False sense of energy security a risk of US oil boom-council

* U.S. still has 'excessive reliance on oil'-report

* Producing more helps, but also needs to slash use

* Government needs to spur electric, natgas vehicles

* Caution warranted for natgas export decision

WASHINGTON, Dec 3 (Reuters) - A surprising U.S. energy

production windfall puts the country at risk of ignoring the

urgent need to transform its transportation sector to depend

less on oil and more on electricity and natural gas, a

high-profile group of chief executives and retired military

brass warned on Monday.

No matter how much oil is produced domestically, the U.S.

economy is vulnerable to the risk of global price shocks caused

by unrest or production cuts in the Middle East, they said.

"We caution that the situation has not fundamentally

changed, and that it would be dangerous to allow a false sense

of security to result in complacency and inaction," the

nonpartisan Energy Security Leadership Council said in a report

on Monday.

The recommendations come as Washington searches for ways to

boost revenues and cut spending to address the massive U.S. debt

without hurting the economy, which continues to bump along at a

low rate of growth.

Against that backdrop, the energy sector has been a rare

bright spot, boosting jobs, giving new life to the manufacturing

sector and contributing to government coffers.

Production surges have been so strong that the United States

is on a path to overtake Saudi Arabia as the world's top oil

producer by 2017, and will be close to self-sufficient in energy

by 2035, the International Energy Agency forecast earlier this

month.

But the council warned that because of its "excessive

reliance on oil," U.S. energy independence is "meaningless from

a practical standpoint" because oil prices are determined

globally. That means the United States could struggle to

increase economic growth with regular oil price spikes.

The council is led by retired General P.X. Kelley, former

Marine Corps Commandant, and Frederick Smith, chief executive of

Courier delivery giant FedEx Corp whose business is

highly sensitive to transportation costs.

They are to discuss their recommendations at a public event

on Monday with Gene Sperling, a top White House economic policy

advisor and a player in current fiscal talks, as well as

Republican U.S. Senator Roy Blunt of Missouri.

STREAMLINE REGULATION

The council urged the administration and lawmakers to take

steps to spur more energy production, including revising the

five-year offshore drilling plan, and overhauling the

bureaucracy for permits for major energy projects - drilling,

renewables, transmission lines and pipelines.

"Today, regulation is too often an opaque process that

serves to dissuade private sector investment through practically

unlimited delay," the council said.

It recommended that the White House Office of Information

and Regulatory Affairs be responsible for overseeing permits for

major energy projects, establishing a 30-month total timeline

for federal reviews of projects.

Currently, projects can be held up for years in an

interagency process before the government makes a decision.

Backers of the Keystone XL oil pipeline, for example, first

applied for a government permit in 2008, and still await a

decision.

UNFORESEEN EFFECTS OF ENERGY EXPORTS

But the council said a cautious approach is warranted for a

tricky decision which could come next year on whether the United

States will allow more exports of liquefied natural gas (LNG).

More LNG exports could make domestic natural gas prices

higher or volatile, but at the same time could improve the U.S.

trade balance and strengthen the dollar, it said.

Expanded U.S. LNG exports would tend to displace exports and

lower prices for Russia and Algeria, which count on export

revenues. That could contribute to instability in those

countries, the council said.

"The decision that policymakers make on the question of LNG

exports will have very significant - though not always clear -

impacts on the U.S. economy, our strategic interests, and the

overall geopolitical landscape," the council said, noting it

plans to release a full analysis of the issue in mid-2013.

ALTERNATIVE FUELS

The council praised new fuel economy standards finalized in

August by the Obama administration as "the most important

progress on energy security in decades" because they will slash

oil consumption.

But it said the government needs more investment in research

to reduce the cost of electric and natural gas vehicles, and

must provide incentives for building refueling infrastructure to

make consumers more comfortable buying them.

The Obama administration plowed $2 billion into grants for

battery makers in its first term, but the industry has faltered

because of weak demand, and Republicans have panned the

government's loans and grants for "clean energy" as wasteful.

"Policy needs to be reoriented away from an approach that

has thus far largely emphasized supply-side subsidization

through grants and loans to individual companies," the council

said.

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