact that, you know, they took LNG off the table. How could this affect Hawaii? Hawaii, which has tinkered with LNG for several years. So here's the actually interesting way this might affect Hawaii. If, in fact, we have a robust transportation network, if you like, a seaborn pipeline of LNG moving around the Pacific Rim, there's very likely to be opportunity for over, you know, ships which have excess supplies or ships would have small volumes to stop on their way to India or Japan or Vietnam to drop off supplies in Hawaii. And there may be a unique market for the Hawaiians to get supplies at a very low cost on a spot basis. Now, this wouldn't happen right away, it's going to take some time. But that is, so my guess is that if that were the case, the utility or the city fathers of Oahu would have to take another look at this issue. Yeah. Because as we talked many times, if we don't solve the storage problem, you're going to need dispatchable power. And it's, right now, it's going to be oil. Yes, well, yes. And you heard that here too. That's the church point to be using. Just wishing it not to be true isn't going to make it happen. I don't care how much aloe of spirit you had. It's not going to make that problem go away. I remember root canal. Exactly. So if the Japanese put a ton of money into these ships, which are specialized ships carrying LNG and they're big, expensive, you know, hundreds of millions of dollar ships, and if they, you know, build, you know, a system of storage and distribution around Asia, that's going to cost plenty of money. At the same time, you say that this whole initiative will likely reduce the price of LNG to the market. How does that work when you have to put that money in and you still get a reduction in price? So limit how far it can go. But if you can, you know, get the economies of scale up high enough, you should be able to drive the cost to some. Look, it's not ever going to be the price at Henry Hub of the U.S. If it's three and a half dollars at Henry Hub, it has to be something more in the Pacific Rim. Seven or eight or nine, something like that, maybe 10. But that's actually not that bad if you can get a long term deal at those prices. And you have confidence that that supply will last for 20 years. Well, on the question of, you know, lasting in supply and all that, it seems to me that if you provide LNG all over Asia, and the countries in Asia, the utilities in Asia all use it, and they in turn, you know, build their plans to use it or modify their plans to use it, they're going to be using more of it. And if they use more of it, then it's likely that the price, the price will go up over time. And so it's nice to lock it in for 20 years, but the spot market will probably increase as the use increases now. I do believe we are not reserve limited in the U.S. because we're producing from source raw. And the technology for extraction keeps getting better. And so our long run average costs are falling. If we can do certain things in the U.S. to allow this gas to evacuate to the markets from the main producing centers, which I believe will be given high attention by Governor Perry and Trump. I think we're seeing a lot of debate about the Federal Economic Energy Regulatory Commission and how we finance pipelines. What do we do about NIMBY problems? There's going to be just a carnival of ideas and debates. Yeah, and not to mention that when LNG has been discussed here, the big issue is can we accommodate big ships carrying large volumes of LNG? Aside from paying for them, do we have the facilities to offload them and all that and store the LNG? So if we were going to use it here, we'd have to revisit those issues of infrastructure. And that would affect the local price anyway. Well, I think it's this meeting, this meeting that we heard about here today, Lou. The meeting on January 27th between Messers Abe and Trump. We'll be watching for that. Yeah, watch for please. It'd be very interesting to follow this. So thank you for helping us build up through the inauguration and just beyond. And we'll compare notes between then and now and certainly thereafter. And I so enjoy these conversations. It's a breath of fresh air to talk to you every other Wednesday. So happy Christmas retrospectively. Happy New Year prospectively. And if you need some inaugural ball tickets, just let me know. Yes, we'll be calling you shortly about that. Lou Putty-Racy, the president of Ebrink, the Energy Policy Forum ThinkTech in Washington, D.C., here in our show called Energy in America, building up to the inauguration. We are so looking forward. Thank you so much, Lou.