The pause in issuing new Liquefied Natural Gas (LNG) permits is among the least defensible energy policies of this Administration. It has been widely criticized. Jamie Dimon called it naive, and the International Energy Agency worries that it will impede the supply of natural gas on global markets.

The US Department of Energy (DOE), which grants LNG export permits, has published studies (2014 and 2019) which concluded that when buyers of LNG use it to switch away from coal for power generation, it reduces global Green House Gas emissions (GHGs). Coal use is widespread in developing countries and is increasing along with overall electricity demand.

Non-OECD countries represented 85% of global coal consumption last year, up from 82% in 2022. China is 56% of the global total, where it is by far their biggest source of primary energy.

In the hunt for votes, the White House dropped careful analysis in favor of pandering to climate extremists and granting the permit pause they’d long sought. LNG exports allow us to support our friends and allies with cheap, reliable energy, so are in our national interest. But even if you’re a far left progressive with little care for such things, they also reduce global emissions.

Climate extremists focus on the wrong things, like banning new natural gas connections in New York. Their opposition to LNG exports harms the climate. The following math shows why:

The US Energy Information Administration (EIA) estimates that a coal-burning  power plant generates 2.3 lbs of CO2 per Kilowatt Hour (KwH) of electricity, compared with 0.97 lbs for a natural gas power plant. Converting to metric, since GHGs are measured in Metric Tonnes (MTs), this is 1,044 grams for coal and 440 grams for natural gas.

Incidentally, in researching this I was interested to learn that virtually all the carbon atoms in natural gas (methane, CH4) attach themselves to oxygen when burned, creating CO2 in approximately the same volume as the methane that was used. CO2 is around 30% heavier than methane, both of which are denser than air*.

Returning to electricity – per KwH of power generation natural gas produces 604g less CO2. According to the EIA, it takes 7.42 cubic feet of gas to generate 1 KwH of power. So each cubic foot of gas reduces CO2 emissions by 81g (604/7.42) assuming it displaces coal in power generation.

The US currently exports around 12 Billion Cubic Feet per Day (BCF/D) of LNG. Maintaining the assumption that this gas is being used instead of coal, 81g  X 12 billion X 365 days means that our exports are reducing CO2 emissions by 356 million MTs annually.

Among non-OECD countries this is closest to the annual CO2 emissions of Vietnam (328 million MTs). Over the next five years our LNG exports will double, in spite of the LNG permit pause, because of LNG export terminals already approved and under construction. At that level the CO2 benefit will be almost equal to Indonesia’s emissions of 692 million MTs.

Most of the drop in US CO2 emissions over the past 15 years is because of coal-to-gas switching. US LNG exports offer the potential to spread that success to other countries. Climate extremists may argue that there’s no guarantee buyers of LNG will use it to reduce coal consumption. But it wouldn’t be hard to make this a condition of export approval.

Moreover, coal emits other local pollutants including nitrous oxides and sulfur dioxides which cause lung damage and lead to millions of premature deaths. So the benefits of natural gas are more than just the 58% reduction in CO2 emissions.

Some may point to methane leaks from gas production as weakening the case. But US standards are higher than elsewhere. We are the leader in having the lowest leaks per unit of production. The world benefits when countries buy from America rather than from another country with lower standards.

Climate extremists such as the Sierra Club and that wretched little girl Greta regularly push for policies that are impractical and will reduce living standards, most especially for people in developing countries. They have an outsized influence over the Democrats, which allows their poorly conceived ideas to sometimes escape into the light of day.

The US has already achieved substantial success in reducing emissions while renewables have remained an inconsequential part of our primary energy.

Texas is the country’s biggest user of windpower and Florida is 3^rd in solar. Massachusetts imports LNG because it won’t allow new gas pipelines and California combines the highest electricity prices bar Hawaii with the least reliable grid.

Red states have more coherent energy policies than blue ones.

Betting on a shift to pragmatic energy policies has been the key to superior returns. We think that will continue to be the case. Long natural gas infrastructure and short renewables has worked for years.

If Kamala Harris loses next week, the influence of climate extremists will not be missed.

*A blog reader offered this detailed chemical analysis which is shown in full:

The mole balance equation for burning nat gas is pretty simple as there is only one carbon atom on both sides of the equation, which means (assuming complete combustion), each mol of CH4 generates 1 mol of CO2.

At standard temperature (0 degrees C) and pressure (sea level), all gases have 22.4 L of volume per mole, so the volumes of CH4 and CO2 should indeed be the same (assuming complete combustion). 

I am pretty sure that H is 1 g/mol, C is 12 g/mol, O is 16 g/mol, and N is 28 g/mol, so:

Methane (CH4) is 16 g/mol

Carbon Dioxide (CO2) is 44 g/mol

Each g of Carbon will emit 44/12 = 3.67 g of Carbon Dioxide if fully combusted. 

Air, which is roughly 80% N and 20% O is 29 g/mol

CO2 is roughly 50% heavier (denser) than air and natural gas is roughly 50% lighter than air, when all are at standard temperature and pressure. 

I believe the CO2 is considerably less dense upon emission because of the heat produced by combustion, but CO2 is still technically denser than air and almost 3x the density of CH4.

I think the EIA publishes that the average US gas-fired power plant consumes 7,730 Btu of energy per kWh and US nat gas contains on average 1,040 Btu / ft^3.

That means it takes 7.4 ft^3 of nat gas to generate 1 kWh. There are 3.28 ft / m, so 7.4 ft^3 = 211 L of nat gas to generate 1 kWh of electricity.

I think that the EIA uses 60 degrees F or roughly 15 degrees C (288 degrees K) for its reporting, so you adjust the volume of one mole of gas by 288/273 x 22.4 = 23.6 L, so I think that the density of nat gas is reported by EIA is 16/23.6 = 0.68 g / L, which means it takes 8.9 moles of of CH4 with 143 g of mass to generate 1 kWh of electricity.

The 8.9 moles of nat gas should produce 8.9 moles of CO2 with density of 44 g/mol = 392 g CO2. 

Pretty close to your number of 440 g. 

The math is a bit trickier for coal, because coal typically has a mix of long chain carbon molecules and various impurities, but I think thermal coal, which is now mostly Chinese coal, has on average energy density of roughly 19 MJ / kg and contains about 52% carbon by mass. 

The EIA reports that the average US coal-fired power plant consumes 10,500 Btu per kWh of electricity. At 948 Btu / MJ, that is 11 MJ or 11/19 = 0.58 kg of coal consumed per kWh. 

At 52% carbon content, that would be 0.30 kg of carbon generating 0.30 x 44 / 12 = 1.10 kg of CO2. 

Pretty close to your 1,044 g.

Note that natural gas energy density of 1,040 Btu per ft^3 translates into 57 MJ/ kg, which is 3x coal’s energy density of 19 MJ/kg. 

1,040 Btu/ft^3 / 948 Btu/MJ = 1.1MJ/ft^3

1.1 MJ/ft^3 x (3.28 ft/m)^3 = 38.7 MJ/m^3

38.7 MJ/m^3 / 0.68 kg/m^3 = 57 MJ/kg

The two simple reasons why natural gas produces 65% less CO2 that coal:

1) Natural gas has 3x the energy density of coal (57 vs. 19 MJ/kg).

2) Natural gas burns 36% more efficiently than coal: 7,730 vs 10,500 Btu input energy per kWh (3,412 Btu) of electricity produced.

As an aside, some people are concerned that fugitive methane emissions might change this answer, but the data from the EIA and the Energy Institute shows that coal production and processing actually generates more fugitive methane emissions per unit of useful energy than natural gas production and processing.

According to the IEA, in 2023 natural gas production and processing generated 29 Mtpa of fugitive methane for 144 EJ of primary energy, which is 0.20 g CH4 per MJ of primary energy.

Coal production and processing generated 40 Mtpa of fugitive methane emissions for 164 EJ of primary energy , which is 0.24 g CH4 per MJ of primary energy, 20% more than natural gas. 

Because coal requires 36% more primary energy that natural gas to generate a kWh of electricity, coal produces 0.74 g of fugitive methane emissions per kWh of coal-fired electricity. 

That is 64% more than the 0.45 g of fugitive methane emissions from natural-gas fired electricity.

Using the IPCC’s recommended 100 year Global Warming Potential values of 29 for CH4 and 1 for CO2, the 0.74 g of CH4 from coal-fired electricity translates into 21.5 g CO2 equivalent and the 0.45 g of CH4 from gas-fired electricity translates into 13 g CO2 equivalent.

After factoring in fugitive methane emissions, coal-fired power emits 1.13 kg CO2e / kWh, which us 2.8x the 405 g of CO2e per kWh of gas-fired electricity.

After factoring in fugitive methane, gas-fired electricity has 64% less CO2 equivalent emissions then coal-fired electricity. 

We have two have funds that seek to profit from this environment:

Energy Mutual Fund Energy ETF

 

A couple of weeks ago South Bow Corporation (SOBO) began trading on Nasdaq. It’s a spin-off from TC Energy (TRP) which decided to split its liquids business off from its core natural gas pipeline activities. SOBO operates the Keystone pipeline that moves crude oil from Hardisty in Alberta south via Cushing, OK to Houston and Port Arthur, TX. They spent years trying to add the Keystone XL before incoming President Biden withdrew the permit, upon which TRP gave up. TRP’s $15BN lawsuit was dismissed in July by a tribunal.

TRP runs natural gas pipelines and storage facilities in Canada, the US and Mexico, along with solar and wind power assets.

The logic of the spinout was that although liquids represented around a tenth of TRP’s value, this was holding down the company’s stock price. Long term oil forecasts routinely contemplate peak oil demand on rising EV penetration. Natural gas forecasts tend to envisage continued growth as economies electrify. Data center demand has added to the positive gas outlook.

It helped that SOBO was launched with a dividend of its own while TRP’s remained unchanged. This meant the combined entities are paying out an additional $400MM annually to TRP investors who retained their new SOBO shares. Some sold, in spite of the new stock’s initial 9.2% dividend yield, which fell to 8% as it rallied.

Since the SOBO business was spun out, the combined entity has rallied by over 8%, 4% more than the sector as defined by the American Energy Independence Index. The increase in TRP+SOBO market cap in excess of the AEIT’s rally is $2BN, the amount of value unlocked by the spin-out.

The 9.2% dividend yield at which SOBO began trading reflected the antipathy some TRP investors felt towards the liquids business. They owned TRP for the gas pipelines and were happy to dump their exposure to oil with its headwinds from transportation policy and EVs.

Other investors who had previously avoided TRP because of its liquids business found the now pure-play natural gas opportunity appealing.

It shows that the oil business was dragging down TRP’s overall value. Separating the liquids business allowed investors to self-segregate more precisely, reflecting their biases. Whatever synergies existed between oil and gas pipelines clearly weren’t that valuable.

For years Kinder Morgan (KMI) has operated an Enhanced Oil Recovery (EOR) unit with unclear benefits to the rest of its mainly natural gas pipeline business. EOR works by pumping CO2 into mature wells to raise the pressure and release more oil. We’ve long called for them to spin it out (see Kinder Morgan’s Slick Numeracy from 2020) because the unit adds oil price exposure into what is otherwise mostly a volume business.

The Inflation Reduction Act boosted the appeal of CO2 pipelines that could support Carbon Capture and Sequestration (CCS). Tax credits run as high as $185 per metric tonne for CCS that draws CO2 out of the air around us.

KMI operates one of the longest CO2 pipeline networks in the US. CCS in support of EOR also draws tax credits but the segment has shrunk to 8% of KMI’s business from 17% a decade ago. Its continued presence in KMI’s portfolio of business makes little sense. They are principally a natural gas and refined products pipeline company. The EOR business comes with commodity price volatility since lower crude decreases demand for EOR services.

When different business lines receive varying market valuations and offer limited synergies under the same corporate ownership, it can make sense to separate them to attract pure-play investors.

KMI’s earnings last week were slightly below expectations, with most segments including EOR lagging forecasts. Natural gas pipelines was the exception, beating expectations. Added capacity to the Gulf Coast Express gas pipeline should come online in 2026, alleviating the oversupply of natural gas in west Texas relative to its transportation options. The company sees up to 25 Billion Cubic Feet per Day of growth opportunities over the next five years to support growing domestic manufacturing and Mexican gas exports.

Perhaps after seeing the success of TRP’s spin-off they’ll consider something similar. Over the years KMI has delivered among the lowest returns on invested capital according to research by Wells Fargo. An EOR spin-out might unlock some value for shareholders.

A couple of years ago we showed that the ARK Innovation ETF (ARKK) run by Cathie Wood had destroyed investor capital due to unfortunate timing by many of its investors (see ARKK’s Investors Have In Aggregate Lost Money). A recent article added Chinese ETFs to this ignominious crowd.

They would have done better with pipelines.

My travels continued in New Orleans where I had good discussions about prospects in the energy sector with current and future investors.

Finally, The Economist ran a terrific section on the US economy titled The Envy of the World. If you have any doubts about why this country provides a high standard of living for more people than anywhere else, read this unashamedly upbeat analysis of what makes this great country great, from a UK-based publication with a global view. The average person in our poorest state, Mississippi, makes more than the average person in the UK, Germany or Canada.

The Economist’s positivity is intoxicating.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund Energy ETF

 

Politicians from both parties long ago learned that fiscal prudence leads to electoral oblivion. Therefore, the absence of the deficit as a topic of conversation should surprise no-one. Publicly owned Federal debt is 99% of GDP and the Congressional Budget Office (CBO) is forecasting that this will reach 166% over the next three decades.

Trump and Harris have both made promises that will add to our debt. The Committee for a Responsible Federal Budget puts its central estimate for the Harris plan at $3.5TN and the Trump plan at $7.5TN over the next decade (2026-35).

These both sound like ruinously high figures – and yet, they’re on top of total debt that’s already forecast to rise. The CBO’s forecast on current policies is that total debt, including that which is held by the Federal Reserve and in effect monetized, will grow by $18.7TN (2026-35) on present policies. In this context, the Harris plan is parsimonious and the Trump plan only somewhat less so.

The translation of those campaign promises into legislation depends on the composition of Congress. But both candidates plan to extend the Tax Cuts and Jobs Act (TCJA), provisions of which expire next year. Without Congressional action, individual income tax rates will rise (ie top rate from 37% to 39.6%) as will the $10K cap on State and Local Tax deductions (“SALT”).

Living in high-tax NJ I’m naturally in favor of retaining current tax rates and repealing the $10K SALT cap.

With both candidates pledging to modify the TCJA, and taxes set to rise with no action, it’s likely something will get done. The Harris plan allows tax rates to rise on households making over $400K, and her TCJA modifications are 85% of her plan’s ten year impact on our debt. Trump’s plan adds more than twice as much debt as the Harris one, and TCJA modifications are 71% of it.

Meanwhile bond yields are drifting higher. It’s partly a steepening of the curve caused by the Fed’s 0.5% cut and a result of the strong September jobs report which made another big cut unlikely.

Inflation expectations (derived by subtracting the yield on TIPs from nominal treasuries) have moved 0.30% higher in the past month and near the highest levels of the year. It’s far from indicating a return of the bond vigilantes, but bears watching. Political concern about our fiscal outlook, never much in evidence, is completely absent.

A Hemingway character explained his bankruptcy as occurring, “Gradually, then suddenly”) in The Sun Also Rises. The US won’t go bankrupt. But if a fiscal debt crisis suddenly occurs, it’ll be because it was getting gradually worse in plain sight for decades.

In our opinion, inflation-sensitive assets such as midstream energy infrastructure offer good protection against the subsequent rise in inflation that would follow.

In energy news, we noted that China’s coal imports hit a record high in September, +13% on a year ago. Meanwhile the Sierra Club continues to oppose the supply of reliable energy. They recently persuaded a court to delay a 32-mile natural gas pipeline planned by Tennessee Gas Pipeline, a subsidiary of Kinder Morgan.

Natural gas has been the biggest cause of reduced US CO2 emissions by displacing coal. Globally, demand continues to grow. Even the International Energy Agency (IEA), whose forecasts are increasingly designed to cheerlead for renewables, is warning that insufficient investment in new gas production risks a supply shortage.

Along with rising construction costs and regulatory challenges in building LNG export terminals, this is impeding the shift from coal to gas that China and other developing countries must make.

Lastly, a photo showing the damage a tornado can inflict on a solar farm. Duke Energy’s Lake Placid facility was the target. As a Florida homeowner on the Gulf of Mexico I can attest that weather damage is becoming more frequent. Hiring workers to shift sand off our property and back onto the beach at exorbitant prices is a cost of being there if admittedly a first world problem.

Florida Power and Light restored electricity within a few days, but it reminds why gasoline-powered trucks and other equipment will be irreplaceable at such times.

EVs are especially vulnerable to flooding and storm surge. With a conventional car your worst case is it’s totaled, but saltwater entering an EV lithium-ion battery creates a fire risk in addition to leaving it undriveable.  One fire marshall advised moving a water-disabled EV out of its garage, “so that you can worry about fixing your home instead of rebuilding it due to fire”

Internal migration to the south and south west is increasing the population in hurricane-prone areas like Florida. Sun and no left-wing politics will do that.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund Energy ETF

 

 

Some may find irony in BP dropping its goal of reduced oil and gas output by 2030 at the same time as Hurricane Milton is barreling towards southwest Florida – the second hurricane in two weeks.

Four years ago, BP pledged to cut hydrocarbon output by 40% within a decade. Two years ago they scaled it back to 25%. And now they’ve acknowledged reality because it’s easier to make money in traditional energy than in renewables.

Climate extremists will point to the millions in Florida preparing for another storm and the recent devastating losses caused all the way up to North Carolina as evidence of climate crisis. No one weather event can be attributed to a changing climate, but the Gulf of Mexico is a little warmer than normal. Naples, FL where we own a home endured a storm surge in 2017 (Irma), 2022 (Ian) and may get a second of the season as Milton follows Helene.

Higher CO2 levels may be the cause – certainty for or against is illogical because climate is so complicated, but the evidence for is mounting. In Pakistan the rational response to heatwave deaths this past summer is to spend more on air conditioning. In Naples we’ll invest in making our property more resilient to storm surges. Confronting the consequences of a changing climate is demanding an immediate response. This requires more steel, cement and plastic, three of Vaclav Smil’s four pillars of civilization, along with more energy.

What’s clear is that left wing policy prescriptions to slow CO2 emissions are failing to make an impact, because they ignore the desire of developing economies to raise living standards, which requires energy. Solar and wind are a marginal solution, as they have been in the US as well.

History will show that a credible effort by OECD countries to reduce emissions was overwhelmed by the desire for higher incomes and more energy consumption across developing Asia, Africa and South America.

Since 2000, renewables including hydro have gone from 2.0% of US primary energy to 3.5% last year. Natural gas has gone from 30% to 38%. BP’s languishing stock price shows that they’ve discovered how to make a small fortune investing in renewables – start with a big one.

BP’s stock has lagged US peers Exxon Mobil and Chevron who never accepted that the world would quit using hydrocarbons. The transition to low carbon energy systems will be slow, needs to acknowledge that energy demand will grow and that solar and wind are an expensive, small element of the solution.

Public opinion is souring on the false promises of climate extremists that renewables are cheap and create jobs. The leader of Canada’s Conservatives Pierre Poilievre, likely to be Canada’s next prime minister based on opinion polls, has vowed to repeal the carbon tax that is intended to guide consumers towards low-carbon choices. He calls it, “an existential threat to our economy and our way of life.”

Neither Kamala Harris nor Donald Trump are saying much on climate change. There’s still no serious effort to help developing countries shift from coal to gas as the US has done. This remains the most obvious solution and as investors in natural gas infrastructure we’re positioned for it.

Things have turned out well for investors who understand these trends, such as U-Vest Financial, a fast-growing firm led by CEO Mike Davino based in Tallahassee, FL. Last week I was invited back to their annual meeting to discuss midstream and the energy transition. They identified the opportunity early in the cycle, to the benefit of their clients.

Each year it’s exciting to see the growth at U-Vest and the dedication their leadership team brings to the business. U-Vest is expanding because of its results but also because they’re adding advisors. If you’d like to join your practice with a dynamic team, reach out to me and I’d be happy to make an introduction.

Or you can click on this link.

BP is just one example of a growing realization that economics and public opinion aren’t with the Sierra Club and other climate extremists. Pragmatic choices are one result. The White House is backing more nuclear power. Constellation Energy hopes to restart a unit at Three Mile Island, although not the same unit that partially melted down in 1979. Microsoft is the potential customer. Holtec’s Palisades nuclear plant in Michigan is also planning to restart. Demand growth from data centers is driving this.

US natural gas is also benefiting, because it compensates for intermittent power and is abundant. BP has decided to stop paddling upstream. Others will follow.

We have two have funds that seek to profit from this environment:

Energy Mutual Fund Energy ETF