Energy Companies and Future Planning under Different Systems

In a democracy like the United States, energy companies constantly face challenges when it comes to long-term planning. The political landscape shifts every few years, making it hard to set and maintain policies, especially in sectors that require significant time and investment to develop, like energy infrastructure. Policies can change drastically with each election, leading to regulatory uncertainty and long-term risk for any major project. This makes it difficult to gain approvals for projects like pipelines, even when state and local regulations are met.

“It is maddening to try and peg these massive investment decisions to the political pendulum swinging back and forth, because these are not one or two year investments, these are 30-year commitments to energy infrastructure,” former FERC Chairman Chatterjee said at a gas forum recently.

By contrast, countries like China, which have a more centralized government, can execute long-term energy plans over decades. With fewer changes in leadership and a more consistent policy framework, these governments can push through large infrastructure projects without the constant risk of political interference. As a result, China can roll out national energy plans and execute them over long periods of time, allowing for a degree of planning and stability that is much harder to achieve in a democratic system.

For example, in regards to coal the Oxford Institute for Energy Studies writes, “The focus on stability and reliability has led to coal capacity growth at a frenetic pace. Since the beginning of 2022, authorities have permitted 152 GW of coal power and started construction on 92 GW. This was ten times the capacity permitted in the rest of the world in the same period.”

This type of control comes with its own risks, though. When an autocratic government implements a poor plan, there’s little room for correction until the damage is already done. In the U.S., while the energy landscape may be turbulent, there is more opportunity for innovation. The diverse range of voices and ideas leads to a kind of natural selection, where the best ideas rise to the top over time.

Regulatory Stagnation: The Case of SpaceX and Natural Gas

An interesting real-world example of regulatory challenges is the situation with SpaceX in Texas. Elon Musk has made incredible progress in the space industry, and his vision for SpaceX includes using liquefied natural gas (LNG) to fuel rockets that could potentially take humans to Mars. Texas, with its vast natural gas resources, was an ideal location for building and testing these rockets. However, despite SpaceX being ready for a new launch for months, the Federal Aviation Administration (FAA) delayed their test, illustrating how government agencies can sometimes slow progress.

TechCrunch reported: “Unfortunately, instead of focusing resources on critical safety analysis and collaborating on rational safeguards to protect both the public and the environment, the licensing process has been repeatedly derailed by issues ranging from the frivolous to the patently absurd.”

It’s important to note that the natural gas industry is thriving in Texas, partly because projects can be built and expanded without crossing state lines. Once you cross those lines, federal approval is needed, which can create significant delays. This is why Texas has become a hub for oil and gas development, as well as LNG export facilities. In contrast, projects in other parts of the country, like in the Northeast, are often halted despite companies spending billions of dollars on approvals and construction.

Energy Forecasting and the Role of Global Players

Coming back to the topic of forecasting, it’s clear that natural gas demand in emerging markets like China will play a key role in shaping global energy prices. China’s energy needs are enormous, and their ability to drive demand for natural gas will likely set the world gas price. Countries like India, which still have significant poverty, also face the challenge of making energy affordable for their populations, leading to subsidies and complex market dynamics. When gas prices spike, governments are sometimes forced to cancel LNG deliveries and pay penalties because the costs are simply too high to bear.

This all ties back into how energy forecasting must account for a myriad of factors, including regulatory changes, global demand, and the intricate balance between supply and infrastructure development.

For energy companies, it’s about navigating these uncertainties and finding a way to plan not only for the immediate future but for the long term. The complexity of energy forecasting—while grounded in beautiful economic theories of supply and demand—must also contend with the very real and often unpredictable influences of global politics, technological innovation, and regulatory frameworks.

But these two can be taken into account, and, as in the case of the war in Ukraine, even then, the fundamentals were there and RBAC’s G2M2 Market Simulator for North American Gas and LNG showed something interesting in mid 2022: when most predicted a rising TTF gas price through the year, our model correctly showed prices coming down, as they did—and there was sense in it. Perhaps not just a crystal ball after all, but something enabling real energy planning.

RBAC, Inc. is a leader in building market fundamental analysis tools used by the energy industry and related government agencies for over two decades. The G2M2® Global Gas Marketing Modeling System™ is designed for developing scenarios for the converging global gas market. It is a complete system of interrelated models for forecasting natural gas and LNG production, transportation, storage, and deliveries across the global gas markets.  For more information visit our website at http://rbac.com.