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WGL ’13: Resource protectionism poses risks for US energy industry

10.29.2013  |  Ben DuBose,  Hydrocarbon Processing, 

The AFPM leader believes US oil and gas firms must shake off past inclinations toward energy protectionism if they are to fully take advantage of the modern shale revolution.

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(Editor's note: Video clips of an exclusive interview with Drevna can be found at the bottom of this article.)

By Ben DuBose
Online Editor

HOUSTON -- US fuel and petrochemical companies must shake off past inclinations toward energy protectionism if they are to fully take advantage of the shale revolution, the president of a leading downstream industry trade group said.

Speaking on Tuesday at the 2013 Women’s Global Leadership Conference in Energy and Technology, Charles T. Drevna told attendees that America’s past did not have to be its prologue.

“How devastatingly ironic would it be if those calling for restricted natural gas exports end up limiting the very supply of natural gas that they desire?”, asked Drevna, who serves as president of the American Fuel & Petrochemical Manufacturers (AFPM). “That’s very well what could happen.”

Drevna did not identify any company by name, but some US-based petrochemical companies -- most notably, Dow Chemical and Celanese -- have touted restricted US exports as a way to maintain domestic energy security and thus keep the price benefits within the US.

However, Drevna -- a man who represents both refining and petrochemical companies -- believes that artificial limits to exports could ultimately lead to the demise of upstream development, thus deflating the very bubble that most want to protect.

“The conventional wisdom long held that the US was blessed with natural resources but not nearly as fortunate when it came to domestic oil and natural gas,” he said. “It was supposed to be dwindling. The memories of a decade ago and the gas supply shortages still resonate in the minds of many industrial users. And I can understand their apprehension to some extent.

“But that was the very catalyst that brought us today’s production surge, brought on by advancements in technology, and that’s turned the supply-demand ratio on its head,” he added. “It’s difficult to fathom a belief that limited markets and lower prices will stimulate additional supply. Tell me how that works.”

In 2006, the Energy Information Administration (EIA) forecast the US to be a long-term net importer of liquefied natural gas (LNG). However, in its outlook for 2012, the EIA reversed course and predicted the US to become a net exporter by 2025.

“Just a few years after saying we would be a net importer, the EIA realized the tremendous shale potential,” Drevna said. “It’s a game changer. Why? Because the free market decided we could invest in technology, mainly hydraulic fracturing combined with horizontal drilling. We’re smart. We can do these things.”

Today, the US has a manufacturing renaissance well underway, according to Drevna. “We have a chance, a big, big, big chance, to do things right,” he said.

However, industry companies aligning with environmental groups such as Sierra Club could pose a significant risk to further development.

“By aligning with those opposed to hydraulic fracturing, even if not intentionally, they’re falling into the trap that could very well destroy their own global competitiveness,” Drevna said.

For anyone on the fence, Drevna said the past could serve as a template for how not to do things in the future.

“The history of natural gas is a story of market distortion,” he said. “It’s been boom or bust, driven by federal regulations. It’s most often led to disastrous results.

“Our past doesn’t have to be our prologue. Historically, supply problems were not caused by excessive demand but artificial barriers to resource development.”

Drevna recalled a 2012 interview with conservative US talk-show host Bill O’Reilly as an example of the mentality that must be overcome.

“A year and a half ago, I was on with Bill O’Reilly, and Bill, whether you like him or don’t like him, he’s a smart guy,” said Drevna.

“But he doesn’t get this,” he continued. “We had a knock-down drag-out argument on the exports of refined products. I told him, if you think refined products staying here are going to lower price at the pump, you’re nuts. All it will do is close some refineries and perhaps cause supply shortages in some parts of the country and see some prices rise. He just couldn’t get it.

“That’s what we’re up against.”

Now, nearly two years later, Drevna says more and more Americans are moving toward his view. But further work does still remain.

“We now have OPEC leaders wringing their hands and mashing their teeth, asking what in the heck is going on in the United States of America. “They thought they would be exporting LNG to the US, not vice-versa. This is a game changer. This is going to work to our advantage.

“But in order for us to fully succeed in this, we can’t have that protectionism mentality. If that happens, our prologue will be our past.”

The 2013 Women’s Global Leadership Conference In Energy & Technology continues through Wednesday at the Hyatt Regency in downtown Houston.

VIDEOS

Drevna describes the impact of US gas exports on the nation's petrochemical industry.

Drevna offers his outlook into the near-term future of US LNG exports.

Drevna tells what lessons history tells us about US gas market regulations.

Drevna addresses attendees at the Women's Global Leadership Conference.



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Charles Scouten
11.04.2013

Eloquent expression of the "eat our seed corn" strategy for accelerated energy impoverishment. Three cheers!

Remi
10.30.2013

If there is so much natural gas to go around, why can't we put all the cars or at least some on LNG?
Selling a natural resource to only have it processed and sold back at a margin is dumb.

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