Refineries Still Operating Will Benefit Most From Harvey, Lipow Says

International Energy Agency released emergency petroleum reserves. This time, there doesn't seem to be any need to release these stocks because inventories remain high. Here to tell us more about the effects of Hurricane Harvey on the energy industry is Andy Lipow. He is the president of Lippow Oil Associates and they are based in Houston, and he joins us in our eleven three oh studios here. Thanks very much for being here, and first of all, maybe just tell

people you're from Houston. You can't get back home, correct, Uh, that's right. I can't get back home because the airlines are not restoring their full schedules. So even though the airports have begun operations, if if you were to look the amount of flights is a handful every day, but it appears that I'm flying on Southwest. I'll restore full

operations by Sunday, Okay. So can we apply similar kind of perspective when it comes to the energy industry that even though that you may say are certain refineries are shut down, the effects ripple through the entire energy complex. Well, they certainly do. And if one looks at how Harvey has impacted the Texas Gulf Coast, it started in Corpus and it moved over to the Houston area and now

it's in the Beaumont Port author area. So we've had this ripple effect from west to east, shutting down refineries. As we stand here today, the refineries in Corpus Christie are in their startup operations and we expect to see a similar events happen in Houston over the next few weeks. But Beaumont Port author really has taken the brunt of the flooding event and it may be several weeks or even a month to get them back. So right now I'm looking at gasoline futures that are at the highest

level since two thousand and fourteen. Also Uh. They have risen just today alone nearly thirteen percent. So definitely is a lot of expectation that gas supplies refined UH guess refined crude, they're going to be in short supply. Do you think that the current UH market sentiment is overblown

or do you think that gasoline has further to climb? Well, I think the market looked at UH today's news when Motiva said it's going to take them two weeks just to assess the damage in Port author and are extrapolating that to the rest of the refineries in that region that account for eight percent of the total refinery capacity in the US. So we are going to see these

spikes until we see more refineries get back online. Can you speak a little bit about the Colonial Pipeline, because there's been some back and forth about the information about the pipeline and about the fuel that normally flows through it. Sure, So, Colonial Pipeline originates in Houston and picks up refined products from Houston and then Beaumont Port Author than the Louisiana

refineries as well as Mississippi. And it had been reported that the entire pipeline for both gasoline and diesel fuel had been shut down, but that's actually not quite correct. What is correct is that Colonial Pipeline continues to operate by receiving refined products from those operations in Lake Charles or New Orleans or Pascagoula, Mississippi. But it is true that they in fact are shut down out of Houston and Beaumont Port author locations because those refineries simply aren't running.

Andy I'm looking right now, the average gas price at the pump in the United States right now is about two dollars and forty four cents, maybe forty five cents. UH. It's obviously actually it's much lower right now in Texas, which is interesting because a lot of people have talked about perhaps the entire gasoline supply getting cut off for a while. How high do you expect prices to go in the near term, Well, I think they're gonna jump another twenty cents a gallon from where they are today.

If we were to look at the price in the pipeline system or the wholesale price, it's up fifty cents a gallon as UH retailers and refiners scramble for supply. So a lot of that increase is going to be passed into the consumer. We're looking right now at NIMEX gasoline futures. They're up more than uh Andy, what kinds of maintenance and what kinds of damage can you assess based on your previous knowledge of what happens when you

flood a refinery. So the biggest damage occurs to the electric motors that have been submerged, so they have to be pulled out of the refinery in many cases rewired and then brought back. But when you have so many pumps and motors that have been damaged, you simply run out of repair shops if you will to get them back online really quickly. Andy, when I talk about rising gas prices, I have to think someone is going to benefit from this, because someone is getting paid more for

their gasoline. Who is it? Well, the biggest beneficiaries are those refiners who continue to operate and are being able to sell product into the market. So which ones are they? So the ones here in the US that come to mind right away are PBF Energy, Holly, Frontier two, Sorrow, CVR, or DELK because they all have operations that are far from the horror cane Harvey impacts, as well as European refiners are now benefiting because their strong demand for them

to make gasoline to ship over to the US. Will they find more customers, for example, in Latin America, because don't they Latin American countries they rely on imports from Texas and Louisiana for their refined product. Well, that is certainly going to happen. If we were to look at Mexico specifically, who's buying about three barrels a day of gasoline from the US. They need to scramble for supplies from other parts of the world, so where they look

to is Europe and Asia. What about the argument that you're going to see such reduced demand from people in Texas that that will eventually create some equilibrium in the market. Do you think that's the case and do you expect shortages of gasoline in Texas during this whole cleanup? Well, while there has been some demand destruction in Texas, it's nowhere near the loss of refineries supply. We've had thirty one percent of the refineries UH in the US being

affected by Harvey. At the same time, refiners have reduced runs by over five million barrels a day, even though some of them are in partial operation, So there is a big impact, and that's why you're seeing sore and gasoline, diesel and jet fuel prices. Will you see any changes in the way that the refinery or energy industry does business or protects its assets after this hurricane. Well, it's very difficult to protect yourself from four and a half

feet of rain. So, uh, you know, they may look at raising their electrical pumps, you know, to a little bit higher, a couple of three or four feet off the ground, but I don't think as a practical matter, they're going to be able to do much unless they're able to build dikes around the refineries to keep the water out. Well, any good luck getting home. I'm sure it's going to be a trying expedition and even once you get there, just getting to your home might be

quite adventure. Yeah, yeah, thank you very much. I appreciate it. Yeah, all our best. Andy Lippo is president of Lippout Oil Associates, which is based in Houston, but he is marooned here in New York City. Uh. There could be worse places to be marooned, but we really wish you all the best getting back and getting back to normal in the area. Jared Kushner, Donald Trump's president, Donald Trump's son in law

and top advisor. Uh, he wakes up each morning to a growing problem, and here tell us what that problem is and the extent to which that problem seems to be. Deevil him is our own reporter for Bloomberg Business Week, David Kochanski and David, thanks very much for being with us. Can you describe for people, maybe they're not familiar with Jared Kushner's family business, what exactly does his family do, how did it get into the real estate business, and

what kind of issues are they facing. Um. The Christiers have been a real estate family for several generation. UM. Jared's grandparents, who are Holocaust survivors, started a small construction company. His dad took over the company in the eighties when they had about four thousand apartments, and by the two thousands, early two thousands, they had twenty five thousand apartments, mostly

in the suburbs. UM. In two thousand and seven when Jared, shortly after Jared had kind of taken control of the company, they moved into New York real estate and they bought a tower at six sixty six Fifth Avenue. They bought it at the height of the market, paid a lot of money, took on a lot of debt, and have been struggling with that asset ever since. They paid one billion dollars correct and that was a new record. Yes, there was a record for any building in the US

at the time. UM. It was highly leveraged UM and in order to make it work UM they had to take on a lot of debt. They had to sell some the most expensive assets. There's some retail on the lower floors of it that was profitable, but they had to sell that off. They had to refinance and kind of turnover of the rest of the building to Tornado, the big, very profitable real estate company. UM. Now with the debt is coming to UM the motage that we is do in en They've only been paying interest so far.

They got to figure out a way to make this building work. And as of now there's some quarters where it is not profitable, so refinancing it is going to be difficult when it's not turning a profit. They've been searching the globe trying to raise money and get foreign investment to profit up. And that's what our story is about, right And and part of the story was the complications that come along with looking for international financing when you are the son in law of the president of the

United States. Correct, And that's sort of becoming somewhat of an obstacle as well as an advantage. Yes, And you know, in January, Jared Krishner UM divested of his interest in the company. He try for the company to other family members,

so he technically is not involved in it. UM, But because he's a top advisor to the president, there are a lot of concerns about potential conflicts of interest and UM we laid out in the story for the first time that there were a sovereign wealth fund in South Korea that he and his father had met with to ask for investments during this campaign in sixteen and Donald Trump was making his way to the White House. UM, there's a Saudi investor who in the family had preliminary

talks with that had not been mentioned before. UM. And what we saw in our reporting is that UM, you know, until fifteen or so, they had a hard time getting anyone to UM show interests and many times not even take meetings with them. As Donald Trump rose UM and Jared's prominence rose, there a lot of people interested UM including some UH. One that has been reported before was a bad the Chinese corporation that's tightly tied closely to

the government. UM. The Krishners UH after the election came to a deal where an Bang was going to bail them out. UM. After the deal, the details of that deal came public. That fell apart. UM. But what we found in our reporting is that there's a lot of other places they've been looking for money and they still at this point have not figured out a solution to the building. Well, David and your reporting, what kind of

options are there for for the Kushner real estate company. Well, you know Laurent Morale who we interviewed as the president of Krishner Companies. He said that they have several options. The first is this what was called the Mega project is grand UM this grand vision where they would knock down the building UM and build a gigantic eight story tower with five floors of retail, something that looked like

oz or Abu Dhabi. That's there has been drawings of it, UM and it's this glittering thing, but it would be so astronomically expensive. UM. A lot of you know, most of the investors, as they've approached, are hesitant to get involved because they think that the Manhattan real estate market and retail market can't sustain the kind of numbers that we take to build something that big. So that's the big one. And Mr Rowley told us that they still

are out there trying to do that. If it is not, If they can't get that, they say that they'll have to try to bring other investors and maybe work the building out as UM an office building. But it has proven so far. UM. You know, it's been tough for them to do it because it's an older building. The layout of the building makes it kind of tough to UM.

It's not like a modern airy building it has. It has tight columns and kind of lower ceilings and not the kind of light and spacious field that modern offices UM businesses want to pay top dollar for. And there's also been a change in the Manhattan real estate market.

I mean Midtown where they are at fifty umty three and fifth is not as hot a market as as it has been in the past, and there's a lot of development going out on the West Side and UM, so to get the kind of rent that they would need to make that building work, UM will be a challenge, and if they can't get the mega project built, it probably would involve some kind of renovation that would be difficult, um and expensive to carry off. Real quick twenty seconds.

Have you heard a response from the Kushner family. We have not heard from the Christian family. We spoke to them extensively and went over all the details of it beforehand, and um, so we have they've they've got haven't said anything about it at this point. Well, thank you so much for joining us and for the interesting reporting on this building. Six sixty six Park Avenue and UH one point eight billion dollars is a lot of money for a building right now. David COCHINESK Cochinski, thank you so

much for joining us. He's a reporter for Bloomberg Business Week who wrote this story, which is truly fabulous. You should definitely read it in the latest edition of this This week, we hear a lot about cyber crimes, about cyber security. We've heard rumors that perhaps that had something to do with the crash UH in Southeast Asia. We've heard about what the hacking that went on with the

election and around that with the emails. Now I want to talk about the areas that are least protected that perhaps will become a little bit more protected against these cyber attacks going forward. I want to bring in I'm none of our lev He is president of Checkpoints Software, which is based in Tel Aviv, but he joins us here in our Bloomberg eleven three oh studios. I'm not. Can you give us a sense of where you think

the biggest vulnerability remains. Well, I think the biggest vulnerability is actually where the most critical part of our lives states, which is our critical infrastructure, our electricity, water, are the very basic things that we do today in our lives, and the cows it will happen in those critical infrastructure would be infected. And those environments are much more conservative. Their approach there is if it's not broken, don't fix it.

And I think they have to get the stand out of the rest of the industry for this critical infrastructure. But you know a lot of people think about that infrastructure is being perhaps less connected then others and therefore more immune to some of the cyber attacks. Yes, but surprisingly or not, there's this trend that I can tell you that networks tend to connect every networks tend to connect to others, and I think Internet changed that because

people are connecting all the time. Network are connecting all the time, and I've seen different environment networks are connected. And not only that. I don't know if you remember there was a big attack on I around many years ago. It was totally unconnected network, but with a USB or can get it into the network and then everything block inside.

So those networks are are very vulnerable. And I believe that when I'm looking at overall happening the world, most of the countries actually have cyber warrior not to defend, but to offend, and they will go after those environment. They will not go after a Google of Facebook. They

will go to critical infrastructure. You know. One of the things that has been in the news of these accidents that the U. S. Navy, as Lisa alluded to, have been involved in the most recent one involves the destroyer the U S. S. John McCain, this was an accident with the tanker near Singapore, and I one if you could offer your thoughts on do you believe that there was any involvement from electronic cyber attacks in any of these To be fair, I don't have any details. Of course,

I'm listening like you, So I don't have anything. I'm just saying that all of those environments controlled by computers, and all of those computers can be accessed in different ways. So if you're asking possibility like that exists, the answer is yes, if that's what's really happening, I really don't know, because there I mean, there have been reports in the past. I mean, for example, in two thousand thirteen, graduate students were able to break into the GPS system of a

yacht and actually directed it way. Of course, that's possible with just about any network. You're saying, I can tell you basically that every system can be hacked, from your robot that clean your house to electricity system everywhere, So every system can be hacked. Well, with that uplifting idea, what it could be done to prevent this? And are big countries doing what's necessary? I think that the private sector is actually doing much more and he's investing much more. Um.

The countries, for different reasons, are way behind. They start with regulation, they have good regulation systems, and they start building like security operating systems, but they don't have the fundamentals. Think for a second, the allegory for physical environment. You have policemen. You have military, you have sheriffs that when there is an incident, you just send those forces and they block it. But what happened when there's cyber attack

in in the US you don't have those soldiers. And I think the next evolution that can't will have to head that they will have to have those kind of cyber sniffer's friend around the network. When they know that it's an attack, they can actually activate them and block those attacks. And they have to do that, you know.

I have to say that this raises a little bit of concern when I hear about having cyber police officers but of the state, because it sort of brings to mind a very nineteen eighty four type of situation that is trying to curtail people's First Amendment rights and interfering with their daily lives, spying on them. How can how can there be sort of some resolution to those tensions? Well, it's a very complex, uh questions, and a complex subject

by any means. I think the ideas should not be with having a big brother watching on you, uh, in any way. I just think that it's a matter of balance. It's the same way that you're going to an airport and you need to take your shoes off, or when you go to the street and there is a policeman over there, you you accepted that, and we should accept the fact that somebody will help us by protecting us, not by watching on us, by any means, and that

have to be very clearly prevented and regulated. But there should be a case when I already knows about attack, then I can actually stop it, which today it's not happening. You've been quoted as saying that one of the rules or one of the secrets of being a CEO is don't try to be loved. Yeah, what does that mean

first time? The president of the CEO of Checkpoint. Ah, it's meant that you should not be popular just doing things because the market is asking for that, or because there's a pushback from from you know, Wall Street to say, hey you have to do that. I think you need to stick to your DNA and people will respect you

for that. I think people that are trying just to do things because there is a fashion, uh like, hey, I have to now grow my business twice and I just became i mean not profitable and stuff like that. So so you need to make sure that you have a principle upon you build your business and you manage your business and stick to them. That's much more important

than just to do what everybody asks you to do. Well, given that and the fact that you're in the US, I imagine you're you're speaking with potential clients, and I'm wondering, Uh, you know, even though the government is less perhaps advanced in their attempts to regulate some of these cyber attacks, are they receptive to the suggestion that they need to have some kind of task force, police force, some way to regulate. Uh, that's better than what Yes, it's happening

in the U S. It's happening in other countries. UM. I think US overall administration is very complex and much more difficult than we We are actually dealing with many smaller countries which things are simpler to do. But and government are accepting the fact that they need to build systems that allow them to deal with cyber attack like they do for physical attacks. So they understand that and

they're evolving on that. The same things happened also in the U S. It's a bit slower, but it's happening here as well. Thanks for spending time with us and coming by. I'm Non bar lev Is, the president of Checkpoint Software. He is an expert in the world of cybersecurity and also in protecting your network against malware and other cyber attacks. Let's turn our attention now to Brexit and Brexit negotiations. Joining us Ed Ludlow he is our UK correspondent for Bloomberg. He joins us here in our

eleven three oh studios. Ed, thanks for being here. Maybe just bring everyone up to date on are there actually negotiations on Brexit? Are they actually taking place and talking about things that mean things? So I say where we are now this afternoon. We just finished the third formal round of negotiations. Okay. One of the big questions has been the pace of negotiations, how often they're meeting, because it's all done behind closed doors. This is how it works.

David Davis, the UK Bracklet Secretary, rocks up on the Monday's Brussels. He makes a statement alongside his EU counterpart Barnier, then closed doors for a few days, they come back and they update on progress. And this is the point after three rounds. From what we've heard today at that press conference, there isn't any progress, and there's disagreement between the two on their position on what you know, on what each sees as it's a tug of war, you know.

Britain say, you know, we want flexibility from you, the European Union, we want flexibility, and the European Unions say back, we want progress from you. We want evidence that you've thought about these points of the divorce. And so earlier today, look at the language that Mischieur Bannier was using. He was saying sufficient progress. This is like the EU buzzword sufficient progress. And it's all about when they can finish

the divorce talks and move on to trade talks. That's the key point here, and there's a frustration from both sides and for all of us waiting there sitting watching for the updates. So in other words, there's no progress being made. So remember the deadline okay in March. Okay, And what we're saying, what we're seeing is Britain wants to move quickly on to trade negotiations. Davis was saying the press conference earlier. They are They're inexplicable, they're one

and the same. You have to negotiate divorce and trade at the same time. What the EU are saying is that we refuse to move on to trade until you have proved that you're going to meet your financial obligations. I'll come onto that in a second, that you've got your citizens right issue sourced out, and that you've got a solution to the border between Northern Ireland and the

Republic of Ireland. Now, people familiar matter we spoke to earlier today said actually, what the Brits have been doing in these sessions is trying to pick holes in the e u s position on the financial bill, rather than saying what they're willing to pay. So you know, you want them to sess the financial bill, their financial obligations. They're saying this is how much we think it is, rather than Britain say well, actually, this is how much we're willing to pay. They've been picking holes in the

EU's number. That's pretty that's pretty bad. That's that's not a good sign. That sort of signifies that there's quite a ways to go before people kind of get to an acceptance. Where are markets pricing all this? I mean, how are traders sort of reflecting the lack of agreement

here in prices and what assets? So you looking at particular. Yeah, we speaking to Neil Jones of Miszoojo this morning, who's head of sales side, and he was basically saying that Sterling is now a political currency and that there aren't the sharp, volatile moves that we've seen, but you see weakness as investors look at the commentary coming out of the discussions when the two men are speaking Brussels. Investors are watching the wait to see how we've got progress.

No Sterling weaker throughout the morning. Now you've also got the other angle, which is growth in the UK. And when you look at the six months that followed Brexit, you know the UK economy was surprisingly resilient if you look at the data. But what we're seeing now is a different picture. Business investment is down significantly because those exporters, these UK exporters, what's their biggest market is the European Union.

They don't know what the relationship with that market will be when the when Brexit comes to fruition, and so they're not in boosting their volumes. But Neil Jones was telling me this morning that he thinks he'll see other UK assets start to reflect that. The smaller MidCap companies right where the EU is their biggest market and they are sensitive to Sterling and they're sensitive to that trade relationship. But mostly we're seeing it in this what he calls

the political currency GDP. Yeah, I'm trying to think of you know, which, which area you can point to that might even lead to some success, But it's a challenge. Um, Europe, the European Court of Justice, right, I mean the rules and regulations that supposedly government relationships between countries and so on. Um, what happened? What? What are the thought? So? I mean is there any transitional program even being put into place? So there's the two sides are odds. So basically consider

Brexit day the deadline day itself. Britain's position is that the European Court of Justice can have jurisdiction on matters that are already underway, cases already underway up until and

including that day, Brexit deadline day. But after that they say that the European Court of Justice should not have any jurisdiction of any business matters, civil matters Here in the UK, the EU are saying that the e c J should be able to deal with cases after Brexit where you know they have they had an existing mandate to do so in civil rights cases and in other business dealings, so that there are odds there. What is the compromise is that one says that the u c

J should the other says it shouldn't. Is it that they find areas of commonality where the u c J can continue? There are There is a court that adjudicates the relationship between the EU and non EU countries, for example like Norway and Switzerland, but that has limited power. And the question is whether Britain can accept some kind of transitional court like that ed You're born and bred London night and how has how has the environment changed since the Brexit vote? It is different. London is a

multicultural city, as anyone that will have been knows. And one thing you know I was talking to people about earlier is the issue of students. Okay, now people underestimate the vast numbers of international students that come into London, many from the European Union. We have what is called the Erasmus Scheme. It is a European Union funded scheme whereby British and European Unions, students can come and travel and study freely in the UK or vice versa. One

of the questions is what happens to that scheme. People are putting off their decisions, just like businesses putting off investment. People are putting off their decision to come to the UK. It's changing people's perception and actually, you know, amongst I don't want to talk about so an executive evidence, but amongst young people that is a big thing. It changed people's vision of Britain. Ed Ludlow thank you so much for joining us. It's a pleasure to see you in person,

in the flesh in our New York offices. Ed Ludlow is our UK correspondent for Bloomberg News based in London. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.