Speakers at the Export-Import Bank of the United States’ (US Exim) annual conference urged the government to pass long-awaited trade measures and prove the reliability of its policies. Melodie Michel reports.
Disagreements between Republicans and Democrats are not only delaying the reauthorisation of US Exim, but also creating controversy over the durability of such things as the Iran nuclear deal. The American government needs to move to reassure international trade partners, according to Andrea Mitchell, chief foreign affairs correspondent at NBC News.
“The congressional gridlock in the US is leading international partners to wonder whether what’s negotiated in the US will actually be carried out,” she said, at US Exim’s conference in Washington DC in April.
However, US Exim is confident that a reauthorisation agreement will be reached before its mandate expires on June 30, with speakers saying not renewing the export credit agency’s charter would be a “foolish” decision.
Every four to five years, the ECA must have its charter renewed. This process, previously relatively straightforward, has become hotly politicised, with Republican opponents accusing US Exim of “corporate welfare” and frequently lobbying to allow it to expire. Supporters of Exim claim that it creates jobs on US soil and that it supports US exporters abroad. US Exim has become emblematic of an age of polarised US politics.
“Exim is absolutely critical if we are going to be competitive in a global world. There are 60 ECAs around the world, and this week China and India announced efforts to expand their ECAs by billions of dollars,” said North Dakota Democrat senator Heidi Heitkamp, adding: “We think we’ll get there, we’re working very hard.”
There are currently two bills up for consideration in the House of Representatives and two different ones in the Senate, both recommending that the charter is renewed, and US Exim Chairman Fred Hochberg said he was “optimistic” that one of them would be approved.
Representatives of large and small corporates also expressed their support for the reauthorisation, with SME owners telling GTR they were “in denial” about the possibility of US Exim shutting down.
Boeing chairman and CEO Jim McNerney added: “If Exim goes away, there is an obvious competitive disadvantage that makes no sense at all. You’d have the Wild West. Boeing can survive but the competitive dislocation would be significant.”
One of the issues dividing opinion at Congress is whether or not current limitations on the financing of coal-fired power plants should be lifted, with the bill presented by Senator Heitkamp including that provision. Heitkamp claims that US coal companies should be eligible for US Exim support overseas, following the US government’s decision to adopt new guidelines in December 2013 which severely limited its ability to finance coal projects abroad.
In a statement, she defended that view, describing it as “a realistic compromise” that would be likely to pass through the Senate, despite the White House reasserting its support for the coal limitations.
At a London roundtable in April, US Exim chairman Hochberg reasserted the government’s support for the ECA’s environmental standards, and told GTR he didn’t believe the lifting of those limitations would be a condition for the reauthorisation.
Oil price impact
Other topics discussed at the conference included the low oil prices, which panellists believe will not have a negative impact on the US shale industry, and will rather help it consolidate.
While many in the oil sector expect the price drop to prompt a production decline for US shale – which would in turn lead to a cut in supply and therefore push prices back up – experts speaking at the Washington DC event said the industry would be surprised by shale’s resilience.
“We’re not as optimistic as Opec. We think US shale production is not declining, and the world is about to be surprised by how robust that technology is. We’re going to see consolidation in the system,” said Skip York, vice-president, integrated energy at Wood McKenzie, an energy consultancy.
Consolidation has already been observed by Jacqueline Hinman, chairman and CEO of engineering consultancy CH2M Hill. “The impact of falling oil prices depends on your timeframe. They are as good for America as they are for everyone else. We are seeing incredible efficiencies which will lead to a much more competitive, efficient, better-run oil and gas industry coming out of it. We will see the difference in terms of value operation,” she explained.
And while in the short term, large oil and gas projects around the world might be put on hold, these will be needed again in a matter of a few years, or crude runs the risk of undergoing a significant price spike when demand rises again at the end of the decade.
“The oil market is always anticipating and forward-looking and in a few years you’re going to need those large mega projects that were part of the reason why we’re in oversupply now. Eventually the price has to start going back to the point where those projects can be justified, because the other quick response like US shale oil will not be able to respond fast enough for the spike in demand towards the end of the decade,” added York, who expects the price to head back towards US$90 per barrel around 2018-20.
The exponential growth of renewables was also widely discussed at the event in the US capital. Forming more than half of the new energy capacity added in the world in the past three years, renewables have reached critical mass, but here again, policy issues could be a challenge. York referred to solar as “a disruptive technology”.
“In California, it’s becoming so competitive and on such scale that it’s disrupting the way energy is priced on
the hottest days of the year,” he said.
Paddy Padmanathan, president and CEO of energy giant ACWA Power, also believes renewables are at a turning point. He referred to a 200MW photovoltaic plant to be built in the UAE, which will be funded without any subsidies and benefit from a 25-year power purchase agreement with the Dubai Electricity and Water Authority (DEWA). Electricity generated from the plant has been priced at a record-low 5.84 cents/kWh.
“In January we submitted a very aggressive tariff for photovoltaic power plant, without any subsidies, on a 25-year concession. Renewable energy costs are coming down, panels are getting more efficient, plus the project is in Dubai so it’s got excellent solar resource, a good supply chain and good credit standing, which allowed us to put together a very attractive tariff.
“We are investing in these very large capital-intensive assets, putting our own equity capital in, borrowing large sums
of debt, and collecting it back over 20 to 25 years as we sell megawatts, so the tariff that we contract on day one needs
to remain relevant for those 25 years,”he said.
However, panellists stressed the need for uniform policies around renewable energy financing, with Jim Rogers, retired chairman of the board at Duke Energy, naming government policies as “the top impediment” for the sector. There are fears among many in the market that the US government is set to reduce subsidies for renewable energy, while some have encouraged the word “subsidies” to be exchanged for “incentives” as a means of placating the Republican opposition.
Finally, US exporters of renewable equipment expressed concern over competition from China. Matt Card, vice-president, global sales and marketing, at solar manufacturer Suniva, said that US manufacturers have been under “extreme attack from China”, adding: “It’s not going to be a level playing field – you have to realise that as a US manufacturer. In a geographic market segment that appears to be wanting to drive costs to zero, we know it’s unhealthy and can’t be honest: you can’t make money and quality is bad. I would love to see a more balanced environment.”