Fossil Fuel Speculators—Not Consumers—Would Win Big From LNG Exports: Report

Yves here. Tom Neuburger has written often and in depth about how fracking has misleading been sold as less bad than other types of fossil fuel extraction by not counting the impact of considerable methane releases. And that’s before considering the damage to aquifers and the rise in earthquakes. But notice how “fracking” has been replaced with the antiseptic term LNG so as to divert attention from the process by which LNG is extracted, analogous to the way seeing tidy wrapped chicken breasts in the refrigerator department lead consumers to think not much of the chickens they once were.

This post describes how, for most Americans, LNG is an economic as well as an environmental con. In fact, the basic story line was already clearly bogus. “Exports benefit consumers….” Huh? Exports can benefit communities by providing jobs. But selling a resource abroad increases price competition for it by bring in a whole new source of demand. Unless there are investment scale factors (“having a much bigger total market means we can invest in a way that greatly lowers output costs”), the proposition makes no sense. And fracking does not have much in the way of scale factors, given that it comes from many short lived wells.

By Brett Wilkins, a staff writer for Common Dreams. Originally published at Common Dreams

Belying Big Oil’s claims that vastly expanded U.S. liquefied natural gas exports benefit consumers, a report published Wednesday revealed that fossil fuel speculators and commodity traders would be the main beneficiaries from eight proposed LNG projects, while American consumers and the climate would suffer higher prices and emissions.

The report—entitled Methane Madness—was published by Friends of the Earth, Bailout Watch, and Public Citizen and examines how the controversial Calcasieu Pass 2 (CP2) LNG export terminal in Louisiana and seven other proposed projects would harm U.S. consumers while fueling the climate emergency.

“Big Oil’s talking points about European energy security are cynical and inaccurate,” said Lukas Ross, climate and energy deputy director at Friends of the Earth.

The report found that:

  • If built, the eight pending projects will produce the annual equivalent of 113 coal plants in planet-warming emissions;
  • More than half of the volume from these pending facilities has been secured by commodity trading firms and Big Oil’s speculative trading arms;
  • Four of the five largest purchasers by volume from pending facilities are speculators;
  • LNG from these facilities, if they are built, will be sold wherever these so-called “portfolio players” can turn the biggest profit—undercutting industry claims that the expansion is needed for European energy security; and
  • The temporary surge in LNG exports to Europe since the outbreak of war in Ukraine is not translating into long-term demand.

“Record LNG exports drive up home heating prices for Americans, and line the pockets of fossil fuel CEOs, and these new planet-wrecking projects are not in the interest of the public,” asserted Public Citizen energy researcher Alan Zibel.

“No amount of misleading energy industry lobbying can undo the simple reality that LNG exports force American consumers to pay more in the long run while U.S.-produced gas winds up in Beijing and Berlin,” he added. “The expansion of U.S. LNG export capacity simply empowers Big Oil giants and commodity traders’ ability to earn eye-popping profits.”

The new report came as the Biden administration reportedly paused CP2’s approval pending a Department of Energy review of the project’s economic, national security, and climate impacts. While welcoming the news, climate campaigners argued that a pause is not enough.

“Now that they have paused, there is only one thing to do: Vow to reject CP2 and all 17 proposed LNG projects, and to phase out ALL fossil fuels,” said U.S. campaign manager Candice Fortin. “Our frontline partners on the U.S. Gulf Coast have been fighting against oil and gas projects and for their homes and lives for decades. It is past time for the government to listen and stand up to the billionaires who are knowingly promoting toxic energy sources.”

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  1. Yaiyen

    I do wonder is it because of election season coming why they pause cp2 approvement. They even bring out 14 trillion reparations bill under republicans controlled house. Democrats have no shame how low they go when it’s election season

  2. KD

    I may have missed a step or something.

    You have a wheat farmer who plants a crop and wants to insure that he/she gets a reasonable profit in the fall when the crop comes in and is worried about price volatility, so the farmer “hedges” by selling a futures contract in wheat. On the other side of the contract, the person/entity purchasing the contract is betting/speculating that wheat prices are higher in the fall than the contract price, so the other side of the contract is conducted by a “speculator”.

    If you have LNG producers, who will want to hedge, they will sell energy futures contracts to “speculators.” that’s just how futures work. Its true of any energy product for which there exists futures contracts. However, just because there are primarily speculators on the other side, that doesn’t mean the wheat or the LNG just disappears. At some point, the speculators sell to someone who wants to take possession of the actual commodity. With respect to LNG, if there is demand in Europe, it would go to Europe.

    This article appears to obfuscate how futures markets work to create the impression that the LNG production is just going to disappear, eaten by “speculators,” when in fact its going to go through middle men, willing to assume the risk of the price fluctuations. This may be terrible, but the speculators exist because producers and consumers have less tolerance for bearing the risk of price fluctuations (and for the same reason people buy insurance).

    As far as LNG and environment impacts, if Europe needs natural gas, its not clear that it matters whether that gas comes out of Texas or the Russian Federation. I suppose if US production is less environmentally friendly than production from the Russians, you can make an environmental argument, but the energy is filling demand, and if the demand isn’t met with domestic LNG, it will be met with a substitute which will itself have environmental impacts. If we are talking greenhouse gases, then it doesn’t matter where those gases come from RF or Texas. To make a coherent environmental case, it would seem that you would have to compare the environmental impact of domestic LNG with what would serve as its substitute. That analysis seems to be missing.

    The central point of the article that this infrastructure represents a victory for “consumers” is sound, except everyone realizes that no one is putting all this capital into these development projects because they care so deeply about “consumers,” its about profit and ROIC, and indirectly maybe some decent paying jobs for wage slaves.

    1. Yves Smith Post author

      I hate to say it but you did but that is partly the author’s fault. However, the piece is clearly mainly about subsidizing exports and the fact that speculators are among the big beneficiaries read to me as secondary.

      This piece was not as clearly written as is should have been, but the big issue is the US is massively subsidizing LNG export terminals and trying to pass that off as a consumer benefit. Worse, because our fracked well output is projected to start falling in the early 2030 and then decline precipitously, these terminals will have a short life compared to other big port facilities.

      So the big issue as I said in the intro is why are we funding exports and trying to depict that as a consumer bennie?

      Second is that speculators in the oil and gas industries most assuredly can and do manipulate prices to their advantage. This is not at all the story of the farmer and the listed futures market. I discussed it long form in ECONNED with respect to the big time oil price manipulation in early 2008, which according to your depiction of commodities markets should have been impossible.

      A simple, if dated, proof: the influence of oil speculators has been so significant that Saudi Arabia, the biggest oil seller in the world, had to create a custom pricing mechanism from various futures dates called BWAVE to somewhat thwart the speculators. Saudi Arabia now had different approaches, but that should give you an idea that the actions of speculators go way beyond merely time-shifting demand.

      1. KD

        My comments should not be interpreted to imply that speculators cannot manipulate markets or pricing in ways that harm consumers and producers. Just pointing out that there appears to be a missing logical step in the article, the issue is not futures contracts are purchased by speculators, but speculators adversely manipulate markets for consumers and producers, and obviously evidence brought forward to support that claim.

        In addition, there is nothing the precludes a European utility company from ultimately taking delivery of LNG production even if the contract on that LNG production is initially sold to a speculator. The problem is not speculators eating all the LNG and there being none for Europe, its nasty externalities from the way the futures market functions.

        From the article:

        More than half of the volume from these pending facilities has been secured by commodity trading firms and Big Oil’s speculative trading arms;
        Four of the five largest purchasers by volume from pending facilities are speculators;
        LNG from these facilities, if they are built, will be sold wherever these so-called “portfolio players” can turn the biggest profit—undercutting industry claims that the expansion is needed for European energy security. . .

        Of course they are going to contact speculators so that they can sell futures contracts, and yes the product is not guaranteed to go to Europe, but if the LNG goes to China instead, if there is more LNG available internationally, the increased supply would make it easier for Europe to buy gas.

        Nothing about the real issue of speculators adversely affecting energy makets.

        1. Yves Smith Post author

          I should add, and another omission in the article, is that having end buyers purchase from speculators is NOT AT ALL the way LNG capacity is normally financed. They lock in a pretty good number of long-term contracts before they do anything. The very way these projects are being handled makes it reasonable to suspect chicanery and profiteering.

    2. Carolinian

      The classic defense of robber barons like Morgan and Rockefeller was that they stabilized markets and therefore were worth their huge monopoly paydays. Meanwhile the little people of that day got the shaft because they were often the ones being robbed.

      Perhaps the difference between then and now is that after a period of huge post WW2 prosperity the US masses aren’t nearly as poor and desperate as they were in the late 19th. And another difference is that while those past robber barons were famous and famous in their conspicuous consumption the oil speculators and others of our day stay in the shadows due to a much more constrained media environment.

      It’s always going to boil down to government and theoretical democratic control of our economy versus private “heroic individual” control as championed by Ayn Rand and her acolytes. Rand started out writing screenplays for Hollywood and later branched out into fairy tales for plutocrats.

      1. Bob

        No. The issue is that futures are purchased by speculators. This is true of all commodities today where paper barrels and bushels are dozens if not hundreds of times greater than the actual commodity itself. This occurs because the futures speculator closes their bet and never takes delivery. What began as a risk management tool for producers and end users of commodities (think Kellogs and corn farmers) is now a casino game. Prices are driven by speculators not supply and demand for the real commodity.

  3. jefemt

    When I worked in the MonDak oil patch from ’08-’15, side-bar discussions about the insanity of oil and gas industry, import, export, carbon, anthropogenic climate disruption, the Anthropocene, generally distilled to two answers that were accepted by most everyone-regardless of their politics and deeply held beliefs and thoughts:
    No Body Cares.

    Such mood elevating times whoring for da Man!

  4. ilsm

    US natural gas should be used to close coal and oil fired electric generators.

    Natural Gas burns much less pollutants!

    Since the Ukraine war US has exported more finished petroleum product and imported slightly less crude oil making it indeed a strong net exporter much more so than under Trump!

    US does a lot of refining for export as well! Maybe too much!

    1. St Jacques

      Hugely. And as Australia became the world’s biggest gas exporter following the opeing of the massive Curtis Island ship loading facilities some years back, Austalian domestic gas prices have gone from being among the cheapest to among the most expensive. It has also driven up electricity prices enormously, because although gas is used to supply only a relatively small part of the total electricity supply, it is the marginal price setter. It’s been a disaster for households and businesses, while the politicians and gas corporations talk about an “energy crisis” as if there were a shortage of gas production. It’s unbelievable. Don’t do it!

  5. Darnell

    Yet another Neoconjob by the Phd pushcart economists who have ruined everything from Boeing to our cities.

    Natural gas is a waste product that was flared off in many places. Now as part of Biden’s war on Americans, along with all the other sanctioned things like food, fertilizer and metals, we’re in some places forbidden from installing appliances to use this low priced and efficient domestic stuff, now turned into an expensive export.

    heir excuse:

    “In December, a group of lawmakers including Sen. Cory Booker, a New Jersey Democrat, and Rep. Don Beyer, a Virginia Democrat, wrote a letter to CPSC that called gas stove emissions a “cumulative burden” on Black, Latino, and low-income households that are already disproportionately affected by air pollution…”

  6. lyman alpha blob

    And the losers are the ones who get to live near the LNG terminals. They tried to shove one down the throats of one of the Maine tribes several years ago, and they were able to eventually fight it off –

    Funny how the rich people want to “help” the tribes by putting casinos and toxic terminals on tribal lands. I wonder why they never try putting LNG terminals in, say, the Hamptons?!?!?

  7. Fred

    Exporting LNG is probably better than just flaring it off. But, we know they will do what ever that makes them the most money. Just don’t expect your heating bills to go down.

  8. Pookah Harvey

    Big Oil’s claims that vastly expanded U.S. liquefied natural gas exports benefit consumers. Let’s see how that worked out in another fossil fuel market, crude oil.
    The ban on exportation of crude oil was dropped starting in 2016 when Obama signed the Consolidated Appropriations Act of 2016.
    The U.S. Energy Information Administration reports:
    US Crude production from 2015 to 2022 (the latest data) increased 2,472 thousand barrels per day.
    US Crude exports increased 3,111 thousand barrels per day.
    It appears increasing the market actually decreased domestic supply.
    Price of gas in the US?
    2015 – $2.448
    2022 – $4.094
    So how exactly does that Drill Baby Drill argument work when big oil exports it all?

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