An odd streak of fatalism runs through the minds – the presumed minds – of our LNG-worshipping politicians. This fatalism seems to be the offspring of two parents: desperation and incompetence. During a recent public meeting to count the un-hatched property tax chickens promised by Jordan Cove through a scheme of dubious legality known as the CEP (Community Enhancement Plan), someone asked what the County might do for property tax revenue if Jordan Cove never built (or operated) its LNG export terminal. When Commissioner John Sweet replied that “there is no plan B”, people gasped audibly. Sweet then rushed to assure the crowd that there was no need for a Plan B anyway, because Jordan Cove is working on contracts with big Asian energy companies that “don’t go out of business” and are “not in China.” This according to Mary Geddry’s report of the meeting.
I know there are a lot of clever people in Asia, but who knew their companies never go out of business? During a slump in the Japanese economy not many years ago, the Wall Street Journal carried an extensive article about all the Japanese businessmen who were hanging themselves – evidently hari-kari is less fashionable these days – because their companies were failing.
Gassy Bloviations
What sounded even more curious was Sweet’s assurance that “Jordan Cove is working on contracts with energy companies that are “not in China”. The term “working on contracts” means that no contracts yet exist, an eerie reminder of the fate of several other industrial promotions during Coos Bay’s history. In 1980 the promoter of a fish waste processing plant in Charleston, heavily subsidized by the Port, announced there was “tremendous demand” for his plant’s end product. In the end, when he went broke, it became clear there never was any. And in November of that year, the Canadian promoter of a coal export terminal to be built on the North Spit announced that the following week he would be signing a contract with the Taiwan Power Company for delivery of a million tons of coal a year. In time, that turned out to be a big fib too. In 1987 the promoter of a chromium smelter, also for the North Spit, promised to produce 30,000 tons of ferro-chromium a year, half of which had “already been sold on contracts”. That too was an empty boast, by a traveling penny-stock-salesman. I could cite more examples, but the lesson should be clear: when somebody is trying hard to make the uninformed believe that his industrial proposal is a done deal, read the fine print.
By stating that JC’s prospective customers are not in China, Sweet clearly meant to say they are in Japan; but his real objective seemed to be damage control for my op-ed article in The World of Thursday, January 7. The headline of that article, a longer version of which appeared on this blog in December, had simply asked: “IS THE WINDOW CLOSING ON JORDAN COVE?” I had asked the question because of recent dramatic changes in global energy markets. Gasoline prices have taken a welcome dive – welcome to me, anyway – thanks to the price of a barrel of oil having dropped from over $100 to less than $45 today, and the bottom is not yet visible. As is often the case in dramatic market developments, there are multiple causes for the oil price drop, but they can be summarized as excess supply and lackluster demand. The same has happened to the price of natural gas, which is often produced from the same wells as oil. For a long time this gas was sold overseas as LNG on long-term contracts linked to the price of oil, so in recent months Asian LNG buyers have been getting a better deal too.
But global gas markets have acquired their own unique problems, if we define as problems those recent events that threaten to narrow the spread between domestic and overseas prices enough to make Jordan Cove’s plan to export LNG from North America a losing proposition. In the December article on this blog I mentioned four such problems: the high cost of domestic fracking, the impending re-start of the Japanese nuclear power plants, new gas supplies from Australia, and the recent gas deal between Russia and China. This was not a complete list of the gas market’s problems for potential LNG exporters; there are many more. But in my article’s version in The World, which had to stay under 800 words, I only mentioned the first and the last problems, i.e. the cost of fracking and the China deal. So a commenter on The World who hides behind the pseudonym eye14u seized the occasion to accuse me of spreading false information, because I had written that Jordan Cove was planning to sell its LNG to China when it was actually hoping to sell it to Japan. I had done no such thing, as anybody who can read should be able to tell. But, citing a Reuters article of November 7, eye14u bloviated that my “ignorance and audacity is truly breathtaking.” Here’s a link to that article: http://www.reuters.com/article/2014/11/07/lng-veresen-japan-buyers-idUSL4N0SW19Q20141107.
A Red Herring
So it was eye14u’s Reuters article about Japan being JC’s LNG buyer instead of China – essentially a red herring – that John Sweet was regurgitating, proving once again that he is not a leader but a follower, and not a very perceptive one. What makes the Reuters report a red herring is that commodity prices in countries in the same part of the world – say, China, South Korea and Japan – tend to converge to roughly the same level unless prevented by unusual circumstances. These countries not only get LNG from overseas but they trade with each other, diverting cargoes from one port to another as needed, at spot prices, which used to be higher than long-term prices because buyers needed such cargoes to make up temporary shortages. But recently the spot market for LNG has shown prices lower than long-term contracts. This is further confirmation that LNG has become a buyer’s market; sellers are eager to unload surpluses, but demand has cooled. As to Japan in particular, you have to remember that when the Japanese shut down all of their four dozen nuclear power plants in the wake of the Fukushima nuclear meltdown, prices of LNG in that country rose as high as $19 per Mmbtu. No wonder Jordan Cove kept on salivating; but like so many things in this world such prices didn’t last.
In early November 2014, according to the now two-month old Reuters article, Veresen’s Don Althoff was hovering around the fringes of an LNG trade conference in Japan to try and sell LNG contracts at $11 per Mmbtu; and it seems likely that his anxiety level was rising since on the same day the Reuters article was published, the re-start of the first two idled Japanese nuclear power plants was officially announced. Nuclear plants had supplied 30% of Japan’s electricity, and taking them offline had boosted oil and LNG imports for fossil fuel plants to make up the difference. Clearly, this is coming to an end, and it’s another potential nail in JC’s coffin. But, braying victory for Jordan Cove, eye14u cited Althoff’s claim that he was “talking to Japanese buyers” and had “signed six heads of agreement . . . for about three times the volume of the plant’s capacity.” But “heads of agreement” are NOT contracts. They are something on the order of a letter of intent, which is not an enforceable contract either. But I can sympathize with Mr. Althoff – sort of. After all that Veresen has spent and done, he must be feeling the heat. There have been no further reports of the fate of his “heads of agreement”, and I would bet an excellent bottle of wine that the Japanese, cagey traders that they are, are in no hurry to sign any real contracts. Why not bide their time, and get a better deal yet? LNG plants in other countries can supply them, and unlike Jordan Cove those are already built, such as the vast new export facilities in Australia that are eager for customers.
A Conspiracy of Silence
One curious aspect of eye14u’s rants (without considering his bad grammar), is that they are exceptions to a rule of the local ecodevo cult, a firm rule calling for silence toward critics like me. Ever since I published the first edition of “The JOB Messiahs” in December 2011, there has been an organized effort by that cult to suppress it, not by arguments that would just bring me more attention, but by silence. Undoubtedly a lot of local gentlemen – and a smattering of ladies – felt their precious reputations threatened by the book’s exposure of their past ecodevo follies, which have cost us so dearly; and I admit I took a certain pleasure in skewering their pretenses with humor, ranging from ironic to sardonic. But since we don’t live in the fifteenth century nor in Nazi Germany they couldn’t very well seize my books and burn them along with me, so they decided that their best policy was to ignore me as much as possible. Since then I have published many letters and op-eds in The World (and in other publications) on local development schemes, usually based on history from the book. But the public responses to those pieces never seem to come from the hard-core ecodevangelists whose ruinous exploits I documented in The JOB Messiahs. Screen Shot 2015-01-14 at 7.35.11 AMAnd of course that may be wise on their part, since getting involved would put them in the spotlight, and they have a great deal to answer for.
As part of that conspiracy of silence, shortly after the book’s publication I got a rude telephone call from a guy by the name of Norm Hill on behalf of the Coos Bay area’s largest Rotary Club, canceling the speaking engagement I had already made at that assembly of civic-minded luminaries. He curtly informed me that he had “heard” of me, implying that I was a dangerous Enemy of the People, as Henrik Ibsen might have put it. If Norm Hill and eye14u are not the same, at a minimum they sound like brothers, not surprising given the level of ideological in-breeding among Coos Bay’s diehard ecodevangelists.
Do we HAVE to be Dependent?
But it’s high time we returned to John Sweet, whose admission that the County has no “Plan B” without Jordan Cove shows that he has put all of our un-hatched eggs into one single basket that may soon fall off the table, thus condemning us to “rot”, as he puts it. Yes: without Jordan Cove and the SEP, according to Sweet, “Coos County will shrivel up and rot!” And this after insisting that “we have to be dependent” on the Canadian would-be LNG exporter. To Sweet, it’s the only way to survive.
To paraphrase blustering eye14u, this is truly breathtaking. Just like someone observed, back in 1990, that Coos Bay’s ecodevangelists were completely unable to imagine a better future for their children than to go to work at a stinking pulp mill (which would never be built), today Sweet is unable to imagine a County administration relying on anything but a huge industry that may never materialize or, even if it does, be idle for years on end due to changing market conditions. What’s truly irresponsible, he has given no thought to what else could be done to solve the County’s looming revenue problem. And with regard to the uncertainty surrounding Jordan Cove, I’m not talking hypothetically or conjuring up fairy tales. The history of LNG IMPORT terminals in the U.S. has been one of underuse, with many intermittently idle, and an asset that is idle cannot be relied on for much tax revenue. The reason that the first FERC-non-FTA-approved LNG exports will be shipped from the Chenière Company’s Sabine Pass terminal in Louisiana is that it by the time it was built in 2009 as an import terminal, it had no purpose. The import market for that terminal had evaporated. With the aid of powerful politicians Chenière then applied to convert its facility to an EXPORT terminal, obtaining FERC approval in 2012; its first export shipment is expected to occur toward the end of this year. But clearly, Chenière had a substantial head start on other would-be exporters. Even so, the company is $9 billion in debt and has never made any money although its CEO gets $142 million a year. During Chenière’s lifetime its stock has twice been in penny-stock territory, although lately it’s been riding high – given all these historical facts no guarantee of a brilliant financial future. No wonder one investor in Chenière stock describes it as “one tiger whose tail I wish I’d never grabbed.” See: http://wolfstreet.com/2014/08/05/stock-hype-on-a-wing-and-a-prayer/
Returning to Coos Bay, it seems fitting to recognize that like the natural gas market, the lumber business has seen plenty of ups and downs; I well remember the frequent mill closures “due to market conditions” during the 1970s, which were Coos Bay’s last decade of growth and prosperity. It’s always amazed me how people could wax nostalgic about that golden era, which had plenty of economic insecurity already. And the financial gusher now expected by John Sweet and his crowd hardly seems credible when you consider what has happened, time after time, when our myopic officials pinned their hopes on yet another new industry that never came: coal export, steel equipment fabricating, a pulp mill, a steel mill, a container terminal, and so on. The only exceptions I can think of were small ones, both of which did locate here, but they didn’t live long. The first was Glenbrook Nickel, which imported nickel ore, dried it at a plant in Bunker Hill and loaded it on trucks that hauled it to a smelter in Riddle, up highway 42. Glenbrook operated for about five years, during the 1990s, and then shut down because the Russians were dumping nickel on the world market, depressing prices. The Glenbrook site sat vacant for some fifteen years until ORC (Oregon Resources) picked it up for its chromite operation. Like Glenbrook, ORC spent money building its facility, but its life was even shorter than Glenbrook’s.
Shrivel up and die
So the $10,000 question is: how stupid is it for County Commissioners (along with the rest of our officials) to keep hoping for some industrial Santa Claus to show up and shower money on Coos County? Oh yes, I remember well the annual property tax check that Weyerhaeuser Company used to write, about four feet long so The World could show a big picture of happy local officials holding it. Weyerhaeuser’s big mill, built around 1950, closed in 1989, and we’re still looking for a replacement. There have been many, many prospects but none panned out. So now it’s Jordan Cove that will save the County, according to John Sweet, or else we’ll shrivel up and die.
This is beyond pathetic. Not long ago Sweet gave $25,000 to SCDC, a permanently useless office that pretends to create jobs; even though that was not County money, it could have been used for County purposes since almost anything can pass for “economic development”. Sweet also hired a $5,000 a month lobbyist for the County who is achieving nothing; he voted to give the County’s “human resources” director a $3,000 raise for “equity”; he refused to consider repealing Coos County’s multiple “Enterprise Zones” that have sucked money out of the county budget for three decades, because he is convinced – without evidence – that EZs “create jobs”. He also ignores the possibility of suing the federal government for the county’s rightful share of revenue from the Coos Bay Wagon Road lands, and he wastes money on “goal-setting” seminars for him and the rest of the Commissioners whom we elected to do exactly that themselves . . . why did we vote for him? Oops, I take that back. I did NOT vote for him.
Sooo . . . we better formulate Plan B. It looks like we may need it.