American LNG to the Rescue! Not Exactly.*

By Sol W. Sanders
Sunday, April 27th, 2014 @ 8:20PM

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When Secretary of State John Kerry tried to lead an LNG posse to rescue the Europeans, blackmailed in the Ukraine affair by their heavy dependence on Russian natural gas, his bluff was soon called.

True, the U.S. has a growing natural gas surplus. Converted, it can move over oceans as liquefied natural gas (LNG). But we are still years away from multi-billion-dollar facilities and a fleet of refrigerated tankers that would turn domestic supplies into a geopolitical weapon.

At the moment the U.S. has only one LNG export operation in Alaska dedicated to the Japan market. A Louisiana facility– ironically revamped in mid-construction from importing to exporting– will go on stream shortly. And while the Energy Department has approved seven applications for building new LNG exporting plants, only one has received the environmental go-ahead. Another two dozen haven’t been vetted.

Americans might seek comfort from the fact that Germany and Europe have evolved energy policies as screwed up as theirs. But not much, if you consider that cheap energy has been the lifeblood of the U.S. economy from the beginning, when we cut down whole forests to produce heat for survival and steam to speed our industrial revolution.

Obama and company eschewed all that as part of his America “transformation”. He went for higher energy costs to goose-step the economy into so-called alternative sources. Obama’s first energy secretary, Nobel Physics Laureate Steven Chu, made raising consumer prices his number one priority — $9 gasoline at the pump! he said.

The death knell for that mangled attempt at Soviet-style planning — what with hundreds of millions of taxpayers’ dollars in bankruptcies of campaign contributors’ solar — came with “fracking”. That technological breakthrough reaches natural gas in rock formations at new lower depths. Water, chemicals and horizontal drilling, rather suddenly in the traditional energy timetable, brought huge, still expanding estimates of less polluting natural gas. It promises what every recent president, Democrat or Republican, has championed, a return to “American energy independence” ended in the 1970s. In fact, the prospects for domestic gas and “tight oil” (found along with shale gas) looks to make the U.S. soon a net energy exporter.

With incredible chutzpah, President Obama keeps taking credit for the new energy picture.

But to really maximize this Shale Revolution, the Obama Administration would have to make 180-degree turns.  The most dramatic example: the Administration refuses, after five years and studies on top of studies, to weather environmentalist flack to okay the Keystone XL Pipeline. None of the studies so far have raised important environmental concerns, and its sponsors are zigzagging around alleged potential hazards for Nebraska aquifers. The pipeline would not only bring Canadian tar sands oil to Houston refineries, some of it for export. But along the way it would pick up new crude produced in the Dakotas.

All privately-financed, Keystone is the symbol of the Administration’s refusal to acknowledge the extent of the current foul-up. A positive Keystone decision alone would not, for example, solve the problem of the new Dakota oilfields flaring gas, that is burning it at the wellhead in the process of extracting crude. Estimates of that waste now run to a billion a year.

The latest announced Keystone delay by the State Department — it holds jurisdiction because the project is trans-border — looks to go well past the mid-term elections, perhaps even 2016. But it’s an index of the general energy confusion that has put the President under attack from once staunch trade unionists for the construction jobs the Keystone would provide.

It’s significant, too, that Keystone’s TransCanada Pipeline, which operates a 60,000-mile network in all the major gas basins in North America, has just launched a $!00-million extension toward Houston. There a swelling petrochemical industry — returning from outsourcing abroad because of cheap gas — waits with open valves. TransCanada spokesmen do not acknowledge the possibility it aims for an LNG installation on the Gulf but that seems likely.

Gas producers enthusiastically support LNG exports, looking to relieve concern the domestic surplus will turn into a disincentive for new prospecting and production. Fracking is expensive and low hanging fruit are already being picked. Yet there are strong political arguments to keep on pumping new gas. Where production has gone rapidly, for example in Pennsylvania, in addition to jobs and associated businesses, fees netted state coffers more than $2 billion since 2008.

So is there anything the Obama Administration could do now with the new found American energy wealth to at least slap Putin’s wrists?

Kerry might take a leaf from Ronald Reagan’s book. When Poland’s Communist government declared martial law in 1981 and the NATO allies refused to join Washington in sanctioning the Soviets, Reagan moved unilaterally against U.S. subsidiaries operating abroad. The West Europeans along with American business howled. Norman Bailey, Reagan’s National Security Council economic ubermeister, won a bitter battle to halt U.S. technology going to new Soviet pipelines. Bailey succeeded at the height of The Cold War, but only temporarily, even then against bitter opposition from West European governments and some elements in U.S. business.

Obviously, saving the Europeans from themselves is going to take much more professionalism. Even though LNG (and its cousin, LPG, liquefied petroleum gas) are in short supply, there are possibilities virtually everywhere with the new shale smarts. For example, Washington has encouraged LNG technology companies to help Britain develop a reserve that could supply its electricity needs for 50 years, if unfortunately located in a populated area just north of London. Other Europeans, including Ukraine, have begun investigating their strong shale possibilities.

Longer term, America should probably look to gas as a transportation fuel. Christopher Faulkner, CEO of Breitling Energy, a leading driller, argues for the estimated $5-6 billion needed for LNG filling station pumps. Switching long-haul trucking alone would net annual savings equivalent to recent oil imports. Some municipal bus lines, Washington, D.C., for example, have already gone to LNG. Even though it now costs about $30,000 for recent passenger models (less than a $1,000 for older cars), a switch could reduce the average driver’s tab (driving less than 100 miles a day) by two-thirds. And if done on the Detroit’s production line, it probably would cost far less. Tokyo and Hong Kong taxis have been using LPG efficiently for more than a half-century, ironically the result of force-feeding Indonesian LNG production in one of the greatest corruption scandals in petroleum history.

But then logic doesn’t necessarily prevail, especially among intellectuals talking energy. The environmentalists’ infatuation with short-run electric cars ignores the fact that — so far — inventors have not made a revolutionary battery breakthrough. Electricity can be stored only in relatively small amounts. If, in the unlikely event, millions of American cars would be plugged in overnight to recharge, our creaking electrical grid would collapse. Furthermore, non-polluter electrical car advocates ignore the fact almost half of U.S. electricity is still fueled by coal, the bete noire of the environmentalists.

Overarching all this speculation about energy scenarios is the general political intent of the Administration. There is a dark suspicion in many quarters about Kerry’s continuing powwows with Russian Foreign Minister Sergey Lavrovare, the announced “success” of which Putin nullifies almost immediately in public statements. If we are up against more of Obama’s red lines, the LNG/LPG weapon may continue to rest in its scabbard.


* A version of this column will be published here on Monday, April 28, 2014

Categories: ACD/EWI Blog, Economic warfare, Energy policy, Latest News, Russia and East Europe, U.S. Foreign Policy, U.S. Policy

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