* Industry divided on the amount of LNG exports allowed
* Chairman Wyden says time for a fresh look at policy
* Environmentalists want more regulation of natgas output
WASHINGTON, Feb 12 Booming shale gas production is reshaping the energy outlook in the United States and Washington must re-examine how it regulates natural gas development and exports, lawmakers said on Tuesday.
On a day U.S. President Barack Obama is set to lay out his agenda in the annual State of the Union address, the Senate Energy Committee examined the implications of the shale gas revolution.
Technological breakthroughs in the drilling technique known as hydraulic fracturing, or fracking, have unlocked massive reserves of U.S. shale natural gas in recent years.
The dramatic change in the energy landscape has sparked debates over the environmental impact of rapidly expanding shale gas development and how much gas should be shipped abroad.
In his first hearing as chairman of the Senate energy committee, Democratic Senator Ron Wyden of Oregon lauded the growth in natural gas production, but stressed the need for adequate regulation and called for a thorough review of gas export guidelines.
"It is clearly time for a fresh look at our current policies and to start thinking about how to update those policies to reflect a very new reality," Wyden said.
Wyden, a prominent Congressional skeptic of unconstrained exports, repeated that he hopes to find a so called policy "sweet spot" where gas producers, manufacturers and the environment can all benefit.
The shale gas bonanza has opened the door to substantial liquefied natural gas (LNG) exports. More than a dozen companies are waiting for approval to send gas abroad.
The issue has divided lawmakers and manufacturers, however, with some raising concerns that copious exports will hurt certain energy intensive domestic industries that have used low gas prices to gain a competitive advantage.
Dow, one of the most vocal critics of unfettered exports, warned against trusting the market to determine the amount of U.S. gas shipped to foreign countries.
"Why take the risk and let speculators set gas prices like they did 10 years ago?" Andrew Liveris, chief executive of Dow Chemical Co, told lawmakers, referring to price spikes a decade ago that pummeled manufacturers and consumers. "We all remember the Enrons and what the efficient market did for us."
Dow, which left the National Association of Manufacturers over the group's opposition to any bans on gas exports, called for additional studies and a cautious approach to exports.
Liveris said at this point about 5 billion to 8 billion cubic feet a day of exports would be in national interest.
Still, several Republican lawmakers questioned whether the government should be setting limits on gas exports and Jack Gerard, head of the influential oil and gas lobbying group American Petroleum Institute, echoed these concerns.
"The worst thing we can do is have the government get involved and try to set a price," Gerard told lawmakers.
The shale gas bonanza has also spurred a backlash from environmentalists and some communities near drilling sites, who complain that fracking is a threat to public health.
Fracking, is a drilling technique that involves the injection of water, sand and chemicals underground at high pressure to extract fuel.
Frances Beinecke, head of the Natural Resources Defense Council, said the government should repeal exemptions for the oil and gas industry in various environmental laws. Currently, fracking is mostly exempt from federal regulation.
"Now shale gas production is expanding with supersonic speed without having in place even the basic environmental and public health requirements that apply to other industries," Beinecke said in prepared testimony.
The NRDC opposes expanded fracking until "effective safeguards" are imposed. Oil and gas drillers dispute the notion that fracking poses a threat to the environment and argue that states are best placed to regulate drilling.