Tom Konrad CFA
|Photo: Robin Lucas, via Wikimedia Commo|
With friends like these, who needs enemies?
The Sierra Club is fighting new Liquified Natural Gas (LNG) export terminals, because they believe LNG exports would reward and encourage producers of shale gas.
Fighting shale gas has blinded them to the bigger picture.
If LNG exports were to reward shale gas producers, they would have to be significant enough to raise the price of domestic natural gas. Such large exports would also lower the world price of LNG.
Effects on Domestic Markets
Higher domestic natural gas prices would help shale gas producers, but they would also help other producers of domestic energy which compete with natural gas. Domestic consumers of natural gas would also have stronger incentives to use gas more efficiently, or switch to other options. Solar, wind, geothermal and energy efficiency industries (of which the Sierra Club is a vociferous supporter) are all hurt by low natural gas prices because it lowers the price they are able to get for the power they sell.
The Case of the Bi-Fuel Truck
The case for electric and hybrid vehicles is hurt as well when low gas prices make the economics of natural gas vehicles look better. GM and Chevrolet both recently announced bi-fuel pickups able to run on natural gas. The selling point for such vehicles is the lower running cost when using cheap natural gas, despite the initial up-front cost. The companies are oddly silent on the additional cost of such vehicles, but the trade-off between higher up-front costs and lower operating costs sounds eerily similar to that for hybrids and EVs.
The Hybrid Chevrolet Silverado costs an additional $2500 up-front, but will also save fuel costs with an EPA fuel economy of 20 mpg for city driving, and 23 highway, compared to 14 mpg city/ 19 highway for the base model, and also comes with four 20 amp A/C outlets allowing it to function as a work-site generator. If we assume 10,000 miles each of city and highway driving annually, the hybrid Silverado will save an annual savings of 306 gallons or $1224, at $4 gas, which will pay for the additional cost in 2 years. Perhaps the bi-fuel pickups will have quicker paybacks (although I doubt it, given the manufacturers’ unwillingness to quote prices), but any payback for a bi-fuel truck will depend on natural gas prices staying low.
In other words, the Sierra Club is promoting natural gas vehicles over hybrids, and natural gas power generation over renewables and efficiency by fighting LNG exports.
Effects on World Markets
LNG exports would also lower world LNG prices, hurting LNG exporters in other countries, something the Sierra Club should support, since making LNG has such a high carbon footprint.
Meanwhile, the world’s largest LNG importer has long been Japan, and Japan’s LNG imports have skyrocketed to make up for electricity from shut-down nuclear reactors. Cheaper LNG imports could help Japan afford the aggressive move to renewable energy and efficiency the country is embarking on.
Hydrofracking for shale gas can be harmful to the environment, especially when it is poorly regulated as it is in much of the United States, and cash-strapped drillers take shortcuts with safety and environmental protection. But if drillers are not going to take shortcuts, they need to be able to afford proper precautions, and funds need to be made available for proper oversight of their operations. All of this cannot happen at today’s low extremely low gas prices.
If the Sierra Club wants to stop dangerous fracking, they should not be fighting export terminals, they should be working to force the industry to fund proper oversight. Perhaps a levy on natural gas produced by fracking to fund safety and environmental inspections could be passed as part of a deal to allow LNG export terminals.
Such a deal would be a win for the environment, for renewable energy developers, for energy efficiency, and for the Japanese, who are bravely trying to find their way to a nuclear-free future.
This article was first published on Forbes.com.
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