Category: Energy and Climate

Regulatory Uncertainty Keeping Capital Investment on Sidelines

In today’s Washington Post, Robert Samuelson discusses sluggish capital spending and the recovering economy: In the struggle between capital and labor, capital is winning — and that’s hurting the feeble economic recovery. To simplify slightly: Labor (wage-earners and consumers) can’t spend, and capital (businesses and shareholders) won’t spend. Without a powerful growth engine, the economy advances haltingly. Samuelson highlights a number of reasons for sidelined capital spending: globalization, new technologies, weaker unions, financial market pressures and more.  Read Samuelson’s entire column here. But, there are some critical explanations overlooked by Samuelson on why U.S. investment is still sluggish four years after the recession. Uncertainty about key policy issues has made business cautious about investing and raises the hurdle rate that new investment must achieve. Real non-residential fixed investment is still almost $30 billion below the fourth quarter of 2007 when the recession began. The primary drivers of corporate uncertainty today include Dodd/Frank implementation, the Affordable Care Act, reform of the federal tax code, as well as fiscal and monetary policy. Top at the list of uncertainty for many corporations is environmental and energy policy regulations from agencies such as EPA and DOE. See for example ACCF testimony on the impact of regulating…

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LNG Export Permit Delays: What’s At Stake?

Last week the U.S. Department of energy approved a third application to export LNG after two years of regulatory limbo.  With the approval of Lake Charles LLC’s LNG exports to non-FTA countries, the U.S. will now have the ability to export up to 5.6 billion cubic feet per day of natural gas.  Opponents to natural gas exports claim this export capacity represents a  “sweet spot”  for natural gas exports – although a government study concluded no such sweet spot exists.  To the contrary, every major study has found that the more LNG is exported, the better for America. In fact, expanding natural gas exports will be an economic “win” for the United States.  “Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing [liquefied natural gas] exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased,” concluded a 2012 major study commissioned by the Energy Department (DOE). The U.S. produced an average of 65.9 billion cubic feet of natural gas per day in 2012, and the global market for natural gas expected to grow over the next decade.    With 19 applications still under consideration, the slow permitting process…

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How Federal Energy Policies Can Support U.S Economic Recovery

Today the Senate Energy and Natural Resources Committee, chaired by Senator Ron Wyden (D-Oregon), holds yet another hearing to investigate the pricing of oil and gas commodities in the U.S. and the restructuring of the U.S. refining industry and distribution system. While the hearing will be a platform for some Members of Congress to point fingers, it’s important to review federal policies that should be adopted to put downward pressure on prices, those which could increase prices and should be abandoned, and the contributions of the energy industry to the U.S. economy. Expanded Access to Onshore and Offshore Reserves Will Positively Impact U.S. Growth Several recent economic analyses suggest that increased access to domestic onshore and offshore oil and gas reserves (including shale gas) could strongly boost U.S. economic recovery, manufacturing and job growth. Fossil fuels, which provide 78% of U.S. primary energy production, can have a positive impact in restoring strong economic growth. A recent Global Insight/CERA analysis, “Restarting the Engine-Securing American Jobs, Investment and Energy Security” finds that allowing exploration and development in the Gulf of Mexico in 2012 could create more 230,000 jobs, a $44 billion increase in GDP and $12 billion in additional tax receipts to…

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Capitalize on Robust U.S. Natural Gas Supply

DOE’s decision to allow Freeport LNG to export liquefied natural gas  to countries that do not have a Free Trade Agreement(FTA) with the U.S. is to be commended.   However, in order to ensure that the U.S. receives the maximum benefit from our vast supplies of natural gas, DOE and FERC should rapidly approve the remaining 20 export applications. New research shows that allowing larger amounts of LNG to be exported will generate an average of 73,100 to as many as 452,300 new jobs in the U.S. over the 2016-2035 period, thus a slow DOE/FERC approval process will hinder economic recovery (see http://www.api.org/news-and-media/news/newsitems/2013/may-2013/~/media/Files/Policy/LNG-Exports/API-LNG-Export-Report-by-ICF.pdf Furthermore, by moving slowly in reviewing permit applications, the U.S. is likely to reduce its global influence and share of natural gas markets since our potential customers abroad may seek other suppliers.  In addition, U.S. companies seeking export permits face increased uncertainty and higher hurdle rates for the  large investments in export facilities required if permits are not approved expeditiously since global natural gas markets can change rapidly.   Finally, the language of the DOE order (see page 7 at http://energy.gov/fe/downloads/fe-docket-no-10-161-lng) suggests that DOE may monitor natural gas prices as it considers export applications rather than letting markets determine…

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What People Really Want When It Comes to Natural Gas Exports

The University of Texas recently published an interesting study on American views towards natural gas, hydraulic fracturing, and liquefied natural gas exports.  This study will inevitably be used by anti-LNG advocates to support their position. The study was circulated to reporters by Senate Energy and Natural Resources Committee majority staff illustrate that Americans don’t want natural gas exports. The study shows by an almost three-to-two margin Americans are opposed to the exports of natural gas.  To summarize the study, this would be correct: 39 percent said they opposed to natural gas exports and 28 percent said they’re for it. However, like any good poll, the study asks the individuals just how familiar with natural gas they are.  It turns out that those who are familiar with natural gas production (ie. “fracking”) are supportive of LNG exports, and even people who describe  themselves as “Active Environmentalist” are evenly split on the issue. The people who are not familiar with “fracking” are opposed towards it, and, perhaps tellingly, the strongest group opposed to LNG exports is “greater than age 65”. What do we make of this?  The study also asked individuals their attitudes towards regulation of natural gas and the numbers indicate…

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Dubious Campaign Against LNG Exports Ignores Net Benefits of Free Trade

A dubious campaign by America’s Energy Advantage seeking to restrict expansion of liquefied natural gas (LNG) exports ignores fundamental economic and market facts. AEA relies on a gross overestimation of U.S. domestic demand for natural gas, estimating it to be more than 50% higher than estimated by the U.S. Department of Energy in the AEO 2012 report. Contrary to America’s Energy Advantage’s assertions, DOE notes that the U.S. has a robust 100-year supply of natural gas at today’s consumption level, which is more than adequate to meet the needs of manufacturers and utilities. The recent DOE report reinforces other economic findings that under all LNG export scenarios, the U.S. economy benefits even when factoring in the impact of price increases:  “Across all these scenarios, the U.S. was projected to gain net economic benefits from allowing LNG exports. Moreover, for every one of the market scenarios examined, net economic benefits increased as the level of LNG exports increased. In particular, scenarios with unlimited exports always had higher net economic benefits than corresponding cases with limited exports.  In all of these cases, benefits that come from export expansion more than outweigh the losses from reduced capital and wage income to U.S. consumers,…

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