Biden’s LNG export pause is no cause for concern

Everybody, Peter Zeihan coming to you from Colorado where we’re about to get another six inches of snow. A lot of you have written in about the Biden administration’s decision to put an operational pause, pending further review, on liquefied natural gas exports.

There are a lot of people talking a lot of things on all sides. On the energy industry side, they’re saying that this is a breach of proper protocol. And it’s going to really inhibit future investments across the sector. And then on the environmental side, they’re talking about how this is the end of that sector altogether. And they’re dancing and singing Kumbaya.

Everybody’s wrong. Let me kind of lay out what the stuff is.

So natural gas is normally transported by pipe because it’s difficult to move, it’s difficult to store, it’s difficult to produce. And so you’ll have a pipe network, like in North America, that is separate from the pipe network in Europe, which is separate from the pipe network in China. They got those are the three big ones, you got some smaller ones around the world, they don’t connect and they can’t connect. And so if you want to link these together, what you need to do is have a facility on a coast that will shell the stuff down to something like negative three degrees or so, and then it’s a liquid, and then you put it into a specially designed tanker that can handle these cryogenic fluids. And then you transport it across the ocean to another facility where it unloads and is re-gasified and then put into the new system.

Now, we’ve been doing this for a few decades, but it’s only in the last 15 years [when] it’s really started to become big. And the primary reason for that is the environmental movement.

Because natural gas, if it’s properly burned in an appropriate facility, a combined cycle natural gas plant generates about half of the co2 emissions of say a coal plant. Also, you can spin up a natural gas facility in just a few minutes, as opposed to a coal facility, which can take hours or even days.

And so if you want to pair it with, say, wind and solar, it’s the perfect complement fuel. Because when the sun goes down, or when the wind stops, you can just turn this thing on. And so if you want to get the full capacity from your wind and your solars, you really have to have a conventional system that’s dispatchable like natural gas.

Now, the United States currently has enough capacity, nameplate capacity, to chill and ship about 13 billion cubic feet of this stuff per day, which makes it the largest exporter in the world already, and under construction are facilities that would allow another 12 BCF per day which, you know, if you remove the United States as existing capacity from that, that’s again the world’s largest. And then there has already been stuff permitted for another 16 billion cubic feet per day. So you know, you add those three together. And well, I mean, where we are right now, that’s enough to supply all of Japan, if we bring all of these online, that’s almost enough to supply all of Europe.

And the Biden freeze doesn’t touch any of that. It is a pause of the review process for new facilities. Now, if the United States were to bring these all online, so 13, today 12, in the few years and down the road, maybe another 16, you know, you’re talking what [sic] 40 more BCF. And that would be roughly one quarter to one third of total U.S. consumption of natural gas. If we did get the number that high, we’d have a lot more price linkage between the U.S. market and everywhere else. Remember, natural gas is pretty much sequestered. And LNG has traditionally just kind of played at the margins. But if we had this kind of volume, then Americans would start to be exposed to global natural gas prices.

If that were to happen, instead of this $2 to $5 range that we’ve kind of become used to, and it’s probably going to be our norm for the next few decades, we’d probably see prices regularly going above $15 or $20, as we have international price shocks because of things like, I don’t know, the Ukraine war, or I don’t know, something blowing up in the Middle East. When you only have about 10% exposure, or in our cases a little bit, 10%, yeah we got about 10, 10% exposure, the price swings are very muted. And so back in 2021, when the Ukraine war was hot and heavy, we thought we were gonna lose all the Russian gas at the same time. The Europeans were dealing with natural gas prices that were well over $70 for a few months, and it was pretty ugly further into industrial stuff. Anyway, let’s talk about what people are talking about with this on the industry side.

The idea that we’re going to build out past 40 is kind of a stretch anyway. So the oil companies are just whining because someone’s telling them that they can’t do anything right now. Second, the Biden administration has not oversold, they’re saying it’s a temporary pause of the review process to consider climate change. Well, if you want to consider climate change, natural gas is the perfect fuel to ship out in bulk because it’s the only thing that really pairs with solar or wind. You’re not going to do this with coal, that would be silly. And batteries sound great until you realize the industrial processes required to build them at scale is never going to make them more than a niche use in specific areas. I’m not saying there’s no use for them there. But natural gas is so much easier, it’s so much cheaper. And by most measures, it’s actually a lot cleaner too. So you’re only going to put batteries in places like Phoenix, maybe, where the solar intensity can be really, really high, and they just need to save some, just need to save some for nights.

And then on the environmental side, the celebrations, you know, number one, this is not forever, it’s a temporary pause of the review process which the Biden administration could reverse with a stroke of a pen, or any additional leader could for reasons [sic] environmental, economic, [or] strategic. Remember that a lot of stuff that’s getting shipped out right now is going to Europe in order to allow the Europeans an option other than sucking down Russian gas. So you know, this is kind of important from that front, too.

So everyone’s kind of making a really big deal out of it. But I think the thing that is most hilarious is that the Biden administration has found a way again to satisfy the environmental activists without actually changing the system. This is very similar to what he did when he came in to the presidency, and he put a moratorium on fracking on federal lands, and everyone was all wailing, and gnashing their teeth on one side and screaming bloody delight on the other side. Well, people forget that 99% of all shale operations are in private land. And that is regulated by the state. So it was less than 1% of wells that were affected at all. But it made the environmentalist happy. And it pissed off the energy industry, but it didn’t really change anything at all. And Biden is never going to be the preferred candidate of the energy industry. And he was able to placate some of his more hardcore supporters. He’s now done that again. So it’s a fairly savvy political move that actually moves the needle not at all, which you know, is one of the smarter things you can say about politics these days.