Given the influx of ruling-related rhetoric in the realm of energy this week, it seems useful to take a look at some of these announcements - which cover ground from fracs to specs, from U.K. shale to U.S. LNG - to gain a better understanding. So without further ado, let us run quick ring around the rulings.
U.K. Shale Ruling
A report published this week by the British Department of Energy and Climate Change (DECC) assesses the environmental threat posed by hydraulic fracturing in the U.K. The results of the study are very positive for the natural gas industry, considering what transpired last year: Cuadrilla Resources suspended fracking operations in the Northwest of England after causing two minor earthquakes.
Cuadrilla itself confessed in a report 'it is highly probable that the hydraulic fracturing of Cuadrilla's Preese Hall-1 well did trigger a number of minor seismic events'. The recommendations from this week's report is for a tighter set of guidelines to mitigate the risk of seismic activity going forward, which given the quakes of last year (and the outright ban of fracking in France) must have natural gas producers (but not environmentalists) breathing a sigh of relief.
U.S. LNG Export Ruling
Monday saw the Federal Energy Regulatory Commission (FERC) give approval for Cheniere Energy's (LNG) proposed LNG export terminal - the first such approval from the regulator. This watershed decision means that the Sabine Pass site in Louisiana is the first project to receive approval from both the Department of Energy (DOE) and FERC, paving the way for LNG exports to become a reality by late 2015 / early 2016.
The terminal is approved to export 2.2 Bcfd (approx 3% of current total supply), with the DOE now left with the task (... or seemingly impossible juggling act ...) of assessing how much of the proposed additional 10 Bcfd of LNG export projects should be approved without significantly boosting domestic natural gas prices.
Oil Market Speculation Ruling
Last week President Obama announced a $52 million plan in the latest attempt to rein in high gasoline prices (OIL). The plan is based on trying to limit market speculation by increasing the supervision of oil markets, with $52 million going on increasing staff at the Commodity Futures Trading Commission (CFTC) by six-fold, among other measures.
While the consideration of releasing emergency oil stockpiles (USO) from the SPR seems as if it is addressing the wrong issue (gasoline prices are high because of global oil prices, not because of a lack of domestic supply), this attempt to rein in speculation would likely be just as ineffective. This is an effort by the administration to highlight it is trying to address high gasoline prices but there is no chance of being passed by Congress.
EPA Anti-Pollution Ruling
The EPA last week announced regulations to control air pollution from fractured gas wells (CHK), but the announcement has been somewhat overshadowed by news that drillers are being given extra time to install "green completion" equipment for drilling and fracking operations. 'Green completion' equipment helps to capture air pollution from fracked wells (UNG), and the EPA is enforcing the mandatory use of this equipment. The EPA had initially required the pollution-reducing equipment to be installed immediately after the ruling was finalized. However, drillers have now been given more than a two-year grace period in which to employ the technology.
This concession has been made as industry groups pushed hard for a delay as the equipment cannot be feasibly installed in the original time frame. Another possible reason for the delay has been attributed to the current administration as it seeks to demonstrate its support for domestic natural gas production.
Well, we have run a ring around this week's rulings. The origin of the phrase "a ring around the rosie" is from 1660s and The Great Plague of London, when one of the first symptoms of the bubonic plague was a rosy red rash. This is something to bear in mind when considering all types of regulatory changes; they can be either be a welcome remedy to combat an adverse symptom ... or a leading indicator of worse to come.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.