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Natural Gas, Oil Market Transformation Outpacing U.S. Energy Policy

The lack of an energy policy isn't keeping the United States from reaching its full potential, and implementing one today isn't as big a concern as before, energy experts said Wednesday in Houston.

The domestic energy markets are changing so quickly -- from the drillbit to the burner tip -- that legislation to enact an official U.S. energy policy, long sought by many administrations and Congress, is unnecessary until there's less volatility, a panel at IHS CERAWeek told delegates. No policy at all is better than an outdated or "bad" policy, they said.

It's taken Congress and regulators "a while to realize what's going on," said Frank Verrastro of the Center for Strategic and International Studies. He chairs energy and geopolitics for the center and formerly worked for the Departments of Interior and Energy.

The consequences of not having a cohesive national energy policy, as well as outdated federal and state regulations, are that operators at times make "suboptimal economic investments," he said. However, if the regulatory schemes were upended to make them "better" or more cohesive, there might be even more risks. Transitioning to a "totally new energy policy" would be volatile, given the dynamism of the market. It's best for now "to be flexible and adaptive" regarding drilling and development.

Government regulation plays an important role but ultimately, a free market benefits consumers most, said the experts.

American Petroleum Institute CEO Jack Gerard, who told the audience that some legislators have talked about hitting the "sweet spot" for domestic energy policy, especially when it comes to global trading for oil and natural gas. But "what is that?" he asked. Writing restrictive policies could backfire and meanwhile, the country is in a "unique American moment" because production is widespread from coast-to-coast and no longer defined by a few states. The widespread output holds implications for geopolitics and energy security, but only now are politicians and regulators catching their collective breath on the sweeping changes that have occurred.

Securing America's Energy Future CEO Robbie Diamond said his group has warned about depending on oil imports, particularly because of America's infatuation with oil-fueled vehicles. Policy changes should come faster, particularly to move the country toward more natural gas- and alternative-fueled transport, but he acknowledged that in today's political environment, that's not likely.

"The government has to be very smart and careful in what it does and not set policies that are here for the next 40 years," Diamond said. Oftentimes, "we twist ourselves into pretzels," ending with mandates that may have lasting repercussions.

An oil security index that Diamond's group developed measures and compares the vulnerability of 13 countries to changes in global oil markets. Based on the index, Japan is the most secure country today because it has a more diversified economy that uses energy more efficiently in transport and electric power than other nations. Japan essentially has no internal energy supply, but the economic impact of rising oil prices has not been as big an issue for the country because of its use of alternate sources.

The United States ranks fifth in the index because it uses higher per capita fuel consumption, especially refined products used for transportation. To increase domestic energy security requires a "national goal" to displace oil, Diamond told the audience. The United States by 2040 could reduce its oil use by half through more natural gas and electric power for transportation, he said.

The president of Goldwyn Global Strategies LLC, David Goldwyn, also shared insights for the delegates from his book, Energy and Security: Strategies for a World in Transition. If the United States were to embrace its abundant energy opportunity, he said, the country could achieve several goals: democratize access globally for oil and gas; foster competition in energy markets worldwide; reduce greenhouse gas emissions by using more gas versus goal; and use energy as a foreign policy tool by assisting other countries.

Tremendous opportunities exist, said Goldwyn, but the political will isn't there as it was in the past Oil dependency previously shaped U.S. foreign policy and moving to self-sufficiency would give the country much more force in foreign diplomacy.

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