Thanks very much, Allie. First thing I'd like to say is it is listed that Mark Thurber, who is the associate director at the Program on Energies and Sustainable Development, would also be speaking. But I managed to let him out of it. And so I will be taking over most of the duties today. And Mark is doing things that we really appreciate at PES at the moment, so I'm very grateful for that. OK, so what I wanted to talk about was really this issue of the global shale gas revolution. Kind of to the way that I would like to describe this talk is really document what I think the forces are at work in terms of the global shale gas market and kind of play out possible futures. The one thing that I will certainly admit to is having no special abilities at prognosticating or predicting the future, but simply I think identifying what the economic forces are that are operating and then you can hopefully at least take your bets in terms of what you think is going to happen. Before I do that, I always think it's useful to give a little bit of a background since after all, this is Silicon Valley and I personally think energy is a high-tech industry and I'll give a little background on at least how I think it's useful to think about the energy sector that will hopefully help to kind of go through the remainder of the talk. And then we'll just briefly talk about what I think everyone already knows about natural gas and then just talk about what it's done in the United States in terms of how it's changed the United States energy sector, what it's done globally, and then talk about an important component which is currently underway, which is the liquefied natural gas market and the potential for the U.S. to participate in that. And then kind of speculate on what might happen in terms of this global shale gas revolution, where, what might it happen, what could it do in the Asian energy sector, European, Latin America, and then finally at least give some ideas of, okay, what could the U.S. play as a role in developing this and why should the U.S. play a role in developing this? And in the process, talk a little bit about some of the stuff that we're interested in at the Program on Energy and Sustainable Development relating to that. Okay, so I think an important thing about energy is this idea that in the language of economics is that it's a derived demand. In other words, it's not like a hamburger. You don't directly consume energy. What you consume is essentially services from a piece of capital equipment that consumes energy. And this is particularly important because of the fact that what happens is, as I've written down here, is that there's technical change that's continually occurring. First, there's technical change in the sense that we get that the capital good that consumes energy essentially produces that service consuming less energy. The other is that technical change impacts. Is it impacts essentially our ability to obtain just the raw energy products? So, for example, oil, natural gas, coal, et cetera. And it does so in some, I think, very interesting ways. So, the implication of this idea that energy is a derived demand is what I like to call BTU arbitrage. Then in other words, what entrepreneurs are attempting to do in general is effectively do two things. They say, okay, there's a dollar per million BTU out there and it can come from a variety of sources, coal, oil, natural gas, or even renewable energy. And then what they're interested in doing is figuring out, okay, what piece of capital equipment can I combine with that raw energy source to provide the energy service that consumers demand and what can do that in a least cost manner or at least in a manner that provides the highest quality service at the lowest cost. So, examples of this sort of activity has occurred. I'll show one such example. And so what typically happens is that if you look at things on a sort of BTU basis or cost of a BTU basis, you get this nice ordering between the various fossil fuels. In other words, oil typically sells for the highest dollar per BTU price. Natural gas is next and coal is next in line. And the simple reason is just the flexibility. In other words, anything that coal can do, natural gas can clearly do. And anything that natural gas can do in terms of energy services, coal, excuse me, oil can do. And hence, you'd expect this kind of ordering as we'll see. But as you'll see, the ordering can often blow out and come back together as we'll also show in a few minutes. But that is what is the price signal that leads to the various investments in terms of both trying to find ways to extract that raw energy source as well as converting that raw energy source into the energy service that people demand. So this is one example of essentially BTU arbitrage in the electricity sector during a time in which probably most of the students in this class were not alive, but I was, and a lot of people in the front were, certainly were. And what you can see is essentially right around 1979, we all of a sudden completely eliminated the use of oil in the electricity sector. Why did that happen? Well, next figure is quite helpful. You can see what I've done here is I've plotted up the price of the various fossil fuels on a dollar per million BTU basis and I put this all in essentially real prices, so real $2005. And what you can see is right around the time there was a blowout, the price of crude oil on a dollar per million BTU basis effectively completely separated from being a small premium relative to natural gas to a massive premium in natural gas, as well as coal, coal being the black line, natural gas being the blue line. And so what happened? Well, effectively people said, look, we can get a much cheaper energy service from essentially using coal and natural gas to provide electricity. Why in the world should we use oil there? We're gonna shift out of electricity sector. We're gonna shift in to the areas in which it's only possible to use oil-based products, which is motor fuel as well as jet fuel. All right, so then the other bit about fossil fuels I think is very useful is this sort of idea of what is what's reserves. And these are some of my favorite quotes about the impact of reserves. This one was the one of the CEO of Standard Oil, who are not CEO, but an executive, a partner of John D. Rockefeller who said, 101 against oil west of the Mississippi and they drink every gallon produced. And everybody probably knows that Texas is west of the Mississippi, California is west of the Mississippi, historically the top one, two producers of oil in the United States. So effectively the big problem here is what? It's basically this idea of technological change so that what we've got is essentially what is a proven reserve. And the important point is that is what is recoverable at existing technology and at a pre-specified price. And two of those things are, both those things are constantly changing. What we're getting is thanks to places like Stanford and places like the School of Engineering, we're continually figuring out ways to essentially get more of the resource recovered. And so a noted energy economist, Mori Edelman, essentially said look, what really determines what reserves are is when it's more expensive to pull it out of the ground than it is to sell it, you leave it in the ground. And for those of you who may know, for most conventional oil wellers, we're leaving 60 to 70% of the oil that is known to be underground in the ground. And essentially, as we said, is the big problem with these reserves is the fact that we really don't know what future science and technology is. And the other thing that you'll learn today is that it can be very dangerous to underestimate the sort of ingenuity of engineers and scientists, et cetera, because you're likely to be wrong. And so essentially, it is this continual competition, as I wrote in bold here, between essentially depletion with existing technology at existing prices and the fact that technological change occurs as well as relative prices change, meaning that the real price of a fossil fuel increases, which then opens up, if you like, a lot more reserves or a lot more ways to obtain a given technology. And so this is, since this is Stanford, I can do this shamelessly. This is a graph that I really like from a company that was formed by two Stanford grads, Brightburn Energy. And what this is, is that what they do is they go in and they purchase effectively wells that are primarily spent as a result of the majors, major oil companies deciding to essentially say, it's time for us to leave. There's no more oil that we can recover. And what the gray line gives you is essentially the rate of decline before Brightburn purchases the assets. The blue line gives you the rate of decline of essentially the production, or the production, basically, after they take over. And what they're particularly good at is figuring out ways to essentially get more oil out through using their technology. The other thing that they're able to do is they're able to reduce their cost of effectively extracting that oil. And so what they're able to do is essentially the major, if you like, is sort of valuing the asset at A. They come in and they say, we're going to deploy our technology and we're going to capture the fact that we're going to get more out because we know how to get it. And the other is we're going to get our costs down so they get essentially area C and area B. And that's why they're still in business and doing quite well. But it is this technological change and this is being on the frontier, figuring out how to essentially deploy it to essentially get more out and I think gives a great illustration of the point that it really is this constant competition between technological change and scarcity. Okay, so we have an example here, which is essentially, you can see a sort of a fantastic BTU arbitrage opportunity. We see that during at least the early 2000s, you can see this sort of blowout in the price, dollar per BTU price of oil. And then what you can see is the dollar per BTU price of natural gas plummeting. So essentially what happened? So there's this tremendous opportunity to effectively shift BTUs that we consume from oil to natural gas because if essentially the same BTU costs you roughly about maybe three times less or a third to a quarter less. What is this? Well, as we know, it's the unconventional natural gas revolution. And what happened was, there's a lot of guys figured out G with the, initially you can see earlier on in like the early 2000s, the price of oil and price of natural gas and on dollar per million BTU basis were moving pretty close to one another and the price of oil was very high. And even though historically the price of natural gas was probably in the range in the early 2000s of about $2 to $3 per million BTU, but slowly went up, a lot of guys basically said, hey, we heard about this shale gas technology. We heard about this horizontal drilling. What the heck, let's give it a try. Let's see if it'll work. They figured out how to make it work and pretty soon everybody figured out how to make it work and we became a wash in natural gas. Okay, so this just shows you a picture of how fast it came on. You can see the green is the shale gas and in 2004, hardly there, it just exploded. And then these are the various places that where it's occurring. This is more recent graph of where it's coming from based upon the various locations. This is just the aggregate withdrawals. So just showing you that it just keeps going up, which men means that the real price in 2014 dollars keeps going down and we've also had an explosion in shale oil and much to the benefit of North Dakota, which has now become the United States second largest producer of oil in the last few years. And then here you can see the plummeting price of oil as a result of just the tremendous amount of both people switching away from consuming the expensive source of BTUs to the cheap source of BTUs, the increased production of shale oil in the United States and oil prices now in the range of $50, $55 a barrel. So what has this revolution done? Well, what it's done is this graph here, you can see what I've plotted here is the share of total electricity generation in the United States that's coming from the various fuel sources. So this line is from coal. So historically coal was above 50% in the US electricity fleet. Natural gas historically was around 15%. And what you can see is that they almost crossed back down there in April 2012. But still, we're below 40% on the share from oil. And largely been all effectively coal to natural gas switching. Why has that occurred? It's occurred simply because of economics. The price of natural gas, a good way to think about it is just to give you the simple economics here, is if the price of coal is, say, $2 per million BTU, even though it is cheaper on a $1 per million BTU basis with coal, you're going to need to use a steam turbine technology which may have a higher heat rate. That's a fairly high heat rate I've picked there. And then whereas with natural gas, you can take advantage of a combined cycle natural gas unit. And so you can get, as you see right here, the variable fuel cost for the gas unit is less than the cost for the coal unit, even though the coal may be slightly cheaper on a $1 per million BTU basis. And so effectively, you're going to, in most of the United States, we are running what are called bid based wholesale electricity markets where the lowest bidder wins. And so if you're the guy that owns the natural gas unit, you're going to be able to underbid the guy that owns the coal unit, and you're going to get to operate more frequently. And in fact, that's precisely what's happened, is that natural gas is beating coal at a number of prices throughout the United States in terms of the dispatch order, largely driven by the fact that the price of oil, excuse me, the price of coal versus the price of natural gas makes it so that natural gas unit is cheaper. Now it is true that there are other factors that work here, some of the environmental regulations, but I guess the other thing that's certainly true is the fact that the forward curve for the natural gas looks pretty flat, meaning that the price, that price of low price of natural gas, at least the Wall Street money is thinking that's going to stay there for quite some time. So effectively, most of the units, new units that are being built as well, are natural gas fired units largely as well because of the fact that the natural gas fired unit is typically got a lower capacity cost, dollar per megawatt cost to build, than does the coal fired unit, and then probably has as a lower, in many cases parts of the United States, lower variable cost, so it's just the economics where it's much better for buying that. Well, and this has had a very important benefit for the United States is almost with no effort whatsoever doing, if you like, what is purely in our economic interest, the United States has experienced a dramatic reduction in greenhouse gas emissions, largely because the coal fired power plants produce about a ton of CO2 per megawatt hour, whereas the natural gas fired plants that combine cycle plants are probably about a half to a third of a ton of CO2 per megawatt hour. And so, you know, we've reduced greenhouse gas emissions significantly in the United States, largely because of this coal to gas switching. We've also made it certainly more politically palatable for the Obama administration to propose the clean power plan to effectively further, sort of encourage this kind of coal to gas switching as a way to further reduce greenhouse gas emissions in the electricity sector. Okay, so what about the global energy sector? Here, what I've shown is essentially, these are what's called the delivered, if you like, the delivered price of liquefied natural gas. So this is natural gas that is reduced to a liquefied state and put on a boat and off it goes. And what you can see is, you know, the United States clearly the lowest prices of anywhere. You can see that, you know, the rest of the world significantly higher. And typically the way most LNG is priced is it's priced on an oil equivalent. Now this is starting to break down, but effectively the simple way to think about it is take the price of oil, divide by its BTU content which is roughly about 5.8 million BTU per barrel. So if you take a, you know, $58 per barrel oil, you divide by 5.8, you get roughly about $10 per barrel. And just so you don't burn the oil, I gotta price the natural gas below that to get you to go for the LNG. And there you go, you get roughly about what it is in terms of this. Now the important thing to look in this figure is to say, wait a minute, there's some serious money that someone could make taking $2.55 gas and selling it say in Spain or in the UK or even in Latin America for $7 to $8. There's two things that we wanna think about in considering that. The first is this one right here is currently on the continental of the United States, there is no LNG export facility that exists. So in other words, you physically can't do it. You have to build the infrastructure to in fact liquefy the natural gas, put it on the boat and off it goes. And the other is that you can see what's happened as a result of these natural gas prices and the lower oil prices globally is that the price of coal, particularly Appalachian coal in the United States has sort of declined since 2012. And this is what's called Powder River Basin Coal which is certainly the cheapest to mine coal and by far the largest coal source of coal that's consumed in the United States. But so what's this done is essentially that very cheap natural gas in the United States has certainly led to very low coal prices because basically demand for coal much lower, price of coal much lower, basic economics. And so what this has done is essentially this is it's made really nice to export that coal to Europe. United States coal can now be a much more aggressive competitor in Europe. And as you can see, US coal exports have gone up since in roughly the same time period. The Europe is the big place that we've been or exporting that coal. The other thing that's important to bear in mind is that most of the export ports are on the Eastern United States. There is only limited West Coast export capacity. So the United States in fact exports very little to Asia but basically in spite as we'll see the fact that most of the coal that is produced in the United States is coming from the Western United States as we said in the Powder River Basin. All right, so what's this done? Well, high gas prices in Europe, as you can see right here, right? Certainly relative to the United States and low coal prices in the United States have led to increased coal consumption in Europe. So in other words, Europe roughly from 2009 to 2012, most recent years available, essentially increased by 6%. UK, Germany in spite of its, I can't say it but I will just underline it but my German is not that great. But essentially massive investments in renewables, they've actually increased their coal consumption over that time period. Similar to the UK with fairly ambitious renewable goals, they've also increased their coal consumption during that time period. And it's largely as I said because the cheapest BTUs delivered to Europe are in fact from coal, not from LNG delivered to Europe. This is a very important kind of conclusion that the United States getting cheap natural gas has essentially led to reduced prices of US coal, more attractive to global markets for US coal, cheaper coal in Europe, displacing natural gas in Europe that has to be coming through LNG or from unreliable supplies in Europe, in the like, Eastern Europe. And so what this has led to is really no net change in greenhouse gas emissions from the electricity sector in Europe over the same time period. All right, then this is sort of the unfortunate but certainly important secret is coal is the world's fastest growing source of energy by a long shot. If you stack up all of these bars right here, this is essentially how much more coal consumption globally has grown from 2000 to 2012, the most recent year of data available. It's dwarfed crude oil, natural gas, even renewables and the like. Why? Well, it's because coal is the engine of economic development. So this is coal consumption in what's called, whoops, sorry, in the non-OECD world. By non-OECD, just think of all of the developing countries, so China, India, Africa, you name it. And you can see right around here, coal became the major source of energy in the developing world and it's just skyrocketing up. And so why is this occurring? Well, there it is. It's pretty much, China is definitely driving it, as you can see, but India as well is also, you can see the lines are separating a bit for India relative to the beginning of the decade, as well as all other countries in Asia are sort of also growing slightly. But it's really, it's all about China. Essentially the way I like to describe it is, and then this just shows you how that's happening. China is building essentially coal-fired power plants at a just astronomical rate. Every year over this, over roughly the last decade, they have built the installed capacity of California in electricity generation capacity in coal-fired power plants, would be to the first order of what's been happening, which has certainly led to a massive increase in coal consumption. And the other is these coal-fired power plants, they last for quite some time, 30, 35 years. So there's good chance that that coal consumption and coal demand is going to continue. All right, and this just illustrates, this is the greenhouse gas emissions problem, is you can see that greenhouse gas emissions in the OECD countries is heading downward. But this is data from the US, excuse me, International Energy Agency. And so the big problem is what do we do about coal in the developing world in China in particular? So essentially what it's done just to summarize is the rest of the world is it's essentially said, look, for the countries that don't have access to cheap shale gas domestically, what they're going to be doing is buying more and more cheap coal in the global marketplace because that is the cheapest source of BTUs. It can be used in their electricity sector and it has unfortunate implication that we get lots of greenhouse gas emissions. So the global natural gas market and how does this interact with the shale gas revolution? Well, as I just described, with liquefaction you're going to move it primarily first by getting it very cold to convert it to a liquid, putting it on a ship or a tanker and off it goes. The big problem is you need a specialized liquefaction facility at the origin, a specialized regasification facility at the destination. These are billion, multi-billion dollar pieces of capital equipment. The other thing about them is there's also an energy hit. I mean, to effectively both gasify it, excuse me, liquefy it and regasify it, that's going to take a lot of energy as well. And so as we said, both of these and the sort of best estimates probably on the order of about a $3 to $4 per million BTU average cost of that round trip. So in other words, $2 gas at, say, the origin is going to probably translate into about $5 to $6 gas at the destination after you've incorporated these costs. So what this says is that delivering LNG to a location means that even though natural gas destination may be cheap, that differential means that coal is going to be pretty competitive at the destination for the LNG, as we see in the case of Europe in the previous discussion. So this just shows you where global natural gas goes. You can see a pretty small fraction is essentially moving as LNG in the global marketplace most exports across countries is effectively going through pipelines. So for example, Canada exports a lot of natural gas to the United States, primarily through pipelines to the United States. And then this just shows both in terms of the number of participants in the global LNG market as well as the number of countries importing is growing as well as the effectively, you can see the amount of regasification capacity is growing. So in other words, the number of places that can actually take the gas flowing because certainly a major constraint for a country interested in building an LNG export facility is where the places that I can take this gas. And so it is expanding, which is certainly good news. And then this just gives you the market shares of the various exporting countries as you know, and as you can reading across, you can see that primarily, well, Qatar is currently the world's largest LNG exporter. Malaysia as well is quite large. Australia, Nigeria, and United States is quite small. The United States, there is an LNG export facility in Alaska. That's why I said continental United States, but that's the source of that number. Okay, so this just shows you effectively the various places where the LNG is going. So just to summarize, historically, the big places are essentially Asia and Western Europe, are LNG importers, Japan, South Korea as well, and then Spain and France, and historically these are the exporters. The question is, as we said, is that this high cost of moving it globally essentially means where LNG is the marginal source of supply in any country, meaning where LNG is setting the price of natural gas, we would expect that BTU arbitrage is going to say coal imported from the places that have very inexpensive coal is going to beat it on a dollar per million BTU basis, so you're going to continue to see coal in those places. And it sort of, unfortunately, economics works in the opposite direction in the sense that more and more regions develop their domestic shale gas resources. Cheaper and cheaper coal is likely to appear on the global marketplace simply because you're moving down that sort of supply curve for coal in the global market. You're going to get lower cost coal, so the places which is then going to effectively favor again those countries that don't have domestic shale gas resources to stick with their coal. So one question, though, is maybe the U.S. can essentially help to sort of drive down further the price of natural gas on the global market, but still you've got that differential that you've got to worry about, but the question is, can the U.S. become a major LNG exporter? And here, the big issue is the following, is, as we said, these are very capital intensive pieces of machinery to essentially gasify as well as liquefy at the other end, takes a long time to build. And so, but there are a number of projects in process, interesting thing, they're all on the Gulf Coast. There's one up here on the Atlantic Coast, but they're all typically here. A lot of these, for the most part, are essentially, interestingly enough, there were originally, they were regasification facilities that are now converted to be liquefaction facilities, and several of them are scheduled to become online in late 2015, 2016, we'll see, but in what happens in terms of once they do come online. So the other is that there are a lot of shale gas resources. This is based on data from the U.S. Energy Administration. You can see China has got at least estimated to have a lot of shale gas reserves, Argentina. So the question is, what's the other U.S. export? And this is one that I think is very familiar to folks around here, which is, we're really good in the United States of developing technology and exporting it. And so, one of the big questions is, is that it's sort of this race between exporting the LNG versus exporting the technology. And given the fact that all these other regions have substantial shale gas reserves, you could get into this world of essentially, as I said, of you build it and no one comes in the sense that you build the LNG export facility, yet essentially all the technology that you have is now flowed to the other countries and essentially you can't compete with your LNG against their domestic shale gas because of the fact that they don't have to pay for that cost of moving the shale gas to the location. So this is just one of the things to say in the competition between ingenuity of firms and essentially, I would caution against, this was written by a distinguished Stanford energy economist that essentially argued that around 2004, and if you remember, you saw in that graph, 2004, shale gas was de minimis and this distinguished economist said, look, the United States is going to need to be an LNG importer, a major LNG importer, largely because the U.S. is running out of conventional natural gas. And the idea is that if higher than 550 will continue, but it's difficult to imagine prices getting below the breakeven price for a U.S. facility to import on the West Coast. That distinguished energy economist was me and he got it exactly wrong because he bet against technology, right? What happened? We had essentially the shale gas revolution. This was one instance where California's inability to build any infrastructure was a great, great idea because we avoided sinking all the money into a import facility that really had no economic viability, which is why these guys here, going back to here, are now converting all of their import facilities into export facilities. So, all right. So the one question is that who's going to win? Is it going to be exporting the technology or is it going to be exporting the commodity? My bet is certainly on exporting the technology, but I think reasonable people can disagree. And the reason is just the fact that, so just to go further on this is just to show you, here is essentially what's happening in a number of countries with respect to that. So first is China. So you can see here is China is involved in a number of joint ventures with American companies in almost all of the existing plays in the United States. There's a Chinese partner working on this to learn the technology. And as well, there are also a number of international firms in the United States that are working with Chinese firms in China to effectively exploit the Chinese reserves. And so it certainly seems one of the big questions is, can this be done successfully? The big question mark here is what I have here in the sense of the US property rights regime is quite unique in the sense that you actually want somebody to drill on your land because you're going to get the money associated with the gas that is actually there different from other countries where it's say the government that owns the resources under the ground. So they're drilling on your land is certainly an annoyance. The other certainly in China as well is water availability. Is there sufficient water to actually use and frack the wells to produce the natural gas? The other is just general environmental concerns with microquakes, seepage into the water table, all these sorts of things. So as I said, the other thing is that even if China manages to scale its shale gas production substantially, it's really unlikely to put any dent in that electricity consumption of coal simply because there's currently no natural gas fire generation in China. And moreover, the other thing is the big issue for China is domestic heating needs. So in other words, in the various cities, in a lot of places, coal is being used to essentially heat the buildings with very adverse local environmental consequences. So most of the natural gas that's produced, if they do manage to significantly scale the shale gas, is likely to go to that and not to the production of electricity for quite some time. OK, so the other is this idea, just the fact that Europe, what's going to happen in Europe? Well, unfortunately in Europe, unless the EUETS price of emissions allowances comes back up, coal is going to continue to beat out natural gas in the dispatch. Just think of that very high dollar per million BTU price of natural gas in Europe versus the dollar per million BTU price of coal delivered to Europe. Even at a price of European Union emissions permits in the range of five euros per ton, that's just not going to get you to switch from essentially coal to natural gas. You're going to need a substantially higher price of carbon in Europe. And I just wanted to trumpet, California is currently the world's largest, highest price for carbon in terms of dollar per ton beating Europe. So congratulations in California. And the other is Latin America, massive shale gas reserves here in Argentina. And the big question is really just more of, can they solve the usual problem that Argentina faces in terms of allowing people to come in there, get the resource out, and actually get paid? It's not really a question of the resources being there. All right, so what about US role? The big thing is that it certainly seems that the US, because it's so far out in front, is certainly, as the greatest experience, it seems spreading industry best practice, these kinds of things with respect to the environmental concerns. But the other is to remember that if you don't like shale gas, coal is what you're going to get. I mean, coal is the cheapest source of BTUs, as we said, Europe, Asia. And so the US getting out there spreading the technology has both a economic benefit to the United States, but a substantial environmental benefit to the extent that we get the use of coal down in the areas in which domestic shale gas is produced. And as I said, particularly in the developing world, reducing coal use through the fact that what we're doing is getting shale gas deployed there is certainly a major factor. So the last point I just wanted to give is a plug for some of the work that we're interested in here is that one of the things we've done at PESD has developed a model for the global coal market. And what we would like to do, this just shows you some in the interest of time, I'll skip it, but what we'd like to do is expand it to a market where there's essentially coal and LNG to essentially look to see how things are going to shake out with respect to things like competition between coal and natural gas, depending upon where the shale gas boom really takes off. And what it's going to give us is the ability to look at a number of questions. So for example, one of the ones I'm particularly interested in is illustrating to the Europeans the potential sort of downside both environmentally as well as economically to the fact that there is currently a moratorium on shale gas development in many of those countries. So just to finish up, it certainly seems this differential is likely to persist for some time, which is certainly creating a strong incentive to deploy it. It seems to me that we certainly have plenty of demand for natural gas and electricity and transportation sector. Exporting certainly seems to be something that careful. And the only ones that are really getting developed are ones where the off-taker has a long-term contracts which is finance the project for the time of the project. And then the other is really this idea that, look, spreading this technology has both a significant economic as well as global environmental benefit simply because of the fact that the alternative is really coal as the competing source of energy in much of the developing world. So thank you. I'll help you with questions. Okay, because we always have the students go first. Okay, so students, questions. My quick question, thank you for your talk. Quick question on the estimation of the atom price for the LNG. So you mentioned like two to three dollars per million BTU. I was just wondering how much did that come from the transportation because when we look at the map, the kind of variation in the geological aspects, does it all come from the gasification, regasification and liquefaction? That's all it is. Or mostly come from the transportation. It's both. It's a combination. Just only what's the portion roughly of the two? Most of it is essentially the, I mean, most of it is you got to pay for the facility. I mean, you got to pay for the gasification facility. Once you get it on the boat, that's not a big component of the cost. I mean, if it were a big component of the cost, then you wouldn't get that significant differential between, say, coal and LNG. Most of it is the fact that you've got to liquefy it and build a facility to liquefy it, which is a tens of billions of dollar facility. And then you got to have a regasification of facility at the other end. That costs lots of money. That's got to be paid for as well. But the movement is a fairly small fraction of the cost. And the simplest way to see that is that if it weren't, then how the heck can you move coal, which is certainly not as, if you like, it's basically rocks and out-competed. Okay, we'll go there and then come over here. Yeah, we're in the back. Yeah, can you elaborate a little bit more on the challenges associated with adopting technology of the hydraulic fracturing that we do here in the U.S. in China? And what else is, I mean, you mentioned a little bit about they're not having naturally gas-fired plants available. Well, that's the least of the problems. Yeah, so what, yeah, could you elaborate a little bit more?  The lease says, we will pay you this amount of money to be able to drill on your land. You will get a share of what we make from essentially producing on your land. That certainly makes you very happy or at least happier to have them drill on your land. That sort of way of doing things is, I mean, whereas in China, that's not the property rights regime that we have, the other is water availability. The other is, there are, apparently, and this is where I'm definitely getting out of my depth, but I will rely on people like Mark Zoback, who is definitely the expert, who tell me that essentially the geology in China is significantly different from that that exists in the United States in terms of, you know, how you actually, what you need to do, but I guess my feeling would be, again, it's just a case of trying things out until, you know, trial and error to, you know, potentially figure it out. I mean, he didn't think that it was any sort of insurmountable thing. The other, I think, is another important one, which is, you know, if what happens is, is that someone does, you know, in the United States, in spite of the fact that we're drilling, you know, roughly 35,000 wells a year for the past, say, you know, seven years, seven to 10 years in the United States, we haven't had any real disaster. We've certainly had some problems, of course, but I mean, nothing to the scale that could, you know, potentially happen, I suppose, and I think that's the other thing with China, is that, you know, if something terrible could happen, that could pretty much make it very difficult for continued oil exploration there to occur. The other, the other issue, I think, is, as well, is USIP.  But, you know, those are the ones that at least I think are relevant. But I guess my view is, one of the things that certainly is true about China is if they decide they want to do something, it typically happens. Okay, back there, yeah. Can you talk some about the influence of spot versus long-term expectations of natural gas prices on the OMG terminals? Because my understanding is a lot of these are financed with long-term contracts. Yeah, yeah, no, that'd be the only way that you could finance one.  So the only way that, I mean, think of it at the way it's gonna work is, you're gonna basically find an off-taker, so it'd be probably somebody like Singapore, Korea, or Japan, because those guys, historically, were just getting hammered in prices they were paying for LNG. I mean, until probably last year, the folks in Asia were paying on the order of probably $15 to $14 per million BTU when we were paying $3 to $4 per million BTU for gas. So they were highly motivated to effectively enter into this contract. You enter into the contract, the guy then takes the contract to the bankers and he says, guaranteed revenue stream, give me the money to build the facility. They start to build the facility, there you go. The only problem is the first guy to sign the contract, he's gonna look really bad because he probably paid a higher price than anybody else who's going to subsequently get the gas that goes through that facility, but someone's gotta move first. So, but, you know, that's the big problem with, you know, signing a long-term deal. Now, it could turn out that they did great, right? Because what they could do is there could be something terrible that happens in the United States. So there is a moratorium on shale gas production and you've potentially locked in the price at which at least, you know, you're gonna get some of your gas. But that's the big problem. But that's the trade-off that you face as a potential buyer is that, yes, you're potentially locking in a price but it's very unlikely to be the best price that's going to be out there when the facility's built.  Okay, more students. Are there any scenarios you can think of that would be a reduction in coal mining in the U.S. or is that unlikely to happen without coal? Can you repeat the question, Steve? Oh, coal, yeah, it's whether or not coal mining in the United States is gonna decline. Coal mine in the United States already has declined. I mean, our production of coal has certainly declined. The interesting question is from a global environmental perspective, should it decline? And this is one where there's some interesting implications here in the sense that a lot of the coal that's getting burned in a number of parts of the world is not the greatest stuff. And in some sense, the United States has much lower sulfur content coal, probably higher BTU content coal, that they could displace the coal that's getting burned at those locations that has a higher sulfur content, more acid rain, more particulates, other kinds of things. So that's the question. But the thing is, is that one of the big barriers is the fact that most of that coal is located in the western United States. The West Coast port would need to be built expanded. You can figure out what the West Coast states are and the prospect of that happening.  But the good news is there's Canada. Canada exports lots of fossil fuels out its West Coast. And the other thing is, railroads go to Canada. So, there you go. Okay, well, over there. Yes. What role does a continuing low oil price or an oil price recovery play in this? Have you seen anything already? What do you mean?  I mean, think of it as, go back to the picture that I had here. So think of $3 gas is still the equivalent of roughly $20 per barrel oil. You know, at best, right? $18 to $20 barrel oil. Oil is at about 55 today. That checked to 55, whatever, at WTI. 65 at Brent. That's a whole other interesting issue. But, you know, that gap is starting to close. So, you know, there still is a tremendous sort of economic force pushing to wherever you can use gas. Simply, and the other thing that happens is is that it's really, I think, quite interesting is the fact that typically when you drill for shale oil, there is associated gas with the shale oil that you drill. So even though you don't want it, you're going to get more gas. And so it's sort of, it's going to further sort of push the differential. And in that sense, you know, so it's saying, look, you know, investments in gas in the United States, even though they're not even investing in gas extraction very much anymore, it's still, you're going to get more gas. The other thing that's happening is they're developing ways to rather than flame it off at location, ways to essentially use it, which is, I think, fantastic. But, you know, another example of, you know, sort of technological change. So figuring out, gee, you know, it's rather than flame this stuff off, we can figure out a way to essentially make CNG on the spot, you know, and burn it in our trucks or anything like that. So, you know, the incentive is still don't use oil.  We may see a CNG or LNG-powered airplane, but I'm not flying in it. But you know, but who knows? Not for a while. So at the current prices for natural gas, what kind of a CO2 tax would you have to have for burning coal, well, on all kinds of fossil fuels before the coal proposition is no longer attractive? Do you know that number? I would, I mean, just a rough ballpark would be probably on the order of $30. If you did, it was 30 euros per ton in Europe, that would probably close the gap in terms of at least in a significant part of places. But, you know... I was so shocked to see your gas prices, they were literally down by a factor of two from just a year and a half ago or so. Yeah, no. That's one of the benefits of... The low oil price. Okay. All right. We'll open up to everyone. Yes, please. If you were God, what power did you reduce the carbon in the atmosphere? Excuse me? I said if you had the power of God, what would you do to reduce the carbon in the atmosphere? Well, I would even... Oh boy, he stepped into it, so he's going to get it. So you should go to my website. What Stanford could do... Okay. What Stanford could do is the same thing that the United States could do, is price carbon. And the big thing that I would say and I would advocate as students is we should get Stanford to essentially show the world how to do it. And because the world needs help doing it, because it is difficult to do. There's lots of challenges associated with doing it. There's lots of technical, political, economic challenges. What a great place to do it, but in a university environment. And if more and more universities do it, we're going to train a whole bunch of students to go out in the world and understand that if you price carbon, it doesn't kill your economy. One of the big disappointments to me as a participant in the sort of the development of California's cap and trade market is how absolutely abysmally bad California's been at publicizing the success of their market. We have been setting a positive price of carbon, the world's highest price of carbon for since 2013. The California economy seems to be doing just fine. People are effectively, there are many instances where people are shifting away from higher carbon sources of electricity. So it can be done and the unfortunate thing is probably I think in a lot of ways experiences like for example, for those of you who may not be inside the whole carbon pricing debate, but places like Australia where it was done basically with about as much thought as how what beer should I buy today when I go out for my after seminar drink. Yeah, that's going to blow up in your face. But a well thought out, well designed carbon pricing policy started at a university and shared between universities I think really has a chance so you got my diatribe so you can go to my website and you can read the whole thing and you can talk to President Hennessy and ask him to do this. I'd really appreciate it. Since I've been tried and I have not been very successful but to go further Yale is doing it and that's what's the shame. They're beating us out of the box and we should have beat them out of the box on this rather than they beating us and but I think this is the thing that you know a very productive way for universities to deal with the climate challenge. Okay Mark and that will be the last question. Ask me again about carbon pricing please. Maybe you can share. I just wanted to follow up on the first student's question about the three to four dollar premium for liquefaction and gasification being the primary cost and I guess from the models that you've looked at is that really a capital cost or is it operating expense? That's a capital cost, almost all capital. It's just basically repaying what you've got to do. It's certainly not a variable cost.  It's got to be paid off and those guys are not going to build the facility unless they see that they get a guaranteed revenue stream to effectively pay off that thing and that's got to exist at both ends and that's what it is. It has very little to do with the variable cost. I mean it's pretty much just you know once you built the facility it's sort of running the refrigerators and very effective refrigerators to get it to turn it into a liquid and then you know put it on the boat and off it goes. Not a lot of room for technological innovation. Well I don't know. I mean I would bet again you saw I'm not going to bet against it. I'm definitely not going to bet against it so I'm sure that there's some smart grad students here that are thinking about that question but you know as it is now it's we're in a very, very early age of the LNG market. I mean the other thing you probably saw from my picture right of how it was such a tiny little thing and it's starting to scale up. I'd say if you think of sort of the S curve of technological development we're probably about here. You know rather than way up here where it starts to turn down I mean I'd say we're sort of in this phase here and so you know who knows there could be guys that figure out ways to do it better and because you know it could be like micro you know some of the technologies that people are using to essentially consume the natural gas on site maybe could work as a way to effectively more effectively move it more inexpensively move it. So you know I don't know but I'm open-minded in terms of thinking of other ways that could happen. It'd rather be an accelerator to do it or something. That's an inside joke. Okay all right well thanks very much.