Natural Gas’s Dilemma – How to Respond to the National Climate Assessment?

The day the world changed concept

On Black Friday, the Trump Administration released Volume II of the National Climate Assessment. Running 1,600 pages, the report is the second volume of the fourth National Climate Assessment, which was mandated by Congress in the late 1980’s and is required to be prepared every four years by scientists from 13 designated government agencies. It is being referred to as NCA4 Vol. II.

According to initial press headlines, the warnings contained in NCA4 Vol. II are dire. They include:

  • The “earth’s climate is now changing faster than at any point in the history of modern civilization, primarily as a result of human activities.”
  • Average sea levels along the United States coast have increased by about 10 inches since the early 20th century as the oceans have warmed and land ice has melted.
  • More than 100 million people in the United States live in places with poor air quality – and climate change will “worsen existing air pollution levels.”
  • Climate change will “disrupt many areas of life” by affecting trade and exacerbating overseas conflicts.

It is conceivable that the initial press reports will turn out to be exaggerated and that the actual language in NCA4 Vol. II is more nuanced than what has been reported. This Update specifically is being written before full examination of the 1,600 pages can be made, although we will certainly correct any errors or omissions in what the press has written about the Assessment as soon as a more fulsome review of the report is possible.

However, for most members of the public, the press reports may be the only information that they will ever receive about the Assessment because it is unlikely that most people will take the time to pore over 1,600 pages of dense text. They will only remember headlines like those listed above. Whether fair or not, this is the environment that the natural gas industry finds itself in during 2018. It must adapt to that reality. While the industry can, and should, pick apart reports and assessments, including NCA4 Vol. II, to the extent that they contain erroneous data or jump to conclusions unwarranted by the evidence, the industry must realize the impact that the overall public mindset has on national, state, and local energy policy and initiatives.

To that end, the industry needs to recalibrate its message. For too long, what little public relations the industry as a whole has engaged in has concentrated almost only on the economic benefits of natural gas to consumers. While certainly not inaccurate, that overly simple message no longer will carry the day. The economic argument now is framed as: “We all can spend $X for energy which will destroy our planet, or we can spend $X time Y and save our planet. Nobody likes paying higher costs for anything, but if it will save our children’s futures, why shouldn’t we do it?”

It is imperative for the industry now to do two things. First, it must concentrate on the environmental case for natural gas, both over other fossil fuels and until so-called renewable energy becomes more universally available. The natural gas industry has a terrific story to tell, but it needs to tell it. The public does not know what the industry has not told it. America leads the world in greenhouse gas reductions since the fracking revolution. We’re producing massive new quantities of oil and gas, yet our greenhouse gas emissions have dropped over 10% to levels not seen since the 1980’s.

There is no harm in admitting that natural gas may not be the be all and end all of energy use to save the planet, but as a bridge fuel it is unsurpassed. If, as NCA4 Vol II states, we must do something positive fast for the environment to lessen any climate change impacts, there is no better way than to build out the natural gas pipeline infrastructure. This will allow the massive switch from coal to natural gas to occur as quickly as possible.

Second, the industry must point out, gently, that currently there is no feasible alternative. All proposals to power our economy via renewables still are speculative at best. Even if it can be done, we are decades away from a realistic plan to power the world with net neutral sources. Germany is a great example of this. In 2010 it refined its renewable energy policy to limit most, if not all, power projects not involving renewables. Despite this, over the last few ytears, German carbon emissions have increased, not decreased. Now, despreate for energy, Germany is helping the Russians build a new pipeline directly to Germany and it is involved with Dow Chemical to erect a new liquefied natural gas power plant in Strade. Good intentions are one thing. NCA4 Vol. II makes it clear they are not enough.

If the industry truly believes in itself and what it’s doing, it should take up the challenge. Engage on the playing field where the battle is taking place. Target our message to the mindset of the audience, and don’t be afraid to amid there are things we don’t know. Despite NCA4 Vol. II’s warnings, fossil fuels will be with us for decades moer, at least. Wishful thinking about promoting more renewables will not change that stark reality. Until such time as renewables can effectively and completely power our modern economy, we all will benefit from clear headed policies that encourage increased natural gas development, transportation and usage while simultaneously establishing a priority to develop and implement a nationwide renewable energy strategy. Isn’t that really what we all should want?

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

Foreign Policy Realism and the Importance of Shale

Pennsylvania Shale

Just six months after the Chinese Communist leadership massacred hundreds of their own people at Tiananmen Square in 1989, President George H. W. Bush sent his envoy Brent Scowcroft on a secret mission.  When pictures of National Security Advisor Scowcroft raising glasses for a champagne toast with the Butchers of Beijing leaked out, Americans were outraged.  However, Bush and Scowcroft realized that the Chinese relationship was too important and that the Communist leaders weren’t going anywhere.

Today, critics of President Trump, especially the conservatives, wish he were surrounded by international “realists” like Mr. Scowcroft.  Instead, they see Mike Pompeo and John Bolton.  It is curious, however, that the same crew which praised the Bush/Scowcroft team for their “skillful” handling of the aftermath of Tiananmen and the fall of the Soviet Union now criticize Mr. Trump for not immediately taking steps to isolate Saudi Arabia following what appears to be the murder of a Saudi journalist inside the Saudi consulate in Istanbul, Turkey.

For reasons ranging from oil to Iran, the US/Saudi relationship is important.  Trump has to exert a price from Crown Prince Muhammed bin Salman (MbS), but he has to be careful not to risk the overall relationship.  Whatever decision the President makes will affect the energy industry.  Will the Saudis retaliate by withholding oil supplies?  Will they do the opposite?  Will increased Saudi supply of oil be part of the overall “price” that Mr. Trump extracts from MbS for this sordid affair?  We don’t know the answers yet, and we may never know.

What we do know is that the future of many Pennsylvanians will both impact and be impacted by the intrigue playing out over the Saudi journalist.  That’s a remarkable accomplishment when you think about it.  The Saudis will have to consider places like Washington County and Tunkhannock, Pennsylvania in their calculations of how to respond to American anger.  Who would have thought that ten years ago?

While the international situation plays out, elections loom in this country.  Fewer than three weeks before election day, it looks increasingly likely that Pennsylvania Governor Tom Wolf will win a second term.  That will put both the Governor and the gas industry in a bind.  The industry has been loath to engage with the Governor after he bludgeoned them during his 2014 campaign and after they had some dealings with him in the early days of his administration that the industry felt were not up front.  The Governor is bitter that the industry fought him so hard on his extraction tax, robbing him of one of his most important campaign promises.

Both the industry and the Governor may be in a pivotal international position in a few months if things spin out of control in the Middle East or elsewhere.  Pennsylvania gas production may prove to be a critical bulwark against mass economic dislocation that would please no one as much as the Russians and the Iranians.

First comes the approaching winter.  New York and New England are more vulnerable than ever to energy shortages due to their short-sighted policies on pipeline infrastructure and their closing of their nuclear plants.  Will they have to import gas again from Russia?  If they do it will it limit the President’s ability to deal with Russian involvement in the Middle East? What if the Saudis respond to American pressure by just moving closer to Vladimir Putin?  Meanwhile, as this is happening will New Englanders be forced again to go hat in hand to Putin to save them from freezing to death this winter?  It could happen.  By making themselves vulnerable to energy shocks – especially when the answer is five hours away in Pennsylvania, the New Englanders have weakened us all.  Domestic miscalculations often have international implications.

In Pennsylvania we have a separate problem.  Pennsylvania’s shale producers are notorious for their inability to develop common positions.  This limits their effectiveness when dealing with state government.   Assuming he wins, Governor Wolf will owe the industry nothing for his reelection.  Still, the industry provides a critical service at an unsettled time.  There is a lot that can be accomplished on both sides given any willingness to engage based on the new international and electoral realities.  There’s no time like the present.

Questions? Let Dan know.

Daniel Markind of Flaster Greenberg

Daniel Markind is a shareholder at Flaster Greenberg PC with over 35 years of experience as a real estate and corporate transactional attorney. He has represented individuals and companies in the energy industry for over 20 years. Dan is a frequent lecturer on Marcellus Shale and other mineral extraction issues and is regularly asked to speak at conferences, in the media and at other venues regarding energy issues and their legal and political implications.

 

Marcellus Shale Update – 3.02.2018

Yesterday may have been the most instructive day ever to understand the current international situation involving natural gas.

Russian President Vladimir Putin, in his State of the Nation address, bragged about “invincible” missiles that could carry nuclear warheads.  He showed videos of missiles raining down on Florida.  As he did so much of Europe was battered by two weather storms called “Storm Emma” and the “Beast from the East”.  Today is the coldest spring day in UK recorded history (I guess they consider March 1 spring over there).  Unfortunately they may have no heat.  Britain’s National Grid warned yesterday that it did not have enough natural gas to supply the country.

UK running out of gas, warns National Grid

UK weather: Armed Forces called in as death toll rises to 10 in coldest spring day on record

Britain has a lot of shale gas potential but it has not developed it, running into the same environmental objections that bedevil most of Europe.  We might have been able to help make up the shortfall, but our export capacity remains limited.  Now Britain freezes.   How many people will die in the UK because of their energy policies?

There are other reasons for Britain’s current situation, including the foolish shutting down last year of a natural gas storage facility at Rough, but the result is that Britain may turn in desperation to the same person that New England relies upon in times like these, Vladimir Putin.

Putin has been very busy.  Also yesterday, the Science, Space and Technology Committee of the US House of Representatives released a report detailing how Russia used Facebook, Instagram and Twitter to exacerbate tensions over American energy policy and climate change.  For example, Russians created a group called “Native Americans United” which put out an ad showing a young girl looking out over the prairie with the caption “Love Water Not Oil, Protect Our Mother, Stand with Standing Rock.”  This tension obviously benefitted Vladimir Putin.

In this country, gas prices remain so low that many of the suppliers are hurting badly.  As one of the producers told me yesterday, after fixed costs just about every place production is sold is negative.  In the very short term that’s good for the consumer.  In the long term that’s not.  Were more export terminals operating, the price could rise to a sustainable level, more gas could be sent overseas to break the energy vice grip of countries like Russia and the chances of gaining effective leverage over Russia and other rogue states would increase.

Since the Cold War we’ve had a debate over which is more important, soft power or hard power.  Here’s a tip for the “soft power’ proponents:  Soft Power works best when you have it.  Internationally, our current energy policy seems to be unilateral disarmament.  Again, that raises the possibility that the only way we can project force internationally and protect our allies and our vital interests is through hard power.  In English that means your sons and daughters and mine being sent overseas to fight.

When an “environmentalist” asks why you support hydraulic fracturing, you can answer very simply.  “I love my children.”

Marcellus Shale Update – 3.01.2018

The curious inconsistency among our national energy policy, national security policy and national environmental policy is coming into sharper focus.  It likely will be amplified by events thousands of miles away in the Middle East.

Start locally.  Last month I wrote about the astounding fact that people in New York and New England are more comfortable paying the Russians to import gas thousands of miles over ships of questionable seaworthiness than they are building pipelines to secure a cheap, reliable energy supply and pay Americans.  This aversion to pipelines is not unique to New York and New England – witness Dakota Access in North Dakota, Keystone in Nebraska and Jordan Cove in Oregon.   In Lambertville, NJ (next to Trenton), Mayor Dave Del Vecchio signed off on new zoning restrictions aimed at stopping the Penn East Pipeline which would transport gas from Northeastern Pennsylvania to the Trenton area.  Other municipalities have expressed their intent to try to stop the project.  Despite the fact that Penn East has received FERC approval, in the post-Andrew Cuomo/Constitution world interstate pipelines construction is a free-for-all.  How that serves the national interest is anyone’s guess.

Now broaden the horizons internationally, and especially to the Middle East.  The papers are full of stories about an impending war between Israel, Iran and Hezbollah.  Having been “invited” into the Syrian situation, Iran has used the opportunity to build its own military bases and extend its “Ring of Fire” around Israel.  They may be close to accomplishing it.  The Israelis are more and more convinced that war will break out soon.  They will not let Iran and Hezbollah build missile factories right under their nose.  Add to this the military power Russia has established in Syria, and for good measure take a small dose of American-backed Syrian rebels, Kurds and Turks, and you have a giant mess.  With Iran constantly pushing for a military confrontation, it’s hard to see how one will be avoided.  Once underway, there is no margin for error, and war is an exceedingly messy and imprecise business.

Already Americans have directly killed Russians.  On February 7 Russian forces attacked the town of Deir al-Zor in Syria, held by American-led Kurdish and Arab forces. At least 100 and potentially many times more Russians were killed and wounded in American air strikes.  The Russians have kept this hush hush, but it shows the danger.

Meanwhile, Syrian President Bashar Assad is carpet bombing anti-government rebels using chlorine gas in the Syrian region of Eastern Ghouta.  Western diplomats like British Foreign Secretary Boris Johnson are demanding a response, but any must take into account Russian air defenses.

With rather clear cut human rights violations, and with Russia directly involved, it would seem that Europe would love to give Russia a black eye over the Eastern Ghouta outrage, at least diplomatically.  The problem remains European dependence on Russian oil and gas.   Russia is Europe’s main supplier.   As of 2015, the 28 EU Member States imported 902 Mtoe of energy from Russia.  If a conflagration happens, and if we end up directly involved with the Russians – each of which is very possible – don’t expect overwhelming European support in areas like sanctions against the Russians.  Thanks to our pipeline buildout confusion and delays in establishing export terminals, we may face the prospect that the only way to project American power is to put American young men and women in harm’s way.  This is not a pleasant prospect. And didn’t have to happen.  It is, however, a direct response to our failure to counteract a Russian energy stranglehold despite having the opportunity to do so.

In any war situation, the price of commodities, including oil and gas, is likely to skyrocket.  Thanks to shale gas, that price spike will be tempered, at least everywhere in the Country except New York and New England.  We are on our way to overtaking Russia as the world’s largest oil producer, but we have no way to get the oil and natural gas to the Northeast.  Thanks to Andrew Cuomo and the other New England Governors and politicians, their region remains remarkably exposed.

As one nation, can we simply cut a geographic region loose during a price spike and say there will be no help coming from the rest of the country and no imports permitted from Russia and Yemen due to the international situation?  This could devastate New England economically.  On the other hand, does the whole country have to suffer for the well-meaning yet naïve environmental extremism of that region?  Let’s hope we don’t find out, but it’s more and more likely we will.

Questions? Let Dan know.

Marcellus Shale Update – 2.15.2018

It’s a few years too late, but the foolishness of absolutism under the guise of environmentalism finally is becoming too much to ignore.  Just two weeks after I railed against New England importing natural gas from Russia, the ultra-liberal Boston Globe joined in.  On Tuesday, in a remarkable 2,000 word editorial, the Globe finally said what needed to be said about the anti-pipeline movement.

Where I disagree with the Globe is in its portrayal of Massachusetts Senator Ed Markey as a fighter against these gas shipments.  Markey may have demanded the Federal Government stop the importing of gas that was drilled in Russia, but Markey has done nothing to alleviate the problem New England is causing itself by its environmental policies.  If anything, he’s done the opposite.  It is curious that while Markey demands Federal action to stop these Russian gas shipments, he remains mute over the usurpation of Federal control over our interstate gas pipelines by ideological state regulators under the pretense of protecting clean streams.

Environmental absolutist self-righteousness isn’t limited to New England, of course.  I saw it firsthand at the Delaware River Basin Commission hearings in Philadelphia three weeks ago.  The West Coast is full of it.  California has sued the Trump Administration over 25 times about rules related to hydraulic fracturing.  Churches, mosques and synagogues in Oregon have environmental committees seeking to prevent more oil and natural gas pipelines in that State.  Oregonians don’t seem to question the wisdom of having their gas and oil brought in by rail over the environmentally sensitive Columbia River Gorge.  In June 2016, 16 oil tank cars derailed from a Union Pacific train, igniting an explosion, spilling 42,000 gallons and forcing an evacuation of the town of Mosier.

Then there’s New York.  Usurping federal power over interstate pipelines granted to the Federal Energy Regulatory Commission by using a loophole in the Clean Streams Law, Governor Andrew Cuomo has blocked the building of any pipeline from the Marcellus Shale region of Northeastern Pennsylvania into New England.  Even if New Englanders wanted to stop paying off Vladimir Putin, they couldn’t until Governor Cuomo approves.  I take no position on the entire Trump/Russia collusion spectacle, but it is ironic that the people actually putting American dollars into Mr. Putin’s pocket are the politicians of New York and New England.

By any rational evaluation, the shale revolution and the pipeline buildout have been a net positive for the environment, the economy and our national security.   No matter how ineptly the energy industry makes its case, that use of natural gas has decreased our carbon emissions to levels not seen since the late 1980’s (more than offsetting any increase in methane emissions), given hope and money to people in rural communities that were on the verge of bankruptcy, allowed individuals with only a GED to get good jobs that actually can support their families and made our country functionally energy independent for the first time in my lifetime.

Rationality often is lost in this debate, however, to be replaced by ideology and extremism.  As with most absolutisms, that has the opposite of its intended effect.  How else do you explain the goings-on in Boston?  What Northeast politician would run on a platform that he/she would encourage drilling for natural gas in the Arctic with lax or no environmental safeguards, transporting that gas in ships of unknown safety through sensitive habitats, charging New Englanders for that gas eight times the amount paid by Pennsylvanians for their gas and sending much of that money to Vladimir Putin’s cronies?  It’s all happening now – right before our eyes.

This is not to say that regulation of these pipelines shouldn’t be robust and vigorous – it should, and this is not to say that there isn’t a place for national environmental policy to interact with national energy policy – it must.  It is to say, however, that these issues need to be examined from a practical, not ideological, perspective.  There is nothing noble about drilling into the ground for gas and oil or in building pipelines.  They all have downsides.  But so does everything else.

Let’s keep looking for ways to develop, store and transmit renewable energy, including spending large sums of tax dollars on research and development, but let’s not use the hope of a truly renewable, environmentally-neutral power supply to prevent us from doing the things now to clean our environment and protect our children’s future.  To do otherwise would be national negligence.

Questions? Let Dan know.

Marcellus Shale Update – 1.30.2018

Please excuse the rapid fire emails this week, but the circumstances are so extraordinary they need to be stated:

Ten years after the start of the shale revolution, the United States reached the height of absurdity.  A tanker named the Gaselys docked in Boston Harbor this weekend carrying natural gas.  New England needs this gas because it refuses to allow the buildout of our interstate natural gas pipeline system.  The Gaselys carried liquefied natural gas from – Russia.

You read that correctly.  Despite being just a few hours away from the most prolific natural gas fields in the world in Northeastern Pennsylvania, New England needs to obtain natural gas shipped on the high seas from gas wells in Russia.

Absolutely everything about this picture is wrong.  The gas could have been produced in Pennsylvania under American environmental regulations overseen by the Pennsylvania Department of Environmental Protection.  Instead it was produced in the Arctic eco-system overseen by the Russians.

The gas could have been transported a few hundred miles along newly built gas pipelines that are extraordinarily safe (though not 100%, nothing is).  Instead, the gas was shipped thousands of miles over the ocean in tankers of unknown quality and safety.

New England residents could have developed a secure, domestic supply of natural gas at affordable prices.  Instead, New England has a completely unreliable supply of natural gas at possibly the highest prices in the world.  It is astounding that any business would even consider locating in New England.   Boston made the cut of the final 20 cities competing for Amazon’s new headquarters.  How Amazon seriously could consider setting up operations there is beyond me.

Finally, the money used to purchase the gas could have gone to American companies who employ American workers and pay royalties to American landowners.  Instead, the money went to – Vladimir Putin.  And it’s not a one-time thing.  There will be other Russian gas shipments to Boston in the upcoming weeks.

The reason for all of this, of course, is that the shortsighted politicians in New York and New England refuse to allow construction of the pipelines needed to move the gas from the Marcellus Region to New England.  These politicians claim they are preserving the environment and combatting climate change.  They are doing the opposite.

Most of the power plants in New England can use either oil or natural gas.  Usually the price of natural gas makes it the preferred fuel.  With the price spikes affecting New England this winter, those plants have switched to oil, a much dirtier burning fuel.

In addition, New England politicians and “environmentalists” applauded as  New England’s nuclear power plants shut down.  The Pilgrim Nuclear Plant in Massachusetts is the only one left.  It will close by June 2019.  No one knows how that power supply (about 4.1% of Massachusetts’s total) will be made up.  In 2014, Vermonters cheered when the Yankee Nuclear Plant closed.  “Enviros” assured everyone that the balance would be offset from cleaner renewables.  No such luck.  After years of decline, New England’s CO2 emissions rose 5%.

There is no delicate way to put this.  The actions of the “environmental community” relating to natural gas are making our world, and our children’s world, less safe, less secure and less environmentally friendly.

If these “environmentalists” have an honest plan to power America’s needs, please show it to us.  Do we really need to import Russian gas before they present us with a real plan to run our nation in 2018?  How about even by 2038?  Anyone who loves the environment knows there are trade-offs.  Which ones would our “environmentalists” make?

I know these posts are read in the United States Senate, so I will ask the Senators who receive them to forward this to Massachusetts Senators Warren and Markey with one question.  What are you trying to accomplish?

Energy is not a play toy.  We’re not in a university classroom where you can pontificate with no real world consequences.  This IS the real world.

Your constituents’ money is going to Russia.  Your CO2 emissions are rising.  Your oceans and bays are filling with gas tankers.  Your state and region are becoming less competitive.  As American dollars flow into Vladimir Putin’s pockets, please help us understand what you are doing.

Questions? Let Dan know.