As the Obama administration released its recommendations to modernize the nation’s energy infrastructure, a midstream panel at the IHS CERAWeek conference in Houston also tackled the issue of how to handle the sudden bounty of U.S. hydrocarbons.
“The real driver of change in the United States in terms of oil supply is volume, location and quality,” said Sarah Ladislaw, director and senior fellow of the energy and national security program for Washington-based Center for Strategic & International Studies (CSIS), a bipartisan think tank. “To really understand the nature of that change, you’ve got to understand that. It’s not only that volume in general was increasing at a rapid pace, certainly overshadowing what we had previously been expecting for continental supply growth.”
Seven regions of the country have been predominantly responsible for the vast majority of the growth, Ladislaw said, with much of that growth representing new and different challenges for the previously held refining perspective, which was built to handle imported heavy crude and was faced with domestic light oil from shale plays.
“There was a mismatch between the infrastructure that we had and the infrastructure that we needed to be able to actively market the oil supply that was coming online,” she said.
Among the recommendations in the administration’s Quadrennial Energy Review:
- Accelerate pipeline replacement and enhance maintenance programs for natural gas distribution systems. In this initiative, the U.S. Department of Energy would provide financial assistance to states in the range of $2.5 billion to $3.5 billion to incentivize improvements in the safety and environmental performance;
- Analyze the Strategic Petroleum Reserve (SPR) to determine an appropriate size and configuration, then make an expected $1.5 billion to $2 billion investment in infrastructure life extension;
- Update SPR release authorities to reflect modern oil markets;
- Spend $4 billion to $5 billion to improve shared energy transportation infrastructure connectors (rail, barge, truck);
- Address critical energy transportation data gaps and continue to share data with the Surface Transportation Board; and
- Examine alternative financing arrangements for waterborne transportation infrastructure and look for public-private partnerships to finance port and waterway improvements.
“Pipelines, obviously, are still the dominant way of moving crude oil within the country, but this surge of not only additional rail capacity but also oil being carried by barge and other modes of transportation is really something that policy makers are particularly interested in,” Ladislaw said.
CSIS released a report in February, “Delivering the Goods,” designed to inform federal policy makers of the changing midstream oil infrastructure in the U.S. Transportation safety topped the list of policy issues to address, particularly the issue of crude by rail.
“When it comes to delivering crude by rail, a lot of it is about working the risk out of the system,” Ladislaw said, urging a long-term, coordinated, public-private approach.
Echoing the administration’s concerns, CSIS wants attention paid to the SPR. “Nobody wants to talk about the SPR because it’s a big lift, it requires congressional action,” she said.
CSIS also recommends revisiting the ban on U.S. crude oil exports; examining inefficiencies surrounding the Jones Act, which regulates movement of oil by tanker; and climate change, which Ladislaw said will be a growing and important part of the policy conversation in the next couple of years, especially if a new Democratic administration follows the current one.
Contact the author, Joseph Markman, at jmarkman@hartenergy.com.
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