Failed Finances and 'the Demonization of Gas' Are Threatening the Future of US LNG

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The U.S. liquefied natural gas (LNG) market, once the promising golden child of the fossil fuel industry,ย has a major long-term problem. While it’sย facing financial disaster due to the current crash in oil and natural gas prices, that’s only theย short-termย threat.

The real issue for the LNG industry is an existential one: It’s a fossil fuel in a rapidly warming world, and these polluting fuels are losing public favorย fast.

In late April, Ian Nathan, Manager of Global Gas and LNG at industry research and advisory firm Energy Intelligence, highlighted the issue during a webinarย Q&Aย session.

โ€œSome executives from some large sellers โ€ฆ are really scared to death about the rate at which the demonization of gas has really just come to the fore and how gas was a solution just yesterday,โ€ย said Nathan,ย โ€œand tomorrow gas-fired power is not green and methane emissions are anย issue.โ€

The oil and gas industry has been working very hard to sell natural gas as a climate solution โ€”ย efforts thatย startedย in 2006. The American Petroleum Institute โ€” the leading lobbying arm ofย the oil and gas industry โ€” continues to push the concept of natural gas as a clean fuel that is lowering emissions. (LNG is simply super-chilled and pressurized natural gas in a liquid form that is easier toย ship.)

But research and analyses increasingly show that natural gas can be worse for the climate than coal when the supply chain’s methane emissions are taken into account. And while the oil and gas industry has been able to hide the true scope of methane emissions until recently,ย new satellite technologies have revealed that the methane emissions from major fracked oil and gas fields in the U.S. are much higher than the industry has claimed in theย past.ย 

As DeSmog reported earlier this year, European LNG buyers are considering measuring the true climate impacts of U.S. LNG, which means considering methane emissions โ€” another strike against the U.S. LNGย industry.ย 

Growing public awareness and concern about the climate impacts of natural gas apparently are frighteningย industryย executives.ย 

Last September, Woodside Petroleum CEO Peter Coleman warned his colleagues at an industry conference about the potential for this turning tide of public opinion on the fossilย gas.

โ€œThe industry really is at a critical juncture,โ€ Coleman said. โ€œWe run the risk of being demonized like that other fossil fuel out there calledย coal.โ€

But gas may already be crossingย thatย threshold.

At the Duke Energy shareholder meeting this month, shareholders were pressuring the company on its plans to expand natural gas infrastructure instead of investing in renewables. Lynn Good, Duke’s President and CEO, defended this approach. โ€œI am disappointed to learn that the tool of natural gas is under such assault,โ€ย Good said.ย 

Butย the LNG companies that donโ€™t get wiped out in the coming financial bloodbath will likely face the sameย โ€œassault.โ€

U.S. LNG Troubles Began Long Before COVID-19

On April 23, the senior editor of theย industry publication Natural Gas Intelligence wrote:ย โ€œThe LNG market was already oversupplied before the COVID-19 pandemic crushed demand worldwide and sent global gas prices into aย freefall.โ€

Mike Sultan, editor at Energy Intelligence, recently made the same point about U.S. projects. โ€œThey were facing an oversupply situation before any of this happened,โ€ Sultan said.ย โ€œBefore the U.S.-China trade war happened, before the oil price crash, before COVID-19 ever showed up, they were in seriousย trouble.โ€ย 

Butย The New York Times recently missed this key context when reporting on the financial woes of the LNG industry, failingย to mention the industry’s previous oversupply issuesย andย puttingย the blame on the pandemic drying up demand and crashingย prices.

The LNG industry has the same problem as the oil industry. Itโ€™s economics 101. If you supply more product than the market can absorb, prices go down. The current global prices for LNG mean that shipping U.S. LNG to world markets is aย money-loser.ย 

On April 26ย Reuters reportedย that the price for LNG in Asia dropped to just below $2 per million British thermal units (mmBtu). Meanwhile,ย delivering U.S. LNG to Asia costs just under $6/mmBtu, whichย is why agreements for U.S. LNG deliveriesย are being swiftly canceled. The economics of exporting U.S. LNG don’t makeย sense.

Despite the LNG market oversupply, the U.S. has a number of new LNG infrastructure projects that have been recently completed or are in the works. However,ย the Institute for Energy Economics and Financial Analysis (IEEFA) highlightedย energy companies already backing out of, deferring decisions on, and losing financing for threeย U.S. LNG projects, as of Aprilย 24.

The global rush to export LNG has led to the oil and gas industryย buildingย too much infrastructureย while producing too much gas. Much of this oversupply is due to the prolific production made possible byย fracking and horizontal drilling in shale basins, both for gas specifically and as a by-product of oil drilling. As with the money-losing U.S. shale oil business,ย the current pandemic has simply hastened the demise of another financially flawed industry, U.S. LNG.ย 

As LNG Falters, Renewables Stand toย Benefit

While the pandemic has exacerbated the structural financial flaws in the U.S. oil and gas industry, it does not seem to be having the same impact on the renewable energyย industries.ย 

Renewables may stand to gain from the troubles in the LNG industry, according to The New York Times’ recent article about LNG woes. And in early April, The Timesย reportedย that the wind and solar industries were expected to continueย growing, albeit more slowly,ย during the pandemic while oil companies wereย โ€œcollapsing.โ€ย 

A contributorย article appearing on Forbes in early May noted that Fatih Birol, director of the traditionally oil and gas friendly International Energy Agency, was suggesting that countries place clean energy technologies โ€œat the heart of their plans for economicย recovery.โ€

According to Bloomberg,ย International Monetary Fund Managing Director Kristalina Georgieva also argued that green energy should be part of coronavirus recovery plans in an effort to combat the looming climateย crisis.ย 

โ€œTaking measures now to fight the climate crisis is not just a โ€˜nice-to-have,โ€™ it is a โ€˜must-haveโ€™ if we are to leave a better world for our children,โ€ Georgievaย said.ย 

These arenโ€™t the usual players making such strong arguments for renewableย energy.

Oil and gas just arenโ€™t good financial investments anymore. While the U.S. appears poisedย to bail out the fossil fuel industry with a bond buyback program worth at leastย $750 billion, this effort wouldย just prop up a failing business model, rather than investing in surgingย renewables.ย 

As prospects for LNG projects dry up around the world, natural gas experts question itsย future.ย 

โ€œPeople are wondering: Is development delayed, or will it even happen?โ€ Nikos Tsafos,ย Senior Fellow at the Center for Strategic and International Studies, said.ย โ€œThatโ€™s my sense regionally and alsoย globally.โ€

The U.S. LNG market is facing the same fate asย the quickly dying coal industry:ย Financesย that don’t pan outย and demonizationย for its climateย impacts.ย 

Main image: Seattle City Councilmember Kashama Sawant hosted a press conference to oppose a liquid natural gas facility in Tacoma, Washington, in January 2018. Credit: Seattle City Council,ย CC BYย 2.0

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Justin Mikulka is a research fellow at New Consensus. Prior to joining New Consensus in October 2021, Justin reported for DeSmog, where he began in 2014. Justin has a degree in Civil and Environmental Engineering from Cornell University.

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