Why are the U.S. and Canada refusing to ramp up oil and gas production?
In the weeks that immediately followed Russia’s invasion of Ukraine, President Joe Biden and Canadian Prime Minister Justin Trudeau appeared committed to expanding oil and gas production at home to help their allies abroad. Biden announced that the U.S. would increase the amount of liquefied natural gas (LNG) the U.S. sends to Europe to replace what it had been importing from Russia. And Trudeau said he was “looking at how we can deliver more oil and gas to Europe.”
But it’s now clear that neither Biden nor Trudeau have followed through on their promises. Backroom talks have broken down and European leaders are increasingly making public pleas to the U.S. and Canada to produce more oil and gas for export.
Last week, German Chancellor Olaf Scholz flew to Canada to beg Trudeau to export more natural gas to Europe. “As Germany is moving away from Russian energy at warp speed, Canada is our partner of choice,” said Scholz in Toronto. “For now, this means increasing our LNG imports. We hope that Canadian LNG will play a major role in this.”
But Trudeau rejected the idea, saying “there has never been a strong business case” for sending Canadian LNG to Europe. By contrast, he said, there is a strong business case for Canada to produce and export hydrogen gas to Germany. “German companies are already signing deals to buy made-in-Canada hydrogen,” Trudeau said. “There is no doubt the demand is there.”
Trudeau’s claims were ridiculous. Hydrogen (H2) accounts for less than 2% of Europe’s energy consumption, and 96% of it is made from natural gas (CH4). By contrast, Europe is facing energy, electricity, and fertilizer shortages due to the scarcity and high price of natural gas, which is 24% of the EU’s energy mix, and essential to European industries.
As for the business case, all one needs to know is that the price of natural gas in Europe is an astonishing 18 times higher than in Canada ($90/MMBtu vs $5/MMBtu).
“Canada just missed possibly one of the greatest opportunities in its history,” wrote the business columnist for Canada’s National Post, Tristan Hopper. “Canada could be helping to deal a body blow to Russian hegemony over Western European energy. Instead, on both fronts, Ottawa appears content to watch from the sidelines.”
It’s true that the U.S. and Canada are producing more natural gas than ever. The U.S. is the largest LNG exporter in the world. US natural gas production will increase from 95.1 billion cubic feet per day (Bcf/d) in October 2021 to 97.5 Bcf/d by December 2022, a record high. U.S. exports increased by 12% in the first half of 2022. Canada will likely see its natural gas production increase by 7% and exports by 10% in 2022.
But those increases were underway before Biden took office and are a tiny fraction of what either nation could be producing. The largest US natural gas producer, EQT, calculates that the US can easily produce four times more LNG, 569 billion cubic meters (Bcm) per year. To put that number in perspective, Germany imported a total 142 Bcm of nat gas in 2021 while the EU consumed a total of 412 Bcm in 2021.
Why, then, aren’t the U.S. and Canada massively ramping up natural gas and oil production to aid our allies? Why are Biden and Trudeau effectively telling Europe to drop dead?
Behold, Climate Nihilism
The problem is not lack of oil or gas. The proven U.S. and Canadian reserves of natural gas are 473 Trillion cubic feet and 83 Tcf, respectively. That means North America could produce enough for itself and Europe for over 1,000 years. Not that we would need to: we should, and likely will, move to nuclear energy long before then.
The reason there is no “business case” for Canada to export natural gas to Europe is the same reason there is no “business case” for the U.S. to massively ramp up its LNG exports: the government won’t allow it. Both the Biden and Trudeau administrations are refusing to give out the permits needed to build the pipelines, produce the gas, and build the LNG terminals.
According to Canadian journalist Hopper, Trudeau’s opposition to natural gas stems from his concerns about climate change. A $10-billion LNG export facility planned for Quebec, he noted, “was rejected by the Quebec and federal governments largely on the grounds that it would increase greenhouse-gas emissions.”
As a result, Canada doesn’t have any LNG export terminals. “Every single liter of natural gas that Canada manages to export all goes to the United States via pipeline.” Over the last seven years the Canadian government has received 18 applications for LNG projects, including five on the East Coast, but two have been approved and only one is under construction not quite poised to break ground.
And the response from the Biden administration is, once again, not to increase oil and gas production but rather demand that oil companies export less. “I again urge you to focus in the near term on building inventories in the United States, rather than selling down current stocks and further increasing exports,” wrote U.S. Energy Secretary Jennifer Granholm in a letter to oil refiners last week. “It is our hope that companies will proactively address this need. If that is not the case, the Administration will need to consider additional Federal requirements or other emergency measures.” [My emphasis.]
All of this is happening at a moment when European energy prices have become so high that they are causing either inflation in energy-intensive industries or their wholesale destruction. “You can’t just turn the machines off,” said the secretary-general of Europe’s Glass Alliance. “The hot, liquid glass would cool and harden, breaking the equipment,” notes The Wall Street Journal.
Climate activists don’t care. Or, rather, de-industrialization is a feature not a bug of their strategy. Around the Western world they are protesting the expansion of natural gas exports to Europe. In Canada, protesters caused hundreds of millions of dollars in economic damage to the Canadian economy after blocking highways and railroads. Over the last year, anti-pipeline activists have violently attacked gas pipeline work camps.
Apocalyptic environmentalism is a religion. It gives people a purpose: to save the world from climate change. It provides people with a story that casts them as heroes. It is part and parcel of a broader Woke religion, which focuses on social and racial justice. It meets some of the same psychological and spiritual needs as Judeo-Christianity and other religions, which have been on the decline. In 2020, U.S. church membership has dropped from 70% in 1990 to below 50% in 2020.
“We might expect that religious concepts—repentance, hellfire, heresy, apostasy—would have become less salient,” wrote Helen Lewis in The Atlantic last week about Woke religion. “But that’s not the case. For some activists, politics has usurped the role that religion used to play as a source of meaning and purpose in our lives, and a way to find a community.”
There is nothing wrong with religions and often a great deal right about them. They have long provided people with the meaning and purpose they need, particularly in order to survive life’s many challenges. Religions can be a guide to positive, prosocial, and ethical behavior.
The trouble with the new environmental religion is that it is undermining Western civilization. Anti-energy policymakers and activists say we must restrict energy consumption to save civilization from climate change. But in doing so, they are increasingly putting it at risk.
The Case for LNG to Hydrogen
Team Biden is running out of runway. They have no strategy on energy after the November elections, which are now just two months away. After that, the U.S. will become consumed with the 2024 presidential elections. Republicans will make energy-driven inflation one of their top issues.
The time is ripe for a new vision. Last week, OPEC threatened to tighten oil supplies, European fertilizer makers slashed production 70%, and electricity prices rose above $1,000 per megawatt hour, a 25-fold increase from two years ago. Putin is profiting economically and politically. The Russian government is urging Europeans to rise up against their governments and end the war in Ukraine, and it’s starting to work.
“Matteo Salvini, the head of the far-right League party,” reports Bloomberg, “has linked sanctions to the cost-of-living crisis, suggesting a diplomatic solution is needed to protect Italian households and moving away from [former Prime Minister] Mario Draghi’s hawkish stance against Russia.”
For the last three decades, Republicans have mostly been on the defensive against climate alarmism. They have defended free markets and an “all of the above” strategy that claims we need coal, natural gas, nuclear, and renewables alike.
Such a strategy may have made sense during the post-Cold War neoliberal era, but it doesn’t make sense any more. Governments had always played a heavy role in energy policy given that they determine, through regulatory permitting, how much oil, natural gas, and gasoline can be produced.
And now, with the heavy continued subsidies of renewables guaranteed by the Inflation Reduction Act, which just passed Congress, governments will increasingly be forced to subsidize all forms of electricity generation, including natural gas generators, which have already started going bankrupt due to renewables subsidies.
The same is happening in Europe. Governments are taking over failing energy companies. And just today, The European Commission’s president called for “an emergency intervention and structural reform of the electricity market” which will be a significant expansion of government control of European energy markets for the foreseeable future.
It’s clear that North America, and the U.S. in particular, needs to rescue Europe, or Europe will implode. Some Republican nationalists worry that more energy exports will make energy more expensive domestically, but that need not be the case. Piped natural gas within the United States will remain cheaper than LNG sent to Europe, providing the U.S. with a long-term economic competitive advantage over European allies. Additional measures to keep American natural gas cheap could be imposed, if necessary.
The transition to hydrogen will take time. Trudeau tried to sell Scholz on hydrogen by taking him to Newfoundland to see the site of a proposed, non-existent, wind-to-hydrogen facility. “The hydrogen project hasn’t obtained regulatory approval,” noted Hopper, “and it’s still not entirely clear whether it will go forward.” Locals hotly oppose the wind farm, fearing a devastating impact on the region’s bird remarkable bird population.
But the problem is with environmentally and economically destructive renewables, not hydrogen. Hydrogen-fuel cell vehicles have long held major advantages over electric vehicles (EVs). They are more expensive now but, over time, will become cost-competitive with gasoline, argue Jesse Ausubel and Cesare Marchetti. The electrochemical process of combining hydrogen gas with oxygen is potentially 20% to 30% more efficient than today’s gasoline-fueled internal combustion engines (ICEs).
The move from ICEs to hydrogen fuel cells is more consistent with the trend of past energy transitions than going from ICEs to EVs, which are material-intensive, heavy, and much worse for the environment than internal combustion engines, as an Associated Press investigation of rare earth mining in Myanmar revealed. Liquified hydrogen gas is also the future fuel for jet planes.
And the way to hydrogen (H2) is through is through natural gas (CH4) before eventually being made from water (H2O), argue Ausubel and Marchetti. The cheapest way to make hydrogen today is by stripping the H2 from CH4. In the future, the high temperatures from nuclear plants can make the hydrogen gas from waster.
The natural gas to nuclear to hydrogen vision makes sense at physical and chemical levels, offers radical decarbonization, and is premised on moving away from coal to natural gas, globally, not just in the U.S. in Europe. It is thus great politics for moderate Democrats and Republicans.
We are at peak climate nihilism. Soon people will see that Al Gore, John Kerry, and Greta Thunberg led the Left in North America and the whole of Europe down a dangerous path in opposing natural gas. Even Elon Musk agrees. “Realistically I think we need to use oil and gas in the short term, because otherwise civilization will crumble,” he told reporters today.
Change is coming, whether from Biden and Trudeau or their replacements. Biden and Trudeau were right when they committed to expand oil and gas production in the weeks after Russia’s invasion of Ukraine. They must either make good on that promise or face political extinction.
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