Bloomberg News

Punishing Putin Fuels Energy-Export Drive in Congress

March 25, 2014

In the decades after the Arab oil embargo, the U.S. restricted energy exports to promote self sufficiency as a matter of national security.

Now Russia’s annexation of Crimea and massing of troops on the Ukrainian border is fueling a push in Congress to remove those limits to punish President Vladimir Putin.

“In the 70s, we argued that for the sake of national security we have to prohibit exports,” Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin, said in an interview. “Now we argue that for the sake of national security we have to allow exports. Our mind has flipped in 40 years.”

Three congressional committees are holding hearings this week on whether the U.S. should sell more of its growing oil and gas resources overseas, in part to lessen European dependence on Russian oil and gas. Europe imports about 30 percent of its natural gas from Russia through pipelines that cross Ukraine.

The once-unthinkable idea of exporting large amounts of U.S. oil and natural gas has gained support as advances in drilling techniques leave the U.S. poised to surpass Saudi Arabia and Russia as the world’s largest producer of crude by 2015, according to projections by the International Energy Agency. In November, the U.S. produced more oil than it imported for the first time since 1995.

‘Energy Superpower’

“America can and should be an energy superpower,” Senator Mary Landrieu, chairman of the Energy and Natural Resources Committee, said today at her first hearing as head of the panel. “The last thing Putin and his cronies want is competition from the United States of America in the energy race.”

A House Energy and Commerce Committee panel also took up the issue of U.S. energy exports including liquefied natural gas today and the House Foreign Affairs Committee will hold a hearing on the subject tomorrow.

Some lawmakers are skeptical about stepped up overseas sales.

“Unlimited LNG exports would have serious impacts on consumers and manufacturers,” Representative Henry Waxman, a California Democrat, said at the House hearing.

Coal Revival

Increased natural-gas exports might shift U.S. electricity generation toward coal and won’t immediately benefit Ukraine, which doesn’t have the capacity to re-gasify liquid gas, Waxman said.

The U.S. Energy Department is reviewing more than 20 applications from companies to build multibillion dollar terminals that can liquefy natural gas so it can be loaded onto ships for foreign markets. Yesterday, the department approved Jordan Cove Energy Project LP’s application to build a terminal in Oregon, the seventh proposal the agency has cleared since President Barack Obama took office.

The agency “is committed to moving this process forward as expeditiously as possible,” Paula Gant, Energy Department deputy assistant secretary for oil and natural gas, told the House panel.

Republicans have argued that President Barack Obama’s administration should act faster to help its European allies. House Speaker John Boehner, an Ohio Republican, said today the president needs to send a signal to Russia.

‘Clear Signal’

“Expediting the approval of U.S. natural gas exports would send a clear signal that Russia’s energy stranglehold on Europe will not continue,” Boehner told reporters in Washington.

In late 2014, Lithuania plans to open a facility that can receive natural-gas imports at its port of Klaipeda, on the Baltic Sea, Jaroslav Neverovic, the nation’s energy minister, said at today’s Senate hearing.

“I am also here to plead with you and your colleagues to do everything within your power” to help Lithuania be energy independent by releasing U.S. supply into the world market, he told Landrieu. “The United States, with your enormous natural gas resources and highly developed infrastructure, has the kind of liquid market that Europe is trying to build right now.”

Senate Democrats Mark Udall of Colorado and Mark Begich of Alaska have introduced a bill to expand the list of nations that would benefit from expedited approvals of natural-gas exports.

Expanded Review

“Hopefully we can take this up at some point,” Landrieu said of the Udall legislation.

The bill being considered by the House energy panel would also expand the list of nations that would benefit from expedited U.S. review of the more than 20 pending LNG export applications and let the market sort out which get built.

Financing will limit the number of multibillion dollar facilities that are actually built, Representative Joe Barton, a Texas Republican, said at the House hearing.

“You’re not going to build 20 LNG terminals to export natural gas,” he said. “That’s just not going to happen.”

Currently, companies need permits to ship natural gas to countries without free trade deals with the U.S., a list that includes all of the 28-nation European Union. Exports to countries that have free trade pacts are approved after a nominal review.

Foreign Policy

Whitney Stanco, a Washington-based energy policy analyst at Guggenheim Securities LLC, said the House bill was unlikely to advance in the Democratic-led Senate.

“Spurred by Russia’s takeover of Crimea, we believe the foreign policy arguments in favor of energy exports are gaining momentum on Capitol Hill,” Stanco said in a note to investors yesterday. “Nevertheless, it remains unlikely that Congress will coalesce around a plan on LNG exports and highly unlikely that Congress will act on crude exports in the near term.”

The situation in Ukraine “has provided a burst of momentum for LNG exports, primarily, but also crude,” Scott Lincicome, a lawyer at White & Case LLP, who supports exports, said. “The question is whether all this attention translates into systemic reform, and I am skeptical it will.”

Congress remains split on the issue, said Webber, of the University of Texas. Lawmakers from energy-consuming states are more likely to oppose exports out of concerns it will drive up prices. Those from areas with significant oil and gas production tend to support the idea.

Exxon, Conoco

There are also a divisions among businesses. Crude oil exports are backed by producers such as Exxon Mobil Corp. (XOM:US) and ConocoPhillips (COP:US) that say it would encourage more U.S. drilling, increase government revenue and create thousands of jobs.

Four U.S.-based oil refiners recently formed a coalition to fight the push on crude exports. They say overseas sales would raise U.S. gasoline prices.

America’s Energy Advantage, a coalition that includes Midland, Michigan-based Dow Chemical Co. (DOW:US), Eastman Chemical Co. (EMN:US) based in Kingsport, Tennessee, and Alcoa Inc. (AA:US) in New York, said the conditional approval yesterday of the Oregon plant was a “grievous error” that could raise domestic prices.

“LNG exports will not help Ukraine but will harm U.S. consumers and economy,” the coalition said in a statement.

If all seven of the LNG projects approved so far are built, it would give the U.S. a capacity to export about 9.3 billion cubic feet of natural gas a day, the Energy Department said yesterday. The U.S. uses about 67 billion cubic feet a day. The Energy Information Administration, an analytical arm of the department, predicts production would increase to more than 72 billion cubic feet a day in 2014, a record amount.

Geopolitical Issues

Geopolitics and the effect on global markets are issues the Energy Department considers in reviewing applications from companies to build natural gas export terminals, Energy Secretary Ernest Moniz said last week.

“Maybe we will give some additional weight to the geopolitical criterion going forward,” Moniz said at a Bloomberg Government breakfast with reporters and editors in Washington. “But we will never eliminate for sure the issue of implications for the domestic market.”

Senator Edward Markey, a Massachusetts Democrat, said exports will drive up domestic fuel costs and amount to a tax on American businesses and households.

“There can be no doubt that we have crossed a line into an era when we could be massively exporting America’s natural gas, sending the jobs and consumer benefits abroad along with the fuel,” he said in a statement after the Jordan Cove announcement.

Sabine Pass

Guy Caruso, a senior adviser at the Center for Strategic and International Studies in Washington, said in an interview that energy exports are a “longer-term strategy” anyway, given that it will take years to build the export facilities.

Cheniere Energy Inc. (LNG:US)’s Sabine Pass facility was approved in 2011 and plans to be able to ship gas starting in late 2015. Six of the projects, including Jordan Cove, face additional environmental and public health reviews, and probably won’t be able to send gas overseas until 2017 or later.

The promise of exports though can serve as an inducement to companies to continue to invest in U.S. operations, Caruso said.

To contact the reporters on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Steve Geimann


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