On the heels of the Department of Energy's latest LNG export facility approval, what are the most valuable ways for the United States to expand demand for natural gas beyond exports? During today's OnPoint, Jeff Navin, co-founder of Boundary Stone Partners and the former acting chief of staff at DOE, discusses the Obama administration's latest action on LNG exports and the renewable fuel standard. He talks about the feasibility of carbon capture and storage technology and explains how distributed generation is affecting utility business models.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Jeff Navin, founder of Boundary Stone Partners. Jeff most recently served as acting chief of staff at the Department of Energy under former Secretary Chu. Jeff, it's great to have you here.
Jeff Navin: Thanks for having me.
Monica Trauzzi: Jeff, last week the Department of Energy granted conditional approval to Freeport's Quintana Island LNG export facility. Next up is Cameron LNG. Is this what you anticipated in terms of the pacing of approvals coming out of DOE? And is there a point where they might stop or pause with these approvals?
Jeff Navin: Yeah, I think it's pretty consistent with how we sort of thought the process would lay out. I mean, these are pretty technical applications, and there's going to be a lot of interest on either side of them as sort of how they come out. And so the department I think is doing what they need to do, which is take their time and get it right, but try to move them along in an expeditious manner. You know, there's a lot of talk about a pause and when a pause is going to happen and if a pause is going to happen. I think if you actually, the department's going to be pretty transparent about this. And if you look at what Moniz, the commitments that he made as part of the confirmation process and what Chris Smith has said publicly, you know, I think what they're going to do is take a look at the EIA data when it comes out in December, and if that data suggests that there are some significant changes to the assumptions, then maybe they'll do some additional analysis. They're going to look at all kinds of things as they go through this process, but I don't anticipate that there's going to be a hard and fast pause at a particular level.
Monica Trauzzi: There's a much larger investment question here, though. How much of an appetite will there be to fund all of these various facilities? How many might actually get funding in the end?
Jeff Navin: Well, it's a question for the market obviously, and I don't, I mean, there's obviously, people are going to make money on this and people are going to lose money on some of these. But I don't think all of them are going to get funded. I don't think anybody thinks that all of these are going to get funded, which makes the calculation a little more difficult because you're following this cumulative number that, you know, when you sort of add up each of the approved applications. But the assumption I don't think should be that every single one of those is going to get built in the order that they've been approved.
Monica Trauzzi: Beyond exports one of the key factors in the natural gas game will be expanding demand. What have you identified as the most valuable ways for the U.S. to grow natural gas demand?
Jeff Navin: Well, I mean, I think what's going to hold us back with natural gas is not the supply of gas or even the sort of internal demand for things like manufacturing or even some expansion of things like more homes getting hooked up to natural gas and displacing home heating oil, but it's going to be infrastructure. You know, pipelines are expensive to build. They need to get permitted. You know, the Marcellus Shale has just fundamentally shifted so much that it's going to take a little bit of time for the infrastructure to get caught up to it. But outside of that we're also pretty bullish and we think pretty highly of efforts to use more CNG and LNG for transportation. You know, I think that you look at major trucking firms like FedEx and Yellow Truck Lines and UPS, the economics just scream for them to convert some of those engines ... a new engine coming out that I think is going to really make it a lot easier for firms like that to make the switch, and when the big guys do it it'll be a lot easier for the little guys to follow.
Monica Trauzzi: During much of your time at DOE we witnessed the U.S. energy landscape change pretty dramatically. Five years ago we were having very different conversations on this show about energy and climate policy, and at the time there were many assumptions made about energy and climate that were sort of lending themselves to those conversations. We're making a different set of assumptions now. How do we know that those assumptions are right and that we're on the right track?
Jeff Navin: Well, you're right; they are very different assumptions. I mean, when the Obama administration came in and we started looking at the landscape, you had assumptions like natural gas was something we were going to import, that peak oil in the United States, our own production sort of occurred in the early '70s, that renewable technologies were very nice but very expensive and needed big subsidies in order to be even close to competitive, that cap and trade was almost inevitable with 60 votes in the Senate. You know, and we were on the verge of a nuclear renaissance, not just here but globally, particularly in Europe and Asia. Every one of those turned out not just to be off, but about 180 degrees backward. And so, you know, I think that you make the best guesses that you can at the time, but you also have to be prepared for the fact that things change. And it's one of the things that I think is kind of interesting in the policy environment that we're in right now. All of those assumptions are the assumptions that we used to base decisions about national energy policy, and we're now operating in an environment where the policies that sort of, that Congress put in place are governing a very, very different time.
Monica Trauzzi: One of the conversations we see changing pretty rapidly right now is this conversation over renewable fuels. And last week EPA took a pretty significant step in its proposed targets for the 2014 RFS. What does a rollback on those targets mean for broader energy policy?
Jeff Navin: Well, I think it gets, it means a couple of things. One is I think there's, you know, we didn't hit the targets that we thought we were going to hit, particularly with advanced biofuels. Secondly I don't think people anticipated that the demand was going to slow as much as it did, largely due to things like CAFE standards, but also just people changing some of their habits. But this kind of gets to this larger point where we're seeing policy debates that are coming in terms of regulatory decisions. You're seeing it at EPA with RFS. You're seeing it at EPA with the greenhouse admissions. And it does cause one to wonder is it better to have this debate in a more thorough and broad way where you are not constrained by statutes but you could actually have a substantive debate in Congress? Now we can have a conversation about whether or not Congress is up for that debate, but I think you're starting to see some pressures here where these regulatory decisions are really occurring because there's a lack of an ability of Congress to step up and do their job when it comes to setting larger policy.
Monica Trauzzi: So is there groundwork being laid here for some kind of comprehensive energy policy?
Jeff Navin: I'm ... I don't know if I would say optimistic but hopeful that there's things that can be done. If you look at it, there are some things that sort of work in favor of there being something done on large energy policy. First is that, as we talked about, the world's just changed, so there's a fundamental need to update some of the policies and regulations. The stakeholders recognize that, and I think you can get some pretty broad agreement at least on the contours of what ought to be debated in Congress. And then third, energy is still a space where there are Democrats and Republicans that do talk to each other. You had Shaheen and Portman talking about energy efficiency. You have Upton and Waxman talking about RFS. You have a good relationship between Wyden and Murkowski, and I would expect a good relationship between Landrieu and Murkowski. But the challenge is just that Congress has not had this appetite to actually get something done. Now the optimist in me says that maybe in the next elections the voters will send a little bit of a message that they expect their Congress to do something. And if their conversation's now to tee up the outlines of what could be a big energy policy piece, you could have something in 2015 that they could actually potentially act on. Now I know that's kind of a little bit contrary to the conventional wisdom and I wouldn't bet my house on the fact that we'll get something done, but there is a path if thoughtful legislators want to do something and they can convince their colleagues to try to get something done rather than just pass a series of message bills.
Monica Trauzzi: Let's talk about the electric power sector. Energy Secretary Moniz has indicated that he believes carbon capture and storage technology is ready to meet EPA's power plant standards. Is EPA's proposed policy achievable?
Jeff Navin: Well, carbon capture and storage is tough, and you know, we've put some money behind it and we've seen, the department's put some money behind it and we have seen some gains with it. I think the larger issue frankly is that it's just easier to meet these emissions targets with natural gas than it is with coal. And it's been a very difficult and sometimes controversial debate about coal, but I think in the end what's really threatening coal is less the EPA regs and more the fact that you've got very, very cheap natural gas, and it looks like we're going to have pretty cheap natural gas for a long time.
Monica Trauzzi: And one big conversation among utilities is about distributed generation and the impact on their business models. What kinds of issues is distributing generation causing for utilities, and how are they trying to address it?
Jeff Navin: Well, EEI, the trade group, put out a study in January I believe that sort of talked about a death spiral, meaning that as you had distributed solar with net metering, the utilities were both losing some of their better customers during peak periods and also required to buy that power at the retail rate. And what they argued was that that would require them to pass on those costs to additional ratepayers, raising the price of electricity and making distributed generation even more attractive, and they would enter what they called a death spiral. Now I think that paper was designed to get attention and it did. It got attention of some of the maybe CEOs of the utility companies that hadn't focused on it, and it certainly got attention among regulators. You saw this fight play out in Arizona and in California, and in both instances they reached a compromise that I think the solar folks were pretty happy with. But I think that's going to, sort of solving that metering is going to make this go away. I mean, imagine not just distributed solar but distributed gas technologies. Dean Kamen, the inventor of the Segway, is working on an engine with, a Stirling engine, with David Crane that would use natural gas that's pumped to a house in order to generate electricity onsite. Redux Power is a little company in Maryland. They have a small fuel cell that they say you could basically imagine a box sitting next to your air condition that your gas line goes into that's able to generate electricity. There are 34 million homes in the United States that have a gas line going to them. And the combination of solar getting cheaper, new technologies around natural gas, and energy storage coming online mean that the utilities have to figure out a way to structure their businesses to take advantage of distributed generation or else they might end up sort of like we saw some of the long-line telecom companies 20 years ago.
Monica Trauzzi: Interesting stuff. We're going to end it right there. Thank you so much for coming on the show.
Jeff Navin: Great, my pleasure.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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