Russia, Ukraine and Marcellus

russian ships blocking access to ukrainian ports

The simmering dispute over waterway rights between Ukraine and Russia broke into armed conflict this week. Its implications are enormous both for the energy world as a whole and especially for us in the Marcellus Shale region. But some background is required to appreciate the connection.

Briefly, when Vladimir Putin seized the Crimea in 2014 he gained control of the Kerch Strait, which cuts off the sea lanes from Southeastern Ukraine between the Azov Sea and the Black Sea. Until 2014, Russia had controlled the eastern shore of the Kerch Strait but Ukraine had controlled the west. The two countries had reached an agreement in 2003 allowing for shared access of the Kerch Strait and the Azov Sea. However, Russia’s military and political moves in Crimea in 2014 changed that.

Eager to connect the Crimea to the Russian mainland, Putin ordered the building of a 12 mile bridge over the Kerch Strait after the annexation, which he formally opened himself this year in May by driving a truck across it. Russia then placed more armed vessels in the waters around the bridge. The Russians claimed they needed better security. In practice, the extra traffic increased delays to ships trying to access and use the Ukrainian ports on the Azov Sea, increasing the costs of doing business there and undermining the utility of these ports in international trade.

Ukraine responded with a military show of force, but this was overwhelmed by Russian naval power. Russia then used the supports of the bridge, which had been built at a strategic distance, to permit its own warships to blockade the Ukrainian ports. Weaker militarily, Ukraine has few cards left to play and access to its Azov Sea ports is now very much under Russian de facto control.

As I noted in July during the controversy over the Nord Stream II pipeline that Germany is building with Russia and which will bypass Ukraine and Poland, Ukraine currently gets over 2% of its GDP from transfer payments for the trans-shipments of Russian gas and oil to Western Europe. Thanks to Angela Merkel, that transport route may become irrelevant. Nord Stream II brings Putin’s dreams of Russia once again dominating Eastern Europe one step closer. However, more than just Ukraine’s loss of access to its ports and its lost revenue from diverted oil and gas trans-shipments, thanks to this new pipeline Russia can cut off energy supplies to Poland, Ukraine and the Baltic States any time it wishes, without worrying that Western Europe will react harshly as their supplies are also cut off. While economically in the short term this direct pipeline access to Russian gas and oil may be better for Germany, Nord Stream II is a geo-political disaster due to its implications for further expansion of Russian power and influence over former Soviet states, if not more globally.

For these reasons, President Trump was right in calling the Germans out on the new pipeline at the NATO summit in July. However, the President has not been forthcoming with an appropriate condemnation of Russia’s actions, leaving our allies confused and leaving UN Secretary Nikki Haley to act as the lone Voice of America while the President – inexplicably but not unexpectedly – dithers on calling Putin out for what is obviously going on.

Meanwhile, with Putin again showing his aggressive nature, the rest of the West is scrambling.  Cyprus, Israel, Greece and Italy agreed this week to build a $7B pipeline for the Eastern Mediterranean from the Leviathan Field in the Mediterranean Sea. Germany, perhaps belatedly realizing the folly of putting all of its energy eggs in Putin’s basket, now is partnering with Dow Chemical also to build a liquefied natural gas import facility in the German city of Strade, near Hamburg.

Who will supply the gas to feed Western Europe should Russia turn out to be unreliable or if Nord Stream II becomes another pawn on Putin’s chess board to regained Soviet dominance? It could and should be us from right here in the Marcellus. By building out our pipeline system in the US, we can supply Strade and other future European gas import terminals, thereby helping thwart Putin’s aggression, and projecting American “soft power” – which is what critics of an aggressive American foreign policy often demand. At the very least, this will help keep American troops out of harm’s way, but it could also serve as a geopolitical foil to Russia’s attempts to use its energy largesse for political, military, and evident expansion purposes.

Will we have the political will to do it?

In order to do so, the natural gas industry in this country must first recognize the strategic reasons why this is important which, in turn, requires understanding the interconnections between domestic energy policy, international trade, and political, military, and diplomatic events in far away places. Few Americans presently understand how Russian moves in the Azov Sea could eventually end up causing young men and women in Pennsylvania, West Virginia, Ohio and elsewhere to be sent overseas in military uniforms. Fewer still comprehend how the pipeline build out and export terminals in this country can help (1) secure our future militarily while simultaneously (2) creating good jobs for people in our region and (3) decreasing greenhouse gas emissions worldwide. None will understand if they are not told.

Tom Wolf just won reelection handily as Governor of Pennsylvania. He is no friend of the natural gas industry. Unlike his counterparts in New York and Maryland, however, he hasn’t moved to try to shut it down. There will be more pressure on him to do so now that the National Climate Assessment has been released.

Wolf, though, lives in the real world. He must perform for Pennsylvanians. Strange as it sounds, the Governor and the industry need each other. The gas industry has to provide him with the explanation as to why working with the it not only is in Wolf’s own best interests politically but is also in the best interests of all Pennsylvanians, and indeed all Americans. Somehow this message has not gotten through as forcefully as it should.

Further, our newly elected representatives from the Marcellus States in their state legislatures and in the United States Congress must understand – and not be hesitant to educate the public about – the international dynamic. Some, like Chrissy Houlahan of my home district in Southeastern Pennsylvania, are military veterans who have dealt with the intricacies of international relations. Others are untested. It will be up to all of them to work to keep American men and women safe. It will be up to all of us involved with the industry to explain how it can be instrumental – indeed, strategically essential – in doing so.

Meanwhile, Vladimir Putin will be watching, waiting, and planning his next chess move.

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.

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.

Pipelines and Politics

Marcellus Shale Update by Daniel Markind of Flaster Greenberg

The tortured story of the Mariner East 2 Pipeline construction may be coming to an end.  If so, it will end the way it began, mired in controversy and inconsistent with what had been proposed and promised by the developers.

Last Thursday, Energy Transfer Partners announced that it will start shipping natural gas liquids through the pipeline by the end of the year.  That pipeline, however, will look different from what had been expected.  The original plans called for a 16-inch pipeline (Mariner 2X) and a 20-inch pipeline (Mariner 2) that each would run along the same right-of-way as the original Mariner East Pipeline from 1931.  ETP now says it only will construct one pipeline, that will merge an existing 12-inch pipe with certain areas of 16-inch pipe and other areas of 20-inch pipe, and this will be called Mariner East 2.  ETP did not explain why its plans had changed, how much of each size pipe will be used, and why the final route through Delaware and Chester Counties in Pennsylvania will be slightly different than previously stated.

Not surprisingly, local residents and elected officials were not pleased.  Pennsylvania State Senator Andy Dinniman, who has been a longtime critic of the pipeline and has also pointed out instances of ETP’s failure to follow State regulations, released a statement that said in part “the cobbling together of new and antiquated pipelines of varying sizes appears to have the potential for even more safety risks and concerns.”

As Mariner East limps toward the finish line, natural gas prices surged this week to five-year highs.  The early storm combined with low stockpiles to produce spot market prices over $4/Mcf.  With winter still a month away, this should be a good time for the natural gas industry to redouble its efforts to convince the Northeast public about the virtues of the pipeline buildout.  The industry has an excellent case to make, both economically and ecologically.  Stories like Mariner 2 however, put the industry in a deep hole.  It’s hard to convince the public of the environmental benefits when a feature project is recycling antiquated pipe at the last minute without explanation.  If the gas industry wants to thrive in the Marcellus, it might try doing itself a favor and treating the public like the concerned residents most are.

Elsewhere, judicial and administrative rulings affected other Marcellus pipelines.  Last Wednesday, the 4th Circuit Court of Appeals ordered a temporary halt to a water crossing permit in West Virginia needed to build the Atlantic Coast Pipeline from West Virginia to North Carolina.  The Court ruled that two conditions required by the West Virginia Department of Environmental Protection to protect the state’s water quality, including a requirement that the stream crossing must be completed within 72 hours, had not been met.  The three judge panel in Charleston, which in October had issued a similar stay to the Mountain Valley Pipeline, overruled an Army Corps of Engineers grant which was issued following a route change.  This should be worked out without much difficulty, but it adds to the suspicion with which pipeline projects currently are viewed.

Finally, FERC granted the Constitution Pipeline, which would run from Dimock, Pennsylvania to Schoharie County, New York, a two-year extension to complete the project.  The unanimous ruling came from two Democratic commissioners and one Republican commissioner.  The Constitution is much needed and was the source of the original power grab by New York Governor Andrew Cuomo regarding the Section 401 Clean Streams Permit, a power play that has been copied by other activist governors (and in spirit by Premier John Horgan of the Canadian Province of British Columbia).

The ruling may be prophetic.  Just one week after winning reelection, Cuomo is in serious political trouble.  Details of the extraordinary giveaways New York State made to the richest man in the world, Amazon’s Jeff Bezos, so that Amazon would locate one of its new headquarters in Long Island City have put Governor Cuomo squarely on the defensive.  From an Upstate New York perspective, Amazon is another case of Upstaters getting taxed heavily and having their industry stymied so that New York State Government literally can give their money away to a multi-billionaire for the benefit of Downstaters.

New York’s natural prices already are rising.  A difficult winter possibly is approaching and New York needs gas, which it may have to import again from Vladimir Putin.  None of this looks good for Governor Cuomo, especially with the 2020 Presidential Election season approaching.  It is possible that the Governor may have to do something that actually helps the Southern Tier and build the pipeline.  This will begin to unlock the Marcellus potential for the benefit of New York, New England and the entire United States.  If so, it means we could be less dependent on the Russian dictator for our energy.  That should strike all of us as a good thing.

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.

 

The Lawrence, MA Pipeline Explosions

20180914_Marcellus Shale Update

On January 11, 1912, women weavers shut down the Everett Mill in Lawrence, Massachusetts.  Earlier that day, they opened their pay envelopes to find their wages cut by 4%.

A recently enacted Massachusetts law had reduced the workweek for women and children from 56 hours to 54. Mill owners reacted by cutting the pay of their already lowly-paid workers.  The women revolted.

The strike soon engulfed the city.  Workers slashed machine belts, threads and cloth. Mill owners hired strike breakers and militiamen.  That only ratcheted up the tension.

Known in history as the “Bread and Roses Strike”, the bitter work stoppage lasted nine weeks.  When it was over, Congressional hearings had galvanized the public against the working conditions allowed by the owners, and the workers gained a 15% pay raise.  The political earthquake would be one of the seminal moments of the American labor movement.

A century later, a more literal earthquake in Lawrence, Massachusetts may portend a seminal movement for the natural gas industry.

Just three days after a gas pipeline exploded in Western Pennsylvania, at least 70 explosions tore through a Columbia Gas pipeline in Lawrence.  Fires broke out throughout the city.  One person is dead, at least twelve are injured, and 60-100 homes burned.  A large geographic area around Lawrence has been evacuated.

It is far too early to tell what caused the explosions, but certain things are clear.

First, our national infrastructure is deplorable.  Decades of disinvestment leave us with power lines, electrical grids, roads, airports and bridges that would embarrass a third world country.  The nation is falling apart.

Second, it is the responsibility of the owners of natural gas pipelines to ensure their safety.  That means adequately maintaining lines that already exist, properly building new pipelines, and informing the authorities when pipelines begin to decay or show damage.

Third, pipelines carrying pressurized gas are inherently dangerous.  To deny that is to deny reality.  It is up to the owners of the pipelines to show that they are safe, and not up to the public to show they are not.

Fourth, “renewable energy” will not solve this transmission problem.  Solar and wind power can create electricity, but it takes high-tension lines to transmit it.  To those who propose offshore solar and wind as a major source of the nation’s power, imagine the situation in the Carolinas right now if they obtained a significant amount of their power through offshore solar and wind farms transmitted by high-tension lines.  Even inland, think about the aftermath of Hurricane Florence in a “renewable energy’ world.  How many of those solar and wind installations would survive intact, and what would be the result of the storm on the transmission lines?  For how long would the area be unlivable?

Fifth, given modern political realities, the natural gas industry in the Northeast could be in serious trouble.  It must get a handle on its pipeline situation.  Andrew Cuomo defeated Cynthia Nixon in the New York Gubernatorial primary, but Nixon pushed Cuomo even further to the left than before.  With two pipelines blowing up in four days, what chance does the industry have of convincing the public or political leaders that natural gas pipelines are a good idea?

For the last decade, gas industry workers have produced an energy revolution in the Marcellus Region.  Whole parts of Pennsylvania, Ohio and West Virginia that faced economic depression have been revitalized; the grip on our economic lifeline of tyrannical regimes in the Middle East, Africa, South America and Russia has been broken.  American consumers throughout the country have saved tens of billions in energy costs.

All of that will be at risk if the gas industry doesn’t get serious about policing its own.  The boards of directors of our major gas producers should think about the tens of billions of dollars in investment they’ve made in our region.  Are they prepared to see it vanish because they refused to hold the pipeline companies to the highest standards of construction and maintenance?  If they abdicate their responsibility at this most delicate moment, they will have only themselves to blame.

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 – 7.3.2018

As we approach Independence Day, the disconnect between what is reported in the press and what the world situation actually is remains very curious.

Today, speaking on MSNBC’s Morning Joe, host Joe Scarborough and Council of Foreign Relations President Richard Haass bemoaned the fact that President Donald Trump is eviscerating the post-World War II order and not replacing it with anything.  Haass said we voluntarily are giving up our international position of primacy.  One wonders if Mr. Haass has spent much time looking at Nord Stream 2, the gas pipeline from Russia to Germany through the Baltic Sea, bypassing Ukraine, Russia and the Baltic States.

The effect of this pipeline will be to give Russia greater control over Europe’s energy supply.  It will enrich Putin, remove any control or payment that these other countries would have received, and make German Chancellor Angela Merkel even more subservient to Russia.  Ukraine for example, may lose 2% of its GDP as a result of the loss of trans-shipment payments.

Trump, who according to Morning Joe and much of the Western press is a Russian stooge, adamantly opposes the pipeline.  The Trump Administration is going so far as to have Secretary of State Mike Pompeo announce that the United States has made it clear that Russia should not be allowed to get more opportunities to exert political influence not only in Germany, but also in Europe in general, if Nord Stream 2 is implemented.  The current Administration has threatened to sanction any company involved in the project.

None of this has stopped Merkel, ostensibly the leader of the country blazing the trail toward a “green economy”.  She is determined to get this pipeline built, increase her dependency on Putin’s energy and rely more fully on Russian gas production from environmentally sensitive areas of the Arctic.

All of this sounds upside down, doesn’t it?  Indeed yesterday Estonia’s Minister of Foreign Affairs Sven Mikser said it is in the EU’s best interests to stop the project as it serves Russian geopolitical interest.  Earlier today, the German environmental group Nabu filed a lawsuit with Germany’s highest constitutional court asking to halt the pipeline.

Supporters of the project say that Nord Stream 2 will give Germany access to a cleaner form of energy than it currently uses.  That this might be so shows how dirty Germany’s current power supply is.  Despite refusing to greenlight any power project that is not “renewable” this decade (or perhaps because of this), Germany remains highly dependent on a very dirty form of coal called “lignite”.

Why then, is the Trump Administration, which according to many press reports (a) is in the pocket of Putin, (b) doesn’t care about the environment and (c) is willing to tear apart the old European alliance, so opposed to this pipeline?  Even if its only concerns are geopolitical and economic, the fact that the Administration is opposed to Nord Stream 2 shows that something is missing from the national debate.  A Putin puppet would just go along.  Instead the United States is taking a remarkably hard line.  Nowhere, however, is this nuance reflected in the press.

The topic of energy encompasses so many facets of our modern political debate, from geo-political power to environmentalism to future economic growth, that these stories have to be part of the discussion.  Trump may be secretly aligned with Putin.  None of us really knows.  The fact though that the Trump Administration is fighting so hard against Putin’s interests in this critical field is a story that needs to be told.  Each reader or listener then can draw his/her own conclusions.  It certainly may not show that Trump is an environmentalist, but it argues against the idea that he’s in Putin’s pocket.

Why Scarborough, Haass, the rest of MSNBC, CNN and even Fox News  fail to report on Nord Stream 2 remains mystifying.  It only increases the level of suspicion and derision with which the American press is held.

Questions? Let Dan know.

Marcellus Shale Update – 6.26.2018

For the second time in two months, a lead energy story comes from Canada.

On Monday, newly elected Ontario Premier (Governor) Doug Ford announced that he immediately would dismantle Ontario’s carbon cap and trade system.  Mr. Ford gave no specifics, but his announcement put $2.9B (Canadian) in carbon tradable allowances in limbo.  Already California, which was integrating its system with Ontario’s, announced it would no longer accept or trade Ontario carbon credits.  Quebec stopped as well.

Cap and trade is an attempt to find a quasi-free market solution to environmental externalities.  There are many variations of these systems, but in Ontario companies that emit at least 250,000 tons of greenhouse gasses per year have to purchase an equal amount of “allowances”. The allowances were made available at quarterly auctions and could be purchased on the free market, hence the integration with California and Quebec.

Regardless of how the program is wound down, the fact that Premier Ford is ending it will have repercussions among all such programs.  The more potential investors believe a program is subject to political influences the less they will be willing to participate, increasing prices and decreasing efficiency.  It’s one more byproduct of the politicization of the climate issue.

Another byproduct is the attempt to use the court system for political purposes.  Yesterday US District Judge William Alsup granted a motion by BP, Royal Dutch Shell, Exxon Mobil, ConocoPhillips and Chevron to dismiss lawsuits by the Cities of San Francisco and Oakland attempting to hold these companies liable for the impact to Bay Area residents of climate change.

From the beginning, this case went opposite the way the plaintiffs intended.  Attorneys for the defendants obtained copies of bond documents executed by the cities when they issued their revenue bonds in which they made no mention of any threat to public welfare from climate change.  The Judge held a special hearing to try to understand the science of climate change.  This did not go well for the cities.  Anticipated “smoking guns” – in the form of internal emails among employees of the companies suggesting they knew they were causing climate change but were hiding it – never materialized.

Instead, Judge Alsup ruled that while global warming was a real threat, it must be fixed by “our political branches.”  “The benefits of fossil fuels are worldwide,” he continued. “The problem deserves a solution on a more vast scale than can be supplied by a district judge or jury in a public nuisance case.”

It is likely that similar suits brought by New York City and other municipalities will end up the same way.  This is a good thing, because we need as a society to decide what our future energy mix will be, not by judicial fiat.

Finally, on the same theme three new studies came out over the last two months that contradict the “environmentalist” position about the evils of fracking.

Peer reviewed studies from the University of Cincinnati, Penn State and Yale all reached the conclusion that there is little correlation between hydraulic fracturing and groundwater contamination.  The researchers were almost apologetic in their conclusions, noting in the Cincinnati study that the findings contradicted what they had expected.  Indeed, the Cincinnati study had been partially funded by environmental groups opposed to fracking.

This does not mean that fracking is pristine. It’s an industrial process that produces externalities like any other.  It does contradict all of those people who claim an overwhelming body of scientific evidence exists showing the evils of fracking.  I saw many of them in January at the Delaware River Basin Commission hearing in Philadelphia about the DRBC’s proposed fracking ban within the basin.  Indeed the science mostly goes the opposite way.  Let’s hope that, unlike our immigration  “debate”, we in the energy context can move beyond wild assertions and use science as our realistic guide to protect our one lonely planet.

Questions? Let Dan know.