WGL ’13: Resource protectionism poses risks for US energy industry
(Editor's note: Video clips of an exclusive interview with Drevna can be found at the bottom of this article.)
By Ben DuBose
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 Womens Global Leadership Conference in Energy and Technology, Charles T. Drevna told attendees that Americas 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). Thats 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 todays production surge, brought on by advancements in technology, and thats turned the supply-demand ratio on its head, he added. Its 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. Its a game changer. Why? Because the free market decided we could invest in technology, mainly hydraulic fracturing combined with horizontal drilling. Were 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, theyre 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. Its been boom or bust, driven by federal regulations. Its most often led to disastrous results.
Our past doesnt 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 OReilly as an example of the mentality that must be overcome.
A year and a half ago, I was on with Bill OReilly, and Bill, whether you like him or dont like him, hes a smart guy, said Drevna.
But he doesnt 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, youre 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 couldnt get it.
Thats what were 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 cant have that protectionism mentality. If that happens, our prologue will be our past.
The 2013 Womens Global Leadership Conference In Energy & Technology continues through Wednesday at the Hyatt Regency in downtown Houston.
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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