This transcript is from a CSIS event hosted on April 29, 2024. Watch the full video here.
Joseph Majkut: Hey, everyone. Welcome. I’m going to speak ever so briefly from the podium. My name is Joseph Majkut. I’m the director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies. I want to welcome you today to our program. And those joining us online, you’re welcome as well. We have a really great conversation planned, at least I hope. Since January 26th, when the White House announced that there would be a pause on the approval of licenses for new export terminals for LNG from the United States, this issue has been one that is debated thoroughly in Washington.
The White House announcement cited a lot of different factors – energy costs for U.S. manufacturers, consumers, the future of LNG markets, the perilous effects of methane for our planet. And I think that we sometimes in Washington don’t take enough time to actually try and figure out where are the lines of agreement and disagreement, and how do we find, through the small-d democratic process, a way forward? And I think with LNG and this conversation today we’re going to try and do that a little bit, at least I hope so.
I’ve got two folks with me today who I’m really, really pleased are joining us as part of this conversation. Representative Garret Graves of Louisiana, the former chair of the House Republican Energy, Climate, and Conservation Task Force, has been a real intellectual leader in the past few years on energy issues on his side of the aisle. And Representative Sean Casten of Illinois, current cochair of the House Sustainable Energy and Environment Coalition, is the same on his side of the aisle. And both were on the House Select Committee on the Climate Crisis in the last Congress. So they’re intimately familiar with these issues, and are both really thoughtful members that I’m very pleased are joining us today.
I don’t think you want to hear much more from me. We’re going to sit down. Mr. Graves is going to start us off, and then we can have a conversation back and forth.
Representative Garret Graves: All right. Good afternoon. And thank you all very much for coming today. I want to start out by saying that I strongly believe that the United States needs to be a leader in energy technology, that the United States needs to be a leader in reducing energy emissions. The United States needs to be a leader in ensuring that the strategies that we proffer, or the ideas that we come up with, are solutions that are exportable to other countries as well.
And I want to run through a little bit as to – as to why. And before I do that, I believe that Congressman Casten would agree with what I said. So not coming at this from a perspective of differing goals. I think that we actually have very, very similar goals. I do believe, as we’ll discuss today, that we have different ideas on actual tactics and in terms of strategies to get there. And that’s what we look forward to discussing today.
So in order for us to plot a course forward that ensures that we’re moving in a direction that provides Americans and folks around the world with energy that’s affordable, energy that’s reliable, energy that’s clean, exportable technologies and a secure supply chain, I think one of the things we have to do is not come out of the gates and say we’re going to ban this, we’re going to stop that, we’re only going to use these tools. But rather, use every tool in the toolbox in a way that achieves your overall objectives. And I’m going to say those five things again. It’s about reliability. It’s about affordability. It’s about the cleanliness of energy. It’s about exportable technologies. And it’s about security of supply chain.
So if we look back – we look back and we say, OK, what has worked? I want to remind you, I believe it was in 2019 – I may be off by a year or so – the head of the International Energy Agency said that what the United States has done in the previous 10 years – 10 year period, let’s be clear, straddling Republican and Democrat administrations – had been the lowest energy emissions reductions in world history. OK. This isn’t some right-wing person. This isn’t some – this is the head of the International Energy Agency who said that.
Now, another little talking point or factoid that I think we need to look at. You may recall that the President Obama had established what was known as the Clean Power Plan. And under the Clean Power Plan, President Obama said that we need to reduce emissions by 32 percent off of a 2005 baseline by 2030. All right, I’ll run through those numbers again. 2005 baseline, 32 percent reduction, by 2030. And what ended up happening is rather than that requirement staying in place it was actually thrown out, OK? So the requirement to hit that target was thrown out.
However, do you know how we actually fared in those emissions? We actually exceeded – we hit a 34 percent reduction in emissions off of the 2005 baseline. Not by 2030, as was set, but by 2019. And we did it without the projected increases in cost of electricity. Let me translate that. What that tells me is that – is that rather than having government coming in and picking winners and losers, and determining which energy technologies we’re going to use, and which energy technologies we’re not going to use, we’re better off letting innovators innovate. Letting innovators innovate.
Look, I’m from south Louisiana. Our state has some of the most threats – some of the greatest threats or vulnerability to sea rise in the United States, and some of the greatest in the world. We’ve lost over 2,000 square miles of our coast. And this is where the majority of our population lives. These are the areas that we represent. The last thing in the world I would want to do is come in and propose solutions that are going to further put the folks that we represent in jeopardy. Which is why I’m going to continue hammering those five things that I think are so important, which is why I’m going to continue saying that I think that our best solution is looking at the strategies that have worked and figuring out how to double and triple down on those very things that have not caused energy prices to skyrocket.
Now the administration came out – and this whole conference today is about the LNG pause. The LNG pause, and whether that was a good idea or a bad idea. Well, for one, I think looking at perhaps the motivation. We’ve seen Secretary Granholm that just last year was sitting there talking about how the United States has an abundance of natural gas and how we actually need to use it too as a tool to help out our allies, to this year coming out and saying we’re going to put a freeze or ban in place. But then, saying upfront, this is only going to last for a year. Indicating to me that there appeared to be some politics behind the decision.
More importantly, it’s contrary to the very thing that I brought up earlier, which is using all the tools in the toolbox when they make sense. And let me explain a scenario when using natural gas, specifically using LNG exports – liquefied natural gas exports – as a solution. If we had simply taken one year – one year of Russian liquefied – excuse me – Russian gas that was provided to the European Union – one year of Russian gas provided to the European Union, and supplanted it – supplanted it with U.S. LNG, that would have resulted in approximately a 218 million ton reduction in emissions. Not to mention, would have kneecapped Vladimir Putin, would have helped to address some of our trade deficit issues, increased our economic ties with our allies. And I’ll say it again, reduced emissions to the tune of approximately 218 million tons.
I’m out of time, so I’m going to wrap there, and looking forward to dialogue with my friend, Congressman Casten. But I just think rather than letting this become an emotional issue, I think more appropriate for us to make sure we’re using math and science to inform our decisions moving forward.
Dr. Majkut: Thank you so much for the starting comments and the timeliness.
And, Mr. Casten, open to your thoughts as well.
Representative Sean Casten: Thanks so much. And just really happy to be here. And happy to be here not in a classified setting, as we usually are when we’re in this room. (Laughter.) So let’s start with, like, areas of violent agreement. The United States has unbelievable energy technology to export to the world. We should be – it should be our national interest to export those. And we have a – whether you want to call this a moral obligation or an economic obligation – to make sure that people have cheap and affordable energy, first in our country and then to our allies around the world.
Where I – where I think I differ a little bit is that I am – I’m very much an Amory Lovins-ite, if you will, that the energy that matters is the energy that makes your beer cold and your shower hot. We would – we would never – we would never say that the purpose of the auto industry is to sustain our iron miners. And yet, we conflate inputs on the energy side with outputs. So what really matters is do we have access to cheap and affordable heat and light and power. And the – it’s true, the United States has vastly exceeded where anybody thought we could get to from a CO2 reduction. And it’s also true – and I’m totally with Garret on this – that we should do that in a way that uses markets to innovate, and not direct.
The deregulation of the power sector in 1992, and then the FERC orders that followed, for the first time in our history created a world where power plant owners could make money by saving money. That didn’t exist prior to that point. And so you had within a 10 year period we built 200,000 megawatts of combined cycle, about 20 percent of the whole grid, that roughly almost doubled the efficiency of the U.S. gas grid. Our nuclear fleet went from 60 percent capacity factor to 90 percent capacity factor, because it was cheaper, and you could make money operating it. U.S. CO2 emissions went from 1,300 pounds per megawatt hour to, where are we at now, like 900, a little bit less I think, largely because of that.
Well, now look at what happened to the U.S. energy system. And here I’ve just – I just pulled up some numbers off EIA before I came here. In the last 10 years – well, the 10 years ending 2023, because I can get that data easy. U.S. GDP is up 61 percent. U.S. coal use is down 40 percent, because it can’t compete. Oil use is basically flat. It bounces around, but total U.S. oil consumption is flat. And natural gas use in the U.S. is up about 24 percent. So we have actually de-fossilized our economy. We are now getting more with less. We have a higher standard of living and we’re less dependent on fossil fuels to get there, which means that you don’t have to spend money. Our homes are more efficient. Our vehicles are more efficient. Our power plants are more efficient. That’s wonderful.
But what do you do if you’re a fossil fuel producer and you cannot compete, because you can’t make that beer cold, you can’t make that water hot as well as your competitors are? And the answer is it’s gone to exports. Remember, natural gas consumption is up 24 percent in the last 10 years. Natural gas production is up 55 percent. Natural gas exports are up almost 400 percent in that period. So whereas the gas industry was almost entirely a domestic play before, now 20 percent of gas production is for export in the United States. This then sails into the Natural Gas Act, that says if we’re going to approve these facilities is it in the national interest for us to drill holes in the United States, run pipes in the United States, take supply out of the United States, and send it overseas if the price is right? Is that in our national interest?
I would argue, and I did argue with Secretary Granholm on several occasions, that I think the Biden White House was not asking that question as rigorously as they should have before. But we do now have this dynamic in play where even before you get to the pause, the – right now we export about 15 BCF a day of natural gas. Projects currently in construction are going to take that to 30. So this huge increase, we’re going to double that again. Projects that are permitted, not affected by the pause, haven’t yet started construction, are going to take that to about 41. So we’re going to be an almost threefold increase before we ever get to the pause.
And the only question right now that the DOE has to ask is, should we do more than that? And I think that question has to take into account, you know, does it matter that when there was the Freeport Export Terminal explosion, the price of gas fell 30 percent because all of a sudden we had a glut of domestic supply. Really good for U.S. consumers. Not so good for gas exporters. There was – that same Freeport Terminal was under repair a couple months ago, and you saw Henry Hub prices, some nodes in Texas, negative. Again, having a glut of supply really good for U.S. consumers, not so good for gas producers.
The export capacity that’s already permitted and approved is – has basically filled Europe’s needs. The new capacity – I think, like, 18 percent of the new contracted gas is going to go to Europe. Like, 30 percent is going to Asia. And the balance is going to commodity traders. So this is not about helping our friends in Europe at this point. This is about largely helping commodity traders. And then, secondarily, is it in the U.S. national interest to provide cheaper energy to Asia to make them more competitive in the world? That’s a question we can ask, right?
And then, finally, we need to be really honest about the global warming impacts here. If you are sitting in a coal plant and you have a burner tip with coal and you have a separate burner tip with natural gas, it is objectively true that gas is much cleaner. If you have more than about 3 percent leaks in the system, up to that point gas is worse because methane is so much more potent to greenhouse gas on a 20-year period. And given as we are basically already over 1.5 degrees, I would suggest you should be looking at a 10 year global warming potential, which is, like, an 80 times worse pollutant.
And we simply don’t have the ability to track, much less to force, that the whole distribution system is going to be leak free once that leaves our shores. And so if you have anything more than about 1 percent leak rate of that gas after it leaves here you are worse than coal, from a climate perspective. We may not like that, but that’s just sort of the truth of where we have to sit. And so what is the heuristic that DOE is going to use to ask this question now that the natural gas industry is primarily an exporter?
OK, it’s only 20 percent of production, but on – but on the margin, a marginal unit of new gas production in the country right now is going to export. And it’s going to export because that’s where the money is. It’s going to export because you can make more money selling it overseas than you can at home. And I think if we’re not honest about the impacts on price volatility, the impact of hitching U.S. consumer prices to the rest of the country, the impact of reducing supply, then I think we’re not – and the environmental issues – then I think we’re not asking the right question.
The last thing I’d just say on technology is all those technologies that we deployed in the United States that helped us decouple growth from fossil fuel use, those are also exportable technologies, right? And if we think that we are worthy of those technologies, then let’s also think about that. I’ll leave you with just a conversation we had with a Ukrainian parliamentarian who had come over about six months ago. Who was – he had – he had a job overseeing rebuilding and construction.
And he said, people need housing in Ukraine because they just got bombed. The quickest thing to build is crappy Soviet cinderblock housing. But we don’t want to depend on Russian gas. We’d like to build them efficient homes. Those are going to take a little longer to build. It’s going to be a little bit more capital on the front end. It’s going to be – we’re going to have to figure out how to get it on the back end. That’s technology that we should be thinking about exporting. And if all we think about is saying let’s flood that market with gas, then we’re – not only are we doing them a disservice, but we’re exposing ourselves to more volatility in the future.
Dr. Majkut: Thank you both. A lot of threads to draw on, on both sides. I think I’d like to start with you, Mr. Casten. I’m going to talk a little bit about the climate considerations. So Mr. Graves said that, you know, there’s a lot of politics in this decision. I think that’s pretty evidently clear, right? There’s a sort of – the activist community got deeply involved, and a lot of the reporting has been about young voters, and all that kind of stuff.
But I think there is this sort of underlying issue, which is, as you said, we’re getting very close to 1 ½ degrees of global warming. This is long-lived infrastructure. There’s a fear amongst many analysts that, like, if you overcommit to this kind of asset, it’s going to be used for too long. And you kind of – you made the comparison to coal and the leak rate issue. But I’d love your thoughts on the long term issue, right? So if you kind of – if you’re trying to build a world where you’re net zero by 2050, should that be important? Or, as you say here, even on the margins it’s – like, you’re suspicious that there’s a climate benefit to be had in LNG export.
Rep. Casten: So, first off, if you take, like, the IEA forecasts, the IEA does forecast that we are in a decarbonizing world. And they forecast that we’re in an even more strongly decarbonizing world if countries meet their Paris commitments. So I think when you look at what LNG is doing on the margin, you should look at it relative to the world that the IEA thinks we’re going into, not relative to the world that existed 15 years ago. And so – and so in those forecasts, you know, the IEA, and, you know, like our country, is assuming that, like, you know, look at us.
Ten years ago, 50 percent of U.S. power came from coal. We now make more power from renewables than coal. That’s not because of the IRA. It’s because it’s cheaper. And, you know, if you build a coal plant next to a wind farm, there isn’t a single wind developer that’s like, oh man, I’m so nervous because they might out compete me in spot markets. The reverse is very much true, right? So I’m less concerned about if we build assets that can’t compete against other future technologies. As long as we deploy those technologies they’ll get out-competed.
I think the struggle is that – you know, I used to joke that anybody who thinks that energy markets rationally allocate capital has never tried to get a capital project approved in energy markets. (Laughs.) Because these are – these are hugely capital-intensive projects where, you know, there’s a finite number of banks and entities who have the sophistication to pull those deals together. Once they’re built, you have a very strong vested interest in making sure that you maintain the capacity factor to get your return. You become a very important political player in your state, in your county, in your country. And you tend to box out that competition.
And so, you know, coal would have shut down a long time ago but for the fact that they were so good at keeping better technologies out of those markets. And arguably, like, there’s very few coal plants in this country that were shut down before their capital was amortized. It was just that they had end of life, and now you had all this other stuff coming up. That’s not because there wasn’t other technologies out there. It’s because politically it was hard to fight against someone who employed – you know, was the primary source of property tax in your community.
Dr. Majkut: Now, you made a comment that I want to make sure I understand well, because I actually want to bring that one over to Mr. Graves. You said 3 percent is the number on methane emissions that sort of makes coal versus gas a wash, right? And that’s a 20-year global warming potential, correct? And then you said, well, and then if that means beyond our shores if a leak rate is above 1 percent we need to be concerned, because you were kind of seeing a low – low or one percentage leak rate on this side?
Rep. Casten: Yeah. So you all know this. I’ll be pedantic here, for the few people who may not know this. You put a – you put a piece of methane into the atmosphere, a molecule of methane, it is a much more potent greenhouse gas than CO2. Over time, it bounces around the atmosphere, runs into an oxygen atom, it becomes CO2. And so after a decade, it all becomes CO2. But during those – that first decade, it is way more potent a greenhouse gas. So you get into this academic exercise of saying, what is the greenhouse gas equivalent of a molecule of methane in the atmosphere? And it depends on how long you’re looking. If you look over 50 years, maybe it’s, you know, 10-15 times as potent. If you look over 20 years, 20-30 times. And that’s what I think a lot of people say, so 20-30, OK, roughly 3 percent, right? If you do that math.
If you look over 10 years, it’s 80 times as potent. And that’s when it sits in the atmosphere. And so if you sit there right now and you have, you know, lots of people – darn near every scientist who matters – saying this is the decisive decade, right? Then what’s going to happen 50 years from now is not relevant. We know that sea levels on the Gulf Coast are going to be two feet higher by 2050. Like, we’ve already locked that in. So I would argue that you should be looking at that ten year global warming.
But even if you take the 3 percent, you know, leak rates – leak rates in the U.S. are arguably maybe 3 percent. We’re starting to tighten it up. But once we export overseas, we don’t control – and remember, we’re exporting this to Asia, right? (Laughs.) Or we’re sending it to a commodity broker who’s going to put it into, you know, some port in the Black Sea. We don’t control how good those countries – how good those gas utilities are at tightening up those leak rates. And oh, by the way, we’re also using 14 percent of the energy in the LNG to compress it in the first place. So it’s even worse once you factor that in. But we don’t have control over that. If you don’t have control over that, then you can’t honestly say this is better than coal.
Dr. Majkut: Well, let me go over to Mr. Graves then with that – with that question, kind of in two parts. I mean, one, what do you think that the opportunity associated with LNG exports is for domestic methane abatement and the imperative there? And, two, how do you think about our responsibility when we think about national interest for emissions that happen outside of our shores?
Rep. Graves: Yeah. Great, great question. And I think they’re – you’re beginning to dig into some of the real sticking points of this. So, first of all, I think you have to keep in mind that, you know, I talked earlier about how innovators have innovated. And so just throw out one statistic. If you were to take the – largely the previous 10-year period or, I guess, if I remember right, it started maybe 2012 to 2022, something like that. You saw energy producers reduce emissions, methane emissions, by 66 percent. So let me say that again, a two-thirds reduction in in energy emission – in methane emissions associated with energy.
I mean, this is – this is, once again, world leading. And I understand that Congressman Casten has strong concerns about natural gas. But I do think it’s important that we do look at numbers. And he was talking about EIA projections and IEA projections, and I just want to dig in on that a little bit because I think this is – once again, we can’t let emotion govern; we’ve got to get math and science to govern.
And so if you look at the Biden administration’s Energy Information Agency Administration, they have found that the increase in demand for natural gas is going to be about 57 percent between now and 2050, all right? Let me say that again: Global demand for natural gas is going to go up about 57 percent above current, all right? So Congressman Casten’s exactly right; there has been a surge in the export of natural gas. But, number one, the National Energy Technology Labs, which is a part of the Department of Energy, did a study determining that Russian gas has a 41 percent higher emissions lifecycle than U.S. LNG exported to Europe, and I think it’s 47 percent going into Asia.
So let’s start putting some of these things together. Number one, if you have a projected increase in natural gas demand – let me say this again: this is the Biden administration projecting this, 57 percent – if we have a 41 to 47 percent lower emissions profile – or said another way, excuse me, if Russian gas has a higher emissions profile than U.S. LNG, and the statistic I gave earlier about supplanting Russian gas going to the European Union – 218 million ton reduction – we need to be realistic and we need to make sure that this demand for natural gas is actually coming from the United States, because that results in global emissions reductions. And so we can sit here in our utopian world and say, well, you know, I just think that fairy dust is going to power the globe, and we can say that all day long, but if there’s no math and science to prove that’s an option than we’re being really dangerous and, quite frankly, irresponsible in blocking tools that could help – that could help to reduce global emissions, which, you know, is the question that you ask. What is our responsibility outside our shores?
So, look, one of the things that I think is most important – and Congressman Casten noted the exportability of different energy technologies. One thing to keep in mind, over about a 17-year period from 2005 forward, the United States reduced emissions more than every other emissions-reducing country. But as we did that, leading the world in reducing emissions, here’s the kicker: For every one ton of emissions we reduced, China went up by I think it was six, right? So what are we doing for the global environment? What are we doing for the global environment? Let me – let me say it another way. During that – roughly that same time period – it was a 15-, 17-year period when – if you take all the developing countries, we actually collectively – developing countries collectively reduced emissions about 15 percent over that same period of time. During that same period, developed – developing – let me try that again. I’m going to start all over. Developed countries reduced emissions over that period by about 15 percent. Developing countries during the same period of time increased emissions 68 percent. Like, we’ve got to be cognizant about what is happening globally, just like that one ton of reduction in the United States, increasing six in China. We are trashing the global environment. We are on the wrong trajectory. And we’ve got to make sure that the solutions look globally and ensure that we are on a trajectory to have the entire world reducing emissions.
And so if we have 57 percent increase in natural gas demand, why aren’t we producing where we have the lowest carbon-intensity gas in the world, which happens to be off the coast of Louisiana in the Gulf of Mexico? (Laughter.) And I mean, so I just think we’ve got to put this data together. And I’m not at all saying that we abandon wind or solar or wave or geothermal or nuclear. We need absolutely all of the above when they make sense.
Dr. Majkut: Thank you, Mr. Graves.
You know – and kind of now pivoting a little bit, but this has already been part of the conversation, right – the growth in this industry over the last 10 years has just been enormous, from zero to now the world’s leading export of U.S. – of LNG, and with, as Mr. Casten said, enough pipeline project that we’re looking at probably a close to doubling, right, assuming that all that stuff runs at near full capacity. There’s obvious commercial incentive here. And so I’d love to hear your thoughts on the sort of, you know, what economic – how are you thinking about this economically, both domestically and internationally, the role of the industry and the potential impacts on domestic prices versus sort of the clear commercial case for exports, which I think probably are pretty helpful in Louisiana?
Rep. Graves: All right. I want to – I want to make sure I understand your question. I’m –
Dr. Majkut: So – like, so strong commercial incentive to support these kinds of things, right? But the DOE is stepping in, counter market forces, to say the national interest needs to be evaluated and declared vis-à-vis energy prices domestically. And so how do you think about the national interest in that regard?
Rep. Graves: Sure.
Dr. Majkut: And how do you compare that to kind of sharing a valuable natural resource abroad?
Rep. Graves: Yeah, yeah. Yeah, great question.
Number two, as we all know – and probably as Congressman Casten will note at some point – we have had an increase in production in natural gas. And so, you know, that whole supply-demand balance thing is important, but in this case there aren’t indications suggesting that the export is actually causing domestic price issues. And so that’s a second one.
I just – I think that we’ve got to be very careful about politicizing this issue, and let’s go back and look at some of these examples. We saw this administration come in and say that we’re not going to allow the Keystone Pipeline. They said Keystone Pipeline cannot be built because it’s going to result in increasing emissions. At the same time, the administration was actually facilitating, effectively, by lifting sanctions the Nord Stream 2 pipeline that allowed for Russia to send oil into the European Union.
Those two things can’t exist if you have rational policies. Then months later Jen Psaki, the communications director for the White House, came out and said, oh, no, no, no, no, that energy production that was going to be transported through the Keystone pipeline it’s already being – it’s being produced. It’s being produced. It didn’t stop that production. It’s just being transported through other means, which means barge, truck, or rail, all three of which have a greater emissions profile and higher chance of spilling.
Like, just this is what politicizing policies looks like and it’s resulting in higher emissions. It’s resulting in higher prices, not because of the exporting of LNG but because the uncertainty that’s being caused by the pause. It’s freezing investment and because, for example, you would have to go back to the Jimmy Carter administration to find any comparable amount of oil and gas production in the United States.
And just to put it in perspective, the Jimmy Carter administration at the same point in time had opened up leasing to 100 times more acres for energy production than under the Biden administration.
Somebody may be able to correct me but I don’t remember anyone ever saying bring back that Jimmy Carter energy policy. So I think it’s a mistake what’s going on right now. We can’t allow this to be politicized by either Republicans or Democrats. Math and science needs to guide this policy.
Dr. Majkut: There’s a small collection of us on Twitter who really like sweaters and, you know, there is a niche, sir. (Laughs.)
Mr. Casten, you know, I’d love your thoughts on this too, right, kind of how to think about the domestic price issues. You cite American consumers and their interests. It is also true that, you know, very long-term demand can help generate supply. We sit on, apparently, an ocean of gas. As the U.S. continues its own decarbonization we will see, potentially, downward price pressure. That may interact with AI closely.
I’d love your thoughts on kind of how we, how the DOE, should be thinking about that question.
Rep. Casten: So, first, I just want to address sort of some of the history of how gas got so cheap, and maybe I’ve just spent too long in the energy industry.
Back in 2008 I was trying to finalize a deal with DuPont where we were going to convert their gas boiler to biomass and they were running the math on the assumption that natural gas was going to be $9 a million Btu.
They were debating whether to use $12 because that was the Henry Hub price at the time, and then the price came down in their forecasts and, ultimately, we didn’t build it and I remember I said, you know, what caused this project to tank and the guy said, I work for a Fortune 500 company – we always make long-term energy decisions based on short-term energy prices. (Laughter.)
That is the reality. Well, what was going on in the world in 2008? Every electric utility in the country was talking about death spirals – they weren’t seeing load growth – and every gas utility was saying there’s been this flood of gas – gas heating, gas appliances. The old steam systems are being shut down and the gas industry was super bullish and oh, by the way, fracking wasn’t really a thing yet. It was, you know, this weird guy in Ohio who had some crazy ideas and seemed to not be delivering consistently negative cash returns on equity. (Laughs.) That’s an Aubrey McClendon joke, for those of you who are into deep cuts.
And those LNG terminals were for import, not for export, right, and so the idea was we need these because we need to get gas from Algeria that’s going to be expensive and we’re going to have to grow this out, and so it was a really forward forecast.
Well, the price of gas came down because of the amazing fracking revolution that brought just a ton and, frankly, a lot of people did lose their shirt. But, you know, such is the way in the energy industry. The third owners always make money. (Laughs.)
And the – and now you have electrification. Well, now on a going forward basis you’ve got this issue where we are starting to decouple. If you go and talk to regulated gas utilities today, they have a much less bullish view on their future in the United States than they did 15 years ago because they’re seeing people are shifting away from gas dependence not for policy reasons, for market reasons. They’re cheaper. The electric utilities are much more bullish, right?
So on a going forward basis what do we – like, what are we going to deliver? And I think it’s really hard to argue that you can sit in a market that has more gas supply than demand and that the price wouldn’t go down if you kept that supply in the United States.
I mean, this is, like, the first three pages of your economics textbook. This is not super complicated, and that was why I said you’ve seen when that Freeport terminal went down immediately, boom, the price of gas fell 30 percent. Like, that is really happening.
It’s also true that 10, 15 years ago, the – there was very little correlation between the price of natural gas in the United States and the price of natural gas in Europe. Well, if you’re a natural gas exporter and you have a facility or, better yet, one of those commodity players who’s taken, like, 55 percent of all the new gas under contract wouldn’t you love to have the arbitrage opportunity to say I can sell this at Henry Hub for $270 or I can sell it in Rotterdam for $9. Which would you like to have?
Well, fine. They’re going to be capitalists. Nothing wrong with that. But there’s no way that that doesn’t all of a sudden put U.S. buyers in a position where they’re saying, well, geez, if I want to compete here, I’m going to have to now pay that higher price or, more specifically, we’re going to start globalizing gas markets in the way that we’ve already globalized oil markets.
But the last comment that I’d make on that is that I think – and I think this really gets to the nub of the problem of a conversation that – and Garret and I have had this conversation many times – I think we have to ask ourself is the purpose of U.S. energy policy to benefit energy consumers or energy producers, and when we conflate upstream supply with downstream use we tie those things together.
But we need to be honest about it, and as a sign of how dishonest we are – show of hands, how many of you remember in April of 2020 how sad you were when the price of gasoline was so low? Do you all remember that pain that you felt in your heart? Nobody’s remembering the pain? (Laughs.)
Because – well, because at the time Senator Cassidy introduced a bill that said we should direct – we should tell the Saudis we are going to take troops out of Saudi Arabia unless they cut down on oil production so that we can raise the price of oil to help out U.S. refiners who are really hurting right now.
Donald Trump followed up. Google it. It was April Fool’s Day 2020. Followed up. He called the Saudis, said, I am going to pull the troops out unless you clamp down production. The Saudis dutifully responded. They pulled down production. The price of oil went up. Trump was praised as a hero on Bloomberg TV.
That all really happened. Did anybody outside of me and Tom Malinowski, by the way, bring legislation forward when the price of gas went up that said we should call the Saudis and tell the Saudis that we are going to pull troops out of Saudi Arabia unless you ramp up production?
Now, when Tom Malinowski and I introduced that bill Senator Cassidy said, these guys don’t understand how energy markets work. What is the purpose of U.S. energy policy? Is it to benefit U.S. consumers or U.S. producers?
Because I get it. If I was selling widgets and one market was paying $9 and the other was paying $250, I’m selling the $9 market all day long. Not so good for widget consumers but it’s pretty good for the widget producers.
And I think this tension as we decarbonize, as we decouple our economy from fossil fuel use, should we see our – the fossil fuel resources we have as a nice rainy day fund, you know, for when we need it or should we see it as something to strip mine out and sell it to the top bidder for whoever owns the well?
Dr. Majkut: I actually like that concept so much.
Mr. Graves, I’d love your response on this question of consumers-producers or, you know, is that the right dichotomy to draw.
Rep. Graves: I don’t think it’s – I mean, obviously, if those are my only two choices I’m choosing consumers all day long, which is why I’ll refer you back that the day that President Biden took office the lowest gasoline prices in my home state was $1.74 a gallon. Again, this administration gas prices were $1.74 a gallon when President Biden was sworn in. You can’t find anything even remotely close to that.
Congressman Casten, I also want to remind you of things that go in your weird category. I have a letter that – let me see if I remember this right. I think it was Senator Markey, Senator Menendez – oh, gosh – oh, Senator Schumer and I think there were one or two others – actually sent to President Trump asking him to have the Saudis increase their oil production.
So I don’t know if sometimes what planet we live on but I have a copy of that letter if anybody would like to see it where – I’ll say it again – Schumer, Cantwell – I think it was Schumer, Cantwell, Menendez, and Markey sent to President Trump saying, please have the Saudis increase oil production.
But let me go back and answer the question.
Rep. Casten: That’s what Tom and I’s letter said, too.
Rep. Graves: What’s that?
Rep. Casten: That’s what Tom and I’s letter said, too.
Rep. Graves: That was –
Rep. Casten: That was what Tom Malinowski and I’s letter said, too.
Rep. Graves: Oh, OK.
Rep. Casten: That if we ask them to curtail to raise the price then shouldn’t we also do the reverse.
Rep. Graves: Yeah. So just going back, so let me say it again. I don’t think that’s really the right – the two right answers. I don’t think it’s either consumers or producers. I think that it’s really Americans writ large because the reality is the considerations go beyond just how much people are paying at the pump.
If that’s the only metric that we’re looking at then this administration has been an abysmal failure. We’ve seen energy prices skyrocket in terms of utility costs, in terms of gasoline prices. Even emissions have gone up.
Dr. Majkut: Gas is OK, though.
Rep. Graves: What’s that?
Dr. Majkut: Gas prices are –
Rep. Graves: Yeah. Natural gas prices are – yes, they have remained stable. Now, but let me go back and say that I think we need to be looking collectively at Americans and let me give you just two examples that are right now front and center.
So as a result – let me see how many of you all remember when there was a negotiation on hostage releases with Iran and that the – all these people came out and said, would you – you know, the Biden administration should release $6 billion in freed revenue. I think South Korea had freed revenue under this negotiation. And all these people were up in arms and said, oh, they’re just going to give it to terrorists.
Do you know how much Iran has profited from our flawed energy policies? Their imports – excuse me, their exports have skyrocketed. It’s somewhere around $65 billion. So we’ve enriched Iran with flawed energy policies which has allowed them to further fund Hezbollah, Hamas, Islamic Jihad, Houthis, pick your terrorist, and now we just provided tens of billions of dollars to fund the other side of the war.
What are we doing? And then in Russia same thing. We actually increased under this administration our imports of Russian oil in the United States. We’ve watched as prices have gone up so Russia is now profiting more and, I don’t know, I’m not sure of the numbers. Those have been a little more difficult to calculate. But I think it’s probably around a hundred billion dollars in additional profits.
So Russia is now using that to fund the invasion of Ukraine that we just funded the other side of it again. So let me say again I don’t think it’s producers or consumers. What is in the best interest of America? What is in the best interest of our American citizens collectively? And I think that those are just some examples as where we’re not looking properly at the overall consideration or use the right metrics.
Dr. Majkut: Can I jump in? Because I think actually the last place I want to touch on, Mr. Graves – take a glass of water for a sec because the question is to you – is the geopolitical, right? So you got the American producers. You got the American consumers. But it’s also now the fact that we are the largest exporter of LNG in the world.
The geopolitical benefits of that I think we’re still trying to understand from the European experience of the last couple of years, and then the same theme redounds to sort of, you know, who you want getting the economic benefits or the sort of revenues associated with energy exports. Is it American shareholders or is it, you know, dictatorial regimes abroad?
So I’d love your thoughts on the sort of geopolitical aspects which when – with respect to the pause or not, material to the DOE but are very important for the U.S. and its relationships around the world?
Rep. Graves: Sure, and I think you’re exactly right that – you know, look, in our office we call them freedom molecules and, you know, we’re exporting – you like that? You can use it. You can use it as you drink your petroleum-based water bottle there.
So I’m sorry. No, unfair. That wasn’t fair. I take it back.
So, look, I think that you absolutely have to take it into consideration. But, you know, it’s not the only consideration but take it into consideration. And I went back and I pulled this transcript from a hearing that we had in the House Natural Resources Committee and this was a senior administration official and I asked him – I said, look, you know, what happens when you start reducing domestic production of energy? Does that have an impact on demand? Do people start saying, oh, OK, well, I’m just going to pivot to this other energy source?
And I’m going to read you his comment. This is a senior administration official who’s there now. Quote, “We’ve actually done quite a bit of analysis of this and support a five-year program development and if OCS production,” which is offshore – Outer Continental Shelf or offshore production – “if OCS production were to stop most of the substitution would come from imported oil.” And so, look, just extrapolating this answer, what he’s saying is that there’s nothing we can do domestically to influence – to influence what sources of energy other countries consume or really that we even consume in the United States, but rather what’s going to happen is you’re going to have other countries that are going to fill the void. And whether that void is a void domestically in the United States or it’s a void that’s happening overseas, other countries are going to step in.
And you know, I said that statistic earlier. During the amount of time the developed countries have reduced emissions about 15 percent, developing countries have gone up 68 percent. It’s why it’s so important that if we’re going to achieve this goal that Congressman Casten and I share – America continuing to be an energy leader globally, us helping to lead the energy technology, reduce emissions – we’ve got to make sure that we’re looking at the implications – the global implications of emissions based on the policies that are – that are being put forth in the United States.
And I want to remind you, even Hillary Clinton acknowledged that the Russians were funding environmental groups that were out there trying to trash fracking because they knew it was against their interest, just like I believe that China is out there pushing for the United States and others to use the critical minerals that they’ve developed a monopoly on – not just the mining, but also the processing and refining. We’ve got to be thoughtful about how we move forward. I can’t say it enough. Math and science. Math and science.
Dr. Majkut: Mr. Casten, to you, the same geopolitical question. I mean, the European thing is real. The U.S. has sort of unique market characteristics, having destination flexibility. A lot of the exports go to the trading houses. We don’t really know what the future holds. Is there option value in the export capacity for us and for the global market?
Rep. Casten: So I’m going to be a broken record, and I want to keep coming back of, if you’re talking about energy policy, don’t just talk about upstream, right? (Laughs.) We don’t do that in any other space. And arguably, the single best thing we could do domestically and internationally is to increase energy productivity.
I mean, think about it. There are only three inputs to an economy: labor, capital, and energy. Maybe you could throw in raw materials if you want. We track labor productivity on a weekly basis at BLS, right? There isn’t a – there isn’t a company in the world who would keep their CEO if their CEO didn’t know what their return on capital was and was pushing that to go up against their peers. Nobody tracks energy productivity. You can’t even get the numbers, right? (Laughs.) And yet, it’s one of the primary inputs. If you try to go through and get the numbers, the U.S., we consume about a hundred quadrillion Btus of primary energy a year – for nerdy reasons I’m not even sure I trust that number, but everybody at least measures that the same way – in a roughly $21 trillion economy. So we generate about $200 of GDP for every million Btu. That is half the energy productivity of the U.K. It is one-third the energy productivity of Switzerland. Imagine if the United States was able to deliver the same quality of living we have right now with only a third as much primary energy input. That would be fantastic. That’s a third less exposure to all that volatility in the world, whether because Vladimir Putin wakes up on the wrong side of the bed one morning or some ayatollah does something crazy. Isn’t it wonderful to say I don’t give a damn because it doesn’t affect me, because I’m not – I’m not hitching my wagon to that? Wouldn’t it be great for us to then take the technologies that are out there and deploy them?
And again, these are countries that have already gotten to that level, right? So if, on the other hand, we think you know what we want is we want more volatility and we want to ride this wagon, because, you know, options pricing theory; you want to own the volatility, right? Well, that’s awesome. Let’s build out those export markets and hitch up to that volatility. Let’s not deploy the technologies that’s going to make it more efficient. And we’re guilty of that. Like, yeah, I get it; like, the Russians, the Iranians would not like to have energy efficiency deployed. There’s a lot of folks in the U.S. who wouldn’t, like, efficiency deployed either. I’ve got a lot of scars on my back from fighting against utilities.
Rep. Graves: As we discussed, that’s an area, efficiency and conservation, where I think we absolutely agree.
Rep. Casten: No, no, I agree. But I’m saying, like, if we’re sitting there and saying what is in the U.S. national interest from an energy policy, we’ve got to frame this from a downstream energy perspective and say how do you get to a world where you have affordable, reliable, useful energy, not how do you get to a world where great news, ma, I got a pile of coal on your doorstep. What the hell do I do with that, right? (Laughs.)
Rep. Graves: But how do we make that a matter of U.S. policy, right? Like, double-pane windows in Turkey.
Rep. Casten: Well, like, look, let me start with some things that I’ve been, you know, fairly critical of the Biden administration on. When Russia invaded Ukraine – (laughs) – when Russia invaded Ukraine, we immediately said supply siders are ascendant; we’ve got to ramp up LNG exports. We didn’t talk at all about saying how do we help export-efficiency technology that we have in U.S. companies to Europe to help make them, you know, where we’ve got – you know, why weren’t we using the Defense Production Act to get those tools out there to reduce the amount of energy they had to couple themselves to? We should be doing that.
Another place that I think we need to have a more honest conversation – and Garret and I actually both lied to you early on, to be ecumenical here. When we say that the United States is cutting their CO2 emissions, that assumes that we hold the United States to a lesser standard than the United States government holds contractors to the United States, which is to say we ignore Scope 3. (Laughs.) You can’t say that we are simultaneously ramping up our emissions and sending oil, sending coal, sending gas overseas and we’re only going to take credit for what gets burned in our country –
Rep. Graves: I feel like throwing national Scope 3 accounting into this conversation four minutes before we conclude. It’s a pretty big curveball.
Rep. Casten: (Laughs.) No, but my point is that if we’re – I think we can be measured – we can be measured on increasing our energy productivity and we can export the technologies to grow that energy productivity. We should not be measured or rewarded for saying I’m going to take my problem, shift it over here where the accountants aren’t looking at it, and take credit, right. And therefore I’ve made the world a better place by moving it over to the other side.
Rep. Graves: I want to make sure I understand what you’re saying. So you’re basically and are saying what I’ve said about the United States having the most efficient production, most efficient economy, and that by coming in and ramping up regulatory red tape and hurdles, all you’re doing is forcing activities overseas to less-efficient economies?
Rep. Casten: No, remember what I said before. Energy markets are not efficient. From an energy-efficiency perspective –
Rep. Graves: That was – that was me trying to put words in your mouth – (inaudible). (Laughter.)
Rep. Casten: The United States has nothing to be proud of from an energy-efficiency perspective. We could do much better. And that’s actually a huge opportunity, right? And then we should export those technologies to do that. What we shouldn’t do is say, like – you know, I mean, you were talking about Russia, like why is Gazprom, like, so dirty? Because Gazprom wouldn’t know capitalism if it bit them in the ass. They have no downside of a leaky system.
In the U.S., our gas producers have an economic interest to not leak, because they want to sell more gas. But if we’re now exporting our gas into, you know, Eastern-bloc distribution systems built by Gazprom’s predecessors, we should not assume that those systems are not super leaky or that those are subject to the same market forces we have.
So I realize you were, you know, having a little fun there, Garret, but I don’t think we’re as efficient as we could be.
Rep. Graves: (Off mic) – but I appreciate you taking me seriously.
Rep. Casten: I think some of our peers are more efficient. And I think we should set that as a goal to aspire to, not by saying we’re the best; everybody should just copy us.
Rep. Graves: But I do hear a certain sense of obligation you’re expressing about sort of how we think about the lifecycle emissions of exports, right? Like, what happens in Poland or in China or in India with U.S. LNG matters.
Rep. Casten: Yeah, along with all the leaks, getting it from here to there.
Rep. Graves: Yeah, exactly. Right.
Dr. Majkut:
We are at time. And I would love to do this longer, but I have to pick my kids up for baseball. I’m sorry for that.
But Mr. Casten, I’d love to give you a final word. And then we’ll get a final word from Mr. Graves. And apologies to the audience to not get to questions.
Rep. Casten: Well, I’ll be really brief. Just thank you all for coming. This is a great topic. Joe, thanks for coming. Garret, it’s always a pleasure to do these with you.
These are really big issues. And I guess I’ll just leave you with an anecdote that’s rattled in my head for a long time.
When I was at the Glasgow COP, I was having this conversation with one of the European MPs who was there, saying what are you guys doing differently that you generate so much more economic activity per million Btu than we do? Like, why are we so bad? What are you – like, what should we be copying? Are there zoning rules? Like, where do you get it?
And this guy, in this good Scottish brogue that I’m not going to emulate, started laughing and he said – he said, oh, it’s really easy what the problem is. He said the Brits, the French, the Americans, you all came up with democracy at the same time. It was the same people. You were doing the same work. We all came up with the same basic ideas. And in our case, we had had this sort of legacy of feudalism and monarchy, and we had people spread out all over the land with wildly disparate access to resources. And we had to figure out, how do you make democracy work in this context and make sure that people have some kind of equivalent access to resources?
And he said in your case you’d killed all the natives. And so you didn’t have to worry about that. And you just said we’re going to design democracy, and our pressure-relief valve is going to be resource extraction. Too many people in New York Homestead Act. You just go away. You get your 40 acres. You go develop. You have the land. You own it. We’ll give you mineral rights from your property down to the core of the earth. Like, we’ve just given away resources. And he said basically the United States is now – you’ve now spread out over the land and you still haven’t quite figured out who you want to be when you grow up.
And I think that basic tension between do we think it is in – is it the essence of being an American to extract resources and monetize it for your personal gain, or is it the essence of being an American to make sure that everybody has an equal opportunity to succeed and has an equal access to resources and some equitable distribution in a capitalist context?
And I think that’s the core of this debate that we haven’t quite decided yet who we want to be when we grow up. But we’re out of time.
Dr. Majkut: Well, we have – you know, the world’s not ending tomorrow. We can work on it, you know.
Mr. Graves, go ahead.
Rep. Graves: Thanks. And I want to thank all of you for being here. I want to thank Congressman Casten for the opportunity to share ideas. And I think that this is one of the most important issues that we’re going to face. And I think that we’ve got to focus on this. I think we’ve got to do so in a way that’s bipartisan and in a way that’s going to have sustainable long-term impacts.
I think one of the most dangerous things we can do is exactly what you’re seeing today, when you go from an Obama administration that has policies over here to a Trump administration that has policies over here to a Biden administration – I’m not going to get – just say over here.
And what happens is if you’re in the energy industry – and it doesn’t matter if you’re a proponent of renewable energy, conventional fuels, what have you – you’re looking at this and you’re just like, what is going on? Where am I going to invest?
We’ve got to keep in mind that what investors are doing is they’re looking for certainty. They’re looking for certainty. And if we’re going to come in every four years or every eight years and we’re going to have these huge pendulum swings, that’s not what the United States is known for. We’re known for having stable – a stable regulatory environment, a stable economic climate. And if we’re undermining that stability, we’re undermining our ability to lead. We’re undermining our ability to gain investment and to be the innovator – innovation leaders for the world.
And so as we look at policies moving forward, you may think that one administration is only looking economic; another one is only looking environmental. In some cases I think you’re right. But I think what we have to do is we have to change that. We have to look at solutions that check the economic box. And I’m going to take a shot at the IRA here and say that we can’t go out there and expect that we’re going to be able to subsidize in perpetuity some of these energy stream that otherwise – energy technologies that otherwise wouldn’t have a prayer, wouldn’t have a prayer of existing.
And we can’t go out – and we can’t go out there and do that, because you distort economics. And so we’ve got to check that economic box with our energy technologies and we’ve got to check the environmental box with our energy technologies, because that’s the only way you’re going to have solutions that are durable, solutions that will withstand or sustain these various administrations, which is why I think it is so important that people like Congressman Casten and I spend time thinking through some of these solutions that can be more durable through the partisan changes in the House and the Senate and the White House, making sure that we can continue leading the world in reducing emissions.
We can continue enduring that Americans have affordable energy, ensuring that we’re not threatening geopolitics and funding both sides of wars, ensuring that we have reliable energy solutions that aren’t moving in a direction of states that have proven their solutions are unreliable, have an unreliable grid, like – let’s pick on California; making sure that we have technologies that are exportable and security of supply chain, meaning that we can’t go intentionally head down a path where we have countries like China that have cornered the market on critical minerals, cornered the market on refining and processing. That is a dangerous direction for us to go.
So in closing, I talked about investors, I talked about strategy and I talked about certainty. What the United States would do if we were a business is that we would look at what assets we have, what natural resources we have, what assets we have, and we would develop a business plan to ensure reliable, affordable, clean, exportable and secure supply-chain energy strategies that are based upon our resources, the things that we do well, the things that we have here that we can control. And it would continue that path of reducing energy, of ensuring we have a competitive economy in the United States, and one of the most efficient economies in the world.
So thank you; really appreciate the opportunity to join, and happy to hang back if folks have questions or want to throw things.
Dr. Majkut: Thank you both very much. This is – I mean, I thought this was a really rich conversation. There’s a couple of threads that are worth pulling on – consumers and producers and their interests. How do we speak to all of us? How do we balance these geopolitical and climate forces? And how do we keep our eye on long-term goals?
Really grateful that you both spent the hour with us. Thank you so much.
If you wouldn’t mind giving them a warm appreciation. (Applause.) And I think there are crackers and soft drinks and other things in the lobby.
And this is Joseph Majkut for CSIS signing off. Thank you all.
(END.)