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Wednesday, December 5, 2012

U.S. DOE releases study on natgas exports

The U.S. Department of Energy has released a study that assessed the potential macroeconomic impact of liquefied natural gas (“LNG”) exports.  Macroeconomic Impacts of LNG Exports from the United States was performed by NERA Economic Consulting for DOE.   

NERA estimated expected levels of U.S. LNG exports under several scenarios for global natural gas supply and demand, and modeled the U.S. macroeconomic impacts resulting from those LNG exports. 

The key findings are:

  • The U.S. was projected to gain net economic benefits from allowing LNG exports; the benefits increased as the level of LNG exports increased. “In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports”, the study said.
  • NERA said that benefits from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers, despite higher domestic natural gas prices. 
  • U.S. natural gas prices increase when the U.S. exports LNG. But the global market limits how high U.S. natural gas prices can rise.  NERA said that natural gas price increases at the start of LNG exports range from zero to $0.33 (2010$/Mcf). The largest price increases that would be observed after 5 more years of potentially growing exports could range from $0.22 to $1.11 (2010$/Mcf).  
  • How increased LNG exports will affect different socioeconomic groups will depend on their income sources. Both total labor compensation and income from investment are projected to decline, and income to owners of natural gas resources will increase, according to NERA: 
“Different socioeconomic groups depend on different sources of income, though through retirement savings an increasingly large number of workers share in the benefits of higher income to natural resource companies whose shares they own.  Nevertheless, impacts will not be positive for all groups in the economy.  Households with income solely from wages or government transfers, in particular, might not participate in these benefits.” 

The way I read this, and perhaps to oversimplify, working class and low-income Americans’ wages especially would decline and both they and people who don’t own stock in gas companies and rely on Social Security income would face higher natural gas prices to heat their homes and cook. Is that a good deal for the nation?

  • NERA says that “serious competitive impacts are likely to be confined to narrow segments of industry.”  About 10% of U.S. manufacturing, they say, is energy intensive and faces serious exposure to foreign competition.  Employment in those industries is about one-half of one percent of total U.S. employment, according to NERA. 
  • LNG exports are not likely to affect the overall level of employment in the U.S. There will be some shifts in the number of workers across industries. 

Like any study, the question asked, the model used, and the assumptions fed into that model are all crucial.  Further, it is an economic study; it does not factor in climate costs and benefits of LNG exports; for example, the impacts of LNG exports on natural gas price levels and hence fuel switching and associated carbon dioxide emissions here and abroad.

I hope the study will be closely scrutinized, and that it will fuel serious debate about whether and at what level the U.S. will allow natural gas exports.

Report: CCS needed now

The ENGO Network, a global network on environmental NGOs, has issued a report on the future and potential role of carbon capture and storage (CCS) technology in mitigating climate disruption.

Perspectives on Carbon Capture and Storage offers four main arguments for the urgent deployment of CCS.  The first is that CCS provides a means to reduce emissions from the vast number of existing stationary power sources, primarily fueled by coal. The sheer size of this installed base and its projected growth makes it “a daunting proposal” to replace it entirely through efficiency and renewable energy.  The report says, with a healthy dose of realism:

“Even if such replacement is technically possible (and credible country analyses say that it is), very large economic, political and social inertia would need to be overcome for this to happen… A balanced and hedged approach, at the very least, dictates having contingencies in place in case the shift away from fossil fuels takes longer than planned or desired.  CCS offers precisely such a capability to dramatically reduce emissions from fossil fuel use both at existing facilities and at future ones.

With the advent of the global shale gas boom; however, the report notes that even natural gas’ 50% lower carbon intensity in power generation is incompatible with averting climate catastrophe, and calls for CCS to be used in natural gas applications.

ENGO’s second argument is that the scale of emission reductions needed to combat climate disruption means that no single technology will be able to deliver those reductions by itself.  A portfolio of technologies increases the probability of achieving emission reduction targets, likely at lower overall costs.

ENGO says that globally, a fifth of CO2 emitted from fuel combustion comes from industrial processes. That fact leads to their third argument – that for some industrial applications, there are few other ways available today besides CCS to achieve large emission reductions. 

Fourth, ENGO says that we are going to have to actually remove CO2 from the atmosphere to have a chance at avoiding 2 degrees warming.   An available means to do that – already providing 10 per cent of total global primary energy use, according to ENGO - is deploying sustainable biomass energy production with CCS, “such as power plants that co-fire biomass and fossil fuel, combined heat and power plants and a range of flue gas streams from the pulp and paper industry, fermentation in ethanol production and biogas upgrading processes.” 

ENGO says that CCS technology is effective, safe, and available today, enabling the deployment of the technology to begin worldwide “immediately” with the right regulatory oversight.  However, policy shortfalls must be overcome: establishing a price on carbon emissions, much stricter emission performance standards for power plants, and more government funding for R&D and early deployment.

Tuesday, December 4, 2012

IEA head: stop funding the climate disruption problem

With international negotiators currently engaged in climate talks and any prospects to keep global temperature rise below 2 degrees Centigrade vanishing rapidly, International Energy Agency Executive Director Maria van der Hoeven has issued an urgent statement calling for swift and comprehensive action by all nations, including the elimination of fossil fuel subsidies.

That will be a tall order for the United States.  Federal government subsidies to fossil fuels between 2002 and 2008 totaled about $72 billion. In 2011 alone, U.S. subsides to the oil, coal and gas industries were the highest of any nation at about $13.1 billion.

And that’s before you factor in the hidden Federal subsidies – exemptions from federal laws, compromised public health, pollution, and little things like aircraft carriers in the Persian Gulf and climate disruption.

And there’s yet another layer of subsidies heaped on the fossil fuel industry.  Each year, state, county, and local governments dole out an incredible $80 billion of subsidies to companies in the name of economic development. The fossil fuel industry ranks a shocking third on the list of top recipients.

So much for the mythical free market.

Clearly, radical overhaul of emission reduction policies is needed immediately.  As van der Hoeven says, “Without concerted action soon, the world is on track for a much warmer future with possibly dire consequences.”

Monday, December 3, 2012

Black and Veatch publishes gas industry survey with some surprising numbers

Global engineering, consulting and construction company Black & Veatch (B&V) surveyed natural gas industry participants in July and August, 2012 and has published its first Strategic Directions in the U.S. Natural Gas Industry report.

Here are some of its highlights:

Gas production in the Appalachian Basin, which includes the Marcellus Shale play, nearly doubled in 2012 – “a fivefold increase…in less than five years with no immediate signs of slowing.” There is nearly unanimous agreement among survey respondents that North America has sufficient levels of economically recoverable reserves to serve a growing market through 2030.

Current gas prices are at “unsustainable” levels for all producers and must eventually rise from below $3 per MMBtU (they were about $3.65 late last week) to between $4.50 and $6.00 by 2020.  Survey participants believe that demand for power generation - as well as an overall increase in demand from liquefied natural gas exports, petrochemicals and natural gas vehicles - will be the primary driver for higher gas prices.  However, respondents believe that significant increases in gas demand from electric generation won’t occur until the latter half of this decade, in part due to the industry’s expectation that meaningful climate legislation will pass by then.

B&V has estimated that gas prices below $6.00 MMBtu “will continue to provide power plant operators with capital and operating cost advantages over other power generation fuels and technologies.”  From an increasingly dire climate perspective, that is a number to watch.  The B&V estimate is much higher than the $2.50-$3.25 range that some analysts have said is the tipping point where gas will stop displacing coal and reducing carbon emissions in the U.S..

By a considerable margin, survey respondents ranked safety as the most important long term industry issue.

A significant percentage of North America’s transmission and distribution grid is nearing the end of its service life. B&V says that approximately 60 percent of natural gas transmission pipelines in the U.S. were installed before 1970, and gas distribution systems are typically between 50 and 100 years old. Yet aging infrastructure was ranked by gas survey respondents as only sixth out of 10 top issues.  

B&V noted that an August 2012 survey by Gallup ranked the Oil & Gas industry as having the least positive public image among 25 industries and business sectors.  Which leads us to the next subject – regulation.

Respondents think that regulatory compliance will become more stringent, particularly around hydraulic fracturing. Concerns related to hydraulic fracturing included immediate environmental impacts, impacts to land and water, seismic activity around disposal wells, and climate impacts of leaked methane.  However, the role of smart regulations like those promulgated by U.S. EPA seems to be recognized.  Tellingly, less than half of respondents believe that compliance costs related to gas production will result in modest price increases, and only a third believe costs of compliance could push prices substantially higher.