Report

Gassing Up

The Obama administration is overhauling how it reviews natural gas export projects. That could speed up America's arrival as an LNG exporter.

In a sign that the United States is slowly but surely coming to terms with its role as a potential energy exporter, the Energy Department said Thursday that it will overhaul its sclerotic and oft-criticized process for approving natural gas export projects.

The regulatory change could help streamline the approval process for dozens of gas-export terminals eagerly awaited by countries in Europe and Asia that are desperate to start tapping into cheap supplies of American natural gas. The status of U.S. gas exports has become especially important in the wake of the Russian incursion in Ukraine and Moscow's heavy-handed use of energy exports to cow European countries into line.

Instead of reviewing every proposed gas export project, no matter how realistic or viable, the Energy Department said that it will focus only on projects that have cleared other governmental hurdles, especially environmental reviews and final sign-off from the Federal Energy Regulatory Commission.

The idea is to make Energy Department reviews more efficient, something that many U.S. lawmakers and plenty of European and Asian politicians have requested for years. The regulatory tweak won't open the floodgates to U.S. gas exports anytime soon. The wheels of regulatory approval, like justice, turn slowly. But it is important because when it comes to energy exports, timing matters.

Over the next five years, countries such as Australia, Qatar, Mozambique, and the United States hope to export more natural gas. The clearer the regulatory pathway for U.S. export projects is, the more likely that they can secure financing and line up the needed specialized engineering and construction firms.  

"I have long warned that the United States faces a narrowing window of opportunity to enter the global gas trade," said Alaska's Lisa Murkowski, the Senate Energy Committee's ranking Republican. She said the tweak would help fix a "needlessly confusing" regulatory process.

Department officials also said they will conduct a study of the economic consequences of exporting large volumes of natural gas. A previous study published in 2012 found that gas exports would benefit the economy. However, it analyzed only modest levels of future U.S. gas exports. The announcement is a sign that the Obama administration wants to carefully calibrate how much gas the United States could export without risking a jump in domestic gas prices.

"Today's decision by the Department of Energy to streamline the permit-approval process is a positive step forward to responsibly export America's abundant supply of natural gas," said Senate Energy Committee Chairwoman Mary Landrieu (D-La.), who is an enthusiastic proponent of exporting more energy.

Her predecessor, Oregon Democrat Ron Wyden, has long been wary that exporting too much gas could actually hurt the economy by eroding the manufacturing boom, for example. He welcomes fresh economic analysis.

"I am pleased to see DOE has taken my suggestions to heart and that we will look before we leap," he said in a statement.

The United States is trying to come to grips with a sudden abundance of natural gas, thanks to the revolution in hydraulic fracturing, or fracking. Once destined to be a large importer of natural gas, the country is now preparing to build several multibillion-dollar terminals to export the stuff. But companies cannot export natural gas to countries lacking free trade agreements with the United States without Energy Department approval.

The Energy Department reviews projects on a first-come, first-served basis, only reviewing a few per year. Seven proposals to export liquefied natural gas have received conditional approval but only one, in Louisiana, has final approval. Energy companies criticize the system because the Energy Department spends months reviewing projects that may have little chance of attracting the billions of dollars needed for construction, while more worthy projects languish at the bottom of the list.

"The proposed changes to the manner in which LNG applications are ordered and processed will ensure our process is efficient by prioritizing resources on the more commercially advanced projects," wrote Chris Smith, the department official overseeing the LNG approval process.

Tor Even Mathisen - Flickr

Report

Yergin: Crude Exports Would be a Win-Win

A new study adds fuel to the political debate over ending the 40-year old ban on oil exports.

Allowing U.S. companies to export oil would require changing the law but would be a big win for consumers, oil producers, the government and the economy as a whole, according to an extensive study published Thursday by energy consultants IHS.

The study comes as the gusher of U.S. oil production has suddenly made the question of oil exports a hot topic in Washington. Top lawmakers, including big voices on the Senate energy panel, want to deep-six the the nearly 40-year-old ban on U.S. oil exports-one of the last vestiges of command-and-control energy rules put into place in the 1970s. The restrictions, which seem unsuited for the world's crude-oil production growth leader, are under review, Energy Secretary Ernest Moniz said earlier this month.

The U.S. oil boom unleashed by the hydraulic fracturing revolution-better known as fracking-has the country awash in sweet, light crude oil. Oil production has grown about 50 percent in the last five years and is now at the highest level since the late 1980s.

The problem is that the U.S. refining sector is geared to process an entirely different kind of oil, creating a mismatch. Given that the law essentially forbids exporting crude oil, U.S. oil trades at a discount on the global market. What's more, the self-imposed export ban means the United States is leaving billions of dollars on the table.

"We have this one last vestige of old energy policies that didn't matter for decades because everyone thought the U.S. was finished as an oil producer," said Daniel Yergin, vice chairman of IHS and the report's lead author. "But lo-and-behold, you have this great production revival, and now we have this big traffic jam, and it's creating a really big distortion," he said.

According to the 120-page study, supplying U.S. crude to the export market would push global oil prices down slightly, which would shave about 8 cents off a gallon of gasoline for U.S. consumers through 2030. (U.S. gasoline prices reflect global, not national, crude oil prices.)

It would also incentivize further oil production, the report found, because U.S. crude wouldn't be penalized with a price discount compared to its global peers. Average U.S. crude-oil production through 2030 would jump to 10.7 million barrels daily, compared with 9.5 million barrels a day if the export ban stayed in place, the study estimated. That boost would drive U.S. GDP higher--by as much as 0.7 percent in 2018--and add $1.3 trillion to federal coffers, thanks to higher tax receipts.

Companies such as Chevron, Exxon Mobil, ConocoPhillips and others in the industry that would benefit from lifting the export ban sponsored the report. IHS says that it is "solely responsible" for the analysis and study conclusions, which largely echo similar recent analyses.

One major industry sector is leery of lifting the ban: Refiners. Other petroleum products-gasoline, diesel, jet fuel and the like-may be exported; but not oil itself. Those exports are soaring, totaling more than 4 million barrels daily. Access to relatively cheap oil, and being able to export it as a product, benefits U.S. refiners.

One of the biggest, Valero, supports the export ban and is investing hundreds of millions of dollars to upgrade refineries to better handle the glut of U.S. oil, said spokesman Bill Day.

The ban dates back to the early 1970s, when Washington enacted a flurry of oil-price controls. It was further codified in the wake of the 1973 OPEC oil embargo, which horrified U.S. consumers and policymakers with the specter of energy shortages. But most of the era's energy restrictions were lifted by the early 1980s, with the exception of the ban on oil exports.

Russia's incursion into Ukraine has elevated the export debate. U.S. lawmakers and many European politicians called for the United States to expedite the export of natural gas to Europe to help break Russia's energy stranglehold over the continent. But crude-oil exports, which don't require infrastructure upgrades, could materialize much faster and deal a blow to Russia much more quickly, Yergin said.

"If we see 500,000 barrels a day of U.S. crude exports to Europe, that would be taking market share away from West Africa and Russia. And this would be a message the United States could send tomorrow," he said.

Karen Bleier - AFP - Getty