What would a $40 carbon price do to the Liquid Natural Gas industry?
Start by considering oil and gas major Exxon. Why?
Exxon’s has supported carbon pricing — at least theoretically — by donating $1 million to Americans for Carbon Dividends, the political action committee of the Climate Leadership Council (CLC).
This It begs the question: what impact for Exxon, the world’s largest oil company?
Exxon owns or has a financial interest in 65 million tonnes per year of LNG liquefaction capacity. That’s about 18% of the LNG industry’s worldwide capacity of 369 million tonnes.
Regasified and combusted, those 65 million tonnes of LNG can generate the equivalent of about 940 million megawatt-hours (or 940 Twh) of electricity, or about four percent of global electricity consumption.
Those 65 million tonnes of LNG also will create 9.4 million tonnes of life-cycle carbon emissions based upon 0.65-0.7 tonnes of carbon emissions per mwh generated, using figures from the US Department of Energy. That’s about two percent of global emissions.
LNG Life Cycle Greenhouse Gas Emissions
The US Department of Energy estimates life-cycle emissions of natural gas shipped to
market as LNG as only marginally lower than coal.
Source: “Life Cycle Greenhouse Gas Perspective On Exporting Liquefied
Natural Gas From the United States, 2014,” US Department of Energy
Valuing Exxon’s 9.4 million tonnes of LNG-related carbon emissions at $40 per tonne comes out $24 billion. That’s an amount 20% larger than Exxon’s $19.7 billion reported earnings for 2017.
If recouped downstream from electricity consumers, a $40 carbon levy on LNG-produced electricity would add 3c/kwh to Japanese and South Korean electricity prices, 4c to German ones and 1c to those in China and India.
Price Effects On Electricity of a $40 Carbon Price
In the developed import economies of Europe, Japan, the UK, South Korea and Australia (which is considering, crazily enough, exporting LNG intra-country to itself — but that’s another story!), It would raise electricity prices by 13-15%.
In China, South Korea and India, the effect of $40 carbon prices would raise electricity prices 15-20%.
Increased electricity prices would discourage electricity consumption and encourage improved energy efficiency, the cheapest form of carbon emission reduction.
Such levies also would provide cost-effective funding of virtually all forms of low emission energy production short of carbon capture and storage, far and away the highest-cost carbon emission reduction technology there is.
What $20-40 Euro Carbon Pricing Could Buy
$40 carbon prices (or ~35 Euros) could pay for virtually all needed carbon reducing technology short of
highest-cost carbon capture and storage.
Source: “Pathways to a Low-Carbon Economy: Greenhouse Gas Cost Abatement Curve (ver. 2.00,” McKinsey & Co.
NOTE: CHART IN EUROS @$1=.89Euro
Exxon, of course, may just be paying lip service to carbon taxes because it faces potential existential damage from climate lawsuits in the future. Or it may be seeking to soften up public opinion before cutting a deal to free itself from decades of future litigation due to its history as a major legacy carbon emitter and long-time global warming disinformation vector.
A new and contrite Exxon, however, looks an odd fit — at least right now. Over time, it will take a lot of convincing of the public that the company truly has changed.
As a short-lived Secretary of State under Donald Trump, former Exxon Rex Tillerson made reasonable statements about climate change. But Tillerson also made other statements casting doubt on it, leaving his real views unclear.
Exxon itself, of course, has a history of misleading the public on climate change, academics claim. It’s corporate history also suggests, at best, a tin ear or blind eye. The example below is a beauty.
In 1962, Exxon’s predecessor Humble Oil bragged in full page advertisement in Life Magazine about its energy’s ability to melt glaciers.
Glacier Melting our Specialty!
In 1962, Exxon precursor Humble Oil took out a two-page advertisement in Life Magazine bragging about
Source: Think Progress
Despite all the above, Exxon may be spurring important debate. That’s to be welcomed. And it’s a good first step.
A good second step would be to make donations to climate change research organizations and activists going forward commensurate with its past expenditures on sowing doubt on global warming.