OGJ Senior Writer
While some shrugged off US President Barack Obama’s energy policy speech at Georgetown University, it was notable “for what was included and was not,” said James Crandell at Barclays Capital, New York.
The speech began with “a level-headed discussion” of how oil prices earlier lowered “in response to slackening demand during the recession (not growing supply)” and are now rising as world demand increases faster than supply. “Importantly,” Crandell said, “this helps provide the economic and political justification to push for incentives for alternatives to oil, such as natural gas.”
Unlike Obama’s 2010 State of the Union speech that snubbed natural gas, this time he cast gas “as a central pillar” of his energy program and at the front of “new sources” of energy. “This is quite a status change for gas,” Crandell said. “Compared with past speeches, wind and solar appear to have been mentioned far less often.”
Gas for oil
The speech advocated use of gas in transportation and to fuel generation of electricity to power vehicles. Obama set a goal of generating 80% of US electricity from clean energy sources, including gas. “With the transportation and power markets the largest potential sources of demand growth for the gas industry, we see the speech as offering a tantalizing push,” Crandell said. “Although the industry will likely still fear the potential for new drilling restrictions, the speech seemed to suggest that a balance has to be struck that does not inhibit supply.”
He said, “We do not expect the president’s speech to move the needle on natural gas in the short term. Such speeches rarely, if ever, do. We are also conscious of the fact that one could run a small power plant by using as fuel old, printed copies of past ‘energy pledges’ that were never implemented.”
Still, Crandell said, “The status upgrade of natural gas to the center of the discussion is important. If—and we stress if—Congress decides to pursue energy legislation, natural gas should be well positioned…. If resurgent gasoline prices catalyze a public push for Congress to react, natural gas should have a front row seat at the debate.”
Meanwhile, Olivier Jakob at Petromatrix, Zug, Switzerland, said Obama needn’t wait 10 years to reduce US crude imports by a third. “The US could reduce crude oil imports by 10% by next week and 20% within 2 years if it really wanted to,” he said.
Petroleum demand in the US peaked 3 years ago, resulting in a surplus of refining capacity for the domestic market that has since turned to supplying foreign markets, he said. The US burns 2.4 million b/d of crude to produce the distillates it exports and about 1 million b/d of crude for the gasoline it exports. If US refineries were not importing crude to export products, Jakob said, “They could easily cut crude oil imports in a very short time by about 1 million b/d, which is the amount they import from Saudi Arabia.”
That would shut down some of the surplus refining capacity. But “in a free-market economy, it is difficult to force refineries to shut down for political rather than economical reasons,” Jakob said. No matter what measures the US may take to reduce imports, he said, “The US government does not own the US refineries.”
Still, US net import “of petroleum molecules” is being reduced through increased exports rather than a reduction of imports, Jakob said. In January, US exports of petroleum products reached a record high of 2.6 million b/d—“about double the 2007 levels and close to 30% of the crude oil it imports,” he said. The administration did not mention this, however, since the average voter would not understand how the US is exporting record amount of petroleum products while gasoline at the pump is over $3.60/gal, he said.
(Online Apr. 4, 2011; author’s e-mail: email@example.com)