The U.S. Energy Chief on Gas Exports, Russia, and the Keystone PipelineBy
In a wide-ranging discussion with U.S. Secretary of Energy Ernest Moniz at Bloomberg’s Washington office on March 21, Moniz acknowledged what many observers have already deduced: U.S.-Russia relations are “under strain,” and yes, “everything in terms of the relationship is going to be reevaluated.”
Highlights from the conversation include three other areas:
Natural gas exports: Moniz was asked repeatedly whether the situation in Ukraine would expedite the administration’s plans to start exporting natural gas to Europe. The short and emphatic answer was no. The approval process remains the same, he said, and each of 24 pending applications to export liquified natural gas to non-free-trade countries will be evaluated as they would have been when Crimea was part of Ukraine. When pressed, Moniz did suggest that “maybe we will give some additional weight to the geopolitical criterion going forward.”
Don’t get too excited. This isn’t a switch that can be turned on overnight. Even if the government fast-tracked the process and approved every application tomorrow, the export projects are privately funded and require billions in capital investment and several years to complete. The furthest along, Sabine Pass, probably won’t begin exporting gas until the end of 2015. The bulk of U.S. LNG exports won’t hit the global market until 2018 and 2019 at the earliest.
One final point: While the U.S. can blunt Russia’s influence by exporting gas to Europe, greater opportunity lies in Asia. Natural gas there costs about $16 or $17 per thousand cubic feet, about 50 percent higher than in Europe, where it costs $11 per thousand cubic feet. What’s more, though natural gas is cheap in the U.S., after transportation costs are included the ability of U.S. exports to undercut Russian gas sold in Europe will probably be a matter of cents, not dollars.
The Strategic Petroleum Reserve: As suspicious as the timing may look, Moniz reiterated what the White House has been saying for the past week: TheSPR release announced on March 12 had nothing to do with the situation in Ukraine. Moniz said the objective of the test sale of crude oil was to study the effect of the shale-gas boom on the country’s pipeline infrastructure. For example, oil from the SPR used to be released through a pipeline whose flow has since been reversed and now runs in the opposite direction.
The Keystone XL pipeline: While emphasizing that a decision on Keystone isn’t his to make, Moniz said the Department of Energy is among the agencies drafting a response to the environmental review released in January by the U.S. State Department. The energy agency is about halfway through the 90-day comment period, Moniz said, meaning it will presumably release something in the next two months.
As to Keystone’s impact and what DoE is examining, Moniz said the agency is looking at refining capacity along the Gulf Coast, where there’s a glut of crude oil, especially the kind of light, sweet crude coming from places such as North Dakota and West Texas. Would Keystone make things better or worse? He wouldn’t say, but the pipeline would certainly change the mix of crude flowing to refiners in Texas and Louisiana, pumping some 800,000 barrels of heavy oil that would presumably displace the light, sweet variety.