Crude Oil and LNG Exports

Transcription

1 Crude Oil and LNG Exports Yale Alumni in Energy Conference April 2015 Claudia Duncan

2 Crude Oil Export Policy - History 1920: Mineral Leasing Act Endows federal government with authority to manage exploration and removal of minerals on public lands 1975: Energy Policy Conservation Act ( ECPA ) Directs President to promulgate a rule prohibiting the export of crude oil and natural gas President may exempt from such prohibition such crude oil... Which he determines to be consistent with the national interest 1979: Export Administration Act ( EAA ) Gives the President power to control exports for national security, foreign policy, or short supply purposes; establish export licensing mechanisms 2

3 Regulatory Regime Export Administration Regulations (Short Supply Controls) 15 CFR Crude oil definition: mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. 3

4 Regulatory Regime Automatic qualifications: From Alaska s Cook inlet To Canada Refining/Exchange of Strategic Petroleum Reserve Certain California heavy crude oil Consistent with certain international agreements Consistent with Presidential findings Foreign origin not comingled with domestic crude Presidential Finding Of U.S. origin on federal right-of-way pipelines Produced from outer continental shelf Produced from naval petroleum (military use now commercial) Other applications: Case-by-case basis Consistent with the national interest 4

5 Current Market Conditions Source: U.S. Energy Information Administration, Annual Energy Outlook 2014 Energy Renaissance and Great Revival (D. Yergin) Crude oil output increase of 64% million barrels per day - from 2008 to March 2014 (IHS 2014 Study) Total projected U.S. crude oil production of 9.6 Mmbbl/d in 2019 (EIA) Reference case outlook uncertain Technological advances Assumed estimated ultimate recovery for wells drilled 5

6 Crude Oil Commodity Future Curve Source: Bloomberg

7 Arguments For Lifting the Ban Practicality Absorptive capacity of U.S. refineries Increased production Stimulus for midstream investment Domestic economic benefits Job opportunities Additional royalty income source for U.S. Treasury Global market liquidity/stability Energy security - assist allies 7

8 Arguments Against Lifting the Ban Rising domestic oil prices Higher gasoline prices? Environmental effects Negative effect on North/South American oilproducing countries (Venezuela/Mexico) Energy security - reduce domestic reserves 8

9 Possible Policy Changes We find evidence that the export ban already presents a binding constraint on the domestic market, and has done so for a while.... [E]ven in a low international crude oil price environment the importance of addressing the export ban is very high with discounts reaching as high as $8 per barrel in a $50 world... Kenneth B. Medlock III, To Lift or Not to Lift?, James A. Baker III Institute for Public Policy, Rice University 9

10 Possible Policy Changes Allow free trade Lift crude oil export restrictions Presidential/Congressional action Amendment/repeal of EPCA language Not issue new order to renew EAA provisions 10

11 Possible Policy Changes Maintain export restrictions Modify export restrictions Exempt crude oil w/certain characteristics or from certain locations Remove lease condensate from crude oil definition Allow exports for limited time period Expand export restrictions 11

12 LNG Prices World Estimated Landed Prices Region 2013 Prices $ 2015 Prices $ Change % Altamira $3.79 $ % Bahia Blanca $16.58 $ % Beliguim $9.67 $ % China $16.40 $ % Cove Point $3.53 $ % India $15.80 $ % Japan $16.80 $ % Korea $16.80 $ % Lake Charles $3.22 $ % Rio de Janeiro $16.08 $ % Spain $14.40 $ % UK $10.00 $ % Median $15.10 $ % 12 Source: FERC Market Oversight

13 13 LNG Prices

14 14 LNG Export Supply

15 LNG Import Markets 15 Source: NATS Asia LNG Update Report for the Full Year 2014, February 27, 2015

16 LNG Import Markets 16 Source: NATS Asia LNG Update Report for the Full Year 2014, February 27, 2015

17 LNG Import Markets 17 Source: NATS Asia LNG Update Report for the Full Year 2014, February 27, 2015

18 LNG Import Markets 18 Source: NATS Asia LNG Update Report for the Full Year 2014, February 27, 2015

19 Fuel Source for BRICS: Oil Source: BP Energy Outlook 2035, February

20 Fuel Source for BRICS: Coal Source: BP Energy Outlook 2035, February

21 Path of Primary Energy Sources Source: BP Energy Outlook 2035, February

22 Global Natural Gas Demand Source: BP Energy Outlook 2035, February

23 Natural Gas Trade Flows Source: BP Statistical View of World Energy, June

24 Global LNG Supply Source: BP Energy Outlook 2035, February

25 LNG versus Pipeline Traded Gas Source: BP Energy Outlook 2035, February

26 Global LNG Import/Export Terminals Source: Bloomberg

27 Overview of Global Energy Markets: Consumption per Capita of Oil Source: BP Statistical View of World Energy, June

28 Overview of Global Energy Markets: Consumption per Capita of Primary Energy Source: BP Statistical View of World Energy, June

29 Domestic Leads in Shale Gas Resources Vast proved reserves 85 years at 26 Tcf p.a. (EIA) US to account for 75% of all shale gas in 2035 (BP Global Energy Outlook) Technology New well-production per rig increased by 10% per year from 2007 to 2014 (BP Global Energy Outlook) Infrastructure 210 natural gas pipeline systems 305,000 miles of interstate/instrastate transmission pipelines 1,400 compressor stations 400 underground natural gas storage facilities (EIA) 29

30 Domestic/International Benefits of LNG and Possible Implications Global market liquidity Reduction in natural gas trade deficit Positive effect on GDP Job opportunities Energy security Modest increase in natural gas prices and electricity for consumers Environmental effects Spot Price Volatility Competition from additional LNG sources 30

31 Regulatory Framework Department of Energy ( DOE ) Public Interest Review Section 3 of the Natural Gas Act FTA v. Non-FTA Rebuttable presumption in favor of exports Administrative Process Broad factors considered Federal Energy Regulatory Commission ( FERC ) Responsible for siting, construction, expansion, or operation of LNG export terminal Lead agency for coordinating National Environmental Policy Act ( NEPA ) NEPA Review Must be conducted prior to issuance of final order EIS v. EA/FONSI Other Federal Statutes Clear Water Act Clean Air Act Endangered Species Act National Historic Preservation Act Rivers and Harbors Act 31

32 American LNG Export Projects 32 Source: Cheniere Credit Suisse Energy Summit Presentation, February 24, 2015

33 North American Landscape 33 Source: FERC, as of March 4, 2015

34 North American Landscape 34 Source: FERC, as of March 4, 2015

35 Contact Information Claudia Duncan 1722 Routh Street, Suite 1500 Dallas, TX