Oil Energy Money

In Spring last year Californian actor-turned-governer Arnold Schwarzennager brought to vote a Liquified Natural Gas processing plant fourteen miles off the Malibu Coast, first proposed in 2003.  A cheaper, cleaner source of energy, the natural gas would be processed in NG rich countries such as Qatar, liquified and transported to California.  At the off-shore ‘re-gasification’ plant, the LNG would be reconstituted and travel through underwater pipes to distribution centres on the coast.

At a time when California was facing power cuts and the price per barrel of oil hovered at then-high-$50, the idea was cost effective, environmentally firendly and logistically feasible.  But, as the city journal recounts, celebrity environmentalists like Halle Berry, Pierce Brosnon and Martin Sheen spoke out in protest: “This is just another disaster waiting to happen,” said actress Darryl Hannah. “An LNG plant off the coast is not just an eyesore, but it’s like a bomb waiting to go off.”  Unfortunately Schwarzennager’s muscle couldn’t survive the dramatic onslaught of so many Oscar winners and the proposed plant was rejected by the Governer and independent groups California Coastal Commission and State Lands Commission.  California resumed dependance on neighboring states with its cost per unit of energy one of the highest in America, nearly twice the national average. 

Its decision was symoblic of the entire country’s reluctance to embrace alternative sources of energy.  While China continues to lock in lower prices for future supply and Nigeria states that LNG will become ’a fact of life’ by 2015, the US still depends on gasoline and crude oil, whose price broke a record $120 this week.  But what explains the aversion to importing LNG and what are the consequences?

Congress has encouraged the use of natural gas for the past two decades but American supply can no longer keep up with demand, leading to unsustainably high prices.  Importing would satisfy supply and lower prices but Amy Jaffe, of Rice University’s Baker Institute, suggests Americans are torn between energy security and preventing climate change.  Natural gas could be partly replaced by oil sands in Canada which are seen as safe due to strong links with Canada but harmful for the environment, while LNG is a cleaner source of energy but supplied principally by European, MIddle East and Africa (EMEA) region countries such as Qatar and Nigeria.  “If we move to greater use of natural gas, what is that going to mean for US energy security?” Jaffe asked. “In a carbon-constrained scenario, LNG becomes quite more dramatic. It makes the US more dependent on imported LNG.”

The high cost of capital investment and plant safety risks must also be considered.  But despite its disadvantages, no alternative can provide an easy solution-ethanol increases food prices and wind/solar are still too inefficient.  Alan Greenspan has spoken out in favour of importing LNG and many economists agree. 

America must increase its purchases of LNG if it is to prevent China, India and others from eating up the supply and pushing up prices.  Strong links and capital investment in infrastructure now will pay dividends in the $200 per barrel of oil future.  California’s decision may have satisfied the environmentalists, but it is time to reconsider importing LNG.  A political consultant with close ties to the Schwarzenegger administration knew then what the country is realising now: “These softheaded celebrity protests against LNG are the same thing we saw in the 1970s with the protests against nuclear power,” he said. “I mean, Martin Sheen? I think he was actually there in the seventies.”