Energy exports highlight EIA conference, House subcommittee hearing

Congress may be ready to discuss US LNG exports as soon as this summer, but won’t likely consider domestic petroleum sales to foreign countries for some time, US Sen. Lisa Murkowski (R-Alas.) predicted at the US Energy Information Administration’s 2013 Energy Conference. Experts on two panels following her June 18 remarks were not reticent about discussing US oil and gas export possibilities, however.

Their observations came as other experts discussed regulatory, market, and legal barriers to US energy exports at a US House Energy and Commerce Committee Energy and Power Subcommittee hearing.

“Deciding to export gas should be easy,” said Murkowski, the Senate Energy and Natural Resources Committee’s ranking minority member. “We could export LNG to supplement gas we’re already exporting by pipeline…. But if we don’t handle LNG exports right, there’s little chance we’ll be able to effectively tackle a hot-button issue like crude oil exports.”

Alaskans have been trying to find ways to export Alaska North Slope gas for decades, she said in her address as EIA’s conference entered its final day. “We’ve already missed the domestic market window, so we need to expand sales to Japan and Korea beyond what we’ve provided reliably as LNG from the Cook Inlet for 40 years now,” Murkowski said.

“The only thing we know at this juncture is that we don’t know how all this will turn out,” she continued. “That is why it’s imperative that the US government not turn its back on crude oil and natural gas exports into the world’s markets.”

Unprecedented opportunities

The boom in domestic shale gas provides unprecedented opportunities for the US, Christopher A. Smith, the US Department of Energy’s acting assistant secretary for fossil energy, told the House subcommittee. Domestic production has increased significantly over several years, outpacing consumption and reducing gas and LNG imports, he said in his written testimony.

“Today, domestic gas prices are lower than international prices of delivered LNG to overseas markets,” Smith said. “As in the United States, demand for gas is growing rapidly in foreign markets. Due primarily to these developments, DOE has received a growing number of applications to export domestically produced gas to overseas markets in the form of LNG.”

DOE has authority to regulate US gas imports and exports, including LNG, under Section 3 of the 1938 Natural Gas Act. It also makes the US Federal Energy Regulatory Commission responsible for siting, construction, and operation of onshore LNG import and export facilities, according to EIA.

Smith said Section 3’s Subsection A creates a rebuttable presumption that a proposed export of US gas is in the public interest, and authorizes DOE to attach terms or conditions to any order that the Energy secretary finds necessary to protect that interest. In the 1992 Energy Policy Act, Congress added Subsection C requiring that gas export applications to countries with which the US has a free trade agreement be granted without modification or delay, he noted.

As of June 7, DOE had approved 24 long-term applications to export 29.41 bcfd of LNG from 21 new liquefaction terminals in the Lower 48 states to FTA countries and three more long-term applications pending, according to Smith. It also had approved two applications to export 3.6 bcfd from two terminals and had 21 applications pending to export another 25.61 bcfd to non-FTA countries, he indicated.

In his keynote address on the first day of EIA’s conference, Ernest J. Moniz, who recently became US Energy Secretary, said he would move expeditiously on LNG export applications DOE has received (OGJ Online, June 17, 2013).

Procedures questioned

Other witnesses at the House subcommittee’s hearing, which also considered possible US coal export expansion, questioned DOE’s LNG export application procedures.

An order of precedence, known as the queue, which DOE published on Dec. 15, 2012, described the manner in which it would process 15 applications it had received already as well as others which might come in, according to Bill Cooper, president of the Center for Liquefied Natural Gas. But the queue actually amended existing procedures and without the necessary public comment period, making it invalid, he said in his written testimony.

“DOE should proceed with its determinations of the pending applications within a reasonable time from the closing of the time periods set forth in the Federal Register notices for the applications,” Cooper suggested.

Lucian Pugliaresi, president of Energy Policy Research Foundation Inc. in Washington, meanwhile, maintained, “Proposals to use DOE’s review process to determine whether US LNG exports to non-FTA destinations should be permitted are both unnecessary and counterproductive.” FERC’s siting and construction authorization process already limits the pace at which new facilities can be built, he said in his written testimony.

“Concerns by some US manufacturers that US exports of LNG should be constrained to save gas for domestic manufacturing are misplaced,” Pugliaresi added. “Even the most ambitious plans to use gas for the entire range of domestic applications are highly unlikely to limit the availability of US gas supplies for export markets. The domestic market will remain well supplied across a wide range of scenarios.”

Tight oil, exports

The growth of US oil production from tight shales has created more questions than answers about potential US petroleum exports, one panelist observed during the EIA conference’s final day. “Not all the plays are working. We can’t let ourselves be carried away by all the hype,” said Andrew J. Slaughter, vice-president of oil and gas research at IHS who formerly was business environment manager for Royal Dutch Shell PLC’s Upstream Americas division.

A favorable price and technology environment drove the discovery of US tight oil plays, with resources larger than US proved reserves, most of which can be produced at a wellhead price up to $60/bbl, he said. “Deep oil is still there, but the growth is coming from unconventional structures,” Slaughter said. “The US is charging past traditional suppliers like Russia and Saudi Arabia and new kids on the block like Brazil.

The global oil trade is rebalancing as Atlantic Basin supplies which used to North American now head to Pacific Asia and calls for oil from the Organization of Petroleum Exporting Countries fall and many of its members reduce spare capacity, he continued. “US tight oil is being talked about a lot now because it’s the flavor of the day,” Slaughter said. “But conventional oil isn’t dead yet, and its contributions will continue to be significant.”

Growing US light crude production without adequate pipeline capacity already has led to installation of 500,000 bbl of rail transmission capacity with another 500,000 bbl expected by 2014, noted EIA analyst John Powell. “US refiners will need to export products to absorb the light crude that’s in the system,” he said during a discussion of US oil production growth and its implications. “Incremental export destinations may not necessarily be there at first. But we eventually see the US becoming a net petroleum product exporter.”

Licenses are generally not required for product exports, but are necessary for US crude sales to foreign customers, Powell said. Exports already are taking place, primarily to Canada with Michigan crude for its Sarnia, Ont., refineries, Bakken crude by rail, and Eagle Ford crude by tanker, he noted. Slaughter said US production would have to back oil imports out nearly completely before Congress would allow more domestic crude to be exported.

“A year ago, we weren’t even talking about oil exports,” Murkowski said earlier in the day. “We have to move through a lot of psychological hurdles first. You’re not going to see a conversation in Congress about oil exports this summer—we need to talk about LNG first—but I think we’re going to have it sooner than many people think.”

Contact Nick Snow at nicks@pennwell.com.

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