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Bullboard - Stock Discussion Forum Nuvista Energy Ltd NUVSF


Primary Symbol: T.NVA

NuVista Energy Ltd. is an oil and natural gas company, which is engaged in the exploration for, and the development and production of, oil and natural gas reserves in the Western Canadian Sedimentary Basin. Its primary focus is on the scalable and repeatable condensate rich Montney formation in the Alberta Deep Basin (Wapiti Montney). Its core operating areas of Wapiti and Pipestone in the... see more

TSX:NVA - Post Discussion

Nuvista Energy Ltd > Unpausing Liquefied Natural Gas Export Permits -- An Algorit
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Post by Carjack on Mar 18, 2024 4:48pm

Unpausing Liquefied Natural Gas Export Permits -- An Algorit

It’s truly a golden age for LNG. An article by Bloomberg epitomizes the liquefied natural gas (LNG) boom. For example, QatarEnergy and its backers are investing $45 billion (yes, that’s billion) to expand the country’s LNG exports, although it’s already one of the top three LNG exporters in the world—along with Australia and the U.S. A Japanese firm building the expansion has enlisted thirty thousand workers from fifty countries. 

The Biden administration, under its view that climate change is an existential threat, has taken action on LNG exports from the U.S. On January 26, 2024 President Biden paused all approvals to permit new LNG export projects. The U.S. Department of Energy (DOE) says it needs to update its approval process which includes domestic supply, energy security, and greenhouse gas (GHG) emissions.

Levels of analysis.

Deciding whether LNG is good for the country, or the world, is a very complicated problem There are several levels of analysis. First, do LNG exports make money for the domestic U.S? Second, cleaner-burning LNG will displace dirtier coal-fired power plants in countries such as China and India. Third, LNG causes emissions when its burned, yes, but also from methane leaks in gas and LNG production and distribution. 

But there is one more variable, energy security, which falls under the purview of politics. The basis for a cost-benefit algorithm will be discussed here, but the energy security variable will be left to the feds.

Natural gas as a bridge fuel.

For ten years the oil and gas industry has said that natural gas (and LNG) was a halfway house to net zero by 2050. The basis for this was that burning gas for electricity emitted only about half the GHG that burning coal or oil did (this is two-thirds where gas is used for industry heating). So natural gas or LNG were cleaner and greener, but they weren’t fully clean or green. But the concept had merit. If the world stopped oil and coal, gas would be needed to smooth out the enormous fluctuations in solar and wind power. From a fossil industry viewpoint, this simplistic approach might save gas and LNG from the cutting block that included coal and oil. 

But even this rule-of-thumb is complicated by leaks of natural gas (which is 99% methane) because, one, methane has 20-80 times the warming effect as CO2, the primary GHG, depending on the time-scale. Two, methane leaks occur everywhere… in gas production wellheads and storage tanks, in transport along pipelines and within ships, and in loading or offloading LNG at LNG terminals. 

The good news is that such leaks are not difficult to find, are easily fixed, and are inexpensive. And leaks make a significant difference to global warming when they are repaired. Third-party companies, such as MiQ, are certifying natural gas before it is sold by verifying that its production and transport are leakless. 

A new study by Robert Howarth (2023) has looked at life-cycle emissions when natural gas is converted to LNG and then transported overseas by tanker. The calculation includes production, processing, storage, and transport of natural gas before and after it becomes LNG. One baseline is natural gas produced and transported within the U.S., and this is only slightly less than coal mined and trucked in the US.

The emissions results are normalized per unit energy source. The first results are for tankers powered by LNG, which seems logical. Compared to the baseline, the emissions are 36% higher for short trips and 55% higher for long trips. In older tankers fueled by heavy fuel oil, as is common today, the emissions are 77% higher for short trips versus 104% for long trips. The results of this study are negative for LNG as a bridge fuel as the energy transition shifts toward renewables.

Two additional calculations.

A recent report from the Institute for Policy Integrity (IPI) at New York University School of Law has calculated two costs. First, how selling LNG overseas affects domestic price of natural gas in the U.S. Second, how selling LNG affects the cost of climate change. The result was a cost-benefit analysis that will tell if the climate cost of overseas LNG sales exceeds the economic benefits back home. 

The IPI report was based on two Department of Energy (DOE) internal reports. The first of these was a 2018 study that showed selling LNG overseas would increase the price of gas in the U.S., but it would also boost profits for the sellers (i.e. oil and gas companies) and this would be passed along to U.S. consumers. The net effect would be positive, which implies exporting LNG is a winning proposition. 

The second report was a 2022 analysis that calculated life-cycle (whole-of-life) emissions from gas production to shipping to unloading LNG in Asia — essentially an environmental assessment. The report found that exporting LNG would lower worldwide emissions compared with burning coal in power plants in Asia, for example.

The new IPI report has re-evaulated the DOE report by adding or updating variables as follows: "The new IPI report uses a metric known as the social cost of greenhouse gases [about $220 per metric ton of CO2] which encompasses wide-ranging variables including decreased human lifespans due to temperature extremes, reduced agricultural productivity due to changing precipitation, and property values damaged by sea-level rise and extreme weather events."

After many modeling trials of the new model using different values of variables, the end result for the median case is that the climate cost is close to 10 times the benefit. In other words, exporting LNG is a losing proposition, by a large margin. 

But wait. One important caveat here is that the climate costs of extreme weather events is high and generally accepted to be the largest of all climate costs used in the modeling. Further, the killer quad of extreme weather events (droughts, wildfires, flooding, hurricanes) have not worsened over the past 40-50 years, when global temperature has risen by close to 1 — the killer extreme events cannot be attributed to global warming and their costs should be voided from the social cost of greenhouse gases.

So, the damage effects of the killer events should not be included in the social cost metric used in the IPI analysis. Therefore, the median case result will be an overestimate, and possibly by an amount that is large enough to discount the conclusion of the IPI report. That is, the climate cost will be less than 10 times the benefit, and the cost may even be less than the benefit of exporting LNG from the U.S. The analysis needs to be redone and new conclusions drawn.

All of the above analyses are amenable to engineering calculations. And an algorithm could be built to judge what effect each variable has on the result, perhaps in the form of a cost-benefit (per IPI report) of exporting LNG overseas. Will the DOE do this? Who knows.

Energy security

But one big factor can’t easily be included in an algorithm – energy security that LNG has provided for Europe, for example. The golden age of LNG has come about because of the need for energy security for the EU after Russia’s war on Ukraine. And other countries facing war or failed governments, like Gaza or Haiti, could benefit from shipments of LNG to convert to electricity and heat. Poverty-laden countries like China, India, Pakistan and Bangladesh could be helped by LNG while waiting for solar and wind to be deployed. 

Will the Fed’s permit pause disable the golden age for LNG? No, as projects that have been permitted won’t be affected directly. Almost 50 Bcfd have already been approved for the U.S., which is 3.4 times greater than current LNG capacity, so this huge boost won’t be affected. This will assuage concerns from the EU and Southeast Asia about their plans for energy security and/or LNG fuel that is cleaner than coal.

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