Editorial: Keep the run going
US House Speaker Kevin McCarthy (R-Calif.) on Mar. 9, 2023, announced HR 1, the “Lower Energy Costs Act.” It’s the first attempt at major energy legislation made by the current House and was introduced by Majority Leader Steve Scalise (R-La.).
According to McCarthy, HR 1 focuses on two priorities: increasing the production and export of US-produced energy and reducing regulatory burdens. Each should be examined in its turn.
Increasing US production of crude oil and natural gas is easy to address. The US Energy Information Administration (EIA) is forecasting record crude production of 12.4 million b/d for 2023. In 2022 the US set new records for both petroleum product and crude oil exports. Product exports averaged 5.97 million b/d, driven by an 18% (193,000-b/d) jump in distillate fuel oil. Crude exports rose 22% year-on-year to hit 3.6 million b/d. And these sorts of rates have continued into the current year, March 2023 crude oil exports to Europe being on pace to hit a record 2.1 million b/d at the time of writing, driven by discounted West Texas Intermediate prices relative to Brent.
US gas production also broke records last year, totaling 39 tcf, with EIA predicting even greater output in 2023. And net flows to US LNG export plants reached record levels of 14.1 bcfd on Mar. 3, 2023, according to BloombergNEF.
It’s not immediately clear, therefore, the degree to which either production or exports can grow and what tools could be used to bring this growth about. The latter point is further complicated by slumping US gas prices in the wake of a mild winter and milder forecasts.
This part of the bill looks very politics-as-usual, especially given McCarthy’s statement that—all current evidence to the contrary— “the Biden administration has kneecapped American energy production.” But if this bill’s sponsors have devised a way to keep the current run going, all the better.
FERC leads
Regarding regulations, the bill includes what McCarthy describes as “comprehensive permitting reforms that will speed” pipeline construction. This part of the legislation was initially put forward by Rep. Michael Burgess (R-Tex.) as HR 1115, the “Promoting Interagency Coordination for Review of Natural Gas Pipelines Act.” It purports to provide for cooperation between federal and state regulators in approval of authorizations under the Natural Gas Act (NGA).
HR 1115, however, designates the Federal Energy Regulatory Commission (FERC) as the only lead agency in NGA authorization matters, mandating that any other involved agencies “shall give deference” to whatever scope of project-related National Environmental Policy Act (NEPA) review that FERC determines to be appropriate. Any agency not designated by FERC as a participating agency “may not request or conduct a NEPA review that is supplemental to” the FERC review unless it demonstrates that such a review is legally necessary or that it requires information that could not be obtained by FERC.
The bill also sets a 90-day deadline for FERC to rule on a project, starting once the agency’s NEPA review is complete. Other agencies granted the authority to conduct a review must do so concurrently with FERC’s review and abiding by its timeline. Finally, under HR 1 itself, “no Presidential permit (or similar permit) shall be required” for the “construction, connection, operation, or maintenance of an oil or natural gas pipeline.”
To the degree we need regulations (and we do), they should be clear, effective, and uniformly applied. On its surface, this bill offers movement in that direction.
But the devil’s in the details and there’s still plenty of room for delay and litigation in this piece of legislation given wiggle terms like “legally necessary” and “similar permit.” In all manners aside from efficiency it could also prove problematic to industry to give one agency overall authority. Time will tell.