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The ongoing debate over whether to allow liquefied natural gas (LNG) exports has featured a recurrent theme: people insist that the gas would be better used within the United States. “We will go down,” T. Boone Pickens has written, “as the dumbest generation ever if we export our clean, cheap, abundant supplies of natural gas in favor of dirtier, more expensive OPEC oil.” In a letter to the editor today responding to my op-ed on the subject of a couple weeks ago, Bob Bailey writes, “We finally have an alternative to foreign oil in the form of natural gas, and Mr. Levi wants to ship it overseas. I’m confused. Why don’t we keep this resource here? Use it here?” I actually agree with much of the sentiment. If the United States exports as much natural gas as many currently envision, it will probably be a sign that U.S. policy has failed. But the right response is not to bar exports – it’s to directly boost other sources of natural gas demand. The underlying logic is similar across different uses for natural gas. Exports raise natural gas prices. That reduces natural gas use in other sectors. Conversely, though, boosting natural gas consumption in other sectors increases natural gas prices. That reduces exports. This applies no matter what the alternative use is for natural gas. Want to use natural gas as a more climate-friendly substitute for coal? Implement a carbon price, clean energy standard, or regulation that promotes greater use of gas. Natural gas prices will rise. As a result, the gap between U.S. and overseas natural gas prices will shrink. Some export projects will no longer be viable. Exports will thus decline. How about natural gas as a transport fuel? Same thing. Write CAFE standards in a way that boosts the use of natural gas in cars and trucks, subsidize the purchase of natural gas vehicles, or raise oil and gasoline taxes, and more people will use natural gas for transport (including through conversion of natural gas to methanol and other fuels). Natural gas prices will rise, the gap between U.S. prices and overseas ones will decline, and exports will no longer be as attractive. The same thing even holds for natural gas use in manufacturing. I happen to find arguments in favor of using policy to steer natural gas into manufacturing suspect. But perhaps you don’t. Then subsidize manufacturing, as several administrations have done (and continue to do) through the tax code. You know the routine by now: more gas use in manufacturing will boost prices, and exports will decline. We can even put some numbers on this. Recent modeling by the EIA suggests that a modest price on carbon could raise natural gas use in the power sector by as much as five billion cubic feet a day as of 2020. Using natural gas to back out a million barrels of oil a day in the transport sector could add roughly six billion cubic feet a day of demand beyond that. The EIA has recently estimated what that much new demand might do to natural gas prices (though in a different context). Assuming no surprises on the supply side, natural gas prices circa 2020 would rise from about six dollars to between seven and eight dollars for a thousand cubic feet. This would erode a decent part (if not all) of any edge that U.S. exports might have. The result would be lower (or vanishing) exports in the first place. What if U.S. shale gas resources turn out to have been overestimated? The combination of scarcer gas and a big boost in domestic demand would crank prices up quickly. It would not be surprising to see prices rise well above ten dollars for a thousand cubic feet (though demand in other sectors would probably fall to restrain that increase). Needless to say, with natural gas prices that high, exports would most likely become uneconomic. U.S. exporters would probably still do just fine – their contracts typically guarantee payment for liquefaction services regardless of whether those services are actually used. Actual exports, though, would not materialize in any meaningful quantity. None of these domestic policies, of course, would be easy to implement. But blocking exports isn’t an effective substitute. Barring exports would do far less than even mediocre climate policy to move natural gas into power plants. Moreover, it would actually undermine renewable energy, nuclear power, and energy efficiency. Its impact on natural gas use in transport would be negligible. People who want to see the United States make better use of its natural gas have only one option: they will need to promote those better uses directly.

I argued in a New York Times op-ed yesterday that the United States should allow LNG exports while guarding against downside risks to the local environment and low-income consumers. Joe Romm at the Center for American Progress has now published a 1,100-word attack on the piece. I’d normally not respond at length, but his critique hits on multiple fronts, and our two blogs have many readers in common. This post will go line-by-line through his critique and explain why it’s wrong. First one overarching point: The consequences of LNG exports for climate change will almost certainly be small. I asserted in my op-ed that they would probably be good. Regardless, though, they are not reason enough alone to say yes to exports. The strongest case for allowing exports is that saying no poses big risks to U.S. leverage in the WTO and NAFTA, with much broader ramifications for the U.S. economy and its standing in the world. Romm begins with this: The NY Times piece asserts offers [sic] this paragraph as the sole defense to the well-known charge that LNG exports are bad for the climate: “At the same time, exports would likely reduce global greenhouse gas emissions. Moreover, the small price increases that would result from allowing exports would have at most a marginal impact on the use of natural gas as fuel for cars and trucks. Blocking exports wouldn’t push natural gas into automobiles — it would mostly keep it in the ground, because there would be less incentive to extract it.” The argument about cars and trucks is a red herring (at best) since replacing gasoline with natural gas in vehicles is pretty clearly a loser from a global warming perspective — and always will be – as a major 2012 Proceedings of the National Academy of Sciences study makes clear. There are three problems here. First, as Romm knows, I justify my claim on climate at length in a recent study, which is mentioned and linked to in the op-ed. Second, as the broader op-ed makes clear, the discussion of automobiles is not intended to have anything to do with climate. I note earlier in the piece that many worry that exports would undermine efforts to put natural gas in cars and trucks. The discussion of autos here is addressed at that. Third, the PNAS study that Romm references assumes a 20 percent efficiency penalty for CNG vehicles. That is a decade or so out of date. There is a lot of great stuff in the PNAS paper, but this is a major flaw, and its undermines its conclusions on CNG. In any case, none of this has anything to do with my LNG argument. Onward with Romm’s analysis: It is head-scratching to say the least to claim that exports would reduce greenhouse gas (GHG) emissions when the Times acknowledges that blocking exports would leave this fossil fuel in the ground! Burning natural gas releases GHGs. We need to slash global GHGs 50% in four decades merely to have a shot at keeping total warming anywhere near 2°C (3.6°F), a point beyond which risks to human civilization multiply exponentially. This is not head-scratching in the least. Exported natural gas would most likely primarily replace coal in Asia. Burning gas releases fewer GHGs than burning coal. This is not complicated – it is the same thing that is happening in the United States. Worse, natural gas extraction is leaky, and natural gas is mostly methane, a highly potent GHG (with some one hundred times the global warming potential of carbon dioxide over a 20-year period). Most of the new natural gas in this country comes from hydraulic fracturing, which is widely thought to be leakier than conventional gas extraction. And? Analysis after analysis – including the PNAS study Romm references – has concluded that, in the long run, this barely makes a dent in the greenhouse gas advantages of natural gas over coal. Worst of all, cooling natural gas to about −162°C (−260°F) and shipping it overseas for use in distant countries is costly and energy-intensive: “The process to bring the gas to such low temperatures requires highly capital intensive infrastructure. Liquefaction plants, specially designed ships fitted with cryogenic cooling tanks, regasification terminals and domestic transmission infrastructure all make LNG relatively expensive in construction and operational cost.” When you factor in the energy and emissions from this entire process, including shipping, you get a total life-cycle energy penalty of 20% or more. The extra greenhouse gas emissions can equal 30% or more of combustion emissions, according to a pretty definitive 2009 Reference Report by the Joint Research Centre of the European Commission, Liquefied Natural Gas for Europe – Some Important Issues for Consideration. Let’s take the JRC report on face. Two problems remain. First, even if you add 30 percent on top of combustion emissions, that takes you from gas having about 50 percent of coal’s emission to gas having about 65 percent of those emissions. That’s still a big improvement. Second, part of those extra emissions are offset by lower industrial emissions in the United States. The net penalty is thus considerably smaller. The NY Times piece actually makes this odd argument on behalf of LNG exports: “It will take years before any export terminals are up and running — in the meantime, producers and regulators should strengthen safeguards so that gas is extracted safely.” The piece does not offer this as an argument on behalf of exports. That sentence is in a section about the downsides of exports. It is quite clear in the op-ed that I am arguing there in favor of strengthening environmental protections. But this is yet another reason why LNG exports make no sense. Why would we want to start massive exports of natural gas around the end of this decade, with costly new infrastructure that until mid-century [sic]? If avoiding catastrophic climate change is your goal, then spending huge sums on even conventional natural gas infrastructure is clearly not the answer, as a recent International Energy Agency report made clear: “The specific emissions from a gas-fired power plant will be higher than average global CO2 intensity in electricity generation by 2025, raising questions around the long-term viability of some gas infrastructure investment if climate change objectives are to be met.” Duh! Or is that D’oh? And as we’ve seen, LNG shipped from the U.S. is much worse from a GHG perspective than regular gas, so by the time a lot of new LNG terminals are up and running in this country, it seems likely that LNG-fired plants overseas will be have a higher GHG intensity than the average plant in the electric generation system needed to be anywhere near a non-catastrophic emissions path.” There are three problems with this argument. First, though Romm doesn’t say it, the IEA report is describing a scenario that is drastically different from the current path. In the world it describes, greenhouse gas emissions are far lower, putting the world onto a 450 ppm course. Part of what it takes to get to that world may be substitution of natural gas for coal. Second, the gas infrastructure that is likely to be threatened in that world is old, inefficient capital, not the new and more efficient plants that would be built if gas nudged out coal. Third – and this is the big one – global average CO2 intensity is the wrong thing to look at. If U.S. LNG was replacing nuclear power in France, then perhaps it would make sense. But U.S. LNG would almost certainly make its way to Asia, where the CO2 intensity of displaced electricity generation would still be far higher than that of gas, even on a 450 gas. Natural gas would bring average CO2 intensity down. We do not want to build a global energy system around natural gas (see IEA’s “Golden Age of Gas Scenario” Leads to More Than 6°F Warming and Out-of-Control Climate Change). At the time, the UK Guardian‘s story put it well: “At such a level, global warming could run out of control, deserts would take over in southern Africa, Australia and the western US, and sea level rises could engulf small island states.” That’s true. It’s why a permanent shift to natural gas with carbon capture and sequestration would be unwise. But that isn’t what we’re talking about here: we’re talking about low-level exports of LNG. The extra emissions from LNG all but eliminate whatever small, short-term benefit there might be of building billion-dollar export terminals and other LNG infrastructure, which in any case will last many decades, long after a sustainable electric grid will not benefit one jot from replacing coal with gas. This isn’t true. The extra emissions from LNG still leave it substantially better than coal. Unless the counterfactual is Chinese, Korean, and Indian energy systems that use no coal by 2025, natural gas is an improvement. Asserting any net benefit requires assuming the new gas replaces only coal — and isn’t used for, say, natural gas vehicles, which, as noted, are worse for the climate or that it doesn’t replace new renewables.  If even a modest fraction of the imported LNG displaces renewables, it renders the entire expenditure for LNG counterproductive from day one. I’ll hold my breath until Asian consumers decide to switch from petrol-powered cars that depend on flexible global oil markets to NGVs that depend on rigid and expensive LNG imports. That doesn’t seem likely to happen. As for renewables, what Romm writes is untrue. Say that gas displaces 60 percent coal and 40 percent renewables (along with conservation/efficiency). Then, even if we assume like Romm that LNG is only 40 percent better for climate than coal, the net result remains neutral for climate change. (I’ll leave the arithmetic to the reader.) Remember, a major 2012 study on “technology warming potentials” (TWPs) found that a big switch from coal to gas would only reduce TWP by about 25% over the first three decades (see “Natural Gas Is A Bridge To Nowhere Absent A Carbon Price AND Strong Standards To Reduce Methane Leakage“). And that is based on “EPA’s latest estimate of the amount of CH4 released because of leaks and venting in the natural gas network between production wells and the local distribution network” of 2.4%. Many experts believe the leakage rate is higher than 2.4%, particularly for shale gas. Also, recent air sampling by NOAA over Colorado found 4% methane leakage, more than double industry claims. The impact on warming over the next three decades isn’t what matters most. Peak warming, even if we curb emissions sharply, won’t hit until well after that. That’s where we need to focus – and the PNAS study shows that gas regains its advantage over that timescale. As for the NOAA study, I’m going to have to remain mum, for reasons that I should be able to talk about fairly soon. All I can say for now is that it has big problems that render its conclusions unreliable. A different 2012 study by climatologist Ken Caldeira and tech guru Nathan Myhrvold finds basically no benefit in the switch whatsoever — see You Can’t Slow Projected Warming With Gas, You Need ‘Rapid and Massive Deployment’ of Zero-Carbon Power. That study takes into account the near-term impact of the construction of new infrastructure. As the authors of that study know, the finding of "basically no benefit" results from odd and unsupportable assumptions about emissions from gas compared to emissions from coal. The study assumes that CO2 emissions from gas are almost as high as those from coal (70-80 percent as high) when burned in a power plants of similar efficiency; adjusted for the efficiency factors used in the study, emissions from gas come in at 60-80 percent those of coal. (You can work this out from Table S1 in the Supplementary Online Material.) None of this, of course, is correct. I assume that this was an accidental mistake by the authors. They have been told about it, not just by me, but the paper has not been corrected. Their findings on gas ultimately have little to do with the emissions generated from building new infrastructure; they arise from incorrect assumptions about CO2 emissions from gas in the first place. BOTTOM LINE: Investing billions of dollars in new shale gas infrastructure for domestic use is, at best, of limited value for a short period of time if we put in place both a CO2 price and regulations to minimize methane leakage. Exporting gas vitiates even that limited value and so investing billions in LNG infrastructure is, at best, a waste of resources better utilized for deploying truly low-carbon energy. At worst, it helps accelerates the world past the 2°C (3.6°F) warming threshold into Terra incognita — a planet of amplifying feedbacks and multiple simultaneous catastrophic impacts. My bottom line? This sets up a false choice. Blocking natural gas exports won’t drive money into zero-carbon energy. Good policy that prices carbon or establishes a clean energy standard will. Better to focus on that than to endanger the global trading system in a quixotic fight to restrain exports, particularly when allowing exports would probably reduce global emissions a bit.

Cliff Krauss and Eric Lipton have an epic, must-read piece in today’s New York Times on the boom in U.S. oil and gas. It includes a quote from me that I ought to briefly expand on: “There is no question that many national security policy makers will believe they have much more flexibility and will think about the world differently if the United States is importing a lot less oil.” It’s not the snappiest line, but it’s convoluted for a reason. In particular, the words “believe” and “think” are essential. Analysts have an awful habit of confusing the ways that they think policymakers should behave with the ways that policymakers do behave. If basic economics tells analysts that eliminating imports from OPEC would do nothing to shield the United States from the vagaries of Middle East conflict, they conclude that policymakers will not alter their approach to the region in the face of tectonic oil market shifts. If the literature tells them that consumption, not production, is what matters most to the fate of the U.S. economy in the face of volatile oil prices, they’ll conclude that leaders will not fundamentally alter their overseas strategies simply because production has surged. This is a terribly blinkered way of looking at the world of international politics. Leaders act upon their beliefs, not upon what economic theory says – and, to judge, from the volume of writing by analysts attacking politicians for misunderstanding basic energy economics, it’s pretty clear that those beliefs don’t always line up with reality. That’s a big part of why the changing U.S. position in the energy world will likely have big consequences – leaders think it’s important, and they’re going to act on that. To be certain, there are also real economic consequences that follow from the changes underway in the energy scene, and real geopolitical implications that follow regardless of how leaders react. But that may be the smaller part of the puzzle. Those who ignore the role of leaders’ perceptions may be mighty surprised with how the future unfolds.

Joe Romm of the Center for American Progress and Joe Nocera of the New York Times have gotten into quite the fight over the Keystone XL pipeline -- and I seem to have gotten caught in the middle. Nocera’s Saturday column quotes me thusly: “The argument you hear is that because [Keystone XL] increases greenhouse gas emissions, we shouldn’t tolerate it.  Well, so do the lights in my house.  You have to be discriminating.” Here’s Romm’s response: “Seriously. That may be the lamest analogy in the history of energy and climate. Nocera is actually analogizing the GHG emissions increase from 900,000 barrels a day of dirty tar sands oil with flicking on the lights in your house!” Yes, seriously. Upon reflection, the analogy turns out to be even better than I previously thought. Let’s do some numbers. The GHG emissions increase from substituting 900,000 barrels a day of “dirty tar sands oil” for the typical barrel of oil consumed in the United States is, at most, about 20 million tons of carbon dioxide each year. This estimate is based on assuming a 15% increase in per-barrel emissions, which is the upper limit given by the expert that Romm cites; I’m setting aside the fact that we’re actually talking about less than 900,000 barrels, since part of what would be carried isn’t bitumen, but rather lower-carbon dilluent. On the other hand, residential lighting generated (PDF) 137 million metric tons of carbon dioxide emissions for the United States in 2008. So yes, flicking on the lights in our houses is actually a lot worse for the climate than substituting “dirty tar sands oil” into the energy mix. (Side note: If you believe that the circa 900,000 barrels would not back out any other oil – something that, to be blunt, is totally implausible – then the maximum emissions increase from adding that oil works out to about the same as the annual emissions from U.S. residential lighting.) Does that mean that we should prohibit people from turning on their lights? Of course not – that was my point. Even the most anti-economist types implicitly weigh costs and benefits all the time when they think about what constitutes wise climate action. None of them advocate going to a lightless society, because the costs would clearly outweigh the benefits. So it isn’t enough to just say “there’s a ton of carbon there” in order to argue that we shouldn’t do something. You can do that with way to many things – including, yes, turning on your lights. As I told Nocera, we need to be discriminating: there are big pools of carbon that are worth burning, and there are big pools of carbon that aren’t. Well meaning people can disagree as to whether 900,000 barrels a day of tar sands oil falls in the former category or the latter one. The mere fact that the pool in question is big isn’t enough alone to place it off limits.