LNG the Champagne of Energy

00:00:03:02 - 00:00:32:18

Chris Keefer

Welcome back to the couple. Today I'm joined by first time guest Steven step Kinski. Some of you may know him from his really incredible Twitter threads. You know, he's someone who makes Twitter worth using for me. But I was struck recently by a thread he had on LNG. Both his pinned tweets on the history of LNG in Japan, but also on on U.S. LNG and the enormous turnaround in that sector from importer to exporter.

00:00:32:20 - 00:00:57:11

Chris Keefer

We have covered natural gas before in the natural gas master class with Mark Nelson, but there's a lot to cover. And while that was a great overview, I'm looking forward to deep diving a little more of the liquefaction side of things and some of the trading, all different kinds of angles. Definitely back in the news. With the Biden administration's pause on approvals for new LNG export terminal.

00:00:57:11 - 00:01:03:10

Chris Keefer

So the timing felt right. And Steven, I'm very grateful that you could make the time to come on to couple things.

00:01:03:10 - 00:01:06:04

Stephen Stapczynski

Chris. Thanks for having me. It's it's great. I really appreciate it.

00:01:06:10 - 00:01:29:22

Chris Keefer

Okay. So Stephen, we did the master class, but I still would like to cover a few basics. I find like coal pretty easy to understand. Dig it out of the ground, move it in a train, put in a big pile, light it on fire oil. You know, that did take a little while. Just I mean, as embarrassing, it is just to, you know, understand the refining process, distillation, all the different, you know, the crack spreadsheet or whatever it's called.

00:01:30:00 - 00:01:58:08

Chris Keefer

And obviously the multitude of uses beyond gasoline and kerosene and things like that. But gas still has this I don't know what's the word, just unclear, invisible kind of element to it, you know, And we're not going to focus on production today, but I guess, you know, conventional versus fracking. But the pipeline networks storage, the in the case of, you know, taking advantage of arbitrage and shipping it, liquefaction, gasification, all that just that's what I'm hoping to kind of unpack with you a little bit today.

00:01:58:10 - 00:02:01:06

Chris Keefer

Is this your main focus, gas markets?

00:02:01:06 - 00:02:26:01

Stephen Stapczynski

Yeah. So I'm a, you know, energy reporter at Bloomberg News based in Singapore, which is a bit of a talent and trading hub for liquefied natural gas. So I do spend a lot of time looking at LNG. Asia is home to the world's biggest LNG importers, China, Japan, Korea and then the fastest growing markets India, Bangladesh, Southeast Asia, those places as well.

00:02:26:03 - 00:02:43:19

Chris Keefer

I do remember some stories coming out of the European energy crisis where the EU seemed to be gobbling up every available molecule on the spot market and it really screwed Pakistan. Is that is that an area? I mean, it's in your part of the world right now, I guess. I don't know. I don't want to diverge too much into that.

00:02:43:19 - 00:02:45:07

Chris Keefer

But if you have a comment or two.

00:02:45:09 - 00:03:24:08

Stephen Stapczynski

I actually that's something that I've worked on from day one when the energy crisis happened. You know, I cover LNG spot trading, so suddenly prices were getting very high. And Pakistan, you know, according to the sources that we were talking to and this was before the war, even started late 2021, when when gas prices were rising and Russia was already ramping down supply, pipeline supply to Europe, LNG prices were rising and Pakistan wasn't getting all of the shipments that was promised for them under long term contracts, specifically with two companies, any the Italian company and Gunvor, a Swiss trading house.

00:03:24:10 - 00:03:45:11

Stephen Stapczynski

And so because of that, they had to dip into the spot market to buy some LNG. It was very expensive for them and it cost them quite a bit, hundreds of millions of dollars and they don't have the reserves and the cash to pay for that. It also led to shortages because after a while there just wasn't enough gas to go around.

00:03:45:12 - 00:04:12:13

Stephen Stapczynski

So as Europe was offering better prices, not just Europe, other Asian customers, South America, Brazil was buying as well because there was a drought situation at the end of 2021 and into 2022. There just wasn't enough gas globally. And so what that means is the most cash strapped nations like Pakistan, Bangladesh and even India, to an extent, they weren't able to get the fuel that they needed and that resulted in shortages.

00:04:12:13 - 00:04:37:12

Stephen Stapczynski

And shortages are blackouts. So shortages our factories had to close, businesses had to shut. I visited Pakistan last year and met with a business owner that had to shut his his weaving factory, then shut dozens of looms and he was basically thinking about selling them because he could make more money that way because energy was just too expensive for the country.

00:04:37:14 - 00:04:53:03

Chris Keefer

Well, that's I think that's a good little kind of vignette, too, to peak everybody's interest. But yeah, let's let's zoom out a little bit. I mean, when I was reading your Japan tweet, I think you had a like a an illustration of this kind of Spiderweb network of, you know, LNG imports from all different parts of the world.

00:04:53:03 - 00:05:11:06

Chris Keefer

Japan obviously pretty energy insecure in terms of I think having burned through all of its coal for the Meiji Restoration. It was interesting you interviewing a guy, a Japanese expert, and he was like, why did they build new plants in the Fukushima prefecture? Well, that was the coal heartland. And they used it all and they wanted to keep, you know, industrial employment there.

00:05:11:08 - 00:05:31:04

Chris Keefer

But it was just fascinating seeing, you know, this modern world and the way the energy, interdependence and again, going back to my original comments on coal being pretty easy to get your head around and natural gas, despite sort of rising as a global share of primary energy, still kind of lagging far behind and having taken maybe longer than other forms of primary energy to really shine.

00:05:31:04 - 00:05:39:05

Chris Keefer

To illustrate that a little bit by just talking about the complexity of the infrastructure required, both a gas pipeline, but then especially with with LNG.

00:05:39:11 - 00:05:57:10

Stephen Stapczynski

Yeah, I mean, natural gas, you can't just like pump it and put it in a bucket, right? It's it's gaseous. So and there's a danger because it's dangerous if you light it on fire, you can't see it oftentimes, you can't smell it. You know, they add that smell to gas. So all of that together, it's, you know, how do you even quantify it?

00:05:57:10 - 00:06:19:00

Stephen Stapczynski

So that in of itself is challenging. So the way that gas is produced, at the beginning, it was usually just a byproduct of oil. They would just flare it or they didn't think there was any use for it. As as is the story with much fossil fuels. Right. Gasoline was a byproduct No one thought they wanted, you know, a hundred years ago or 150 years ago until you realized that you could use it potentially as a fuel for for vehicles.

00:06:19:06 - 00:06:37:09

Stephen Stapczynski

So the same thing with gas. And then slowly they thought, you know, there are ways you can burn this or their chemical properties that you can use this and industries. And so there is a complicated infrastructure which is pipelines and storage was usually instead of, you know, these when you think about storage for coal, it's just a big old pile of coal.

00:06:37:11 - 00:06:58:05

Stephen Stapczynski

For oil, you think of these big oil tanks for gas. Yeah, there are gas tanks, but more often you just kind of stuff it back in the ground. And so Europe's gas storage is just giant caverns that used to have gas inside of them because if you just poke like one or two holes in it, you know, the place, the stuff was already keeping the gas there to begin with.

00:06:58:06 - 00:07:20:21

Stephen Stapczynski

So you just put it back in. That's that's and then you have to use pipelines to transport it. And it's complicated when you start to talk about liquefied natural gas, that's when the becomes remarkably more complicated. And it took, you know, decades and decades to get liquefied natural gas in LNG to the way it is today, where it's basically a liquid market.

00:07:21:00 - 00:07:43:06

Stephen Stapczynski

It's not on the same level of coal or oil, but it is it is getting there. And the technology is interesting because, you know, you just need like a middle school chemistry background to kind of understand the basics, right? There are three states. There is a solid gas and liquid. And so when something is a gas, it's in turn to turn into a liquid.

00:07:43:06 - 00:08:01:19

Stephen Stapczynski

You just need to make it really cold. So when I was starting my career, one of the first projects I was on was was LNG. And my bosses would explain simply, An LNG plant is just a giant refrigerator. So you turn the gas really cold and you can put it into a ship. When it gets cold, it becomes denser.

00:08:01:21 - 00:08:27:06

Stephen Stapczynski

And so when you go from a gas to a liquid, all those molecules kind of shove themselves together and LNG in particular, that gas becomes one basically 600 times denser. So you're having a very dense piece of energy. And this ship, the ships are specialized. You can't just put it in a bulk carrier. You need a specialized LNG ship to keep it cold and then you ship it somewhere.

00:08:27:08 - 00:08:43:07

Stephen Stapczynski

And during that time there's something called boil off. Basically, when it's so cold, it evaporates and there is technology to stop some of the evaporation and and that had been an issue with the industry. So the longer you ship it, the more gas you would lose over time. So you want to get to the place as fast as you can.

00:08:43:09 - 00:09:02:04

Stephen Stapczynski

And then when you get to the, you know, the port in Japan, for example, you have to go to a special LNG import terminal, which is the opposite of a refrigerator, which is like a giant oven, essentially, but through pipes, keep the pipes up with water and other things, and then it becomes a gas again. And then you put it in your pipelines and you go places.

00:09:02:06 - 00:09:27:19

Stephen Stapczynski

And the LNG technology has existed for, you know, roughly a century, I guess, you know, 100 years. But it didn't really become a commercial thing until the 1960s. It started off, you know, the go into LNG history. How far can I go? Tell me if I'm rambling, but I can go.

00:09:27:21 - 00:09:30:02

Chris Keefer

Right to the right. So I love it.

00:09:30:02 - 00:09:49:10

Stephen Stapczynski

My audience loves the US. The technology was essentially developed in the United States and it wasn't like an international global form of transportation. It was like, Let's liquefy some gas and send it down to the other side of this lake or send it down, sent down a river. It was really like small scale stuff for domestic U.S. purposes.

00:09:49:12 - 00:10:21:19

Stephen Stapczynski

And because the U.S. was sort of developing this technology, they were the ones who also, you know, essentially started LNG overseas shipments, shipments abroad. The world's first overseas shipment was from Louisiana, which is where the LNG export terminals are are today was to the UK on something called the methane pioneer over 60 years ago. And then a few years later, the U.S. developed with the help of investments from the or commitments from the Japanese.

00:10:21:21 - 00:10:32:02

Stephen Stapczynski

The first you know, the first U.S. commercial LNG export terminal in Alaska. And that operated for.

00:10:32:08 - 00:10:50:11

Chris Keefer

Which which which begs the question because I mean, a lot of the LNG, you know, superpowers are in really hot places like Australia or Qatar. Is there like I like how cold you got to get it to freeze. And then is there an advantage to doing it like up in Siberia, in Alaska, or does it not make that much difference?

00:10:50:11 - 00:10:51:13

Stephen Stapczynski

Does it make a difference.

00:10:51:13 - 00:10:52:22

Chris Keefer

Economics in the engineer.

00:10:52:22 - 00:11:16:12

Stephen Stapczynski

Cause you hit the nail on the head. Yeah. So you have to get down to -256 degrees Fahrenheit. And so, yeah, that there have been times I've covered heat waves in Australia that shut LNG plants because it, you know, when you get to I don't remember how hot it got so I don't want to say something incorrect, but it was like close to record levels of heat a few years ago in parts of northern Australia.

00:11:16:14 - 00:11:45:19

Stephen Stapczynski

And it just it the facilities would trip because the technology just couldn't keep up with the heat. Of course, it's not a huge problem. You can you can deal with that. There have been a lot of advancements. Qatar has figured it out, like with the help chioda the job again, it goes always goes back to the Japanese. The Japanese built the LNG plants in in Qatar, a company called Chioda, and they they've figured it out and they've done a really great, great job at that.

00:11:45:23 - 00:12:17:11

Stephen Stapczynski

But there is one LNG facility soon to be two in northern Russia, once called Yamal, there's another one called Arctic to LNG to us through sanctions on it. That's a whole nother story. But those facilities, you need special icebreaker ships to get there. The water is frozen, it's very cold. And so one of the things when they go on press tours and talk to folks like us in the media is say, hey, you know, our facility is competitive because we don't need to use as much energy.

00:12:17:13 - 00:12:32:14

Stephen Stapczynski

Our costs are lowered to freeze the gas costs. Are it really cold here? Now, of course, -60 degrees versus negative. Sure, 56 degrees. There's still a big a big gap. So you need a lot of technology. But but it does have kind of an advantage.

00:12:32:16 - 00:13:02:15

Chris Keefer

So I don't expect you to have the numbers to compare the economics of Qatar for against Yamal. But just on a more broad sense, like what are the particular interested in kind of like the energy economics, the air, our eyes or how you know, rather than pipeline gas, LNG jet moving across the ocean, you know, reclassifying it, how how how do you make that comparison to pipeline gas and how are the financial economics reflective or not, of the energy economics of that problem?

00:13:02:16 - 00:13:27:14

Stephen Stapczynski

Yeah, let's I'm going to try to make it as simple as possible. But one way that people described LNG for a long time and it still exists this way, it's they call it the champagne of fuel, because it's as I just described, all this infrastructure is not cheap. And so it is no coincidence that mostly developed for a very long history of the 60 years of LNG history, it was usually just developed nations buying it.

00:13:27:16 - 00:13:44:18

Stephen Stapczynski

So that's the Japanese, Koreans, Taiwanese, the UK. For a long time it was the U.S. buying it. You know, developed nations, developed nations were the backbone of the LNG industry because they could afford it. You have to pay more.

00:13:44:20 - 00:14:06:03

Chris Keefer

And and why? Why in particular was because there wasn't enough coal or coal was causing issues with air pollution or why was there this move? Because it's a it's elaborate as you're saying. It's crazy and like you have this great kind of biography of the Japanese pioneer on this. And yeah, I mean, the guy probably met a lot of a lot of resistance early on anyway, before his dreams were realized.

00:14:06:03 - 00:14:13:14

Chris Keefer

So why, why were developed countries chasing champagne? And I don't I'm not a connoisseur of of liquor or wines, but I'm not sure what we call the pipeline stuff.

00:14:13:19 - 00:14:42:11

Stephen Stapczynski

Pipeline stuff maybe like it's just sparkling wine, I don't know. Or the Japanese there. There are a few reasons why they pursued LNG. You know, I did write a if you on my Twitter establishing ski a Twitter X, you know you go there my, my the threat I have at the top of my page is about this guy named Onza.

00:14:42:15 - 00:15:11:07

Stephen Stapczynski

He was an executive at a company called Tokyo Gas in the 1960s. And one of one of the issues that Japan was facing at the time was that there was pollution and it was a smog produced from from power plants that that used oil or when they gas ified coal. So there were gas fired coal, They were gas fired oil.

00:15:11:09 - 00:15:53:17

Stephen Stapczynski

And then they would also use oil for for for producing electricity. And that created a smog. And so by no means is natural gas clean. Right. It is still a fossil fuel that but compare it doesn't have the same kind of polluting elements that when you when you when it's combusted that other fossil fuels have. So when you when you burn it in a power plant, it doesn't create the smog, it doesn't create the NOx, all that other nasty stuff that comes with it, the soot that you would get with other fuels at the time.

00:15:53:19 - 00:16:11:18

Stephen Stapczynski

And so, you know, NZ would travel around the world. We went to the United States, you go to other places that had gas and you would see that the cities were were cleaner, you know, you weren't, you know, choking on on this air as much. And so he thought, man, it wouldn't it be great if we could figure out how to import it.

00:16:11:18 - 00:16:30:21

Stephen Stapczynski

And the easiest way to ship it was by Pipeline. There were just a few sort of experimental LNG shipments in the 1950s. And when you came into the 1960s, as I mentioned, there was that shipment to the to the UK and then the UK was trying to import from other other countries as well. And that's kind of when the commercialization started.

00:16:30:23 - 00:16:51:04

Stephen Stapczynski

But the amount of gas that Japan wanted was it was a different level, they wanted much more and so on. They kept pushing this, kept pushing this. And luckily, you know, there were companies in the United States looking to export it. So it all kind of came at the same time. And one of them was was Philips in the US energy company.

00:16:51:06 - 00:17:21:00

Stephen Stapczynski

And and so they signed a deal with with Japan to to buy the gas and you know Japan also so okay great so you have the supply someone's going to figure out how to export it. They had to figure out how to import it and how to change the pipelines, how to build a LNG import terminal. So they partnered with Tokyo Electric, they partnered with a Japanese trading house called Mitsubishi Corp, and they got it to work and they got their first shipment in 1969.

00:17:21:00 - 00:17:24:02

Stephen Stapczynski

I believe, the fall of 1969.

00:17:24:04 - 00:17:42:02

Chris Keefer

So just, just getting back. So I do want to try and hit on that energy economics person. But yes, before we do that, just the the use cases. Right. So, I mean, obviously, I'm thinking of Germany here and its relationship with Russian pipeline gas. But, you know, cheap natural gas is good for what, electricity generation, what else?

00:17:42:06 - 00:17:43:00

Stephen Stapczynski

So yeah.

00:17:43:02 - 00:18:01:11

Chris Keefer

Like if you think about coal gasification and like in industrial England and it was used in lighting right. That was one of the earliest uses of gas I've heard of. I think the Chinese moved a bit of natural gas around in like a thousand B.C. and bamboo, you know, bamboo pipes. But just, just like what's unique about it that we like, other than you said, the air pollution benefits.

00:18:01:13 - 00:18:25:07

Stephen Stapczynski

So the gas is used in a lot of stuff. So I think the one that people obviously think of electricity, so they're, you know, gas turbines, gas fired power plants, you know, that's pretty easy. Another thing that gas is used for, especially in cold places, the places that get cold is heating. So gas, a lot of for example, in Japan, again, to go back there, a lot of gas consumption isn't power plant consumption.

00:18:25:07 - 00:18:54:15

Stephen Stapczynski

It's it's heating. When you go to other countries, for example, India, China, a lot of the gas that they used are for for industries you can use as a feedstock for fertilizer, you can use it for different processes in refineries and other sorts of petrochemical sectors. And so those are the three main things that's, you know, power heating in industries of are they used for gas.

00:18:54:15 - 00:19:14:19

Stephen Stapczynski

Now the economics pipeline gas is the cheapest way to get gas. If you have it in terms of cost, you don't have to use all this giant infrastructures. You don't have to freeze it with these machines and LNG export terminal. I went, you know, I've been to a few. They're the size of a city block. They're huge, they're enormous.

00:19:14:21 - 00:19:30:20

Stephen Stapczynski

And the ships are also big. They're all expensive, all this infrastructure costs money and it adds on to the cost. If you have a pipeline, you've seen, you know, pipelines are, you know, depending on where you go, you know, they're they're they take up some space, but they kind of just work on their own. You know, you you shoot them through.

00:19:31:01 - 00:20:07:01

Stephen Stapczynski

There's some maybe there's some, you know, pumps and and turbines and stuff in there to to make sure the gas keeps flowing and then processing stations and things like that. Then you have to put them in the smaller pipelines. But that infrastructure is much cheaper. Now the way that you buy gas changes. So if you have a direct relationship with Gazprom, you're probably buying gas at at a link or a set rate that it would be lower than the the gas spot market or LNG spot market.

00:20:07:03 - 00:20:22:20

Stephen Stapczynski

And all these markets are kind of converging. But I think it's easy to say that, you know, if you have a contract pipeline, gas supply is most likely going to be cheaper than a long term LNG contract just because of the nature of the costs involved.

00:20:22:22 - 00:20:41:13

Chris Keefer

I know the numbers are bouncing around all the time and that's for, you know, whether climate reasons, that's for geopolitical reasons, that's for, you know, you know, rapidly growing economic reasons like China. But I don't know if you can just give us like a ballpark or an example. I guess averages are just too hard here because, again, the price swings around pretty dramatically.

00:20:41:13 - 00:20:49:09

Chris Keefer

But just to get that comparison, is it typically like, you know, pipeline gas is like 40% at all and g prices? I know you just can't do that.

00:20:49:11 - 00:21:08:23

Stephen Stapczynski

I mean, I can I can give you one jurisdiction, very concrete examples. And maybe this isn't fair, but I will anyway. The United States is a major producer of gas. All the gas that you get, let's say it's relatively Henry Hub, right? It's Henry Hub is the is the benchmark price for it for the United States right now.

00:21:09:02 - 00:21:27:17

Stephen Stapczynski

And that gas is transported by pipelines, shale gas, it's abundant, cheap, but no matter where every place you go, you kind of have to say, okay, how much is a gas in Russia? How much does gas in Qatar, blah, blah. But let's just take the United States as a benchmark. So the U.S., the cost of the gas is about $1 $51.60 per million British thermal units.

00:21:27:17 - 00:21:45:19

Stephen Stapczynski

Right now. It's very cheap. It's some of the cheapest gas in the world at the moment. Just because production is so robust in this country. And also it was it was a warm winter. So that's one, let's say $1.50, Right. That's all. If have to remember Now, if you export it, we do something called a tolling for you.

00:21:45:19 - 00:22:13:04

Stephen Stapczynski

So you need you need the cost to turn it from a gas into a liquid. Generally speaking, that's not every contract. It's about you. You multiply that 150 by 115%. So let's say it's like, Geez, I don't have the math. Like, let's say it's like 170 plus $3. So that was for, you know, 70 or something. And that's just the cost to liquefy it.

00:22:13:04 - 00:22:31:22

Stephen Stapczynski

And then the ship has to come and pick it up. Okay? And then if you bring it to Asia, Asian LNG spot markets, prices of it right now are about $8.50. So all of that together, you kind of get the idea of domestic U.S. gas prices are 150. Japan, if they want to buy an energy spot here, they have to pay 850 right now.

00:22:32:00 - 00:22:40:12

Stephen Stapczynski

So it's and that's just we're talking a spot market right now, two different areas. But I think that's just the easiest example because all that data is very transparent.

00:22:40:14 - 00:22:56:11

Chris Keefer

Beautiful. And then in terms of these LNG tankers, I mean, how much energy are they able to carry at a time like you think of them? I don't know, in medicine we talk about like an IV drip, drip, drip versus like a bolus, like giving a big, you know, and, you know, yeah, a large amount of fluids all at once.

00:22:56:11 - 00:23:24:13

Chris Keefer

I don't want to get too medical here, but just curious, like there's a lot of these tankers on the sea, like it's become the backbone of, you know, many, many developed countries around the world and some that are developing. So I'm just trying to get a sense because it seems insane, again, the complexity of this and just these these ships, I don't know how many sailing to Japan every year, for instance, what percentage of Japan's primary energy is natural gas and just like how much energy is on one tanker, if you can find a way to communicate that to my my.

00:23:24:15 - 00:23:57:14

Stephen Stapczynski

Sure I think one LNG ship has enough energy, generally speaking, to power about 70,000 U.S. homes for a year. So it's a lot of energy now. There are, you know, hundreds and hundreds of shipments every day, but 111 kind of fact that I really like to talk about Japan is that one LNG shipment can replace. There's the same amount of energy as a nuclear reactor from one month.

00:23:57:16 - 00:24:22:20

Stephen Stapczynski

So if you turn on a nuclear reactor in Japan, Japan shut all the reactors are restarting them. Now you need one less LNG shipment every month. So that's a lot of energy. You know, you know, nuclear reactors produce a lot. So it can it can power, you know, one for four for a single month, you know, tens to hundreds of thousands of homes.

00:24:22:22 - 00:25:00:11

Stephen Stapczynski

And and it's there are a lot every year there are more there's more and more LNG being produced and and on the water. So for a country like Japan, you know, they import about 70 million tons of LNG a year. That's, you know, enough to power, I believe about a third of their of their electricity mix, which is pretty, pretty substantial maybe maybe more than that depending on depending on the year and, and where renewables are going.

00:25:00:11 - 00:25:03:11

Stephen Stapczynski

But they, they do consume a lot of LNG.

00:25:03:11 - 00:25:22:18

Chris Keefer

They're you know, I did an interview with a Japanese energy expert and he was describing the aftermath of Fukushima from the perspective of shutting off all these plants, the wild energy conservation that was done in terms of, you know, Tokyo office workers taking a hell of a lot of flights, stairs to get up places, you know, temperatures turned down.

00:25:22:20 - 00:25:48:02

Chris Keefer

There is there was a study claiming that something like 7000 elderly Japanese a year died prematurely in some heat waves afterwards because there just wasn't enough air conditioning. I mean, that's that's while taking 54 I think gigawatt scale or larger reactors offline that's that's a lot of LNG. I know it was replaced partially with coal as well. But do you have a sense of like what the cost was in terms of the fossil fuel imports too, to deal with that?

00:25:48:02 - 00:25:49:22

Chris Keefer

I'm ambushing you with that.

00:25:49:22 - 00:25:53:19

Stephen Stapczynski

That's that's a really I mean, it has to be said, that's a really good question. I mean, I've heard.

00:25:53:19 - 00:25:56:04

Chris Keefer

I've heard like hundreds of billions of dollars.

00:25:56:04 - 00:26:22:13

Stephen Stapczynski

I think, you know, I, I don't have the data in front of me and I should know this. But, you know, when you think about it, Japan had to significantly increase the amount of of of LNG that they were in coal that they were importing because they they shut these 54 reactors, the nuclear power made up about 30% of their energy mix and in 2010 or so suddenly are replacing that with with with gas and coal.

00:26:22:18 - 00:26:49:10

Stephen Stapczynski

And, you know, if I'm looking at it just from the the cost on the consumer, the cost on just businesses and households, the price of electricity went up 20 to 30%, depending on, you know, where you where you were and and what kind of utility you were buying your electricity from. And it really threw a wrench in Japan's economic competitiveness.

00:26:49:10 - 00:27:18:21

Stephen Stapczynski

And that's that's why the country is you know, they shut all the reactors. They shut all 54 of them. But when Shinzo Abe became prime minister a few years later, after 2011, he he really pushed forward a policy along with with METI, the domestic industry and trade ministry in Japan, to restart the reactors. And every reactor you restart, the electricity price goes down for the consumer.

00:27:18:21 - 00:27:43:12

Stephen Stapczynski

The utility can instantly say, hey, we we can we can cut rates, you know, maybe not a ton, but they it it's it's tangible. And so while I don't have the exact number of the economic cost that that that happened, I mean I think you have to look at it more than just just the cost. It also hollowed out Japan's industrial nuclear industry.

00:27:43:14 - 00:28:05:21

Stephen Stapczynski

Japan was gearing up to export nuclear reactors. They were going to be very similar to what Korea is doing today. They were in talks to export a reactor to to Turkey. You know, they Japanese engineers were building reactors faster than basically anybody else. You know, Kyushu was lucky Korea and Niigata was built and you know this better than they do, what, like two or three years?

00:28:05:21 - 00:28:09:07

Stephen Stapczynski

Just something really just very, very quickly constructed.

00:28:09:07 - 00:28:13:23

Chris Keefer

It's constructed in 36 months and brought online in 40. But I could be proven wrong.

00:28:14:00 - 00:28:44:05

Stephen Stapczynski

No, but I mean, it was one of the fastest and it's the biggest nuclear power plant on earth. And, you know, the safety checks, according to experts, probably should have been stricter. Maybe they're in other places. But overall, I think just just looking at the fossil fuel imports is enough. You know, you have to look at the wider what people were paying, what they had to deal with, the hardship that this what you described as called said Sudan, the people have to you.

00:28:44:05 - 00:29:14:19

Stephen Stapczynski

It's basically a practice of using as little energy as possible, as little power as possible. And to this day, they're still doing that because even though 12 nuclear reactors have restarted under post-Fukushima rules in Japan, power supply is still very tight. You know, they they almost had blackouts a few years ago in the midst of the global energy crisis, which which is wild because they can afford you know, we're not talk about Pakistan, we're not talking about Bangladesh.

00:29:14:21 - 00:29:32:08

Stephen Stapczynski

Japan has the money to buy the LNG. It's just they didn't have the capacity to produce the energy that they needed when when demand spiked is a long way of answering. I have no idea what the number is, But but, but it did have a huge impact on on the on on the economy, in the culture.

00:29:32:10 - 00:30:04:10

Chris Keefer

Evasive, but highly informative, Steve. And I like it. I like it. Let's pivot to to Europe a little bit. You know, the geopolitics of this all are absolutely fascinating. I had a German friend who was talking about, you know, just over centuries there's been a concerted effort by probably more like Western Europe to drive a wedge between Germany and Russia, because together, if those countries cooperate, there's a lot of synergism in terms of just insane amounts of, you know, raw materials coming out of Russia and the industrial base of Germany.

00:30:04:12 - 00:30:25:17

Chris Keefer

Clearly, they have not aligned well with the First World War or the Second World War. I'm not sure my my history is a bit spotty, but, you know, and who blew up the Nord Stream pipelines? We're not sure. But there's been a massive shift in terms of certainly the gas markets in Europe being dominated by pipeline, Russian gas and now increasingly by US LNG.

00:30:25:17 - 00:30:34:20

Chris Keefer

So I'm really curious to wade into that story. The geopolitical sides, the technical sides, the historical sides. And I'm going to let you choose which which angle you want to start with.

00:30:34:20 - 00:31:06:22

Stephen Stapczynski

I mean, I think it's pretty clear that the German economy was built. It's designed on cheap Russian gas. Right. It's there's data behind it. Germany used Russian gas gas from Russia to to create petrochemical industries to power homes. It was it was the way that, you know, that was the future. And Russian gas was cheap and it was abundant and people forget this.

00:31:06:22 - 00:31:39:04

Stephen Stapczynski

But even in January 2022, we were counting down the days until Nord Stream two was going to start. And then and then everything changed. So, you know that that that happened. But what's what I find really interesting is that, you know, there there there are a lot of people and analysts who say, you know, Germany made some bad choices in post-Fukushima with shutting their nuclear reactors and that policy connecting themselves with Russia.

00:31:39:04 - 00:32:04:22

Stephen Stapczynski

In hindsight, COIN analyst was not not the best decision. And you're seeing their industry being hollowed out. And even today, my colleagues in Europe publish a story saying that industries in Europe are are demanding lower prices and more support from from government for energy because they just can't afford things and they're not competitive against the United States and China where where they do have the support and energy is cheaper.

00:32:05:00 - 00:32:35:06

Stephen Stapczynski

That's all a big, big problem. But what I find most fascinating about all of this and all of these decisions is the pivot that Germany made to begin importing LNG, because as I described over you know, as we've been talking, LNG infrastructure is complicated. It is not easy. But in the almost a week or two weeks after the war began, the government in Germany from all the way from the top, they said we've got to figure out a way to wean ourselves off Russian gas.

00:32:35:08 - 00:32:55:18

Stephen Stapczynski

And the way to do that is we need to start importing LNG. Germany had not a single LNG import terminal in February 2022. Now they have like four floating terminals. Now there's a slight difference between an onshore LNG import terminal, which is one that takes years to build and a floating one which is a ship that you convert.

00:32:55:18 - 00:33:21:17

Stephen Stapczynski

It's called an fsru, which essentially takes a ship and then it it it kind of messes with the guts a bit to turn it into a facility that can be designed to hook up to a grid and import LNG. And they they were able to get several of these in record time and up and running by the end of the by the end of 2022.

00:33:21:19 - 00:34:01:02

Stephen Stapczynski

And now they're importing LNG, they're trying to broker deals, they're they're in talks with Qatar, they're in talks with suppliers in the United States, downstream customers in in industries in Germany are already trying to sign contracts with U.S. exporters. So that all happened very quickly, which is interesting. And I think, you know, when you talk to specialists and analysts about this shift in Germany, they do say this was a historic record breaking change for a country to just put their foot down, say we need to start importing LNG and do it that quickly.

00:34:01:04 - 00:34:33:23

Stephen Stapczynski

No other country has in the history been able to do it in less than a year like like they have now. That also comes with difficult, you know, so there's the engineering feat. But then now you're importing LNG, you're importing the champagne of fuel. It's expensive. It's much more expensive than than the Russian gas that they're getting. So now they've connected themselves to, you know, a fuel that will cost more for households and industries.

00:34:34:04 - 00:34:43:07

Stephen Stapczynski

Yes, they avoided shortages and everyone can continue receiving their energy. But the price is it's more expensive.

00:34:43:09 - 00:35:04:01

Chris Keefer

I know, again, it's hard to make price comparisons. So just in really kind of abstract, vague terms, I mean, yeah, I'm trying to get a sense of what what natural gas costs Germany and the good old Russian pipeline days of, you know, 20, 20, 20, 21, 2020 is a difficult year because the pandemic. Right. There's there's so many features that are going to be affecting the price of gas.

00:35:04:01 - 00:35:15:18

Chris Keefer

But can you give us some vague ballpark of like how much more expensive the champagne is than the the whatever the flat white wine in Russia?

00:35:15:20 - 00:35:42:06

Stephen Stapczynski

I think generally speaking, again, there are many different ways to buy LNG. There are actually very many ways to buy Russian gas. So some Russian gas was sold on the spot market in Europe, which means that it would be almost the same price as LNG. But in terms of the legacy contracts where before Europe had demanded that Russia switch over to the spot market because at the time spot market was cheaper and then it got more expensive.

00:35:42:06 - 00:36:20:20

Stephen Stapczynski

So that's another thing that in hindsight maybe that wasn't the best thing. I think in general there's a view that, you know, U.S. LNG tends to be about 30 to 40% more expensive. So it's a double, but a long term contract or spot prices can be can be quite a bit quite a bit more expensive. And and, you know, it's not just like the dumb, you know, endless kind of looking at numbers and saying, well it's it's this much more you know, the industries are out there saying we can't operate.

00:36:20:22 - 00:36:55:18

Stephen Stapczynski

You know, there are a chemical makers that have essentially come and said we need to close our factories. BASF, BASF has had to move operations elsewhere. Fertilizer makers just can't operate at these higher costs, either LNG or spot market. So while you know the exact numbers are in flux, you know, I think usually folks say 30 to 40% increase.

00:36:55:19 - 00:37:23:09

Chris Keefer

So again, being, you know, a pretty fresh player here and reading the European energy crisis through some pretty ideologic eyes. You know, I think my nuclear advocacy has matured somewhat from, you know, kind of a bit of a religious fascination to something, again, a little more informed and nuanced. But, you know, the price went absolutely bonkers. I think it's it's not Henry Hub, obviously, in Europe.

00:37:23:09 - 00:37:24:20

Chris Keefer

It's a Dutch Dutch name. I forget.

00:37:24:20 - 00:37:24:23

Stephen Stapczynski

What.

00:37:25:04 - 00:37:52:00

Chris Keefer

Rotterdam something or other, but the CCF and I was reading a Dumba article recently and now it seems like we're moving kind of back into an oversupply scenario. How did Europe fare? I heard they were spared by, you know, some pretty cushy, soft winters. I think the the mild winters are one of the only negative climate change feedback mechanisms I can identify because if it's warmer, you burn less fossil fuels to stay warm.

00:37:52:02 - 00:38:09:22

Chris Keefer

Let us just just give me a sense of kind of where things are at now in Europe in terms of energy availability. We talked about energy costs and how it's fueling deindustrialization, but those fears of Europe just simply not having enough gas or people kind of freezing in the dark seem to have not actualized in people, you know, after last minutes.

00:38:09:22 - 00:38:24:03

Chris Keefer

And we'll wait for next winter, it might be even worse than it might be even colder, might have a harsh winter. How close is Europe to kind of scraping the bottom or really running into actual, you know, energy insecurity resulting in people freezing or things like that?

00:38:24:07 - 00:38:53:19

Stephen Stapczynski

The chance of that is close zero, according to analysts and both government and industry. I think we are the overall Europe is over the hump of of energy shortages and that's for a few reasons. You mentioned weather. Yes, there was warmer than normal weather, I think in the 2022 winter and then again for the 2023 winter. It's been it was it was favorable because of that.

00:38:53:19 - 00:39:17:16

Stephen Stapczynski

They were able to add a lot of gas to their inventory in storage and that resulted in having a really good cushion. But I think one thing you again, going back to talk about with folks like BASF and other things, there was a huge amount of demand destruction in Europe that I think to a degree that I don't think people in the analysts and industry wasn't quite expecting.

00:39:17:18 - 00:39:38:00

Stephen Stapczynski

You know, they were looking at their numbers and they thought, yeah, you know, households are going to use the same amount of gas, industries will use the same amount of gas they have, and in fact they didn't. And even as gas prices have come down, industrial output is not really it's rebates increased. It's coming back, but it's not back to levels where it was before the energy crisis.

00:39:38:00 - 00:40:01:13

Stephen Stapczynski

So the the output, you know, the impact of this is that the market is is a bit softer and we're going down we're not yet at levels pre pre prewar levels. We are very, very close. I haven't checked the numbers in the last about hour, but I don't think we're there yet. We're we're very close. So that's how close we are.

00:40:01:19 - 00:40:19:21

Stephen Stapczynski

So we might be back down to like the lowest level since like May 2021, which would be would you be big? It's still be more expensive than normal. But back to the pre prewar levels. But a lot of that has to do with just weaker consumption because it's capitalism. Markets work when things are too expensive, people don't consume.

00:40:20:01 - 00:40:46:05

Stephen Stapczynski

And that's essentially what happened. And it's going back to the very start, this podcast. That's the story of Pakistan. It was too expensive for Pakistan, so it went to markets where people could afford it. And that's just how markets work. And so it balanced itself. So Europe isn't in a place where they're going to see a shortage, but they are in a place where they're in a much harder economic situation.

00:40:46:06 - 00:41:11:01

Stephen Stapczynski

Industries are leaving. They're asking for more government support. Now, are we could we face another spike in prices that could raise power bills again, compared to, you know, a few months ago? Certainly the market is still finely balanced. So while we're not going to be seeing the worst case scenario is losing electricity, losing heating in the in the peak of winter, you could see if there's a supply outage in the U.S. or Australia or something.

00:41:11:03 - 00:41:37:11

Stephen Stapczynski

And then the weather gets too hot or too you could see another spike in TBTF and that would that could affect consumers, it could affect industries again. And that's exactly why, despite the drop in prices, industry, industrial demand isn't coming back because factories don't want to take that risk anymore. Why do that when you can go to places like the United States or Henry hub is $1.50 compared to Asia, Europe or it's $8.

00:41:37:13 - 00:42:07:02

Chris Keefer

When we're talking about storage particular in Europe, this is a matter of national interest, national security. You know, you hear about the Strategic Petroleum reserve for oil in the way that, you know, it's been used by the Biden administration to, you know, keep the price of gasoline down and all of the controversy around. Whether that was a good or bad idea, you know, that's, you know, different hydrocarbon and maybe requires different levels of stories that was obviously in response to the OPEC crisis that the SPR was put in place.

00:42:07:04 - 00:42:26:11

Chris Keefer

Can you think of like natural gas storage in Europe in similar terms? And who's ultimately responsible for it if it has such kind of national security implications? Like I heard Gazprom owned a lot of the storage facilities in Germany, for instance, and they were underselling them pre war, has that changed? Is it like the SPR, who's in control this part of the government?

00:42:26:11 - 00:42:27:06

Stephen Stapczynski

You know.

00:42:27:07 - 00:42:28:22

Chris Keefer

What's what's going on with gas?

00:42:28:22 - 00:42:56:06

Stephen Stapczynski

The gas is very much the storage is is operated and used by the private industries and companies. But there is coercion. There is pressure from the government to hit targets. So, you know, I think I think it's like 80% by November, 90% before winter starts. But by the time it starts, get cold, you want to have it almost 100% full.

00:42:56:06 - 00:43:21:03

Stephen Stapczynski

So the industries are encouraged and the companies are encouraged to fill that gas. So you see a lot of buying, you know, when winter ends, that's kind of when that refill process starts again. So as we're in the spring and we're we're in the we're in the summer months that that starts to go up. It is not like the Strategic Petroleum Reserve or any strategic reserve.

00:43:21:05 - 00:43:43:10

Stephen Stapczynski

There isn't really a strategic gas reserve. Now that's something that the IEA and governments in Asia and Europe have been talking about developing either a strategic LNG buffer because LNG can't really be because of the boil off and the fact that it's so cold, you can't really keep LNG for a long time. You turned back into a gas.

00:43:43:12 - 00:44:11:21

Stephen Stapczynski

But there are countries like Japan that are talking about, Hey, can we create a global everyone kind of buys like one more extra shipment just in case sort of things that we're all we're already India has talked about developing a strategic reserve of gas but it doesn't quite exist in the same way, probably because the industries have been able to use it successfully.

00:44:11:21 - 00:44:32:13

Stephen Stapczynski

And, you know, I do have to say a lot of the companies that do use it are state owned. So while the government doesn't own it per se, the same way like the you know, the a minister will be like we have to release the reserves or whatever, whatever the Department of Energy or or Biden does whenever he SPR has a tender or releases.

00:44:32:15 - 00:44:40:18

Stephen Stapczynski

It doesn't exist to that degree. But these companies are urged and they're usually state owned. So there that kind of government connection.

00:44:40:19 - 00:45:00:05

Chris Keefer

Well, you can see it as a great way to I mean I just gases it's non liquid form a lot less energy dense and maybe you know there's a limit to how much you can store although it sounds like the storages are pretty massive but certainly it's a buffer against, you know volatile prices to be able to buy cheap and throw it in storage, that that's that's just seems to be common sense.

00:45:00:05 - 00:45:17:03

Chris Keefer

But I've got a more sophisticated understanding now of of the way government can kind of lean on private and state owned companies to make sure things are full in winter. Do you have any information about that? Because I thought that was fascinating that Gazprom owned a bunch of storage in Germany and under fill that is that is that true?

00:45:17:05 - 00:45:41:20

Stephen Stapczynski

So it's a little bit more complicated than that. So there are, let's say, every every month or every week, there are things called like pipeline nominations. So there's supply that that that Russia can tap or other companies can tap in their pipeline and say okay, we're going to send X amount through this pipeline this month and this will be X amount of oil in this month.

00:45:41:20 - 00:46:11:08

Stephen Stapczynski

And then it will go into the country and they'll they'll buy up the the pipeline supply and pipeline usage and and get to make it very simple. Leading up to 2021, they were providing less and less and Gazprom had a company in Germany that would receive the gas and then also market it and have customers. Now leading up to the war.

00:46:11:10 - 00:46:32:21

Stephen Stapczynski

There was less Russian supply going into into Europe and, you know, there could be many Russia would always say, well, our customers are not asking for that much, so we're not supplying it. Right. There was never a time in 2021 where anyone was really saying, we know companies are saying we're not getting everything we want from Russia.

00:46:32:21 - 00:47:12:19

Stephen Stapczynski

Usually they were they were supplying what they wanted, but they weren't. Even though prices were rising, they could have been supplying more. Right. They could have been balancing the market. They could have been doing more. And and they weren't at that time. Now, when the wars after the war started, there is a Gazprom unit that was taken by the the German government and that unit was changed to a new company was called SDF, a securing energy for Europe, which is like the most patriotic change and nationalization of a of a company.

00:47:12:21 - 00:47:36:15

Stephen Stapczynski

And Now that that company, because they were like a supplier and they had contracts and they had to they they dealt with LNG as well. They had contracts with LNG facilities not just in in Russia, but also in other places. And they were supplying LNG to Europe, but they actually even had a contract with India. But all of that together, yeah, that was an issue that Europe was dealing with.

00:47:36:17 - 00:47:48:06

Stephen Stapczynski

And, and again another decision by the German government to secure energy for themselves by nationalizing this, this company that was part of Gazprom.

00:47:48:07 - 00:48:08:03

Chris Keefer

So in the time we have left and I hope I've left enough time for it, I'm really interested again in what initially kind of drew me to you and to getting in touch with you and interviewing you was this great tweet you had on the history of the LNG sector in the US. And that's just, you know, crazy story of, you know, retooling LNG import facilities for export facilities.

00:48:08:03 - 00:48:25:01

Chris Keefer

So if you have another 15, 20 minutes, I'd love to to dive into that and and get you to lay that history out for us because we've sort of talked to the market where a lot of energy is going, but we haven't talked about the production believe the fracking we've done that another episode. So let's let's talk about the LNG aspect there.

00:48:25:01 - 00:48:48:12

Stephen Stapczynski

Yeah, I mean, the the United States is today the world's biggest LNG exporter, which is crazy because they only started exporting LNG from the lower 48 states. Basically, they only started exporting shale gas as LNG in 2016. So, you know, in eight years they went from 0 to 50 or, you know, 0 to 90 million tons a year.

00:48:48:12 - 00:49:20:14

Stephen Stapczynski

You know, it's it's wild what happened. And it's an interesting story because, yes, for for the 1990s and into the early 2000, the US was probably going to become one of the biggest LNG importers. You know, there was a energy deficit in the United States. It was very dependent on overseas fuel. Gas was, you know, becoming more used in for heating as well as for for for power production.

00:49:20:16 - 00:50:00:03

Stephen Stapczynski

And LNG was was a way for the United States to to continue growing and keeping US economy running. But I won't get into the shell revolution. You've obviously have that already. The shale miracle or whatever you want to call it, in the in the 2000 suddenly led to a glut of gas. So these companies, Cheniere, one of them, a company founded by this gentleman named Suki, he he built he had big plans to build all these LNG import terminals and he was in the wrong place at the wrong time.

00:50:00:05 - 00:50:26:05

Stephen Stapczynski

And, you know, Shreeve Suki quickly pivoted. I won't get into the exact details, but essentially there was an executive within the industry and someone who was very involved in the shell revolution, and he said, Hey, can you switch these LNG plants around? Can you turn them from import to export? And Souki thought, all right, well, all right, instead of a toaster, I'll make it a refrigerator, right?

00:50:26:05 - 00:50:49:04

Stephen Stapczynski

Like, how hard can that be? And so suddenly you saw that they were making these big multi-billion dollar bets and this was all happening, you know, around 2010, 2011, and now we're getting back into Japan when the nuclear disaster happened at Fukushima. And suddenly there is an economic case because the Japanese are like, we need to buy a lot more LNG.

00:50:49:06 - 00:51:23:03

Stephen Stapczynski

And so the first all these LNG plants that were changing, you'll notice every plant has a partner or a Japanese partner. And let me pull up the data. I think it was something like between 2012 and 2014, 33% of all U.S. LNG contracts were signed by Japanese importers. I mean, they were Japan was the backbone of of of the effort to export LNG, the shale gas as LNG which is which is really interesting because they were the backbone in the 1960s.

00:51:23:05 - 00:51:24:21

Stephen Stapczynski

So it's all happening again.

00:51:24:21 - 00:51:54:18

Chris Keefer

What's what's precious. Yeah, what's precious about this is, you know, the the environmentalists who, you know, oppose fracking or oppose LNG, oppose nuclear. You know, it's it makes for kind of strange bedfellows of various kind of anti positions because as you're saying, the LNG boom in the U.S. was directly facilitated by Japan's desperate need and search for energy alternatives as they shut down 30% of their electric power generation.

00:51:54:18 - 00:52:24:13

Chris Keefer

I mean, that is what what a strange and crazy irony that is in terms of going from import to export. I mean, I heard Henry Hub went as high as $50 per million B to use like there was a there was a strong case for import. I mean, this also coincided with the nuclear renaissance of the naughties, as we call it, with the plans for many, many AP1000 units and even a BWR units from Toshiba, as you're mentioning across the US, that all that all fell apart as the Shell revolution kicked into gear and tanked those those prices.

00:52:24:15 - 00:52:35:04

Chris Keefer

So, you know, it must have been wild for for that businessman to to see that trend occurring have conversations he did and just, you know, turn around at the time and reverse the flow.

00:52:35:06 - 00:52:55:16

Stephen Stapczynski

Yeah. I mean, it was it was really I think no one was expecting it. You know, you look at analyst reports from from the early 2000s and people were saying the United States were going to be the world's biggest LNG importer by 2015, 2020. And this was, you know, endless get things wrong and that well, what.

00:52:55:16 - 00:53:23:07

Chris Keefer

Would what would that have done to the I mean, it's this is hypothetical but like to imagine if, you know, the U.S. went from cheap white wine to having to import champagne. I like the the economic performance of the U.S. in the last ten or 15 years, even it sort of geopolitical situation where for a while it was really not having to suck up to Saudi Arabia or it was not, you know, as threatened by, you know, Venezuelan resource nationalism.

00:53:23:07 - 00:53:39:09

Chris Keefer

I mean, it's just it's just fascinating thinking about what would have happened in the U.S. had the shale revolution not occurred. But I guess particularly from that perspective of maybe being a little more like Europe, having to import this, you know, important substrate for electricity and for broader, you know, industrial production.

00:53:39:09 - 00:54:06:21

Stephen Stapczynski

It's I mean, the LNG industry, the shale production, all of that has been a huge boon for the US economy. And, you know, it also happened right after the 2008 financial crisis. And there's an argument that that helped the U.S. recover quicker than normal. And, you know, if you if we want to extrapolate even more, if the U.S. was an LNG importer, if suddenly Russia invaded Ukraine and Europe wasn't able to get LNG anymore, where would they get the LNG from the market?

00:54:06:23 - 00:54:33:18

Stephen Stapczynski

We would be in a much more acute situation. You know, you talk to analysts and and people say that the United States essentially saved Europe, these LNG export projects helped helped Europe. Now the flows were redirected, right? You know, there are people who couldn't get their LNG again, Pakistan, Bangladesh, but Europe was able to get the gas that they needed at a at a high price.

00:54:33:20 - 00:54:54:23

Stephen Stapczynski

And what's interesting is that it wasn't always the U.S. who was making the profit. These LNG facilities had long term contracts with Japanese buyers, as I as I explained. So the people who were selling the LNG to Europe are sometimes the Japanese, like they weren't taking it back to their own country, they didn't need it. It was just the economics made way more sense for them to send it.

00:54:54:23 - 00:55:11:08

Stephen Stapczynski

So when you say when you see all these LNG ships going from the Gulf Coast to Europe, it's not like always going into the coffers of American companies. It's a lot of times Asian companies, the ones that had signed these 20 year deals to get the gas because they buy it at the port. And then what did they do afterwards?

00:55:11:08 - 00:55:13:23

Stephen Stapczynski

They just bring it to wherever makes so much money.

00:55:14:00 - 00:55:21:16

Chris Keefer

And you had a you had a beautiful sort of naval navigation map of an LNG transporter doing a u turn. Tell us. Tell us. Yeah.

00:55:21:18 - 00:55:41:06

Stephen Stapczynski

And it was I think it was before the war started, but there was prices were rising so rapidly that an LNG ship so the if you imagine your geography right, the Gulf Coast, you have to go through the Panama Canal to go to Asia. So when LNG ship left the left, the Gulf Coast went through the Panama Canal, you got to pay a little bit of money to go to the Panama Canal.

00:55:41:06 - 00:56:08:03

Stephen Stapczynski

It's not cheap. You go through there and they were going to go in through the Pacific Ocean. And right as prices were really surging in Europe, you see the ship do a U-turn and then go back through the Panama Canal to go to the Atlantic to drop off. I forget exactly where it dropped off, but it dropped the shipment off in Europe because the arbitrage just they would make so much more money if they if they brought it there instead of to to Asia.

00:56:08:05 - 00:56:24:21

Chris Keefer

So what's going on now in terms of like how do you how do you read into Biden's freezing of approvals for new LNG facilities? It was the U.S. is building too many. Is there any concern about peak shale? Is this just a play to an environmental base, you know, pre-election what's what's what's your read.

00:56:24:21 - 00:56:53:08

Stephen Stapczynski

So LNG facilities. You know, they're the argument that there's too much LNG doesn't make a ton of sense according to analysts and people who look at this industry, because what they tell me is that, you know, they're these projects are backed up by long term buyers. So a project only moves forward if they have signed off like 80% of the supply or so under long term contracts, then they get the financing, then they get built in and they move forward project.

00:56:53:10 - 00:57:21:17

Stephen Stapczynski

The United States usually just can't push forward without having the buyer in place. So, you know, the pause isn't really much about an oversupply. It does seem that when you talk to political analysts, it does look like Biden is trying to attract or sway maybe younger, you know, environmentalists and folks who are more worried about the environment. Now, to be clear, again, LNG is not clean.

00:57:21:19 - 00:57:43:01

Stephen Stapczynski

It is a fossil fuel. Methane release is a big problem for the industry. And they recognize that at a COP 28, a number of companies are produced. Gas in United States and abroad are looking at ways to zero out their methane emissions from production as much as they can by 2030. So they even the industry even recognizes it.

00:57:43:01 - 00:58:19:15

Stephen Stapczynski

And there are many studies not met. Well, sorry, there are some studies that say that perhaps LNG is is worse for the environment than initially thought, if you include the methane release, those studies are still controversial. There is a lot of argument about it. So whether whether that is correct or not is still up for debate. But it is clear there is a environmental impact, that that is negative by producing so much gas and exporting this LNG.

00:58:19:17 - 00:58:48:12

Stephen Stapczynski

And it does appear, according to the people that I've spoken with and when you when you talk to analysts looking at what's happening in Washington, DC, that the Biden administration is reacting to that, is it a smart political move or not? You know, you have The Washington Post, you have the Bloomberg editorial board, you have people on the left and the right all kind of saying that this was a bad political move because this is a big industry that supports a lot of jobs.

00:58:48:14 - 00:59:07:04

Stephen Stapczynski

It's needed for our allies. I want to be clear, this pause will not affect any supply that that's under construction right now. The U.S. is going to double their exports by the by the end of this decade. So they're already the biggest exporter is going to be even bigger With this pause or not. It will affect projects after 2027 or so.

00:59:07:04 - 00:59:36:08

Stephen Stapczynski

Some projects already have buyers in Japan and China, other places. So it could affect supplies going into the 2030s, depending on how long the pause lasts. And that is what consumers are worried about. Now if they don't get this U.S. gas, there are other places they can go. There are other exporters. So the risk of an acute shortage in the market, analysts say, probably isn't really in the cards.

00:59:36:10 - 00:59:55:10

Stephen Stapczynski

But, you know, the risk of these U.S. projects not moving forward does exist. And that means that, you know, maybe maybe buyers will go to to Canada even to get to get their LNG, although some of those projects also have their own unique problems.

00:59:55:12 - 01:00:03:16

Chris Keefer

So I remember hearing about a fire, I think it analogy facility in Louisiana. And there was of course, mutterings like maybe the Russkies did this.

01:00:03:18 - 01:00:04:08

Stephen Stapczynski

yeah.

01:00:04:10 - 01:00:09:10

Chris Keefer

As a way to make energy more insecure. You know, I have some friends.

01:00:09:10 - 01:00:20:16

Stephen Stapczynski

Sorry, I have to I you there. It was definitely there was no there was no no. There was no evidence that it was the Russians. I as a journalist I have to just quickly, quickly say that.

01:00:20:18 - 01:00:41:10

Chris Keefer

It's. Yeah. Happy to have it. Happy to have that correction. And I was speculating to be very clear or repeating repeating rumors. Okay. I just I'd like to get quickly because this LNG financing, these long term contracts that finance these massive investments in these terminals, which I gather are I'm not sure how many billion. If you have some numbers on that, that'd be great.

01:00:41:12 - 01:01:01:23

Chris Keefer

People talk a lot about the failure of the U.S. to build nuclear and they point to the oil and gas sector and say, you know, we can still pull off, you know, multibillion dollar megaprojects very quickly and very competently like we did with gas and not nuclear finance is a massive part of that in terms of the, you know, the upfront capital costs to build a nuclear plant.

01:01:02:00 - 01:01:17:08

Chris Keefer

Just something you were saying there about how these LNG facilities are financed and the Japanese, I think it sounds like it's through these long term contracts largely with the Japanese, but probably some others. Can you just talk about how you finance a project like this, how many years it takes to build, how much it costs? Yeah, just.

01:01:17:10 - 01:01:37:10

Stephen Stapczynski

Like a normal LNG project will be in the billions of dollars. They're very expensive. And so to get the financing, no bank is going to come and say, Yeah, we love your project, we're going to move forward unless you have the buyers. So what you have to sign are things called binding sales and purchase agreements. So let's say a facility is designed to produce about 10 million tons a year of LNG.

01:01:37:12 - 01:02:04:15

Stephen Stapczynski

You want to sign on most, if not all, of that supply under contracts that last 20 years, maybe 15 years or 20 years. And the bank can say, okay, we know we have buyers, we know that you're going to be making a profit because the costs are X amount or you're selling at a higher price. So it out and that's when you can make a final investment decision and you get the financing and you move forward and you can hedge it correctly and all of that.

01:02:04:17 - 01:02:22:09

Stephen Stapczynski

I don't know how nuclear works, but for LNG, it's it's pretty straightforward, it's pretty proven and it's a trusted model for for nuclear. You know, obviously need to you need to lock in your purchase agreement form from a utility. Right. Or the government.

01:02:22:11 - 01:02:47:03

Chris Keefer

There's there's I mean internationally there's a variety of different ways. The one that really fascinates me is in Finland, in this Mongolia model where it's a I think it's a whole series of sort of power purchase agreements with a number of entities, municipal utilities, industrial users, etc.. And I think that's it's certainly a question that's being looked at because precisely it has become impossible essentially to finance a particularly gigawatt scale reactor in the U.S..

01:02:47:03 - 01:03:09:04

Chris Keefer

So I was just wondering if there were kind of lessons to be learned there. Obviously, the commodity that you're exporting from an allergy facility is much more liquid, no pun intended, but you're able to kind of move and take advantage of arbitrage, etc.. Although I guess if they're long term contracts, not so much out of my area of expertise, but I think it just it sounds like LNG is more valuable than boring old baseload, you know, electricity.

01:03:09:06 - 01:03:10:06

Stephen Stapczynski

To that degree.

01:03:10:06 - 01:03:10:18

Chris Keefer

Kind of.

01:03:10:20 - 01:03:32:18

Stephen Stapczynski

But also is do you think there's like a level of NIMBYism as well, Like when it comes to nuclear, obviously you don't want like a giant LNG export facility in your backyard, but it's probably pretty easy to get the zoning done in the like the Gulf Coast is lined with these refineries and LNG export plants is probably easier to get figured out than to maybe build a a nuclear plant.

01:03:32:18 - 01:03:36:22

Stephen Stapczynski

I think unfortunately, you know, the even.

01:03:37:00 - 01:03:59:04

Chris Keefer

I mean, there's like there's licensed sites, I think 715 or 17 license sites NRC licensed on it, basically existing nuclear stations wanting to add another couple of large reactors. So I don't think it's that. But we don't we don't have to get to your hypothetical there. I guess just one last question and then we'll let you go. Again, just trying to get a sense of the energy in for this.

01:03:59:06 - 01:04:21:08

Chris Keefer

These are these are massive terminals in British Columbia. We're opening one called the Kitimat LNG facility, should be an indigenous owned and a in a non-Indigenous facility on the same sort of waterway there. B.C. has very, very ambitious emissions reductions plans. I think by the time they get to 2050, this single plant will be 40% of BC's emissions.

01:04:21:10 - 01:04:39:00

Chris Keefer

And so they're looking for ways to electrify as much as possible the processes there. What kind of energy goes in? Is it electricity, Is it burning natural gas to to get those the power of this giant refrigerator? What does that look like in terms of the dollars and cents in the energy economics of that?

01:04:39:00 - 01:04:53:02

Stephen Stapczynski

Yeah, it's both. So you use you use sometimes you can use either electricity from you can electrify it, but more often than not, you're just using gas turbines on site. Now the the economics.

01:04:53:04 - 01:04:57:12

Chris Keefer

To make to make the electricity to run for greater is that.

01:04:57:14 - 01:05:23:03

Stephen Stapczynski

Okay and so the economics make sense because you know it doesn't cost as much as what your what you're selling it. So the cost of producing the LNG is never really a topic of it being or, or the, the you know, the, the production cost has never really been one of the issues that has hindered the development of projects.

01:05:23:05 - 01:05:44:06

Stephen Stapczynski

It's more the cost of the gas that makes up the larger chunk of the pie. So if if the cost of gas suddenly goes up in B.C. and they can't get that feedstock, that becomes the issue. It's not so much like how much money the electricity is worth or, or or whether the technology gets more expensive. It can get more expensive.

01:05:44:06 - 01:06:02:11

Stephen Stapczynski

We have to involve like carbon capture that does increase the cost. And it's it was for example, there's the Gorgon LNG export facility in Australia that was supposed to have a unit connected to it because when you produce gas, sometimes a gas has some CO2 in it. So they split it and then they're going to put the CO2 in the ground.

01:06:02:17 - 01:06:27:09

Stephen Stapczynski

But they've had some problems with injecting it underground because of water management issues and they are not using the CCS at the full capacity. I mean, that's costing them money and money, but it's the money that's costing them. It is in the millions. It's not in the billions. And so when you do see problems with with LNG and the economics start to break up, it's when the cost of gas goes up.

01:06:27:09 - 01:06:41:19

Stephen Stapczynski

But usually in in Canada, in the United States and Qatar, the cost of gas is usually pretty pretty low as we've as we've seen. So that that doesn't tend to be a huge worry.

01:06:41:21 - 01:06:57:11

Chris Keefer

What's the best way to explain, again, the kind of euro how like what what percentage of the gas that would go into the tanker is being burned to run the super chilling refrigerator, I guess is my question is, do you have any way to kind of present understand like.

01:06:57:11 - 01:07:19:22

Stephen Stapczynski

A really low amount? You know, most of the gas will make it to. I think the you know, every project is is different. But I think, again, going back to the ROI of, you know, of a U.S. project, you know, you build a facility which costs several billions of dollars, but.

01:07:20:00 - 01:07:23:03

Chris Keefer

Do you know how many billions? Several. So many billions.

01:07:23:03 - 01:07:25:08

Stephen Stapczynski

Let's let's look at the schedule.

01:07:25:11 - 01:07:32:21

Chris Keefer

Because nuclear nuclear plants cause cost several billion dollars that can, you know, go from like 5 to 35 billion if you're looking at both. Yeah.

01:07:32:22 - 01:08:07:10

Stephen Stapczynski

No, no, I just I understand. I think, you know, LNG plants will cost like about eight, eight, 8 to $12 billion, you know? Wow. Yeah. I mean, they're they're, they're big pieces of infrastructure. Now, the again, I'm struggling to get an exact number because every LNG plant is almost bespoke in the sense that they're all different sizes. So the you know, a U.S. LNG plant, which is maybe not in the small size, but like a medium LNG plant, is going to cost you about $10 billion.

01:08:07:12 - 01:08:31:23

Stephen Stapczynski

But if you go to places like Qatar, which is doing one of the biggest expansions ever, it's going to be maybe four or five times bigger than a just a normal U.S. LNG plant that cost $30 billion. So whereas for yeah, I mean yeah, indeed. But for nuclear I'm not it's not cookie cutter but a reactor is usually what like I gigawatt basically right.

01:08:31:23 - 01:08:50:00

Stephen Stapczynski

Like one reactor so you can, you can get like okay one gig, one one reactor's going to be this much but for LNG because an LNG plant can be 4 million tons a year, it can be 10 million tons in Qatar, it could be 49 million tons. It it kind of ranges. And so clearly, you know, yeah, there is the economy of scale.

01:08:50:00 - 01:09:04:07

Stephen Stapczynski

So the bigger you get it, the, the, the more you can you can make your money back. But, but we are talking about projects that are certainly in the billions and not not like in the millions.

01:09:04:09 - 01:09:20:03

Chris Keefer

So so again, getting back to that question of you know why it's expensive it's not so the energy cost is huge. You're just taking some of that natural gas that you're piping to the LNG facility anyway, running some gas turbines, making some electricity, running the fridge. But it's more that you need a $10 billion to.

01:09:20:03 - 01:09:21:00

Stephen Stapczynski

Be upfront cost.

01:09:21:00 - 01:09:23:03

Chris Keefer

Do it. That's there.

01:09:23:05 - 01:09:42:09

Stephen Stapczynski

And then and then also, you know, you've got to you got to buy the ships and you have to run the ships and you have to, you know, all these, all these things combined, you know, again, to make things more complicated for you ships don't always cost the same. There's there's a spot market for chartering a ship. And so sometimes ships are really cheap.

01:09:42:09 - 01:09:54:04

Stephen Stapczynski

Right now they're pretty cheap. It's like $50,000 a day. But sometimes they can go up to $300,000 a day, depending on how tight the market is.

01:09:54:06 - 01:10:16:02

Chris Keefer

So, I mean, this has been as as I expected. Well, it's exceeded my expectations. Been absolutely fascinating. You're a great guy to chat to. It's been a lot of fun. I particularly like these kind of LNG to nuclear comparisons because I just swim in nuclear all day long. It's a good kind of reference point. I'm thinking kind of like the LNG facility is almost like enriching the natural gas to make up its energy density.

01:10:16:04 - 01:10:38:20

Chris Keefer

Obviously you got to reclassify it to burn it, but lots of interesting comparisons. I think we covered a lot of territory. I look forward to a lot more wonderful tweets. Everybody on here should follow you on Twitter right now. And yeah, how else you're on Bloomberg. How else can people read your stuff, consume your material? Just we're going to we're going to clip this and post some clips from you here, I'm sure, very, very shortly.

01:10:38:20 - 01:10:39:16

Chris Keefer

But yeah, give.

01:10:39:16 - 01:11:04:18

Stephen Stapczynski

Us a sense. Yeah, just Google me, Steven, Steven, step Oshinsky. I'm the only one. So. So you'll find me. You'll find all my stuff. I'm on Twitter, I'm on Bloomberg, I've got a TikTok just wherever, wherever stories are being posted, I'll I'll be there. Yeah. Thanks for having me on. I really do appreciate It's great to talk. I love to talk about it all.

01:11:04:19 - 01:11:17:19

Stephen Stapczynski

You know, I love to get into it. And next time have me on to talk about Japan Nuclear, because that's another thing that I mean, could just go on and on. It's really fascinating space over there, too.

01:11:17:21 - 01:11:42:21

Chris Keefer

We'll do that. And just it's funny, on the Tik Tok front, I was just reading one of your stats from your your tweet was the U.S. generates, I think, 27 billion in LNG sales every year. I was thinking we've had Ed Conway on recently talking about his book, The Material World and this kind of ephemeral world of our iPhones and our grocery stores and kind of the front facing consumer facing world that we are versus, you know, how the sausage gets made both agriculturally and industrially.

01:11:42:23 - 01:12:16:04

Chris Keefer

And the valuations of of this ephemeral world are mind blowing. So, again, U.S. LNG, apparently 27 billion a year in revenue, Tik Tok, 9.4 billion in 2022. You hear about these major like commodities firms and their their annual revenues just pale compared to some of the most silly bits of tech you can think of. And it does seem like that is rebalancing as the world gets a little more serious and maybe runs into, you know, some more pragmatic problems, geopolitical multipolarity, etc..

01:12:16:04 - 01:12:19:02

Chris Keefer

But that's I'll leave that for another rant some other time.

01:12:19:04 - 01:12:20:01

Stephen Stapczynski

Excellent.

01:12:20:03 - 01:12:20:21

Chris Keefer

Stephen, thanks again.

01:12:20:21 - 01:12:21:19

Stephen Stapczynski

Thank very much.

01:12:21:19 - 01:12:24:01

Chris Keefer

We'll talk we'll talk to Japan Nuclear Society.

01:12:24:05 - 01:12:24:22

Stephen Stapczynski

Have a government.