Nick Deiuliis, President and CEO – CNX Resources Corp.
MSC Shale Insight – September 29, 2022
Thanks to my good friend Jeff Nobers for the kind intro and for all his stellar work with our regional building trades. Without the great women and men of the local trades, nothing I’m about to say would be possible.
And good morning, friends. First let me acknowledge our title. The Awakening is a tribute to the great Pittsburgh jazz pianist Ahmad Jamal, borrowing one of his epic album titles. The best pianist in jazz history, for my money.
The other part of the title for today references the next chapter in this epic story that is the domestic natural gas industry. Shale 3.0, where our industry and product are the catalyst for the economy, quality of life, and lower CO2. For the region of Appalachia, the nation, and the world. Don’t call it a bridge fuel.
Make no mistake, we are the necessary catalyst if you want a better future. You want us to be a bridge, it’s a bridge where society is not going to like what’s on the other side. We are seeing examples of what that looks like everywhere these days.
BRIDGERS VS. CATALYSTS
What it comes down to are two very different approaches out there.
On one side you have what I call the “bridgers” warranting natural gas is heading toward obsolescence. Bridgers employ mistruths, politics, fiction, and mysticism. Their approach is wrong. They lead to problems, big ones, for society at large. Government is the decider
On the other side you have us: the “catalysts”. We know natural gas is more crucial than ever. Catalysts live in the world of truth, science, reality, and fact. Our approach is right. We offer solutions for the region and the nation and the world. The free market is the answer.
Now the bridgers have been winning the policy game of late. How is it, you might frustratingly ask, that a view based in traits that I listed is so successful? It does not compute, right?
Well, actually and unfortunately, it does compute. Because the success of the bridgers hinges on the application of a tried-and-true recipe used by manipulators and those looking to control for over a century.
THE FOUR-PART RECIPE
The recipe was explained by the great author and thinker Victor Klemperer, when he lived under fascist rule in Germany. I want to thank historian Timothy Snyder for igniting my interest in Klemperer. Because Klemperer and his recipe matter greatly to modern energy policies. The recipe has four parts.
First, you attack reality. And present in the void made-up creations as fact.
Second, you apply constant and endless repetition. Pound the message everywhere so that no one can escape perpetual exposure to it; on the TV, in the paper, on the smart phone, surfing the web, and sitting in the classroom.
Step three: it’s time, in the words of one of my favorite essayists, the great Joan Didion, to apply some ‘magical thinking.’ Reason becomes a casualty and people embrace blatantly untrue positions. There is hostility to any dissent or dissenter to such untrue positions. This is where your calendar opens up because you stop getting invited to panels and cocktail parties with the elite. An adult form of peer pressure.
Last step, and this is key because it is the whole point of the recipe, is to offer up the neat, simple, lone solution to the problem that the prior steps have constructed. The solution can be a messianic leader, a movement, or a policy path. That’s the payoff: in the form of money, power, and, most important, control.
So, what I’d like to do is walk through these four steps in the recipe and list examples when it comes to energy policy. And then rebut them with what we, the catalysts and doers, know to be the truth.
Let’s give it a go.
STEP 1: ATTACK REALITY AND REPLACE WITH MADE UP CREATIONS
The bridgers have successfully attacked an absolute scientific truth: that all activity in this world has a certain scopes 1-3 carbon footprint. That truth has been replaced with the manufactured concept of a zero-carbon economy, business, or portfolio of energy.
But we know that while lower carbon is absolutely possible, zero carbon is scientifically impossible. And that continued regional utilization of natural gas, particularly to displace coal, oil, gasoline, and diesel, will drive CO2 to the lowest level and by the most efficient path.
Another example of step one of the recipe in action: the bridgers covering over reality with touting that the comically-named Inflation Reduction Act’s $369 billion use of taxpayer money will get about a 37% CO2 drop by 2030. But we know the natural gas industry will drop US CO2 30% by 2030, without the IRA. Which means domestic natural gas delivers >80% of the CO2 drop at $0 cost to taxpayers. And the IRA ekes out <20% of the improvement at a $369 billion cost.
How about RGGI? Bridgers hype RGGI by warranting the state and region’s CO2 footprints are escalating without action. That justifies need for wind and solar mandates and subsidy through government intervention. Yet we know how Pennsylvania reduced its CO2 emissions by 40% and the US by 23% since 2005 through the utilization of more natural gas (38% more in the US). This would make Pennsylvania if it were a stand-alone developed nation the only such nation to achieve the Paris Accord targets.
Those pesky bridgers press a popular but flawed notion that wind and solar, aka renewables, are “carbon-free.” They simply are not. Ignored are the greenhouse gas emissions produced during the mining, processing, manufacturing, and transportation of all the materials needed to construct these facilities, as well as the activities associated with their maintenance, service, and disposal. Not to mention the redundant fossil back-up power that is necessary. DOE, EPA, SEC, state energy and environmental agencies across the country – you name the government entity – where are they on this? How can we decide our energy future when we won’t be honest about the basic carbon accounting?
STEP 2: POUND THE MESSAGE
The bridgers excel at this step. Think of the catchphrases you see and hear everywhere: code red, keep it in the ground, combatting climate change, energy transition, zero carbon economy. The direct and indirect vilification of our industry are nothing new, but have certainly become more intense.
But we, the catalysts, know the true message that needs broadcast. The region is thriving from natural gas. And natural gas derivative products, and vertically expanded markets for natural gas products, are the answer. All of this benefits the local region and our local communities.
There is another constant mantra from the bridgers about how wind and solar are deployable at scale, everywhere, including in places like Pennsylvania. The common sense, rational catalysts here today know if we want to lower global GHG emissions, then deploy solar and wind in the sunniest and windiest places that still rely on higher emission sources, to displace them. You don’t place renewables at scale in places like Pennsylvania where the efficiencies are low, the costs at scale are high, the supply chains are thousands of miles in length, and the life cycle carbon footprints are going in the wrong direction.
Yes, we doers in the catalyst mold ask: what is better for the planet, for greenhouse gas emissions, for the regional economy, and for business models? Making products overseas using high-emission, inefficient factories, which utilize poor labor and environmental practices, and having all that wasted cost and energy transporting these products all the way here? To sometimes work, depending on weather? Or, simply manufacturing these products here with low-carbon-footprint natural gas, more-efficient power plants and factories, adhering to stringent environmental standards, using local well-paid workers, and shipping it within a one-day drive? Pretty simple.
STEP 3: APPLY MAGICAL THINKING
Bridgers keep incanting that slogan of ‘increasingly competitive renewable energy.’ And how natural gas, or fossil fuel in general, is bestowed lavish subsidy by taxpayers.
But catalysts understand the math of subsidy. University of Texas ran the math of subsidy for different forms of energy on an apples-to-apples $/MWh basis. $1-2/MWh for natural gas and oil. $15-57/MWh for wind. $43-320/MWh for solar.
Another, related chant you always hear from the bridgers is how the natural gas industry needs to pay its ‘fair share.’ Under the impact/severance fee in Pennsylvania, in ten years our industry has provided $2.3 billion in revenue to state communities and coffers. Who or what has paid more of a fair share than we have? And how much taxpayer subsidy and middle-class regressive taxation did the wind and solar complex enjoy in the recent IRA? $400 billion or so?
Another magical thought applied by the bridgers is that wind turbines, solar panels, and EVs will be manufactured in the US and in places like Pennsylvania. We know under the laws of geology and economics that will never happen. Because 68% of global nickel, 73% of cobalt, 93% of manganese, and 100% of graphite in lithium-ion batteries are controlled by…China. This is the stuff needed for wind/solar/EVs.
And bridgers paint that rosy picture of sustainability in action with wind and solar. Never mind the reality we know all too well: child labor in open pit mines, acid runoff poisoning entire ecosystems, slave labor camps in Xinjiang, and Scotland cutting down 14 million trees to make way for wind projects. That doesn’t compute as sustainable nirvana.
That ties to the bigger magical thinking concept of energy resilience we hear from the bridgers. How wind/solar/EVs make the US stronger and better positioned. But consider the true evolution. We were not long ago a nation that built its grid and its transportation vehicles but that relied on OPEC and the Mideast energy to power them. Then with the shale revolution we evolved into the nation that made the grid and vehicles and manufactured the energy that powered both. But moving toward the bridgers vision will take us to a place where inevitably the grid and transportation fleet will be made from stuff from China and Russia and will also be powered by stuff from China and Russia. Xi and Putin would like to thank western environmentalists, politicians, and bureaucrats—aka ‘experts’—for gifting them control of our energy and thus geopolitical leverage.
STEP 4: OFFER THE LONE ANSWER
Now comes, as I said earlier, the payoff for the bridgers with the recipe. This is where a host of answers and solutions that solve the crisis and save the world come to the fore. Examples abound.
The IRA is the most recent. Almost $400 billion in subsidy and support to those in the favored caste. But we look at the IRA and say, ‘wait a minute, did anyone run the math to see how this proffered solution impacts the problem of global temps and rising sea levels?’ Well, when you plug the IRA assumptions into the UN climate models, which is what noted climatologist Bjorn Lomberg has done, the answers come out to 0.0009 degrees Fahrenheit and 0.08-inch reduction in sea level. Those work out to $411 trillion per degree and $4.7 trillion per inch. And you thought waterfront property on Lake Erie was expensive.
How about the bridgers’ answer of how a mad dash to wind and solar at scale on our grids will be a smooth transition. The data say something different. California going from best-in-class grid to third world grid. Energy rich Texas starving maintenance investment to build unneeded wind and the resulting freeze crisis. To quote the North American Electricity Reliability Corporation, “there’s clear, objective, conclusive data indicating that the pace of our great transformation is a bit out of sync with the underlying realities and the physics of the system.” You don’t say?
And things get worse when a realistic eye shifts focus globally. The anything but smooth energy transition to wind and solar at scale in Europe emboldened Russia to invade Ukraine, tighten its energy grip on the EU, and send inflation soaring. Meanwhile Russia sells oil and natural gas to China. China then uses that Russian oil and natural gas to fuel its industrial sector to make wind turbines and solar panels to sell to the US and EU. Thereby increasing its energy leverage and fueling its militarization in the South China Sea. These policies promising the shiny, sole solution have achieved instead exactly what they really intended: create energy scarcity, run up prices, and restrict access to supply.
There are other power grabs in the solution, final step, of the recipe. It’s how we end up needing a Climate Czar who flies from elite confab to elite confab in a private jet. It’s what leads to the Paris Accord and UN positions that penalize Pennsylvania, Ohio, West Virginia, and Virginia domestic energy to force false solutions that rely on China and Russia as providers. And it’s why a US National Economic Council Director recently asked out loud: “the question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’”. That should frighten all of us.
THE AWAKENING TO SHALE 3.0
I could go on and on. But in the interests of time and your blood pressure, I will shift to the good news in all of this. There is a growing awakening in our industry and across society that there is a better way than the bridgers’ road to certain ruin. One where the catalysts’ word bubble I showed you applies.
Let me paint that path for you.
Natural gas continues to be a foundational fuel in the energy mix. Appalachia and Pennsylvania play the lead role by fueling new industrial and manufacturing businesses and by supplanting foreign oil via CNG and LNG to drive our transportation sectors, ground, and air.
Pennsylvania, Ohio, West Virginia, and Virginia become the center for skilled labor job creation that reopens a currently closed path to the middle class for the region’s underserved rural and urban communities. We leverage the region’s unrivalled work ethic and create family-sustaining jobs that don’t require a college degree or college debt forgiveness. And we lower regional, national, and global carbon emissions even further.
The Appalachian Basin is uniquely positioned to serve major nearby US population centers. Our local natural gas is low-CO2 intense, but high energy dense—providing unmatched greenhouse gas efficiency from an all-in, scopes 1 through 3, lifecycle perspective.
Investment in, and utilization of, our low-greenhouse-gas-intensive natural gas and its derivative products will use infrastructure that works with new technologies, like hydrogen, when and if they are ready and able to be deployed. Engines and factories can run off 100% compressed natural gas, 100% hydrogen, or related blends. So, we don’t need to wait or bet on when and how the hydrogen economy unfolds – we just accelerate and derisk its arrival.
Further, natural gas utilization will reduce unnecessary shipping logistics for other energy sources, resulting in fewer transportation-related emissions. When supply chains stretch thousands of miles, it hurts reliability, cost, and carbon footprint.
Build it here, make it here, use it here – first.
Technology and assets being developed in Appalachia and from CNX now can help displace higher carbon intensive fuels in the US energy mix, and aggressively compete with wind and solar, both on a cost and scopes 1-3 carbon footprint basis.
It is happening now. Two examples we already announced at CNX: partnerships with the Pittsburgh International Airport and with Newlight Technologies. The straws at your seat are biodegradable and made from abated coal mine methane as feedstock. Talk about a circular economy.
THE PRESENT AND THE FUTURE
I hope you now see and appreciate that ill-intended recipe of the bridgers that Klemperer so elegantly defined and how policy is steered away from facts, science, and what is best for Pennsylvania. We must remedy it. Thankfully we have science and math and physics on our side.
Follow those and good things, really good things, happen. America and our allies overcome our daunting challenges brought on by the recipe’s ill-advised energy policies.
Pennsylvania and Appalachia can grow markets and demand for natural gas vertically, not just horizontally. We’ll keep energy affordable.
We’ll make things here again instead of the other side of the world. We’ll transform communities and countless lives in the process while achieving environmental goals.
Those who want to eradicate our industry are not the answer. Bad things will follow, not the contrived solutions. Catalysts, answer back and rebut with facts, data, and the unmatched quality of life that our work provides.
We are the present and the future. The moral imperative is for societies to embrace our catalyst product, not jettison it.
It’s been a pleasure. Text CNXinsight to 52886 for more information on the topics I’ve discussed today and to stay in touch. Contact me on Twitter @nickdeiuliis, check out the website nickdeiuliis.com, or reach me on LinkedIn at Nick Deiuliis. Order that book, Precipice, if nothing else to help the Mentorship Academy, which the book’s net proceeds are being donated to – and tell me what you think.
Thank you and see you out there on the frontline of public discourse.