Environmental Groups Gear Up to Stop US LNG Exports

• The Sierra Club and other groups are taking on US LNG exports just when LNG is gaining support as a key response to Russia's aggressive behavior in Ukraine.

• The science behind their claims does not withstand scrutiny, and their timing couldn't be worse, geopolitically.

A collection of environmental groups, including the Sierra Club, Friends of the Earth and 350.org recently wrote 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 explicit support for wider natural gas use and the administration's new commitment to our European allies to enable LNG exports, 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 the Washington Post and energy blogger Robert Rapier 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.

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, rather than estimated or modeled, emissions from hundreds of gas wells at dozens of sites in the US.

It’s also surprising that the letter’s authors would choose to cite the International Energy Agency’s 2011 scenario report on a potential “Golden Age of Gas” in support of their claims. That’s because the IEA’s analysis found that the expanded use of gas foreseen in that scenario would reduce global emissions by 160 million CO2-equivalent tons annually by 2035, mainly through competition with coal in power generation in developing countries, addressing the principal source of global greenhouse gas emissions growth today.

The groups take another wrong turn in suggesting that President Obama increase support for wind and solar power instead of supporting gas. The contribution of new renewables to the US energy mix has grown rapidly, thanks to significant federal and state support, but it remains small. Despite record US wind turbine and solar power additions, shale gas and shale oil added more than 20 times as much energy output on an equivalent basis in 2012, and last year’s gains look similarly disproportional. Simply put, the US isn’t enjoying a return to energy security or becoming a major energy exporter because of renewables. It is counterproductive for renewables to pit them against gas as they have done here.

Experts disagree on how much and how quickly US LNG exports can influence gas markets in Europe and elsewhere. Yet while none of the currently permitted or proposed LNG facilities will be ready to ship cargoes until at least late next year, the knowledge that they are coming will inevitably have an impact on traders and contracts, including contracts for Russian gas in the EU. Whether or not US natural gas molecules ever reach Europe, they can serve a useful role in the necessary response to Russia’s aggression in Ukraine. Attempting to block this for spurious reasons puts opponents in jeopardy of becoming what Mr. Putin in his previous career might have called “useful idiots.”

It’s tempting to speculate on what this new campaign says about the participating groups’ perceptions of how the Keystone XL fight is going. Win or lose, they might soon need a new cause, or face the dispersal of the protesters and financial contributors it has galvanized. Blocking LNG may look conveniently similar--even if similarly mistaken--but I can’t help feeling these groups would gain more traction with their fellow citizens by focusing on what they are for, rather than expending so much energy in opposition.

A different version of this posting was previously published on Energy Trends Insider.

Interpreting the State Department's Latest Assessment of the Keystone XL Pipeline

Earlier today, I participated in a webchat hosted by The Energy Collective on the subject of the emissions and market impact of the Keystone XL Pipeline (KXL). It was prompted by last week's release of the State Department's "Final Supplemental Environmental Impact Statement" (SEIS) on the project. I encourage you to view the Youtube video of the event, but I thought I should also share some of what I learned in the course of preparing for the webchat, along with a few thoughts there wasn't time to discuss online.

The full SEIS runs around 2,000 pages. I focused on the 38-page Executive Summary and referred to the relevant sections of the longer document when I needed more detail. In particular, I wanted to understand how the authors of the report had assessed the project's impact on greenhouse gas emissions (GHGs), including how they went about trying to gauge how the market would behave with and without the controversial northern leg of the pipeline, linking the Alberta oil sands developments to the main US oil storage and trading hub in Cushing, OK. (The southern segment of the pipeline, from Cushing to the Gulf Coast, is already in operation, because it didn't require a permit to cross an international border.)

President Obama's stated criterion--I still believe he will make the final call--is ensuring the project does not "significantly exacerbate the climate problem." In terms of emissions, the SEIS analysis shows a range of incremental lifecycle GHG impact of 1.3-27.4 million tons of CO2 equivalent per year. For a project this size, that falls below what I'd consider a reasonable threshold for "significantly". It's equivalent to 0.02-0.4% of total US emissions. On the low end that's on par with US emissions from making glass--not generally considered an important emitter.

Yet even if you don't accept State's conclusion that at expected oil prices over the next few decades the oil that would be carried by KXL would be produced with or without the pipeline, the total direct emissions of 147-168 million tons/yr would still only constitute 0.3% of global emissions of around 50 billion tons. As Jesse Jenkins of the Energy Collective pointed out in the webchat, the emissions of any project would look small compared to global emissions. That's precisely the point, when opponents have characterized them as "game over" for the world's climate.

The key to the conclusions in the SEIS is that these barrels will find a market somewhere, and in the process they will back out some other crude oil. As a result, they would have a minimal impact on the global oil price, and so would be unlikely to increase demand, which is what determines how much oil is refined globally. It's also the case that the alternative crude oils the incremental oil sands production would displace aren't much lower in lifecycle emissions, e.g., heavy Venezuelan or Middle East crudes.

Meanwhile, the report indicates that alternative dispositions would involve either longer or more energy-intensive transportation, including rail and/or tanker, entailing around a million tons per year in higher emissions, along with more spillage than expected from KXL. On that basis, it's hard to read this report as anything other than an endorsement of the view that the pipeline would have a minimal net impact, relative to the likely outcomes that would follow if it is not built.

One of the main points we didn't have much time to discuss in the webchat concerned the role of the SEIS in the decision that the administration must eventually make about the project's permit. I thought the most insightful recent comment on this came from President Obama's first Secretary of Energy, Dr. Steven Chu. He sees Keystone as a mainly a political choice. I agree. However, I wonder if the political considerations have started to shift.

Until recently, it seemed that the balance of political costs and benefits favored continuing to delay the decision as long as possible, by whatever means came to hand. That was certainly the case in 2012, with the White House at stake. An approval then might have pleased independent voters, but it would also have deterred an important segment of the President's political base. This year, with control of the US Senate--and thus the administration's agenda in its final two years--potentially up for grabs, the costs might be rising. At least four Democratic Senators in states that voted for Governor Romney in 2012 (Alaska, Arkansas, Louisiana and North Carolina) have made recent statements in support of the permit for KXL. An October surprise on Keystone might come too late to help them.

Nothing in the Supplemental Environmental Impact Report altered my previous view that President Obama should approve the permit for KXL. Yet because it was written after the Lac-Megantic rail disaster, I thought its figures on the potential for more rail accidents and fatalities if the pipeline isn't built added a compelling argument. Oil by rail is a new reality of the North American energy economy; KXL won't change that fact, one way or the other. However, the addition of up to 1,000 more rail cars of crude oil per day, passing through many more communities than the pipeline would, is a sobering reality to weigh against opposition that I heard another participant in today's webchat suggest was at least partly symbolic.

A Very Incomplete Story

I've watched CBS's "60 Minutes" periodically since I was a teenager. Over the decades they've aired fascinating character studies and uncovered dirt in high and low places. But there's one style of reporting that I'd be surprised if they haven't patented by now, because it's so effective at getting viewers riled at their chosen targets. You know the setup: innocent victims wronged by a Bad Company, camera angles and backdrops carefully chosen to reinforce the reactions they seek to evoke, and the reasonable-sounding correspondent getting evasive-seeming answers from some corporate official. They're very good at this, and I confess I have no more immunity to such manipulation than most viewers, except in the case of the lead segment of last Sunday's program, which I finally caught up with on TiVo. I got mad all right, but this time at "60 Minutes", because the story in question, concerning a lawsuit against Chevron for alleged environmental damage in Ecuador, is one that I know well enough to spot just how skewed the coverage was. In its eagerness to pillory Big Oil, the segment's bias let the real culprit, the national oil company of Ecuador, off the hook.

I want to be very clear about my inherent conflict of interest here, which also provides the basis for my knowledge about the facts of this case. For more than 20 years I was employed by Texaco, Inc., a subsidiary of which was the partner of the Ecuadoran state oil company, Petroecuador, in the Oriente oil fields of Ecuador from 1964 to 1992. I am also a shareholder of Chevron Corporation, which acquired Texaco in 2001--thus inheriting a lawsuit that had already been dismissed by courts in multiple US jurisdictions. I never traveled to Ecuador or worked in the divisions of the company that were directly involved with the producing operations there, but I had colleagues that did. So although I have no first-hand knowledge concerning the evidence put forward by either the plaintiffs or the defendants, I picked up enough information around the water cooler to have a good sense for what was missing from Mr. Pelley's reporting of this story.

The first questions that anyone digging into this story should have been asking concern the history and structure of the agreement governing the oil producing consortium in Ecuador. It started as a 50/50 arrangement between Texaco and a unit of Gulf Oil, one of the other "seven sisters". During the global wave of resource nationalism of the early 1970s, the state oil company of Ecuador acquired first a 25% share of the Consortium and then Gulf's entire remaining share, giving them 62.5% of the operation. (I am sure there were many times that my former employer wished that the government had simply nationalized the whole thing, back then.) This means that while Texaco collected 37.5% of the profits from the Oriente fields, Petroecuador and the government that owned it received not only the bulk of the profits, but also 100% of the royalties and taxes paid throughout the term of the concession. Even in those days, that amounted to many billions of dollars by the time Texaco's interest terminated in 1992, two years after Petroecuador became the operator, not just the majority owner of the field. The company's estimate is that Ecuador received nearly $25 billion over the life of the contract. That's consistent with production of roughly 200,000 barrels per day in that period, at an average price somewhere around $20/barrel. Out of that, Texaco earned about $0.5 billion in total, a figure that wouldn't surprise anyone familiar with oil concession contracts of that era. That equates to less than a penny per gallon of oil produced.

Now, if Texaco were responsible for all the damage alleged in Ecuador, it might not matter so much that it only earned a fraction of what it is being sued for in an Ecuadoran court. However, the allocation of revenue is extremely relevant to attempting to understand who would have benefited from cutting the corners that the plaintiffs claim were cut in the operations there. Cui bono? The answer is glaringly simple, and not just for the period after Texaco ceased acting as operator: Petroecuador--which by all rights should have been sitting in Mr. Pelley's hotseat last Sunday. Petroecuador, a company with a less than sterling reputation for operational excellence, even now. The reason they are not there is that Ecuador refused to waive its sovereign immunity in the case, and thus could not be sued even though it controlled the ongoing operation of the field since 1990, has been the main beneficiary of the region's oil wealth, and bears all responsibility for the poor state of the sanitary and healthcare infrastructure that contributed greatly to whatever ills the indigenous people have experienced. The logic of suing Texaco was inescapable: sue the party you can reach, whatever their share of the responsibility, and go for the deep pockets.

If you've read this far and still have an open mind about the case, then you might be interested in looking at Chevron's side of the story. My purpose here is not to make their case or to suggest that Texaco operated the Ecuadoran fields in the 1960s, '70s and '80s to the standards that prevail today, decades later. But I do feel the need to point out that there is another side to this story that you didn't see last Sunday, and it is not remotely the black and white tale of a big corporation behaving badly that "60 Minutes" portrayed. I am disappointed that CBS allowed itself to be used to paint such a one-sided picture, sullying the reputation of a company I knew inside and out, and of the tens of thousands of fine, responsible people who worked there--not a gang of environmental criminals. I know "60 Minutes" can do better.

Sunshine in Germany

I'm still catching up on the news, after a long weekend in a remote location. Among the articles I missed was one in Friday's New York Times on Germany's subsidies for solar power. Although the country's system of "feed-in tariffs" and the rapid growth in solar power to which they have contributed are the envy of renewable energy advocates around the world, some German legislators have concluded that the structure is too expensive for the small amount of clean electricity it generates: 0.6% of a mix still dominated by coal. If you dissect the arguments and view the environmental elements rationally, the debate is essentially over industrial policy, rather than energy policy. It provides a lesson that we should study carefully, in light of ambitious proposals at the federal and state level to emulate the German approach.

Although the Times article included a wealth of data, it neglected to mention the magnitude of the subsidy embedded in Germany's solar feed-in structure, which obligates utilities to purchase power from various renewable energy technologies at a set price for 20 years. The current law reduces that rate each year, though a more aggressive decline has been deferred for a couple of years. The cost of acquiring this power is allocated across all rate-payers, and many analyses focus on the relatively modest impact on each household--just a few Euros per month, so far. But that allocated cost is only small because the amount of electricity being generated is quite small, not because the tariff is. In fact, the feed-in tariff for electricity generated from photovoltaic modules is eye-poppingly generous: about 50 €-cents per kWh, which at current exchange rates translates to $0.78/kWh. Compare that to the $0.06-0.08/kWh cost of US wind power cited in the recent DOE study. Even if coal-fired electricity cost as much as €0.10/kWh in Germany, the effective cost of the carbon emissions saved by solar power at these prices equates to a staggering €440/ton, or about 17 times the going rate for emissions credits on the European Climate Exchange.

The Times noted that Germany receives fewer hours of sunshine each year than many other places, calling the growth of solar power in spite of this deficiency "all the more remarkable." Other adjectives come to mind, "silly" being one of the kindest. It is sometimes easy to forget that even Munich, Germany's southernmost metropolis, is farther north than Bangor, Maine or Quebec City. The combination of high northern latitudes and frequent cloudy conditions results in very low annual "insolation", the amount of solar energy delivered per square meter. The best regions of Germany for solar power receive less than half the solar energy of the US Southwest, and the worst get about a third. Of all the forms of renewable energy that Germany might have chosen to subsidize so generously, solar power seems the least suited to the country's physical geography.

When taken together, these two factors suggest strongly that Germany's support for its solar power industry has very little to do with either energy or environmental policy and everything to do with national industrial policy--creating industrial champions and the so-called green-collar jobs about which we have heard so much during the US presidential campaign. However, even without a recession, Germans are apparently now beginning to wonder about the cost-effectiveness of such an approach, which has loaded up a cloudy, northern country with solar panels that rarely see the sun. The German PV miracle should be a cautionary tale for US politicians and regulators, not a model to copy.

Real Trade-offs

In systems with as many complex inter-connections as our national and global energy networks, every decision about new capacity entails difficult trade-offs. It was refreshing to see the New York Times remind opponents of the proposed Broadwater LNG facility of that fact in an editorial today--though I'm not sure that was precisely the Times' intent. We now possess an array of alternatives to expanding the supply of conventional energy. Renewable energy, efficiency technology, and old-fashioned conservation can substitute for many--though not yet all--of the attributes of their "dirtier" cousins. However, this development also shifts the onus of responsibility onto those who band together to block conventional energy projects. It's not enough merely to protect an unsustainable status quo; they must make good on their promised alternatives. If that's not what the Times had in mind when they said, "Broadwater’s critics are committing themselves to bearing the cost of the cleaner, greener way," it should have been.

Having lived within a couple of miles of the Long Island Sound shoreline at the time that the Broadwater LNG terminal was first proposed, I've followed this argument for some time. I still think that Broadwater is conceptually sound; putting LNG capacity near the end-market for natural gas makes more sense than the default option of placing it on the other end of a thousand miles of pipelines and their attendant bottlenecks. Yet I also remain skeptical that Broadwater will ever be built. I really can't imagine a less congenial location for such a facility, whatever its technical merits. Unfortunately, I remain equally unconvinced that the alternatives that are being used to justify turning down Broadwater's permit applications will ever see the light of day. Good intentions for efficiency investments have a tendency to devolve into endless faffing about with the details, and the only large-scale local alternative of which I'm aware, Long Island Power Authority's proposed Jones Beach wind farm, was derailed last year by similar opposition.

So what are the underlying trade-offs, if Broadwater's billion-cubic-foot per day LNG terminal is nixed, but its supply isn't promptly replaced by a combination of renewables, demand-side management, and conservation? Well, residential natural gas prices will stay exceptionally high, and fewer homeowners will convert from heating oil, even after a winter that set new price records for that fuel. That will translate into higher greenhouse gas emissions and local pollution, and more intense competition with Europe and Asia for global diesel fuel/heating oil supplies--and hence higher diesel prices in the future. At the same time, higher natural gas prices and potentially constrained supplies mean that businesses and consumers in the New York and Connecticut markets that Broadwater would serve will pay more for electricity, too, and more of that power will be generated from coal, either locally or from other states with a surplus. None of that bodes well for the economy of a region that is being hit harder than many by the combined effects of the housing market collapse and the inevitable contraction of Wall Street firms.

None of this is inevitable. However, avoiding that outcome will require environmental and other groups to agree on a set of real priorities, and then work to marginalize those members with a proclivity to block everything new. Perpetuating an alliance that, by allowing every subgroup to veto any alternative, is effectively against coal and LNG and nuclear and wind power is a recipe for economic stagnation that ultimately won't benefit the environment, either. So when the New York Times talks about " a serious commitment to energy conservation and serious investments in wind and solar power, and in retooling existing power plants for efficiency and cleanliness," that's not just an argument against LNG; it's an absolute obligation to ensure that the proposed alternatives actually materialize.