Energy Boost

The Washington version of musical chairs unleashed by the White House’s selection of Sen. Max Baucus to be the next American ambassador to China could reshape energy policy in the Senate — with important implications for U.S. plans to export some of its current energy bonanza.

With Baucus’s likely departure for Beijing, the Senate finance chair will come open, and due to looming retirements, seems poised to fall to Sen. Ron Wyden, the Oregon Democrat who currently chairs the Senate Energy and Natural Resources Committee. Aides say Wyden has wanted the job for years.

And that would open the way for Sen. Mary Landrieu of Louisiana to take over at the Energy Committee; the No. 2 Democrat on the committee, Tim Johnson of South Dakota, is retiring.

Unlike most Democrats, Landrieu unabashedly favors tapping U.S. oil and gas resources; Louisiana is at the epicenter of offshore oil and gas development, shale gas plays, and refineries.

She is a big supporter of the proposed Keystone XL pipeline, which would bring Canadian oil sands crude to Gulf Coast refineries. And one of her top legislative priorities is a bill, drafted alongside Republican ranking member Sen. Lisa Murkowski of Alaska, that would give states a larger share of the royalties from offshore energy production. That proposal could get new momentum if Landrieu is in charge of the committee.

But the starkest difference between Landrieu and Wyden is seen in the debate over exporting some of America’s energy bonanza.

Kevin Book of ClearView Energy Partners, a consultancy, wrote in a recent research note that Landrieu was "an outspoken proponent of oil and gas production" with a different view of energy exports than Wyden.

Thanks to the unexpected boom in oil and gas production in recent years, energy exports are suddenly a hot topic in a country that for decades has worried about its energy imports.

For now, that means U.S. exports of natural gas. Just a few years ago, coastal communities were building terminals to import natural gas from overseas producers; now, thanks to the shale boom unleashed by hydraulic fracturing, the United States is the world’s largest producer of natural gas, and almost 30 projects that would build terminals to liquefy natural gas and ship it to needy customers in Europe and Asia are waiting for government approval.

Wyden has long advocated a go-slow approach to gas exports. While he’s never expressed outright opposition to the idea, he urged the Obama administration to carefully consider how exports could affect domestic prices for gas, and how that might hurt consumers and businesses that have greatly benefitted from cheap and plentiful gas.

For instance, after the Department of Energy gave its fifth conditional green light for exports in November, Wyden urged Washington to tread gently with the remaining applications. "It is imperative these potential exports not have a significant impact on domestic prices for families and manufacturers, and in turn harm America’s energy security, growth and employment," he said.

Landrieu, by contrast, supports greater U.S. exports of natural gas, and has called for Washington to let the market decide how many terminals get built, and when. Representing a state that has both gas producers, who generally favor exports, and big gas consumers, who above all else want cheap gas, Landrieu says she understands both sides of the issue.

Much of the sound and fury over potential gas exports hinges on what they will do to domestic prices; high-profile opponents of unfettered exports worry that they’ll strangle the golden goose of cheap gas that has underpinned a manufacturing revival in the United States.

But Landrieu argues that what will actually hurt the gas industry are sustained low prices, since many producers will be in the red. A guaranteed export market, she argues, will stimulate even greater U.S. gas production.

The Department of Energy, which is responsible for approving gas-export applications to countries with which the United States lacks a free trade agreement, has so far taken a slow and steady approach. It has approved five applications but hasn’t yet ruled on 23 more — including six in Landrieu’s home state.

The pace and scope of U.S. natural-gas exports is a hugely important issue for key U.S. allies, including Japan and many members of the North American Treaty Organization.

Indeed, Japanese officials have repeatedly pressed the Obama administration to approve export terminals in a timely fashion; since the 2011 Fukushima accident, when Japan shut down its nuclear plants, the country has been importing expensive energy and now has a trade deficit. Even though freezing gas to a liquid, then packing it into a tanker and shipping it across the Pacific adds to the total cost, gas is so expensive in Asia right now that U.S. exports look very appealing to Tokyo.

That’s true in Europe as well, where gas prices are higher than in the United States but not as bad as in Asia. Europeans who’ve relied on supplies from North Africa have faced supply questions in the past two years; Europeans who rely on Russian gas have faced supply worries, for very different reasons, for the last two decades.

Of course, the real showdown in U.S. energy export policy will likely come next year, and will put Landrieu squarely on the hot seat: Should the United States export crude oil?

The once unthinkable notion — as recently as 2005, the United States imported 60 percent of its oil — is now on the table. Groups as far apart as ExxonMobil and the Washington Post editorial page have both recently called for the United States to allow crude exports.

The reasoning is as simple as it is politically controversial: Though the United States still imports almost 40 percent of its oil, it is producing loads of light, sweet crude. That’s exactly what refineries in Europe like to process, while refineries on the U.S. Gulf Coast are specially built to handle the heavier crudes that come from Canada and Mexico. Allowing crude exports would allow oil companies to get top dollar for their products, while optimizing the way refineries turn crude into useful products.

But the U.S. energy boom won’t last forever, and oil exports might make less sense in a few years’ time. Indeed, just this week, revised estimates by the U.S. Energy Information Administration show U.S. oil production peaking in 2019 and then declining. The EIA expects U.S. dependence on imported oil to be about the same in 2040 as it is today.