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For Jerome: More on Energy Consumption

by The Maven Wed Jun 15th, 2005 at 09:52:30 AM EST

Further to Jerome's story on energy consumption, it seemed logical to post this as well.  (Originally, this was designed as a comment there, but it got a bit too large for that.)  I realize that there's a distinct U.S.-focus to this, but because of the tie-in with Jerome, here goes:

Today's New York Times has a front page article on the explosive growth of U.S. imports of liquefied natural gas ("LNG") and the likely impact that this trend will have on a variety of issues, several of which are discussed further after the break, below.

The principal focus of the piece is on the need to build a significant number of new terminals to handle the imports and the objections that the proposed construction is stirring up.  Patrick Wood III, the chairman of the Federal Energy Regulatory Commission, expects at least eight additional terminals to be built in the U.S. (or just offshore) by 2010.  The article notes:

Energy companies want to construct more than 40 such terminals at a cost of $500 million to $1 billion each. The emerging conflict is taking place as some scientists and environmentalists say that the nation is once again placing too little emphasis on improving energy efficiency and making investments in other methods for producing power and heat, including wind, biomass and nuclear energy.

Meanwhile, utilities that buy gas warn that in becoming ever more reliant on natural gas from abroad, the United States would be running the same risk it made when it came to depend on oil from unstable sources in the Middle East.

It's not clear to me why energy companies are so eager to build so many new terminals at such great cost while at the same time they appear to have such reluctance to the idea of building new oil refining capacity in the U.S.  Perhaps someone can educate me.

The Times piece cites a portion of the BP report which notes that proven global gas reserves are equivalent to 67 years of supply at current production rates (as opposed to only 41 years for oil), but it fails to note that the reserves-to-production ratio has remained essentially fixed since 1990; oil's ratio has remained roughly stable since 1986, so there's really not that much difference there.  And it goes on to point out:

Strong demand for natural gas is occurring not just in the United States, but in the fast-industrializing economies of China and India, which are set to compete for supplies. The United States is expected to emerge as the world's largest L.N.G. market, with imports forecast to account for as much as 20 percent of natural gas consumption in the United States by 2015, up from only about 2 percent today.
Gee, where have we heard that before, indications of a potential global demand crunch coming down the pike?

Responding to the energy industry's urgency, Congress included in the broad energy legislation approved this spring in the House, and given clearance in May by the Senate Energy and Natural Resources Committee, a provision that would effectively usurp the authority of states to block L.N.G. terminals.

Six governors from coastal states, including Arnold Schwarzenegger of California and Mitt Romney of Massachusetts, wrote to the Senate committee, asking for states to remain on equal footing in L.N.G. reviews.

Senator Charles E. Schumer, Democrat of New York, said this month that he opposed an L.N.G. terminal in Long Island Sound, citing security concerns.

Those officials are opposing senators like Lamar Alexander, Republican of Tennessee, and Tim Johnson, Democrat of South Dakota, who are pushing to bolster federal authority.

Notice how these supporters come from states that aer hundreds of miles from the coasts where the terminals (and the dangers they might bring) are located.

At present, there isn't really much coordinated activity among major producers of natural gas, and today's article looks at the possibility of a production cartel with some skepticism:

Qatar and 12 other gas-rich nations, including Iran, Egypt, Nigeria and Venezuela, met in April to discuss ways to keep L.N.G. prices satisfactorily high. The group, called the Gas Exporting Countries Forum, is still in its infancy and for now is incapable of modeling itself after OPEC, but its members agreed to establish a liaison office in Doha, Qatar.

Daniel Yergin, an energy analyst and author of "The Prize," a history of the quest for oil over the last century, argues that it would be difficult for a confrontational cartel of gas producers to take hold over the next several years. He said that is because L.N.G. producers will be competing with each other for market access and relying heavily on Western energy companies to shoulder much of the multibillion-dollar risk of large L.N.G. projects.

"Managing price would be negative for an industry set to grow rapidly over the next 10 years," Mr. Yergin said. "There is more pronounced interdependence of consuming and producing countries for natural gas than for oil."

 In many respects I find this somewhat surprising coming from Mr. Yergin, especially considering that few energy analysts were terribly concerned about the ability of OPEC to control production and pricing in the first few years after its formation in 1960.  See where that belief got everyone?

Others view the growing reliance on imported natural gas in the United States more ominously.

"We accept having L.N.G. as part of the energy solution, but we're very concerned about making the same mistakes we made with imported oil," said David Schryver, vice president for Congressional affairs at the American Public Gas Association, which represents municipal gas utilities that would consume much of the imported L.N.G. "Facing the prospect of another OPEC for natural gas is alarming."

Despite such concerns, L.N.G. imports to the handful of terminals that exist in the United States soared 29 percent last year and are set to increase rapidly throughout this decade.

On the whole, we're not painting a pretty picture of an energy-dependent future, in the U.S. or elsewhere.

Who wants to say it with me:  "Unsustainable Growth."  Thoughts, anyone?

There aren't that many choices, though, are there? Basically three:
  • Reduce demand.
  • Fossil energy.
  • Nukes.

Europe has largely gone the way of nukes, but that approach is "not popular" here in the US--to say the least. Demand reduction is easy and effective, but politically unpopular everywhere. That leaves fossil fuel, and you can choose your poison, literally, between coal, gas, and oil.

Why would the energy industry NOT want to increase production?

by asdf on Wed Jun 15th, 2005 at 10:33:58 AM EST
Of course these are the principal options - but there are many others which can all add their part. Windfarms, thermal transfer from ground, hydro, better building design, stored solar, electric solar etc. We need a multiple approach with tax crediting for newer technologies and tax penalties for older ones.

Here's a real simple low-tech building solution for colder climates: you have a large cellar to your house full of round boulders (for air circulation) On the roof you have simple slim boxes painted black inside with a glass cover facing the sun. The air in the boxes heats up even in winter. Boxes connected by tubes to cellar. Low power solar driven fan in tube sucks warm air into cellar - the more sun, the faster it rotates. Boulders heat up during the day. Come evening you reverse the fun and switch tube to house interior, sucking up warm air from cellar. Voila..

You can't be me, I'm taken

by Sven Triloqvist on Wed Jun 15th, 2005 at 02:11:18 PM EST
[ Parent ]
I see that you are from Finland. My sister has been there several times in the winter and reports that it gets pretty cold there, but that your buildings are designed to take that into account. You have places in the entry hall to put boots and coats, for example. And I suspect that you keep your house at around 18-20 degrees C in winter. That would be "room temperature" to your European way of thinking.

Over here in 'merica, we want eternal spring. We want it to be 74 degrees F (23 C) all year long, including both February and August. And, we want to wear street shoes and lightweight jackets even on the worst possible winter day. So our buildings don't have provisions for boots or heavy coats. We scrape the snow down to the pavement and then spread salt on it for good measure. We have gasoline snow blowers to remove snow from our driveways and sidewalks, and we start up our cars by remote control so that they will be warm when we get into them.

In the summer it is all reversed. We still keep our houses at 23 degrees, but then we have swimming pools in case we want to take a dip. Those pools need to be heated, because a pool is uncomfortable at such a cold water temperature. Our cars all have air conditioning--the last one I bought without it was in 1974.

We use our energy to ruthlessly manipulate our environment so that it is like June all the time. "Solar heating" was popular for a few years when Carter was president, but most people tore the panels off their roofs when the tax deduction went away.

So, as a result, anything that sounds like it might make us a bit colder--or warmer, in summer--or in any other way uncomfortable, is unpopular. And when I say "unpopular" I mean "no way in heck is any American politician going to get within 100 miles of it." There is one thing that the Democrats and the Republicans agree on: Energy, especially gasoline, costs way too much and we need to work to get the price down.

Houston, we have a problem...  :-)

Bush on gasoline prices:
"For the past four years, Americans have been paying the price for delaying a national energy policy. They have been watching power bills go up, they have seen blackouts and they have watched the price of gasoline go up at the pump."
http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=FT&Date=20050615&ID=48952 61

Nancy Pelosi (minority leader of the House of Representatives) on gasoline prices:
"Republicans have failed to bring down gas prices, ... Democrats have a better way to lower gas prices."

Ralph Nader (supposed Green Party candidate) on gasoline prices:
"If there was ever a sign as to how consumers have been abandoned, check out the recent surges in the prices of gasoline."

by asdf on Wed Jun 15th, 2005 at 04:41:00 PM EST
[ Parent ]
Financing LNG projects is my job (yes, both that and wind farms), so I know a bit about the industry, which is one of the most fascinating around. I had flagged the NYT article and thought about doing a post today. I'll see what i can do - first I need to put my kids to bed!

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jun 15th, 2005 at 11:30:39 AM EST
Not tonight. I have to be careful with LNG, because I have access to a lot of confidential information on projects, so i have to go find public links to whatever I write to be sure it is already in the public domain..

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Jun 15th, 2005 at 03:50:48 PM EST
[ Parent ]
I completely understand your position.  A major client of the place where I work is one of the large multinational petroleum companies, so on any energy-related comment I've ever made to your posts (or anyone else's) I, too, always have to make sure I'm basing everything I say on publicly available sources, not information I've gleaned from internal materials.

As I'm sure you've experienced, there's a reason why these companies often don't want to disclose all their documents to the public; even when the raw information contained therein may appear innocuous, it's subject to distortion or misinterpretation, and can certainly be used to a competitor's advantage.  Professional responsibility -- not to mention the law -- mandate non-disclosure.  That's how it is.

by The Maven on Wed Jun 15th, 2005 at 05:43:06 PM EST
[ Parent ]
by asdf on Wed Jun 15th, 2005 at 04:44:03 PM EST
[ Parent ]
If you haven't already done so, you should look at the entire NYT article.  The potentially dangerous volatility of LNG is discussed there, highlighting just this point:
Concern over the possibility of damage from an accident or terrorist explosion involving a terminal or tanker has prevented such projects from getting off the ground in these coastal communities.

A recent report by Sandia National Laboratories concluded that terrorists blowing a hole in an L.N.G. tanker could produce a spill of liquefied natural gas that could reheat and set off a fire that would cause second-degree burns on people nearly a mile away.

The L.N.G. industry responds that the safety record of its tankers far exceeds any other sector of the shipping industry. Only a few relatively small accidents have occurred in the last three decades, and industry groups contend that an accidental spill or a suicide bomb attack is extremely unlikely. Japan and South Korea, currently the top L.N.G. markets, have never experienced a major accident or attack.

Yet considerable apprehension persists. In an analysis in May for the attorney general of Rhode Island, Richard A. Clarke, the former counterterrorism adviser to the Clinton and Bush administrations, concluded that terrorist groups could easily attack an urban L.N.G. port or tanker, exposing the areas around Providence and Fall River, Mass., to "a high risk of generating catastrophic damage" from explosions and fires.

So there's definitely a reason why people who live near many of the proposed terminals are exceedingly apprehensive.  Merely saying that there have only been "a few relatively small accidents" and that the top LNG markets have never had a "major accident or attack" isn't really the most reassuring language.
by The Maven on Wed Jun 15th, 2005 at 05:54:08 PM EST
[ Parent ]
I'll jump in to recommend his diary "LNG - the basic facts", which was originally posted on dailyKos.  

While LNG terminals have been controversial in many places, they are not controversial on the Gulf coast of Texas and Louisiana.  The locals there are used to big petrochemical plants, and view LNG terminals as a source of jobs.  One of my cousins is an engineer at a plastics plant in Texas, and his firm is sponsoring one of the new terminals.  He believes that it is the only way his factory can stay open in the long run.

by corncam on Wed Jun 15th, 2005 at 06:53:17 PM EST
It's not clear to me why energy companies are so eager to build so many new terminals at such great cost while at the same time they appear to have such reluctance to the idea of building new oil refining capacity in the U.S.  Perhaps someone can educate me.

Demand for natural gas is going to stay as people heat their homes with it and a great deal of the new elect. power plants built are gas fired turbines.  The demand profile is clear and secure at the price the majors can lay LNG in.  So the investments have a pretty clear payback.  Not to mention much of this gas will either be flared or stay in the ground unless they develop a market.  No terminal, no profit.

Refineries.  The US already has about 16 MMBD of refining capacity.  While you usually hear the stat that we've gone from 450 refineries to more like 150, the doomsayers always ignore the fact that what we have left is refining far more crude than we did back in 1980. (most of the others were inefficient tea kettles uneconomic once crude exceed $6/bbl) And with a much more productive slate (less resid fuel, much more mogas/jet/diesel).  Refiners have expanded greatly in place.  Not to mention Venz, Norway, Saudi, Indo, built big export refineries during the price slump from 1983 to 2002 to capture more of th margin.

Refiners made huge investments in the early 80's in response to rapid demand growth in the late 70's.  When price jumped up, demand fell back very quickly making these investments pigs for a decade.  The top deck in refining companies cut their teeth in this era and are not eager to go hog wild adding even more capacity just to watch high prices bring stringent CAFE stds, killing demand and their ROI again.

So my reasons are:

  1. Refiners have added capacity over the last decade.  Just not enough to keep refining in glut with low returns.

  2. Refiners want to see a track record of higher margins before they risk the money and get crushed a second time.  Esp. as a competitor over the horizon can compete in a lower cost environment and tanker in mogsas.  US additions will be incremental rather than big grassroots efforts.

3)LNG looks like a sure bet as our own production will wane leaving lots of invested capital (home heaters + electricity generation) willing to pay up for gas.  The gas in the ground over the horizon cannot pay anyone a profit until a market is developed to consume it.
by HiD on Thu Jun 16th, 2005 at 08:25:27 PM EST

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