Increasing demand for gas brings uneasy balance

Increasing demand for gas brings uneasy balance

With the war in Ukraine and national conversations surrounding infrastructure investments, there is a lot of momentum in the space surrounding the liquified natural gas (LNG) market.

In his February State of the Union address, President Joe Biden announced Infrastructure Investment and Jobs Act provisions which would broaden the scope of the Buy America requirements on federally-funded infrastructure projects.

Buy America mandates date back to the 1930s. The domestic-preference requirements for iron, steel and some types of manufactured products pre-date the IIJA.

But that statute expands the domestic-preference scope. Folded into the IIJA is the text of the Build America, Buy America Act, which still requires use of domestic iron, steel and manufactured products but adds construction materials to the Buy America list on federally funded infrastructure projects.

At LNG Canada, that country’s massive liquefied natural gas expert terminal project in British Columbia, the project is nearly 70 percent complete. In the past, LNG expansion was often seen as evolving at the detriment of climate change mitigation.

Now, many are waiting to see how the recent events globally will spur concern over energy security and spill over into further expansion efforts.

Since work began at the remote British Columbia site in 2015, Canada’s largest private investment has been set to use natural gas-powered turbines — with approval from government regulators — in compressors that will cool fuel to -162° C to reduce the volume for export.

In the interim, the province launched its CleanBC initiative to lower emissions 40 percent by 2030 and reach net-zero by 2050 — with the facility weighing climate change impact and project economics in switching to cleaner but more expensive hydroelectric power, which would require hundreds of kilometers of new transmission lines to reach the coastal site.

Now, climate urgency is colliding with global concerns, catapulted by Russian oil and gas cutoffs to Europe that followed its invasion of Ukraine a year ago, along with shifts in supply, demand and cost scenarios for renewable energy and fossil fuels in other global markets, such as Asia and Africa.

The fuel supply and cost gyrations have forced some to rethink how quickly the renewables shift will realistically occur — despite pressure from government entities and climate change advocates — and fossil fuel’s role in future global energy supply. Some observers see natural gas as a needed player in the energy transition.

The war in Ukraine has had far-reaching impacts on energy security around the world and caused structural shifts in the market that are likely to impact the global LNG industry over the long term.

At the same time, the trend tees up the continued clash between energy companies gaining big financial returns from a gas resurgence and a push for production, even with more emissions-cutting investments — and advocates who say the producers’ clean energy shift is too slow to combat climate change urgency.

Critics of profiteering and the perceived slow push on renewables included Biden in his State of the Union, but he also conceded that the country will still have to rely on oil and gas for the foreseeable future.

Energy Secretary Jennifer Granholm told a press briefing that “we know that our liquefied natural gas exports have been a significant help to our allies,” even as her agency earmarks a large amount of the $369 billion in Inflation Reduction Act funding for clean energy-related investment and technology.

Germany has long relied on its Russia-supplied natural gas for heating and to run its industries, a key economic engine for Europe. Despite aggressive moves in recent years away from fossil fuels—an effort called Energiewende, or energy transition—Germany, and other European nations, scrambled this year to build new gas import infrastructure amid Russian supply cutoffs.

Greater focus on costs and cost cutting is likely in 2023, however, which may bring into stark relief how Europe continues to depend on imported energy supplies even after the painful severing of ties with Russia.

This in turn may further accelerate Europe’s efforts to transition away from all fossil fuels even as the region looks set to further step up LNG imports from the United States and elsewhere to sustain vital energy supplies over the near term.

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