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An energised debate on US energy policies

An energised debate on US energy policies
A new bill, the Energy Policy Modernization Act  (known as S2102) under discussion in the US Senate, is seeing spirited debate. When the subject of legislation is oil and gas, where politics, economics and environmentalism all intersect, there are always shipping implications.

The legislation was originally introduced in the Summer of 2015 by Lisa Murkowski, a Republican-party Senator from Alaska (a big oil producing state) .  By the end of last week, the opposing Democratic party had blocked debate on the bill, at least temporarily, as they attempted to add non-energy provisions.

Exports of natural gas are a shipping-related battleground within the bill. According to the American Petroleum Institute (API), a group representing the large oil producers, “A provision to streamline the review process for natural gas export projects before the Department of Energy could bring our allies welcome relief while bolstering our national security and economy.”

Language in S2012 seeks to require the Energy Department to decide on LNG export projects within 45 days of completion of an environmental review.   The fine print also provides for expedited court decisions, where there are legal challenges to the approvals of LNG export terminals.

The API frames the issue within a diplomatic narrative, saying: “America’s global allies have repeatedly requested greater access to US liquefied natural gas (LNG) exports to help break dependence on nations that use their energy resources as a diplomatic and economic weapon.”

The back story reveals that since the last major energy bill, in 2007, natural gas prices have dropped significantly; presently, the Henry Hub indicator was priced in early February, 2016 at just above $2.00 per million BTUs, and was as low as $1.70 during the very warm December, 2015. In early 2008, this same marker stood at $6.00 per m BTU- with seasonal spikes moving it up as high as $12.00 per m BTU.   In the intervening years, advances in technology have dramatically increased supply; similarly to oil producers who will benefit as US crude oil is allowed to be exported, gas producers will see additional demand for their output.

As always, there are other political rumblings. Arizona’s Senator John McCain, who never misses an opportunity to aim his torpedoes at US cabotage rules, was trying to introduce an amendment to S2012 which would weaken the Jones Act, by opening up the coastwise crude oil and gasoline (petrol) trades to non-US built vessels.  

Also lurking in the background is a proposal – not part of S2012 (at least for now), by President Obama to institute a $10 per barrel tax on oil. The levy, viewed by political observers as highly unlikely to gain traction, would fund investments in clean transportation.

Some media outlets suggested that the tax would only apply to oil imports, running at around 7.4m barrels per day in late 2015. At times of a high Brent-WTI “spread”, imports into the US were reduced. As world oil markets have weakened and the Brent pricing has almost equalized with WTI, oil imports have increased. Such a tax - if implemented on imported oil, but not on domestically produced barrels - would effectively increase the spread again.