To Export, or Not to Export—That IS the Question

It is balmy, even hot, in the United States, so now is the perfect time to ask – do you know where your winter heating energy is?

Last winter’s propane shortages in the Midwest and Northeast regions of the United States and super-storm Hurricane Sandy’s disruption of diesel and gasoline supplies suggest that government policy and infrastructure weaknesses can unexpectedly waylay energy supplies.

Another reminder that policy and infrastructure can disrupt energy is the threat of possible Russian restrictions of natural gas flow to Europe. (Russia supplies 30 percent of the natural gas used in Europe, and half of that gas moves through Ukraine.)

Some members of Congress are again proposing rules to accelerate the federal approval process for natural gas export facilities, although any benefits would be years in the future.

Congress and the executive branch are working on measures to reduce future U.S. energy supply disruptions:

On March 21 the Home Heating Emergency Assistance Through Transportation Act of 2014 (HHEATT Act) became law. It temporarily exempted fuel truck drivers from limits on how many hours they could work. This facilitated the movement of propane from Texas refineries to the Midwest.

Also in March, Sen. John Thune (D-S.D.) introduced S. 2086, the Reliable Home Heating Act. It would allow exemptions to federal motor carrier safety regulations when a governor declares a residential heating fuel emergency.

A May hearing by the Senate Energy and Natural Resources Committee explored the causes of last winter’s propane shortages and possible ways to prevent a similar crisis in the future.

Witnesses suggested that inadequate infrastructure and excessive petroleum product exports were areas that need attention, but additional federal regulations were unnecessary.

The U.S. Department of Energy (DOE) has just announced the establishment of gasoline reserves in New York Harbor and New England in response to the gasoline shortages caused by Hurricane Sandy.

New York state also has a pilot program to develop a gasoline reserve on Long Island. The DOE established the Northeast Home Heating Oil (diesel) Reserve in 2000; it was not used until Hurricane Sandy in 2012.

Energy Scoreboard

U.S. and global energy production is sufficient to meet demand for many years, and is not the primary source of consumer shortages.

Looking at just a few of the energy fuels that are in the news:

Propane production has grown almost 50 percent in the past five years, driven by the increase in domestic oil and natural gas production. Propane exports also are up and represent about 25 percent of production.

Propane stocks, depleted by exceptional demand for drying corn in the fall and for winter heating, fell below the five-year average in fall 2013 and had only slightly rebounded in April.

To put this in perspective, propane represents less than 2 percent of U.S. energy consumption. However, it is important because propane is the primary heating fuel for over five million homes that are scattered around the country.

Until recently 80 percent of homes in Maine used fuel oil (diesel) for heating, but many are switching to propane – between 2004 and 2009 propane use doubled, and probably doubled again by end 2012.

Gasoline and diesel production and exports are at record levels. Volumes in stock represent over 200 days of supply for gasoline and over 100 days of diesel supply. Ethanol production is higher in 2014 than in 2013.

The Northeast, however, has inadequate refining, storage and distribution capacity. The number of refineries operating there dropped from 14 in 2004 to 10 in 2014, and refining capacity is down almost 25 percent. This strains fuel distribution when bad weather increases demand or closes refining and distribution facilities, as during Hurricane Sandy.

Infrastructure

Infrastructure appears to be the greatest limitation to assuring energy gets to consumers – and the fundamental problem is that energy supply and energy consumers are located in different places.

Industries that require large amounts of energy for centuries have located close to the energy source. Today, however, the majority of energy consumers are not close to their energy supply: Nine western states, spanning from North Dakota to Texas, produce 46 percent of all U.S. energy (including wind energy) but have only 14 percent of the population.

The United States has an extensive network of pipelines and electric lines to move energy around the country, but recent changes in where energy is produced have made the distribution network less efficient.

Wind energy production, located primarily in California, the Midwest and Texas, increased 200 percent from 2008-13; domestic oil production, primarily from the Bakken formation in the northern plains and the Eagle Ford formation in Texas, increased 50 percent over the same period.

In addition, shale gas production has swelled in the eastern United States.

Policy mandates also are contributing to the rapid local shifts in supply or demand – for example, California residential electricity costs are rising rapidly, partly in response to renewable electricity generation mandates and the closing of aging nuclear plants.

The Administration’s 2014 Quadrennial Energy Review will focus on energy infrastructure. Its first benefit may be in providing more data about the complex interactions between energy systems that will aid business and regulatory decisions.

Exports

A slow process overseen by DOE and the Federal Energy Regulatory Commission regulates U.S. natural gas exports.

The first lower 48 LNG export terminal is expected to start operations in 2015. How much actually will be exported will depend on unpredictable global market forces, although applications for export permits now total almost 39 billion cubic feet (bcf) per day, about half of all U.S. production.

If this amount were actually exported – an unlikely event – the impact on U.S. and global markets would be severe.

Refined product exports generally are not regulated by the federal government, and have ballooned from about one million barrels per day in 2005 to 2.7 million barrels per day in 2013.

Witnesses at the May 1 hearing suggested that the reversal of the Cochin pipeline exacerbated this winter’s Midwest propane shortage. The pipeline changed from a Canada-to-U.S. propane line to a north-flowing line exporting condensate to Canada.

The Ukraine unrest has revitalized the ongoing congressional debates about natural gas exports. Congressional views range between those wanting greater exports – to support energy needs of our allies and increase domestic employment – and those wanting to restrict exports, to keep consumer energy prices from rising.

For example, Rep. Cory Gardner (R-Colo.) introduced H.R. 6, the Domestic Prosperity and Global Freedom Act, which would expedite the approval of U.S. LNG export applications. From the opposite view, Rep. Edward Markey (D-Mass.) recently introduced H.R. 2088, the American Natural Gas Security and Consumer Protection Act, which would require the DOE to issue an environmental impact statement, including an analysis of the impacts of natural gas extraction on the local communities, before granting an export permit.

The final disclaimer of this column is that legislation rarely becomes law in the currently polarized Congress.

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Policy Watch

Policy Watch - Edie Allison
Edie Allison began as the Director of the AAPG Geoscience and Energy Office in Washington D.C. in 2012.

Policy Watch is a monthly column of the EXPLORER written by the director of AAPG's  Geoscience and Energy Office in Washington, D.C. *The first article appeared in February 2006 under the name "Washington Watch" and the column name was changed to "Policy Watch" in January 2013 to broaden the subject matter to a more global view.

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