Introduction
In late January of 2024, the Biden-Harris Administration announced a temporary pause on pending approvals of liquefied natural gas (LNG) exports to non-free trade agreement countries (The White House). Meanwhile, the Department of Energy will reassess its environmental impacts to decide if related projects are in the public’s interest. This means that current LNG commitments will not be at risk - only newly proposed projects will be prevented from seeking approval. This policy choice was motivated by growing pressures to phase out fossil fuels due to their harmful effects on the environment and human health. However, without adequate plans to transition to renewable energy, this policy could potentially produce unintended economic and environmental consequences, including increased CO2 emissions.
What is LNG?
Liquefied natural gas, also known as LNG, is natural gas that has been cooled to a liquid state for it to be stored and shipped. It supplies a third of the United States’ energy and is mainly used for generating heat and electricity. LNG has gained popularity in recent years for producing the least amount of CO2 than any other fossil fuel, making it an attractive transition fuel. According to the White House, America’s goal is net-zero emissions by 2050 and 100% clean energy by 2035 (The White House). This requires retiring from our dependence on fossil fuels, including LNG.
According to the White House, America’s goal is net-zero emissions by 2050 and 100% clean energy by 2035 (The White House).
How Does LNG Compare to Other Energy Sources?
In terms of human and environmental harm, the deadliest forms of fossil fuels are coal and crude oil, primarily from their high production of carbon dioxide emissions (Our World in Data). LNG produces around half of carbon dioxide emissions as coal and fewer pollutants that directly harm human health. A significant disadvantage of LNG is its high production of methane, a greenhouse gas that absorbs much more heat than CO2 does. However, unlike CO2, methane is nontoxic and doesn’t cause cancer or acid rain. It also breaks down in Earth’s atmosphere quicker than CO2. A second concern with LNG production is the method used to extract it: fracking. Repetitive fracking, specifically when poorly conducted, can cause minor earthquakes and contaminate drinking water.
Most countries have created goals toward reaching net-zero emissions (United Nations). This can only be achieved by investing in alternatives to fossil fuels. The main benefits of clean energy sources are that they cause significantly less environmental harm. Nuclear energy is a significant clean energy option. It is technically not renewable since it is created with minerals, such as uranium, which can be harmful to mine. Nuclear energy doesn’t produce greenhouse gasses but comes with the challenges of nuclear waste disposal and lengthy construction processes. Some countries have been shutting down nuclear power plants out of concerns of nuclear disasters.
The most common renewable energy sources are hydropower, wind, and solar. The disadvantages of solar and wind are that they are highly dependent on weather. Wind energy is only possible in specific locations, and solar energy currently cannot be efficiently stored and transported on a large scale. Hydropower is the most common renewable energy source, constituting 17% of global energy generation in 2020 (International Energy Agency). It is not as dependent on seasons and weather as long as it is constructed in an area with abundant precipitation. A disadvantage is the environmental harm stemming from constructing dams, which includes potential flooding, water contamination, and declining fish populations.
Current Political & Energy Context
In 2023, the United States became the largest LNG exporter in the world, overtaking Qatar and Australia. Roughly 50% of Europe’s LNG imports come from the United States (Center for Strategic and International Studies). This is partly due to the energy crisis Europe experienced that was exacerbated by Russia’s invasion of Ukraine. Limited supply led to a sharp increase in electricity and energy costs, affecting production and the cost of living. This was incredibly impactful to Germany. Prior to the invasion, Germany was importing 55% of their gas from Russia (The Guardian). In addition to coping with limited gas supply, they completed their decades-long plan in 2023 to phase out nuclear power and were forced to reopen dozens of previously shut down coal plants.
The decision to increase coal production during tough times is not unique to Germany. When LNG prices increased in 2022 and countries were experiencing energy and environmental crises, the European Union and countries such as China, India, and Indonesia increased their coal production (International Energy Agency). This is one of the criticisms of the Biden administration’s pause on new export applications. If nations aren’t prepared to transition to clean energy, a decrease in LNG supply could lead to increased coal production. Alongside energy production concerns, global energy demands are expected to grow roughly 48% by 2040 (U.S. Energy Information Administration). There are numerous reasons for this, including rising demands for data centers, cryptocurrency, electric vehicles, and advancing economies.
Impacts on Consulting and Business
It’s crucial for consulting firms to pay attention to the effects that energy shifts will have on their respective industries. For example, McKinsey released their Global Energy Perspective 2023, highlighting their predictions regarding the supply and demand of energy commodities. They expect renewable energy to make up around 45% - 50% of energy supply, and around 65% - 85% by 2050 (McKinsey). They also emphasize the importance of anticipating associated bottlenecks, such as manufacturing capacity and material availability.
Every company and business sector relies on energy. As businesses transition to cleaner energy sources, consultants and the new companies supplying the energy will be working alongside them. Financial consultants will be utilized to mitigate the costs associated with the transition. Energy consultants will be needed to increase efficiency in energy use and sustainable business practices. Investment banking consultants will also play a significant role as firms continue to invest more heavily in renewable energy technologies, research, and related companies. These practices will be especially relevant in industries such as electric vehicles, public transportation, and renewable energy production.