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From the Desk of the Executive Director: Energy Moving Forward 2015

June 25, 2015

JimA couple of weeks ago we held our annual Energy Moving Forward (EMF) conference – a lot of you may have been there. I am happy to report to you that the conference was a great success. We had a full house, great speakers & panel discussions, and almost universally positive feedback from people who attended.

As you probably saw from the marketing campaign, even if you weren’t at the conference, our theme this year was North American Energy Independence. We had two keynote speakers: Robert Bryce was the headliner with the opening Keynote; the closing keynote was from Dr. Ram Shenoy, Chief Technology Officer at ConocoPhillips. In between we had two panels. Panel 1 discussed political and economic dimensions of the issue, and Panel 2 discussed infrastructure and regulatory dimensions.

In this blog entry, I want to give you my take. Personally, I think that energy independence kind of lies in how you define it. We could define it as standing completely apart from the rest of the world on energy – nothing in, nothing out. With the shale revolution, we are actually at a point where that might be technically possible in a very few years. To me, though, that’s energy isolation, not energy independence, and even if it’s possible I don’t think it’s very sensible. I would define energy independence as a net positive balance of payments on energy, with the freedom to choose what we import and export and what we don’t. Defined this way, energy independence is highly desirable and probably possible for North America within the next year or two.

Canada is already our biggest source of energy imports and Mexico, as it deregulates its oil & gas and electric power sectors, is poised to become a big export market, for gas if nothing else. There is also a lot of potential for cross-border flows of electricity. The key to this is a greater degree of market integration across our three countries. There are both technical and regulatory challenges here, but nothing that can’t be solved. The issue will be less about what we move within North American that what we can move out of North American and how we can do that.

The United States needs to increase development of its liquefied natural gas (LNG) export capacity and remove legal barriers to the export of crude oil. LNG growth is happening already but should accelerate – the barrier here is mainly a market one. The landed price of LNG in Europe and Japan is much less than it was in 2014, and the very great arbitrage opportunities for LNG have largely evaporated. I am told the business is still profitable but not as wildly profitable as it looked a year ago. LNG plants have relatively long paybacks and building them without guaranteed contracts is risky business. The barrier to crude export is a legal one, going back to the first oil embargo in the 1970’s – at that time Congress passed legislation banning the export of U.S. crude and, even though there are strong technical and economic reasons for removing the ban, Congress fears that doing so will raise the price of U.S. crude and nobody wants to leave themselves open to being tarred with the brush of having raised the pump price of gasoline.

In any case, we have plenty of supply, both for export and for domestic consumption. Our Canadian partners are scaling back their expectations for export to the U.S., simply on the grounds that we don’t need to import as much, and they’re actively looking for other places to send oil. We should also expect additional supply from Mexico as their deregulated industry increases productivity.

It wouldn’t hurt to add $15 to the crude price and a dollar or two to natural gas. It’s true that consumer prices would probably rise slightly but we would also be able increase capital investment, ease the pressure on smaller operators as they try to comply with increasing environmental regulation, enable better management of carbon, and ease pressure on the still-fragile development of renewables, not to mention improving profitability in the oil & gas sector. On the whole a modest price increase would do a lot more good than harm, but it’s not likely to happen until we begin exporting more.

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