
Chevron Calls End to New Liquified Natural Gas Mega Projects - richardboegli
https://www.bloomberg.com/news/articles/2017-03-21/chevron-calls-end-of-lng-mega-project-after-88-billion-spree
======
ZeroGravitas
This headline seems inaccurate, it's just not expanding further it seems? The
headline sounds like they're turning out the lights and going home.

First paragraph:

 _" Chevron Corp. has signaled the end of major new LNG projects in Western
Australia and is unlikely to sanction an expansion of its Gorgon and
Wheatstone export developments as it focuses on boosting returns from $88
billion of investment."_

~~~
dang
Good point. We've revised the title above.

------
jacques_chester
To put this in perspective, the population of Western Australia is about 2.6
million people. Most of those -- around 2 million -- live in Perth. Around
$33k spent for every many, woman and child in the state.

A lot of that $88 billion (Gorgon and Wheatstone) was spent on local labour
and supplies. And Gorgon was _one_ capital project. At the height of the boom,
there were hundreds of billions of dollars of capital projects underway
_simultaneously_ across Australia.

When I was last in SF a few months ago it reminded me of Perth at the height
of the boom.

And I found it unsettling.

~~~
PhantomGremlin
I hadn't thought about it until now, but Canada and Australia are very similar
in several respects. They both have vast natural resources, and the population
of both is found mostly in small regions.

In Australia it's mostly along some of the coast. In Canada it's mostly in a
small strip just to the north of the USA.

Contrast to Europe. Lots of population everywhere. Contrast to the USA. The
eastern third of the country is quite developed, as is a good part of
California.

~~~
trome
Just ignore Portland, Seattle and the entirety of NorCal, along with
Denver/Boulder, and a bunch of other large cities in what some call the
"flyover" parts of the US.

~~~
saryant
Also the 27 million people living in Texas.

~~~
nkoren
Texas is 695,662 km^2. That's larger than the combined area of Germany,
Belgium, the Netherlands, Denmark, and Great Britain (682,034 km^2), which
have a combined population of more than 174 million people.

So, yes, Texas is _comparatively_ under-developed.

------
MrTonyD
Honestly, I never know what to believe when I read these articles. A good
friend of mine was on the board of a major oil company - and he told me
stories about the backroom deals involving huge investments. Huge projects
were really pay-offs to one country which would in-turn take actions impacting
another country and resulting in furthering the oil company's goals (which
weren't always just direct profit. Politicians put in power - groups hurt or
supported - payback for favors from years before - actions to influence major
court decisions years in the future.) Oil companies act in completely opaque
ways.

At this point, I'm really just convinced that we need public involvement with
all decisions by all powerful organizations - whether government or business.
Nobody is on our side at these places.

~~~
brianwawok
And you think the government is on your side? The same government in the US
stripping the EPA of power?

------
PhantomGremlin
Smart move by Chevron.

Soon there will be some big LNG projects coming online in the USA. Two that
are not just proposals but are in various stages of construction are:

[http://www.cheniere.com/terminals/sabine-
pass/](http://www.cheniere.com/terminals/sabine-pass/)

[https://www.dom.com/covepoint](https://www.dom.com/covepoint)

~~~
greglindahl
I take it that you read the article, because it had a graph showing US exports
rising from nothing to a lot over 2016-2020?

~~~
PhantomGremlin
Graphs are one thing, details about actual ongoing construction are something
else. The North America graph in the article looks like a classic startup
"hockey stick". And I've been at too many startups and seen too many hockey
sticks to take them seriously. Details matter.

The two projects I linked to were delayed by many years. So the fact that
there is substantial construction at both sites is a big deal. The fact that
Cheniere is actually exporting LNG right now is an even bigger deal.

------
madengr
At least they'll have a post apocalyptic industrial set for the next Mad Max
movie. Just need some pigs to make the gas.

------
gcb0
The article never tells what LNG is.

~~~
PhantomGremlin
You could always use Wiki.

Take natural gas (mostly methane) out of the ground. Cool it until it turns
into a liquid (aka LNG) and takes less than 2% of the volume of the gas. Put
it into ships. Sail ships to countries like Japan. Turn liquid back into gas
and use it for e.g. power generation.

~~~
manicdee
Even better, put the LNG back on the boat, send it to Australia and make 110%
profit!

~~~
kwhitefoot
Please, please, tell me you are joking!

~~~
unexpected
somewhat. LNG is sold on the basis of long-term supply contract. It's quite
possible that LNG exported from Western Australia could make its way back to
Sydney, Melbourne, other places if there is no pipeline infrastructure in
place. the LNG import facilities compete on price, and in this example,
Chevron would sell it to the highest bidder.

No one wants "stranded" gas, but it would be up to the Government of Australia
to set up the pipeline to its major cities. I'm sure such a pipeline exists,
but given the quantity of gas available, Australia may not be able to use it
all.

------
forgottenacc57
One day we'll realize that these big companies have been looting our natural
resources with the full collaboration of the government.

~~~
tootie
You say that as though big companies and government are not part of us. They
are. We elect them and work for them. We also make extensive use of the
resources they extract for the enormous benefit of everyone.

------
marcgcombi
Smart move because there is not economic incentive for most "green energy"
projects. Apologies to my liberal friends, but until you go full-Marxist in
the first world countries, market-cost will always win. Game on!

~~~
dredmorbius
Those "market costs" are based on some exceptionally deep accounting failures
of both externalities of use, and externalities of formation.

The "market price" is off by roughly seven orders of magnitude, for petroleum.

~~~
gmac
Sure, the private cost of petroleum doesn't reflect the social cost. But
you're saying it should be TEN MILLION TIMES dearer?

~~~
dredmorbius
Based on the inputs of time and initial biomass, yes, roughly.

Burning petroleum or coal is much more like burning diamonds than wood,
economically and geologically. And if you look at the history of how we got
here, especially the law and economics, the scientific basis for those
assumptions was tremendously flawed.

[https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1....](https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1.pdf)

[https://en.m.wikipedia.org/wiki/Rule_of_Capture](https://en.m.wikipedia.org/wiki/Rule_of_Capture)

It's a complicated story, I'm working on putting it together.

~~~
fennecfoxen
You know what? The linked paper's assertion of 89 metric tonnes of plant
matter = 1 gallon gasoline today? That's a thing. Sure. Calling the overall
use of fuels reckless? Also a thing. It's fine, really.

Assigning gas a $20,000,000/gallon value based on crude extrapolations of what
biomass it would take to replace gas, without doing _hardcore_ economic
modelling on the price elasticity of demand, the availability of substitutes,
and explaining the assumptions you've made to determine what's the right
discount rate to use on the future value of the stored resource – and, indeed,
of the value of the environment and humanity's future in general?

That's little better than pulling the numbers out of your ass. The world isn't
linear enough to just do things like that.

~~~
dredmorbius
The price elasticity argument is a red herring. The availability of
substitutes is something to consider, though to a large extent _for mobile
transportation fuels_ those simply do not exist. There are some remote
possibilities that we might be able to come up with something. Electrical
generation looks slightly more favourable, and would replace much coal use.
The 15% or so of coal used in coking of iron for steel production, somewhat
less so, though that's potentially fungible.

There's a reason I'm suggesting order-of-magnitude ranges for pricing errors
rather than specific dollar amounts to any level of precision, and I'm willing
to suggest a 3-8 OOM range (1,000 to 100,000,000) range based on available
data.

A nonrenewable resource, economically, is one whose market price fails to
account for the time costs of natural formation, such that rates of
consumption exceed rates of restoration.

The relevant number from Dukes' paper, by the way, isn't strictly the biomass
required, but the _accumulation period_ of that biomass: roughly 5 million
years of ancient accumulation per present year of usage (as of 1997). Another
source, _Reinventing Fire_ (Amory Lovins _et al_ ) gives the value of 17
million times higher a usage than accumulation rate.

Either way, this represents an off-books financing either in the form of debt
(as many represent it) or a draw-down of capital stock or savings (as I prefer
to view it), which present economic theory fails to account for.

It needn't do this, and I've been exploring how and why the present
circumstance and economic mythology (to use economist Thorstein Veblen's term)
emerged.

Adam Smith defines costs as the total factors of input, which would include
natural factors and _their_ factors, including formation time. David Ricardo
presumed land rents (from which natural resource rents theory emerged) were
based on "the original and indestructible qualities of the soil", two false
premises. Boehm-Bawerk, Marshall, and Menger discussed theories of cost far
more comprehensive than the minimalistic and incomplete marginal theories now
dominant (and causing numerous problems throughout microeconomics). The
formative papers on natural resource and exhaustive resource pricing (Gray,
1914, Hotelling, 1931) fail to cite any _geological_ references.

At the same time that this theory (or mythology) was forming and extractive
fossil-fuel industries were forming, the understanding of geological scales
and processes was itself undergoing a phenomenal revolution. As of Smith's
time, understanding of the age of the Earth ranged from Ussher's ~6,000 years
to ... "unknowably long" (Hutton), with estimates developing over the course
of the 19th century of from hundreds of thousands to hundreds of millions of
years, though Lord Kelvin and other estimates ranging in the 20-40 million
year range, based on understandings of thermodynamics ... and an ignorance of
radioactivity. It was in this period that the _legal_ models of property over
mineral resources were established, largely Rule of Capture, with significant
jurisprudence in 1804 (Post v. Priestly), the 1880s (oil & gas, W. Va. and
Penn.), and 1904 (Texas). That law saw modifications in the 1930s due to
advances in geological _structural_ but not _temporal_ understanding, and
still remains largely in effect today in Texas and elsewhere (Daintith,
several publications).

Chasing _value_ manages to confound the fact that _cost_ , _price_ , and
_value_ are in fact three _separate_ properties, though related. I call into
question the environmental economic practice of trying to assign "use value"
to various environmental factors without _also_ taking into account the
creation costs, net of environmental factors of production. I'm still thinking
through full implications of this: entropy increases, so there's a net loss
throughout the system, but there are more and less sustainable rates of such
loss.

I stand by my point that the problem is not, as @marcgcombi's (now flagged)
comment states, that renewable resources are too expensive, but that
_nonrenewable_ resources have been fantastically under-priced by market
forces. The good news in my critique, though, is that this may be a problem
which can be addressed through market mechanisms: a full accounting of the
formation and replacement costs of fossil-fuel resources would make the
extraction of them at present rates economically and financially
unsustainable. A retroactive application of debits to account for the
squandered resources would turn coal-, oil- and gas-extracting firms and
nations into the biggest financial catastrophes ever (though nonsustainable ag
processes might be another similar case).

Getting back to the price-elasticity question: if your market price fails to
account for true costs of production, you are nowhere near an equilibrium
point. Computations of elasticities are then the equivalent of premature
optimisation in software: you've first got to get the correct outputs and
functioning.

More generally: we're aware of what the long-term stable equilibrium point of
human activity was _prior_ to mass consumption of nonrenewable fossil fuel
resources. Net energy throughput per capita was about 1/100th of the present
value (~1/1000th for the US), and total supported population roughly 1/16th
present values. We found ourselves on an over-capacity lifeboat but with an
immense supplies cache. We've mistaken that supplies cache with the capacity
to sustain ourselves indefinitely, a story which I suspect will end poorly.

I'm quite aware that this is not orthodox economic thinking. (It is well
within the mainstream of ecology, biology, and physics, however.) I'm also
aware that it's rather better supported in economics, finance, and geology, as
well as legal miscarriage, than very nearly all of what _is_ orthodoxy.

~~~
fennecfoxen
You're right to disconnect the cost, price, and value of a resource, but you
seem to ignore that while computing the results you arrive at, and get
nonsense contaminating what would otherwise be a good point.

As long as we're pretending to talk economics of _any_ sort, orthodox or
otherwise, the only _cost_ that matters is the opportunity cost. All those
millions of years replacing the oil in the ground? There's no opportunity cost
to that. No one gave up any second-best alternative. That was just the
ecosystem doing it's thing. And, it's a sunk cost, to boot. It is fact now.
There is nothing to do about it.

So the only questions that matter here are _what is the best possible
alternative that we could possibly imagine for the future which we give up by
extracting this gallon of gasoline_ and _how should we compare that to 2017
dollars_ (how to discount the future, or even whether to do so).

If you think we can achieve output with same value as humanity _currently_
regards _10 million bushels of corn_ by leaving just 1 gallon of gasoline's
worth of petroleum in the ground, I'd like to hear why and how, because that's
an extraordinary claim, and if they were actually real we could pay for a
_lot_ of alternative energy sources with these fantastical savings.

~~~
dredmorbius
On the opportunity cost argument, consider a few alternative scenarios. How
would you account for utilisation of a resource in the following
circumstances:

1\. You are in an office, with an office-supply cabinet. Your costs of
accessing new supplies are the time it takes you to walk to the cabinet and
obtain them. At some point, those supplies must be re-ordered. What is the
property accounting mechanism for those supplies?

2\. You've come into an inheritance. It represents the accumulated earnings of
several lifetimes of your benefactors. You are limited to withdrawing a
maximum amount of money in a given visit, and each visit requires cross-town
travel and cab fare. How do you account for the depletion of this fund? Do you
include your own time costs? The cab fare? An accounting for the depletion of
the fund itself? An accounting of the costs of restoring withdrawn funds?

How does this change if your own present earning potential is only a very
small fraction of the current fund? If the fund represents, say, the
equivalent if 5 million ancestors' lifetime earnings?

3\. You and 63 others are in a lifeboat, floating adrift, a year from the
nearest opportunity for rescue. There is food and water aboard the lifeboat,
but only sufficient to keep a maximum of 16 alive for that period. How do you
account for the usage and decide on allocation of those supplies?

I'm well aware of opportunity costs, and of sunk costs.

For the former, I'm fairly convinced that the opportunities are not fully
enumerated in current accounting, and that the economic, financial, and legal
doctrines as I've described briefly above are based on world-models strongly
at odds with the actual world-state.

Of sunk costs, I'm no longer convinced that the sunk-cost fallacy is entirely
valid. Again, not an original idea -- spend some time looking up "sunk cost
fallacy fallacy". Gwern's essay on the topic is among the more interesting:
[http://lesswrong.com/lw/9si/is_sunk_cost_fallacy_a_fallacy/](http://lesswrong.com/lw/9si/is_sunk_cost_fallacy_a_fallacy/)
[http://www.gwern.net/Sunk%20cost](http://www.gwern.net/Sunk%20cost)

There are a number of dimensions of this, and I'm not convinced I've explored
all of them, but in the specific case of fossil fuels, a particular problem is
that _there is no accounting for the depletion of the resource itself._ At a
time when present rates of consumption accounted for a millionth or less the
total resource (NB: _not_ "proved reserves" or "economic reserves"), as was
documented by several authors of coal in the 1880s, that might have been
excusable. Funny thing is that exponential rates of increase have ...
increased, and even in the case of the most abundant fossil resource (coal),
that millionfold supply-to-present-consumption relationship has fallen to a
factor of perhaps 100x. In other mineral resources we're looking at far
smaller numbers (I've referenced a few such lists at
[https://reddit.com/r/dredmorbius](https://reddit.com/r/dredmorbius)).

The problem with economic accounting such as you suggest -- best possible
alternatives, future value, current prices, real currency -- is that it seems
to me the accounting fails on multiple premises. Hotelling, incidentally,
proposes just this in his 1931 paper, and it's one of several places in which
I feel his analysis fails.

H.L. Gray, "Rent Under the Assumption of Exhaustibility" (1914) describes
Ricardo's conclusions:

1\. Price should increase over time.

2\. Spot price is set by the highest cost-of-extraction mine.

3\. Owners with lower costs earn a differential rent.

The 2nd and 3rd conclusions match observed experiences in oil especially -- a
resource with _exceptionally_ good pricing history, dating to 1859 (see, e.g.,
BP's annual statistical review), and a global market due to its exceptionally
low worldwide transport costs of ~1% of product value.

The first does not.

What oil shows instead is a tremendous price _volatility_ , up until roughly
1945, followed by a long-term _declining_ trend, through 1973, followed by
another period of exceedingly high volatility. Something appears wrong with
the model.

For insights to this I strongly recommend chapter 13 of Daniel Yergin's _The
Prize_ , and the establishment of production quotas in the US (with global
significance for the reasons above) under the Texas Railroad Commission and US
Department of Interior, in 1931. There's both the tremendous price volatility
and low prices (to $0.02/bbl nominal) prior to the arrangement, and stability
since. Explaining the gap through 1945, I'll suggest the Great Depression and
WWII, but once those hurdles were cleared, the period 1945 - 1973 was one of
unparalleled economic stability and growth most especially within the United
States.

I also see the cost, price, and value dynamics as in play, and in particular,
failures under specific conditions of price to reflect costs (backwards-S
supply curves being a principle component) as throwing a wrench into the
works. The assumption that market prices for extractive goods are correctly
obtained strikes me as false.

Which gets to the point that there are in fact several distinct conditions in
which prices are assessed. I'm still thinking this through, so I'm not settled
on a final list, though Smith offers a guide:

1\. The price of commodities: goods produced anually on a renewable basis.

2\. The price (wages) of labour

3\. The price of stocks: an accumulation of goods, depleted over time

4\. Rents: a price for time-based right-of-access which otherwise does not
deplete a resource.

What Smith points out is that the _long-term_ price _must_ cover the long-term
costs of a good or resource, and that whilst market prices may not reflect
this, often for extended periods of time, that such is ultimately not a
sustainable circumstance.

I've suggested that the proper relationship, in which costs are seen as "total
factors of production", is C <= P < V

That is, your costs must be less than (and at equilibrium, equal to) the
market price, which is strictly less than value. In the short term, this
relation can fail, though that reflects a problematic circumstance. Again,
19th c. economists discussed such things, 20th and 21st c. not so much.

I'm not particularly convinced of the first inequality, as entropy increases,
hence the cost would be _less_ than the price, strictly. But within an open
system, we're considering alternative flows, which may offer a better model.

Another analogue I like to refer to is that of whalefall, and the benthic
communities which spring up around the episodic but bounded resource bounties
which result. Over the course of about a century, a successive set of
scavengers extract energy and nutrients from the whale's flesh, blubber, and
ultimately bone. But the one thing those communities do _not_ do is sustain
themselves. When the bounty, the accumulated savings, is spent down, they
expire, and it's but a few prospecting individuals who manage to found the
next such community.

