Energy Boost

The next head of the Senate Energy Committee has big plans for U.S. gas exports.

The Washington version of musical chairs unleashed by the White House's selection of Sen. Max Baucus to be the next American ambassador to China could reshape energy policy in the Senate -- with important implications for U.S. plans to export some of its current energy bonanza.

With Baucus's likely departure for Beijing, the Senate finance chair will come open, and due to looming retirements, seems poised to fall to Sen. Ron Wyden, the Oregon Democrat who currently chairs the Senate Energy and Natural Resources Committee. Aides say Wyden has wanted the job for years.

And that would open the way for Sen. Mary Landrieu of Louisiana to take over at the Energy Committee; the No. 2 Democrat on the committee, Tim Johnson of South Dakota, is retiring.

Unlike most Democrats, Landrieu unabashedly favors tapping U.S. oil and gas resources; Louisiana is at the epicenter of offshore oil and gas development, shale gas plays, and refineries.

She is a big supporter of the proposed Keystone XL pipeline, which would bring Canadian oil sands crude to Gulf Coast refineries. And one of her top legislative priorities is a bill, drafted alongside Republican ranking member Sen. Lisa Murkowski of Alaska, that would give states a larger share of the royalties from offshore energy production. That proposal could get new momentum if Landrieu is in charge of the committee.

But the starkest difference between Landrieu and Wyden is seen in the debate over exporting some of America's energy bonanza.

Kevin Book of ClearView Energy Partners, a consultancy, wrote in a recent research note that Landrieu was "an outspoken proponent of oil and gas production" with a different view of energy exports than Wyden.

Thanks to the unexpected boom in oil and gas production in recent years, energy exports are suddenly a hot topic in a country that for decades has worried about its energy imports.

For now, that means U.S. exports of natural gas. Just a few years ago, coastal communities were building terminals to import natural gas from overseas producers; now, thanks to the shale boom unleashed by hydraulic fracturing, the United States is the world's largest producer of natural gas, and almost 30 projects that would build terminals to liquefy natural gas and ship it to needy customers in Europe and Asia are waiting for government approval.

Wyden has long advocated a go-slow approach to gas exports. While he's never expressed outright opposition to the idea, he urged the Obama administration to carefully consider how exports could affect domestic prices for gas, and how that might hurt consumers and businesses that have greatly benefitted from cheap and plentiful gas.

For instance, after the Department of Energy gave its fifth conditional green light for exports in November, Wyden urged Washington to tread gently with the remaining applications. "It is imperative these potential exports not have a significant impact on domestic prices for families and manufacturers, and in turn harm America's energy security, growth and employment," he said.

Landrieu, by contrast, supports greater U.S. exports of natural gas, and has called for Washington to let the market decide how many terminals get built, and when. Representing a state that has both gas producers, who generally favor exports, and big gas consumers, who above all else want cheap gas, Landrieu says she understands both sides of the issue.

Much of the sound and fury over potential gas exports hinges on what they will do to domestic prices; high-profile opponents of unfettered exports worry that they'll strangle the golden goose of cheap gas that has underpinned a manufacturing revival in the United States.

But Landrieu argues that what will actually hurt the gas industry are sustained low prices, since many producers will be in the red. A guaranteed export market, she argues, will stimulate even greater U.S. gas production.

The Department of Energy, which is responsible for approving gas-export applications to countries with which the United States lacks a free trade agreement, has so far taken a slow and steady approach. It has approved five applications but hasn't yet ruled on 23 more -- including six in Landrieu's home state.

The pace and scope of U.S. natural-gas exports is a hugely important issue for key U.S. allies, including Japan and many members of the North American Treaty Organization.

Indeed, Japanese officials have repeatedly pressed the Obama administration to approve export terminals in a timely fashion; since the 2011 Fukushima accident, when Japan shut down its nuclear plants, the country has been importing expensive energy and now has a trade deficit. Even though freezing gas to a liquid, then packing it into a tanker and shipping it across the Pacific adds to the total cost, gas is so expensive in Asia right now that U.S. exports look very appealing to Tokyo.

That's true in Europe as well, where gas prices are higher than in the United States but not as bad as in Asia. Europeans who've relied on supplies from North Africa have faced supply questions in the past two years; Europeans who rely on Russian gas have faced supply worries, for very different reasons, for the last two decades.

Of course, the real showdown in U.S. energy export policy will likely come next year, and will put Landrieu squarely on the hot seat: Should the United States export crude oil?

The once unthinkable notion -- as recently as 2005, the United States imported 60 percent of its oil -- is now on the table. Groups as far apart as ExxonMobil and the Washington Post editorial page have both recently called for the United States to allow crude exports.

The reasoning is as simple as it is politically controversial: Though the United States still imports almost 40 percent of its oil, it is producing loads of light, sweet crude. That's exactly what refineries in Europe like to process, while refineries on the U.S. Gulf Coast are specially built to handle the heavier crudes that come from Canada and Mexico. Allowing crude exports would allow oil companies to get top dollar for their products, while optimizing the way refineries turn crude into useful products.

But the U.S. energy boom won't last forever, and oil exports might make less sense in a few years' time. Indeed, just this week, revised estimates by the U.S. Energy Information Administration show U.S. oil production peaking in 2019 and then declining. The EIA expects U.S. dependence on imported oil to be about the same in 2040 as it is today. 

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Can Europe Frack Itself to Energy Independence?

Europe wants to replicate America's shale gas boom. Will it succeed?

The British government this week mapped out which parts of England, Scotland and Wales it could offer for the development of shale gas, the latest in a string of halting European efforts to start replicating the so-called "shale gale" that has dramatically transformed the U.S. energy picture in the last half-decade.

Coaxing more natural gas out of the ground couldn't hurt the British, who've been poleaxed by rising energy prices and greenhouse-gas emissions, exactly the opposite of what's happened in the U.S. But neither the U.K. nor Europe as a whole is about to steal a page from the U.S. playbook and ride a shale gas boom to a cleaner energy sector and a revitalized manufacturing base. For Europe, that means there are still no easy answers to its decade-old quest to achieve cheaper and cleaner energy while boosting energy security at the same time. Europe is set to finalize its energy and climate plan for 2030 by early next year. For the moment, it's far from clear that shale will -- or should be -- be part of it.

The U.K. assessment, released Tuesday, opens up about half of Britain to the prospect of shale exploration. That has exercised the British press, who are worried about the "industrialization of the countryside" and scores of heavy trucks rattling through densely-populated areas day and night.

Government officials, like their counterparts in the U.S., acknowledge the need to tap shale deposits in a responsible fashion, but say that opening up more areas for hydraulic fracturing could prove an economic boon.

"Today marks the next step in unlocking the potential of shale gas in our energy mix," said British Energy Minister Michael Fallon in presenting the new plan. "It is an exciting prospect, which could bring growth, jobs and energy security."

British steps to start unlocking its shale potential matter, because Britain has almost all the ingredients needed to actually make the shale revolution happen: a clear regulatory framework, robust capital markets, nimble producers, existing gas infrastructure, and potentially favorable geology.

That's more than can be said for plenty of other European countries that have abundant shale gas resources on paper -- such as Poland or the Ukraine -- but which need to make wholesale changes to their regulatory landscape and massive investments in their natural gas infrastructure. At the same time, shale-gas development, due to heavy initial depletion rates, requires lots and lots of drilling rigs, something else that Europe and the rest of the world conspicuously lack compared to the United States.

British steps to start tapping shale offer a stark a reminder that the raw resource base (China, anyone?) probably matters less for shale development than all the boring things that could actually make it possible. Of course, Britain, like other countries in Europe, faces plenty of local and environmental opposition to fracking, just as in some parts of the U.S.

"If there's one country that could pull it off, I would bet on the U.K. But the public opposition is pretty substantial, and the government would be wise to go slowly," said Tim Boersma, an energy security analyst at the Brookings Institution.

What's especially interesting about the nascent British embrace of shale is that comes right alongside a new energy bill meant to kick start $180 billion of investment in clean, low-carbon sources of electricity over the next decade. The bill includes financial support for nuclear power and renewable energy to ensure that Britain, which has been gobbling up cheap U.S. coal to keep the lights on, can meet its goals of cutting greenhouse-gas emissions.

Why not just count on shale gas to do that? The U.S., after all, has slashed emissions in the energy sector to levels last seen in the early 1990s, in large part because the electricity sector is burning more gas and less coal. The recession also helped by dampening electricity demand.

The U.K. shale assessment makes clear how hard that would be to pull off. Even if Britain figures out just how much shale it has, and how much it costs to get out of the ground, British shale gas isn't likely to displace dirty coal, as it did in the U.S.

Rather, the government-commissioned study says, British shale gas would most likely displace pricey, imported liquefied gas. As a result, the report found, British shale development would have a negligible effect on national greenhouse-gas emissions.

And that highlights a fundamental misunderstanding about the nature of the U.S. natural gas revolution and its appeal for the rest of the world: Gas is relatively cheap in the U.S. not because it comes from shale, but because shale unleashed so very much of it at the same time. Coaxing gas out of underground shale formations by shattering the rock with a high-pressure cocktail of water and chemicals is more expensive than tapping free-flowing gas fields; the U.S. has enjoyed relatively cheap gas simply because so many producers tapped so many wells in such a short space of time.

"Shale gas would mean alternative gas for Europe, not cheap gas," said Boersma.

Estimates of the cost of European shale gas vary, since so little exploration, let alone actual production, has taken place, but will probably cost about twice as much as shale gas in the U.S. That means it wouldn't be able to knock coal out of the energy system the way that cheap gas has undermined coal's appeal in the U.S. Indeed, coal that got pushed out of the U.S. has poured into the U.K. over the last couple of years.

Some European countries are pre-emptively shutting shale out of the equation before even grappling with the challenges of economic extraction and distribution. France and Bulgaria have banned it outright. Germany is still trying to make up its mind.

All of which isn't to say that shale-gas development doesn't offer benefits for Europe. British officials talked up the growth and jobs benefits from shale development, and that's one of the positives underscored by the latest U.K. shale assessment.

Especially in the wake of Russia's latest standoff with the Ukraine, in which Russian gas supplies were first dangled as a carrot, then brandished as a stick, and then finally as a temporary carrot, finding reliable, alternative sources of gas can ultimately be more important than finding cheap sources of gas.

Just look at the excitement Tuesday in Baku, Azerbaijan, at the signing ceremony for the Trans-Adriatic Pipeline. The volumes of Caspian gas aren't huge, and they won't reach Europe until the end of the decade, but it's a start. Plenty of Europeans are hankering after U.S. gas too, since the U.S. will start exporting modest amounts of liquefied natural gas in a few years.

All of this is set to come to a head. Europe is trying to finalize its energy and climate plan for 2030 by early next year.

At issue, as it has been over the past decade, is precisely how the continent can manage to promote low-carbon energy sources in order to curb greenhouse-gas emissions, while making energy less expensive for cash-strapped governments, families, and businesses. Simultaneously, Europe aims to increase its own energy security. The three objectives never clearly meshed, and often came into conflict. Tapping shale gas won't solve all those problems, but it has forced its way into the discussion.

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