An energy crisis on the Continent has it desperate for help from the Permian natural gas it had earlier spurned.
An LNG tanker moored at the Freeport LNG terminal on Quintana Island, a barrier island between the town of Freeport and the Gulf of Mexico, in October 2020.
Courtesy of Freeport LNG
The tanker LNG Rosenrot was moored in a harbor at Quintana Island, sixty miles south of Houston and across a causeway from the coastal town of Freeport. The ship filled its tanks with enough liquefied natural gas to supply the entirety of France for a day, or every home in Texas for a week. It was originally slated for a routine journey, through the Panama Canal and onward to a port in China. But natural gas prices were spiking across the Atlantic Ocean, and on that day in December, the captain’s orders changed.
The Rosenrot—so large that if you stood it on its stern, it would rank as the third-tallest building in Texas—slowly backed out of its berth, slid into the Gulf of Mexico, and turned eastward toward stops in the Netherlands and the United Kingdom. Europe was plunging into its worst energy crisis in a generation, and Texas gas was sailing to the rescue.
A particularly cold winter in early 2021 forced European nations to tap into their energy reserves to stay warm, and those supplies hadn’t been replenished. Global economies emerged from pandemic lockdowns last summer, and natural gas production was lagging behind, resulting in stiff global competition for what was available. Europe entered 2022 with nearly 30 percent less gas on hand than usual. At the same time, Russia, the continent’s biggest gas exporter, reduced the amount it sent west by nearly 25 percent. European gas buyers feared further cuts as a global showdown intensified over Russia’s massing of troops along its border with Ukraine.
As gas prices soared, mothballed coal power plants restarted, and factories that consumed natural gas were idled. More and more tankers carrying liquefied natural gas headed for Europe—twice as many in January compared with a year earlier. One result was a maritime traffic jam off the coast of Barcelona, home to one of the continent’s largest import terminals. Many of those ships came from the U.S. Gulf Coast, mostly Texas and Louisiana. European governments and utilities that had turned up their noses at gas from Texas—because it requires fracking and lax state regulation allows the industry to leak large volumes of the potent greenhouse gas methane—were suddenly desperate for it.
Earlier this year, the executive body of the European Union, which exerts regulatory authority over its member states, unexpectedly (and pragmatically) declared that natural gas would count as a “green” energy. The decision meant that if the EU’s 27 countries wanted to subsidize new natural gas plants, they could, so long as any new facilities replaced plants that were even more polluting, such as those fueled by coal. Energy executives in Houston skyscrapers and Midland field offices had abundant reason to smile.
The EU’s new policy represented quite a U-turn. In 2019, U.S. Energy Secretary—and former Texas governor—Rick Perry embarked upon a sales trip to get Europe to import more LNG from the United States. The energy department began calling it “freedom gas” and said “molecules of U.S. freedom” were available for export. Outside of Poland, Europe’s reception was lukewarm, at best. “To put it mildly, gas is over,” said Werner Hoyer, a German economist and president of the European Investment Bank, in early 2021, citing the need to end fossil-fuel investments to reach climate goals. This wasn’t just rhetoric. In October 2020, the French government indefinitely postponed a $7 billion deal to import LNG from the Port of Brownsville because Texas regulators allow the gas to be produced and piped in a way that produces unnecessary emissions that contribute to global warming. Sweden blocked a proposed natural-gas import terminal from receiving electrical power in 2019 for similar reasons.
That was then. Now European companies and ports are “taking the cargoes and they don’t care where it is coming from,” says Michael S. Smith, founder, majority owner, and chairman of Freeport LNG, the company that operates the Quintana Island facility through which gas is flowing across the Atlantic.
Two of the four terminals that account for more than 90 percent of American LNG exports are in Texas—Freeport LNG and Cheniere Energy’s in Corpus Christi. Another four are under construction, one of those on the Texas side of Sabine Pass. The United States is expected this year to become the world’s largest LNG exporter, surpassing Australia and Qatar, with Texas accounting for almost 40 percent of that trade. (Louisiana is tops among U.S. states, with 52 percent.)
Smith, a little-known self-made billionaire, has watched the growing popularity of his terminal from his home in Malibu, California, with mixed emotions. He doesn’t believe it’s good for the industry for natural gas to cost $30 per thousand cubic feet, the record price that the Europeans have paid, because that could drive consumers to alternatives. (In the U.S., natural gas hasn’t topped $7 in more than a decade and is currently about $4.
Because gas must be moved by pipeline or specialized tanker, prices can vary widely from continent to continent. They’re far lower in North America than elsewhere.) “But I’m elated that the world is getting to see how important the U.S. LNG industry is to worldwide demand,” Smith said, and “for those who are not anti anything fossil fuel, or have their head in the sand, to see we’re a vital part of the ability to convert to a green future.”
This may sound like a standard pro–fossil fuel spiel from the chairman of a large, Houston-based energy company—and it is. But it also sounds a lot like what’s being said these days in Berlin, Brussels, and Paris. Will this winter prove a turning point in Europe’s fractured relationship with Texas natural gas? And, if it does, could a growing European market change business as usual in Texas gas fields, forcing the state’s operators and regulators to address the industry’s climate-damaging emissions? Or will Europe’s newfound willingness to buy gas from wherever it’s available undermine any push to get the Texas industry to clean up its act?
Michael S. Smith at Freeport LNG’s Freeport LNG’s main cryogenic heat
liquefaction site in March 2020. exchanger plays a vital role in cooling
Courtesy of Freeport LNG the natural gas to the target temperature of -260 degrees.
Nash Baker/Courtesy of Freeport LNG
Texas wouldn’t be nearly as well positioned to take advantage of a growing European gas trade without the determination of Smith, a 66-year-old white-haired New Yorker who came to Houston after selling his Denver-based oil exploration company in 2000. (Despite decades away from his childhood home, he retains a distinctive New “Yawk” accent. Fuel “source” sounds like “sauce” and “dollar” becomes “dallah.”) It’s a minor miracle his Freeport LNG export terminal exists. Built on a marshy barrier island, the $15 billion project was conceived in 2001 and weathered so many setbacks that even Job might have thrown in the towel. The facility didn’t fill up its first LNG vessel until the fall of 2019.
The gas traveling through Freeport to Europe begins its journey deep underground, most often in the Permian Basin or Louisiana’s Haynesville Shale, locked away in the spaces between rocks, where temperatures can exceed 250 degrees Fahrenheit. Fracking frees the gas from its subterranean sauna. Up from the earth, the gas is compressed and shunted into one of several pipelines. (Disclosure: Texas Monthly’s chairman is also chairman of the general partner of Enterprise Products Partners, whose businesses include gas pipelines. Texas Monthly’s journalists operate independently of Enterprise.)
Freeport LNG takes control of the natural gas a few miles inland from Quintana Island, at a metering station down a two-lane country road, one of hundreds of hydrocarbon waystations in the area. By then, the gas has likely cooled to perhaps 80 degrees, or a bit warmer in the summer. Freeport LNG pumps it into a buried steel pipeline that’s large enough for a person to comfortably crawl through. Next comes a ten-mile trip south beneath one of the most industrialized waterfronts in the world. The gas travels under bottomlands and the Intracoastal Waterway, past several large petrochemical plants (BASF, Dow, Huntsman) and Surfside City Hall, then beneath a channel and onto Quintana Island. There, Smith built a giant plant that cools the gas into a liquid by lowering its temperature until it reaches -260 degrees Fahrenheit. Liquefaction significantly reduces its volume, making it easier to ship. It’s bottled up in a thermos-like tanker leased by one of Freeport’s customers, such as BP or Japan’s JERA, and shipped around the world.
None of this was what Smith set out to do. He hadn’t planned to export gas at all. He started working on the terminal at a time when most experts believed the U.S. would soon use up its natural gas deposits. Smith intended to build an import terminal that would take super-chilled LNG from tankers and raise its temperature until it could be injected into pipelines. On the first day of the facility’s construction, in about 2005, the ground was so muddy that an excavator sank halfway into the muck. The driver escaped through a window in the cab of the machine. Workers spent thirteen months stabilizing the soil before heavy equipment could safely maneuver on it.
By the time the import terminal was ready for business, in 2008, global energy markets had transformed. Modern fracking opened vast new gas reserves and turned the U.S. from gas poor to gas rich. In 2010, Smith reversed course and built a whole new facility, adjacent to the one he had just erected, to export gas. This required new financing and federal permits. Along the way, two of his construction contractors went bankrupt, as did a company that had signed a long-term contract to use the terminal. As if those weren’t trials enough, Hurricane Harvey struck and forced further delays just as construction got into high gear.
In December 2019, the tanker Golar Arctic pulled out of its berth at Quintana Island, bound for South Korea and bearing the terminal’s first commercial cargo. Smith drove from Houston to watch it depart. He had secured long-term contracts for the terminal’s use and stood to make money whether its two berths were occupied or sitting empty. (Smith says he owns more than 60 percent of Freeport LNG, which is a privately held company.) His perseverance has made him a billionaire—possibly a few times over. “As Charles Darwin would probably agree, it’s not the strongest or the most intelligent who succeed, but those who can best manage the disruptive challenges of change,” he said at a luncheon in 2018 at Colorado State University, where he studied in the seventies, but dropped out a few courses shy of a degree to become a ski bum.
More tankers carrying natural gas sailed from U.S. terminals in 2021 than in the previous two years combined. Not only from Freeport LNG, but also from Cheniere Energy’s terminals in Corpus Christi and on the Louisiana side of Sabine Pass. Studies paid for by the industry, as well as those from the federal government, agree that the LNG boom is boosting the regional economy. They suggest that more exports generate more natural gas drilling across the region, creating jobs and tax revenue while keeping domestic prices from rising significantly.
But there are legitimate concerns. By the end of the year, the U.S. could be exporting 13 percent of the gas it produces. Ten U.S. senators—nine Democrats and an independent—wrote a letter to the federal Secretary of Energy in February urging her to “take swift action to limit U.S. natural gas exports and examine their impact on domestic energy prices.”
There are also significant environmental effects—not just on local communities but on the global climate—of even more gas drilling, pipelines, and export terminals proliferating along the Gulf Coast. About 3 percent of the gas produced in the Permian Basin escapes into the atmosphere, where it contributes to climate change. (Several major global energy companies have set a goal of reducing their gas emissions to below 0.25 percent by 2025, suggesting that with tighter regulations and available methods, total emissions in Texas could be far smaller.) “The impacts to our health, environment and economy are greater than any benefit that fracked gas can provide,” says Elida Castillo, an environmental activist from Taft, a small town outside of Corpus Christi, who campaigns against the expansion of Texas natural gas and LNG. “The costs outweigh any benefit.”
The tanker Sohshu Maru carries liquefied natural gas that traveled from Freeport LNG to Japan in January 2020. Kyodo News via AP
Once Europe’s energy crisis is over, it might again close its ports to Texas natural gas. “On the brink of disaster, Europe is welcoming gas from Texas or anywhere else that can ride in to the rescue,” says Daniel Cohan, a professor of environmental engineering at Rice University. “Once this crisis fades and alternatives proliferate, Europe is likely to return to being choosier about the fuels it imports.” That could lead it to again move away from gas-fired power plants in favor of nuclear energy or renewables. Even if that doesn’t happen, Russia could ratchet up its gas exports again, driving down prices to levels (below $10) at which American LNG has difficulty competing.
Indeed, there are signals, even amid the recent rush to embrace Texas gas, that Texas players will need to change their ways if they wish to retain their new European customers. The French utility Engie, which canceled a $7 billion LNG deal in Brownsville, quietly signed a comparable deal in July to import LNG from Cheniere’s Corpus Christi terminal—with conditions. Anatol Feygin, Cheniere’s chief commercial officer, told me that the Houston-based company had to pledge greater transparency about its greenhouse gas emissions. “That body of commitments was absolutely critical for the French guys to get comfortable with a long-term commitment,” he says. Smith, at Freeport, plans to implement something similar. “We’re in the process of doing a system to track our molecules,” he says, which would enable the company to find and replace leaky valves.
Cheniere released a peer-reviewed paper—written with academics at the University of Texas at Austin and Duke University—that showed its wellhead-to-import terminal emissions make its gas a cleaner alternative to burning coal. Numerous studies have agreed that burning gas to make electricity—as long as leakage rates are controlled—is much better for the climate than burning coal. Others argue that LNG is far from green, because of its huge electricity needs for chilling the gas and its reliance on a leaky gas-gathering system. David Lyon, a senior scientist at the Environmental Defense Fund, says Cheniere’s estimate of how much methane it leaks into the atmosphere is too low. He points out that Cheniere’s study relied on a federal greenhouse gas reporting program that has been widely criticized. “There have been numerous studies which demonstrate that the reporting program underestimates emissions,” he said. Still, he applauded Cheniere’s efforts as “an important step.”
In late January, I drove to Freeport LNG, arriving in the early morning. The facility is nearly two miles long and takes up most of the width of the island. I parked across the channel, in Surfside, to get a view of vessels being filled. One was the maroon-and-white Global Sea Spirit. Dolphins surfaced near the ships, avoiding a Coast Guard boat speeding out toward deeper water.
By sunset, two tugboats—Thor and Exporter—had guided the tanker toward the Gulf of Mexico. Once in open waters, it turned east, passing between Florida and Cuba and headed to Poland. Later that day, the Aristidis I arrived at Quintana Island to take on its cargo. Such ships are maritime extensions of the fracking revolution that gave the U.S. so much gas that it could send LNG tanker after LNG tanker abroad while domestic gas prices barely budged. Right now, natural gas sellers have the upper hand, but one day soon that advantage might shift to the buyers. It’s not hard to imagine a time when European utilities assess a carbon tax on the emissions from Permian Basin gas production. Then what happens? Maybe Texas will get serious about stopping gas flaring and methane leaks. It’s not hard to imagine a world in which the decrees of the European Commission in Brussels are as impactful on Texas gas operations as are those from the industry’s pet regulatory body, the Railroad Commission in Austin.