Duke University Energy Conference 2020: Keynote Conversation with Wes Edens
- Welcome again to the 12th annual Duke University Energy Conference. I'm Davis Guebert, a third year student and Duke's MBA and Master of Environmental Management joint degree program and I'm a co-president of Fuqua's MBA Energy Club. Thank you again to all of our sponsors Nextera Energy, Chevron, Nationalgrid, Southern California Edison, Duke Energy, Cadmus and Sensus. Also thank you to all of you for joining us today. Our next keynote speaker is Wes Edens founder of New Fortress Energy and co-founder of Fortress Investment Group.
His goal is to reduce carbon emissions and foster economic development through universal access to cleaner, affordable and reliable energy with a vision of becoming one of the world's leading providers of carbon-free power. Fortress has been heavily involved in transportation and infrastructure projects across the world and has seen rapid growth in liquified natural gas. We're excited to have him here today in conversation with Hussein Cumber, Hussein is a Duke University alumnus. He's currently the Chief Strategy Officer for Florida East Coast Industries, and focuses on several other companies owned by funds managed by Fortress Investment Group. Hussein is involved in the business development efforts focused on transportation and liquified natural gas infrastructure. We welcome them both here today to discuss the future disruptions in energy investment and infrastructure.
The session will end at 1:25 Eastern and we'll hold a 10 minute Q&A period during the end for our audience to, and we'll be gathering your questions throughout the presentation, through the Q&A feature. If you'd like to live tweet during the session we encourage you to do so using the #DUEC20. Thanks for joining us.
I'll hand it off to you now Hussein. - All right, perfect. Thanks Davis for that introduction of Wes and I and Ryan I just want to also acknowledge you for creating such a great program on a topic that is going through so much transformation, a sector that's going through so much transformation right now. I'm excited to facilitate this conversation with Wes today. I've had the opportunity to work with Wes for a little more than 10 years now.
And he's one of the rare people that has the ability to foresee shifts in the marketplace and then to understand what those opportunities are. And more importantly, what I'm very impressed with Wes about is he's also willing to invest his capital and make sure those marketplace shifts become permanent. And so where I'd like to start off Wes today is talk about New Fortress Energy.
- Right. - In five short years, you've started New Fortress Energy with an initial idea. We've developed it into a company that's providing cleaner energy solutions to the world and now with a six plus billion dollar market cap. So let's start with how you came up with that idea. And what's your view, and how your views on climate change really drove you to start this company.
- Yeah. Well, first of all, thanks for having us and I appreciate the opportunity to talk to you all. As Hussein said we've been working together for about 10 years and it was really the work originally the railroad they started with all this and, back in 2006, 2007, I was the first time it was really a material shift between the costs of natural gas and the cost of diesel fuels.
And we look at it the prior 20 years before that they moved very much in lock step. So as oil prices went up, gas prices went up and vice versa. When it got to 2007, they basically split apart.
And I'm not an oil and gas person by training and background but we go in lots of transportation assets. So as a firm, we've invested over $30 billion in transportation in one form or the other we're focused on fuel. And I carried this chart around with me for about four or five years trying to figure out what it could mean for us. And I finally, we decided to basically do something about it and took the train that we owned at the time, the West Coast, the freight railway and convert it from burning diesel to burning natural gas. So as I tell our customers, now we are very much the chef that ate our on cooking first because we decided to go ahead and convert the train and to make a very long story short, we did. So we went to the FRA railroad administration.
We got them to allow us to burn natural gas. We had to design a tender, ready a GE to make new locomotives. We can do a whole host of things. All of which worked out fine.
One small problem at the end, it wasn't a drop of liquified natural gas in Florida. So what liquified natural gas is just simply take gas freezing the 261 blow Fahrenheit. It turns it into a liquid, concentrate in 600 times. You can then ship it around and use it, warm it up and basically turn it back into gas when you need it.
And so he would talk to some of the oil companies about building us a liquid fire and that didn't go very well. They basically said, if we would buy all the offtake for the next 25 years they would build this for us, which was not that helpful. So we decided to make it ourselves again, make a long story short, we did. It's been operating now for the last four and a half years, five years, but we found ourselves then with extra LNG and that's when the story really began. And so I started looking around and, in the United States, less than 1% of our electricity comes from oil.
So it comes from gas and coal and nuclear and now renewables. And yet when you look outside the borders of the country and you look at emerging markets in particular it's literally polar opposites. So what you find is that not only are people very under electrified, and I'll talk about that in a minute, but they're also electrified with the wrong, wrong product. They've got diesel or heavy fuel oil which is expensive and it's dirty. It's very unstable in price.
And so we decided to start a company basically to try to bring cleaner natural gas to these countries. And that's exactly what we have done. So it started in Jamaica.
We're now in Jamaica we're in Puerto Rico, Mexico, Nicaragua, 11 different countries right now. And so that's where the journey really started. - Splendid. And when Wes talks about this freight railroad in Florida, one of the things that was really important for us was not only switching from diesel to natural gas but Florida really grew up around the railroad as we talk about. - Yeah.
- And so the cities in South Florida, for example, the railroad doesn't go on the outskirt of the city. It goes through the downtowns of these cities. And so as we looked at the greenhouse gas emissions from the locomotives going through these downtowns, we realized that natural gas was a much cleaner burning fuel source for these trains. And that's gonna take us a little bit on a tangent before you continue being fortunate to energy but as you talked about the freight railroad, I don't wanna miss out on talking about how your view on infrastructure also led us to go into the passenger rail business, - Yeah. - In Florida. And maybe you can talk a little bit about that and how that also plays into getting cars off the road and other forms. - Yeah,
it's all about sustainability really and so given you look at the United States we have perhaps the greatest freight railway network in the world. We have a tremendous highway network and we have miserable passenger rail. So really with the exception of the Northeast Corridor there's nothing that's really effective or reasonable.
And so, and I guess about that time, there's probably 2012, right? - 2012, yeah. I read a book, it's a book you should all read it. It's called "The Last Train to Paradise." It's a book about Henry Flagler and really the founding of from him or the railroad in Florida, which is really the beginning of the settlement of Florida. When you showed up in Florida there was a few hundred thousand people over there. It's one of the poorest States in the union.
And he built the train basically from Jacksonville all the way down to Key West eventually. And it really began the commerce that became Ford. When we got to Miami, I think there was 5,000 people in the malarial swamp that was the Everglades now is Miami. But infrastructure like a railway can take cars off the road and use for more efficient form of travel isn't vastly cleaner, right? And so obviously the goal would be to make it truly carbon-free electrify and do so with renewable energy which is now the path that we're on.
But the first step was just simply to build the train. So first transplant built since 1894, it will be done about two years. We'll be able to go from downtown Miami to downtown Orlando in about three hours. We think it's the prototype of what you can see in a number of different city pairs around the United States. 'Cause if they're very viable economically.
So addition to building a gas and hopefully hydrogen business, we're building the train. - So just going back to New Fortress Energy, I know we talk a lot about how, it's still in its infancy stage and there's just so much growth potential for this industry. So where do you see the growth opportunities for New Fortress Energy? - Well, again, if you look at the rail world, so this is an example I use frequently 'cause it's a tiny one. So Jamaicans use 1/10 as much electricity per capita as Americans do, Kenyans use 1/10 as much electricity as Jamaicans do. So the world is vastly under electrified. And I think it's a very very important topic for when you talk about climate change, you talk about sustainability.
You also have to talk about economic viability. And so the first order in our view is democratize access to power, give people access to power in the cleanest best way possible. And then the secondary mission is to make it all emissions-free. And so that's really how we view the mission of our company. And I guess obviously with the topic today will be sustainability.
We'll talk about some hydrogen there in just a minute but so when you have that really mismatch between populations around the world and the lack of electricity there is an awful lot of places to go. And so we've got two terminals in Jamaica the one in Puerto Rico, one in La Paz which is Sur Baja California, one in Puerto Sandino, Nicaragua there's about a dozen other countries that were in some stage or another development. Obviously the more populated areas that are also emerging markets. So places like Brazil, places like South Africa places like Vietnam, the Philippines.
So those are big markets, but truthfully every small market around the world has some local opportunity. So it's a big big playing field right now. - So when Ryan was doing a little bit of the intro, he talked about one of the tabletop conversations being hydrogen. And that really is one of the newest clean energy EFG investment things going on and we've talked about it how it's not just a trend but it's gonna be a permanent shift.
- Yeah. And a new fuel source, so you started a new division with a New Fortress Energy called Zero. - I did. - Talk a little bit about where you see the future of hydrogen as an energy source and how Zero will play into that theme.
- Well, it's really interesting. So again, along the theme of still you'll hear from people we want power to be a hundred percent renewable. And the beauty of renewable power is it's become less and less and less expensive. That's the good news.
The bad news is it's not dispatchable. So it doesn't work when the sun doesn't shine. The solar doesn't, excuse me, it doesn't work when the wind doesn't blow. And so the question really is how to provide the gap when you need to dispatch power when the renewable sources don't work.
Battery power today is far far from being economically viable. So you can't just have a bunch of solar farms, a bunch of windmills and a bunch of batteries and make, industry, that is the world where they work. And I personally think that the narrative around renewables is a little misplaced 'cause what I think they're not dispatchable power what they may be is a source of very inexpensive power to then take the next step which is to create very cheap hydrogen, which at the end of the day, the hydrogen is probably, you all know it's about 75% of all the matter in the universe. So it's the most prevalent element that exists hydrogen 75%, helium 24%, 1% others. So there's an awful lot of hydrogen out there.
The challenge is that it doesn't really exist in pool or someplace. There's not an easy place where you can go take it out of the ground like you can, hydrocarbon or even natural gas. So it's tied up in some other molecular structure. The obvious one is, of course, water, H2O. So the question is, how do you take and separate out the hydrogen from the oxygen so you can use it? The simple example I use is an electrolyzer, is basically an aquarium full of water put it in a positive electrode and the negative electrode run electricity through it. And you're gonna separate out the molecules into oxygen and hydrogen and that's great.
And having very inexpensive renewable power as your power source for there truly creates, then a product that is really something which is dispatchable. So we had looked a lot of different renewable projects and whatnot and about a year ago and reached the conclusion that hydrogen was going to be the key to this. And that's when I did set up this division called Zero, we hired a bunch of smart scientists.
We then kind of put out a call and said, "Look, if you got an interesting technology interesting company call us." We've had over 150 companies call us. We've looked at a bunch.
We made our first investment in an electrolyzer business a couple of weeks ago, a new company in Israel, Full HD Pro that we think has got a very, very interesting probably the most efficient form of electrolyzer we've seen, so that's a good start but it's risk really beginning because, but the real, the goal of it I tell people there's three things that matter about the hydrogen, it's the price and the price and the price, because really at the end of the day if you can create it, inexpensively enough, it'll change everything, is that really is our focus, is to figure out who's got the best technologies things we can bring in look to commercialize. And we've looked at a lot of interest in so I could talk at length about that so. - Talk a little bit about the recent announcement that New Fortress Energy made with Fortress Transportation and Infrastructure on the power plant for GE and what we're hoping to learn from that partnership.
- Yeah. Well, good. Well, under the presumption that you will find cheap hydrogen, which I think is likely, then the question is, well, how will you use it? And one of the things that's wonderful about hydrogen is that it really can exist in our existing power infrastructure. So if you take a GE turbine and you run your feedstock as hydrogen and all of that are part of it, it burns and it has no emissions. So that obviously is a great aspect of it but that's the theory and so what we want to do is actually get some field data and practice for it. So we took power plant that was being built by our sister company of ours, along Ridge, Ohio and hold the aluminum smelter of the building big power plant out there.
We got hydrogen sourced from a local industrial source. We now can mix it in. And so the goal will be when that new power plant turns on about this time next year, maybe a little earlier, we will then mix in a portion of it probably initially about 15% of the feed stock will be hydrogen along with natural gas. And we'll get some real field data as to how it all works. We're sure that good it'll work well and that's great. We're happy this insurances but there's nothing like real data to see how it actually does work.
- Super. New Fortress Energy is unique in that it provides the capital to build the infrastructure and then operates those facilities as well to provide affordable power to end users. This also allows foreign governments and companies to deal with one company.
And we've talked a lot about how that's really kind of differentiate us in the marketplace where we've seen the disruptions in the energy sector while we've also come up and said we can build the infrastructure that's needed. So as you look globally, talk a little bit about how New Fortress Energy has separated itself to make it unique in the marketplace and what infrastructure is lacking globally in order to allow natural gas infrastructure to really be used in an efficient way. - Yeah, you mentioned it already.
I mean, to get our background at least in part in the investment side, comes from the transportation business and logistics businesses and then the logistics exercise. If there's 10 things that you need to do in order to make something happen, if you do nine perfectly and one you don't do well, the whole thing is useless. So really it doesn't do any good just to unfortunate a niche. And this I think is a big part of the reason why this infrastructure doesn't exist right now. So we found is there are many people who want to do one element over another.
So for example, if you're gonna bring natural gas into Jamaica, you need to get the gas from somewhere or get back from a liquid fire. You have to put a lot of ship. You have to build the infrastructure to accept it. You then have to build the infrastructure to deliver it and you have to build a power plant. So there's that.
And then have the logistics package surrounding the whole thing to make that all happen and last and not least at all, someone's got to pay for it, right? And so what we found is there are people who wanted to do one element, they wanted to run a ship, they wanted to build infrastructure. We wanted to build a pipeline and we wanna run a power plant but nobody seemed to wanna do all of it. And when I look at it, some of the examples are astonishing. So the power plant, the first power plant that we converted in Jamaica was the smallest plant by our standards so 120 megawatts power, it was built as a dual fuel plants was actually designed as a gas plant built in 2001 had never had gas.
They've been burning diesel on it. And we won the tender, I guess in 2015, and that's right? - That's right. - And the years fly by and turned on the gas about a year later or two months later. And if you looked at the prior five years, if they burned gas of the price we're delivering versus diesel, the price that they were using it would have saved them about $350 million. And so you look at it, you're like, gosh, the numbers are so big.
Why didn't this happen before? And the answers, they just didn't have the capital that it took to do it. So the capital that was required between the infrastructure and the transportation, the ships whatever it was several hundred million dollars but several hundred million dollars to save $350 million over five years you don't really need a calculator to do that. That's a great return that all makes sense unless you don't have the capital. And so what I didn't really fully appreciate when we first got into it, I have a great appreciation for now, is being able to sell fund.
and then we found ourselves on balance sheet, gives us both a huge competitive advantage versus other folks and it also makes us a much, much more valuable counterparty to the government. So when the government from some countries says, "We need power 'cause we are underpowered." We really are the one-stop shop that can then go and both design build, operate and pay for it. And that's really what it takes in order for us all to really work and move together. - I assume that, they don't have the capital as you said, but now that climate change and greenhouse gas emissions has become a topic that everybody is talking about. It's almost like transcended political parties, transcended third world countries versus first world countries talking about it.
Everyone seems to be talking about it. I think that probably also helps too is people are more open and educated that these types of investments actually have a long-term benefit to their own citizens. - There was no question.
Of course, as long as this places are tourism-based economy, so Jamaica, Puerto Rico, Mexico those are tourism-based places. And you go to these countries, you can look on our webpage actually and you see the black smoke is pouring out of an HFO power plant, it's disgusting. So, and I think there's a real misconception. People have said this to me. They said, "Gosh, now if they're in these developing parts of the world, they don't care as much about the environment.
They just care about the cost and whatever." In my experience, nothing could be farther from the truth because exactly you say, these people love their children and their grandchildren too, right? They wanna have a cleaner environment and they're willing to actually pay for it. And so yes, they need, and they've got less means than we do as U.S. citizens perhaps or other industrialized countries but they care about it deeply. So in the Philippines, just basically outlawed that building of any new coal plants.
There's a bunch of different examples around the world for it but really the two things that are important are number one, getting off the distillate fuels, getting off those liquid fuels into gas and then introducing as much renewables as you can. And then I think the last step that will be the important step is how do you get off the gas? Like what the, it's a transition fuel. And I firmly believe that the transition from it will be off of natural gas into hydrogen.
Then you will truly have a carbon-free existence. - So that makes me think, a natural kind of follow-up to that is, so how do the traditional big oil companies fare through all this disruption going on in the market today? - I think they've got a lot of challenges, honestly. I think that they're big and they're industrious. And I know a lot of people in the EP business and they're generally people that are admirable they're hard working smart entrepreneurial, yet the company is really, they get that big tend to become much more bureaucratic than maybe the smaller ones, but we know a ton of people in the oil and gas business that I think really highly of, the problem is that their position is a very difficult one because they're long a position of dealing with the hydrocarbons. And even if they have got divisions as they all do now that are focused on alternatives, their economic interests are very much at odds.
And I think it's a challenging position. And I think, I was asked the other day, do I think that it's likely or possible that the innovations in hydrogen are gonna come from some of these big companies? And my answer was likely no, possible sure anything's possible. But I just think that we've got a hundred thousand or more than a hundred thousand employees, you've got all of your assets tied up in the production and management movement and refining of hydrocarbons. And you're really trying to create something that actually is trying to put that out of business.
That's a very difficult thing to manage under one roof. And that's why I think it's less likely. I do believe that they're earnestly looking to be more emissions, sensitive, view more, focused on climate change, actions. But I think it's a tough place to start from. - So knowing that there's a lot of folks watching this today that are graduate students or undergrads or alumni that are looking at being able to enter this market as this energy disruption is taking place. What types of companies would you recommend folks would look at if they were beginning their career or trying to do a career shift into the energy market? - That's a good question.
I think, we're in the gas to power business. I think that actually empowering people is a noble exercise. That's good.
I do think that there will be incredible opportunities in this whole hydrogen, I've said this before but I think there'll be literally trillions of dollars made in this energy transformation. But the challenge today is that much of the companies that are being developed there are really startups. They're really not big industrialized companies, but one thing to think about is I did this actually a slide recently is the hydrogen market today is actually a considerably larger market than even natural gas is today, LNG. So worldwide hydrogen sales about $125 billion worldwide annual sales and LNG about $90 billion. - Yeah.
- So it shocks a lot of people that have more hydrogen sold the other here's the irony of it. So hydrogen is very useful and in the industrial forms it's used right now, it's used in two industries in particular, one being by the refineries 'cause they use their own industrial processes again, back to the oil companies and two, in the production of fertilizer in one form or another, right? So whether it's ammonia or urea or whatever, all of that. Now, the way that the hydrogen is produced today is the dirtiest thing possible.
It's very ironic, the cleanest fuel but basically SMR, which is the Steam Methane Reform. Basically it produces 11 kilos of CO2 per one kilo of hydrogen. So it's 11 to one in terms of the production of it. In fact, if you take all the hydrogen is produced today the process to create it accounts for about 12 and a half, two and a half percent of all emissions.
So a huge proportion of emissions for just the one thing. Now, I think that's gonna change and change like monumentally and the whole notion of you create the CO2. What can you do with it? The answer is there's lots of things you can do with it, but at the end of the day, you have to sequester it or use it and then make that process be an emissions-free process. And then I think it changes everything.
But I think, looking at businesses that are going to produce or use hydrogen in one form or another, I think is a really fruitful thing. If I was, 20 years old and I was mission-driven about wanting to be a part of this new economy and also make money and make a living from doing it. I think there's gonna be amazing opportunities in that side.
- So we can't ignore the fact that there's a transition going on in DC right now. And I'll put a hypothetical on the table to kind of let you react to it but let's assume President-elect Biden decides that he wants to create a climate change council and says, "I wanna coordinate the efforts from DOD and DOE and EPA." And really put a lot of focus on that and said, "Wes, I want you to come in and share this."
What would be the first few policies you think you'd advocate for in order to position the country in a way where we continue to make progress on these issues? - Yeah, that's a great question. I think it goes back to this issue of cost. So, and I'll give you an example, when you take the electrolyzer, an example I use, and define what is the best possible price you can create, the lowest possible price you can create hydrogen. So, assume you had an electrolyzer that had a 100% efficiency read. And you had 2 cent continual renewable power which are pretty much the perfect example where you can use, the cost of the hydrogen creatives by 80 cents a kilogram without taking into account the cost, the capital uses to create that.
So by the time you put the cost of capital into it and maybe takes it to a dollar 25 or a dollar 50 a kilogram to convert that to an NBTU equivalents versus natural gas multiplied by seven and a half. So take the seven and a half times that 125 to 150 you ended about $9 and 50 cents. Well, natural gas today. If I run the power plant at Duke university I'm probably buying gas that is Henry Hub-based, which is around $3 right now, gives us about 75% for a pipeline charters about 375 versus nine. - It's higher. - It's quite a bit higher.
And so that's why I say the price has got to be lower, right? And so I'd say with, and if you look at it industrial uses, transportation uses, power uses, those three things together constitute about 80% of all emissions. So if you can solve those three things and always if you're cheap enough hydrogen that you only use hydrogen rather than any other fossil fuel for those three industries, you've got a very long way of decarbonize the economy. So that's a really good way I think of that anyway. So 80 cents a kilogram not gonna be good enough. the next clip down is actually using the fossil fuels themselves as source of hydrogen which may sound anathema too but actually I think this is a really interesting concept is if you use it natural gas and you do it in an emissions freeway, you're 80 cents best case goes down to 40 cents or even lower if you use coal, which is the hardest one because it's, coal is a dirty product to start with is conceivable as even lower than that.
So those are really interesting things just kind of your checkpoints of where would it end up being on this thing. And so I'm addressing this from a cost standpoint. So if I was working for the president I'd say, look, you can do this one or two less.
You can either subsidize the production costs of hydrogen, right? So he said, "I'm gonna give everybody 50 cents rebates if they produce it." So now I've driven down the cost of it. So I am really cost competitive to be the ones that would actually have a material impact in terms of the utility of it, adoption of it, et cetera.
The other way to do it, it is more complex but it's kind of the path they're on right now, is to impose taxes on people that are using fossil fuels. And so either you make using fossil fuels more expensive or you subsidize the cost of hydrogen, so it gets cheaper. I personally think it's easier to subsidize the production costs cause it's just a simpler thing.
You can't really gain it. So if you were saying having the governance say, I'm producing a hundred kilos of hydrogen and they're like, great. You're saying here's 50 cents for every kilo, right? That we've had a very simple metric to do it. You driven down the cost, the lower the cost the broader the adoption, the faster the people will start to market in the market. And then you just let the masses go and everybody on this call quit their day job and becomes a hydrogen expert. It starts to use it, that says literally what would happen? Look what happened to Bitcoin mine, right? So it became a viable thing, people stopped doing the things, became Bitcoin miner.
So it's a very simple thing to kind of like to relate to it. So it's a relatable process. And I think that is what I would encourage. I think that the taxation of it is also viable but the minute that you impose taxes, what happens? People start to think about ways to avoid the taxes. - And there's all kinds of behavior that goes into that.
It's not, A, it's not that productive. And B it's complicated to keep track of whatnot. So I would say, look, if I was the king of the day for the hydrogen, I'd say, subsidize the cost of hydrogen and then just see what happens in terms of people, getting out there and finding different to use it. - Davis, I know we wanted to keep some time for questions.
So I'm gonna turn it back to you and have you go through some of the questions that have come in through the Q&A box. - [Davis] Yeah, absolutely. Thank you very much to begin with. I'd like to stay on the topic of hydrogen and ask for a little bit of context as your firm is a global firm.
Can you provide a little bit of context as to why the U.S. has been lagging behind relative to the EU? And if the U.S. were to expand in this area what regions do you think she'd promise it? - I think we have lagged a little bit, but I think it's primarily just a geography and resource issue. And if you look at Europe, Europe has very little in the way of actual direct natural resources. So there's about 35, 36, 37 import terminals that ring the continent to bring natural gas in or they get pipelines that come from Russia on the other side.
And so there's a lot of energy insecurity that happens as a result of that. I just think that creates a climate where people are then maybe a little bit more focused on alternatives. They've been a real leader in terms of some of the renewables. And I think that the hydrogen becomes a natural kind of like step on that. I don't think the U.S. is far behind.
We obviously are blessed or cursed depending on how you think of it in terms of natural resources in this private, a little bit more of an issue. But I do think it's going to a, I do think it's gonna change and change rapidly and this is a country full of innovation and full of entrepreneurs and so I think our chances to kind of catch up here are actually quite good. - [Davis] Okay, great. Thank you.
And that actually leads me to the next question I have for you is on the topic of Innovation. You had an RFP that you released where 150 organizations responded to it. What sets some of these different projects apart from others that would make you want to invest in their technology? - Well, first and foremost what I'm looking for are technologies that if they work they're scalable, right? Because best solution that is a small one is simply not that interesting to me. It needs to be something that's really material. So we look for things that we think if it does work it can be scaled up dramatically 'cause then it'll have a chance of being effective.
Many of these technologies though work in a laboratory, but haven't been field-proven. So we tell people, look, show me your technology. We'll invest in the company and we'll provide the capital to build a prototype so we can actually get field results on something. Then see if you can take an expanded. So, and we've seen a lot of things I joke about, let's say when you do something as mission-driven as this and you say, everyone come see me, I feel like I've offered a host to a Star Trek convention at a time. So we see a lot of people.
There's a few that are pretty eccentric but the general quality of the science and the seriousness of the people involved, the quality of people involved give me great encouragement that there's gonna be enormous, enormous innovations in this area. 'Cause this from all over all of our earth. The climate change is not a local issue in Durham, North Carolina or New York City or any place else you think. They kind of, it really does strike everybody.
So it's clear that there's gonna be monstrous amounts of innovation. There's gonna be a real transformation to happen. - [Davis] Yeah, okay. Thank you. And switching gears a little bit to some of the early part of our conversation set for noon on the rail system, we have a question that says, "California has faced unprecedented challenges in developing their proposed high-speed rail system.
Are there any key lessons learned from this example that Brightline we'll keep in mind as they approach the L.A. to Las Vegas rail project?" - Yeah. When we started building the railroad, I worked out with the saying, we made what was a very logical decision to take an existing railway system enhance it then to put passenger rail in place. That seems logical 'cause you had a railway system.
Was there, there was a short section of the track that we didn't have which is the route 528 that runs from it run from Miami up to Cocoa Beach. And you have to turn left a bit of Orlando that like stretch across those route 528. We're gonna go to the governor.
They put that out for bid. We won the tender for, we could then connect with then Orlando airport and then respectfully to Disney. And that seemed like a sensible thing in hindsight, there are some good things in terms of cost mitigation 'cause you're using existing infrastructure. But when you use an existing rail system, you're then limited by the other people that use that rail system.
So Los Angeles to Las Vegas, the bulk of the trip would be along I-15. So median of a big highway that runs through there. And because you're running the media, you could enclose it, because you can enclose it, you can now run at rail at very high speeds. So you can build a high speed at rail train line, which is actually great. Also you got electrify the whole system, so that because in order for our system to work everyone has to be electrify this on and you're building yourself. You're doing that using the existing rail system that runs on some other fuel and you can't electrify.
So the reason biodiesel in Florida, which is better than diesel that is not as good as electricity, that's for sure. So there's been a lot of different examples. I think that the California high speed rail system, again, my 2 cents on which is about what it's worth is I would focus, even today I would say, go look at I-5, go look at existing corridors that already exist for traffic for cars and use those perhaps as the linkages and where you wanna build this stuff. They're doing what is essentially the hardest thing possible which is a greenfields development across farmer ground skills. And that's challenging for lots of different reasons and it's expensive and it takes a long time.
And I think that they could probably do a lot better than the other. - And I'd probably add, I think one of the things that we learned is, as we looked in Europe, people don't care how fast the train goes. What they care about is how long the trip is. So nobody walks out and says, I just got off a train that went 182 miles per hour. Yes, I got off a train that went two hours and 14 minutes between origin and destination. And so what we do is actually build the infrastructure and then have the technology that's out there run on that infrastructure, as opposed to the other way around where you see people wanting to pick the technology and say, "I want a 220 mile per hour system.
And if I can't get a 220 mile per hour system then it's not worth doing." And then you're faced with the challenge of having to design the infrastructure for that train technology you've chosen. So at Brightline, we actually do it the opposite. We build the infrastructure and then we have the technology.
We procure the technology that can operate on that infrastructure. And I think that's the way the country really needs to think about how they build out these routes. - I agree. - [Davis] Okay. So thinking about these two concepts of transportation and then for its energy, as a broader concept to what degree will electrification in the residential and transportation sectors outside of the U.S. prevent greater use of hydrogen or LNG? How does that affect your plans for investing in the future? - Yeah, again, think of the three kind of fuel groups that constitute 80%.
So transportation is the most obvious because they pay the most for fuel but it's also the most complicated because you have to then build the infrastructure to deliver it, right? One of the reasons I think that electric cars events are successful as they've been is that, virtually everybody has a garage and in your garage you have a plugin and you can, so the infrastructure already exists for you to power up your car, with hydrogen, you have to build filling stations for cars and to build it for trucks, trains, et cetera. And so that's just more challenging. Probably what you'll see in the transportation sector is what you've seen in the adoption of LNG liquified natural gas or compressed natural gas is you'll pick the places where everyone comes back to the same place every night. It's the so-called return to base user. So garbage trucks, UPS trucks, city buses all come in that's who uses natural gas today. It would be the likely people to use hydrogen but the net of it, it is that there's a lot of infrastructure has to be built a lot of opportunities for people a lot, I'm sure she has to be built to accommodate that transportation.
So I personally think that even though that's the most cost competitive part of these three, it's also probably the last one to get done kind of fully. Industrial uses it's a plant that uses it or a power plants it's a plant that uses it. Those are, there in one place, the big users.
Those, I think you've got a much better chance of having real wise credit option. And one of the things that's really exciting about hydrogen is a potential. Let's say that we end up with a very efficient way of making it out of water. You could put the electrolyzation, you can put the creation of hydrogen at the source that's using it because again, a big part of the cost structure of moving a fuels around is the transportation of them themselves.
It's not that hard to transport water, right? Or transport other things you can use. So it's a really really interesting and very vibrant topic. And it's a little bit of a of a whack-a-mole, you hit it in one place and it pops up in another in terms of what it is.
But at the end of the day, you're still looking for this low cost point that competes with natural gas. That's at the point in which then you get really widespread adoption for power for industrial use. I do think that it'll come on transportation but I think that's a longer pole. - [Davis] Okay. Thank you.
So maybe taking a step back now and perhaps a lighter question and a different hat that you wear 'cause a co-owner of the box. I have a question from the audience, which is, "What can we do before December 22nd to ensure Giannis signs The Supermax" - I'm doing everything I can make that happen. So we're very focused on that.
And now I know you're near and dear to our heart. So now I'm a big sports fan, obviously with the Bucks and now ask them to like, give those guys a shout out 'cause they're off to a great year as well. And we do employ the same exact things. We try to hire the best people possible to run it.
And they're tryna stay out of their way. It's a little harder to stay out of the way when you're rooting for a basketball or soccer team but we're all routing for Giannis. So-- - [Davis] That's great.
Yeah. Well, thank you to both of you for being with us today and for sharing your insights and thank you to everyone for joining.
2021-01-03 03:57
