The Essence of a Deal

The Hon. Charles D. McConnell and Fred H. Hutchison

Although we’re not even a full quarter into 2016, this year is shaping up to be the most momentous in decades, and we’re not talking just about the elections. We’re also talking about American energy exports.

Since the beginning of the year, tankers laden with U.S. crude oil, ethane (a natural gas liquid), and liquefied natural gas (LNG) were loaded at American ports and shipped around the globe.

Such shipments would have been inconceivable ten years ago.

Before the shale energy revolution, America seemed destined for a future of energy scarcity characterized by decreasing oil and gas production and increasing imports. Now, thanks to technological innovations—such as horizontal drilling, subsurface modelling, and hydraulic fracturing—we’re more energy secure than we’ve been in decades and global energy markets are no longer so easily manipulated by cartels and autocrats.

Besides American entrepreneurship, the other principal reason for America’s oil and gas renaissance is the relatively “hands-off” approach that the U.S. government takes to our energy markets.

One of two major exceptions to that approach was the crude oil export ban originally enacted in the 1970s. Fortunately, Congress and the Obama Administration came together in December 2015 to lift the ban, and the first tanker of U.S. crude set sail for foreign markets a few days later.

The remaining free market restriction is the requirement that LNG exports to most foreign countries (free trade agreement nations excepted) must be authorized by the U.S. Department of Energy (DOE) after a review to ensure that they are consistent with “the public interest.”

Having observed DOE’s public interest review process for many years, we know that it could be shortened a bit if Congress were to set a tight—but realistic—deadline on DOE decision-making.

The House of Representatives has twice passed legislation that would set such a deadline and the Senate has been debating a bipartisan energy policy bill that would do so as well. Although the Administration continues to say that they are already acting “promptly” on LNG applications, DOE Secretary Ernest Moniz has also said that DOE could implement a shorter timeline if Congress requires one.

It is estimated that a such a statutory change could speed up the LNG review process by six months or more. And, while that may not seem like a big deal, it can make a real difference for U.S. companies who await DOE approval before finalizing multi-billion-dollar investments.

In addition to this commonsense change in the law, America’s energy diplomats must continue to work with their counterparts around the globe to assure that U.S. LNG can flow freely to and within these markets. Providentially, there is a dedicated team within the U.S. Department of State—the Bureau of Energy Resources (ENR)—that is doing just that.

Led now by Amos Hochstein, ENR has been actively supporting the European Union and EU member states such as Lithuania, Poland, and Croatia as they put in place the LNG import terminals, pipeline interconnectors, and market reforms needed to bring enhanced energy competition to a region that has long been dominated by Gazprom, Russia’s state-controlled natural gas monopolist.

Much progress is already being made. Lithuania’s import terminal has been operational for more than a year and Poland’s facility will be fully functional within a few months. And, many of the key “missing” interconnectors are either under construction or in advanced planning.

Even Croatia’s long-discussed LNG import facility has gained renewed momentum since the new Croatian government was formed a few weeks ago. Forward-thinking leaders such as Croatian Ambassador to the United States, Joško Paro, have been tireless in their pursuit of a terminal on Croatia’s Krk Island, but there is only so much that a dedicated diplomat like Paro can do (beyond working closely with U.S. government officials) to influence what is—ultimately—a commercial proposition.

And, that leads to the message in this missive. At the end of the day, when it comes to energy trade, willing sellers have to find willing buyers and vice versa. That’s the essence of a deal. Nonetheless, as the Czech Republic’s Ambassador to the United States, Petr Gandalovič, said in support of lifting the U.S. crude oil export ban: “In today’s dangerous world, democracies ought to stick together.”

When it comes to energy security, the single most important thing that democracies can do right now is to eliminate market barriers that impede commercial transactions.

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The Honorable Charles D. McConnell is Executive Director of the Energy and Environment Initiative at Rice University and a former U.S. Assistant Secretary for Fossil Energy. Fred H. Hutchison is Executive Director of LNG Allies, a no­nprofit organization in Washington, DC. Originally published in the Congress Blog – The Hill. Reprinted by permission.

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