Friday, 17 January 2014

Exporting Natural Gas, Coal, and Oil

Americans have gotten so used to being dependent upon imports for energy, now that the United States has genuine export potential for all three fossil fuels, it does not seem to have the ability to rationally discuss the tradeoffs.

I can say this: calls by old-fashioned, New Deal Democrats to avoid exporting natural gas are short-sighted. For a party that has held a vice-grip on environmental voters, this is a terrible stance. Pro-union sympathy entrepreneurs and energy-intensive manufacturers such as Dow Chemical are calling for a halt to approval of new liquified natural gas export facilities, on the grounds that exports would raise natural gas prices, and deprive American manufacturers of an energy cost advantage. Disturbingly but unsurprisingly, a number of environmental groups are also on board. Here are two reasons this is wrong-headed:

First, do we want artificially low energy prices? Is there any inkling among the New Deal Democrats out there that the United States might benefit from an economy that is more energy efficient? Do they really think -- are they truly dumb enough -- to think that we will develop a more energy-efficient economy by keeping energy prices artificially low? And is it really the raison d'etre of pro-union Democrats to keep skilled workers in energy-intensive manufacturing jobs? What happens if energy prices go up, say, because we get climate legislation (which New Deal Democrats say they favor)? Will these sectors and workers be prepared?

Second, if these New Deal Democrats could look beyond the United States, what is their plan for getting China to burn less coal? Wag our collective fingers at them? Negotiate some sort of meaningless "clean technology cooperation" agreement? The most important thing that can be done right now is to divert the People's Republic of China from its current path of development through coal-fired electricity generation. The best near-term hope of doing this is providing China with cheaper natural gas. Decades of environmental activism have not accomplished a tiny fraction of what hydraulic fracturing has done to finally topple coal from its perch as America's electricity fuel of choice. That is not something to get too giddy about right now -- the study released recently suggesting that natural gas leakage is contributing much more to greenhouse gas buildup than previously thought is very troubling. But that is a fixable problem -- the EPA could regulate those emissions, even without suffering the ignominy of having to go to Congress.

Third, building on that last point, EPA must, must, must clamp down on methane leakage. It must require oil extractors in North Dakota to capture methane. This can be more easily done if natural gas prices are high. It becomes more worthwhile (not completely worthwhile, absent regulation) for oil extractors to capture leaking methane, and it becomes more economically palatable to clamp down on leakage from the gas industry if it is turning a better profit. In fact, fast-tracking LNG terminal approvals might be very subtly politically coupled with some acquiescence from the gas industry to some sensible leakage and flaring regulations.

Now, let me beg out of saying anything about coal exports and oil exports. Coal exports have been on the agenda for years, and this past week Senator Lisa Murkowski opened up the prospect of lifting the U.S. crude oil export ban dating back to the 1970s. I can't really think of a purely economic reason and principled reason to oppose this, but I do. In the end, I am an environmental consequentialist. I think that sharing American coal and oil largess with China and others is a bad idea. Although some of the same arguments above could well apply to coal and gas, I believe that regulation under the Clean Air Act, including new greenhouse gas regulations on power plants and vehicle fuel efficiency standards, will help keep the expansion of coal and oil in check. This would not happen in China. So I say keep American oil and coal within its borders. I will not, however, invoke the disingenuous arguments that New Deal Democrats have put forth in opposing the export of natural gas. The U.S. should avoid exporting coal and oil just because it would defeat goals relating to climate change.

6 comments:

  1. While the claims you are arguing against are clearly wrong, I don't follow your logic either.

    Other things equal, frackers will increase natural gas production as high as they can and still make a decent profit. If we can export natural gas enough to raise the price, won't they just increase production? Is that what we want?

    If natural gas from the new sources turns out to be a renewable resource that would be worth rethinking. And if it renews faster when we use it faster, that would deserve even more rethinking. I haven't heard serious suggestions of either, though.

    Also, how long is this market likely to last? We are doing great right now because we were the first to jump in and take the risks. Is there any particular geological evidence that we have more than our share of the methane? If it looks safe, other nations will jump in and do their own fracking and they are likely to drive the world price way down for awhile. We could spend a lot to be ABLE to export a lot of natural gas, and then find that the selling price is too low.

    I'm not sure what to do, but it looks to me like the arguments heavily depend on their background assumptions, and those assumtpions need to be very carefully chosen.

    If production is constant, then by exporting natural gas we could raise the price at home and have all the good effects we can expect from that. If production would rise too much, then the main effect would be to burn up our methane faster, and all we would get from it would be the price that foreigners pay us for it which would marginally reduce our balance of payments problem for awhile.

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    1. I thank Shi-Ling Hsu for his comments and also the comments of whoever J Thomas is (who are you? What are your credentials to make such a introductory claim that Dr. Hsu did not check his facts?) Mr. Thomas I agree with your concern about shipping what amount to any fuel to China that is not a renewable fuel (RF). We know exactly how to produce any RF that is used both in the US and China. What are we waiting for, the death of millions of our Chinese brothers and sisters and especially their children? If you could ever find a way to collaborate with Chinese today, we need to get busy putting our governments together on this problem yesterday! The Chinese would pay for RNG plants here because they believe we are the ones who they know they can trust to start the technology in large production better than anyone else. First we have to fix our broken Congress made up of little boys and girls that love candy given to them by rich larcenous moguls busy stealing the future of a safe climate protected America. That is what Dr. Hsu is trying to fix and thanks go out to him for his initiatives - read his book. Back him!

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    2. Mr. Johansing, I am not clear about your complaint.

      Different people have different overlapping desires. I want to leave some of our fossil fuels in the ground permanently, and slow the rate we burn the remainder, to reduce the chance of catastrophic climate change. So I want cheap alternate fuel because we will not leave fossil fuel in the ground when it is economic to take it -- not when we get into an important war.

      There is the related concern about arranging a smooth transition to better energy sources before we run out of fossil fuels.

      There is the question whether the Chinese are pursuing a mercantilist policy. Maybe they want to systematically damage our economy, to the point that we sell them raw materials and they sell us manufactured goods. This is quite reasonable if they think we are a military threat. Mercantilism costs them far less than a world war would cost them. But we would need to persuade them to do otherwise when our negotiating position is not very strong.

      There is the matter of pollution. It costs money to mitigate pollution, easier to pollute in the third world where the government can be bribed cheaply to ignore it. We want jobs here, and we want clean air and water, can we have both?

      Dr. Hsu argues that if we export methane it will raise prices here which is a good thing for various reasons. Conversely he argues that low methane prices here is a bad thing. My concern is how much high methane production would increase due to high prices. If we use up our methane faster, that is bad.

      If we use it faster because we sell it to China as part of their strategy to buy raw materials and sell us finished products, that is bad.

      Burning more methane is bad, though not as bad as the same BTUs of coal.

      If we spend a lot to be *able* to sell large amounts of methane on the world market, and other nations then do a lot of fracking and bring the price down to the point we don't get to export much after all, that's bad too.

      I am not at all sure that it's bad to sell our methane to foreigners, but Dr. Hsu has presented an argument that leaves out a key fact. How much faster will our fracking happen if prices are high versus low? If price makes no difference to that, then his argument looks persuasive to me. If price does make a difference, how much difference does it make?

      If production increases too fast with high prices, the result would be bad from various points of view.

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    3. You are right -- if the price of natural gas goes up, we will get more fracking. I don't think that in itself is a good thing -- and I should say something about the environmental effects of fracking (which are serious) -- but I think the higher prices are a good thing. But certainly it is true that with natural gas frackers on the sidelines because of low prices, more production will accompany higher prices.

      I would prefer that the switch to renewables take place more quickly. But that may not happen quickly. I do buy into natural gas being a "bridge fuel." I think we should be desperate to end the use of coal as soon as possible. The only way that we would want to keep the price of natural gas low -- is that we will see a continuing and accelerating switch from coal to natural gas anyway, and a parallel movement into renewable energies as well. But I don't see the latter.

      Thank you to both of you for your comments!

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  2. Thanks for the post. I’m interested in how you see some of the points in your post relating to British Columbia’s venture into LNG, given that it likely means a big increase in GHG emitted within provincial borders. A number of commentators have made the argument that increased LNG exports from B.C. to places like China will simply add to overall GHG emissions globally, not displace them, as the Liberal government has been suggesting.

    Most recently, this “additive” argument was made by Marc Lee of the CCPA here http://www.vancouversun.com/opinion/op-ed/Opinion+favour/9445418/story.html . Essentially, Lee is saying that B.C. LNG exports will not displace coal, as happened in the United States because coal will remain cheaper than LNG, even after international competition lowers prices in Asia. The argument here is that for natural gas to be used as a “transition fuel”, LNG exports would need to be tethered to deliberate efforts in China and elsewhere to use it as such – that is, to displace coal use there.

    I’m wondering if you could some thoughts on this – that if LNG is to displace coal based on economics alone, the price of LNG will need to be much lower than it is likely to be in the future, even accounting for increased competition from new global players in the LNG game, and increased natural gas production piped in from elsewhere – ie. Russia, China, etc.

    Also, on a related point –the IEA’s “Golden Rules for a Golden Age of Gas” report concluded that in its “best-case scenario” (“Golden Rules” scenario), natural gas could indeed displace coal, but that such a scenario would still keep the world on track for 3.5 degrees Celsius warming (650 ppm). The group projected that energy-related emissions would rise by 20% by 2035 and reductions in this scenario were only 0.5% lower than the baseline scenario. The IEA acknowledged that much more action would need to be taken to reduce GHG globally, but I’m wondering about your thoughts on some of these issues and how they might relate to B.C.’s situation.

    Thanks,
    Andrew

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