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Yes, There's A Global Oil/Gas Glut, But Researcher Says U.S. Missing Opportunity

Although it "may seem like an odd time" to encourage more domestic oil and gas production, the United States is missing an opportunity to extend its advantage in the energy sector and needs to reform its national energy policies, according to the Manhattan Institute for Policy Research.

"Failing to press America's current energy advantage would be an enormous mistake," Oren Cass, senior fellow with the institute, said in a 20-page report released this month. "Demand forecasts indicate that any oil and gas glut is temporary. Further, U.S. energy policy, still based on an assumption of resource scarcity, is ill equipped to manage the new abundance.

"Indeed, America's private sector has driven an oil and gas revolution in the face of, at best, ambivalent federal policy."

Chief among 11 policy reforms suggested by Cass are for the U.S. to lift restrictions on the export of domestically produced oil and gas, and to streamline permitting for such export terminals. He also recommends that the Environmental Protection Agency (EPA) exempt new and expanded natural gas plants, refineries, drilling sites and export terminals from the new source requirements enshrined in the Clean Air Act and the Clean Water Act.

"Empirical studies consistently show that freeing [oil and gas] exports would increase production, boost GDP and lower prices for American consumers, while strengthening U.S. influence in international markets," Cass said, later adding that some of the EPA's "restrictions on heavy industry are valuable, but current standards have already helped deliver impressive improvement in U.S. air and water quality.

"Rather than impose new, even tighter standards that weaken America’s energy advantage, existing standards should be applied to new energy projects."

Cass also advocates for approval of the controversial Keystone XL oil pipeline, and at least a partial repeal of the Jones Act, as it pertains to the transport of energy products (see Shale DailyMarch 10Feb. 24).

"This nakedly protectionist law triples shipping costs," Cass said of the latter. "Supporters argue that the Jones Act is necessary to preserve a U.S. merchant marine in the event of war. Yet with little demand for shipment at such uncompetitive prices, the result has been an 80% decline in the number of U.S. tankers during the past 30 years. Little would be lost and much gained by allowing international vessels to efficiently move U.S. fuels."

Six additional recommendations by Cass would "extend the boom" for the U.S. in energy. They call for opening federal land and the offshore to oil and gas development, with the goal of replicating the success achieved by tight oil.

"Today, resource endowments under federal control and largely off limits still appear larger and more attractive than did the Bakken and Eagle Ford [shales] at comparable stages of development. Reserve estimates for the former are even higher than current reserve estimates for the latter," Cass said.

Specifically, Cass said that in 2013, the U.S. Geological Survey (USGS) estimated that the Bakken held 7.4 billion bbl of undiscovered, technically recoverable oil resources (UTRR), and in 2011 estimated the Eagle Ford held 1 billion bbl. But in 2011, the Bureau of Ocean Energy Management (BOEM) said the federal offshore held 89 billion bbl of UTRR oil, while the Bureau of Land Management (BLM) said in 2008 that onshore federal lands held 31 billion bbl.

"The goal should not be to lease as much federal land as quickly as possible," Cass said. "Industry does not have the capacity to conduct all exploration simultaneously, nor does government have the ability to review applications overnight. Instead, the goal should be to create a transparent, predictable process that optimizes the conditions for private investment over time."

That transparency would include establishing five-year leasing plans for federal lands with annual price-dependent output targets; eliminating restrictions that prohibit drilling in the Arctic National Wildlife Refuge and the Outer Continental Shelf; establishing a clear process and timeline for each project type and to allow state regulators to govern drilling on federal lands.

The last recommendation has been fiercely debated lately, following BLM's proposal to oversee shale development on public and private lands (see Shale DailyJune 24).

"Potential federal revenue generated by oil and gas production serves as an important reminder of the benefits that America would derive from more actively developing its collectively owned energy resources. Such revenue would also offer an opportunity to self-fund activity related to managing oil and gas production and to better align the incentives of different interest groups," Cass said, hence his final recommendation that most federal oil and gas revenue be put into a separate account for funding energy research and development."

"Earmarking incremental royalties for investment in new energy technology research and development offers a win-win that ensures that the country is investing in economic development, for the short and long term, by guaranteeing both resource access and technology investment as two sides of the same coin," Cass said.

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