Posts tagged “energy exports”
… We Should be More Ambitious
Licensing exports of natural gas would help American diplomacy – but this is not really about the gas, it is about American support for free trade. Since the end of World War II, the U.S. has been the world’s champion in creating a free, global trading system. The U.S. is a beneficiary of the global, open trading system and it is not in our interest to restrict trade.
The debate in the U.S. has become solely focused on natural gas exports because the Obama Administration has been negligent about promptly approving gas export licenses and opaque about the process and requirements for approving the backlog of applications. This restriction should be lifted because it tarnishes the free-trade credentials of the United States.
However, this debate must be about more than just natural gas exports. Recent statements by some Members of Congress portray U.S. natural gas exports as a “weapon” against Russia, but this overstates the influence that U.S. energy can have on this crisis in Ukraine.
Even if the U.S. government approved every export terminal application currently pending and if construction times and costs were reduced to zero, instantly giving the U.S. new Liquefied Natural Gas (LNG) export capacity, we would not see that much gas flowing to Europe because geopolitics also have to work with economics. Remember, this is not the U.S. government sending gas to Ukraine or the EU as economic aid: this is a private exchange between businesses. Because the demand for LNG is much higher in Asia, where prices are as much as double the price in Europe, we should not expect to see many tankers full of gas sailing to Europe any time soon.
LNG As the Next Battle after Keystone
A collection of environmental groups, including the Sierra Club, Friends of the Earth and 350.org apparently just sent a letter to President Obama, urging him to require a Keystone-XL-style environmental review — presumably entailing similar delays — for the proposed Cove Point, Maryland liquefied natural gas (LNG) export terminal. Given the President’s “all of the above“ approach to energy and his recent remarks in support of wider natural gas use, the hyperbole-laden letter seems likelier to rev up the groups’ activist bases than to influence the administration’s policies.
Either way, its timing could hardly be coincidental, coming just as opinion leaders across the political spectrum have seized on LNG exports as a concrete strategy for countering Russian energy leverage over Europe in the aftermath of President Putin’s seizure of Crimea. If, as Robert Rapier and the Washington Post have suggested, the Keystone XL pipeline is the wrong battle for environmentalists, taking on LNG exports now is an even more misguided fight — at least on its merits.
Wrong on Science, Wrong on Scale
Referring to unspecified ”emerging and credible analysis”, the letter evokes the thoroughly discredited argument that shale gas, pejoratively referred to here as “fracked gas”, is as bad or worse for the environment as coal. In fact, in a similar letter sent to Mr. Obama one year ago, some of the same groups cited a 2007 paper in Environmental Science & Technology that clearly showed that, even when converted into LNG, the greenhouse gas (GHG) emissions of natural gas in electricity generation are still significantly lower than those of coal, despite the extra emissions of the liquefaction and regasification processes. The current letter also implies that emissions from shale gas are higher than those for conventional gas, a notion convincingly dispelled by last year’s University of Texas study, sponsored by the Environmental Defense Fund, that measured actual — not estimated or modeled — emissions from hundreds of gas wells at dozens of sites in the US.
I have seen a number of commentators over the last few days say that the American shale gas revolution means that the U.S. could simply announce new LNG exports and that would undercut Russian gas. House Energy and Commerce Committee Chairman Upton, for instance, said in a statement: “Expanding U.S. LNG exports is an opportunity to combat Russian influence and power, and we have an energy diplomacy responsibility to act quickly.”
Statements like this overstate the influence that U.S. energy can have on this crisis Ukraine. While it is true that a viable, functioning LNG export capacity would provide geopolitical benefits, we do not have it today and we should not think that the U.S. energy boom will help in this crisis.
The U.S. energy boom has already helped reduce Russia’s influence and increased European energy security, without a singe molecule of US Natural Gas landing on the continent. This is because, even if the United States does not directly supply Europe with oil or natural gas, because the U.S. no longer is demanding imports of liquefied natural gas (LNG) has freed up major suppliers like Qatar or Norway to send supplies to Europe.
A couple of weeks ago I had the opportunity to tour the Liquefied Natural Gas (LNG) facility at Cove Point, Maryland. Owned by Dominion, the Cove Point facility is currently an LNG import and storage facility.
As readers will know, there has not been that much demand for LNG imports to the U.S. over the last few years – the shale gas revolution has turned the U.S. from an economy looking to import increasing quantities of costly gas to one where a surplus of low-cost gas is looking to global exports. As such, Dominion has applied for the permits to expand the facility for LNG export. It has received approval from the Department of Energy for exports, but it is awaiting state, local, and final FERC approval before construction can begin. They expect to break ground on the new facility in the spring of 2014, with completion sometime in 2017.
A Brief History
When Cove Point was first built in the late 1970s, there was demand for imported gas from the only major supplier of LNG, Algeria. The 1970s had seen shortages of gas around the country. As it came on line in 1978, Congress passed legislation to deregulate the gas industry. With deregulation, domestic production increased and demand for imported LNG fell and most imports ceased by 1980. In the early 2000s, there was pressure in natural gas markets again, and Cove Point was reactivated as an import terminal in 2003. In ‘04 and ’05, Cove Point hosted almost 80 ships per year bringing in LNG from producers around the world. At that time, U.S. demand looked set to grow inexorably, with domestic supplies unable to meet demand. So, in 2004, Dominion embarked on a large expansion of Cove Point’s capacity, more than doubling its storage capacity. Once completed in 2009, markets had again turned against LNG imports, as the shale revolution pushed down prices and pushed up production. 2011 was the last commercial import of LNG; now two or three ships per year service the facility in order to keep their lights on and fulfil their secondary mission of providing a peak demand service (providing gas to markets in times of high demand).
An article I wrote was published yesterday, Why a Global Shale Gas Boom is Key to Combating Climate Change. Because I had actually written the article a week ago, I didn’t know that it would come out at the same time as the release of the President’s big speech on climate change. As I demonstrated in the post, the U.S. has been the most successful country over the last decade in reducing its emissions; most of that is due to fuel switching from coal to natural gas. Natural gas generates more than 50% less greenhouse gas emissions than coal, not even including the many harmful particulate pollutants coal emits. To achieve similar benefits around the world, we need to replicate America’s shale gas revolution around the world.
While most of the news about the speech will be about how Obama is planning to accelerate renewable energy, I believe the biggest area of near-term action on reducing emissions will come from some underreported sections that will encourage the replacement of coal with natural gas for energy generation, both in the U.S. and globally.
Reduction in Energy-Related CO2 Emissions
The United States has seen a remarkable run in reducing its greenhouse gas emissions over the last five years, reducing energy-related CO2 emissions from 2007 to 2012 by 12%, from six billion tons to 5.29 billion tons. While part of this reduction in emissions is attributable to a reduction in energy demand due to the economic downturn, another reason for this huge reduction is an increase in the use of natural gas for electricity.
In a story that is now familiar to most readers, the shale gas revolution in the United States has dramatically reduced the cost of natural gas. From a peak of $10.54 per million btu (mbtu) in July 2008, the spot price of gas at the well-head had fallen to less than $2/mbtu by April 2012.
Because utilities respond to price incentives, this caused fuel-switching of baseload electricity production from coal to natural gas, leading to a time in April 2012 when natural gas equaled coal as an energy source for the first time. This switch has partially been undone, with coal now producing 40% of electricity and natural gas 26% as gas prices have bounced back to $3.85/mbtu. Because burning natural gas for electricity produces half as much carbon emissions as coal, fuel switching is one of the main causes in the U.S. reduction in emissions.
Even as reports are being released that suggest that the United States will slowly increase its energy output, the American government itself has underscored that fact with its own report detailing energy-related forecasts through 2040.
The report, issued by the U.S. Energy Information Administration (EIA), draws many conclusions, perhaps most important among them the fact that, while American energy imports accounted for 19 percent of its population’s use in 2011, that same number will drop to only 9 percent in 2040 as the country positions itself as a world energy powerhouse. (Read More: How Much Oil Does the World Produce?)
Liquefied Natural Gas (LNG) Export Terminal Approval
Last year, the Department of Energy (DOE) granted Cheniere Energy a permit to export liquefied natural gas (LNG) from a terminal at Sabine Pass in Louisiana. The terminal is currently used as an LNG import terminal, but the company has plans to convert it into an export terminal, with exports beginning by 2015. The permit has been challenged by the Sierra Club, but is expected to be approved.
However, there are about 15 total other permit applications outstanding, with only the one permit accepted. After approving exports from the Sabine Pass terminal, the Obama administration put a hold on further approvals until a Department of Energy study on the economic implications of exports is completed. That study was originally due out in March, then the DOE said it would be released by the end of the summer, now the study is expected before the end of the year. (Read more: Investment Opportunities in Natural Gas)
Who is to Blame?
I’ve been working for the past week on a fact-sheet for ASP on gas prices; what is causing this spike, and why they’re going so high. I will post a link to it when we publish it, but suffice it to say that we’re not going to come down and say that President Obama is responsible for high gas prices. Although I believe that there are some good reasons to be exploring for oil and gas here at home (e.g. balance of trade, new construction jobs), we should not delude ourselves into thinking that’s going to actually lower prices. More to come when we release the report next week, so keep an eye on this space.
I want to take a minute, though, to write about a few conclusions I’ve drawn after diving into the sometimes heated and nasty rhetoric around gas prices. One big conclusion that I’ve come to about gasoline in the U.S. is that we simply use too much of it; much more than is necessary. I think that’s mostly a factor of the low pump prices that we had grown accustomed to over generations. Though prices have been high and very unstable since 2005 when Katrina shut down refining in the Gulf, we have really only begun to change our economy to the new world of high prices. I wrote before about how the U.S. energy market is poised for a “Fundamental Shift” as we produce more oil and use less. However, I am somewhat surprised that it continues to take this long.
As I wrote yesterday, I believe that the U.S. is moving fundamentally towards a point where it will be a major net exporter of energy, especially of refined oil products.
Everything we’re hearing now in the political sphere and in the press is about how bad the spike in gas prices is for the American economy. But – if we are to become a major energy producer – that cannot be true. It is no longer the case that high oil prices are unrelentingly bad for our economy: they’re only bad for oil consumers. Here in DC, we’re pounded by API’s ad campaign that three are over 9 million people directly employed by the oil and natural gas industry. In a total national workforce of 154 million, that means that almost 6% of the workforce is employed by the industry.
Certainly, we’ve seen the low unemployment rate in North Dakota as proof that an energy boom can create jobs. Last fall, the Wall Street Journal ran a very widely read article, “The Non-Green Jobs Boom” saying how clean energy was failing to produce jobs, but there were lots in traditional energy sources.