Posts tagged “LNG”
… 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.
The production of oil and natural gas in the United States is booming. Next week, the American Security Project, where I am the Senior Fellow for Energy and Climate Policy, is releasing the 2014 edition of our “America’s Energy Choices” report (if you’re in DC, come to our event on Tuesday morning, January 28 for breakfast! RSVP here). Since we first began writing this report in 2011, there has been a sea change in the production of fossil fuels in the U.S.- particularly oil. This article builds off that report and a paper we are releasing detailing the “Five Energy Choices America Needs to Make.” CONTINUE»
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).
Geopolitics in Region Could be Impacted
Recent natural gas discoveries off Israel’s eastern Mediterranean Sea are reversing its role of importer to that of exporter. According to the Energy Information Administration (EIA), the larger finds — the Tamar and Leviathan fields — hold estimated reserves of 10 trillion cubic feet (Tcf) and 18 Tcf respectively. These fields are part of the Levant Basin, with probable oil reserves of 1.7 billion barrels and probable natural gas resources of 122 Tcf.
In the past, Israel imported most of its natural gas supply from Egypt. “Until early in 2012, the country received 40% of the gas it needed — 90% for electricity generation — from Egypt via a marine pipeline between El Arish and Ashkelon,” notes Oil & Gas Journal. Egypt, facing gas shortfalls, is planning to import gas via LNG, though pipeline deliveries from Israel are likely cheaper. Spot LNG in the east Mediterranean region is currently priced around $12.00 per million British thermal units.
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.
This week I am focusing on energy trends in global natural gas (NG) supply and demand; or as the Russians prefer to call NG, “the blue fuel,” due to its blue burning properties.
Unlike our more popular hydrocarbon — crude oil — there is no talk of “peak gas”—at least for now. Global NG production has increased at an annual compound rate of 5.3% since 2000, while crude oil’s comparable growth rate has been 1.0%—so we are not running out of NG, and the world is amply supplied or in balance overall. However, there are supply/demand imbalances across regional NG markets.
The major reason for the regional imbalances is that while crude oil is highly fungible or easily transportable, NG is not, which makes NG globally a highly segmented market. While NG can trade under $3.00 per thousand cubic feet (Mcf) in North America, it commands prices north of $15 Mcf in Asia.
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)
Dealing With the Total Picture
Last week, Governor Romney released his plan for “Energy Independence” that promises to “increase domestic energy production and increase partnership with Mexico and Canada to gain energy independence by 2020.” Briefly, the plan proposes to increase domestic fossil fuel production by opening new areas to exploration and by reducing regulatory barriers to the building of new power plants.
My concern is that this is simply a one-sided energy policy – it focuses solely on increasing the supply of energy (and almost exclusively on fossil fuels, especially oil). A true energy plan would realize that no matter how much oil your country produces, it can never escape the world market price. In a world with a globalized market for oil, OPEC will always be the most important price-setter, and the price of oil will not be set at home. The price will track with demand from economic growth in India and China and will follow supply shocks from the most recent unrest in oil-producing regions, whether Iran, Sudan, or the South China Sea.