U.S. Energy’s ‘Turning Point’

Mark Green
Posted April 21, 2015

The theme of this year’s CERAWeek mega-conference in Houston is “Turning Point: Energy’s New World.” It is a new world, with the United States producing more energy from oil and natural gas – the lead fuels of the U.S. and the world’s economies – than any other country. Just a decade ago few could have imagined the possibilities.

It is a new world and yet, we’re at a turning point that hinges on questions: Will the U.S. energy revolution continue and grow? Will the U.S. implement policies to harness our energy abundance? Will we encourage industry investments, innovations and advanced technologies – including hydraulic fracturing and horizontal drilling that unlocked vast reserves of shale energy?

CERAWeek speakers discussed access, regulation and trade policies that impact energy development. ExxonMobil Chairman and CEO Rex Tillerson:

“We are at a turning point, and there is indeed a new world being made by the energy sector. … Vast new supplies of energy have led to a significant decline prices, which reflect the dramatic transformation of the energy mainstream. Yet the full parameters of this new world remain to be determined. In many ways, securing the promise of this future will demand that we work together as we have never worked together before.”

Tillerson said industry innovation is the pulse of America’s energy revolution:

“This new era of abundance is the result of innovation and collaboration across this great industry of ours. It flows from the work on many frontiers, over many decades by scientists, engineers and entrepreneurs all over the world. In just over a generation the oil and gas industry has pioneered a host of technologies and techniques enabling us to erase the old lines between conventional and unconventional, giving us access to energy from oil sands, ultra-deepwater, shale and tight rock, the Arctic and sub-Arctic.”

And more lies ahead with the right energy policies, he said:

“We have shown just a fraction of what scientific and engineering advances can mean for the safety and progress of society.”

Lying in the path are policy and permitting restrictions impeding access to energy reserves, regulatory roadblocks that chill investment and growth and trade barriers that limit domestic production. U.S. Sen. Lisa Murkowski of Alaska:

“Here at home a number of our federal energy policies are still alarmingly deficient and outdated. … These policies are in genuine need of modernization and reform. The federal government now routinely fails to permit energy projects, mines, energy infrastructure in a timely manner. … In my state of Alaska the president has rejected some of America’s best opportunities for new development. The administration has chosen to lock down the 35 billion barrels of conventional oil in our federal areas rather than to recognize the jobs, the revenues, the security and the prosperity that they would bring. … Now is the prime time to make lasting improvements.”

ConocoPhillips Chairman and CEO Ryan Lance said federal energy permitting is “roadblocked” and said it should be “streamlined” and “depoliticized.” Indeed, in her own CERAWeek speech, Interior Secretary Sally Jewell acknowledged the need to make federal energy permitting smoother and more efficient. “It is slow,” Jewell said.

Tillerson said regulatory policy needs to be updated to acknowledge the new era of American energy abundance:

“As much as our technologies are shaping and will shape the 21^st century, our industry continues to struggle under the weight of policies that are products of 1970s thinking. This must change. … We need policies that recognize the turning point moment. We need optimistic policies that reflect our shared aspirations for energy and environmental protection, that appreciate how our free markets create revolutionary innovations, that proceed with conviction that a new world is best constructed from free trade and global cooperation.”

The other piece of the equation is trade policy – specifically, the 1970s-era ban on the export of U.S. crude oil and the pace of federal approvals for LNG exports to non-free trade agreement countries. The crude oil export ban attracted the most attention. Murkowski said she will introduce legislation to lift the ban, contrasting the domestic crude export prohibition with ongoing negotiations that she said could bring as many as 1 million barrels of Iranian oil onto the global market each day. Murkowski:

“To me this (the crude export ban) equates to a sanctions regime against ourselves. It hurts American producers who have to sell at significant discount to Brent, it hurts American consumers, whose prices at the pump are higher than they would be otherwise. We shouldn’t lift sanctions on Iranian oil while we’re keeping sanctions on American oil. It makes no sense.”

Lance said energy should be allowed to trade internationally like any other product. He said the export ban threatens domestic production. Crudes mismatched for U.S. refineries have no access to global markets, creating oversupply, discounting prices and discouraging output. Without the ban, he said, the U.S. could export as much as 2 million barrels per day by 2020. Lance:

“The current ban on exporting crude oil is an anti-consumer policy. Lifting the export ban would increase global supplies that would in turn drive gasoline prices down. … Our security of supply would also improve. ... A greater percentage of world supplies would come from very stable sources. … The U.S. now has the opportunity to influence the world market and stabilize it.”

More generally, Tillerson said industry must tell its story to engage the public and policymakers so that the policies are put in place to extend the energy revolution:

“It will be up to our leaders in our industry to tell the extraordinary story of how human ingenuity and innovation have transformed the energy sector and the world for the better. We’ve achieved so much in the past decade. But with sound policies we can do even more investment, which will enable new technologies. With the ability to invest confidently and efficiently, we will find new ways to deliver new supplies of energy – safely, securely – and in ways that reflect our highest ideals for individual opportunity, economic growth and wise stewardship of the environment. And in doing so we will sustain our quality of life and we will lift millions out of poverty.”