Climate Now

Climate News Weekly: Delayed approval on LNG terminal, Europe's energy choices, extra wind power, and more

January 29, 2024 James Lawler Season 1 Episode 140
Climate Now
Climate News Weekly: Delayed approval on LNG terminal, Europe's energy choices, extra wind power, and more
Show Notes Transcript

On this week's episode of Climate News Weekly, James Lawler and Julio Friedmann discuss the consequences of the Biden administration's decision to delay the approval of a LNG export plant in Louisiana, some European countries' plans to transition away from coal, what happens when storms super charge windmills, and more.

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James Lawler: [00:00:00] Welcome to Climate News Weekly. I am here with co-host Julio Friedman. Julio, great to see you. 

Julio Friedmann: Always good to be here.  

James Lawler: So we'd like to start with a story that has been reported on fairly widely. The White House is set to delay a decision on CP2, which is a liquid natural gas export terminal. Julio, can you give us the overview of this story? 

What is this delay and what exactly does this mean? 

Julio Friedmann: Sure. So in the fullness of backstory, liquefied natural gas, LNG is a major global commodity. It's traded for energy, and basically we liquefy natural gas and then put it on a ship and send it around the world. LNG is a massive industry, it is also what Dan Jurgen calls the new prize. It is also the case that the United States is the largest producer in the world, which was kind of news. This came out of the fracking revolution.  

James Lawler: And if you haven't read [00:01:00] Dan Jurgen’s book, The Prize, you should read it. It's all about the rise of the oil industry and it's phenomenal.  

Julio Friedmann: So now let's talk about export terminals. In order to get LNG someplace. 

You need to actually put it on a ship liquefied and you need a big export terminal to do the job. And when it arrives, you need a re-liquefaction terminal to turn it back into gas. In the United States, two institutions have authority over permitting, FERC and the Department of Energy. Okay. Most of the permitting goes through FERC, but the Department of Energy also has a job and their job specifically is to show that by exporting the natural gas, you don't harm the U.S. economy. 

Overall, that specific statute has meant to show that we will not suffer a gas shortage if we export too much natural gas. So it is, will it cause high prices in the U.S. What's interesting about this case is the Biden administration has said, why don't we add whether it harms, in context of climate change impacts, as well? This is a new [00:02:00] sensibility.  

James Lawler: Can I ask you a question, Julio?  

Julio Friedmann: Sure. 

James Lawler: So there's a Times article about this and to quote the article, the energy department's required to weigh in on whether the export terminal is quote “in the public interest, a subjective determination. And now the white house has requested an additional analysis of the climate impacts of CP2.” So this question of the public interest would seem to go beyond just a pure economic evaluation or consideration? 

Julio Friedmann: So this is the office I used to manage at the Department of Energy, so we permitted a lot of the terminals while we were there. And actually, Christopher Smith, my boss, signed off on them and Paula Gantt Steam did the analysis, so we know a bit about this. The way the statute is crafted is if there is no demonstrable harm, then you should say yes. Actually, if you don't think there's economic harm, then you must say, yes, that's the way the statute's drafted. So the bar is pretty high actually for this. 

James Lawler: For saying no. 

Julio Friedmann: For saying no, that's right, yeah. And it's important for people to know there was actually a [00:03:00] massive review by the inspector general's office of the process out of all of the permitted terminals, all seven of them, there was one line in which they highlighted and said, this was kind of questionable. They did an incredibly deep review and found nothing wrong. 

So the Department of Energy knows its job and does this well, okay. So this is a case actually, where for perfectly reasonable the White House is saying, well, perhaps we should add this extra consideration to it about whether or not there's harm to the U.S. economy as a consequence of climate.  

James Lawler: Okay.  

Julio Friedmann: So now that we're in this arena, what I find sort of desultory is that this decision is clearly a political decision. And the reason it's clearly a political decision is because it's an election year. And the fact that these reviews are supposed to end after the election is expected, and kind of sad. It definitely means that whatever the outcome of the election, like this will be done sort of quietly. And in the backstory, it'll either be permitted or not be permitted. 

It'll [00:04:00] be Biden two, or it'll be Trump two, but this is meant to mollify a constituency saying maybe we shouldn't permit these things. I got three things to say about this that are a little nasty. 

One, we saw this movie before this happened with the Dakota pipeline and it was delayed for eight years to see whether or not there was harm, and it was just kicking the can down the road. Ultimately, the project was terminated. It didn't go forward, but it's not like we stopped using oil or the Bakken or shipping it on rail cars, like all of the energy activity continued. Whether or not that one pipeline happened, all of the emissions happened anyways. And in fact, the state department and the U.S. Department of Energy analysis showed that there would be no harm or benefit if you cancel the pipeline, it didn't matter.  

The same thing's happening here. If you stop this one terminal, or if you stop many of the terminals that are export, LNG will still go in the market, it's a globally traded commodity. It'll come out of Russia. It'll come out of [00:05:00] Qatar. It'll come out of, you know, some other place. So, the climate consequences of these are negligible.  

James Lawler: Mm. Mm hmm. Can I ask, just on point one, like, the driver there that make you say that, you know, if it doesn't come out of the U.S., it'll come out of somewhere else, why is that? What are the underlying forces there? 

Julio Friedmann: Underlying forces there are demand. So, for example, China wants to use less coal, so it's importing more natural gas.  

James Lawler: Right.  

Julio Friedmann: And it's doing it with LNG.  

James Lawler: So, to get away from coal, this is the easiest option.  

Julio Friedmann: Yes. And a point of fact, there was a story that came out this week that Germany is in fact ramping down its coal and ramping up its natural gas. And some of the LNG exported from the United States will go to Germany to help them de-coalify.  

James Lawler: So if you think about the emissions of a coal plant and compare that to the emissions of a natural gas plant producing the same amount of energy. Do you have those numbers on the top of your head?  

Julio Friedmann: Yeah, it's about half. 

James Lawler: It's about half. So, so you're, you're reducing emissions by 50%. [00:06:00]  

Julio Friedmann: Right. And you're reducing sulfur, you're reducing a lot of pollutants that come from that. There is an important caveat to this that the upstream methane emissions can be terrible. And in some contexts, they can be so large as to void that benefit. 

So it's a half and everything's going right, but if there's a lot of upstream methane emissions, that's not true, right? However, that has nothing to do with the export terminal decision. 

James Lawler: Right 

Julio Friedmann: That's independent of the export terminal decision. The buyers should care about it. The sellers should care about it. The producers should care about it. The EPA is drafting rules to manage that. It's independent though, of the decision to do an export terminal.  

James Lawler: Let's say that that's correct that, you know, if the U.S. isn't producing it and shipping it, somebody else will and if you're concerned about emissions reduction and climate change mitigation, should you want it to happen in the U.S. because it's more likely that we would do a better job with methane leaks than Russia? 

Julio Friedmann: There's no doubt that we already do a better job of methane leaks than Russia. Like, we know [00:07:00] that's true. Even at the Permian Basin, which broadly is quite bad, better than Russia. By a lot, right? The idea that somehow stopping an export terminal will lead to higher prices for LNG or will lead to a reduction in demand has not been proven, it doesn't work that way with oil either . 

James Lawler: Because you can get it elsewhere then fundamentally.  

Julio Friedmann: It's a globally traded commodity! 

James Lawler: Yeah. And it's not hard to ship around. I think it's worth noting, you know, that the U.S. right now has seven export terminals, five are under construction and there's 16 terminals that are awaiting approval that are in the wings. So those who oppose this are saying that, you know, this decision is going to, going to sort of set the tone for all future terminal review, which, you know, who knows if that's true or not. 

But one thing that I thought was quite fascinating was until 2016, the U.S. did not export any natural gas, and today we're the world leader in LNG exports. So, you know, in a mere seven years, it's pretty [00:08:00] amazing.  

Julio Friedmann: Right and in that context, you know, there is a real environmental concern that people have around lock in that if you build the infrastructure, then you can't undo it. That's a fair concern. It is also true though, that you can retrofit those for exporting of other things. 

James Lawler: Right.  

Julio Friedmann: Like green ammonia, for example. So even the lock in is not a lock in. And if in fact, we don't export this stuff, what that leads to is super low gas prices in the United States, which also displaced renewables, right? 

James Lawler: That's a great point. So one other question I had about this, tangential to the subject of lock in, let's say we approve these terminals. This infrastructure is going to be built. And I think what you're saying, Julio, one way or another, it's coming out of the ground, it's going to go replace coal, this is going to happen. 

Germany is now seeking federal funding to transition to gas fired plants. So this 24 gigawatts of power production that is currently fired by coal, they want to transition to a mix of hydrogen and gas [00:09:00] fired power plants. The power companies in Germany have said that it's not economical for them to do this on their own. So they need 60 billion euros to help them. Does that cost include the cost of fitting those with carbon capture?  

Julio Friedmann: So this is a good pivot, actually, to another story that we were looking at this week, the European Union is considering much more stringent and ambitious climate targets. They are looking to do 90 percent reductions by 2040, and that's a net number. 

So that would include CO2 removal but getting 90 percent total reduction by 2040 is incredibly ambitious and a good thing to do. It's also worth knowing that in that leaked document, the estimated cost for that Is $1.5 trillion a year for 20 years. So that's $60 trillion, that's a lot of money, okay, to do that. So to your point, like, yeah, it costs [00:10:00] more money to do a hydrogen or a carbon capture retrofit for a natural gas plant. That is true. That's part of that 60 trillion-dollar cost. 

James Lawler: but the 60 billion euros that the German state is considering investing in transitioning these power plants that does not include CCS or does it?  

Julio Friedmann: It can include CCS. It depends on how the hydrogen is made. It depends on what fraction of decarbonization you seek. The German government is, is looking seriously at carbon capture and they can do either an integrated new build or a retrofit of an existing plant. Those are good things to do. The German government, to be clear, is also looking at CCS really for heavy industry, in particular, the steel mills and the petrochemical plants on the Rhine River. 

One of the concerns that this raises actually is whether or not Germany is going to start buying Russian gas again, and people are concerned that it will lead again to dependency on Russian gas the way that it did before the Ukraine invasion. You know what a solution to that is?  

James Lawler: U.S. LNG.  

Julio Friedmann: LNG export [00:11:00] from the United States.Yes, exactly.  

James Lawler: Right. Everything is connected.  

Julio Friedmann: They're all connected. And this is why this particular political decision, I think, is annoying is because everything I just described doesn't change like it'll still cost 60 billion euros to decarbonize those plants. It'll still cost one and a half trillion dollars a year for Europe to reach their targets. There is still a risk that Germany will start buying Russian gas again. There is still the fact that they can get LNG from elsewhere in the world. 

James Lawler: Right, Right.  

Julio Friedmann: So there's two things that I want to leave the audience with on this story. Number one, like we need to ratchet down demand. If you want people to use less natural gas, they got to use less natural gas. Otherwise, you're doing the war on drugs all over again. It's like this, this doesn't make any sense. So demand is the challenge and it's hard to crush demand, but the fact that it's hard doesn't mean you shouldn't do it.  

Second of all, if you're really worried about these emissions, trying to block the container terminal permitting is not the [00:12:00] thing to do. It is much more useful, for example, to do things like get the methane rules in place, those matter a lot. That matters a huge amount. It is also a good idea to pass a regulation or a law that says those export terminals have to be compliant with ammonia export as well so that there's less lock in, and you want actually to support domestic agendas for carbon management directly because that will actually lead to the emissions reduction in these much harder to do things. 

James Lawler: I do just want to make sure we hit one more that was a neat story and kind of counter programming to a lot of the wind stories that we have brought up on this podcast. So most of our wind stories are about cancelled wind projects. Here we have kind of some, a bright spot, sort of, for wind in Europe. 

There's an article in Bloomberg on European gas and power prices that have come down in part because of all of the wind generation that's come [00:13:00] from the storms that have been disrupting travel across northern Europe and disrupting other things. They've actually been producing lots and lots of energy from all of the wind installations. 

So, Nordic wind at power output surge to a record of 20,000 - 25,000 megawatts and German winds set power records as well, over almost 60,000 megawatts of power. So it's just interesting how sort of connected and complex everything is. What are your thoughts on this?  

Julio Friedmann: Yeah. So this is basically good news, and it shows like sometimes that good news is a little rocky and a little problematic too. But let's start by the fact that the build out of wind power in the North Sea has been amazing. And what we're seeing now is we're getting a huge amount of power from it, and in some cases, way more power than the grid can even handle. 

The consequence of this is it actually depresses the cost of electricity because there's a supply and demand. There's way more supply. And in this case, there are actually negative electricity [00:14:00] prices. People are paying you to take their electricity, it's that cheap. This is great from a climate perspective, not so much from a business perspective. 

If you're a power generator, you're in trouble because you're not making any money on your electricity. In fact, you're losing money on your electricity. That makes it very hard to get the next round of investments. That gets it hard to make the next build out. So the question becomes, well, hey, we're going to see a lot of problems with this business model. 

If you're in a place like China or India, this would be a better news story because these are all state-owned power companies. So the consumer wins and the government can kind of manage the losses and it's not that big a deal. But if you're a private power producer, this is lethal. And that's why we've seen things like Orsted canceling projects. 

James Lawler: Yeah, 

Julio Friedmann: Because they are worried about making back the money on the project. So it's good from a climate perspective and we want abundant clean energy and we want to use it for all kinds of stuff. [00:15:00] We got to get the business part right too.  

James Lawler: Yeah, so we're seeing grid scale battery storage costs coming down and more or less following the same cost curve as solar in particular. And so when you think about future stories like this, about large scale battery installations throughout Europe, throughout the world. How does that affect sort of everything else? We've been talking about today.  

Julio Friedmann: So in order to make money with a battery installation, you make money every time you charge it and then discharge it. Right? So if you're charging it and discharging it all the time, like your car, like an electric car does, you actually can make a lot of money on the battery in your car by displacing the fuel. If you're charging and discharging one or two times a day with a battery stack, it's tricky to make the money back, even with the lower battery costs like you described, but you can do it. 

But if you're waiting for one of these things where you charge for like three days and then discharge once, [00:16:00] you never make your money. The battery is a terrible investment. Tn terms of the cost of abatement, the cost of abatement is like thousands of dollars a ton of CO2 abated because it's a lot of capital costs for the battery and you're not using it very much. 

So as an alternative to this, I look forward to the day when in Europe they have a lot more green hydrogen opportunities. If they could move that electricity, into green hydrogen production. Then in fact, they would be making a lot of hydrogen and that hydrogen is a clean fuel that would displace other fuels, right? 

They also need to make sure that that is being used more regularly. They could also do things instead of batteries, like pumped hydro. Norway and Sweden have huge amounts of hydropower. That doesn't make a lot of money, but it's certainly a lot cheaper than a battery. People think, well, maybe you can do vehicle to grid for something like that. 

That literally means like reengineering the entire automobile and grid sector in Europe, like that'll be a lot harder than building batteries or pumped hydro or hydrogen. [00:17:00] So I think like realistically, like this is a challenge. And again, this is why public private partnerships end up being important because if the government's prepared to cover some of that risk, times like this end up being smoother, right?  

And then the power companies don't collapse and lose their shirts and they are more interested in building more renewables. So you need to think about the system as a whole to end up in the right place.  

James Lawler: So I think that's probably the theme of today's episode is you really need to think about the system as a whole. We've gone back and forth between stories, ideas. Everything feeds into everything else when it comes to the green transition. But, Julio, I want to thank you for your time today. Thanks so much for doing this. As always, it's always a pleasure.  

Julio Friedmann: Thank you, James.  

James Lawler: And that covers it for this week's Climate News Weekly. Thanks for listening, and we'll see you next week. 

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