Ukraine Crisis Fueling Natural Gas Exports Debate

The Ukraine crisis is adding fuel to the natural gas export debate that’s been brewing in Congress. Sen. John Barrasso, R-WY, is proposing that an amendment to lift restrictions on U.S. natural-gas exports be added to the Senate aid package for Ukraine. On March 5, Sen. Mark Udall, D-CO, a senior member of the U.S. Senate Energy and Natural Resources Committee, introduced legislation to increase the ability of energy firms to export liquefied natural gas. Sen. Udall preceded the legislation’s introduction by noting that:

The situation in Ukraine shows the urgent need for Colorado and the nation to export more natural gas. When foreign powers like Russia are able to exploit their monopoly on energy exports to coerce their neighbors, it weakens the international community’s ability to promote stability and avert conflicts.

Currently, under the Natural Gas Act (1938), exports of natural gas are generally limited to countries that have a free-trade deal with the U.S.. Sen. Udall’s recently introduced legislation, known as “The American Job Creation and Strategic Alliances LNG Act” would modify a part of the Natural Gas Act to allow natural gas exports to World Trade Organization member countries. Of course, under this provision, Ukraine and neighboring countries would then be eligible to receive exported natural gas.

However, many energy experts say that the real problem with natural gas exports is not the governmental red-tape involved with actually exporting it, but the dearth of infrastructure to liquefy the natural gas for overseas shipment. There are now six applications for LNG (liquid natural gas) export facilities that have been approved, but only one of them is under construction. This is Cheniere’s $10 billion Sabine Pass terminal in Cameron Parish, Louisiana, which just recently received its required approvals from the U.S. Department of Energy and U.S. Federal Energy Regulatory Commission as well as from any state regulators that are needed. LNG shipments from this facility are scheduled to start in late 2015. As approval processes for LNG export terminals are lengthy, it is unlikely that the other applied-for LNG export terminals would be operational soon. As Energy Secretary Ernest Moniz said earlier this week during a major energy conference in Houston:

After the Cheniere license, the most optimistic view for the next set of LNG shipments to leave the U.S. isn’t until 2017 or 2018, according to Moniz. “So, there’s still quite a ways to go,” he says.

Aside from the natural gas export ban and the lack of infrastructure, the exporting of natural gas also begs the question of what will its price be once it is on the global market? The price of U.S. produced natural gas is much, much lower in the U.S. than natural gas sold elsewhere. An earlier Geopostings blog detailed how the spot price of domestic gas is set and how natural gas prices overseas are typically “oil-linked”, which means the price is coupled to the per-unit energy cost of crude oil. Suffice it to say that it is a real possibility that natural gas prices for domestic consumption will rise, and could rise precipitously. It is also a real possibility that as a market-driven commodity, U.S. produced natural gas will be exported not to Europe, but to the Asian market, where it will command a higher price.

As I said before in my earlier Geopostings blog on natural gas exporting/pricing:

All in all, 2014 is already shaping up as a very interesting year for US natural gas, LNG exports, and US energy policy.

 

The U.S. Energy-Climate World Upheaval: 2008-2014

If the recent U.S. energy-climate world seems like it’s in upheaval, that’s because it is. Amy Harder of the National Journal, just posted a good synopsis of the monumental changes in the U.S. energy-climate world with her article – The Five Biggest Energy Changes in the Past Six Years. Harder notes:

In 2008, Washington was grappling with what it thought was a scarce supply of oil and natural gas, energy prices were high, presidential candidates of all stripes embraced action on global warming, and President Obama was riding to victory on his slogan of change you can believe in.

Today, six years later, who would have thought this much change would come to the energy and climate world this fast? Here are the biggest changes over the past six years.

The changes that Harder elaborates on include:

–          America’s oil and natural-gas boom

–          The rise of EPA and the fall of climate-friendly Republicans

–          Environmental movement flipping from top down to bottom up

–          Imports and exports of fossil fuels with exports up and imports down

–          Renewable-energy growth, which is objectively significant but still relatively small

Overall, I think this is a helpful, brief summary of the U.S. energy-climate world – basically a good starting point for those interested in more detail on this area.

Natural Gas and Climate Change

The rise in natural gas production, particularly in the U.S., has unquestionably impacted the global energy equation. Fueled by the unconventional-natural-gas revolution, natural gas is now a significant factor in the U.S. and global energy mix. As Sonal Patel summarized from the International Energy Agency’s (IEA) 2013 World Energy Outlook (WEO-2013):

By 2035, natural gas demand will outpace that of any other individual fuel and end up nearly 50% higher than in 2011. Demand for gas will come mostly from the Middle East-driven by new power generation-but also from Asian countries, including China, India, and Indonesia, and Latin America. Power generation continues to be the largest source of gas demand, accounting for around 40% of global demand over the period. New gas plants, meanwhile, are expected to make up around a quarter (or 1,000 GW) of net capacity additions in the world’s power sector through 2035.

Given the seemingly inevitable scenario of natural gas playing a significant role in the energy mix (and particularly in U.S., given the recent unconventional-natural-gas boom), how will its increased use influence climate change and future energy policies? The tenet that natural gas, being a cleaner-burning fuel, will lessen a carbon footprint has been bandied around for awhile now. Amy Harder, from National Journal, picks up this thread with:

First the aforementioned wisdom: Natural gas is unquestionably helping the United States reduce its climate footprint. Our nation’s greenhouse-gas emissions have dropped to levels not seen since the 1990s, thanks in part to this cleaner-burning fuel. Natural gas produces half the carbon emissions of coal and about a third fewer than oil. This is why everyone in the Obama administration, including the president himself, can’t talk enough about the climate benefits of natural gas.

Three disparate factors make the relationship between natural gas and climate change not so unequivocally simple and good. Concerns about methane emissions persist, but notwithstanding that challenge, two greater problems loom: First, shifting significantly away from coal to natural gas doesn’t get the planet anywhere close to the carbon-reduction levels scientists say we must reach. And second, while the natural-gas boom is great for the economy and the immediate reduction of greenhouse-gas emissions, it has deflated the political urgency to cut fossil-fuel dependence, which was more compelling when we thought our resources of oil and natural gas were scarce. We have a great problem of energy abundance.

Obviously, natural gas is not the total panacea for “fueling” the transition to a carbon-negative energy mix. But given the current and predicted production/market conditions, it will be a considerable part of the future global energy equation. There is more info over at websites like cooleffect.org for those who want to see what they can do personally to help their carbon emissions be reduced.

A Snafu for US Gas Exports and US Energy Policy

A cost-overrun dispute on the expanded Panama Canal construction could be a big snafu for exporting US liquefied natural gas. Keith Johnson of the Seattle Times notes that:

The project is the expansion of the Panama Canal to allow more and bigger ships to pass through – for instance, the large tankers that carry liquefied natural gas (LNG). Today, only about 6 percent of the global LNG tanker fleet can pass through the canal; after the expansion, about 90 percent of tankers will be able to use it, according to a U.S. government study. The bigger canal would provide a quicker and cheaper way to ship natural gas from the U.S. Gulf Coast and East Coast to markets in Asia that are desperate to secure supplies of natural gas.

But those plans now could be jeopardized because of a dispute over cost overruns – which means America’s gas-export dreams could be in jeopardy, too.

Why is LNG a critical part of any talk about both US and global energy? LNG is produced when natural gas is cooled to approximately -260 F. As summarized by Charles Morris in his Reuters opinion, The Case Against Natural Gas Exports:

Natural gas, the cleanest of the hydrocarbon-based fuels, has long been a primary choice for heating and power generation, as well as an essential raw material, or “feedstock,” for a vast range of chemistry-based products, including every kind of plastic, synthetic cloth and high-tech composite materials.

More importantly to the LNG/natural gas discussion is that since the early 2000’s, US gas production has increased so much that it has largely outstripped any growth in consumption. As observed by Trefis analysts in their 1/3/2014 posting on Key Trends Impacting Natural Gas Prices:

The outlook for U.S. natural gas supply has changed significantly over the past few years, primarily due to the evolution of horizontal drilling and hydraulic fracturing; these techniques have enabled energy companies to tap the huge shale gas reserves in the U.S. at commercially sustainable rates. Widespread use of these techniques started only during the early 2000s in the Barnett shale play in north-central Texas. However, since then, natural gas production in the U.S. has ramped up much faster than the growth in consumption, which has led to severely depressed commodity prices by international standards.

Today, natural gas prices in the U.S. are less than half of that in the Europe and less than one-third of that in the LNG (liquefied natural gas) dependent Asian economies, such as Japan. Those hoping to make investments in oil and gas may want to use the services of a company like EnergyFunders with help from their elite operator teams and access to diverse, highly vetted investments through an easy-to-use online platform. Huge recoverable reserve estimates lead the EIA (authors note: US Energy Information Administration) to believe that shale gas would account for ~50% of the total natural gas production in the U.S. in 2040. Additionally, as the industry’s understanding of the shale resource basins continues to grow, leading to more productive wells, drilling costs are expected to trend lower. We therefore expect natural gas prices in the U.S. to remain depressed by international standards in the medium to long term.

The significant point here is that the price of US produced natural gas is much, much lower in the US than natural gas sold elsewhere. Charles Morris gives a summary of how the spot price of domestic gas is set:

The spot price of gas is set in the New York futures market, based on trades at a major Louisiana collection center called the Henry Hub. During the worst of the glut, the Henry Hub price dropped below $2 per thousand cubic feet (Mcf), well under the cost of production. But now new pipeline construction has broken the worst pipeline bottlenecks, and customer demand is rising, so prices have been hovering near $4 per Mcf for some time.

However, natural gas prices overseas are typically “oil-linked”, which means the price is coupled to the per-unit energy cost of crude oil. Morris further notes that in the global market:

Global oil and gas are not traded in free markets…World oil prices are carefully managed by the Organization of Petroleum Exporting Countries (OPEC) cartel. Knowing a good deal when they see it, the world’s largest gas producers, Russia and Qatar, both of whom produce gas more cheaply than the American shale industry can, keep gas prices resolutely oil-linked. It’s raining money for all of them.

Thus, one of the primary consequences of LNG exports is an expected rise in the domestic price of natural gas. Morris also points to Australia as the real world example of this:

Fortunately, we don’t have to rely on forecasts. There is a real-life experiment underway in Australia. They have been exporting natural gas for some time in modest amounts. But a number of big projects will start coming on line next year, and local gas prices have already tripled – though there is ample supply and there has been little change in production costs. Suppliers apparently “prefer to sell the LNG to the likes of Japan and South Korea who will pay a premium for it.”

Not surprisingly, a huge lobbying confrontation is occurring in Washington. The confrontation centers on the approval process for liquefaction installations (gas needs to be liquefied at cryogenic temperatures which “shrinks the volume by about 600 times, making the resource easier to store and transport through marine shipments”. The approval process involves both the US Department of Energy and the Federal Energy Regulatory Commission. According to the American Petroleum Institute:

As of October 1, 2013, the U.S. Department of Energy (DOE) had approved only four applications for permits to export liquefied natural gas (LNG) to non-free trade agreement nations. There are currently 21 pending applications, covering 19 facilities where U.S. businesses are seeking to build and operate terminals to process LNG for sales abroad. (A map showing proposed LNG export facilities is on the API website and is linked here.)

Interestingly enough, there is yet another sidelight to US LNG exports as outlined by the Sierra Club in An open letter to Energy Secretary Moniz on natural gas exports:

But the real game-changer for exporting LNG will be if the U.S. completes the free trade agreement called the Trans Pacific Partnership (TPP), which is currently under negotiation with 10 countries across the Pacific Rim. And Japan, the world’s biggest LNG importer, is likely to join the talks in July. The TPP and another pact the U.S. is initiating with the European Union (EU) are likely to require DOE to approve all gas exports, of any amount and without delay, to nations in the agreement. The TPP could be finalized as early as October of this year, and the U.S.-EU trade pact in 2015.

All in all, 2014 is already shaping up as a very interesting year for US natural gas, LNG exports, and US energy policy.

 

Energy Conservation And Efficiency….. Good For People, Business, And The Environment

– By John Vincent, Former Montana Public Service Commissioner

It’s recently become all too clear that “big power” is “waging war” on energy efficiency and conservation because it reduces the amount of power they sell and cuts into their profits. But for others (residential consumers, private businesses – both large and small, and corporations), energy efficiency is saving energy, saving money, and improving bottom lines. And it’s good for the environment, too. Less generation, especially, but not exclusively, coal fired generation, reduces CO2 emissions (natural gas produces about half the CO2 of coal but also emits high quantities of methane,  a “green house” gas 20 times more potent than CO2).

IDAHO’S J.R. SIMPLOT COMPANY LEADS THE WAY ON ENERGY EFFICIENCY

The J.R. Simplot Company shows the way to energy conservation and efficiency. This is a great example of the conservation/efficiency ethic being taken to heart by a major American business. With more than 10,000 employees, the J.R. Simplot Company is one of the nation’s largest privately owned companies. And, it’s no secret that the Simplots are a politically conservative family and business. They have fully embraced (dare it be said) a good, old fashioned conservative ethic; saving money……….. by using less energy and consequently also cutting costs.

Here’s what they’ve accomplished through energy efficiency and conservation since 2009:

–  saved 1.3 trillion btu’s of natural gas (enough to take 29,929 cars off the road and keep 95,056 tons of co2 out of the air),

–  reduced electrical use by 390,821,028 kilowatt hours (enough to take 35,400 homes off the grid),

– saved millions of dollars*.

Of course, when individuals and businesses save energy it also reduces the need for new and extremely costly centralized electrical generation plants and long distance, high voltage transmission lines – both of which would cost (not save) electric customers billions of dollars, pose a threat to the loss of private property rights through eminent domain, and harm the environment. When asked recently by the Idaho Statesman newspaper why they undertook their energy saving efforts, the Simplot family fell back on the words of the company’s founder, J.R. Simplot: “do well by doing good.”

Good advice.

*actual dollar amount of savings to be posted soon

North American Oil Supply Jolts Global Markets

The International Energy Agency (IEA) released its annual Medium-Term Oil Market Report (MTOMR) today. I doubt if it will surprise anyone who has been paying attention to the energy markets, but the report’s main assertion is that:

The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15.

IEA Executive Director Maria van der Hoeven introduced the report at the Platts Crude Oil Summit in London by saying:

The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves. But as companies rethink their strategies, and as emerging economies become the leading players in the refining and demand sectors, not everyone will be a winner.

The IEA report makes the following prediction for the North American oil supply:

The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

The rapid emergence of the rising oil supply will play havoc with the development of other energy sources such as the renewables. It will be extremely interesting to watch how the various energy markets evolve.

For an overview of the MOTR, go to – http://www.iea.org/media/news/MTOMR_2013_OVERVIEW.pdf

Coal Could Overtake Oil As Number 1 Global Energy Source By 2017

I watched a coal unit train zip through the Belgrade-Bozeman, Montana, area yesterday. The Montana Rail Link unit train was 125 cars in length and presumably bound for Pacific Northwest seaports. The coal is sourced from the Powder River Basin, an approximately 20,000-acre part of Wyoming that supplies about 40 percent of U.S. coal. An informative guide to the Montana-Pacific Northwest coal train situation is the July 2012 Western Organization of Resource Councils’ publication – RAIL IMPACTS OF POWDER RIVER BASIN COAL TO ASIA BY WAY OF PACIFIC NORTHWEST TERMINALS.

My viewing of the coal train passage coincided time-wise with a press release on the International Energy Agency’s (IEA) Medium-Term Coal Market Report. The IEA contends that by 2017 coal will closely rival oil as the number one global energy source.

“Thanks to abundant supplies and insatiable demand for power from emerging markets, coal met nearly half of the rise in global energy demand during the first decade of the 21st Century,” said IEA Executive Director Maria van der Hoeven. “This report sees that trend continuing. In fact, the world will burn around 1.2 billion more tonnes of coal per year by 2017 compared to today – equivalent to the current coal consumption of Russia and the United States combined. Coal’s share of the global energy mix continues to grow each year, and if no changes are made to current policies, coal will catch oil within a decade.”

The growth trend for coal will increase globally except for in the U.S. where cheap natural gas will bring a decline to coal usage. China and India will be the big markets for coal over the next five years, accounting for than 90 percent of the increase in coal demand.

In a Huff Post Green Blog, van der Hoeven notes that although affordable coal has aided emerging economies …” the surge in coal burning is not good news. Despite industry’s effort to promote “clean” coal, the black matter remains the dirtiest of all fossil fuels. The average coal-based power plant emits a tonne of CO2 per MWh generated, about twice the level of a power plant using combined-cycle gas turbines.”

The relentless growth trend for coal currently appears untouched by either climate policy or the economic slowdown. Given the present political situation, it may well be that cheap natural gas continues to be our biggest hope for carbon emission reductions.