The Economic Case Against The LNG Project In Philly — And the Case For A Hydrogen Fuel Cell Project With Far Greater Potential by Michael Silverstein

The Economic Case Against The LNG Project In Philly — And the
Case For A Hydrogen Fuel Cell Project With Far Greater Potential
by Michael Silverstein

The noisy protest last Wednesday at a Drexel get-together meant to showcase a proposed LNG production facility in Philly just hints at why this project won’t fly. Future opposition will not just come from a few noisy protestors. Very large, powerful, and well organized local environmental groups will demonstrate against it, and use the media and courts to delay it in a great many ways.

Delays are fatal for this project. The reason is because of what its promoters refer to as “a fast closing window of opportunity.”

There are a number of other places in this country that want approval to build such a facility. The DOE won’t approve them all. Because of opposition, Philly will not be able to fast track a project proposal (fast tracking in this case means dispensing with environmental safeguards) because local opposition won’t let that happen.

The LNG project as the basis for this city’s energy future is thus DOA. This is not only fortunate for the local environment, but for the local economy as well. The LNG project is a chimera. And its down-the-road damage to the city can be summed up in two words: Stranded asset.

The huge current demand for LNG in parts of the world like post-Fukushima Japan and Putin-plagued EU countries will be more than met by some of the dozens of other new LNG producing facilities now being constructed around the world. The current demand bubble from a lack of sufficient supplies will then be followed by a future supply bubble. The first new entrants in this field will sew up the market with 20-year contracts. Latecomers will get the dregs or nothing at all.

There’s nothing unusual or unpredictable about the process at work here. The oil and gas business is always boom and bust, near-term demand that calls forth excess supplies.

A Philly-based LNG producer (if one actually came into existence) would be among the last entering this competition. What we’d end up with then is a very expensive stranded asset – a polluting facility that no longer has a reason to exist. This project’s promoters by then would have moved on to another community with a stressed economy where they would again dangle a promise of local riches and jobs to advance their own short-term goals.

The better energy hub for Philadelphia

There’s another approach here, however, a different future vision, that really does have a huge future potential for Philadelphia, and which could benefit most of the same interests as the LNG chimera. It’s one built around hydrogen and hydrogen fuel cells.

Here it is in brief:

• Marcellus Shale gas is brought into the city via new union built pipelines, and goes to the same PGW facility now tagged for LNG production. This facility, however, is specifically geared to produce hydrogen (already long produced commercially from natural gas), but does so in a leading edge, more cost-effective way with the help of Drexel technologists.

• Part of this hydrogen is liquefied and exported, benefiting the port; another part goes to hydrogen fueling stations in this region, of the sort now just beginning to appear in California to service Toyota’s first mass market hydrogen fuel cell car, the Mirai, only a few of which will be sold this year in California, but will start selling in this region thereafter; PGW produced hydrogen for these vehicles could make PGW a major transportation fuel supplier as well as a home and commercial heat supplier.

• Still another part of this locally produced hydrogen could be feedstock for new hydrogen energy cells and related parts manufacturers, who would naturally be attracted here once the PGW facility is running.

• President Bush in 2003 heralded a hydrogen fuel cell future for electrical generation and transportation. There have been a number of failed efforts to make this happen since then. Advances with this technology and Toyota’s mass market initiative indicate the time has finally come to jump into this field.

• It’s thus exactly the right time when a city like Philly can actually become a world energy leader in a field about to blossom rather than just another energy wannabe follower. This is not a realm susceptible to near-term bubbles, or worries about longer term stranded assets. The world-changing future of hydrogen fuel cells has just begun.

One timing attraction of hydrogen as the basis of a Philadelphia energy hub involves Toyota. This automobile company today and a number of others considering a move into the hydrogen fuel market have no mid-Atlantic focus at present. A hydrogran facility at the PGW site is a perfect attraction for them

And then there’s the almost kismet quality of Sun City’s recent announcement that it is setting up shop in Philly. This company’s president is Lyndon Rive. His cousin is Elon Musk. The family’s business is leading edge energy development. Rive (and his brothers at Solar City) focus on solar energy for the home. Musk focuses on batteries and the Tesla electric car for transportation. Hydrogen fuel cells are the natural “third leg” of the family’s business, the perfect compliment to its present alternative energy home and transportation market activities.

One other important thing is worth noting when it comes to why a hydrogen fuel cell hub rather than a LNG hub is more promising for this city — the environmental angle. Environmentalists would oppose the fracking that brings out Marcellus Shale gas and pollution from related new manufacturing facilities whether a new Philadelphia energy hub is LNG or hydrogen related.

But… while LNG powered transportation is certainly incrementally less polluting than diesel powered, hydrogen fuel cell powered transportation in not just an incremental improvement. It is a revolutionary transformation. Zero emission hydrogen fuel cell vehicles in coming decades literally have the potential to save this planet. That fact could make a big difference in gaining acceptance for hydrogen in Philadelphia’s own economic future.

Here, then, is the deck of factors that could be played to bring into being a flourishing Philadelphia hydrogen-based energy hub:

• It benefits most of the same groups that would benefit from an LNG hub —union construction labor, PGW, Drexel, the Marcellus Shale crowd, etc.

• It would not only attract support from a new Wolf Administration for economic reasons, its zero-emissions angle could defuse some environmentalist opposition.

• The fact that in 2003 a Republican president, George Bush, proposed creating a hydrogen-based energy future could even attract Republican support in Harrisburg for this sort of Philly hub.

• There’s money available from the DOE in Washington for hydrogen energy promotion carried over from this 2003 Bush initiative.

• There’s currently no mid-Atlantic competition for a hydrogen hub the way there is competition for a LNG hub in this region.

• The timing for this hydrogen hub, given not only Toyota’s move into fuel cells cars but other auto makers as well, presents wonderful open ended economic opportunities for this city.

• There’s a Rive-Musk play here that cries out for tapping.

• There’s no rush-or-lose-it, stranded asset fears with hydrogen. It is the long-term future, not an expanding bubble.

I hope you find this analysis interesting. In passing, about me, I’m a former senior editor with Bloomberg’s flagship Markets Magazine.

Michael Silverstein
April 20, 2015

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