Building natural gas infrastructure has become increasingly challenging in recent years, forcing developers to adapt, but the already fraught political and regulatory environment in the United States could become even more inhospitable for fossil fuel projects moving forward.
That’s according to ClearView Energy Partners LLC’s Kevin Book, managing director, who spoke during a panel Tuesday at the 2019 North American Gas Forum in Washington, DC. Book didn’t shy away from outlining some of the potential policy shifts on the horizon given climate change risks and public sentiment that appears to have turned against fossil fuels.
“If you go back to the 2008 presidential election, you heard a lot of ‘drill, baby, drill,’ and now you have 11 of 12 [Democratic challengers] in the last debate saying they want to end production on federal lands,” Book said, adding that some candidates want to ban hydraulic fracturing altogether. “Nevermind that there are some laws to pass before that’s a feasible thing.
“...The permitting challenges of the present, the headwinds on the horizon, it’s not to say that these are necessarily for everyone all the time good times,” he said. However, looking at today versus the industry in 2008, “we might think these were the good times for infrastructure in the U.S.”
During the same panel, LawIQ CEO Chip Moldenhauer said developments in recent years the stepped up legal sophistication and resources for environmental opposition groups and state governments have become “far more active” litigiously and have made the “incredibly complicated” process of building infrastructure even moreso. This has forced companies to become more proactive.
“In the days of old, three, five, 10 years ago, the majority of these companies used legal and regulatory more as a shield,” Moldenhauer said. “What we’ve found is that legal and regulatory departments are trying to play more what-if scenarios to ensure that permitting is really locked down as far ahead of time as possible.”
Companies are looking at what legal or regulatory obstacles could arise, such as those associated with the Endangered Species Act, according to Moldenhauer.
In the current environment, building infrastructure doesn’t just require skilled labor or technical expertise, it requires “another great big room full of lawyers,” according to Book. “I think it’s the new normal, and it’s reasonable to expect it to continue under almost any environment. Knowledge doesn’t get unlearned.”
Antero Corp.’s Steve Woodward, senior vice president of business development, said it falls to the industry to be more proactive in communicating with the public to dispel misconceptions about energy and fossil fuels.
“I look at it as an obligation we all have in the industry every day to make sure the communication is out there,” Woodward said. “...In the energy pageant of the world, the winner this year and many years recently has been misinformation. It’s up to us to make sure that doesn’t perpetuate.”
As debates arise over how best to address climate change, “I think we all have to come to an honest conclusion as to what the priorities of the different energy sources are and what has the lowest impact and trust the data and work together to communicate that,” he said.
Book framed the current political debate in the United States over the future of fossil fuels, where some Democratic presidential candidates have staked out positions against oil and gas development, as a sign that the country has “prospered significantly in energy.”
“We’re starting to see opposition show up in places where it hasn’t been, and that’s partially because the country is richer and energy is a smaller part of our wallet share,” Book said. “There are new ways to think about energy as a given. Maybe we shouldn’t be so comfortable with it, but we are. It’s produced opposition that wouldn’t necessarily have been there where there was more economic risk.”
Of course, the debate over the role of natural gas in a lower carbon future does not end at the U.S. border.
“It’s not just what’s happening inside the country that matters, it’s also what’s going on in the world,” Book said. “...Gas as a solution is an equal part, if not a large part, of the climate risk story for a lot of countries that are going to be buyers” of liquefied natural gas from countries like the United States. “But building the infrastructure to convey the gas to those markets” may only continue to increase in difficulty.
When the proverbial political pendulum swings back in the other direction, “it’s going to look less like a pendulum and maybe a little more like a catapult,” but even without a “political polarity shift” the prospect of carbon pricing in the United States carries “non-zero odds” depending on what overseas trading partners do, according to Book.
“Is it impossible that the U.S. might find itself in a place pricing carbon in the next five or 10 years...because our trade partners have put one on?” he said.
A proposal to ban fracturing in the United States might grab more headlines, but Moldenhauer said the greater political risk for the natural gas industry could come from political polarization at the Federal Energy Regulatory Commission. Under a hypothetical Democratic administration, the industry could find itself “looking at three very anti-fossil fuel commissioners” by the summer of 2020.
For companies that have already built infrastructure, “maybe that puts you in a very good position,” Moldenhauer said. “If you’re other companies looking to build infrastructure, it might put you in a very negative position.”
As for the commonly used claim that fossil fuel infrastructure shouldn’t be built because it locks in decades of future consumption, Book said it may be“a really well-founded argument” but it could ignore the broader context of the global energy system.
“Stuff’s built to last, and if you’re putting it in place, maybe you’re going to be moving hydrocarbons for the next 40-50 years,” Book said. “The answer is yes, and that’s not a bad thing. What you have to do is contextualize it against the vastness of energy demand globally and ask, where are the right resources, and where do they have to go to get to the right markets?”
There are no “serious, legitimate forecasts” about global energy demand concluding that the world won’t need any more Btus moving forward, Book said.
“We’re going to need a ton more,” he said. “So yes, there is a necessary understanding. We’re not done with hydrocarbons by any means. And actually, some of the infrastructure we may end up building may end up conveying supercritical” carbon dioxide back into the ground to a “stable rockbed well below the surface. People who take stuff out of the pores might be part of putting it back in later in the future. It’s a good skill set to have.”