Net Zero

LNG reality check

The U.S. said on Thursday it will temporarily stop issuing new permits for the construction of liquefied natural gas export terminals, a move hailed by climate activists but opposed by industry groups who have cautioned against such a decision’s impact on future Western energy security.

The decision could have implications worldwide: U.S. LNG exports are currently the world’s highest, having provided a critical backstop to Europe’s heat and electricity systems following Russia’s full-scale invasion of Ukraine last year. Yet the global LNG trading system is close to being overbuilt, which could delay the energy transition. In effect, it underlines one of the hardest needles to thread in the global energy transition: matching the fossil-fuel infrastructure needed in future decades with what is required today.

Underinvestment in the name of climate action could lead to supply shortages and price spikes that feed a public backlash against clean energy. But overinvestment means locking in large sources of carbon emissions — if all the proposed U.S. LNG terminals were built, their cumulative carbon footprint would be larger than that of the European Union — and leaving investors out to dry.

In reality, the biggest threat to U.S. LNG’s desperate race to seize market share isn’t climate activists. It’s competition from rival exporters like Qatar and Australia. Few of the proposed projects are likely to lock in their final investment commitments regardless of what the Biden administration does, analysts say, because there are more under development than what the global market is likely to require in the coming decades. If every global LNG project under consideration now were to be built, the market would be oversupplied by 2028 and for the foreseeable future after that, according to research firm Rystad Energy.

Yet without any of those projects, the market could be severely undersupplied by 2030. The exact size of that gap depends on the speed of renewable energy adoption, especially in China and other Asian countries that are the heart of the LNG market right now. There is room for more cooks in the kitchen, in other words, but only a few. So even a short delay in permitting — until Donald Trump potentially takes office a second time, for example — could be enough to kill many projects.

“When we hit a supply glut, which we expect by 2025 regardless of the approval process, new contract signing will slow significantly,” Samantha Dart, head of natural-gas research at Goldman Sachs, told me. “The window of opportunity for more final investment decisions to be reached is about to close.”

ESG is dead, long live ESG

Investors fled from sustainability-oriented funds in record numbers last year, but there are signs the exodus may be slowing.

A recent Morningstar report found that $13 billion was pulled out of U.S. ESG funds in 2023, “their worst calendar year on record.” Investment firms also shuttered more ESG funds than they opened during the second half of the year. The contraction stems in part from concern that forthcoming SEC regulations will raise the bar for what kinds of funds can carry the ESG label, and from rules adopted by several Republican-led states to penalize ESG-conscious asset managers. ESG funds also just didn’t have very good returns last year, weighed down by high interest rates that are a major drag for clean energy companies.

ESG investing may be past its peak, but it’s unlikely to shrink more, John Miller, ESG analyst at the investment bank TD Cowen, said in a research note this week. Borrowing costs should go down this year, and Miller said that “Republican-led efforts to ban/divest from investment products leveraging ESG have peaked, because Republican-led legislatures open to pursuing anti-ESG policy have already done so.” Oklahoma, for one, has already walked back its ESG investing ban.

Clean energy leads

Clean energy was the main driver of economic growth in China last year, a new analysis from Carbon Brief and the Centre for Research on Energy and Clean Air found. While investment in real estate and other key sectors in China shrank in 2023, clean energy surged ahead, drawing $1.6 trillion in investment, especially in solar, EVs, and batteries. The sector accounted for 40% of China’s GDP growth rate. But that growth may be reaching a limit, as global markets become saturated with Chinese EVs and solar panels. That’s especially true if the U.S. and Europe erect further trade barriers to Chinese clean energy exports.

A costly passage

Increase since Jan. 12 in the daily shipping rate charged by fuel tankers to pass through the Red Sea. Hostilities between Yemen-based Houthi militias and U.S. and UK forces continued to escalate this week, and at least one U.S. Navy-escorted container ship was forced to turn around because of missile attacks. Many of the tankers passing through the Red Sea carry naphtha, a crude oil product that is used in making gasoline and chemicals, putting those products at risk of price spikes. But so far, the conflict’s effect on the oil market has been limited — more tankers are choosing the longer route around Africa, and in any case oil production outside the Middle East remains strong.

Cookstove credits get burned

One of the most popular kinds of carbon offset credits may be mostly worthless, a new study found. Clean cookstove projects, which sell carbon credits based on replacing wood- or kerosene-burning stoves in developing countries with cleaner alternatives, are common in the carbon portfolios of major offset buyers including Shell and British Airways. The problem, according to University of California, Berkeley, researchers, is that the projects frequently overstate their real carbon benefit, by an average of nine-fold. The common methodology to collect data about how often households in clean cookstove projects actually use their stoves is imprecise and subjective, the study found, and usually exaggerates the amount of baseline deforestation associated with the old stoves. In a letter responding to an earlier draft version of the paper, cookstove project developers called it “misguided.”

Semafor’s  2024  World Economy Summit, on April 17-18, will feature conversations with global policymakers and power brokers in Washington, against the backdrop of the IMF and World Bank meetings.

Chaired by former U.S. Commerce Secretary Penny Pritzker and Carlyle Group co-founder David Rubenstein, and in partnership with BCG, the summit will feature 150 speakers across two days and three different stages, including the Gallup Great Hall. Join Semafor for conversations with the people shaping the global economy.

New Energy

• New Jersey awarded power contracts to two new offshore wind projects. A major project there was canceled last year because the power purchase price wasn’t high enough to cover the project’s rising costs; the new contracts offer a higher rate that is expected to add about $7 per month to the average household electric bill.
• NextEra Energy, the largest U.S. renewable energy developer, posted a net profit of $7.3 billion in 2023, nearly twice what it earned last year. Demand for new clean energy projects is strong, CEO John Ketchum said, and odds are low that Inflation Reduction Act tax credits could be at risk in the election.

Tech

• The world’s first factory to turn ethanol into lower-carbon jet fuel opened in Georgia. The $200 million LanzaJet facility will use corn-based ethanol as well as biofuels derived from agricultural waste and other products, taking advantage of lucrative Inflation Reduction Act tax credits for sustainable aviation fuels. One of the project’s main backers is Bill Gates’s venture firm Breakthrough Energy.
• In some U.S. states, AI data centers are drawing so much power that utilities are being forced to keep running coal-fired plants they had planned to retire. Data center energy consumption is expected to triple by 2030, putting it in competition with EVs and other emerging sources of electricity demand, and putting a strain on the grid.

Politics & policy

• European manufacturers are scrambling to meet a Jan. 31 deadline to report, for the first time, the emissions from imports of certain industrial materials. The reports are the first step in the EU’s carbon border tariffs, which will phase in fees on high-carbon imported products. But trade groups are complaining they haven’t been given sufficient time, data, or regulatory guidance to complete the reports.

EVs

• Joe Biden vetoed a Republican-led Congressional resolution to block the administration’s efforts to build out a national network of EV charging stations. The federally-financed stations use imported steel, Republicans complained; the White House countered that blocking them would only hand an advantage to charging stations built entirely in China.

Nicole Florack, research associate at the London-based venture capital firm 2150. In a column Thursday, she argued that industrial steam boilers are “ready to bend the carbon curve.”

• Africa’s growth stage startups are reeling from departure of big tech investors.
• Kanye West tried to hire Jeff Roe to run his presidential campaign.
• Private equity faces pressures of growing old.