Opinion: Climate change agenda versus the need to replace Russian oil and gas

Daniel Fine

Climate Change has been postponed by Biden Administration’s State Department (and National Security) for at least two years, and possibly five.

This is the consequence of the Russian-Ukraine War and the American sanctions on Russian natural gas and oil exports.

President Joe Biden has promised Europe two years of American LNG mainly from New Mexico and Texas (the Permian and San Juan Basins) to replace its dependency on Russia (40%).

It is not his headlines in Poland and NATO, but the actual reversal of the FERC Pipeline regulation earlier this month. That regulation, with interdepartmental participation assisting FERC, made new oil and gas pipeline proposals require climate change impact characterization.  

Its reversal translates into a business-as-usual short-term investment in new natural gas pipeline expansion from WAHA to the Gulf Coast for processing to LNG export to Europe.  

 This changes “net zero” and other objectives of the Administration and compels the “clean energy” drive to retreat. The war, in simple terms made climate change a second-best objective.

Unless American natural gas replaces the Russian supply for Europe, the anti-war sanctions of the Biden Administration are severely weakened. Russia continues selling natural gas to Europe.

It is nearly impossible to see new private investment in natural gas transport and processing to substitute for Russian supply unless the Defense Production Act and other subsidies are made available. New Natural gas pipelines might need federal Interstate Highway legal designation to lower the risk of right of way by state and local opposition.

The Russia-Ukraine War position of the United States and Europe has preempted climate change for now.

American natural gas prices will rise as Europe pays a premium price for LNG and Germany replaces Russia’s natural gas pipeline expansion. New capacity to produce LNG on the Baltic is needed from Germany.

Middle and small natural gas producers in the Permian-Delaware the San Juan  Basin will need higher price and revenue maximum returns to expand new drilling.

The outlook for companies from Occidental to Tellurian look promising.  Natural Gas prices should approach $7.50 and anchor there. There is no room for Asian market natural gas exports from Texas and New Mexico via Mexico as China wins discount prices from Russia.

China has long had anxiety about Russian oil to Europe because it is against a Europe first as a consumer. This has apparently lessened as Russian oil is under U.S. Sanctions in Europe for now.  

The next Russia-OPEC meeting is expected to recognize a non-Sanctions oil export quota for Russian production. The price of crude as WTI  should remain above $80 per barrel short-term. This is $20 more than President Putin in 2019 said Russia would accept.

A long slog of negotiation between Russia and Ukraine should begin in a de facto ceasefire and last until the November American elections.  Meanwhile Russia, like Iran, will insist that the Biden Administration terminate sanctions.  

A very hot summer here will make for climate change heat against the fog of war.

Dr. Daniel Fine is an independent analyst at New Mexico Tech and a regular columnist for the Farmington Daily Times.