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Sean Hackbarth Liquefied natural gas (LNG) tanker shipA liquefied natural gas (LNG) tanker moored off Sodegaura City, Japan. Photographer: Tomohiro Ohsumi/Bloomberg.

 A key federal agency gave the go-ahead for Dominion Resources to build a liquefied natural gas (LNG) export facility in Maryland:”

Federal officials approved a Maryland liquefied natural gas export terminal late Monday, a move that opposition groups said they would fight.

Dominion Resources secured approval from the Federal Energy Regulatory Commission [FERC] to build the $3.8 billion Cove Point terminal on the Chesapeake Bay, which will be ready to ship up to 0.82 billion cubic feet per day of natural gas beginning in 2017.

"We are pleased to receive this final approval that allows us to start constructing this important project that offers significant economic, environmental and geopolitical benefits," Dominion Energy President Diane Leopold said.

Construction of the Cove Point facility will create 3,000 jobs and add $45 million annually on average to the local economy.

What was originally built to import LNG will, after spending $3.8 billion to retrofit, export natural gas produced from the Marcellus and Utica Shales. Now, the facility will help America feed hungry global energy markets.

Exporting natural gas can create jobs and generate economic growth. An Energy Department-sponsored study found that “the U.S. was projected to gain net economic benefits from allowing LNG exports.”

However, a tedious approval process has become a barrier to this opportunity. Twenty-six LNG export applications are awaiting federal approval. “By the time US export projects are ready, the world may no longer be waiting,” warns Natalie Regoli and Brian Polle of Baker & McKenzie.

In May, FERC concluded that Cove Point would not have major environmental impacts. In 2013, Cove Point received conditional permission from the Energy Department to export LNG to non-free trade agreement countries like Japan and India and is awaiting final authorization.

Sean Hackbarth Oil pumps stand at the Chevron Corp. Kern River oil field in Bakersfield, California.Photographer: Ken James/Bloomberg.

The International Energy Agency confirms what we’ve known for a while: The United States is the world’s top petroleum producer. The American Interest’s Walter Russell Mead quotes from a Financial Times story [subscription required]:

US production of oil and related liquids such as ethane and propane was neck-and-neck with Saudi Arabia in June and again in August at about 11.5m barrels a day, according to the International Energy Agency, the watchdog backed by rich countries.

With US production continuing to boom, its output is set to exceed Saudi Arabia’s this month or next for the first time since 1991. [...]

Rising oil and gas production has caused the US trade deficit in energy to shrink, and prompted a wave of investment in petrochemicals and other related industries. [...] It is also having an impact on global security. Imports are expected to provide just 21 per cent of US liquid fuel consumption next year, down from 60 per cent in 2005.

America’s energy situation has been transformed by the shale boom. According to Energy Information Administration (EIA) data, in 2006, Saudi Arabia produced 2.4 million barrels per day (bpd) more petroleum than the United States. Now, thanks to American innovation--combining horizontal drilling with hydraulic fracturing—the United States is out-producing the Middle East oil giant by more than 2.4 million bpd.

 January 1994 to June 2014Total petroleum production: Saudi Arabia versus United States: January 1994 to June 2014Source: Mark Perry.

As a result, net petroleum imports are at a 28-year low, and we can seriously consider lifting the 40-year-old U.S. oil exports ban.

 Crude Oil and Petroleum ProductsU.S. Net Imports: Crude Oil and Petroleum Products

The shale boom has also fueled significant job creation. As I noted last week, the shale energy supply chain alone supports over 500,000 jobs. Earlier this year, the Wall Street Journal reported on how the construction industry will be winners from the boom. And according to a report for the U.S. Chamber’s Institute for 21st Century Energy, by 2025 shale energy will support 3.9 million jobs all along the value chain—from producing oil and natural gas to transforming it into products we use every day.

With the success we’ve seen, let’s be wary when federal agencies like EPA want to impose duplicative regulations on hydraulic fracturing when states have had a long track record of successful regulation. Shale energy has put the United States in a great position economically and geopolitically. With the right policies this success will continue.

Sean Hackbarth Emeril Lagasse

In the PR blitz for this new reality television show On the Menu, celebrity chef Emeril Lagasse went BAM! on the struggles restaurateurs face in this economy, The Week reported. “I have nowhere to really go other than broke,” he said and continued:

It's becoming a very challenging industry to become a very successful average restaurateur. I can't charge $300 a person in my restaurant or I would not be in business. Am I using any different ingredients? Not really. Am I using any caliber of service staff? I don't think so. I think our service is as good or better than most places.

And then you add all the Obama nonsense to what it's become in the last several years. I don't have anything against Mr. Obama. I'm just saying the way that, you know... the government should stay out of things.

A Wall Street Journal story quoted him as saying:

The margins are becoming very difficult, where there are a lot of months that I don’t have margin.

It’s not that I’m a bad operator. It’s just the economics of the way that things are happening—the way that it’s been stacked up.

While Lagasse didn’t mention any specifics, here are four policy areas where federal officials have made it harder for restaurateurs—and other small business owners--to succeed.

1. Obamacare

Obamacare’s employer mandate reduced full-time employment from its traditional 40-hours-per-week definition down to 30-hours-per-week. This forces “employers [like restaurants] to restructure their workforce by reducing their employees’ hours to alleviate the burden of compliance.” For Boise, ID restaurant owner Kevin Settles, this meant he had to “put raises and expansion plans on hold as he figured out the cost and logistics of making the changes.”

2. Overregulation

Entrepreneurs told John Dearie, executive vice president at the Financial Services Forum and co-author of Where the Jobs Are: Entrepreneurship and the Soul of the American Economy, that one of their biggest frustrations is overregulation: “One recurring message is that regulatory burden, complexity, and uncertainty is undermining entrepreneurs’ ability to successfully launch new businesses, expand, and create jobs.” A recent Gallup poll found that nearly half of Americans (49%) agree that there is too much regulation. “[R]egulation is not free, or without consequence. Regulation imposes costs—costs borne principally by businesses,” Dearie writes.

3. Minimum Wage Increase

President Obama and Members of Congress have argued that the minimum wage should be increased—bad idea. That would add additional burdens on restaurant owners and other small business. My colleague Sheryll Poe wrote about how that would hurt one Alexandria, VA cupcake baker:

Jody Manor, owner of Bittersweet Café and the new Waterfront Market and Café in Alexandria, Virginia was on FoxBusiness News to talk about President Obama’s State of the Union.

Manor, who notes that he started his restaurant career as a dishwasher when he was 14 years old, said the president’s plan to increase the minimum wage to $10.10 an hour would mean he’d have to “raise prices to pay those wages.”

4. Energy

Restaurant owners want to make sure the lights stay on, but proposed federal regulations that eliminate coal-fired power plants will raise electricity prices and reduce reliability.

Opening a restaurant is risky enough (as is any business). Government policy shouldn’t worsen those odds. 

Sean Hackbarth Neverland Dream oil tanker in Singapore.Photographer: Munshi Ahmed/Bloomberg.

Because of entrepreneurship and innovation, the United States is in the midst of a spectacular oil boom, as you can see in the chart below.

 January 1920 - August 2014U.S. Crude Oil Production: January 1920 - August 2014Source: Mark Perry.

Jobs are being created, cities and towns are experiencing tremendous economic growth, its effects reach all corners of the country, and oil imports are rapidly declining.

To maintain this momentum, it’s time to end the 40-year old ban on oil exports. If companies can sell on the global market, they will have a greater incentive to develop more American energy.

The Washington Post’s Robert Samuelson makes the case for lifting the ban:

If you want companies to search for oil, you have to provide them with a viable market where they might profitably sell it. As output has increased, this has become a bigger issue. Here’s why.

The new oil consists mostly of “sweet, light” crudes, meaning they have a low sulfur content and are less dense than “sour, heavy” crudes. The trouble is that many U.S. refineries have been designed to process heavy, sour crudes and, therefore, aren’t suitable for the new oil. At the end of 2013, the United States had 115 oil refineries capable of processing about 18 mbd, according to a report from the Congressional Research Service. About half were fitted for sour and heavy crudes. That’s especially true along the Gulf of Mexico coast, where more than half of U.S. refining capacity is located.

The result is that more and more new oil is chasing less and less usable refining capacity. Refineries’ bargaining power rises. Producers have to accept price discounts to sell their oil.

He goes on to point out that by maintaining the export ban, “producers will be discouraged by an oil market that seems rigged against them. They will react by slowing — or possibly stopping — new exploration. The oil boom will ebb or end.” And with it will go the jobs and economic growth.

Research supports the argument that allowing American oil to be exported will mean more jobs and investment. As I wrote in May:

A study by IHS concludes that opening markets for U.S. crude would spur domestic investments oil production. From 2016-2030 an additional $746 billion would be invested and an additional 1.2 million barrels per day of oil would be produced per year. This would translate into an additional 394,000 jobs per year with a peak of 964,000 in 2018.

We’ve gone from worrying about energy scarcity and rising oil imports to supporting America’s energy abundance. Times have changed, and policies must follow.

Sean Hackbarth Broken windowImage credit: Elvert Barnes. Licensed under a Creative Commons Attribution 2.0 Generic license.

EPA’s Gina McCarthy gave a speech to Resources for the Future defending EPA’s proposed carbon regulations on economic grounds. However, the crux of her argument is based on a logical fallacy that will be costly to jobs and the economy.

Here are two passages from her speech:

Climate action is not just a defensive play, it advances the ball. We can turn our challenge into an opportunity to modernize our power sector, and build a low-carbon economy that’ll fuel growth for decades to come.

Not only is global climate action affordable, but it could actually speed up economic growth.

In her mind, new mandates and regulations that end coal (and eventually natural gas) use in electricity generation will result in jobs and economic growth. McCarthy mentions that smart economists helped develop EPA’s carbon plan. However like her, they succumb to the “broken window” fallacy. This is the logical misconception that generating jobs and economic activity by breaking things is good for society.

In his essay, “That Which is Seen, and That Which is Not Seen,” the French economist Frédéric Bastiat tells the parable of the broken window:

Have you ever witnessed the anger of the good shopkeeper, James B., when his careless son happened to break a square of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation - "It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade - that it encourages that trade to the amount of six francs - I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

One unseen cost of EPA’s attempt to restructure the power grid, will be the shutdown of reliable coal-fired power plants. For instance, Duane Highley, CEO of Arkansas Electric Cooperative Corp. and Arkansas Electric Cooperatives Inc., told Arkansas Business he “would prefer to invest in scrubbers” for the 1,480-megawatt plant near Redfield, “and let it run for another 20 or 30 years” rather than shut it down.

What’s more, enormous investments that have already been made to many of these plants to make them meet other EPA standards. Take the Ferry Power Station in Hatfield, PA. The plant’s owner installed $650 million of scrubber technology in 2009, but closed it four years later because of more EPA regulations.

During a July 23 hearing of the Environment and Public Works Committee, Senator Deb Fischer (R-NE) summed it up when she said that EPA’s regulations will

force the premature retirement of efficient, low-cost coal-fueled generation; lead to the potential loss of billions of dollars in investments made over the last decade to make coal plants cleaner; require construction of higher-cost replacement generation; and increase natural gas prices.

Let’s not forget some of the significant costs that we will see. EPA estimates that its regulations will mean electricity price increases of six to seven percent nationally in 2020, and as much as 12% in certain places. There are also the job losses. The United Mine Workers expects over 152,000 jobs lost in the coal sector by 2035.

(We could have a clearer understanding of the proposed carbon rule’s job effects but EPA has failed to do the analysis.)

All these seen and unseen costs, and for what? Minimal global impact, as the Institute for 21st Century Energy’s Matt Letourneau notes:

The reduction in emissions from EPA’s rule would actually only decrease global emissions by 1.3%.  Based on projections from the U.S. Department of Energy, the amount of carbon dioxide emissions that will be reduced from EPA’s power plant rule is equivalent to just 13.5 days of Chinese emissions in 2030!

McCarthy can puff up the economic benefits of EPA’s carbon regulations all she wants. By using a little bit of logic and looking at the facts, we can see her agency’s plan will be a millstone on the economy. Just as a concerted effort to break windows doesn’t benefit the economy, forcing the restructuring of the power grid is not a path to sustained economic growth.

Follow Sean Hackbarth on Twitter at @seanhackbarth and the U.S. Chamber at @uschamber.

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