Natural gas chaos is hitting Texans’ pocketbooks
Russia’s alleged sabotage of two pipelines beneath the Baltic Sea adds to the chaos in the global natural gas market, which is hurting every Texan’s pocketbook and could shape the state’s economy for decades.
While we may never know for sure, most experts believe Russian President Vladimir Putin ordered the detonation of explosives along the Nordstream 1 and 2 pipelines that carry natural gas to Germany. The bombs exploded on the day Poland and Norway celebrated a new pipeline connecting those two nations.
The warning could not be clearer. Russia can do to the new pipeline what it did to Nordstream. Putin’s sacrifice is notable since the pipelines represented his greatest diplomatic achievement by making NATO countries energy-dependent on the former Soviet Union.
The explosion and implied threat reveal how all international energy shipments are vulnerable to geopolitics. The release of methane, the primary constituent of natural gas, reminds the world why climate activists oppose new natural gas facilities.
The explosions released up to 500 million cubic meters of methane, about a third of Denmark’s annual emissions, Kristoffer Böttzauw, the
director of the Danish Energy Agency, explained.
Politicians and energy executives have long described natural gas as a bridge between our fossil fuel past and the clean energy future. Methane, when combusted, produces 50 percent less greenhouse gas emissions than coal and 20 percent less than oil, the International Energy Administration reports.
Governments love natural gas because horizontal drilling and hydraulic fracturing made North American natural gas a cheap way to cut carbon dioxide emissions. Electric power generators have shut down coal-fired power plants and replaced them with natural gas, wherever it is available.
After the Fukushima nuclear disaster, Japan began importing expensive liquefied natural gas to replace emission-free nuclear power plants. The United States went from exporting zero LNG in 2016 to becoming the world’s largest supplier this year.
If Russia does not resume exports — and that’s unlikely following the pipeline sabotage — European Union imports of LNG could rise 150 percent through 2040, according to energy consulting firm Rystad, a massive new market.
Europe could not have withstood Russia’s natural gas boycott without U.S. LNG. America’s oil and gas producers are the only thing keeping Putin from annexing not only Ukraine but also Georgia, Armenia and other former Soviet republics.
Environmentalists are quick to point out that the natural gas supply chain leaks enormous amounts of methane between the wellhead and the end user. The pipeline explosion’s release is small potatoes compared to routine emissions from West Texas’ Permian Basin.
Until natural gas producers can plug the leaks, their product is no better, and some say much worse than burning coal.
The medium-term need to limit greenhouse gas emissions is slamming up against the immediate need to keep Europeans warm.
Former Dallas Federal Reserve Bank chair Robert Kaplan argued at Rice University last week that the world should expand natural gas in the short term and phase it out when more renewable energy storage systems are available.
The challenge, he told the Baker Institute’s Annual Energy Conference, is convincing corporations to invest billions in natural gas and then expecting them to shut down profitable enterprises when they can still make money. And natural gas is very, very profitable these days.
The Henry Hub benchmark price for a million British Thermal Units has risen from $1.73 before the first LNG exports to $8.81 last month. European demand to replace Russian gas has sent U.S. prices skyrocketing.
Texas electricity and natural gas customers have already seen rates jump, and they will go higher if wholesale prices do not come down. Arguably, the only reason prices are not higher is that export facilities are maxed out and cannot send any more LNG to Europe, where utilities are paying $172 a million Btus.
Drilling for natural gas is up 50 percent this year, according to Bloomberg financial data. But since European customers want responsibly sourced energy, drillers are spending millions to plug leaks and hiring a dozen companies to install detectors and certify that no methane is released.
Certifying so-called clean natural gas is critical for the Texas economy. Experts have offered dozens of forecasts predicting that demand for oil will peak by 2035, but demand for natural gas will remain. The commodity has many uses from providing electricity and heat to producing plastics and hydrogen.
A coalition of major fossil fuel companies plans to build a $100 billion hydrogen hub in Houston to separate the hydrogen from natural gas, use that for energy, and then sequester the carbon under the Gulf of Mexico.
The plan is controversial, but it’s another aspect of the uncertainty surrounding natural gas and Texas’ economic future.