Yet there is no room for complacency. It remains to be seen how much flaring and venting comes back as fracking recovers; drilling and completion activity in the Permian and Eagle Ford basins in November was still 65-70% below the level of a year before.
In a striking presentation given last summer, Kayrros SAS, a French data analytics firm that tracks venting and flaring using satellite imagery, compared methane emissions for different gas producing regions around the world (view the webinar here). It found the methane intensity — emissions per quantity of fuel — for liquefied natural gas from the Permian basin to be far higher than for Russia. Meanwhile, in an analysis published last month, the Boston Consulting Group concluded U.S. LNG has the highest greenhouse-gas intensity of any major exporter, well above major competitors Russia and Qatar. That doesn’t just relate to flaring and venting but also, for example, leaks from valves and other equipment.
Christian is right that Russian gas comes with strings attached (see this). On the other hand, the very name of President Donald Trump’s “energy dominance” policy isn’t exactly subtle about its intent. Speaking of an “era of great power rivalry,” Secretary of State Michael Pompeo boasted in 2019 that the U.S. isn’t just exporting energy, but “our commercial value system.” Freedom molecules don’t come for free, as it were. I don’t know if you know many French people, but that sort of thing tends to rub them the wrong way (a bit like Texans in that regard). And it need hardly be mentioned that Trump’s diplomatic relations with Europe these past few years have lacked a certain je ne sais quoi.
The point is, Texas must earn its place in a competitive global market, not simply demand everyone get with the program. On this front, Christian’s dismissal of climate change concerns doesn’t bode well. He centers his criticism on the Paris Agreement, repeating a tired (and debunked) talking point from the Trump Administration about its minimal impact on global temperature. Christian also touts U.S. gas as “affordable.” But such apparent affordability is partly because its emissions go unpriced — and at least some buyers now factor that in.
While Christian may think climate action like the Paris Agreement is misguided, a large and growing proportion of the rest of the U.S. and the world do not share that opinion. That includes banks wary of lending to projects with high emissions and authorities like the EU proposing carbon border-adjustment mechanisms (a tariff on foreign pollution, essentially).
Yes, shale gas helped to cut U.S. carbon emissions by displacing coal-fired power (although methane leaks associated with fracking undo at least some of the benefit). But that doesn’t mean gas is assured of its place from here as emissions standards tighten and competing renewable energy technologies are deployed at different rates around the world. Even the International Energy Agency, which long championed gas as a so-called “bridge fuel” for energy transition, now projects demand to decline in the late 2020s under its “sustainable development” scenario.
BCG estimates that, even under a more bullish outlook, much of the incremental LNG export capacity needed by 2030 could be met by lower-cost projects in Qatar, Russia and Mozambique, leaving little room for the long list of proposed U.S. export terminals. That freedom gas will have to work hard to find buyers.
The swipe at ESG investing is similarly like kicking back the tide. Capital markets are, as so often, anticipating the technological, economic and political shifts provoked by climate change. Does ESG suffer from bubbly hype and attract hucksters? Of course it does. But you could say exactly the same thing about the shale boom of the past decade that Christian feels compelled to defend. He cites a May 2019 report from right-wing think tank the Pacific Research Institute claiming the S&P 500 outperformed a basket of ESG investments by 44% over a decade. At least the ESG basket’s returns were positive. If radical environmentalists are “coming for your retirement account”, as Christian puts it, maybe you best hope they got there before the shale guys did:
Yes, the collapse in oil prices touched off the frackers’ fall. That was just the spark, though; the bigger problem was a culture of excessive spending in the pursuit of growth rather than profits (see this, this, this and this). Never mind the “E” and the “S”, the “G” was sorely lacking. In this, the industry was enabled by enthusiastic investors and lenders (until recently). But the Texas Railroad Commission’s willingness to hand out flaring permits by the thousands every year helped, too, effectively offloading the cost of dealing with greenhouse gas emissions to the general public.
Superficially, that helps the industry the commission is tasked with regulating. But the reality is that it encouraged the impulses that destroyed the frackers’ balance sheets and their relationship with investors. Above all, if U.S. gas is to be truly competitive in a world where supplies are plentiful but tolerance for emissions is dwindling, the industry must ditch drill-baby-drill. When buyers (and investors) have options, they make demands. Characterizing that as an assault may be good for venting, but not much else.
Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.