Sometime before mid-October, Assistant to the President for Economic Policy Larry Kudlow is supposed to provide US President Donald Trump with two reports on barriers to a national energy market. Both reports will “assess whether, and to what extent, state, local, tribal, or territorial actions” have contributed to such barriers.
The first report is to examine the economic and other effects caused by the inability to transport sufficient quantities of natural gas and other energy resources to New England. The second will apply the same focus to limitations on energy exports from the US West Coast.
The mandate to produce these reports was part of Trump’s Apr. 10 executive order, “Promoting Energy Infrastructure and Economic Growth.” The Department of Transportation is to prepare the first report, in consultation with the Department of Energy, with the roles reversed on the second report.
ISO New England Inc. (ISO-NE) reported that gas-fired units made up 49% of the region’s electricity generation capacity in 2018. Coal and oil accounted for roughly 1% each of the generation market. The dominance of gas in the power generation mix has helped reduce electricity prices in the region. Prices were lowest in 2016, with 2017 the second-lowest in the last 16 years. Higher prices in 2018, driven by higher gas prices, were still among the six lowest since the current market was established.
At the same time, however, ISO-NE already recognizes that the growing predominance of gas in the generation mix poses reliability risks during extended periods of cold weather. Nine days before Trump’s executive order, ISO-NE said it expects “industry trends will increase these risks over time unless proactive solutions are developed.”1 The grid operator also said it would act this summer to incentivize generators to ensure winter fuel is available.
Most conflicts regarding US West Coast hydrocarbon exports have focused on plans to increase coal shipments to Asia. One exception, however, is Pembina Pipeline Corp.’s Jordan Cove LNG project in Coos Bay, Ore.
The first of four US Federal Energy Regulatory Commission public hearings on the project was held June 24 in Coos Bay. Local citizens voiced concerns regarding the project’s effects on both marine and human health, while Pembina emphasized its economic potential. The company expects a final FERC decision by January 2020 and to bring the plant on line by 2025.
Jordon Cove would produce 7.8 million tonnes/year of LNG, with gas supplied from the Western Canadian Sedimentary Basin and the US Rockies via a 230-mile pipeline. LNG from the Oregon coast would reach Tokyo in 9 days.
China LNG
China increased its tariffs to 25% on US LNG effective June 1. Imposition of a 10% tariff on US LNG in September 2018 cut cargoes from the US to four (from 35 in the prior September-April period).
Even so, consultant Wood Mackenzie expects the US-China tariff battle to have limited short-term effects on pending US LNG projects, citing softer market fundamentals and long-term supply contracts with non-Chinese buyers as overriding factors. Longer-term, WoodMac describes the risk to US LNG developers of restricted access to Chinese investment and buyers as a blow, but not fatal.
Or as Trump himself put it while speaking Aug. 13 at the site of a future Shell petrochemicals complex in Monaco, Pa.: “We’re lucky. You go to places like China, they don’t have oil and gas. They don’t have it under their—they have to go buy it.”
1. ISO New England, “ISO-NE releases discussion paper on energy security challenges, solutions,” ISO Newswire, Apr. 1, 2019.
Christopher E. Smith | Editor in Chief
Christopher brings 27 years of experience in a variety of oil and gas industry analysis and reporting roles to his work as Editor-in-Chief, specializing for the last 15 of them in midstream and transportation sectors.
