Eleven Reforms to Extend America’s Energy Advantage

Now may seem an odd time to emphasize the importance of increasing U.S. oil and gas production. Domestic output has reached an all-time high, prices have plummeted, and drilling activity is slowing in response. Job cuts in the industry are approaching 100,000. Headlines announce that the boom has already gone bust.

Yet failing to press America’s current energy advantage would be an enormous mistake. Demand forecasts indicate that any oil and gas glut is temporary. Further, U.S. energy policy, still based on an assumption of resource scarcity, is ill equipped to manage the new abundance. Indeed, America’s private sector has driven an oil and gas revolution in the face of an ambivalent federal policy.

A new report released today presents 11 reforms to help craft a smarter U.S. energy policy. Reforms 1-5 would amplify the boom, by enacting regulatory reforms to increase the efficiency and effectiveness of U.S. energy markets. Reforms 6-11 would extend the boom, by opening federal land and waters to energy development to replicate the extraordinary growth of tight oil.

1. Expedite pipeline infrastructure. Approve the Keystone XL pipeline, establish an expedited pipeline-permitting process that deems all such infrastructure to be in the national interest, and identify a single agency to coordinate reviews and approvals on a fixed timeline. Since 2008, in the absence of adequate pipeline infrastructure, U.S. oil producers have increased their use of rail by a factor of 50. Rail transport also adds $5–$10 per barrel in additional cost and poses far greater environmental and safety risks.

2. Repeal the Jones Act. The act requires products shipped between U.S. ports to travel on American-built and -crewed vessels. This nakedly-protectionist law triples shipping costs—one can more cheaply send oil from the Gulf Coast to the East Coast via Nigeria than directly.

3. Lift restrictions on the export of oil and natural gas. Studies consistently show that allowing exports would increase production, boost GDP, and lower prices for American consumers, while strengthening U.S. influence in international markets.

4. Streamline permitting for natural-gas and crude oil export terminals. Federal Energy Regulatory Commission (FERC) has specifically cited the “number of permits and reviews required by federal and state law” as a cause of delays. Designate these natural-gas and crude oil export terminals in the public interest, without a need for case-by-case review, and enact a single approval process with clear timelines.

5. Exempt new and expanded natural-gas plants, new and expanded refineries, and new drilling sites and export terminals from the Clean Air Act’s and Clean Water Act’s new-source requirement. These heightened standards discourage refineries from retooling or expanding to accommodate new volumes and types of crude, weakening America’s energy advantage. Instead, existing standards should be applied to new energy projects.

6. Establish five-year leasing plans for federal lands with annual price-dependent output targets. Such targets would communicate policy goals, provide a basis on which to plan for royalties, and establish a yardstick against which to measure leasing plans.

7. Eliminate restrictions that prohibit development of the Arctic National Wildlife Refuge (ANWR) and the Outer Continental Shelf. Daily production at ANWR could peak well above one million barrels, according to EIA. If underdeveloped areas of the Outer Continental Shelf—which hold the majority of offshore resources—simply matched current western and central Gulf output, they would produce an additional 1.5 million barrels per day.

8. Establish a clear process and timeline for each project type. A single point of accountability in the federal government should be responsible for approval, as with Canada’s “One Project, One Review” system. Repetitive reviews, overlapping requirements, permitting delays, and political interference drive up costs and slow progress.

9. Allow state regulators to govern drilling activity on federal lands. Deem state project reviews sufficient to meet federal environmental review requirements. State governments possess more experience regulating drilling, and have a better record of efficient administration.

10. Regularly update U.S. Geological Survey (USGS) inventories of federal lands and waters. A more robust information infrastructure would consolidate the best estimates from industry and government on the size of reserves, development time, and expected output. This information would be used to validate lease-sale plans and project revenues.

11. Channel most federal oil and gas revenue into a separate account responsible for funding federal investment in energy research and development. Also channel some revenue to increased investment in inventorying U.S. energy resources. According to the Congressional Budget Office, production from the ANWR alone would raise federal output by nearly 70 percent and federal revenue by $4 billion annually. Such revenue would offer an opportunity to self-fund activity related to managing oil and gas production and to better align the incentives of different interest groups.

America’s failure to develop federally owned lands and waters and to update its energy-policy framework represents today’s low-hanging policy fruit. Untapped federal oil and natural-gas resources are estimated to be significantly larger than the shale plays that have driven the current boom—if development proceeds, such estimates will likely rise considerably. Improving America’s energy regulatory environment would amplify today’s boom by encouraging resources to be used more efficiently. Opening federal land and waters to development over the next decade would extend the boom. Together, such reforms would further the country’s energy advantage and make it an enduring fixture of U.S. prosperity.

For the complete report, click here.

Oren Cass is a Senior Fellow at the Manhattan Institute.

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