Foreign exports, not domestic demand, to drive controversial gas expansion, agency finds

Foreign exports, not domestic demand, to drive controversial gas expansion, agency finds | The Hill

Foreign exports, not domestic demand, to drive controversial gas expansion, agency finds  at george magazine
AP Photo/Cliff Owen

Dominion Energy’s Cove Point LNG Terminal in Lusby, Md., is pictured in this June 12, 2014, file photo.

Support for expanding America’s fossil fuel industry is often cast in the rhetoric of energy independence.

But foreign sales, not American demand, are driving a projected decades-long rise in natural gas production, a new federal report has found.

U.S. natural gas production is expected to rise until 2050, according to a report released Tuesday by the Energy Information Administration (EIA), which said most of the demand fueling that increase will be driven by exports to foreign markets.

U.S. domestic gas demand will stay flat or decline as renewables come online, the report found. But those exports are also projected to drive up U.S. gas prices. 

In part, that will result from supply being redirected overseas to higher-price markets. Another factor is the gas export process itself, which relies on the extremely energy-intensive process of compressing and refrigerating gas until it is a liquid dense enough to be worth shipping across the ocean.

The rising levels of gas power required to meet the rising demand for liquefied natural gas (LNG) will also be enough to “largely offset” any drops in domestic consumption, the report found.

“As LNG exports rise, natural gas volumes consumed during the liquefaction process rise as well,” the authors wrote.

Anne Rolfes, director of the Louisiana Bucket Brigade, a group opposed to the LNG expansion, told The Hill the EIA’s projections may “underestimate how gas prices might spike because they don’t take two important factors into consideration: storms and the spot market.” 

In the first instance, there is the risk of a hurricane knocking out a Gulf Coast export facility — which would disrupt markets, leading to a scramble as former customers contracted to buy from that facility struggled to find new sources of supply on “spot markets,” where gas is sold off on an ad hoc basis, Rolfes said. 

“This analysis doesn’t have a word about this threat, and yet the facilities are in the most vulnerable part of the country,” she added.

In the second, there is the role of the spot market, where companies can often make more money than using the industry’s standard long-term contracts. 

EIA numbers assume that gas companies will stick to their contracts, rather than potentially making more money on lucrative spot markets, which would drive up prices overall, Rolfes said.

To forecast LNG exports out to mid-century, the EIA prepared three different scenarios. In the “low price” scenario, foreign LNG prices remained low (though still half again as high as they are now). In the “high price” scenario, they rise to double their current value. 

And in the “fast builds plus high price” scenario, prices rise again and some form of permitting reform, coupled with heavy industry investment, allows a rapid buildout of new export terminals.

These factors help determine to what extent America’s gas will be burned in North America, sold overseas — or not produced at all.

In a business-as-usual case, the rise in renewables will cut gas consumption by the power sector by a third by 2050, leading to a fall from the current consumption of 32 billion cubic feet per day to just under 23 billion cubic feet, per the EIA report.

There is some slight wiggle room in those numbers: If prices remain high and a new fleet of export terminals whisks gas off the North American continent, the share of gas in the electric sectors could fall to 19 percent — less than half of the 39 percent it is currently.

If they stay low and those facilities aren’t built, gas could continue to supply up to 23 percent of the electric sector.

However, that doesn’t mean that a high-price, high-export scenario is better news for the climate. About 30 percent more gas is produced in the U.S. under that scenario versus if prices stay low, according to the EIA.

Lorne Stockman of climate nonprofit Oil Change International argues the EIA’s projections underestimate the importance of government action in helping guide the direction of markets. 

He says the agency has a blind spot concerning the role of government action that often implicitly casts fossil fuel growth as inevitable. None of their scenarios, for example, include a world in which climate conscious foreign governments set limits on gas imports, or in which the US government becomes more bearish on the fuel.

“All their analysis assumes a kind of neoliberal economics ideal in which the main factors influencing outcomes are supply, demand and price,” Stockman said.

“This has been at the source of EIA’s long-running failure to accurately project renewables growth and generally underestimate renewables and overestimate fossils,” he added.

In all cases projected by the agency, the center of the new development will be the Gulf Coast, where rich reserves of gas and a dense network of pipelines make LNG cheaper to produce and transport.

If gas prices rise again, “all new LNG capacity added through 2050 in these cases is in either Texas or Louisiana,” the report found.

Based on those economics, “it is more favorable to supply growth in the U.S. LNG exports with natural gas produced on the Gulf Coast than in other parts of the United States,” the EIA authors wrote. 

The report comes as the Biden administration faces increased criticism from communities in that region, who say they are being poisoned for the sake of gas exports.

For some locals, growth in LNG production on the Gulf Coast would be an unwelcome development because of the environmental toll these facilities take, both in terms of emissions and coastal erosion.

Climate is not a consideration that the EIA bakes into its numbers. But environmental activists and local advocates argue that gas itself — which is almost entirely composed of the potent climate pollutant methane — is a poor fit for the Biden administration’s ambitious climate plans. While the fuel burns approximately twice as clean as coal, it still releases large amounts of carbon dioxide when burned. 

And because raw methane is both notoriously leaky and more than 80 times as potent a planet-heating gas as carbon dioxide for decades after it leaks, any leaks along the supply chain eat away at that advantage.

A leading environmental activist told The Hill that the one saving grace for Gulf communities is that with all of the plants projected for the region, many will likely remain unbuilt.

“The only thing that is good news at all is that they’re in competition,” said Diane Wilson, a Gulf Coast activist who this year won the Goldman Prize, sometimes called the environmental Nobel, for her campaign to make a local plastics campaign cease dumping waste into the waters of Matagorda Bay. 

“So it’s probably the ones who get it first — well, the other ones probably don’t have as good a chance to get in.”


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