Massachusetts Limits Gas Pipelines, Imports LNG from Russia Instead

Environmentalists are winning in Massachusetts by getting natural gas infrastructure projects shelved. Natural gas consumers in the state, however, are losing out because those pipelines would supply natural gas to consumers at a lower cost than imported liquefied natural gas (LNG)—some of which is coming from Russia through the Everett LNG terminal—the only LNG import terminal still operating in the lower 48.

Environmentalists seem to be obsessed with stopping the construction of domestic pipelines in this country, regardless of what they carry, what fuels they displace, and how global greenhouse gas emissions may be affected. Liquefied natural gas results in greater emissions than pipeline gas because cooling the gas to minus 260 degrees Fahrenheit and then shipping and regasifying it requires more energy than pumping natural gas through domestic pipelines. Generally, LNG produces 5 to 10 percent more emissions over its entire life cycle than piped gas.

Russian LNG Shipments to Massachusetts

Three years ago Massachusetts Governor Charlie Baker proposed an energy policy consisting of 1,200 megawatts of renewable energy, 1,600 megawatts of offshore wind, and an expansion of natural gas pipeline capacity. Environmentalists fought the natural gas pipeline expansion and won, shelving several pipeline proposals. (For instance, officials in Massachusetts and New Hampshire blocked the $3 billion Access Northeast Pipeline.) Environmentalists want to rely solely on solar and wind power—intermittent sources of electricity that need back-up power. As Massachusetts has been shuttering its coal-fired power plants, that back-up power has mostly been supplied by natural gas, raising the price of electricity as cold weather forces different sectors to compete for natural gas.

The shortage of natural gas was clear earlier this year when a cold snap caused prices for natural gas to spike and the purchase of Russian LNG to supply the Everest LNG import terminal a few miles north of Boston. The Russian LNG comes from a new $27 billion terminal on the Yamal Peninsula in the Arctic Circleoperated by Yamal LNG—a joint venture among Russia’s gas company Novatek, France’s Total, and China’s CNPC. Novate is on the Treasury Department’s financial sanctions list. However, the LNG shipment does not violate the prohibitions that the Obama Administration imposed four years ago because it is owned by a French energy trader arriving on a French-owned vessel (Gaselys) and consisting of Russian gas as well as gas from other European sources.

European Countries Want to Use Less Russian Gas

While Massachusetts is importing LNG from Russia, Eastern and Western Europe want to find other sources of natural gas and are coming to the United States as a growing source of LNG. The Baltic states of Latvia, Estonia and Lithuania met with President Trump recently. Lithuania signed two memorandums of understanding to increase the country’s imports of U.S. natural gas.

The first memorandum was signed with Texas-based Freeport LNG and Lithuania’s Klaipedos Nafta for cooperation on liquefied natural gas terminals. The second memorandum was signed between Freeport LNG and Lithuania’s natural gas supply and trading company, Lietuvos Duju Tiekimas, for LNG shipments. When Lithuania constructed its LNG import terminal, it brought Russia to the negotiating table to renegotiate the price of its contracts. However, Russia’s gas exports to Europe still rose 8.1 percent last year to a record level of 193.9 billion cubic meters (about 6.85 trillion cubic feet).

Across Europe, LNG use is increasing with imports to the 28 member states of the European Union (EU), rising an annualized 22 percent at the end of the third quarter, with nations such as the U.K. and Spain in the lead in developing import capacity. Bloomberg New Energy Finance expects EU’s LNG demand to continue to grow significantly after 2020 before declining somewhat by 2030. (See chart below.)

EU LNG Demand

Source: Bloomberg

The furor between Russia and the U.K. in the wake of the nerve-agent attack on British soil prompted Prime Minister Theresa May to look for alternatives to Russian gas, including LNG produced at the Yamal LNG plant that has been under U.S. financial sanctions. Recent winter shortages forced Britain to import emergency gas supplies from Russia.

Germany is looking to build a liquefied natural gas industry to reduce the nation’s dependence on gas supplies shipped by pipeline from Russia and Norway. Due to gas reservoirs being depleted from the U.K. to the Netherlands, Germany is becoming increasingly reliant on Russia for its energy needs. Russian gas made up over 60 percent of Germany’s total imports for most of last year.

Since Germany has no LNG import terminal, Angela Merkel is planning to build terminals on the North Sea and Baltic Sea that would bypass LNG import facilities in the Netherlands, Poland, and Belgium. The first LNG import terminal planned is the Brunsbuettel import terminal on the Elbe River near Hamburg, which will cost about 500 million euros and is scheduled to open by the end of 2022. (See map below.)

Source: Bloomberg

In addition to the one at Brunsbuettel, the utility RWE AG is working on one on the Rhine river at Duisburg.

Conclusion

Massachusetts’ anti-fossil-fuel policies are the primary reason why the state has relied on LNG imports from a Russian company that the State Department sanctioned during the Obama Administration. It is ironic that Massachusetts is importing Russian gas, while European nations are looking to reduce their dependence on Russian gas by building LNG import terminals and signing memorandums of understanding with U.S. firms.  The irony is enhanced by the U.S. position as the number one producer of natural gas in the world.

In 2016, Massachusetts and New Hampshire blocked financing for the $3 billion Access Northeast Pipeline, which would have lowered prices and eliminated the reliance on Russian LNG. Expanding the pipeline capacity from the Marcellus shale gas fields in Pennsylvania to the New England region makes more sense than importing LNG.  Clearly, the difference in emissions besides the other benefits of using domestic resources should make the state’s decision in favor of new pipeline capacity straightforward.  However, their policies seem to benefit the Russian government and its efforts to use energy as a hard currency source.

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