People in White Houses Shouldn’t Throw Green Paint
Happy new year to you all. Life has been somewhat full of late leaving little time for writing, but I can’t leave the latest White House declaration unanswered. You may soon get the impression that I don’t like it.
In case you haven’t seen it, late last week the White House announced a long-telegraphed ‘pause’ on the approval of new- and pending export approvals for LNG facilities in order to “[see] the climate crisis for what it is: the existential threat of our time”. This de facto moratorium is of underspecified duration, detail, staffing or objective. The only thing it is clear on is Thou Shalt Not Pass!.
What does it mean? Well, there are 4 projects in the ‘pending’ category – some of which have been waiting for more than a year - who were expecting fair and equitable treatment by the regulators of an allegedly advanced economy. They expected to be producing in the late 2020s, had sold a disproportionate share of their expected production into Europe, and are all now taking a pause. There’s a bunch of less mature projects that are also on ice.
Let’s work through a few angles and see if we can make sense of this.
Economically, it’s a clear own goal. Across just the 4 pending projects, my guess is we’re looking at ~$50B of investment, 8,000 -10,000 construction jobs, and about a thousand operational jobs. Working through supply-demand consequences, Europe will swing short gas around 2028-2030, likely causing an increase in coal consumption as we saw post-Ukraine (and no, the renewables will not be ready in that time – offshore wind was supposed to fill that hole, and we’re seeing handouts and cancellations the world over). So, the economic winner is the coal miners – and existing LNG producers (just wait for the cries in 2028/29 over “super-profits”, whatever they are), including Russia.
Some arguments have been made about the impact of LNG exports on the cost of energy in the US. Since shale gas brought the price down from the $8-10/mmbtu range in 2006-2008, it’s been ~$2.50/mmbtu for most of the last decade, despite the massive buildout in capacity. Why? Them upstream folks are smart… and the infrastructure people know a structural arbitrage when they see it. Looking ahead, a number of credible sources suggest that a long-run price of ~$4 is likely… which is about a third what of the price should be in Europe (based on fundamentals) and a quarter of the similarly resource-rich Australia. High prices in the US are typically associated with regions like New England who are adjacent to one of the largest gas fields in the world and prefer to burn fuel oil than run gas pipelines. Ditto the Canadian maritime provinces.
Environmentally, many are pointing to ambit claims that full-cycle LNG emissions are worse than coal. That is so easily debunked (and many others have) that I’m not going to give it column inches, so let’s take a different view. Let’s say that from a climate perspective, we were neutral between gas and coal. We would still prefer gas – the impact of coal mining is greater, and the particulates associated with combustion are known to cause many health problems. Take it from a kid who grew up in Newcastle at the end of the coal era.
So, we’re left with politics. Not any old politics, Presidential election year politics. Not any Presidential election year politics, Biden v Trump rematch Presidential election year politics. Zimmer frames at 10 paces.
The only lens through which this moratorium makes any sense is pure electoral calculus. The people whose jobs are negatively impacted are all in red states; folks that might like it are all in blue. The people who will actually suffer – folk in other countries who will have to deal with the consequences – don’t get a vote.
Need evidence of this statement? LNG projects need two key federal permits: an export authorisation from the Department of Energy (DoE), and a project approval by the Federal Energy Regulatory Commission (FERC). The moratorium is based on environmental concerns but targets the export approval - a decision made by the DoE, a political branch of the Federal government. Environmental regulation falls under the FERC which, whilst still technically part of the Department of Energy, is independent in its decision making, so can’t be instructed in this manner by the White House.
Now where can I find a half-decent journalist to shred this political theatre into a million pieces?