published Wednesday, June 4th, 2014

Personal Finance: Study suggests environmental benefit of LNG exports

Chris Hopkins

There has been plenty of debate during the past year about whether U.S. energy producers should be allowed to export part of their newly abundant supplies of natural gas. While some domestic manufacturers have opposed potential expansion of exports from an economic perspective, much of the resistance has come from environmentalists concerned about the possible contribution to climate change.

Interestingly, the U.S. Department of Energy released a study last week concluding that more gas exports from the U.S. to Europe and Asia would actually be good for the planet when compared to current sources of fuel used to generate electricity. In fact, according to the DOE, the improvement would be dramatic.

Germany, the world's fourth-largest economy, relies upon coal to generate 45 percent of its electricity. Much of the coal that feeds German power plants is a soft brown form called lignite that generates the highest level of greenhouse gases of any fuel in current use. To the consternation of an active European environmental movement, dependence there on dirty coal has increased in response to the scheduled shuttering of the country's 17 nuclear reactors and the relatively high price of natural gas.

Increasing the relative proportion of natural gas for European power today requires further reliance upon supplies from Russia, delivered via pipelines running through Ukraine. This is hardly a satisfactory alternative for a country that already depends heavily on Russian President Vladimir Putin. Meanwhile, Western European nations have been unwilling to develop their considerable shale gas assets, again largely in response to green opposition. Alternatives like wind and solar have increased but will not soon provide sufficient quantity to replace hydrocarbon based generation.

Enter the United States. Thanks to a decade of dramatic technological innovation, America finds itself in possession of previously unimaginable reserves of natural gas from shale formations now open for exploitation. Prices for domestically produced gas in the U.S. have declined from $14 per million BTU in 2005 to around $4.50 today thanks to the surge in supply. Meanwhile, Europe pays between $10 and $12 to Russian oligarchs.

This is key to understanding the environmental dilemma the EU faces. Coal-fired power generation creates twice the amount of greenhouse gases as electricity from gas-fired generators, but the supply shortage and geopolitical obstacles prevent increased use of the cleaner-burning fuel.

Fortunately, America has within its grasp the capability to ramp up exports of natural gas to the benefit of both European environmental concerns and the U.S. economy. A facility in Louisiana originally constructed to import liquefied natural gas has nearly completed major modifications to reverse the process and export LNG by year end. While a few other similar projects have received government approval, more than 20 remain on hold awaiting federal action on permit requests. But while the vetting process has been frustratingly but predictably slow, there is cause for optimism that the pace will improve and more facilities will begin construction in the next few years.

The new report from the Energy Department estimates that over the next 100 years, converting European power generation to natural gas would reduce greenhouse gas emissions by roughly 40 percent compared with current coal-based electricity. Meanwhile, increasing exports of energy from the U.S. means jobs, economic growth and reduction of the trade deficit. And considering the deepening uncertainty over Russian stability, it's not only in our economic interest but in our national interest and that of our European partners, as well.

Christopher A. Hopkins, CFA, is a vice president for Barnett and Co. Investment Counsel.

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