Punishing Putin Fuels an Energy-Export Drive in Congress

Tuesday, 25 Mar 2014 07:50 AM

 

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In the decades after the Arab oil embargo, the U.S. imposed restrictions on energy exports to promote self sufficiency as a matter of national security.

Now Russia’s annexation of Crimea and massing of troops on the Ukrainian border is fueling a push in Congress to remove those limits to punish President Vladimir Putin.

“In the 70s, we argued that for the sake of national security we have to prohibit exports,” Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin, said in an interview. “Now we argue that for the sake of national security we have to allow exports. Our mind has flipped in 40 years.”

Three congressional committees are holding hearings this week -- two of them today -- on whether the U.S. should sell more of its growing oil and gas resources overseas, in part to lessen European dependence on Russian oil and gas. Europe imports about 30 percent of its natural gas from Russia through pipelines that cross Ukraine.

“Current U.S. policies that restrict energy exports weaken our diplomatic efforts,” Representative Ed Royce, a California Republican and chairman of the Foreign Affairs committee, said in a statement. His committee is holding a hearing tomorrow entitled, “The Geopolitical Potential of the U.S. Energy Boom.”

Surpassing Saudis

The once-unthinkable idea of exporting large amounts of U.S. oil and natural gas has gained support as advances in drilling techniques leave the U.S. poised to surpass Saudi Arabia and Russia as the world’s largest producer of crude by 2015, according to projections by the International Energy Agency. In November, the U.S. produced more oil than it imported for the first time since 1995.

The U.S. Energy Department is reviewing more than 20 applications from companies to build multibillion dollar terminals that can liquefy natural gas so it can be loaded onto ships for foreign markets. Yesterday, the department approved Jordan Cove Energy Project LP’s application to build a terminal in Oregon, the seventh proposal the agency has cleared since President Barack Obama took office.

Republicans have argued that his administration should act faster to help its European allies.

“Many more long-delayed proposals to export U.S. natural gas remain in limbo, and they must be approved if we’re going to weaken Russia’s dominance in many foreign energy markets,” Brendan Buck, a spokesman for House Speaker John Boehner, an Ohio Republican, said in a statement.

Senate Bills

The Senate’s Energy and Natural Resources Committee will hold a hearing today on natural gas exports. The witnesses include Jaroslav Neverovic, Lithuania’s energy minister, who will appeal to the U.S. to accelerate natural gas exports. Lithuania imports all of the gas it uses from Russia.

In the House, the Energy and Commerce Committee will consider a bill that would expedite the more than 20 LNG export applications that remain in the queue, and let the market sort out which ones are actually built. Currently, companies need permits to ship natural gas to countries without free trade deals with the U.S., a list that includes all of the 28-nation European Union. Exports to countries that have free trade pacts are approved after a nominal review.

Whitney Stanco, a Washington-based energy policy analyst at Guggenheim Securities LLC, said the House bill was unlikely to advance in the Democratic-led Senate.

‘Gaining Momentum’

“Spurred by Russia’s takeover of Crimea, we believe the foreign policy arguments in favor of energy exports are gaining momentum on Capitol Hill,” Stanco said in a note to investors yesterday. “Nevertheless, it remains unlikely that Congress will coalesce around a plan on LNG exports and highly unlikely that Congress will act on crude exports in the near term.”

Senate Democrats Mark Udall of Colorado and Mark Begich of Alaska have introduced legislation to approve gas exports to countries that belong to the World Trade Organization, which includes Ukraine and the EU.

“The situation in Ukraine has provided a burst of momentum for LNG exports, primarily, but also crude,” Scott Lincicome, a lawyer at White & Case LLP, who supports exports, said. “The question is whether all this attention translates into systemic reform, and I am skeptical it will.”

Congress remains split on the issue, said Webber, of the University of Texas. Lawmakers from energy-consuming states are more likely to oppose exports out of concerns it will drive up prices. Those from areas with significant oil and gas production tend to support the idea.

Crude Exports

There are also a divisions among businesses. Crude oil exports are backed by producers such as Exxon Mobil Corp. and ConocoPhillips that say it would encourage more U.S. drilling, increase government revenue and create thousands of jobs.

Four U.S.-based oil refiners recently formed a coalition to fight the push on crude exports. They say overseas sales would raise U.S. gasoline prices.

America’s Energy Advantage, a coalition that includes Midland, Michigan-based Dow Chemical Co., Eastman Chemical Co. based in Kingsport, Tennessee, and Alcoa Inc. in New York, said the conditional approval yesterday of the Oregon plant was a “grievous error” that could raise domestic prices.

“LNG exports will not help Ukraine but will harm U.S. consumers and economy,” the coalition said in a statement.

If all seven of the LNG projects approved so far are built, it would give the U.S. a capacity to export about 9.3 billion cubic feet of natural gas a day, the Energy Department said yesterday. The U.S. uses about 67 billion cubic feet a day. The Energy Information Administration, an analytical arm of the department, predicts production would increase to more than 72 billion cubic feet a day in 2014, a record amount.

Geopolitical Review

Geopolitics and the effect on global markets are issues the Energy Department considers in reviewing applications from companies to build natural gas export terminals, Energy Secretary Ernest Moniz said last week.

“Maybe we will give some additional weight to the geopolitical criterion going forward,” Moniz said at a Bloomberg Government breakfast with reporters and editors in Washington. “But we will never eliminate for sure the issue of implications for the domestic market.”

Senator Edward Markey, a Massachusetts Democrat, said exports will drive up domestic fuel costs and amount to a tax on American businesses and households.

“There can be no doubt that we have crossed a line into an era when we could be massively exporting America’s natural gas, sending the jobs and consumer benefits abroad along with the fuel,” he said in a statement after the Jordan Cove announcement.

Guy Caruso, a senior adviser at the Center for Strategic and International Studies in Washington, said in an interview that energy exports are a “longer-term strategy” anyway, given that it will take years to build the export facilities.

Cheniere Energy Inc.’s Sabine Pass facility was approved in 2011 and plans to be able to ship gas starting in late 2015. Six of the projects, including Jordan Cove, face additional environmental and public health reviews, and probably won’t be able to send gas overseas until 2017 or later.

The promise of exports though can serve as an inducement to companies to continue to invest in U.S. operations, Caruso said.


© Copyright 2014 Bloomberg News. All rights reserved.

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