Emphasize higher-value energy exports, EPRINC president recommends

Benefits from US energy exports are so obvious that policymakers should look beyond crude oil and LNG to higher-value petroleum products, a Washington energy observer suggested.

Luician Pugliaresi, president of Energy Policy Research Foundation Inc. (EPRINC), said a barrel of product could fetch up to twice as much as a barrel of crude. “The challenge we face is how we adjust our policies so we don’t lose this value-added opportunity,” he said during an energy imports discussion at the US Energy Association’s 5th annual Energy Supply Forum on Oct. 3.

“Our regulatory framework is not set up for this,” he maintained. “It isn’t equipped to handle an opportunity this big. It’s a very serious problem.”

A second panelist, Guy F. Caruso, a senior advisor in the Energy and National Security Program at the Center for Strategic and International Studies, said the US already exports 2.6 million b/d of petroleum products. “The crude oil export debate almost certainly will come during the next administration no matter who is elected president in November,” he predicted.

The prospect that US crude imports will continue to drop could take global markets’ spare production capacity back to its level before Hurricanes Katrina and Rita in 2005 and restore market stability, said Caruso, who led the US Energy Information Administration from July 2002 to September 2008.

“We’re seeing significant innovation at all levels,” he said. “When the incentives are there and the regulation is right, this country has a great deal of potential. We will still be part of a global energy market. Even if we become a net energy exporter, we’ll still be vulnerable to supply interruptions.”

LNG exports

The dramatic growth in US gas production from tight shale formations and in association with tight oil development makes LNG exports increasingly likely, the panelists agreed. There also will be some problems, they added.

“It’s not going to be easy to convert the nine existing facilities which have submitted applications to the [US Department of Energy] to exports,” said the panel’s third member, Charles K. Ebinger, director of the Energy Security Initiative at the Brookings Institution.

“We believe that by 2020, US LNG exports will be 4-6 bcfd, and facilities beyond these nine will find it hard to penetrate the global market,” he told the audience. “Getting long-term commitments to provide the necessary financing for projects may be an even bigger stumbling block.”

Caruso noted that $3-5/Mcf gas prices will probably be a range in which US refiners, chemical, and other manufacturers will be comfortably competitive. Challenges will primarily be with regulations and infrastructure development for both processing and transportation, he indicated. Already, about 1 million b/d of light, sweet crude produced from the Bakken formation moves to customers by truck and rail, Caruso said.

“We could get in a position where the US has the low-cost refining capacity, and becomes dominant,” said Pugliaresi. “There’s too much capacity in the Atlantic Basin, but rationalization is more likely in Europe and, to a degree, on the East Coast than on the Gulf Coast.”

Contact Nick Snow at nicks@pennwell.com.

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