US oil exports: To be or not to be?

Lifting oil export ban unlikely to spur US production- says US Energy Secretary Moniz

Adding a new wrinkle to Obama administration arguments against lifting the ban on US oil exports, Energy Secretary Ernest Moniz Tuesday acknowledged that such a move might ultimately lower US domestic oil and gasoline prices, but only if US production increased in response-something he suggested was unlikely given current glutted oil markets and depressed prices.

In testimony before the House Energy and Commerce Committee, Moniz also conceded that GOP "safety valve" proposals-such as allowing the president to re-impose an export ban in case of a national energy emergency-might make the case for allowing oil exports "more compelling."

As in past hearings, Moniz once again questioned the fundamental wisdom of allowing US oil exports given that the country still is a net importer of some 4.5 million barrels of oil per day.

But under extensive questioning by House Republicans, Moniz appeared to give some ground in the oil export debate by acknowledging that a host of oil market experts-including the Energy Information Administration-had concluded that allowing US oil exports ultimately could benefit Americans by modestly lowering prices at the pump. Moniz agreed with GOP lawmakers that US pump prices were tied to world oil prices, and that permitting US exports could increase global oil supplies-and lower prices.

However, in what appeared to be a new fallback argument by the administration against allowing US oil exports, Moniz expressed doubt that US producers would increase output under current depressed market conditions, which some analysts now believe may persist for several years.

"The only issue in oil exports in the United States of large-scale relevance is whether there is production increase," the secretary said. "In the current oil market, that may be a difficult case to make."

He added: "The issue is whether or not such a move [lifting the export ban] would lead to an increase of production of any appreciable magnitude. If it doesn't, it leads to no appreciable impact on price."

Moniz's remarks appear based on recent oil market developments in which US producers have cut back on drilling in response to depressed prices, leading to projections of falling production in the months and even years ahead. US producers may face a further squeeze if a nuclear agreement with Iran enables that country to regain access to export markets, allowing a new flood of crude into already over-supplied markets.

As in past hearings, Moniz dismissed out of hand GOP arguments that it made no sense for the US government to continue restricting exports by US oil producers at the same time that it was lifting export restrictions on Iranian oil.

"I think the big difference is we are not a net [oil] exporter [as Iran is]; we are a net importer," he said.

On another energy export issue, Moniz rejected GOP assertions that DOE is acting too slowly in approving applications to export liquefied natural gas (LNG), although he again said DOE could live with legislation setting a 60-day deadline for the department to act on export applications after the Federal Energy Regulatory Commission finishes environmental reviews of gas liquefaction and export terminals.

But Moniz also bristled somewhat at Republicans claims that DOE was dawdling to the detriment of some gas-dependent European nations clamoring for more US LNG to reduce their reliance on gas from Russia. The secretary said those nations wanted more US gas because they had decided against developing their own gas resources, and LNG exporters had decided to send gas to other, more lucrative markets.

"A lot of our European friends say they want the gas," he said. "They don't want to develop their own indigenous resources, but want ours…. [But] we do not direct where cargos go."

Moniz did not elaborate, but his remarks follow decisions by European nations not to allow hydraulic fracturing, the key drilling technique that has spurred US gas production in recent years.

The secretary also faced aggressive questioning from several Republicans about the impact of the administration's Clean Power Plan (CPP) on electricity reliability, with GOP lawmakers complaining that carbon emission reductions imposed under the program were shuttering thousands of megawatts of carbon-heavy coal-fired generation.

Moniz said DOE analyses and other studies showed no large-scale reliability problems, but that there might be "local" issues that need to be ironed out by state and energy industry officials through construction of new power plants, transmission lines or natural gas pipelines.

"There will be local issues that have to be resolved in terms of infrastructure," he said, noting that a substantial amount of wind and natural gas-fired generation already is being built. "But at the macro level, we are not seeing" the potential for major reliability problems.

Moniz also said gas pipeline expansion is taking place in multiple parts of the country and that utilities have been investing billions each year in new power lines.

Overall, he said: "Reliability will be quite manageable, but we have to wait to get the final [CPP] rule to do the final analysis."

Moniz largely demurred when asked by committee Republicans about the need for faster federal permitting of pipelines and power lines that cross US borders, such as the long-delayed Keystone XL oil sands pipeline project by TransCanada. While noting that DOE only was responsible for permitting cross-border power lines, Moniz appeared to question GOP legislation to curtail environmental impact reviews of such projects, saying such assessments are needed along with determinations of whether cross-border projects are in the national interest.

Moniz urged lawmakers to back administration proposals to provide matching federal funds to states and cities to speed deployment of new grid technologies and pipeline modernization, saying both are needed to improve the resiliency of the nation's energy supply systems. He expressed strong disappointment that House appropriators provided no money for such competitive DOE infrastructure grants in the fiscal year 2016 spending bill for the department.

June 3, 2015 By George Lobsenz Principal Editor IHS The Energy Daily.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.