 We're back. We're live. This is Energy in America, except we're not in America. If you can guess from behind me, we're in Nanjing, China. And no problem there. And Lou Putirisi joins us from Nanjing. Hi, Lou. It's nice to see your smiling face so far away. It's great to be here, bright and sunny Thursday morning in Nanjing. Yeah, Lou is the president of EPRINC, Energy Policy Research Institute. And I forgot to ask him, Lou, why exactly are you in China? A couple of reasons. We just finished up the 8th Annual LNG Consumer Producer Conference in Tokyo, Japan. And China is a big, big feature in the future of LNG in the Pacific. And so we have some folks here we want to talk to in Nanjing. I'm also visiting my son who's working here in Nanjing. The Putirisi family gets around. What can I say? So what are we calling this show? Something about... So I think we're going to talk about today, we're going to talk about why the U.S. is the primary source of energy security for worldwide oil and gas. Okay, let's have at it. Do you have a bunch of slides all the way from China? Let's start out before we get to about... Let's just talk a few seconds about... I'll go to the next slide. And this slide shows you the North American oil production and a comment. You know, we're going to make a little comment on the Apke Keraise attack. So I don't know, is the slide up? I can't tell on the... Well, it is now. It will be in a moment. There it is. Yes. Okay, there we go. Great. So one of the things I want to point out is this... And I think we've talked about this many times, but when the attack occurred in Saudi Arabia, about 5.7 million barrels a day was taken off the world oil market. That doesn't sound a lot out of a hundred million barrels a day of production, but actually, it's a quite... In historic occurrences in the past, such an incident would have spiked oil prices of $20, $30, $40 a barrel. It moved prices up a little bit, but they've essentially come down. In fact, I'm going to show that to you in a second. But what I want to point out is how the world has changed. And the really important thing to think about here is that when you look at this particular picture, the US is now... The US combined with Mexico and Canada, the North American production platform now amounts to over a quarter of the world's oil production. It is exporting net because flows go in and out, but the net exchange is that it's exporting about 320,000 barrels a day of crude oil to the world market. So it's a force of stability. And I think that combined with expectations that the Saudis would bring things along pretty quickly and that we have this big energy security platform in North America has helped to keep the markets very calm. And I want to show you precisely what that is if you go to the next slide here. If you look at the benchmark... So this is the standard emporers and plats, spot crude prices. And what I wanted to show you is if you look at the two... There are two things called dated Brent and WTI. All you need to know about those two terms is the blue line is crude oil that's traded in Europe in the North Atlantic and the WTI is crude oil that's traded in Houston, more or less. And you can see that right after the attack, the price oil went from, I don't know, somewhere below 60 to 68, maybe even $69 a barrel. But subsequently, it has completely declined to its post-attack pricing. So one of the benefits, I mean people like to complain about fracking and the US, we got to get rid of fossil fuels. But if you would notice, people don't like it when the price of oil goes up. And it is the benefit of this North American petroleum renaissance that is actually the main character in this more happy out, at least those of us who buy gasoline. And this is remarkable in another respect. If we go to the into the next picture, you can see even though OPEC production has been on the decline, they try to show up prices, global output is still growing. And what I wanted to show you here is if you look at these three colors here, so-called other liquids, and part of those other liquids can include biofuels, global NGLs. Now for your audience, that's natural gas liquids. Often when you produce natural gas, you get these petroleum liquids, which can be used in the refining sector in the petrochemical sector. And you can see from this picture, even though OPEC has successfully reduced its own crude output, the net of the other production in the world market has been a continuing increase in oil production. So this is all in contrast to the Green New Deal and other folks that said we should get rid of petroleum. But as you can see, its growth is what has kept prices in check. And this is remarkable. I mean, this is quite, this is completely a different world than we are used to. And largely because of this tremendous response in North America. Is it sustainable? Is the Renaissance sustainable? I believe it's very sustainable. We're going to talk a little bit about that in a second. There is some debate about how sustainable it is, how much growth is left in the system. But I don't think we're going to see any decline in US production. And I think the energy information agency and most analysts think we will continue to get growth. Most of the debate is how much growth will we get? Now let's go to the next, but one of the things as we enter and sell more natural gas in the world, particularly LNG, is what about the security of natural gas? And that was a big theme at the recent producer consumer conference in Tokyo. So let's go to the next picture. And here, you know, it's really important to understand that the US, not just for oil, but it represents a unique and secure natural gas production platform. The first thing is the resources vast and it's getting bigger. And it's very low cost. We operate in a very competitive market with pipeline access to multiple resource basins. So we have a lot of redundancy. So if a pipeline goes down or there's a problem in one basin, we can go to another basin. We have a very short cycle development. I think we've talked about in the past so that because of the nature of unconventional on gas production, you can in relatively short time identify a prospect and produce it. And this rapid short cycle investment period also allows for a lot of advancement in technology. We also quite good our LNG export facilities can access multiple feedstock sources. We have predictable siding now, cost effective construction costs. And the US is not the only country, but it's a particularly well known for rule of law, contract sanctity, no destination restrictions on LNG exports except for Korea or North Korea or Iran. So when a LNG exports leaves the US, the buyer is free to redirect it to other markets. Now we still have some headwinds, some groups of post fossil fuels in the US and worldwide. Some of this is over concern over climate. Although if you travel to Asia, you will find out that gas is highly sought after to deal with local air pollution. And we still need to do a lot in Asia to get a more transparent market and trading system. What's a transparent market system? So what happens is in the United States, we have third party access to storage and pipelines. Everyone knows when a trade takes place in the natural gas market in the US that that trade probably reflects the true value of the gas at that time. We also have very well established futures market. So buyers and sellers can hedge over time. They can literally move production over time by putting it into storage. If they think it's going to be more value in the future, they can put more into storage or they can take gas that's in storage and move it into a prop period. So the US is the most open, transparent and competitive gas market in the world. Those features do not exist adequately yet in Asia. That's going to be part of future work we're going to be doing. And the other thing I think that people may not be aware of, go to the next picture, is that the there's something called the potential gas committee. It exists at the Colorado School of Mines. It's a very well-respected group. Every two years, they do a big assessment of both oil and gas. And their natural gas resource assessment by area in the US showed an increase of 22% over 2016. So the US now has a record of 3 billion, 374 trillion cubic feet of potential gas in the US. And you can see this by region in the map. Okay. So the next picture also is another feature that I think it shows that I think it's not, there's a lot of fighting over pipelines in the US and we do need to get a little better at public acceptance and coming to terms of building the pipeline so they can move from the gas can be moved from where it is to where it's needed. But if you look at this particular map, you can see if you look the Utica, Marcellus, Atrium, these are big gas resources in the northeast of the United States. And the pipelines are getting built to move this gas to the Gulf Coast, where it can go either by pipeline into Mexico, into industrial activities in the Gulf Coast, or to as a feedstock for the production of liquefied natural gas. Now, we still have a problem in the northeast. The people in New York think that gas is bad. And there's a big fight taking place now in New York. New residencies and businesses in Brooklyn and other parts of New York City have asked for gas hookups. But the main gas supplier for New York has told them that's not possible because New York State, especially Governor Cuomo, has not authorized any gas pipeline, any new gas pipelines to cross into New York. This is a climate change issue, isn't it? I think it's difficult for me to see it strictly. I think it's partly a climate change issue, keeping it in the ground. It's partly they don't like fracking, even though it's taking place in another state. And it's partly that people are extremely ignorant. I think that's probably the biggest one. People are ignorant because when they don't get this gas, they're going to have to fire up those coal-fired utility boilers to provide the electricity since the guys are going to have to put in electric stoves instead of gas stoves. So if Greta Thunberg showed up, Greta Thunberg, you know, the 15, 16-year-old. Yeah, I'm sorry. I don't think we should be establishing that very complicated national policy on the basis of 14-year-olds. Okay. I understand. My question is this, though. I mean, what do you say to them? What do you and what does the gas industry say to them? I heard about that a minute ago. Well, I don't know what the gas industry says to them. Basically, the U.S. has had a remarkable decline in climate emissions over the last 12 years. The largest decline of any other major country, any other country in the world. And that's largely because U.S. natural gas continues to drive out coal use in the power sector in the U.S. So that's what I would say. But you have to understand for these people, this is not a technocratic issue. It's a religious issue. And if it's a religious issue, you can't really have a discussion with them because they don't want to talk about the technical issues, you know, how much electric power and petroleum resources are we going to need to build all the windmills? What do we do about disposal? I mean, there's a huge balancing kind of calculation that should be made. And I don't think these particular individuals are necessarily happy with a climate tax or something like that. They want something much more radical. And actually, I think that's quite, as I think I pointed out before, in four or five liberal states in the last election, various climate initiatives, a carbon tax, a mandated wind and solar in the utility sector, in states like Oregon, Arizona, New Mexico, and Washington, these were all defeated at the polls. So I think we have a disconnect here in the country. I don't know how we fix that. I don't know what we do about that. But yes, we should be working on climate issues. No, we shouldn't be stupid about it. That's kind of where I am on this. Yeah, I wanted to ask you that. But suppose, I mean, are we doing enough, you know, you implied, and maybe this is an obvious truth, that we need to build more pipelines in order to support the greater demand and the greater export of gas? Yes, I would say the answer to that is, and I'm saying that this gas is largely going to Asia or Mexico, where in Mexico, it's replacing heavy fuel oil, which is which is bad for local air pollution, and also bad for the climate. And it's when it goes to Asia, it's largely backing out coal. I don't really understand the objection to it. Now, they could be arguing it's not happening fast enough that Asia should be building wind and solar and batteries. But, and by the way, the Asian countries are extremely cautious about this, because their view is coal is cheap. And before we sign up for this gas, we want to know that we're not going to get burned if gas prices start to go up. And this is a big issue in China now. So you see China entering the gas market, but buying it for one, two, three years, making some long term commitments, but a lot of short term commitments. So what about what about Nanjing? I mean, what's the what's the general view of this matter? And the Chinese in general, they still use a lot of coal. They have some clean coal, I know China. Right. China tends to be very pragmatic about this. They are very interested in gas. There's a political mandate to deal with local air pollution. This is mostly particulate matter, PM 2.5. No one's really preoccupied with climate. But if they see that the air is dirty, it's politically very difficult for the regime. So if you go on the streets in Nanjing, almost all the motor scooters and motor bikes are gas. I mean our electric. There's almost no noise on the street. It's amazing. And you can see large trucks that run through the street with a big funnel shooting water into the air. And that particularly is a way for the water vapor to connect with the particulates and it falls to the ground. So they are very, very constant. They're very, very focused on the issue of urban air pollution. Yeah, you see, do you see solar? Do you see wind? Do you see any turbines around? You see a lot of solar? You do see solar a lot of places. But remember, most of the urban community lives in extremely dense high rises, right? 30, 40, 50 stories. Very dense. They are not that amenable to solar or wind. They might be, but they would be at a position somewhere. They're not really a local. You can't, if you're on the 44th floor of an 80-story building, you can't really get a lot of bang out of solar. And air conditioning in China is very important. It's hot here. Yeah, well, it's probably going to get hotter too. But I just wonder where the government is on a kind of mono-emono basis. Are they encouraging solar and wind? Or are they encouraging gas? And what is the priority to the government? They're encouraging. They have a very active wind and solar program. Their solar program is one of the reasons we have a trade dispute with them because they're selling that. They're selling a lot of those, you know, the solar panels in the U.S. So, yeah, they're very, they're very much part of an all-the-above strategy, which includes nuclear solar wind, and we've done a paper on it, which is on our website, which also was reproduced in the oil and gas journal about China's search for blue skies. And it kind of lays out the trade-offs they're facing up there. So, who is that conference? They also are concerned about where they get their gas from. Domestic production, overland from Myanmar, Russia, the Caspian states, and imports of LNG. And there's no trade war on gas, I take it. Well, technically, there is a tariff on imported gas. Now, we'll see what happens with that. But only imported gas from the U.S. So, I'm more interested, I mean, I think we need to fix this trade war. I mean, I've told that to people. But the real interesting issue from the analyst's point of view, or from the world LNG mark, is how fast will China's gas demand for LNG grow? Because they can buy that gas from different sources, and then the U.S. gas can just go into the mix in other countries. But long-term, we are going to get this trade war fixed, and U.S. gas is going to come to China. I have no doubt about that. Well, let me ask you this, though. Suppose we have other sources are available, and the current tariffs, the Chinese tariffs, impede the importation of gas into China. Doesn't that mean that the infrastructure by which the gas is exported from the U.S. and imported into China is not as robust as it might be? Because other countries are supplying it instead. So, what I'm asking really is, doesn't gas go where the infrastructure is? And if you don't have the infrastructure from your source, you lose out? No, because, I mean, gas goes where the infrastructure is. But it also is competitively So, for example, the Japanese have a very big conglomerate called Jera, which is a combination of LNG trading companies, big trading companies and utilities. And they are a massive buyer of LNG, right? But they buy it as a portfolio, then they redistribute it to different parts of South Asia or even Europe, depending on what's happening in relative prices. So, there are elements of the oil market beginning to emerge in the LNG market in which relative prices dictate the distribution of LNG. I'm not saying the tariffs are good, you know, are ineffective. They could ultimately limit the total growth of LNG demand in China. But I haven't seen that yet. I think other features well. So, it's really a short term. What about oil, Lou? What about oil? Are we selling oil to the Chinese? Yes, we are. Yes. How interesting that should come to that. And I'm not sure the tariffs schedule on that. It may have been exempted by the Chinese. I'm not sure. I think it was still. But a lot of U.S. oil is going into Asia. So, that brings me to a question I wanted to ask you, namely at the conference you're attending here in Nanjing. Who's there? From what countries? From what regions in the world and why? I'm just here having some, you know, meetings with local officials and stuff. The conference in Tokyo, we had the 20 energy ministers. We had most all the major countries in the world which either export or buy LNG present, including the Russians, including the Chinese national petroleum company and the Novotek from Russia. So, it was a worldwide club of gas producers and consumers. Well, what it shows, doesn't it, is that oil and gas is more global now than it ever was. And that, you know, you really need to be involved in these conferences. You need to have that transparent market you talked about. You need to have the connections to get the best price you need to get out. You're traveling, for example, traveling everywhere. Yes, but we're sort of a research. We're not that important. A lot of companies are doing that. So, if you go here, just let me just show you, we don't need to look at these, but let's take a look at the last three slides very quickly here. I think they're just, and then this just, in terms of what this slide shows is very important because some LNG facilities around the world are fed by a single source. And if that source is disrupted, you have a problem. But what I wanted to point out here, this is the Sabine gas. It's an LNG facility in the Gulf. If you take a look here, it can access gas from many places in the U.S. So that's very important that has a lot of redundancy and stability to the U.S. system. And then if we go to the next slide here, you can see just by 2020, the U.S. is going to be essentially providing more than 20 percent of 2018 global LNG trade. So we are ramping up. This is happening. And then finally the last one, you can see that prices for LNG, this shows the price, JKM view that as the Asian price. And Henry Hump, Henry Hub is the kind of the price in the Gulf of Mexico. You can see that as these gas supplies have entered the market, the price of gas has fallen, not just in the U.S. but also in Asia. So and this cheap gas right now, I don't think this price is sustainable, but this cheap gas is being purchased at record rates around the world, including in Europe to go into storage. So it's having a big effect on the world gas market. And I think we can conclude that concludes the slide presentation anyway. Okay. And I wanted to get into sustainability. I wanted to get into the sustainability of the growth, given geopolitical considerations, given the trade war, given climate change, because climate change is going to change the way people look at fossil fuels, even if they're not, you know, they don't have the same view as the New York governor has. They, you know, they may have, they may develop a view over time when they have extreme storms and other implications of climate change. So, you know, look into the future with me, Lou. What does it look like? I think the future is one in which we will see a decline in coal, at least on a percentage basis. We will see continued growth in gas and a much slower growth in liquid petroleum. And I don't see anything though, by 2040 or 2050, that substantially alters the percentage contribution of wind and solar and renewables as a percentage basis. I see enormous growth in wind and renewables. But as a percentage in 2040, most of the change will be in a reduction in consumption through efficiency, through more, you know, ride-sharing, whatever you want to say, that we're going to be, we're going to be more efficient in how we use these fuels, but we're not going to be abandoning these fossil fuels any, anytime soon. And that's just based on a traditional cost analysis. Now, maybe, maybe that 16-year-old knows something, thousands of engineers do not know. Okay, that would be good to know. Maybe there's some secret sauce out there that I haven't seen, and I'm very interested in learning about it. That's the reality. I know that people don't like to talk about the reality, but that is the reality of how the world works. Well, so it's nice to talk to you about it. I have one more question now. If you look into the future, you know, I imagine that if you look into the future, you're going to see the U.S. as a bigger and bigger exporter of gas or one thing, and maybe some oil too. But where are the hubs going to be, so to speak? You know, for example, it seems to me that it's not more likely that the hub will be in Asia, in Japan, than in China, for example, no? Right, but the problem is the reason we have great hubs in the U.S., like Henry Hub and other trading, is because we have a whole bunch of features. We have storage. We have third-party access. We have a very active and transparent physical market and a financial market, and we have confidence from the regulators and the participants that no one's manipulating that market. That market is well-regulated and that when you make a transaction, you have a confidence in the transaction. We're not there yet in Asia. So, yeah, China would make sense because they're connected to pipelines and domestic production, but it's unclear to me yet that the participants in the market would have a lot of confidence of a trading platform in China, but let's see what the Chinese do. Singapore is another option, as is Tokyo. One thing I get out of this is that we better watch out. We better watch. We better follow these things. We better follow energy. It's so important to our global society. This is part of it, gas, and to some extent oil is part of our global society, and it's not just yes or no or black or white. It's a matter of keeping the reds burning everywhere. The new regulations coming into effect for ocean vessels is going to require a very clean fuel in 2020, January, and over time, that clean fuel is going to be in many cases LNG, not a petrol, not a liquid product, because that new liquid product with all the sulfur removed or most of it is going to be much more expensive. Is the same thing applied to airline traffic? Is the fuel used for airlines cleaner or dirtier than the kind that will be used in maritime travel? Actually, there's a bit more sulfur in jet fuel than there is in distillate for road vehicles. One of the reasons for that is that you need the sulfur to provide lubricity for the functioning of jet engines. And EPA has been very cautious about going after the sulfur content, because if airplanes started to fly out of the sky, they might blame them. So I think that's going to go in a very careful... The airlines are experimenting with blending in biofuels and more efficiency, and probably the big thing we're going to see in airlines is more efficient engines. And we'll probably see some lower sulfur over time, but they're going to go cautiously with that. Well, you know, as we get closer to 2020, and you continue all your travels all around the world, you might consider going by sea rather than by air, Lou. I'm coming your way in January, by the way. Good. We'll be here. We'll make you happy. Thank you, Lou Puyirisi of E-prink, and coming to us from Nanjing, China, and it's been seamless to talk to you on the internet and... I don't believe them. That's great. We'll talk to you again soon. Take care.