The Battle Over U.S. Shale Exports

  • Date: 28/06/12

In a bitterly divided U.S. political environment, there’s at least one thing Republicans and Democrats can agree on: Avoid a public showdown on natural gas exports, arguably the most important energy policy decision in recent memory.

While fluctuating gasoline prices, the Keystone pipeline and the fight over fracking steal headlines, the question of how much of the newfound U.S. shale gas bounty should be shared with the rest of the world goes largely without comment or coverage — despite holding far wider and longer-lasting consequences.

The reason is clear: unlike the relatively simple, black-and-white issues that politicians often favour and voters connect to, liquefied natural gas (LNG) is deep, deep gray.

It affects a tangled web of constituents, from Big Oil to international allies such as Japan, pits free-trade orthodoxy against the domestic economy, and requires an awkward explanation of why allowing some exports — inevitably raising U.S. energy prices in the short term, even if at the margin — may ultimately be better for the country in the long run.

All the same, this U.S. president or the next will have to make a tricky decision, and its consequences may only become clear years from now: How much U.S. gas should be sold to other countries if it means boosting prices for consumers at home?

“Right now I don’t think this issue is getting anywhere near the attention it deserves,” said Democratic congressman Edward Markey, one of a small number of politicians actively seeking to rein in energy exports.

“Keystone and Solyndra are election-year political sideshows,” he said, referring to the bankruptcy of a government-funded solar panel maker. “This is the main event.”

But lobbyists on both sides of the issue say it suits them best to keep the subject out of the headlines. The gas producers that stand to benefit from higher selling prices see no upside from a public brawl, while many manufacturers who could benefit from continuing low prices shy away from anti-export statements.

With Congress unlikely to weigh in, the decision falls to a small, obscure unit of the Energy Department, the Office of Natural Gas Regulatory Activities.

The department’s statistical branch has been criticized for failing to predict how new drilling techniques would revolutionize the sector, and how quickly the vast stores of unearthed gas would send domestic prices to unsustainable lows.

So the natural gas office is now awaiting advice from a second and final report on the economic implications of exports — a report so sensitive that the government has kept it under wraps, including the identity of the consultants preparing it.

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Not since the liberalization of power markets in the 1980s have politicians had more sway over future energy costs — or been less willing to grapple publicly with the issue.

Only one hearing on LNG exports has been held to date in the Senate, and in the House of Representatives, the Energy and Commerce Committee has no plan to hold hearings at the moment.

Markey has struggled to get traction behind legislation that would block gas exports, a measure almost certain to fail to pass through the divided Congress. Few lawmakers openly oppose exports, though even fewer vocally advocate a fully open market that would raise prices at home.

The Obama administration has said it will wait until the gas office releases the final economic analysis of LNG exports to make any decision on eight pending applications to sell liquefied natural gas to countries with which the United States has no free-trade agreement — the most political step of the multiple state and federal approvals needed to send LNG abroad.

The report was due out this spring, but in March the administration pushed back the release until later in the year. A White House official said on Monday the report could be released in the next few weeks.

Overall, the boom in the energy sector, coupled with a slow recovery in domestic manufacturing, could raise gross domestic product by 2 to 3.3 percent by 2020, according to a recent analysis by Citigroup. But exports could force politicians to play favourites, effectively choosing between energy companies and industry.

Democrats, often critical of the oil and gas sector, are wary of getting out in front of an issue that divides even the manufacturers benefitting from low gas prices. Republicans, who favour free trade and support fossil fuel development, are leery of being accused of raising costs for consumers and industry.

“No politician wants to be accused of raising end-user prices to add to oil companies’ bottom lines,” says Kevin Book, an energy analyst at Clearview Energy Partners.

So for most officials willing to take a stand, it is inevitably one of moderation. Few are ready to weigh in on the toughest question: How much is too much?

Senator Ron Wyden, a Democrat who has backed the pause in the permitting process, knows how quickly fortunes can change: just a few years ago he witnessed the battle over the prospect of a gas import terminal in his home state of Oregon at a time when the industry was convinced of a growing U.S. gas deficit.

Instead, the pioneering use of hydraulic fracturing and horizontal drilling has lifted economically recoverable U.S. reserves of natural gas to 500 trillion cubic feet, a previously unimaginable level.

“I’ve always supported market-expanding agreements, and I’m trying to balance that with the fact that, with natural gas, America now has a strategic advantage,” Wyden said.

“This is something where we now lead. I just want to make sure we don’t trade it away,” said Wyden, who is in line to be the top Democrat on the Senate energy committee next year. Unlike Markey, he has no plans to push legislation that would prevent exports, an acknowledgement of the issue’s complexity.

Republicans in the House Energy and Commerce Committee believe gas companies would likely export marginal amounts compared to the current supply, and any price effects will be minimal.

“If we don’t have some sort of exports, it’s not going to be economic to produce as much gas here,” a committee Republican aide said.

Reuters, 27 June 2012

 

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