Energy 360: Moving energy - No easy feat, but a vital conversation

by Scott W. Tinker
Thursday, December 12, 2013

Scott Tinker worked in the oil and gas industry for 17 years in research, exploration and development before going to the University of Texas at Austin in 2000, where he directs a major environmental and energy research unit and looks at global energy issues. Gregory Daniel

Trucks, trains, planes and boats move food, clothing, cars, wood, steel, medical products, smartphones, bicycles, organic milk, free-range chickens—basically all consumer goods. And energy is no exception. Coal is mined and then carried to where it is burned. Oil and natural gas are moved from where they are produced to where they can be refined into transportation fuels and myriad other products, and then moved again. Uranium is mined and transported to create fuel rods for nuclear power plants or nuclear-powered ships. Materials for solar panels, wind turbines, geothermal plants, and wave and tide generators are mined and moved to manufacturing plants, from where the final products are moved again. Materials for dams are carried for construction, while water moves to the dam, largely on its own, thanks to topography and gravity. Biofuels are grown, transported, converted (refined), and transported again as fuels. And once created, electricity is moved along power lines to where it is consumed.

Energy movement is not easy, but given its importance, it should be a primary topic of conversation in the national debate on energy sources.

In the United States today, several debates are taking place involving the movement of energy, including ones about the Keystone XL and other oil pipelines and the construction of liquefied natural gas (LNG) export terminals. Many of the debates are not only uninformed, but at times seemingly intentionally misinformed by activists on all sides promoting agendas.

Take the Keystone pipeline, proposed to move oil from western Canada to the U.S. Gulf Coast, where it will be refined into transportation fuels. The debate goes something like this: One side does not want the pipeline built for environmental reasons — they correctly argue that it requires new infrastructure to be built across sensitive areas in the central United States and that the pipeline could leak. They also argue, in general, against burning oil, which releases carbon dioxide into the atmosphere. The other side supports the pipeline because it provides jobs and needed oil from a friendly U.S. neighbor, and because it will have a positive impact on North American energy security. They are also correct.

If you dig deeper, you find that those against Keystone believe that removing the U.S. market for the oil might prevent development of Canada’s oil sands. You also find that those who want it built believe it could lead America to oil independence. Both of these positions are based more in philosophy than pragmatism.

The “key” to Keystone is to look at it in terms of energy security — what is environmentally sustainable, affordable, available and reliable — because these parameters drive global energy behavior.

If the pipeline is not built, what will happen to the oil? Even given the potential for a slowdown in global demand, oil remains a valuable global commodity, and the Canadians, undoubtedly, will produce it to sell to international buyers. It will be moved east and/or west in Canada in a new pipeline or on trains and trucks, and then moved by tankers across oceans. The aggregate risk of spillage and negative impact is considerably greater, because these pipelines will travel through remote and delicate wild lands, such as the Great Bear Rainforest, with relatively little supervision. Tankers, trains and trucks are all more likely to leak than are pipelines, and when they do, they often leak more catastrophically — like the runaway oil train that derailed and exploded in Quebec on July 6, 2013, killing 47 people. And finally, aggregate carbon dioxide emissions are increased in these alternate transportation options. Thus, perhaps surprisingly, the environmental case favors building the Keystone pipeline.

Because it will also make energy more available, affordable and reliable, the energy security case seems clear. Now is the time for the sides to seek compromise in the “radical middle” and build the safest pipeline possible.

LNG export terminals provide another challenge: Should the federal government permit construction? Not long ago, permits in the United States were being sought for LNG receiving terminals, but plentiful domestic shale gas has changed that. Some argue against LNG export, citing energy security: Why export American energy that is needed at home? Others argue that unless there is a national security concern, then industry and states should be able to decide when and where to conduct commerce.

Let’s again examine this in terms of energy security. The environmental case against LNG terminals is that natural gas exports will encourage more hydraulic fracturing for shale gas. Although empirical data on hydraulic fracturing suggest that the fracking process itself does not contaminate groundwater, associated risks from near-surface casing leaks, atmospheric methane leaks, truck spills, storage tank leaks, extensive use of freshwater, and the like are certainly valid issues.

On the flip side, there is a major environmental benefit. Low-priced natural gas is replacing coal in many power plants, helping drive U.S. carbon dioxide emissions down to 1992 levels — a greater decrease than any other major economy in the world has experienced. Ironically, as a result, cheap American coal is being shipped to Europe, where moratoria on nuclear power and hydraulic fracturing have resulted in more coal being burned, with related increases in carbon dioxide emissions. Thus, the positive overall global impact of carbon dioxide emissions reductions from the increased use of natural gas over coal perhaps outweighs the risks of local environmental damage from the production of natural gas.

Looking at affordability, availability and reliability, we can see that increased production from shale gas has resulted in low natural gas prices; natural gas prices in Europe are three times those in North America. Low prices have slowed U.S. shale gas drilling and could eventually impact natural gas availability and reliability to some degree. Additionally, LNG exports would take natural gas from U.S. markets, seemingly decreasing availability. However, increased LNG exports would put “firmness” into North American natural gas prices, reassuring operators that they could continue to drill, improving supply and, thus, affordability, availability and reliability. So, LNG exports are perhaps a wash in terms of affordability, availability and reliability.

Although not as clear-cut as the Keystone pipeline, on balance, environmental sustainability, affordability, availability and reliability seem to support permitting LNG export facilities. That said, industry must decide if North American supply is robust enough and the current global natural gas price differential is durable enough to justify the high costs of constructing export terminals. That is a business decision.

It is difficult at times to get past our own biases and philosophical beliefs, find compromise, consider real options, and move forward. But that is exactly what must be done. Leave the activists on all sides entrenched in their corners and instead find compromise in the radical middle. It’s where things get done.

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