Oil bust’s effect on energy policy debated
WASHINGTON — The dramatic drop in oil and natural gas prices over the past two years might be laying siege to drillers around Texas, but it’s no reason to change U.S. energy policy, a panel of market experts told a Senate committee Tuesday.
From liquefied natural gas terminals to emissions standards on automobiles, the availability of cheap oil and natural gas has found its way into a number of debates of late, as lawmakers and advocates argue the merits of long-term policies aimed at expanding production and increasing conservation measures.
During a hearing before the Senate Committee on Energy and Natural Resources, academics and consultants advised that decisions on environmental regulations, offshore drilling and other policy must be made independent of the price of gasoline and other fuels.
“While oil prices are low today, it is far from clear they will remain low,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University. “The oil industry has long known cycles of boom and bust, and there are many factors today that may combine to cause a price spike more quickly than anticipated.”
What might sound like common sense to those who follow the volatile oil and gas markets does not always translate in Washington. With oil trading around $40 a barrel, politicians and lobbyists alike have been getting used to the age of cheap fuel.
Sen. Elizabeth Warren, D-Mass., cited car manufacturers using low prices to argue for a slower rollout of higher fuel efficiency standards for new cars. Sen. Lisa Murkowski, R-Alaska, described a lack of motivation in Washington to update outdated policies on oil and natural gas permitting caused at least in part by the current glut of cheap oil.
“We need to provide new access, we need to establish reasonable systems for leasing and development, and we need to reform what is often an overly cumbersome permitting process,” Murkowski said. “We should be tackling this right now, not the next time oil is $100 a barrel.”
For the next couple of years at least, the outlook for oil and natural gas prices remains shaky.
Suzanne Minter, manager of oil and gas consulting services at Platts Analytics, said while oil production in the United States has fallen over the last two years, it is still rising in other countries. Nations like Saudi Arabia and Venezuela are pumping more crude into the oversupplied market because they rely on oil to fund national budgets.
“Given the fact that they are currently receiving 25 percent of the revenues per barrel of oil as they were as recently as June 2014, basic math says these countries need to create and sell more volumes at current low prices in order to keep their economies viable,” she testified.
In the United States, low oil prices historically have translated into an economic boost, as consumers parlay their fuel savings into more groceries or a trip to the mall.
But not so much this time around. Part of the reason could be that the United States is producing a lot more oil than it used to — which also means a lot more lost jobs and revenues when prices go south, Bordoff said.
Unlike their counterparts abroad, where oil companies are owned by the government, U.S. officials do not have the ability to directly raise and lower oil and natural gas production. Companies rather decide individually how much to produce, based on prices, costs and the regulatory environments.
Over the last three years, the Obama administration’s energy policies have largely drawn opposition from the industry.
Even as the White House lifted a decadesold ban on crude exports and approved LNG export terminals, the crackdown on everything from methane leaks to undersea well casings has drawn criticism from the industry that the United States is steadily becoming a less hospitable place in which to operate.
After the administration announced last month it would not allow drilling in the Atlantic Ocean, many politicians from states with large oil and gas industries, including Texas, have voiced concern the decision could hurt U.S. energy security in the future. They urged the administration not to further reduce offshore drilling.
“When we’re thinking about the direction we take, recognizing the potential for future development is key,” Murkowski said.