In late May, the U.S. Department of Energy announced it had approved additional liquified natural gas exports from a terminal on Quintana Island, Texas. In a press release, the U.S. Undersecretary of Energy Mark Menezes said the project, operated by Freeport LNG, was “critical to spreading freedom gas throughout the world.” The release quoted another DOE official, Steven Winberg, as saying the department was promoting an efficient regulatory system that “allows for molecules of U.S. freedom to be exported to the world.”
The social media mockery was swift and deserved, and I must admit, I made a few quips myself. That night, on the way to dinner, I told my wife I needed to fill the car up with “freedom juice.”
Jokes aside, the Trump’s administration’s sloganeering grabbed the media’s attention and wasted an opportunity to explain the significance of America’s newfound energy abundance to a public that has little understanding of energy markets, or how rising American energy production affects them. At the Offshore Technology Conference in Houston in early May, the buzzwords were “energy transition” - the recognition that fossil fuels will get cleaner and help to speed the diversification of our energy mix to include other sources such as wind, solar and hydrogen.
In the same press release touting “freedom gas,” the DOE noted that exporting LNG means “cleaner air here and around the globe,” but it didn’t go into detail. Unfortunately, many Americans see exports as the latest example of profiteering by greedy oil companies.
In fact, rising U.S. exports represent an opportunity to align the interests of energy companies and environmentalists in a way we haven’t seen since before the Santa Barbara oil spill of 1969. Exports are a key step toward moving the world closer to a clean energy future, regardless of the Trump administration’s stance on climate change.
For the first time in more than six decades, the United States is on the verge of becoming a net exporter of energy. Such a development would have been unthinkable even 10 years ago, but hydraulic fracturing has created a tectonic shift in global energy markets.
U.S. oil production will approach 13 million barrels a day by the end of next year, and by then, the country will export more crude oil and fuel products than it imports, according to a forecast by the U.S. Energy Information Administration. (Some private forecasts predict it will happen sooner.) The U.S. already has become a net exporter of natural gas, and the EIA expects an additional 8% increase, to an all-time high of more than 90 billion cubic feet, the EIA said.
Last year, oil output broke a record set in 1970, and the EIA predicts it will continue to rise steadily, setting new records annually through 2027. Once the U.S. achieves its status a net exporter, it will likely remain one for decades to come.
Many environmentalists scoff at the industry’s sincerity, but the shift to cleaner fuels is more about market demand than political policy. Most U.S. refiners long ago calibrated their plants for heavy-crude imports. While some are adapting to the lighter crude produced domestically, a system is emerging in which U.S. refiners - which are among the most advanced in the world - continue to import heavy crude, strip out the sulphur content, and produce cleaner-burning transportation fuel. Meanwhile, the lighter crude being exported is used by refineries in other countries who lack those sulphur-removing capabilities, enabling them to produce lower-sulphur fuel abroad.
Declining demand for heavy crude, combined with the growing demand for clean fuels, is boosting the profitability of U.S. refiners. The refining industry’s gross margin was 12.4% in the first quarter, compared with 5.9% a year earlier. Sanctions on heavy crude from Venezuela, a key supplier for Gulf Coast refiners, may crimp profits slightly, but the overall market dynamics will continue to play to the industry’s favour.
However, U.S. refiners aren’t entirely ignoring the shale boom going on in West Texas, either. Instead of relying on one grade of crude, many are hedging their bets, buying some West Texas Intermediate as well as heavier grades from overseas. Oil imports on the Gulf Coast recently hit their lowest level in three decades. The 1.8 million barrels a day imported in March represents a 70% decline since 2007, EIA reports.
This new web of exports and imports will become increasingly important as new standards for marine fuels take effect in 2020.
Crude oil and refined products, however, are only half the story. This year, the U.S. will surpass Malaysia to become the third-largest LNG exporter behind Australia and Qatar.
Even more stunning is the fact that the U.S. shipped its first batch of LNG just three years ago. Since then, exports have surged to almost 110 billion cubic feet, supplying 33 countries.
That capacity may double by the end of this year as more terminals — such as the Freeport LNG terminal on Quintana Island — come online. Forecasters see LNG demand rising as much as 9% globally over the next few years.
In addition, new pipelines are transporting more gas from West Texas to Mexico. America now supplies about 65 percent of Mexico’s gas, and that number likely will grow thanks to a decision by Mexican President Andrés Manuel López Obrador to prohibit fracking.
America’s trade wars with China and other countries, as well as sanctions against oil-producing nations such as Iran, Venezuela and, perhaps, Mexico, could disrupt this evolving market in the short term. But over the long term, America’s energy production - oil, natural gas, fuels and renewables - will keep rising for at least a generation. As the world demands cleaner fuels, it’s the U.S. and its rising exports that will lead the way - not by exporting molecules of U.S. freedom, but by bringing greater efficiency to the global energy market and ensuring the widespread development of cleaner fuels.
As part of this market democratization, environmentalists may have to find new villains, or at least be more selective in choosing them. The proliferation of natural gas, its growing use in electricity production, the drive to reduce carbon emissions from transport fuels, and the export of crude to refineries that can best use them in making the cleanest products are crucial first steps toward the energy transition of the future.
Loren Steffy’s latest book George P. Mitchell: Fracking, Sustainability and an Unorthodox Quest to Save the Planet, will be published in October. Contact him at firstname.lastname@example.org