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Senators cast lines for policies to support oil, gas development

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Senators cast lines for policies to support oil, gas development

Members of the Senate energy committee looked for naturalgas support from energy and economics experts during a hearing as its chairmanannounced upcoming legislation to aid Alaska.

Sen. Lisa Murkowski, R-Alaska, noted that the currentlow-price environment could present an opportunity for investment-friendlypolicies on energy development, especially in her home state, which reliesheavily on public revenue earned from oil and gas production and faces a $3.8billion budget deficit.

"Our LNG opportunities are subject to a narrow window,and we are pushing them hard to try to get our natural gas to a market, but we'vegot some logistical challenges that we are dealing with, and in the meantimethe … geopolitics of LNG are playing out," Murkowski said.

"Oil and gas prices are low today, but they won't below forever," she added. "Oil and gas production is heavilycapital-intensive. It takes a long time for these projects to come online."

During the hearing, Murkowski announced the first of aseries of staff reports that focus on potential energy development in Alaska,leading to legislation Murkowski intends to propose in the coming weeks.

However, companies' difficulties with low commodity pricesare not a sufficient reason to alter standards and policies, said Sen.Elizabeth Warren, D-Mass.

"If we really want policies that are going to work forthe long term, policies that protect consumers and protect the environment,policies that encourage innovation … we can't reverse course every time pricesshift," Warren said. "I think that means upholding tough, achievablefuel economy standards and also means not backing down just because theindustry doesn't like it."

The $45 billion to $65 billion Alaska LNG project, which would commercialize the state'sNorth Slope natural gas resources, is not expected to be placed into serviceuntil 2025 at the earliest, and one expert at the hearing warned that LNGassets could become stranded.

"The projects that are going to go ahead are the onesthat will manage to [deal with] cost mitigations, that will have customersalready on board, and when I think of Alaska, we need to think about Asia, andAsia is not one bloc," said Leslie Palti-Guzman, who expects a bigincrease in U.S. LNG exportsto start in 2017.

Palti-Guzman, director of global gas for the Rapidan Group,added that demand from traditional buyers in Asia — Japan and South Korea — hasdecreased or stagnated, while India and China have upside for LNG demand.

"Natural gas producers are looking for new outlets andmore outlets," Palti-Guzman said. "There's so much gas. And there isat the same time more pipeline exports to Mexico, so those are two areas forexports for U.S. natural gas producers to have an impact on U.S. natural gasproduction."

Palti-Guzman warned that while a delay in western Canada orMozambique could provide the U.S. west coast with an advantage in the globalLNG market, regulations curtailing hydraulic fracturing would "send themessage all over the world that the U.S. is not open for business."

Palti-Guzman's fellow witnesses added that anti-frackingefforts would not effectively reduce climate change or carbon emissions.

Jason Bordoff, a professor and founder of the Center onGlobal Energy Policy at Columbia University, instead recommended policies thatwill eventually reduce the demand for hydrocarbon resources, matched withprotections for natural resources and internalizing social costs. A focus onbanning domestic production would have little impact, he said, since the demandand infrastructure for oil and natural gas would remain present.

Outside of anti-fracking efforts, Suzanne Minter, an energyanalyst for Platts, said the prolonged low-price environment is a concern forlabor management and costs. With producers stuck in a cycle ofcutbacks and idle rigs, they risk ultimately losing the ability to attractqualified crews back when production picks back up. "Ifthat's the case … you could potentially see more extreme price spikes asproducers have to throw money at the workforce to bring back qualified workers,"Minter said.

Platts and S&PGlobal Market Intelligence are both owned by S&P Global Inc.