LNG’s Tax Break Controversy
August 5, 2025 § Leave a comment
A story is breaking that Cheniere Energy is applying retroactively for an alternative fuel tax credit for using “boil off” natural gas for propulsion of their liquefied natural gas (LNG) tankers in the period 2018 to 2024, the year that tax break expired. The story leans towards discrediting the merits of the application. Before we get into that, first some basics.
LNG is natural gas in the liquid state. In this state it occupies a volume 600 times smaller than does free gas, thus making it more amenable to ocean transport. It achieves this state by being cooled down to – 162 degrees C. Importantly, it is kept cool not by conventional refrigeration, but by using the latent heat of evaporation of small quantities of the liquid. If the resultant gas is released to the atmosphere, it is a greenhouse gas 80 times more potent than CO2 over 20 years. In recent years, tanker engines have been repurposed to burn natural gas. The “boil off” gas, as it is referred to, is captured, stored and used for motive power. As with most involuntary methane release situations, capture has the dual value of economic use and environmental benefit. In the case of LNG tanker vessels, the burn-off can handle most of both legs of the voyage. Short haul LNG trucks also have boil off gas, and it is unlikely that the expense of recovery and dual fuel engines is incurred.
Also, by way of background, Cheniere Energy is a pioneer in LNG. It began with their construction of import terminals in the 2008 timeframe. Shortly after that US shale gas hit its stride and LNG imports evaporated. This was followed by US shale gas becoming a viable source of LNG export, and Cheniere again took the lead in pivoting to convert import terminals to export capability. Today they are the leading US exporters.
Now to the merits of considering boil off natural gas as an alternative fuel. The original intent of the law, which expired in 2024, appears to have been to encourage substitution of fuel such as diesel with a cleaner burning alternative. However, the letter of the law limits this to surface vehicles and motorboats. LNG vessels are powered by steam (using a fossil fuel or natural gas), and more lately by dual fuel engines using boil off gas and a liquid fuel ranging from fuel oil to diesel. Using a higher proportion of boil off gas certainly is environmentally favorable, mostly because sulfur compounds will essentially not be present and particulate matter will be vastly lower than with diesel or fuel oil. If this gas was not used for power, hypothetically, it would be flared, leading to CO2 emissions and possibly some unburnt hydrocarbons. Capture and reuse provide an economic benefit, so should it qualify as an alternative fuel?
An analog in oil and gas operations could be instructive. Shale oil can be expected to have associated natural gas because light oil tends to do that because of the mechanism of formation of these molecules. Heavy oil, for example, could be expected to have virtually no associated gas. When oil wells are in relatively small pockets and/or in remote locations and because of the relatively small volumes or remoteness, export pipelines are not economic. This gas is flared on location. Worldwide 150 billion cubic meters was flared in 2024, an all-time high. Companies such as M2X Energy capture this and convert it to useful fuel such as methanol, and in the case of M2X the process equipment is mobile. The methanol thus produced could be considered green because emissions of CO2 and unburnt alkanes would be eliminated.
Were that to be the case, the use of boil off gas has some legs in consideration of it being an alternative fuel. However, the key difference in the analogy is that in the case of the LNG vessel, an economic ready use exists. Not so in the remotely located flared gas. But is an economic ready use a bar for consideration? Take the example of CNG or LNG replacing diesel in trucks. They likely quality for the credit. The tax break approval may well come down to a hair split on the definition of motorboat. An LNG vessel is certainly a boat, and has a motor, but does not neatly classify as a motorboat in the parlance*. But if the sense of the law is met, ought the letter of the law prevail?
Vikram Rao
*That which we call a rose, by any other name would smell as sweet, Juliet in Romeo and Juliet, Act II, Scene II (1597), written by W. Shakespeare.
Advanced SMRs: No Fuss, (Almost) No Muss
December 27, 2024 § Leave a comment
The potentially catastrophic condition that a nuclear reactor can encounter is overheating leading to melt down of the core. Conventional reactors need active human or automatic control intervention. These can go wrong, as they did in the 3 Mile Island accident. Small modular (nuclear) reactors (SMRs) are designed to share the trait of passive cooling down (automatic, without intervention) in the event of an upset condition. SMR designs to achieve this control differ, but all fall in the class of intrinsically safe, to use terminology from another discipline. This is the no fuss part.
The muss, which is harder to deal with, entails the acquisition and use of fissile nuclei (nuclei which can sustain a fission reaction), and then the disposition of the spent fuel. Civilian reactors use natural uranium enriched in fissile U-235 to up to 20%. At concentrations greater than that, theoretically a bomb could be constructed. The most common variant, the pressurized water reactor (PWR), uses 3 to 6% enrichment. Sourcing enriched uranium is another issue. Currently, Russia supplies over 35% of this commodity to the world. The US invented the technology but imports most of its requirement.
In all PWRs and most other reactors, nearly 90% of the energy is still left unused in the spent fuel (fuel in which the active element is reduced to impractical concentrations) in the form of radioactive reaction products. Recycling could recover the values, but France is the only country doing that. The US prohibited that until a few decades ago, for fear that the plutonium produced could fall into the wrong hands. Geological storage is considered the preferred method but runs into local opposition at the proposed sites, although an underground site in Finland is ready and open for business.
One class of reactors that defers the disposal problem, potentially for decades, is the breeder reactor. The concept is to convert a stable nucleus such as natural uranium (U-238) or relatively abundant thorium (Th-232) to fissile Pu-239 or U-233, respectively. The principal allure, beyond the low frequency of disposal, is that essentially all the mineral is utilized without expensive enrichment. In both cases, the fuel being transported is more benign, in not being fissile. One variant uses spent fuel as the raw material for fission. The reactor is the recycling means.
At a recent CERA Week event, Bill Gates drew attention to TerraPower, an SMR company that he founded. For the Natrium (Latin for sodium) offering, which combines the original TerraPower Traveling Wave Technology (TWR) with that of GE Hitachi, the coolant is liquid sodium (they are working on another concept which will not be discussed here). Using molten metal as a coolant may appear strange, but the technical advantage is the high heat capacity. The efficacy of this means was proven as long ago as 1984, when in the sodium-cooled Experimental Breeder Reactor-II at Idaho National Laboratory, all pumps were shut down, as was the power. Convection in the molten metal shut down the reactor in minutes. That reactor operated for 30 years. So, that aspect of the technology is well proven. TerraPower’s 345 MWe Natrium reactor, which broke ground in Wyoming earlier in 2024, is not technically a breeder reactor, although it utilizes fast neutrons, which is helped by the coolant being Na, which slows neutrons down less than does water (the coolant in PWRs). Natrium uses uranium enriched to up to 19% as fuel.
Natrium has two additional distinguishing features. The thermal storage medium is a nitrate molten salt, another proven technology in applications such as solar thermal power, where it is an important attribute to provide power when the sun is not shining. For an SMR, the utility would be in pairing with intermittent renewables to fill the gaps. Their business model appears to be to deliver firm power with a rated capacity of 345 MWe and use the storage feature to deliver as much as 500 MWe for over 5 hours. In general, the unit could be load following, meaning that it delivers in sync with the demand at any given time.
The most distinctive feature of the Natrium design is that the nuclear portion and all else, including power generation, are physically separated on different “islands”. This is feasible in part because the design has the heat from the molten sodium transferred by non-contact means to the molten salt, which is then radiation free when pumped to the power generation island. The separation of nuclear and non-nuclear construction ought to result in reduced erection (and demobilization) time and cost. Of course, sodium-cooled reactors are inherently less costly because they operate at ambient pressures, and the reactor walls can be thinner than they would be for an equivalent PWR.
The separation of the power production from the reactor ought also to lend itself to the reactor being placed underground and less susceptible to mischief. This is especially feasible because fuel replacement ought not be required for decades. This last is the (almost) no muss feature. Disclaimer: to my knowledge, TerraPower has not indicated they will use the underground installation feature.
The “almost” qualifier in the “no muss” is in part because, while the fuel is benign for transport, the neutrons for reacting the U-238 are most easily created using some U-235. Think pilot light for a burner. Natrium uses uranium enriched to 16-19% U-235. However, as expected for a fast reactor, more of the charge is burnt. Natrium reportedly produces 72% less waste. These details support the fact that, their other attributes notwithstanding, SMRs do produce spent fuel for disposal although with less frequency in some concepts, especially breeders, and this is the other reason for the “almost” qualifier.
As in all breeders, no matter what the starting fuel is, additional fuel could in principle be depleted uranium. This is the uranium left over after removal of the U-235, and it is very weakly radioactive. Nearly a ton of it was used in each of the old Boeing 747s for counterweights in the back-up stabilization systems. It was also used (probably still is) in anti-tank missiles because the pyrophoricity of U caused a friction induced fire inside the tank cabin after penetration. Apologies for the ghastly imagery, but war is hell.
Advanced SMRs could play an important role in decarbonization of the grid. My personal favorites are those that use thorium as fuel, such as the ThorCon variant which they are launching in Indonesia. Thorium is safe to transport, relatively abundant in countries such as India, and the fission products do not contain plutonium, thus avoiding the risk of nuclear weapon proliferation.
As in most targets of value, we must follow the principle of “all of the above”*.
Vikram Rao, December 26, 2024
*All together now, from All Together Now, by The Beatles (1969), written by Lennon-McCartney
TRADER JOE BIDEN
May 26, 2024 § 2 Comments
President Joe Biden is in the oil trading game. To date he has bought low and sold high, an enviable record. He has used the Strategic Petroleum Reserve (SPR) as a tool for stabilizing oil price continually, and not just in a supply crisis. His nuanced policy on minimizing Russian oil sale profits has not caused a supply-disruption-led oil price rise. In the last two years, transport fuel price has been stable in the US, and domestic oil production has been high. Some folks think he is perpetuating fossil fuel in achieving the latter. Not so. Shale oil wells are notoriously short lived. Other folks think he is taking an inspired gamble with our energy security. He is not. Abundant, accessible, shale oil is our security. And conventional oil traders must be haters. Riding volatility waves is their skill.
When President Biden authorized withdrawal of 180 million barrels (MM bbls) from the SPR in 2022, there were howls of anguish from many sides. The SPR was a reserve, for emergencies, not the sitting president’s piggy bank, he was placing the country at risk and so on. At the time I wrote a blog supporting the drawdown, which entailed 1 MM bbl per day withdrawal for 180 days. My support was premised on the argument that the SPR was no longer necessary at the design level of 714 MM bbls. At the time it was conceived in 1973 (and executed in 1975), we were importing 6.2 MM bbl per day. In 2022 we were a net exporter by a small margin. But the story is better than that. We import heavily discounted heavy oil and export full price light crude. Again, buying low, selling high.
The chart shows the SPR levels over the years. Note the plummet in 2022. In February 2024 it was at 361 MM bbls. This is ample in part because much of domestic production is shale oil, and new wells can be brought on stream within a few weeks. Shale oil is, in effect, our strategic reserve. One argument against that assertion is that many of the operators are small independent producers, who are averse to taking risk with future pricing, and may need inducements.
Biden’s Gambit
Enter President Biden into the quandary. He needs gasoline prices to remain affordable. But he also needs the shale oil drillers to keep at it for the nation to continue to enjoy North American self-sufficiency in oil (domestic production plus a friendly and inter-dependent partner Canada). Gas is a horse of a different color. The US has gone from an importer of liquefied natural gas (LNG) to the largest exporter in the world in just 15 years. American LNG is key to reduced European reliance on Russian gas. How this is reconciled against renewable energy thrusts, is a topic unto itself for another time.
He ordered the SPR release described above. The average price of the oil in the reserve was around USD 28 per bbl. He sold it at an average price of USD 95. All SPR oil is not the same quality, and depending on which tranches were sold, the selling price could have been less for any given lot. On average not a shabby profit. Then in July last year, when the price was USD 67, he refilled the SPR some (see the small blip upward on the chart). In so doing he fulfilled a commitment he made to drillers back in 2022 that he would buy back if the price dropped to the USD 67 – 72 range. Such purchases would, of course, have some impact on raising prices. The mere intent, taken together with the fact that the SPR had sufficient capacity to add 350 MM bbls, would give the market a measure of stability, a goal shared by OPEC, albeit at levels believed to be in the mid-80s.
The purchase in July 2023 was for about 35% of the amount he sold in 2022. The reported profit was USD 582 MM. According to Treasury, the 2022 sale caused a drop in gasoline price of USD 0.40 per gallon. In an election year. And the mid-term election went more blue than expected. Political motivations aside, the tactical use of the SPR to stabilize gasoline prices and at the same time keep domestic industry vibrant, is a valid weapon in any President’s arsenal. As noted earlier, an SPR at a third of the originally intended levels is now adequate as a strategic reserve. Any fill above that level could be discretionary.
Biden’s gambit went a step further. Prices were declining in October 2023. Biden unveiled a standing offer to buy oil for the SPR at a price of USD 79 for up to 3 MM bbls a month, no matter the market price at the time. For the producer this was a hedge against lower prices. While in world consumption terms this was the proverbial drop in the bucket (uhh, barrel), the inducement worked. Investment is reported to have tripled in the period following the offer.
Russian Oil
The Russian invasion of Ukraine prompted actions intended to reduce Russian income while not causing a rise in the world oil price. A combination of sanctions and price caps has certainly achieved the second goal. Russia was forced to sell oil through secondary channels and India became a large buyer, initially at heavily discounted prices. India then refined the oil and sold into all markets, including US and allies. Blind eyes got turned. At first. Now there are additional sanctions. As I noted before, US policy was nuanced. But world prices remained stable and US production thrived.
Trader Joe Biden has shown how deft buying and selling oil can utilize the SPR to achieve national objectives while making a profit*. And in so doing, not relinquish the strategic objective of it as a reserve against extraordinary supply shocks. Future presidents will take note.
* You’ve got to know when to hold ‘em, know when to fold ‘em, in The Gambler, by Kenny Rogers (1978), written by Don Schlitz.
Vikram Rao
May 26, 2024
Research Triangle Energy Consortium 