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Still Waiting for Cellulosic Biofuels – EPA Continues to Deny Reality

2012-05-25T17:24:29+00:00

To pretty much no one’s surprise, EPA announced Friday that it is denying a petition that it reconsider its 2011 advanced cellulosic mandate. The petition was filed by API and the National Petrochemical & Refiners Association (now American Fuel & Petrochemical Manufacturers).

The reason it’s not surprising is that the decision came more than a year after the petition was filed and five months after the end of 2011. Refiners really had no recourse even if EPA had granted the petition.

The rejection is symptomatic of a larger problem: EPA’s continued improper use of its waiver authority. We now know that no cellulosic biofuels were produced in 2010, 2011 or in the first three months of 2012 (see API’s chart, based on EPA data, below). Yet EPA continues to assert that aggressive mandates that aren’t based on actual production will somehow stimulate production of these fuels. It’s hard to argue that approach has worked so far.

It’s also worth noting that because EPA took so long reviewing this petition, we now know that no cellulosic biofuels were produced in 2011 – no need to make any educated guesses. So EPA, despite knowing that no cellulosic biofuels were produced in 2011, decided in mid-2012 to uphold a mandate that is not zero. Thus, refiners are required to buy compliance credits for a fuel that doesn’t exist, and that EPA knows doesn’t exist.

At some point technological advances will lead to the commercial production of such fuels. In fact, the refining industry is investing billions attempting to develop such fuels from feedstocks like algae and switch grass. But as the National Research Council concluded last fall, “Currently no commercially viable biorefineries exist for converting cellulosic biomass to fuel.”

These fuels aren’t here now, and EPA’s poor policy decisions just underscore the problems with the current unworkable mandate. Maybe they hope no one will notice when such decisions are announced the Friday before a holiday weekend.

On Disclosure Rule, SEC Should Heed White House

2012-05-25T16:57:51+00:00

Common sense should be applied to a federal transparency proposal – the U.S. Securities and Exchange Commission’s pending Section 1504 rule that would make U.S. energy companies disclose what they pay foreign governments and the U.S. government for projects in those countries. The rule also should be consistent with administration policy … as in a directive from the president himself.

The president’s May 1, 2012, executive order, promoting international regulatory harmony and reducing unnecessary business costs by aligning U.S. regulations with those in other nations, appears applicable to Section 1504 – which looks like a harmony wrecker and more.

In written comments to the commission, API Vice President and General Counsel Harry Ng argues Section 1504 could bring U.S. companies into conflict in countries where the reporting of payments to the host government would violate that country’s laws – while also putting companies at a disadvantage in the marketplace. Ng:

“If the (SEC) were to issue a final rule that requires reporting even when it conflicts with foreign laws, such a rule would cause exactly the type of unnecessary competitive harm that the Executive Order seeks to avoid. The rule as currently proposed would create inconsistencies with the existing international disclosure standard promoted by the Extractive Industries Transparency Initiative. The proposed rule would also require some American companies operating abroad to make the Hobson's choice between violating foreign laws (and subjecting themselves to civil or criminal penalties) or abandoning operations in foreign countries that prohibit disclosure.”

Section 1504’s good intentions – to help citizens in other countries know what their governments are doing with their natural resources – unfortunately could have unintended negative results.

While the oil and natural gas industry supports transparency, Section 1504 as written could harm some U.S. companies’ ability to compete with larger, state-owned rivals who are not subject to the provision. The disclosure of detailed information, possibly proprietary in nature, would give an obvious edge to competitors.

The administration should follow the president’s own policy directive and fix this problem. Ng:

“To avoid such conflicts and their costly consequences, API and other commenters have suggested that the Commission use its definitional authority, and, if necessary, its exemptive authority to exempt the reporting requirement where reporting would cause a company to violate foreign law. Tailoring the rule in this manner would further the Administration's goals of harmonizing regulatory approaches among nations and facilitating economic growth and job creation.”

Video: FracFocus.org and the Shale Energy Revolution

2012-05-25T13:29:55+00:00

We extended first-anniversary greetings to FracFocus.org last month, but it bears repeating as the folks at the Groundwater Protection Council and Interstate Oil and Gas Compact Commission (IOGCC) have produced a new video on the chemical disclosure registry:

Growth of the online registry during its first year was remarkable, with 15,000 wells included in the data base. IOGCC Executive Director Mike Smith from the video:

“It gives educational information about the process, allowing the landowner or interested party to log on and take a look at the well site near his home or anywhere across America for that matter.”

There’s no shale energy revolution without hydraulic fracturing, and FracFocus is integral to maintaining public confidence in that process – to keep that revolution going, in Year 2 and beyond.

Higher Supply = Higher Prices or NRDC Flunks Econ 101

2012-05-24T16:02:32+00:00

Who could have imagined the day would come when the Natural Resources Defense Council (NRDC) crafted a report focused on relieving Americans’ “pain at the pump”?

But there it is: the same group that once stated “there’s nothing we can do to control the price of gas in America” released a paper this week outlining the ways in which Keystone XL pipeline is apparently poised to make prices at the pump go higher – as if higher gas prices were something the group actually opposed.

Of course, we know the truth about NRDC’s position on gas prices – that they support policies that increase the cost of fossil fuels to discourage their use. What’s tougher, though, is determining how the group came up with a methodology allowing it to argue, in effect, that greater supply of secure sources of oil from Canada via the Keystone XL somehow equates to higher prices for fuel.

We take pride in going where few others have gone before, places like: reading an NRDC report in its entirety. And that’s what we did; then we took some time to correct some of the worst mistakes made therein. Below, our attempt to set the record straight:

NRDC: “The Keystone XL tar sands pipeline would pump up to 830,000 barrels per day (bpd) of some of the world’s dirtiest oil…”(p.3)

FACT: Oil sands crude oil has similar characteristics to most heavy oils refined in the United States and its use will not have the catastrophic effect on climate as many opponents suggest.

Prior to being transported via pipeline from the extraction site, oil sands crude is upgraded to a standard similar to other heavy crude oils commonly transported and refined throughout the country, including locally-produced California heavy crude..

NRDC: “By taking oil from Midwestern gasoline refineries to Gulf Coast diesel refineries, Keystone XL will decrease the amount of gasoline available to American consumers.” (p.3)

FACT: A Department of State/EnSys report found that U.S. refinery throughput (a.k.a production) was the same with or without Keystone XL (see Figure 5-11, page 59). The report also found that the increase in U.S. product supply cost between scenarios with and without Keystone XL was only 0.6% in 2030 (page 74).
FACT: Keystone XL and other pipeline projects will increase the total amount of Canadian crude supplied to the US. This is not a matter of diverting crude from one part of the country to another, but of increasing the total supply to US refineries, both in the Midwest and Gulf Coast.
FACT: Regarding the implication that Midwestern refineries are “gasoline refineries” and Gulf Coast refineries are “diesel refineries” a quick look at Energy Information Administration (EIA) data shows that Gulf Coast refineries produced more finished motor gasoline in 102 out of the last 103 weeks.

NRDC: “Data from the fourth quarter of 2011 indicate that the majority of refined products produced in Texas Gulf Coast refineries were exported on the international market.” (p.4)

FACT: By an overwhelming margin, US refineries produce products primarily for US consumers. In 2011, only 8% of on-road fuel produced in the US was exported, according to EIA.
FACT: Despite our exporting power, the U.S. is not exporting supply demanded by domestic markets. Refineries produce a number of different products from a barrel of oil and the vast majority of U.S. petroleum product exports consist of byproducts of the transportation fuels refining process that have less of a demand domestically (e.g., asphalt, residual fuel oil, petroleum coke).

According to the U.S. Energy Information Administration (EIA), in 2011, 99.7 percent of the crude oil produced in (or imported into) the United States was also consumed here, which means less than one-half of one percent (0.3 percent) was exported. More on this faulty export argument here and much more here.

NRDC: “[T]he numbers show that by reducing available gasoline supplies in the United States, the Keystone XL pipeline will likely increase pressure on retail gasoline prices.” (p. 5)

FACT: The EIA examined the potential effects KXL would have on consumer gasoline prices (as cited in the Dept. of State/EnSys report), concluding that the project “would not adversely affect Midwest gasoline consumers” and that “Gasoline prices in all markets served by PADD I [East Coast] and III [Gulf Coast] refiners would decrease, including the Midwest” (p. 4).”

NRDC: “Existing pipelines from Canada to the United States provide enough capacity to move all the oil that Canada produces.” (p. 6)

FACT: Both refining capacity and pipeline infrastructure are expected to be inadequate to meet the surge in production from the oil sands. IHS CERA projects that by 2015, Midwest refineries will no longer have capacity to process oil sands crude, and according to the U.S. State Department, new production is expected to exceed existing pipeline infrastructure by the year 2020.

Because of a glut of production, crude oil supply in the U.S. Midwest is nearing saturation. Soon, there will not be enough refineries equipped to refine Canadian oil sands crudes in the Midwest. Expanding pipeline capacity to the U.S. Gulf Coast, where refineries are capable of handling heavier crudes due to their historical intake of Mexican and Venezuelan heavy grades, will benefit consumers by allowing access to more refined products. The U.S. Gulf Coast refining complex is the world’s largest concentration of refineries that can process heavy crude, and is connected to other regions of the country by a robust finished product pipeline infrastructure and is more strategically positioned to meet the nation’s energy needs.

NRDC: “One of the primary purposes of the Keystone XL tar sands pipeline is to increase the price of Canadian tar sands and profits for the multinational companies that produce the tar sands.” (p.7)

FACT: Surely President Obama had the profits of multinational companies in mind when, standing in Cushing, Okla. (home to a significant oil bottleneck) he said: "We're producing so much oil and gas in places like North Dakota and Colorado that we don't have enough pipeline capacity to transport all of it."

In addition to serving a key role in our nation’s energy infrastructure, the Keystone XL will generate significant job growth and revenue nationwide. The $7 billion project will generate as many as 20,000 new U.S. jobs during construction alone and create $20 billion in new spending. The latest data from the Canadian Energy Research Institute (CERI) shows that 10,000 U.S. jobs will not be created next year due to the project delay. By 2015, that figure jumps to 45,000 jobs and close to 85,000 jobs by 2020.

NRDC: “Refineries may attempt to pass on higher costs to consumers directly in the form of higher gasoline prices.” (p.8)

FACT: EIA has already debunked this assertion (see above). Moreover, since the U.S. imports gasoline, prices are tied to global markets. In that sense, gasoline is just like crude, where refineries have no such ability to directly set the price of crude oil. According to market logic (but brought to you by API’s report on gasoline prices), “[c]rude oil prices are set globally through the daily interactions of thousands of buyers and sellers in both physical and futures markets, and reflect participants’ knowledge and expectations of demand and supply.”

NRDC: “[T]he destruction of the Boreal forest substantially increases the carbon impacts of tar sands production.” (p. 10)

FACT: Canada’s oil sands development has affected less than 0.2 percent of Alberta’s boreal forest. The Alberta Biodiversity Monitoring Institute (ABMI), a non-profit organization created to monitor the impacts of oil sands development on Alberta’s biodiversity, reports that the Lower Athabasca region shows a species intactness index of 94 per cent – close to a completely intact condition for the region.

NRDC: “Relying on the international market for much of their crude oil supply, East Coast refineries are paying the highest price in the nation for crude oil feedstocks…The costs are being passed on to East Coast consumers, who pay some of the highest gasoline prices in the country.” (p. 9)

FACT: While it’s true that many East Coast markets are currently paying some of the highest prices for gasoline, the market conditions have little to do with the Keystone XL debate. NC State University economist Mike Waldren succinctly explains what’s happening to our fellow citizens:

“First of all, we don’t have the pipelines [to ship oil from the Midwest to the East Coast]. And secondly the refineries in the East Coast were built to refine oil from Africa and from the Mid-East … not the oil from the Midwest of the U.S. And so what we have right now is a problem. We have a problem of oil supplies going up in the Midwest of the U.S. but that oil not being able to be used on the East Coast, and that’s resulted in a difference in … prices on the East Coast being much higher than prices in Midwest.”

Report: Industry Commitment to Workplace Health, Safety Paying Off

2012-05-24T15:19:10+00:00

According to a new API report, the U.S. oil and natural gas industry’s workplace safety record measures favorably with the private sector – reflecting the industry’s commitment to providing safe and healthy work environments for its employees.

The report includes 18 charts and tables comparing non-fatal injury and illness rates for the oil and natural gas industry (and its various sectors) to the rates of other U.S. industries and sectors. The charts and tables are based on data from the Bureau of Labor Statistics’ Survey of Occupational Injuries, Illnesses, and Fatalities, the Bureau of Ocean Energy Management, Regulation and Enforcement and the Pipeline Hazardous Materials Safety Administration. You can go to the report to learn more about the definitions, classifications and methodologies.

Here’s a quick look at the high points, starting with a chart that shows annual rates of injuries/illnesses, per 100 workers, for the oil and natural gas industry (orange line), compared to the U.S. private sector as a whole (blue line):

Chart No. 2 splits out individual oil and gas sectors – such as exploration and development, refining and pipeline transportation – and compares their injuries/illnesses per 100 workers (orange or brown bars) with comparable U.S. sectors – those that use processes similar to the oil and gas industry to produce their goods and/or services:

This last chart looks a little like rush-hour traffic, but click on it for a larger view and you’ll see it shows the oil and natural gas industry’s injury/illness rate with various non-comparable industries:

The takeway, again, is that the oil and natural gas industry’s commitment to a safe workplace is earning it a favorable comparison with other industries and sectors – with an injury and illness incident rate that consistently improves on the private sector average.

Let’s wrap things up with a video on industry workplace safety by the Western States Petroleum Association:

Massachusetts, Jobs and the Shale Energy Revolution

2012-05-23T19:37:52+00:00

Interesting report in the Boston Globe about how a ripple of economic benefits from shale natural gas development is reaching a non-energy state, Massachusetts.

Clean Harbors, Inc., a Norwell, Mass., company that delivers environmental services, estimates that demand for its know-how from shale-rich Pennsylvania generated 25 percent of its $2 billion in revenues last year – a number it expects to grow this year. “We just see a tremendous market that needs all of the services we provide,” says Chief Executive Alan McKim, who figures his company’s shale-related business is growing about 25 percent a year. “In the U.S., there’s huge potential,’’ McKim says. The Globe adds:

“Clean Harbors is just one example of how the unlocking of natural gas reserves hundreds of miles away promises to benefit Massachusetts companies and the state economy. At first glance, the abundant supplies in Northeast shale formations offer lower energy costs for businesses and consumers … But as Clean Harbors also shows, booming gas production is providing a market for one of the state’s main exports: expertise. Consulting, financial services, and even technology firms are finding new customers in the shale industry.”

Other examples from the Globe:

A Bedford, Mass., firm reports strong demand for software that analyzes sensor readings from drill bits and pipelines.
A Burlington, Mass., company that sells software to manage production, processing and transportation of natural gas says business from shale country is so brisk it is hiring recent chemical engineering and computer science grads to stay ahead of growing demand for its products.
A Marlborough, Mass., consulting firm reports an increase in its business of advising energy companies on investments related to various shale formations.
A Boston energy capital investment firm says it has put several billion dollars in natural gas pipelines, processing plants and storage facilities as a result of the shale revolution.

It’s just one report from one state. But the anecdotes are real, and they support oil and natural gas industry assertions that energy production in Pennsylvania, North Dakota, Texas and other states creates job growth beyond the industry itself.

Now, who still wants to dismiss indirect or induced jobs that are being generated by energy industry activity?

Apples, Oranges, and the Oil Sands

2012-05-23T14:49:52+00:00

The Congressional Research Service (CRS) added to the pile of conflicting well-to-wheels analyses with its report released this week, “The Life Cycle Assessment of Canadian Oil Sands,” written in the context of the Keystone XL project. Just like its predecessors, CRS wades into the world of assessment comparisons, choosing previously-published reports with seemingly common variables to come up with an emissions calculation slightly different from the rest. The problem, however, is that more often than not, apples are compared to oranges and policymakers are misled.

The report concludes that the Canadian oil sands emit 14 to 20 percent more greenhouse gases (GHGs) in a well-to-wheels (WTW) comparison with other crude oils imported into the United States “despite differences and input assumptions” of the various studies considered. This wouldn’t be the first time that a life-cycle assessment (LCA) of the oil sands reached a similar conclusion, but a closer look at the findings – and consideration of other analyses that CRS omits – suggests that a comparison of a few cherry-picked reports does not make a sound policy reference for our representatives on Capitol Hill.

Here’s some insight and analysis into the report’s six major flaws:

1. CRS engages in analysis that is the equivalent of comparing “apples to oranges.” In Figure 2, CRS compares a wide variety of studies as if they are comparable despite the State Dept’s own supplemental analysis states that those particular data sets should not be compared across the board:

“Although the comparisons within each study are internally consistent, the variation in the properties of the reference crudes results in an “apples to oranges” comparison across the different studies…[Synthetic crude oil, diluted bitumen], and a full range conventional crude oil may have nearly the same API gravity, but very different energy or GHG intensities to produce a barrel of premium fuel products.”(Supplemental Draft EIS, ICF Report, Appendix B)

A meta-analysis, like IHS CERA’s 2011 report “Oil Sands, Greenhouse Gases, and US Oil Supply”, would have allowed CRS to better compare results across reports. A meta-analysis combines and analyzes the results of multiple studies with the goal of providing more accurate data than any single study. Unfortunately, CRS chose to exclude those findings from critical parts of its report.

2. CRS’ Well-to-Tank conclusion discounts the most energy-intensive part of a fuel’s life-cycle – combustion. CRS finds that:

“[D]iscounting the final consumption phase of the life-cycle assessment (which can contribute up to 70-80% of Well-to-Wheel emissions), Well-to-Tank emissions…have a range of increase from 72%-111% over the average …” (p. xi)

That’s a difference of as much as 91 percent(!) as compared to the well-to-wheels (WTW) figure. A similar oil sands analysis from IHS CERA, which was noted but omitted in the CRS report, found that life-cycle GHG emissions are only 5 to 15 percent higher than the average. A significant reason for the difference in figures is that combustion emissions “do not vary for a given fuel among sources of crude oil.” That means at least 70 percent of the WTW emissions rate is the same across comparative crude oils – leaving a relatively small percentage of the total life-cycle to determine a differential between oil sources.

3. CRS overlooks the fact that GHG emissions from the Canadian oil sands vary and can be less than some conventional crudes. CRS incorrectly lumps all Canadian oil sands crudes together and omits other important sources of oil, leading to the incorrect conclusion that they are definitively the most GHG-intensive crude oils (see Figure 3). IHS CERA’s analysis shows that the GHG emissions from the oil sands vary widely, depending on production and processing methods, and that emissions from crude oil cover a wide spectrum – with Canadian oil sands crudes interspersed along the continuum. The difference in conclusions between the two reports is notable – and a point of which policymakers should be made aware.

4. CRS fails to mention significant improvements in GHG emissions as a result of stringent environmental regulations already in place in Canada. In 2007, the Government of Alberta implemented GHG regulations requiring a mandatory 12 percent reduction in emissions for all large industrial sectors, including existing oil sands facilities. As a result of these and other regulations, GHG emissions have reduced by 23 million tons – an equivalent of taking 4.8 million cars off the road. That is more than or equal to CRS’ (questionable) estimate that Keystone XL will increase emissions equal to approximately 588,000-4,061,000 passenger vehicles. Following this logic, environmental regulations will essentially cancel out emissions increases brought on by additional oil sands infrastructure projects.

A few other facts to consider:

The average amount of steam used in today’s in situ projects per unit of output is about 15 percent lower than a decade ago. (IHS CERA, 2010)

GHG emissions per barrel of oil produced being reduced by an average of 29 percent between 1990 and 2009. (Gov’t of Alberta, 2011)

GHG emissions from the oil sands industry are equivalent to .5 percent of emissions in the U.S. and only .001 percent globally. (CAPP, 2011)

5. The report is not clear enough about a crucial fact: Keystone XL will not change projected emissions as a result of development of the oil sands. Development of the Canadian oil sands is projected to increase regardless of the delay in the Keystone XL project due to other pipeline options and other transportation options (e.g. rail). The Canadian Association of Petroleum Producers (CAPP) predicts that the oil sands will experience significant growth over the next decade and beyond, from 1.5 million barrels per day (bpd) in 2010 to 3.7 million bpd in 2025. Notably, CRS figures that Keystone would only amount to an increase of 0.06 to 0.3 percent in annual GHG emissions for the United States. IHS CERA (The Role of the Canadian Oil Sands in the US Market) comes to the conclusion that KXL would increase U.S. emissions about half of what CRS says.

6. Even CRS itself concludes that LCAs can be misleading and should not be the sole consideration when developing energy policy. As the research arm of Congress, members of Congress lean on CRS to develop unbiased reports on topics of interest as they consider important policy decisions. Despite headlines that grabbed onto the WTW figures CRS reports in its findings, it’s important to note that CRS, in addition to several other similar analyses, conclude that there is considerable disagreement among LCA experts over what variables should be included when calculating WTW emission rates, which leads to a high degree of variance between different models:

“…LCAs retain many variables and uncertainties. These uncertainties often make comparing results across resources or production methods problematic. Hence, the usefulness of LCA as an analytical tool for policymakers may lie less in its capacity to generate comparative rankings, or “scores,” between one source and another, and more in its ability to highlight “areas of concern,” or “hot spots,” in the production of a given hydrocarbon fuel. (p. 24)

Policymakers should consider these assessments as one among several factors when evaluating the cost of using a particular fuel. Here are a few excerpts from studies omitted by CRS:

“Some variation between studies is expected due to differences in methods, technologies studied, and operating choices. However, the magnitude of the differences presented suggests that a consensus on the characterization of life cycle emissions of the oil sands industry has yet to be reached in the public literature.” (Charpentier et al., 2009)

“Field-level data on life-cycle GHG emissions are very spotty and require a great deal of estimation, resulting in considerable uncertainty in the life-cycle emissions of all crude oil sources. Additionally, crude oils of similar quality are mixed in the pipeline distribution system, although their life-cycle GHG emissions could be quite different depending on how and where the crudes were produced.” (IHS CERA, 2010)

“None of the existing studies were designed to answer the types of questions they are being used to answer. As a result, no existing study, or the combination of studies, is accurate, complete for transparent enough to use for major infrastructure and public policy decisions.” (Pembina Institute, 2011)

“As shown, the GHG emissions from some steps can be readily determined. However, the carbon intensity of crude oil production is more difficult to determine from some locations because the data are either unavailable or of low quality. In other locations, especially Alberta Canada, data on energy used and GHG emissions from crude oil production are routinely reported to the government and the reports are audited.” (Jacobs, 2012)

Generation Next: Securing Tomorrow’s Energy Industry Workforce

2012-05-23T14:16:07+00:00

Recently, ExxonMobil Development Co.’s L.M. Tillman addressed a gathering at the Offshore Technology Conference on the subject of energy industry employment. Tillman, vice president of engineering, said that economic growth in the developing world will drive the demand for energy and with it, the demand for energy workers. Here’s a follow-up Q&A with Mr. Tillman on energy employment, opportunities for younger workers and industry’s efforts to secure the next generation of workers.

Q: Where are the best opportunities to work in the industry, and what kind of skill sets are needed to land jobs and advance rapidly?

A: For the industry to be able to meet the energy challenge, it needs engineers and scientists who can push technology and innovation, analyze problems and develop creative solutions, and think differently about the challenges that our industry faces. Engineering and science degrees will continue to be in high demand in our industry.

There are numerous challenges ahead, not least of which is the need for safe, reliable and affordable options to meet the world's growing demand for energy. The challenge for the next generation of oil and gas professionals will be to innovate and to accomplish what by today’s standards may seem impossible. I believe that by applying technology and innovation and the great minds in this industry, the world doesn’t need to choose between economic growth and environmental stewardship.

Q: In an age when workers have tended to move from job to job, career to career, is there real opportunity for people to spend an entire working career in oil and gas, and what is the industry doing to attract and hold young workers?

A: The energy industry faces a severe human resource challenge. In the U.S. alone, nearly half of employees in the energy industries will be eligible for retirement within the next 10 years. This human resource challenge has two separate but related elements—attracting the next generation of engineers and geoscientists and bridging the demographic gap in the industry created by our past hiring practices.

When you look at ExxonMobil’s demographics, which are largely representative of the industry’s, we have my generation moving toward retirement. And a trough just behind us that must be bridged. And that bridge can only be built using our young professionals, those less than 35 years old, and connecting them with the wisdom and knowledge of those senior professionals before they make their exits.

Replenishing and developing the future workforce in the energy sector requires strategic thinking and a long-term approach, and one of the first steps is to prepare young people for a career in the energy industry. At ExxonMobil, we're committed to fostering the next generation of scientists and engineers by encouraging students to take an active interest in careers in math and science through programs such as the National Math and Science Initiative. In 2010, we directed nearly $110 million to education worldwide.

We also take a disciplined, structured approach to developing all of our employees to their fullest potential. This includes everything from technical and nontechnical training, to robust mentorship programs, to exposure to cutting-edge technology and tools. We constantly strive to cultivate diverse and accomplished employees who bring passion and initiative to their jobs. And we seek opportunities to link our senior technical professionals to our early career professionals for wisdom sharing and knowledge transfer by making that interaction an explicit expectation of their roles.

Q: How does the industry compare to others in terms of opportunities for advancement, gaining responsibility and moving into leadership roles?

A: In March 2011, the SBC Energy Institute released the results of its 2010 Oil & Gas HR Benchmark survey (based on the responses of 29 oil and gas companies and 77 universities). The results highlighted two major trends. First, that the major demographic shift now underway will markedly alter the age and experience profile of the exploration and production industry, and second, that technical talent is a strategic enabler for delivering production and future growth.

In terms of demographics, the most common structure of E&P companies in the last decade will soon no longer exist. By 2015, the typical major or independent will have moved from a demographic profile where seniority tended to prevail to one in which young professionals are in the majority. This is a major shift for many companies in Europe, and in North and South America.

This demographic shift will have consequences in terms of management and leadership. Just as technology is evolving and creating new ways of working, the new generation joining the industry is different from its predecessor with career goals, the image of the oil and gas industry, and lifestyle considerations being at least as important to early career professionals as compensation and benefit packages. Upstream companies will need to adapt to the highest requirements of the new generation in terms of career management and mobility.

The approach to leadership will also have to adapt. Younger leaders, younger CEOs, will emerge at the top of large oil and gas companies where traditionally top-level jobs were awarded more on seniority.
The mantle of leadership will be passed quickly as the demographic wave creates retirements for the more senior and opportunities for the more junior. This is true in both the technical and management spheres.

Our industry, the oil and gas industry, will remain viable, essential and relevant for the next generation of young professionals and beyond. These young professionals will see more responsibility, earlier; higher expectations of leadership, sooner; rapid development of technology, accelerating even more; and more scrutiny of their actions, instantly. The path ahead will have surprises but the future is bright for those that choose to be part of the energy industry.

Q: How can someone be proud of working for the oil and natural gas industry today, and what is the industry’s draw to new workers, compared to other careers/sectors?

A: The energy industry is a dynamic, exciting place to work, and energy production, in my view, is a noble, yet often misunderstood, pursuit – one that makes a dramatic difference in the lives of people around the world each and every day.

It may be difficult to believe, but today there are more than 1 billion people around the world who lack access to even the most basic forms of energy – this is a challenge that each of us needs to embrace. In 2040, five-sixths of the world’s 9 billion people will live in developing countries. More people, many in rapidly developing economies, means that more energy will be needed – and lots of it. We expect energy demand to grow at an average rate of 0.9 percent a year from 2010 to 2040 and to be about 30 percent higher than today's levels.

Delivering the energy that the world needs – energy that can lift people around the globe out of economic distress and into prosperity – is the fundamental challenge for our industry and failure is simply not an option. It won’t be easy. And it will require trillions of dollars of new investments, significant advancements in technology and talented professionals with the skills, dedication and desire to make a difference.

Keystone XL: Safety, Reliability and Jobs

2012-05-22T19:08:49+00:00

TransCanada President and CEO Russ Girling has a letter to the editor in the New York Times after the newspaper’s recent editorial criticizing the Keystone XL pipeline. Main points:

The Keystone XL would feature the strongest steel and would conform to the highest safety standards.
TransCanada already has agreed to 57 special conditions laid out by the federal pipeline administration, including remotely controlled shut-off valves, increased inspections and burying the pipe deeper than originally proposed.
The Keystone XL has successfully cleared three separate environmental reviews. The final, 10,000-page environmental impact statement said that measures taken by TransCanada would result in a “project that would have a degree of safety over any other typically constructed domestic oil pipeline system under current code.”

Girling:

“TransCanada has safely and reliably operated pipelines and other energy infrastructure across North America for more than 60 years. Our existing 2,154-mile Keystone pipeline from Alberta to Cushing, Okla., has delivered 240 million barrels of Canadian oil safely to American markets since 2010. It would be a shame for Americans not to receive the benefits of Keystone XL — a secure supply of North American oil and thousands of jobs — if the project is not approved.”

The Keystone XL pipeline is central to a forward-looking, long-term energy strategy, capable of delivering more than 800,000 barrels of oil per day from neighbor and ally Canada. It and other infrastructure projects could allow the United States to see 100 percent of its liquid fuel needs supplied domestically and from Canada by 2024.

Girling is right: Denial of this important energy project would be a shame. Last week the House of Representatives voted for the sixth time to advance the project, one the American people support by a 2-1 margin, according to Gallup. The Keystone XL has been reviewed, exhaustively. Questions have been answered, problems solved. There are no more good excuses for keeping it on the drawing board.

Stop-Gap Energy vs. Stable Energy

2012-05-22T16:07:55+00:00

Scroll down a bit in this wrap-up of last weekend’s G8 Summit from The Hill newspaper, and you’ll see that the president and other G8 leaders hinted that they might ask for a draw on the world’s oil reserves to offset disruptions in supply from Iran. Their statement:

“There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose a substantial risk to global economic growth. … Looking ahead to the likelihood of further disruptions in oil sales and the expected increased demand over the coming months, we are monitoring the situation closely and stand ready to call upon the International Energy Agency to take appropriate action to ensure that the market is fully and timely supplied."

The Hill says the White House was mum on whether the U.S. Strategic Petroleum Reserve might be tapped. Even so, we’ll take the point implied in the G8 statement, that increasing world supply has some positive effect on the global crude markets – which drive prices at the gasoline pump.

Though the administration’s usual response to tightening in the global markets has been to talk about reducing U.S. demand, the fact that the president has visited with G8 leaders about increasing supply from reserves suggests he believes, as we do, that supply matters.

Republican presidential candidate Mitt Romney:

“The G8 is right. An increased supply of oil would help to promote economic growth, reduce prices, and strengthen our hand in confronting Iran. Unfortunately, President Obama has taken precisely the opposite approach and continues to stifle our domestic production and our access to Canada’s resources, while looking to our strategic petroleum reserve each summer to make up the difference. … If he agrees that increased supply is good for America, he should take immediate action to approve the Keystone pipeline, accelerate production in the Gulf, and open new federal lands and waters for development.”

Instead of an emergency draw-down from the strategic reserve, policy should be focused on developing long-term, stable sources.

Construction of the Keystone XL pipeline would bring upwards of 830,000 barrels of oil per day from a reliable source and ally, Canada. Oil output in the Gulf of Mexico continues to struggle against administration policies that basically flattened out production the past two years, putting us way behind where we were forecast to be (see chart). New policies are needed to open up federal lands, about 60 percent of which remain off limits.

All of these policy actions are ours to take. Needed is the political will and leadership necessary to develop American resources for America.

Made in America: Increase Access for Secure Energy Future

2012-05-21T20:45:58+00:00

American-made energy. With the Energy Information Administration projecting that the United States will need more than 16 percent additional energy by 2035, the idea that we could, before then, see 100 percent of our liquid fuel needs met domestically and from Canada is huge. Make that gigantic.

Increased access to American energy resources is the key. API’s recent report to the two political parties’ platform committees marks the way – offshore:

Open the eastern Gulf of Mexico to oil and natural gas exploration and development
Open the Atlantic Outer Continental Shelf
Open the Pacific Outer Continental Shelf

And onshore:

Open the 1002 Area within the Arctic National Wildlife Refuge in Alaska
Open portions of the Rocky Mountains
Lift New York state’s drilling moratorium
Promote timely review of energy projects on federal land

No question, it will take some significant policy changes to unlock these ample supplies. Offshore, for example, 87 percent of federal acreage remains off limits. In the chart below the areas in red are closed to energy exploration and development. We need new policies to open them, to begin to make available nearly 101 billion barrels of oil and 480 trillion cubic feet of natural gas.

Onshore, the story on federal lands is similar. The United States has an estimated 88.6 billion barrels of oil and 654.3 trillion cubic feet of natural gas, according to the Bureau of Land Management. Yet 60 percent of federal onshore lands are closed to energy development.

Key in this is the small portion of the vast Arctic National Wildlife Refuge (ANWR) – an airport-sized parcel on the coastal plain of a refuge that’s the size of South Carolina. ANWR could provide about 1 million barrels of oil per day, oil that would be available today if it weren’t for opponents who argued, in part, that it would take 10 years to bring ANWR oil online – 10 years ago!

A commitment to increased access is key to an energy future that’s secure – again, one where 100 percent of our liquid fuels come from North American sources:

Video: Water Management is in Everyone’s Interest

2012-05-21T15:24:14+00:00

Check out this video by WPX Energy that describes the careful way energy companies are using water from Donegal Lake in south central Pennsylvania for hydraulic fracturing.

Regulatory Manager David Freudenrich notes that water levels in the lake are carefully monitored to make sure the lake has plenty of water for fishing and surface recreation. Below certain levels companies aren’t allowed to draw water for fracking. They also can’t draw lake water at the beginning of trout season, Freudenrich says. Take a look:

For more information, please visit EnergyFromShale.org.

Study: E15 Could Put Some Engines at Risk

2012-05-18T21:20:06+00:00

More on the potential risk to America’s car and truck fleet posed by E15 – gasoline containing 15 percent ethanol that has EPA approval: Just-released research indicates that more than 5 million existing cars and light trucks, which EPA says are OK for E15 use, could develop engine problems as a result.

Why this discrepancy? The Coordinating Research Council (CRC), a non-profit entity supported by the automotive and oil and petroleum industries, tested the durability of engines using tests that have been conducted for more than a decade to determine how well engines would hold up with a new fuel.

On the other hand, the Department of Energy (DOE) and EPA tested the catalyst system and then used the results of those tests to say the engine would be fine. It’s a bit like taking a reading test to determine whether your heart is healthy.

A key finding in the CRC study:

Of eight different tested engine types, one had a design that was (in retrospect) inappropriate for the test cycle, two failed on E20 (20 percent ethanol) and E15, and five passed on E20 and by assumption E15 and E0 (gasoline with zero ethanol content). The two engine types that failed E15 testing successfully completed reference testing on E0.
The majority of the failures can be linked to issues with valve seats, either related to material or wear/deformation.

There are at least 5 million known engines on the road today with the same or similar characteristics to the two engines that failed on E20 and E15. Because testing was done on only a small proportion of the light-duty engine types currently in use, the number of at-risk engines probably is higher.

API President and CEO Jack Gerard, during a conference call with reporters this week:

“EPA’s decisions in 2010 and 2011 approving E15 ethanol-gasoline blends for most American vehicles were premature and irresponsible. … Worse, as API noted in its press briefing two weeks ago, it approved the fuel even though government labs had raised red flags about the compatibility of E15 with much of the dispensing and storage infrastructure at our nation’s gas stations. … Not all vehicles in the CRC tests showed engine damage, but engine types that did are found in millions of cars and light duty trucks now on America’s roads.”

Mike Stanton, president and CEO of Global Automakers:

"We can build the cars for the fuels, but the EPA made this retroactive to 2001 and that is the problem. … Our goal is to ensure that new alternative fuels are not placed into retail until it has been proven they are safe and do not cause harm to vehicles, consumers, or the environment. The EPA should have waited until all the studies on the potential impacts of E15 on the current fleet were completed."

Mitch Bainwol, president and CEO of the Alliance of Automobile Manufacturers:

“The study… indicates the risk for consumers is profound, with clear environmental, safety, fuel efficiency and financial implications. Cars were not built for E15. It’s that simple – and now we have material evidence that validates our concerns.”

Not surprisingly, the CRC study doesn’t sit well with some folks. A DOE blog criticized the CRC study’s methodology rather than focusing on the identified risks and concerns for consumers.

First, DOE seems to think that it has more expertise than the car designers and manufacturers who conducted the CRC tests. CRC has been doing work of this kind for more than 70 years, often with DOE’s funding. Even more interesting: Through the National Renewable Energy Laboratory, DOE was an active participant in the technical oversight panel for the CRC study throughout its duration and at no point raised any concerns. Other points:

Valvetrain-type engines that were tested were selected from among popular 2001-2009 models, not cherry-picked for failure. Indeed, five of the engines that were tested passed the E20 test. If someone was trying to pick engines that would fail testing they did a pretty poor job of it.
The engine pass/fail determination was made after engine teardown and analysis. The use of the 10 percent cylinder leakage criterion to determine whether there may be engine distress is a well-established and accepted industry standard used in engine development and was used as a signal that teardown was required. The CRC study indicated use of E15 would damage the valves in some engines, leading to cylinder leakage, loss of compression and power.
Nobody should be all that surprised that DOE found no discernible impact of E15 based on teardown inspections of engines used in its catalyst durability study. After all, its study was just that – an evaluation of the effects of higher levels of ethanol on a catalyst (i.e., the catalytic converter). It was never designed to specifically assess the stresses of mid-level ethanol blends on an engine. For DOE and others to draw conclusions about the effect of ethanol on an engine based on a test designed for a catalyst evaluation is not only scientifically unsound, it is just plain wrong.

See a more detailed rebuttal of DOE’s comments, here.

E15 is a perfect example of why the Renewable Fuels Standard is becoming unrealistic and unworkable. EPA made a rushed and premature decision to meet a political deadline in the fall of 2010. The CRC research shows that EPA didn’t do its homework and is willing to put the consumer’s vehicle at risk. EPA needs to base its decision on sound science, not political goals. The auto and oil industries conducted a scientifically sound and robust study, and the results from the CRC study should be concerning.

Gerard:

“The value of these vehicles along with the value of vulnerable gasoline dispensing equipment at the nation’s 157,000 gasoline service stations could run into many billions of dollars. EPA’s waivers put these investments at risk. The result could be more vehicle repairs for consumers and upward pressure on gasoline prices. … This is breakthrough research that should’ve been done by EPA. … Our data needs to be looked at.”

Video: A Plan for Our Energy Future

2012-05-18T19:48:25+00:00

According to the Energy Information Administration, oil and natural gas supply more than 60 percent of the energy we currently use and will supply near that level for decades to come. The question is, how will America meet the challenge of that energy reality?

A presidential election year is an excellent opportunity for a conversation about energy policy. This week API presented a policy roadmap to the two political parties that takes into account the country’s ample oil and natural gas resources and discusses ways to use them for more jobs, a better economy and greater national security. API President and CEO Jack Gerard:

“The question facing America is not whether we will continue to need oil and natural gas in the decades to come. The question is: Where will we get it? Will we use our own vast energy resources or rely on others? … I believe we must acknowledge this energy reality and make the choices that will lead us to a greater energy future.”

See Gerard’s speech at the unveiling of API’s platform report below:

View the entire event, including a panel discussion of energy issues:

Ethanol – Academics and Reality

2012-05-16T20:59:48+00:00

Supporters of continuing ethanol subsidies are once again using a study out of Iowa State to bolster their case, and once again, it doesn’t. This year’s study, “The Impact of Ethanol Production on U.S. and Regional Gasoline Markets: An Update to 2012,” is an update to their previous work. In reviewing that work, here’s what the Institute for Energy Research concluded:

"The recent Iowa State study claiming that ethanol production has suppressed the growth in gasoline prices is very misleading. It takes for granted the current refinery capacity and other infrastructure that industry uses to deliver gasoline to motorists, without realizing that federal policies over the years have distorted the development of these markets. Ethanol only survives in the market place at its current levels because it is propped up by artificial mandates and preferential tax treatment. The regression analysis of the Iowa study doesn’t accurately capture the timeline that would have occurred had the free market been allowed to operate."

The studies’ authors concede as much:

"Because these results are based on capacity, it would be wrong to extrapolate the results to today's markets."

And yet, ethanol’s supporters extrapolate away. Here’s more on why they shouldn’t.

Common Sense: The Renewable Fuel Standard (RFS) mandates ethanol volume that must be consumed in the U.S., and motor gasoline fuel in the U.S. is nearly saturated with ethanol at current legal limits. The U.S. is a net exporter of ethanol. It doesn’t make sense that incremental ethanol production results in downward pressure on gasoline markets.

Questionable Results: The results for 2011, even to the report’s own authors, are questionable, and possibly invalid. Specifically, the authors say:

"The results for 2011 are very large. These results may be questionable because we multiply a mean coefficient that is estimated over the entire sample period against data that is specific to the end of the sample period. We can be much more confident in the statistical accuracy of the estimated average impact but this estimate is not relevant to the current debate because ethanol production has surged since the mid-point of the historic data."

They correctly identify that ethanol has a 2-3 percent decrease in range when compared to gasoline, and then go on to say that its energy value is about 9 cents per gallon. They then indicate that ethanol is blended with gasoline primarily for its additive properties, such as boosting octane and oxygen content.

First, seven years ago the oxygen mandate was removed when the Energy Policy Act of 2005 was signed into law, so oxygen content is not a property the refiners are seeking. Second, to meet the RFS, refiners are required to blend gasoline with as much ethanol as possible. Indeed, the amount that can be blended today that will work in all vehicles and small engines is a 10 percent ethanol blend. The study does not consider the possibility that without the ethanol mandates, refiners might modify their manufacturing process to produce a fuel that does not require ethanol. Yet, the authors say, none of this makes any difference to the overall conclusions. How can that be?

Exaggerations Abound: The benefits of small increases in ethanol manufacturing for 2011 are overly exaggerated, especially in the context of essentially unchanged ethanol consumption between 2010 and 2011 (EIA reports an increase from 12.86 billion gallons to 12.87 billion gallons, respectively). The report is exaggerated because this small increase does not account for increased ethanol exports. We support the manufacturing of ethanol, but we must be realistic and recognize that increased production of ethanol that is above what can be used in the U.S. is not likely to have the ability to impact gasoline prices in the U.S.

A Bad Model: This analysis is deeply flawed as it relies on an out-of-date model that doesn’t reflect current markets. Beginning in January 2010, the U.S. became a net exporter of ethanol. This is a critical structural change in the U.S. ethanol industry. However, this aspect is not included in the report’s econometric model. This is a serious omission and doesn’t accurately reflect ethanol’s impact. The authors indicate that: “…U.S. prices are lower than EU prices by an amount equal to transportation costs. In context a $1.09 per gallon marginal impact for 2011 seems reasonable.” However, transportation costs on gasoline have been typically only pennies per gallon, and stating that $1.09 is “reasonable” does not pass the red-face test. As Marlo Lewis notes:

“I’m no econometrician, but this study does not pass the laugh test. We’re supposed to believe that ethanol has conferred a giant boon on consumers even though gasoline prices have increased as ethanol production has increased, and even though gas prices hit their all-time high when ethanol production hit its all-time high. If that is success, what would failure look like?”

Inaccurate statements: The report states that the surge in ethanol production has essentially added 10 percent volume to the fuel supply, and that to remove the ethanol fraction of gasoline would decrease supply, which in turn would raise gas prices when demand is held constant. More accurately, the RFS mandate to blend ethanol has displaced 10 percent of the petroleum portion of gasoline and replaced it with ethanol. This reduced need for gasoline has contributed to such unintended consequences as reduced refinery runs and refinery shutdowns. The report also ignores the fact that the current economic recession has further reduced gasoline demand. The report states that as a result of ethanol, the U.S. has been able to reverse trade patterns and export gasoline. The study doesn’t appear to take into account gasoline blending components. The U.S. still remains a net importer of gasoline and blendstocks. Here is the Energy Information Administration U.S. Gasoline Balance for 2011:

API supports a realistic and workable Renewable Fuel Standard. But, the U.S. will soon hit the 10 percent ethanol “blend wall,” where the vehicle fleet will no longer be able to tolerate additional ethanol in the gasoline supply. The negative economic impact of hitting the blend wall may be substantial and is not addressed in the report. So what is this “blend wall?” Autoblog.com explains:

“What's this blend wall term that's tossed around in the corn fields of this country? Basically, ethanol demand is maxed out at the current 10 percent blend rate and production has hit a ceiling. So, unless either gas demand increases or the blend rate goes up, there's just no need for any more ethanol at the pump.”

As we have seen, gasoline demand is not increasing in the United States, and with the new CAFE standards it is unlikely to increase, so ethanol producers are seeking to increase the blend rate. But rather than trying to expand their U.S. market by having the federal government force U.S. consumers to use their products, ethanol producers should pursue new markets –via exports–not new mandates.

In an Election Year, Time to Talk Energy

2012-05-16T20:33:55+00:00

Just a thought, but how great would it be if one of this fall’s presidential debates focused solely on energy issues?

Past presidential debates have discussed the economy and jobs, national security and foreign policy, and of course all of those are important. Yet, when you think about it, energy is the nexus where all come together.

Energy runs our economy, literally, and the quest for it supports millions of jobs and could create hundreds of thousands more. Our need for reliable, affordable energy figures prominently in national security and foreign policy decisions. An America that meets most or all of its energy needs here at home would be safer, its prosperity less vulnerable to geo-political developments.

So, when the people who decide the topics for this year’s presidential debates get together, maybe they might consider devoting one evening for a thorough energy discussion. Exelon’s James Connaughton, former senior energy and environmental policy advisor in the Bush administration, talking this week about energy as an election-year issue:

“This is the first election in a long time where energy is in the top five list – not surprisingly because of the immediate connection to jobs and economic growth. In the past, when jobs and economic growth weren’t at the forefront, maybe we weren’t thinking about energy so much. But I’m amazed – both the Obama campaign and the Romney campaign, they’re spending a lot of time talking about energy and visions of energy.”

There’s plenty to talk about. This week API presented a series of platform recommendations to the two political parties that get to the heart of what America’s energy future could look like. The planks:

Greater domestic resource access

Open the eastern Gulf of Mexico and the Atlantic and Pacific outer continental shelves for energy exploration and development, where more than 100 billion barrels of oil and nearly 480 trillion cubic feet of natural gas are believed to exist. Currently, 87 percent of our offshore areas are closed to exploration and development:

Open a small portion of the Arctic National Wildlife Refuge and parts of the Rocky Mountains to development, while lifting the drilling moratorium in New York.

Common Sense Regulation

Build a federal regulatory structure that’s transparent, open to input from all stakeholders and bases rules on sound science.
Develop a rule-making process that’s based on legitimate cost-benefit analysis and implementation timelines that consider economic impacts and resource availability.
Adopt an approach that accounts for the cumulative effect of multiple regulations, avoids unnecessary duplication and provides regulatory certainty.

Efficiency and Timeliness in Permitting

Approve the complete Keystone XL pipeline immediately.
Create a federal permitting process that encourages investment in U.S. offshore projects.
Increase federal lease sales and adopt pro-access processes to improve development on public lands.

As this chart shows, delays in government leasing and permitting are a contributor to the trend lines in oil and natural gas production in federal onshore and offshore areas:

Sustainable Energy Future

Commit to market-based development of new energy sources (instead of government picking winners and losers through the tax code).
End calls for special, punitive tax increases on the oil and natural gas industry.

API President and CEO Jack Gerard:

“A political and policy commitment to a developing our domestic oil and natural gas resources will provide not just energy security, but financial security for millions of Americans. … Through the Vote 4 Energy campaign, we have outlined our vision for a future where people and the economy benefit with hundreds of thousands of new jobs, increased investment in America and billions in new revenues for government while bolstering national security.”

Unused Leases? You’ve Got to be Joking!

2012-05-15T19:03:44+00:00

The warmed-over claim that oil and natural gas companies aren’t using large numbers of leases on public lands is like a Mark Twain line: What’s the difference between a cat and a lie? A cat only has nine lives!

Seriously, here we go again, with the administration claiming (again) that leases in federal areas offshore and onshore aren’t being used. It made similar claims in 2009 and again last year. Politico Pro [subscription required] says this year’s report is basically last year’s with a few updated numbers. Here’s a statement from Interior Secretary Ken Salazar:

“These lands and waters belong to the American people, and they expect those energy supplies to be developed in a timely and responsible manner and with a fair return to taxpayers.”

Let’s be clear: It’s simply false that oil and natural gas companies are sitting on existing federal leases while deviously clamoring for more access to other federal areas. Let’s go through the reasons why the administration’s claim doesn’t pass the laugh test.

First, energy companies are in the business of supplying energy. When they’re successful finding oil or natural gas, there’s benefit to their shareholders, including millions of Americans with pension funds, individual investments, mutual funds and IRAs – the true owners of Big Oil. Energy produced = earnings, which are used to invest in new exploration and development. These companies have every incentive to produce as much oil and natural gas as possible.

The industry is one of exploration and development, not just production. Exploration means years and millions of dollars invested in finding the energy. Too often this development is, in fact, idled by government, not industry. API President and CEO Jack Gerard, from Tuesday’s Vote4Energy event unveiling platform recommendations to the two political parties:

“If you look at their characterization of idle leases, normally they include in that leases where we’re trying to get permits, we’re trying to get permission to develop this land. For example, there was a permit approved just last week in Utah, which Secretary Salazar took great credit for. We’ve been waiting for four and a half years for that approval. In the administration’s previous analysis they would have concluded that was an idle lease, while we’re waiting for Uncle Sam to give us permission to produce these resources, to identify resources on public lands. … The industry last year alone invested $200 billion in the United States, so we’re hardly sitting on anything.”

Meanwhile, it’s also important to remember that a lease isn’t a guarantee that an area will contain any oil or natural gas. Most of them don’t have enough oil or gas in quantities sufficient to produce or in formations that are accessible. Here’s a graphic that puts the search for resources in context:

Indeed, if a company determines there’s no oil or natural gas on the lease, it returns the lease to the government, because it has to. Companies have a legal obligation – under the already existing Use-It-Or-Use-It law – to return the lease to the government if no oil or natural gas can be produced from the lease. Use-it-or-lose –it is already part of existing laws, regulations and the contracts entered into between the government and the operators.

Now, a word or two about report flim-flammery. The administration has defined as “idle” leases that aren’t idle at all. They might not be producing for a number of reasons: because of ongoing seismic work, because government permits haven’t been issued, because the rigs and supporting resources are being put in place so drilling can begin – or because drilling is occurring.

It’s just misleading to say a company is sitting on a lease when it is waiting for a government-issued permit to start drilling. These delays have broad impact. A new study commissioned by the Western Energy Alliance shows that delays related to government policy on western federal lands not only have held up energy development, they’ve prevented the creation of more than 64,000 jobs, $4.3 billion in wages and $14.9 billion in economic impact.

So why is there continued harping on unused leases? Politics. ExxonMobil’s Ken Cohen put it well when the administration released its 2011 report:

“It is hard to escape the conclusion that this study, along with the ‘use it or lose it’ legislation, is a thinly veiled political ploy … because there’s already a ‘use it or lose it’ law on the books. Politicians who don’t want to open up access to U.S. energy resources also don’t want to be blamed for high gas prices – so trying to convince Americans that oil companies are sitting on precious oil resources is their strategy. We’ve seen this before, and we’re seeing it again now.”

Again, like the joke about the cat, we’ve heard the line about unused leases before. It’s getting old.

Watch Live: Energy in an Election Year

2012-05-15T12:10:30+00:00

Editor's note: The event has concluded. Archive footage is available above.

With the right leadership and policies, the United States can take control of its energy future. A new estimate that an oil shale formation in the western U.S. holds 1.5 trillion barrels of recoverable oil, expanding production of natural gas from shale and analysis that the U.S. could secure 100 percent of its liquid fuel needs through North American sources within 15 years certainly support that conclusion.

Leadership and policies. Specifically, what will it take?

At an event today, API will present recommendations to the Republican and Democratic platform committees – proposals that include detailed calls on resource access, regulatory approach and key policies needed to utilize our ample domestic resources for a more secure energy future.

In addition, API President and CEO Jack Gerard will deliver a short speech, followed by a bipartisan panel discussion with energy advisors and experts.

You can watch livestreaming of the event starting at 9 a.m. above:

Gerard:

“The question is not whether we will continue to need oil and natural gas. We will. The question is: will we use our own vast energy supplies or rely on others? … There is a choice when it comes to the policies that will help shape America’s energy future—two paths that we can take. One leads to more jobs, higher government revenues, and greater U.S. energy security—which can be achieved by increasing oil and natural gas development right here at home. The other path would put jobs, revenues, and our energy security at risk.”

Continuing the Dialogue with the White House

2012-05-14T22:56:01+00:00

Takeaways from White House energy and climate adviser Heather Zichal’s appearance at Monday’s hydraulic fracturing workshop in Washington, D.C., hosted by API:

Outreach – The oil and natural gas industry agrees with the Zichal and the administration that constructive dialog on energy issues is, well, constructive. Zichal:

“I give [API President and CEO] Jack [Gerard] and API and a lot of their member companies credit for this. We have worked over the last few months to try to set a better dialogue and create a better working relationship, because what the industry is doing is important from a job-creation perspective.”

Certainly, a fact-based energy discussion has wide benefits. One of the first facts to acknowledge is the role oil and natural gas play in our current energy mix (more than 62 percent of the energy we use) and the role they will play in the future (near 60 percent in 2035, according to the Energy Information Administration). Developing other energy sources and technologies is important, but any credible energy approach must include strategies to support and enhance oil and natural gas – our No. 1 and No. 2 energy sources for today and tomorrow.

Standards – Zichal acknowledged the importance of industry-developed standards:

“We know that natural gas can safely be developed, and to the credit of the industry there are many companies that are leaning into this challenge and promoting best practices for safer and more efficient production. That’s not always widely noticed or appreciated, but it’s a fact. For example, a group of major producers in the Appalachian Basin just last week announced new recommended standards and practices to promote safe and environmentally responsible energy development in that region. This kind of leadership and the underlying commitment by industry to continuously improve and adopt effective practices as technology evolves is something our administration applauds.”

We welcome this recognition on behalf of the administration by Zichal, who’s chairing the White House interagency working group that is coordinating the ongoing federal hydraulic fracturing review. For some time industry has been committed to developing standards and guidelines for hydraulic fracturing, which form the basis for many companies’ operations and upon which a number of states have crafted their regulatory regimes. Perhaps Zichal’s acknowledgement will help lessen the chance the federal government will unnecessarily duplicate what the states already are doing.

States – Related to standards, Zichal said that the administration recognizes the states are the No. 1 or lead regulator of hydraulic fracturing. Gerard, during a conference call with reporters last week:

“The states are regulating hydraulic fracturing effectively and are fully capable of handling it on a larger scale as shale development expands. … They understand the risks and challenges. They understand the local geology and hydrology. They have the experience.”

Exports – “As a general rule of thumb, we [the administration] are not opposed to [liquid natural gas] exports,” Zichal said. While there’s some elasticity here, perhaps the general acknowledgement that abundant U.S. natural gas may be exported – benefiting our trade balance while supporting U.S. jobs – will tamp down talk in Congress of restrictive natural gas legislation.

Of course, the true test is what the administration does. Will its actions on domestic oil and natural gas match its words? Will it help increase access to these resources and others in federal areas onshore and offshore – reversing the downward trend in natural gas production on federal lands? Will Zichal’s task force prevent the overregulation of hydraulic fracturing that could check the energy-from-shale revolution in its infancy?

Good questions. Stay tuned.

Hansen’s Oil Sands Facts are Lost in Space

2012-05-11T17:59:15+00:00

To hear it from environmental activist James Hansen, development of the oil sands in Canada will usher in the apocalypse, “game over for the climate,” as he wrote in a recent New York Times op-ed.

It’s a frightening thought, but unfortunately for Mr. Hansen, it’s not grounded in realistic assumptions.

Of course, this isn’t the first time Hansen has proclaimed “game over” if the oil sands are developed. In June 2011, Hansen penned a letter calling the oil sands a “monster,” the development of which would mean “game over” in the global effort to control carbon emissions. Hansen wrote that the oil sands contain “at least” 400 gigatons of carbon, which would equate to adding about 200 parts per million (ppm) to the atmosphere.

But in his recent op-ed, Hansen now states that the oil sands contain 240 gigatons of carbon. What changed?

The reasons are likely numerous, but a significant one came from Andrew Leach, who pointed out last summer (right after Hansen published his letter) that to get the carbon content Hansen claimed, you’d have to burn 2.4 trillion barrels of oil – or about 40 percent more oil than the total in-place resources found in the Canadian oil sands. It’s worth noting that the new figure Hansen uses – 240 gigatons – is 40 percent lower than his original claim. Leach also noted that it would take until the year 3316 to get the amount of oil out of the ground that Hansen is referencing.

Moreover, total oil in place does not indicate how much oil will be produced. Although technologies are constantly evolving to allow for greater recovery rates, the oil sands in Canada are estimated to hold about 170 billion barrels of oil in proven reserves, with as-yet undiscovered, technically recoverable resources being pegged at about 320 billion barrels, or about 86 percent less oil than what Hansen suggested in his original “game over” model.

What’s even worse about Hansen’s doomsday scenario is the “solution” he offers to rectify it: a new tax on carbon that could raise energy costs for consumers, who might not be able to purchase as much, decreasing demand. Hansen specifically references “the reduction in oil use resulting from the carbon price” as something that would, somehow, “stimulate innovation, jobs and economic growth, avoid enlarging government or having it pick winners and losers.”

How a new tax to be collected and distributed by the federal government will “avoid enlarging government” is anyone’s guess.

Finally, Hansen assumes that efficiencies have completely flatlined and will not improve – a hypothesis that doesn’t even pass the laugh test, much less empirical evidence. As just one example, congressionally mandated increases in fuel economy through 2025 will substantially reduce U.S. gasoline consumption. This, combined with increased oil supplies from Canada through the Keystone XL pipeline, would allow the U.S. to reduce oil imports from unfriendly countries like Venezuela – with the added advantage of the environmental benefits pipelines offer over other forms of transportation.

In short, Hansen’s “game over” scenario suffers from significant flaws in its assumptions, and the fix he proposes for his wild projection could actually create additional and unnecessary economic pain to American consumers.

The truth is that development of the oil sands – and the approval of the Keystone XL – will create tens of thousands of new jobs, significantly grow the economy and further enhance America’s energy security. And as U.S. Secretary of Energy Steven Chu has said, companies developing the oil sands are “making great strides in improving the environmental impact of the extraction of this oil and will continue to do so.”

Not so frightening now, is it?

Oil and Energy Security

2012-05-10T20:03:14+00:00

The Congressional Budget Office has a new report out on energy security that’s sure to spark conversation. Much of that will seem muddled and polarized – not because of the speakers, but because of the nature of the report itself. Let’s start with its basic premise:

“One widely used definition of energy security – and the one used in this report – is the ability of U.S. households and businesses to accommodate disruptions of supply in energy markets. Households and businesses are ‘energy secure’ with respect to a particular source of energy if a disruption in the supply of that source would create only limited additional costs.”

CBO is correct that the cost of energy matters, but having actual energy also matters. The report notes, for example, that the U.S. lacks “alternatives” that can be substituted in large quantities for oil for transportation needs if there’s a significant global supply disruption or global price increase. This brings us to supply and demand:

“Policies designed to decrease the impact of increases in oil prices that persist for several years or more can also be divided into those that would increase the supply of oil or oil substitutes (such as increasing domestic oil production) and those that would encourage consumers to reduce their reliance on oil (such as increasing the gasoline tax or developing vehicles that are more fuel efficient or that use other types of fuel). Both types of policies would tend to lower the world price of oil, either by making more oil available to the world market or by reducing demand for it …”

There’s certainly a divide between those pushing for greater U.S. supply and those pushing for decreased U.S. demand. But that’s a political divide. The energy reality is that we need both – a true all-of-the-above strategy.

Still, political opponents of increased domestic oil and natural gas development (and increased U.S. supply) surely will seize on this line in CBO’s report:

“Policies that promoted greater production of oil in the United States would probably not protect U.S. consumers from sudden worldwide increases in oil prices stemming from supply disruptions elsewhere in the world,”

While ignoring what comes after the comma:

“even if increased production lowered the world price of oil on an ongoing basis.”

First, let’s note that even as CBO downplays the usefulness of increased domestic oil production, it acknowledges that increased domestic supply is, well, useful in the context of the world price of oil. As for the first part of CBO’s assertion, the fact is that more domestic production must result in one of two outcomes:

Greater supply on the world market resulting in greater crude and/or refined product storage; or
Increased worldwide spare capacity

In either case, energy markets would be in a better position to weather a supply disruption without a major spike in prices. That’s not to say there would be no impact, but it would certainly help provide greater protection from such shocks.

Oil is a worldwide market for which the price is determined by supply and demand. What CBO is saying is that on an ongoing basis, increased U.S. supply could lower the worldwide cost and thus, on an ongoing basis, the price for U.S. consumers. CBO argues, however, that if there’s a sudden supply drop (see Libya last year) or even a possible supply drop (see Iran this year), there could be consumer price spikes regardless of the level of U.S. production. The problem with arguing this way against increased domestic production is that day-to-day prices also are an energy security argument. Yet, there also are day-to-day costs to reducing demand:

“Such policies would impose costs on vehicle users (in the case of fuel taxes or fuel-efficiency requirements) or taxpayers (in the case of subsidies for alternative fuels or for new vehicle technologies). But the resulting decisions would make consumers less vulnerable to increases in oil prices.”

In other words, let’s raise day-to-day costs for consumers to shield them from sudden increases in oil prices. New technology vehicles that remain out of the price range of most Americans aren’t much of an energy policy. But it’s really this next part that drives home the need for a real all-of-the-above strategy:

“An increase in crude oil prices would also have a permanent effect on the economy, as the increase in payments to foreign producers and owners of oil assets would represent a transfer of wealth out of the United States.”

But what if, instead of a negative permanent effect, we created a positive permanent effect by keeping that money here:

By securing 100 percent of our liquid fuel needs by 2024.
By not placing 87 percent of our offshore acreage off-limits.
By not slowing down federal permitting in the areas where we’re allowed to develop U.S. resources, both offshore and onshore.
By not keeping a million barrels a day from ANWR sitting on the sidelines.
By not blocking upwards of 800,000 barrels of oil a day from Canada.

What if we took charge of our energy future by taking charge of supplying it? Combined with continuing efforts, led by the oil and natural gas industry, to reduce demand and find alternatives – that’s what energy security looks like.

Going Beyond Rhetoric on Natural Gas

2012-05-10T14:02:44+00:00

Over on the White House Blog, there’s genuine enthusiasm for natural gas, and for good reason. Natural gas is clean-burning, affordable and so abundant that a number of experts describe it as a game-changer, a 100-year energy source.

In the here and now, natural gas that comes from shale through hydraulic fracturing is lifting state and regional economies while revitalizing the U.S. manufacturing sector. Heather Zichal, deputy assistant to the president for energy and climate change:

“Since taking office, President Obama has supported an all-out, all-of-the-above strategy that develops every available source of American energy. A strategy that’s cleaner, cheaper, and full of new jobs. As part of that effort, the Administration has focused on expanding production of natural gas. After all, we have a supply of natural gas that can last America nearly 100 years. And this Administration will continue to take steps to develop this energy resource in a way that can help fuel our economy and, according to industry experts, support more than 600,000 jobs by the end of the decade.”

Zichal is right about the need to expand natural gas development. And it can be done, given the right policies. Eye-popping growth, job creation and industrial/manufacturing revitalization – occurring in states like North Dakota and Pennsylvania – can happen on a larger scale. With the right policies.

Unfortunately, the administration’s actions don’t always match its rhetoric. Although Zichal says the administration is “focused on expanding production of natural gas,” this is not occurring in the places where the administration has the most control of development: on federal lands. The chart below (Energy Information Administration data) shows that natural gas production on federal lands is declining – even as production on non-federal lands is taking off.

Certainly, the Interior Department’s approval this week of more than 3,600 natural gas wells on federal lands in eastern Utah is a move in the right direction. But then, Bureau of Land Management rules on hydraulic fracturing on federal and tribal lands threaten development with new regulatory hurdles. API President and CEO Jack Gerard, during a conference call with reporters:

“These rules are headed in the wrong direction. They would create superfluous, costly requirements, threatening jobs, revenue and energy production while providing little or no environmental or safety benefit. One must ask, where is the need?”

More Gerard:

“It takes 14 days to get a drilling permit to work on private land in North Dakota. It takes more than half a year on average to get a federal drilling permit for development on federal lands. A report by SWCA Environmental Consultants concluded that lengthy delays by BLM in reviewing projects in Wyoming put the development of an estimated 17,000 wells on hold.”

It’s good that the administration, at least rhetorically, is embracing the promise of natural gas. But reaping the blessings of this abundant resource takes more than cheerleading. It takes policy actions – policy restraint, in some cases – to turn natural gas’ potential into reality.

Job Creation To-Do List? Here’s Ours

2012-05-09T20:06:54+00:00

Here’s the president talking about job creation Tuesday in Albany, N.Y.:

“Now, we know the true engine of job creation in this country is the private sector – it’s not Washington. But there are steps we can take as a nation to make it easier for companies to grow and to hire, to create platforms of success for them -- everything from giving more people the chance to get the right training and education to supporting new research projects into science and technology.”

Sounds good. On job creation the private sector definitely is where it’s at. America’s oil and natural gas industry supports 9.2 million U.S. jobs and could do more – 1.4 million new jobs by 2030 with the right policies, according to a study by the Wood Mackenzie energy consulting firm.

Unfortunately, as the president’s speech went on, his emphasis tilted back toward faith in Washington, with a to-do list for Congress that included familiar items – including tax breaks for small businesses and wind and solar companies. The president:

“We can make a difference. And at this make-or-break moment for America's middle class, there’s no excuse for inaction. There’s no excuse for dragging our feet. None … The truth is, the only way we can accelerate the job creation that takes place on a scale that is needed is bold action from Congress.”

Now, it’s a little odd to hear the president talk about excuse-making and foot-dragging on job creation when he’s the one standing in the way of the biggest shovel-ready project around: the Keystone XL pipeline. This private project would create jobs and help make America’s energy future more secure while sending billions of new dollars in revenue to governments.

Obstacles in Congress? Not with the Keystone XL. The president has the authority to get this project going. No congressional action is needed. Keeping the Keystone XL pipeline – and its jobs, energy and tax revenues – on the drawing board is on the president and no one else.

So, approval of the complete Keystone XL pipeline tops our jobs to-do list. Others:

Regulation – Restrain Washington’s tendency to overregulate. Needless, duplicative regulation is a job killer. Energy is a job-growth sector, especially in the area of shale development. Yet, a new hydraulic fracturing regimen just announced by the Interior Department, while improved from a preliminary version, could threaten shale energy’s game-changing potential by adding a layer of federal regulation in an area that’s already being well-regulated by the states. API President and CEO Jack Gerard during a conference call with reporters:

“It simply isn’t necessary to add a new layer of regulation on top of already competent management and oversight [by the states]. What is the need? ... The feds should not be in the process unless there’s a demonstrated need. … Why not learn from successful models in states like Wyoming instead of risking getting in the way of development?”

Taxes – Reject higher taxes on energy producers. We discuss the president’s energy tax-hike proposals here and here. The bottom line is that when the goal is job creation it makes no sense to raise taxes on a sector that’s hiring and creating economic growth.

Access – Allow greater access to U.S. resources – both by opening new areas for development and by eliminating unnecessary hurdles in places where development is occurring. Vast resources in Alaska and off our coasts remain off limits – and with them job growth that would accompany energy development. Meanwhile, oil and natural gas production in federal areas onshore and offshore is, at best, flat. Gulf of Mexico oil production is just now climbing back toward where it was a couple years ago – and well short of where it was projected, and expected, to be.

OK, so that’s a bit more than would fit on the president’s sticky note. But each of these is within policymakers’ reach, and each would put the onus for job creation where the president said it belongs, on the private sector – specifically on an energy sector that’s a proven job creator and eager to do more.

To the President’s Ear: Build the Keystone XL

2012-05-08T16:22:12+00:00

In an interview with Fox Business Channel this week, billionaire Warren Buffett voiced support for construction of the Keystone XL pipeline:

"I’m not an expert, but it certainly seems like it makes sense to me. There are an awful lot of pipelines running in the United States and net, they've certainly been a huge plus for the country. … Based on what I know, I would say it makes sense.”

That the “Oracle of Omaha” supports the Keystone XL is significant. That Buffett’s support for the project follows similar opinions by others known to have the president’s ear is important as well. These include:

Former President Bill Clinton (Feb. 29, 2012):

“I think we should embrace [the Keystone XL pipeline] and develop a stakeholder-driven system of high standards for doing the work."

AFL-CIO President Richard Trumka (May 6, 2012):

“[America’s unions] are not divided on the pipeline itself. They are divided on how the pipeline is done. … I think we are all unanimous by saying we should build the pipeline, but we have to do it consistent with all environmental standards, and I think we can work that out, I really do, and we are for that happening.”

Former Obama "car czar" Steve Rattner (Jan. 5, 2012):

“My instinct is [the president] should approve it. My instinct is we need the energy, we need the jobs and it can be done in a safe way.”

Let’s see. That’s one of the most successful businessmen in the history of the planet, a former president, one of organized labor’s top leaders and one of the administration’s former leading economic policy advisors – all in favor of the Keystone XL, a project that would create jobs, deliver energy and help boost our country’s future energy security.

The president is the reason the Keystone XL remains on the drawing board. He has the authority to end more than three years of reviewing and delaying. API Executive Vice President Marty Durbin, in a conference call with reporters:

“We’d like to remind the president and the Congress that bipartisan majorities in both the House and Senate have voted in favor of the Keystone XL project, and a recent Gallop poll shows strong public support for project by a 2-1 margin. In addition, the state of Nebraska is fully engaged in a process to quickly choose a new route that avoids sensitive areas. To borrow from the president’s campaign, it’s time to move forward on this critical project. Keystone XL is as ‘good-to-go’ as it gets.”

To recap: Buffett, Clinton, Trumka, Rattner. The president has listened to them before. Is he listening now, on the Keystone XL?

The Demand for Energy and Steel

2012-05-07T19:10:30+00:00

There’s a good story going on in Lorain, Ohio, a steel town that has seen ups and downs. Thanks to the surge in production of energy from shale in neighboring Pennsylvania, the current trend is decidedly up.

John Wilkinson, who manages U.S. Steel’s Lorain tubular operations facility that makes steel pipe, says good years (2007-08) were followed by the economic downturn in 2009. Layoffs were ordered. Shale has played a big role in turning things around, building demand for steel products including casings to line wells and extraction tubing. Wilkinson:

“Now with the upturn in the economy, the things we’re seeing from the Marcellus Shale and the increase in production, we’ve had the opportunity to recall almost all of those people and actually hire an additional 300 people in the last 18 months.”

Check out this video for a sense of the hope and opportunity that’s come to Lorain through the shale/hydraulic fracturing revolution:

It’s not just one community or one company. Shale plays around the country are generating energy, jobs and economic growth.

The Post and the EPA’s Perception Problem

2012-05-04T20:52:21+00:00

The Washington Post’s take on the EPA, in the wake of Al Armendariz, is scathing. The Post editorial:

“The most reasonable interpretation is also among the most disturbing — that Mr. Armendariz preferred to exact harsh punishments on an arbitrary number of firms to scare others into cooperating. This sort of talk isn’t merely unjust and threatening to investors in energy projects. It hurts the EPA. Mr. Armendariz was right to resign this week, while EPA Administrator Lisa P. Jackson denied that his comments reflected the agency’s approach. Yet the question will remain: Is an aggressive attitude like the one Mr. Armendariz described common among EPA officials?”

The editorial seems to answer its own question – noting EPA’s moves to block an Idaho couple from adding on to an existing home in an established residential area. Earlier this year the U.S. Supreme Court upheld the couple's right to challenge the agency in court without

significant delay and potentially large fines. The Post:

“Maintaining the legitimacy of the EPA’s broad regulatory authorities requires the agency to use its powers fairly and, in so doing, avoid the impression that its enforcement is capricious or unduly severe.”

Yet, the newspaper argued, the EPA seems to already have a reputation for abusive and injudicious conduct, with the Armendiraz and Idaho cases serving to reinforce public perceptions. Not good for EPA, not good for the legitimate work it does keeping our air and water as clean as possible. The Post:

“The lesson for Ms. Jackson and her boss, President Obama, from these two episodes is clear: The agency’s officers must have a clear sense when to deploy its mighty power and when to exercise discretion. That’s true for the sake of the economy and to ensure that the EPA will be able to continue its necessary work for years to come.”

America’s oil and natural gas industry has engaged EPA in recent months over proposed rules for emissions during natural gas production and ozone, as well as its approval of E15 gasoline and other issues. Industry recognizes the agency’s regulatory role, while asserting that EPA should fully consider cost impacts before it takes action – on individual companies and on their work finding and developing the energy America needs.

The Post is right: The exercise of great power must be accompanied by good judgment, and to the extent these cases suggest a lack of judiciousness at EPA, it’s concerning.

Facts, Not Excuses, Should Guide Decision on Re-Routed Keystone XL

2012-05-04T20:21:17+00:00

It’s good to hear that TransCanada has submitted its new application for a presidential permit to build the Keystone XL pipeline. The application comes just weeks after the Nebraska legislature approved a bill to move forward with a new route in that state that avoids the sensitive Sand Hills region.

Even better news would be that the White House, after a long list of excuses that prevented timely approval of the project, is now ready to give the go-ahead – dropping a position that a Washington Post editorial said has “little rational basis.” That analysis is reinforced not only by public opinion, but also by economic and environmental data. For example:

Americans support construction of the Keystone XL by nearly a 2-1 margin, according to a recent Gallup poll.
A bipartisan, veto-proof majority in the U.S. House of Representatives recently voted to support construction of Keystone XL, the fifth time the House has backed the project. In March, 56 U.S. senators voted in favor of building the Keystone XL.
More than 80 percent of Americans believe U.S. policies should support the use of oil from Canada’s oil sands.
According to the U.S. Pipeline and Hazardous Materials Safety Administration, pipelines are the “safest and most-effective” way of transporting oil and natural gas. In addition, a comprehensive environmental assessment from the federal government concluded that the Keystone XL would have only “limited” impacts and be the safest pipeline ever constructed under current regulations.
With unemployment still above 8 percent nationwide, the Keystone XL not only would create thousands of new jobs but also would help preserve jobs at U.S. refineries and production sites.
While there are many factors that affect the price of gasoline families use to fill up their tanks, approving the Keystone XL would send a strong market signal that more supply is on the way, helping put downward pressure on the global price of crude oil, which accounts for 76 percent of the price paid at the pump. The pipeline could bring upwards of 830,000 barrels per day of Canadian oil from Alberta to U.S. refineries, with approximately 25 percent of the pipeline’s capacity used to deliver oil from North Dakota and Montana.

The application also comes as a new poll finds that Canadians support increased oil sands development by about a 2-1 margin. Among all provinces, the lowest level of support was in Quebec, where a clear majority – 55 percent – still supports development.

API Executive Vice President Marty Durbin said it’s time to approve the Keystone XL:

“The earth hasn’t moved, the geology hasn’t changed, the information remains the same, so there should be no reason for a re-review of KXL. The pipeline will be state of the art and has already been thoroughly examined for more than three years, including three environmental assessments. … The president should take this opportunity to approve the entire pipeline to demonstrate he is serious about an ‘all the above’ energy strategy. There is no legitimate reason for delaying this project any further. … We urge President Obama to support this project that will make us more energy secure.”

All For Efficiency

2012-05-04T15:56:55+00:00

A recent post on the White House Blog updates the administration’s effort to see federal agencies make at least $2 billion in energy efficiency upgrades over the next two years. Heather Zichal, deputy assistant to the president for energy and climate change, writes that agencies have identified $2.1 billion in projects that will pay for themselves using performance-based contracts. Zichal:

“Of the $2.1 billion in energy upgrade projects identified by agencies, more than $100 million in Energy Savings Performance Contracts (ESPCs) and Utility Energy Savings Contracts (UESCs) have been awarded already, and an additional $1.2 billion in projects are in development – demonstrating strong momentum towards meeting the President’s goal.”

Later, Zichal notes that increased energy efficiency has a multitude of benefits:

“[It’s] one of the fastest, easiest, and cheapest ways to create jobs, save money, and cut down on harmful pollution. … In this pursuit, we take an all-in approach. Whether it’s the historic fuel economy standards that will nearly double the miles you can go on a gallon, or investments that have led to more than a million homes weatherized across the country – we keep building on efficiency, and we keep betting on American workers and American know-how to help create a secure energy future.”

Clearly, the country is becoming more energy efficient, as this chart from the Energy Information Administration, showing energy use per capita (green line) and projections (1980-2035), shows:

America’s oil and natural gas companies share the goal of increased energy efficiency. ExxonMobil’s Ken Cohen calls efficiency “our most powerful energy solution.” Cohen writes:

“Efficiency — technologies and actions that enable us to do the same, or more, only with less energy — is often overlooked as an answer to the question of how we will meet rising energy demand safely and affordably, while also reducing greenhouse gas emissions.”

Industry has invested heavily in efficiency measures – devoting more than $239 billion since 1990 to improve the performance of its products, facilities and operations. API’s 2012 State of American Energy report:

“Energy efficiency is the cleanest, quickest and most cost-effective way to extend today’s energy supply into the future. The efficient use of energy is not only a core value of the oil and natural gas industry, it’s also a daily practice.”

Some examples:

Technological advances, such as 3D seismic visualization and horizontal drilling let companies access resources more precisely and with less impact on the environment. It used to take a 20-acre drill site to access an area of one square mile underground. Today, 80 square miles can be accessed with a drill site as small as two acres. Half as many wells are needed to produce the same amount of energy as 20 years ago.
Submersible, remotely operated vehicles allow deepwater operators to install, monitor and repair underwater equipment using less energy.
Plants and refinery upgrades have increased facility energy efficiency.
Combined heat and power, or cogeneration, technologies use excess heat from to produce additional energy, for example, in refineries.
Carbon-reducing technologies that help promote greater overall efficiency attracted more than $70 billion in industry investments 2000-2010 – well more than the federal government over the same period and nearly as much as all other private industries combined.

When it comes to energy efficiency, America’s oil and natural gas companies are on it.

E15: A Fuel Before Its Time

2012-05-03T21:04:08+00:00

E15 – gasoline containing 15 percent ethanol that has EPA approval – is one of those ideas that looks good on paper but seems headed for problems in the real world. API’s Bob Greco, director for downstream and industry operations, outlined some of them for reporters during a conference call:

Testing so far shows the higher concentration of ethanol would not be fully compatible with much of the dispensing and storage equipment the nation’s gas stations. A recent API review estimated half of the existing retail outlet equipment isn’t E15 compatible.
As a result, there could be damage to equipment, safety problems and potential environmental concerns at gas stations.
Difficulties with E15 getting into the market could erode public support for the nation’s renewable fuels program.
Refiners could face problems in the future, caught between satisfying federal requirements for blended fuels and the lack of a retail market for those fuels.

Greco said EPA’s E15 approval isn’t a mandate to sell and that the timing of its emergence into the marketplace will depend on clearing hurdles in individual states. Still, the concern is that E15 wasn’t thoroughly evaluated before it got EPA approval.

“The availability of biofuels for blending in gasoline is a good thing because of its favorable octane, and the industry supports a realistic and workable Renewable Fuels Standard. In fact, more than 90 percent of all gasoline sold in the country has a 10 percent blend of ethanol. But EPA has not done its homework before introducing E15 to America. The Agency’s enthusiasm for E15 has clouded its judgment and led to approval of a fuel before adequate study has been done.”

Compatibility issues loom large, Greco said. “Even with vehicles the EPA says are compatible, automakers disagree,” he said. Last summer U.S. Rep. James Sensenbrenner of Wisconsin forwarded letters from car companies to EPA Administrator Lisa Jackson that outline their E15 concerns. A sampling:

Ford: “Ford does not support the introduction of E15 into the marketplace for the legacy fleet. … Fuel not approved in the owner’s manual is considered misfueling and any damage resulting from misfueling is not covered by the warranty.”

Chrysler: “We are not confident that our vehicles will not be damaged from the use of E15. … The warranty information provided to our customers specifically notes that use of the blends beyond E10 will void the warranty.”

Honda: “Vehicle engines were not designed or built to accommodate the higher concentrations of ethanol. … There appears to be the potential for engine failure.”

Ultimately, Greco said, consumers might become confused and ultimately could bear higher costs:

“Without a market for the higher ethanol blends, Congress’ biofuels mandate could result in higher compliance costs or production constraints that could place upward pressure on gasoline prices for consumers.”

One questioner asked whether NASCAR’s use of higher-ethanol fuel suggests E15 concerns are overstated. “I don’t know about you,” Greco said, “but I don’t drive a race car.”

Washington Post: Keystone XL Rejection Has ‘Little Rational Basis’

2012-05-02T18:58:00+00:00

More on the Keystone XL pipeline. The Washington Post editorializes:

“President Obama’s refusal so far to authorize Keystone XL has little rational basis. … Attracting foreign investment in projects that will create U.S. jobs requires predictable regulatory procedures. The way to encourage the efficient extraction and delivery of the oil that the United States will require for decades is to make clear that government won’t use the issue as a political football.”

The editorial makes a couple of other points:

Opponents of Canadian oil sands (and the Keystone XL) are mistaken to believe that stopping the pipeline will keep 170 billion barrels of oil in the ground – because Canada has other means to get the oil to market, as well as other markets willing to buy it.
Political skirmishing in Washington has been detrimental to overall progress on the project.

Meanwhile, POLITICO has this guest opinion piece by Karl Rove, pointing to the administration’s Keystone XL rejection as a prime example of a self-inflicted inability to create jobs:

“Exhibit A is the Keystone XL pipeline. It would have brought oil from Canada’s tar sands and North Dakota’s prolific Bakken field to Gulf Coast refineries, factories and chemical plants. This would have created tens of thousands of private-sector jobs and reduced U.S. dependence on [imports]. … No matter. Extreme environmentalists opposed this vital infrastructure project. Rather than offend them, President Barack Obama blocked the pipeline’s construction.”

The two pieces help underscore the point that there are no good reasons to hold up the Keystone XL project, and that the administration is squandering a great opportunity to create jobs and help strengthen U.S. energy security. As the Post says, the president’s refusal to approve this shovel-ready project makes little rational sense.

An all-of-the-above energy approach must include oil and natural gas because it is our primary energy source now and into the future. The Keystone XL pipeline would be an integral part of such a strategy, which could see all of our liquid fuel needs met domestically and from Canada by 2024.

Ohio Summit: Talking Energy, Jobs

2012-05-02T12:32:03+00:00

Editor’s note, 5/3: The event has concluded; see below for the archived videos.

There’s not a better venue for a high-level discussion of energy, jobs and economic growth than Ohio, where energy-driven expectations are soaring – given the growth from shale development in neighboring Pennsylvania and accelerating work in Ohio’s own Utica Shale play. Thus, today’s “Ohio Energy Jobs Summit” is well located.

Hosted by The Hill newspaper and sponsored by the Coalition for American Jobs, the summit has an array of speakers and panelists scheduled including Gov. John Kasich, U.S. Rep. Bill Johnson of Ohio and API President and CEO Jack Gerard.

Ohio voters certainly have strong expectations for shale exploration and development. A Quinnipiac poll in January showed they overwhelmingly believe that shale = jobs. The survey also showed that most believe the economic benefits from energy development outweigh other concerns.

The half-day discussion from Ohio begins at 9 a.m. You can watch via webcast, here:

You’re also welcome to join in the conversation on Twitter by using the hashtag, #energyjobssummit.

EPA’s Jackson: Still No Fracking, Contamination Link

2012-05-01T13:41:06+00:00

Statements by EPA Administrator Lisa Jackson worth remembering the next time there’s a blog post, op-ed column or article that claims as fact that hydraulic fracturing has fouled or poisoned drinking water:

“In no case have we made a definitive determination that the fracking process has caused chemical contamination of groundwater.” (Fox News, April 27, 2012)

And:

"I'm not aware of any proven case where the fracking process itself has affected water.” (Congressional testimony, May 24, 2011)

Could such a thing occur? Sure. Oil and natural gas development is an industrial enterprise in which precision and care are needed to prevent mistakes and minimize the possibility of accidents.

API and its members have worked hard to develop industry standards to help ensure environmentally safe operations. Industry also works closely with state regulators and organizations like STRONGER to put in place reasonable and responsive oversight of these activities.

So far, these are working. If they weren’t, Administrator Jackson no doubt would be the first to know.

Keystone XL: Put Workers to Work, Mr. President

2012-04-30T20:05:26+00:00

Key points made by the president during Monday’s speech at a conference of the AFL-CIO’s Building and Construction Trades Department:

American workers in the building and construction trades literally built much of America’s overall progress.
Workers in these trades and others have been especially hurt by the economic downturn.
Past generations of American workers proudly built sweeping infrastructure projects.

The president:

“The last decade has been tough on everybody. But the men and women of the building and construction trades have suffered more than most. Since the housing bubble burst, millions of your brothers and sisters have had to look for work. Even more have had to struggle to keep the work coming in. And that makes absolutely no sense at a time when there is so much work to be done. And the worst part of it is that we could be doing something about it. I think about what my grandparents’ generation built: the Hoover Dam, the Golden Gate Bridge, the Interstate Highway System. That's what we do. We build.”

Unfortunately, there was no mention of the elephant in the room: the $7 billion Keystone XL pipeline project that would put so many of these union workers and others to work. To be clear, the president used the speech to talk about building bridges, highways and airports. Apparently, there’s infrastructure and there’s infrastructure. Yet, it’s hard to believe that steel workers, pipefitters and other related trades would appreciate the distinction the administration makes between what it considers worthy job-creating projects and the Keystone XL, the largest shovel-ready infrastructure project around. In that context, the president’s blinkered view of putting Americans to work is remarkable.

Hey, Jay Carney, You Forgot Something!

2012-04-27T16:26:30+00:00

POLITICO Pro Energy reports that while talking to reporters about crucifixion comments by EPA’s Region 6 administrator, White House spokesman Jay Carney assured that the administration has “a commitment to ensure natural gas is an essential part of our future.”

Hold on. Something missing here … oil!

Sure, natural gas is an essential part of our future. But Carney must’ve had the Roman legions on his mind when he neglected to mention oil as equally important. We’ll remind him:

Actually, by usage, oil is the most essential piece of America’s energy portfolio, supplying about 37 percent of our energy right now, according to the Energy Information Administration (EIA). Natural gas is second at about 25 percent.
Oil will be America’s energy of the future, too. EIA says it will supply about 35 percent of our energy in 2035 (natural gas still second at 25 percent).

All energy sources are important now and in the future -- we’ll need a true all-of-the-above strategy. Any discussion of America’s energy policy needs to start with America’s energy reality, and that needs to start with oil. While we would certainly welcome an actual commitment to natural gas, the Administration also needs to be committed to securing our liquid fuel needs, and we can do it, we are not energy poor, we have the resources and the technology to develop them safely. This is what energy progress looks like:

‘If I Wanted America to Fail …’

2012-04-27T13:10:06+00:00

Here’s an abbreviated version of a video by Free Market America on administration policies that the group says are undermining domestic energy production, economic growth, jobs and America’s overall prosperity. Of course, the mention of energy caught our ear. Take a look:

A longer version has gone viral, with more than 1.2 million views. Both versions make valid points about the need for abundant, affordable energy and the threat to America’s economy when that is denied – as well as the drag on jobs and growth posed by unnecessary regulation.

“If I wanted America to fail …” is a rhetorical device, of course. But it underscores ways America’s economic potential may be undercut by well-intentioned activism and political agendas.

EPA Regulation and Crucifixion

2012-04-26T18:27:39+00:00

Fox News reports that EPA’s Region 6 administrator has apologized for comparing his agency’s enforcement strategy to Roman crucifixion. Of course, the 2010 remarks by EPA’s Al Armendariz, were captured on video, which you can see here.

Despite Armendariz’s apology, U.S. Sen. Jim Inhofe of Oklahoma, which is in the EPA region that Armendariz administers, is investigating. Inhofe said the crucifixion comments suggest a campaign of “threats” and “intimidation.”

Certainly, one poorly chosen analogy from a single regional administrator doesn’t indict an entire agency – though it’s concerning that this fellow, with his apparent zest for enforcement, has had oversight for the energy-rich Eagle Ford and Barnett shale areas of Texas. Talk about a chilling effect.

We hope that Armendariz’s approach to regulation is atypical. Industry prides itself on working as a partner with regulators. Perhaps EPA Administrator Lisa Jackson had some of her agency’s more enthusiastic members in mind when she acknowledged (here and here) that state regulation and state regulators should take the lead when it comes to producing energy from shale with hydraulic fracturing.

The states are best situated in terms of proximity, familiarity and perhaps temperament to regulate oil and natural gas development via fracking. They know the geology, hydrology and other local/regional conditions. With cooperation from industry and with the help of organizations like STRONGER, this is oversight best performed by the states.

Let’s not overburden them and industry – threatening the obvious benefits from shale energy production – by adding unnecessary, duplicative regulatory layers, which Wyoming Gov. Matt Mead argued in a recent letter to the Interior Department.

The Right and Wrong Side of the Energy Divide

2012-04-25T21:14:54+00:00

Interior Secretary Ken Salazar talked about a divide in America between the “real energy world and the imagined energy world” during a speech Tuesday in Washington. He’s got that right – but it’s not like the administration is on the right side of that divide. Consider:

It dismisses calls for increased access, saying it takes years to develop oil and natural gas resources, and then takes credit for increased production.
It says it wants more oil and natural gas when in reality its policies set back production in the all-important Gulf of Mexico and on federal western lands.
It says 75 percent of America’s offshore resources are open for development when in reality 87 percent of areas are off-limits.
It says oil and natural gas are the energy of the past even though they currently supply 62 percent of the energy we use and in 2035 will still supply about 60 percent.
It repeatedly suggests that America is an energy pauper, when in reality the country has tremendous energy wealth, with ample supplies onshore and offshore.
It claims the oil and natural gas industry doesn’t pay its fair share in taxes when in reality it sends $86 million a day to the U.S. Treasury in rents, royalties and income tax payments, and its companies rank 1-2-3 on Forbes’ recent list of those paying the most in income taxes.

Now, the Interior secretary’ s speech was on-target in some ways. Salazar said that “overwhelmingly, Americans agree on energy.” They do indeed:

84 percent believe increasing domestic oil and natural gas production could enhance the country’s energy security, according to a Harris Interactive poll last month.
64 percent in that same poll said they believe some in Washington are intentionally delaying domestic oil and natural gas development, potentially hurting the economy and leading to higher consumer energy costs.
Anywhere from 56 percent to nearly 70 percent in other polls say they support construction of the Keystone XL pipeline that would bring upwards of 830,000 barrels of crude oil per day from Canada to U.S. refiners – which the administration continues to obstruct while pretending others are at fault for the delay. Here’s video of the secretary doing just that after Tuesday’s speech (courtesy The Daily Caller):

More Salazar:

“Americans want to cut our reliance on imported oil. They know that a lot of factors affect gas prices – including world markets and international events – and that, unfortunately, there’s no silver bullet in the near term.”

No question, world crude oil markets play the biggest role in prices at the pump – 76 percent of the cost right now – and affecting near-term change is problematic. But market signals do matter. And it’s time to take charge of our energy future by choosing the right policies to affect the long-term energy equation. For too long opponents of accessing available U.S. resources have used the “no silver bullet” line to block sound energy decisions – like drilling in remote Alaska, which by now would be an important part of the energy mix if it had been undertaken when it first began to be debated more than a decade ago.

Salazar once more:

“The energy world is changing … Whether it’s our oil and gas technology, our solar power plants, or our auto manufacturers, the pace of American innovation is staggering. The U.S. is determined to lead in the new energy world. So it’s no longer a question of whether you support renewable energy or conventional energy, or whether you favor the environment or the economy. The American people have decided to take an all-of-the above approach.”

The United States needs all of its energy resources, but a real all-of-the-above approach must do more than pay lip service to oil and natural gas production – today’s energy and tomorrow’s. The challenges are daunting, but historically Americans have risen to meet challenges with the help of strong leadership – in contrast to the rhetoric of resignation and powerlessness that frequently comes from the current administration. API President and CEO Jack Gerard, speaking last month at a congressional hearing on energy:

“With sound policy and bold leadership, we can put this country’s vast resources to work to change the current energy equation. … A strategy that confidently deploys resources here at home will send a clear message to global markets that the United States is serious about affecting supply. To the American people it will say help’s on the way. … With the right policies and strong leadership, we can secure our energy future instead of surrendering it to outside forces.”

Rhetorical Engagement on the Keystone XL Pipeline

2012-04-24T19:58:36+00:00

Rounding up some of the latest rhetoric by Keystone XL pipeline opponents – separating fact from fiction (and utter fantasy) – while striving for an informed energy discussion. It’s not easy.

Let’s start with a great big fact:

The U.S. Energy Information Agency (EIA) reports that oil and natural gas supply 62 percent of the energy we currently use. In 2035, EIA says oil and gas still will supply about 60 percent of the energy we use.

That’s the energy reality, according to the government. We run our economy and our lives on oil and natural gas. It’s the energy of today and tomorrow. Yes, America will need all energy sources in the years to come, but any notion that we can embark on an “off-oil” strategy without severe economic and social repercussions is uninformed, disingenuous or, as suggested above, fantasy.

Against that backdrop let’s review a couple of recent energy-related offerings – one that links the Keystone XL’s construction and Canadian oil sands production to the possible destruction of other cultures and the environment. Another serves up some warmed-over gasoline exports myths.

Post #1:

“It is undeniable that Keystone XL would bring about immense devastation to other cultures. Consider the members of Canada's First Nations groups, who have been more vocal about the need to stop the pipeline than almost anyone else. If Keystone XL were approved, their way of life would enter a rapid downward spiral and ultimately collapse.”

Actually, this is deniable. First, a number of pipelines already crisscross energy-rich Alberta:

Click on the map for a larger view, and you’ll see the red dotted line representing the Keystone XL follows a path already taken by other pipelines in Canada. The idea that the Keystone XL would threaten anyone as described in the post is ridiculous.

Second, click on the link in the post and you’ll see that opposition from the First Nations groups is mostly directed toward a pipeline that would go west from Alberta to the coast, a proposal that has gained traction as Canada started thinking about other customers for its oil – following the Obama administration’s Keystone XL rejection.

Let’s go on. The post makes claims about environmental devastation from the proposed pipeline:

“In order to exploit a region's tar sands, new roads must be built, enormous machines have to be brought in, and, most harmfully, every tree in the surrounding region needs to be cleared or burned. A population that relies on nature will be totally unable to continue to sustain itself if oil companies wipe out almost all biodiversity and bring in dangerous chemicals and pollution.”

If the author had done some homework, it would’ve been clear that Canadians are dead serious about protecting their environment. Clear-cutting and/or burning trees? By law oil sands development areas have to be restored to their natural state by companies operating there. One, Suncor, has developed a way to reclaim its tailings ponds, as well as a process that will eliminate the need for tailings ponds altogether. The company has turned one former tailings pond into a lush meadow, with hundreds of thousands of tree seedlings planted.

Similar environmental consciousness is being shown by other companies. Last week there was this story about Shell’s efforts to offset its oil sands footprint with the purchase and preservation of acres of forest.

One more from Post #1:

“Most infuriatingly, it is not even as though the U.S. needs tar sands oil or else it will not be able to fuel ambulances or power schools. The reality is that Americans use a huge amount of energy to perpetuate inefficiency and wastefulness. Furthermore, enormous reserves of potential renewable energy go unused every day because individuals and legislatures refuse to make sufficient investments. In other words, by continuing to support tar sands oil (as we already started doing several years ago with the construction of other pipelines from Canada) we are choosing to decimate other cultures and livelihoods before even fully investing in robust efficiency standards and renewables.”

A distillation of the above: The United States isn’t spending enough money on improving efficiency or developing other fuel sources.

Yet, according to EIA’s 2011 energy outlook report, the U.S. used about half as much energy for every dollar of GDP as it did in 1980. Meanwhile, investments in greenhouse gas-reducing technologies start with the oil and natural gas industry, which spent $71 billion on these between 2000 and 2010 – almost as much as all other private industries combined ($74 billion) and nearly double what the federal government spent ($43 billion). As for renewables, energy analyst/blogger Geoff Styles offers perspective:

“[Renewables] produce electricity rather than liquid fuels, and less than 1% of US electricity is generated from oil today, compared to more than 10% in 1980. Electricity from renewable and nuclear power doesn't compete with imported oil or any other kind of oil; it competes with domestic energy sources like coal and natural gas, most of which now comes from conventional and unconventional gas fields, rather than as a byproduct of producing oil. So by all means let’s have a conversation about renewables in the context of reducing greenhouse gas emissions today and displacing oil from transportation when there are tens of millions of electric vehicles on the road in the future, but in terms of oil prices now and in the near future, they are a rhetorical diversion.”

Quickly, Post #2 incorrectly argues that crude delivered by the Keystone XL would be refined for export to Europe and Latin America. This has been discussed here and here. EIA weighs in on exports and gasoline prices, here.

The Keystone XL enjoys broad U.S. support, demonstrated in poll after poll after poll. A majority in both houses of Congress supports the pipeline. Nebraska’s governor, who had concerns last fall, enthusiastically supports it now. It’s time to stop erecting phony arguments and flimsy excuses as obstacles to the project’s promise of stable energy and jobs.

Our Energy and Economic Crossroads

2012-04-23T18:29:05+00:00

During a recent conference call with reporters API Chief Economist John Felmy said the country is at a “crossroads of energy and economic policy.” That’s quite a crossroads. Chad Moutray, chief economist at the National Association of Manufacturers, pointed out that manufacturing has added 462,000 net new jobs since 2010, and that continued growth hinges on energy and regulatory policy. So, where do we stand?

The administration’s energy policy is a muddle, as IPAA President and CEO Barry Russell argues in this Roll Call piece:

“Obama calls to expedite infrastructure projects, but in the wake of rejecting the Keystone XL pipeline. Obama claims increased oil and natural gas production on his watch, but then follows up with accusations that oil companies are profiting at the expense of the American people. Obama repeatedly calls for an ‘all of the above’ energy strategy, but then singles out the oil and natural gas industry for new regulations and targeted tax attacks.”

OK. Not so great. How about regulatory policy?

Last week’s new EPA rule on emissions from oil and natural gas development had positive elements – for example, delaying industry compliance with some costly and labor-intensive requirements until 2015. Still, overall, the administration’s regulatory approach hasn’t been encouraging, chiefly seen in policies that limit access to federal areas onshore and offshore.

Fuel Fix reports that deepwater drilling in the Gulf of Mexico is getting busier, but take a look at the actual numbers:

“The government awarded 163 deep-water drilling permits for the Gulf in 2009. The number dropped to 74 in 2010, but has climbed since then to 79 in 2011 and 44 through March of this year.”

And:

“[Analyst Robert] Kessler also noted that the time required for approval of exploration and development plans is still 150 days on average, compared to 54 days before the moratorium, another indicator of the added expense and challenge since the spill.”

Felmy cautioned that added regulatory layers “can slow development” of America’s vast energy resources. “Look at the totality of all EPA rules,” he said. “It really is an onslaught.” Moutray said the economic recovery is tenuous, and that the manufacturing sector is looking for broad energy options and sensible, stable policy from government:

“Energy is critical. We need affordable sources of energy to remain competitive globally. … We need an all-of-the-above approach that doesn’t pick winners and losers, that stresses the ‘all’ and not just favored projects. … We must have as many tools as possible for energy.”

Energy is the linchpin for economic growth – especially in the manufacturing sector. Developing energy from shale in Pennsylvania, North Dakota and Texas has produced jobs and a rising economic tide capable of lifting state and regional economies. Ohio and other states are poised to benefit as well.

The question is whether Washington will allow that kind of activity to go forward, or will it sap the momentum with red-tape delays and new layers of restrictive regulation, possibly duplicating effective state regulatory efforts? Will the administration continue to threaten higher taxes on an industry that pays its fair share already and is ready to do much more on energy and jobs? Will it get serious about domestic oil production, onshore and offshore, and end its obstruction of the Keystone XL pipeline?

As Felmy noted, these are components of an energy strategy that could see the United States reach energy self-sufficiency through North American resources in just 12 years.

Good questions for consideration at the crossroads.

No More Excuses on Keystone XL

2012-04-20T19:16:40+00:00

In response to a question about the Keystone XL pipeline back in January, White House Press Secretary Jay Carney told reporters: “[I]t is a fallacy to suggest that the president should sign into law something when there isn’t even an alternate route identified in Nebraska …” Carney also said the then-delay in reviewing the project was “a result of concerns in Nebraska about the route … and how it would affect the aquifer there.”

That was then. Now it appears the White House statements were really excuses, not concerns.

Indeed, last year the State Department’s exhaustive Keystone XL environmental review concluded that the project would be the safest pipeline ever built in the United States. The department also determined that the project’s proposed safety mechanisms and procedures would protect the Ogallala Aquifer.

Unfortunately, concerns in Nebraska handed the administration an excuse for more delay. Pipeline builder TransCanada responded by working on a relatively small detour to avoid Nebraska’s sensitive Sand Hills region, which was unveiled this week:

This followed the Nebraska legislature’s approval of a bill to allow the state to move forward with a new Keystone XL route, on a 44-5 vote that was pretty much a slam dunk. Gov. Dave Heineman, who had voiced concerns about the original route, promptly signed the measure into law. This welcome news means the last major objection to Keystone XL has been resolved. Consider:

Americans support construction of the Keystone XL by nearly a 2-1 margin, according to a recent Gallup poll.
A bipartisan, veto-proof majority in the U.S. House of Representatives voted to support construction of Keystone XL, the fifth time the House has backed the project. Last month, 56 U.S. senators voted in favor of building the Keystone XL.
More than 80 percent of Americans believe U.S. policies should support the use of oil from Canada’s oil sands.
A University of Texas poll shows that Americans overwhelmingly support more energy production.
According to the U.S. Pipeline and Hazardous Materials Safety Administration, pipelines are the “safest and most-effective” way of transporting oil and natural gas.
With unemployment still above 8 percent nationwide, the Keystone XL not only would create thousands of new jobs but also would help preserve jobs at U.S. refineries and production sites.
While there are many factors that affect the price of gasoline families use to fill up their tanks, approving the Keystone XL would send a strong market signal that more supply is on the way, helping put downward pressure on the global price of crude oil, which accounts for 76 percent of the price paid at the pump. The pipeline could bring upwards of 830,000 barrels per day of Canadian oil from Alberta to U.S. refineries, with approximately 25 percent of the pipeline’s capacity used to deliver oil from North Dakota and Montana.

Let’s recap: A majority in both houses of Congress supports the Keystone XL. The Nebraska legislature supports the Keystone XL. The governor of Nebraska supports the Keystone XL. The American people support the Keystone XL.

With this pipeline we can have a healthy environment and a growing economy. We can strengthen our important energy relationship with Canada and help make our energy future more secure. The environmental impacts of building the Keystone XL will be minimal, while the benefits – in terms of jobs, economic growth, and energy security – will be enormous.

Politicians are known as masters at creating excuses, but when it comes to the Keystone XL pipeline, there are simply no excuses left for keeping it on hold.

Mr. President, Approve This Pipeline

2012-04-19T19:28:54+00:00

No more political posturing, no more pretending the only thing holding up the Keystone XL pipeline is that it needs more study, Mr. President. It’s time to act in our national interest and get this job-generating, energy-delivering project under way.

On Wednesday the U.S. House of Representatives voted – for the fifth time – in favor of the Keystone XL. The 293-127 vote was truly bipartisan, with 69 Democrats joining 224 Republicans in support of the pipeline.

Meanwhile, TransCanada, the pipeline’s builder, submitted a new route proposal to Nebraska officials that basically would detour the project around the environmentally sensitive Sand Hills region that was the primary concern with the company’s original route through the state. Here’s a map of the company’s preferred new path, courtesy the Omaha World-Herald:

So, here’s where things stand:

Nebraska Gov. Dave Heineman, who objected to the project’s original route, is onboard, having signed a bill to restart the route review process in his state, making it a top priority.
The legislature has passed bills paving the way for the project’s approval at the state level.
The Sand Hills will be protected.
The administration already backs the southern leg of the Keystone XL, from Cushing, Okla., to the Gulf Coast, and the northern leg is strongly supported by the states it crosses (Montana, South Dakota).
The project previously was studied for three years by the State Department, passing three consecutive environmental reviews.
Americans want the pipeline built, as a string of national polls (Pew, Fox News, Rasmussen) shows.

API President and CEO Jack Gerard:

“The stars are aligning for America’s energy future, and President Obama should make the right choice now and approve the entire Keystone XL pipeline. The president’s concerns about the sensitive Sand Hills area of Nebraska have been addressed. There are no more excuses. Mr. President, let’s get this energy and job creating project started now. A true ‘all-of-the-above’ energy strategy should include more oil from our reliable and stable energy partner, Canada. Keystone XL would bring upwards of 830,000 barrels a day of Canadian oil from Alberta to U.S. refineries in the Gulf. Bringing more Canadian energy to the market will send a signal to the markets that help at the pump is on the way. The president should not delay any further on this important issue.”

No more excuses, no more delay. The studies have been conducted. Concerns have been addressed. There’s no need to restart the clock on a process that already has stretched beyond three years.

The Keystone XL would make a significant statement to global crude oil markets that America is serious about exercising greater control over its energy future.

The pipeline would bring oil from Canada, our neighbor and ally, to refining facilities that are second-to-none in the ability to process oil sands crude.

The project also would pick up large supplies of domestic crude from North Dakota and Montana (an estimated 25 percent of its capacity), helping to alleviate current issues with bringing oil out of the booming Bakken region.

In addition to the energy, the pipeline would help create tens of thousands of U.S. jobs while also helping preserve valuable U.S. refining and production jobs. Gerard:

“More American energy together with more Canadian oil and domestic biofuels could make the U.S. energy self-sufficient in transportation fuels in just 12 years. It’s an energy goal the president should strive for if he is serious about an ‘all the above’ energy strategy.”

Forbes: Big Oil = Biggest Taxpayers

2012-04-18T20:41:18+00:00

Check out this informative post by Forbes’ Christopher Helman, who notes that Nos. 1, 2 and 3 on the magazine’s list of companies that paid the most in income taxes in 2011 were … energy companies.

That might surprise some people, given White House rhetoric about oil and natural gas companies not paying their “fair share.” It turns out Big Oil is the country’s Biggest Taxpayer. Here’s how Forbes’ data looks in a chart:

As you can see by the blue line, ExxonMobil ($27.3 billion), Chevron ($17.4 billion) and ConocoPhillips ($10.6 billion) occupy the top three spots in Forbes’ income-tax-paying ranking. Occidental Petroleum comes in at No. 18 ($2.9 billion).

Now check the chart’s red line. It shows that all four energy companies’ effective tax rates topped 40 percent – ExxonMobil 42 percent, Chevron 43.3 percent, ConocoPhillips 45.6 percent and Occidental 40.2 percent. Helman:

“And income taxes isn’t even the half of it–literally. Exxon also recorded more than $70 billion last year in sales taxes ($33.5 billion) and other taxes and duties ($43.5 billion). But none of that will matter to the president if gasoline prices keep climbing. Having been blocked on his Big Oil tax hike, don’t be surprised if in the heat of the summer driving season he calls for a windfall profits tax on oil companies. The very concept implies that the companies are earning an unfairly high return. Sure Exxon’s and Chevron’s net incomes are high. But so are their revenues! Exxon’s revenues were $486 billion and Chevron’s were $254 billion. That implies an average net margin of just 10%.”

Helman continues:

“Compare that with the $33 billion that Apple made in 2011 on $128 billion in revenues and Microsoft‘s $23 billion income on $72 billion in sales. Those margins are 26% and 32%. And yet Apple enjoyed a low effective tax rate of 25% and paid a relatively meager $4 billion in income taxes, putting it in ninth place on our list of the biggest U.S. corporate taxpayers, while Microsoft had an effective rate of just 16% and paid $5.3 billion, placing it sixth.”

The point is that America’s oil and natural gas companies pay their fair share, more than $86 million a day in rents, royalties and income taxes, yet regularly are singled out by the administration for tax increases – the unfairness of which doesn’t seem to register with a White House that spends so much time talking about fairness.

EPA Emissions Rule Shows Improvements

2012-04-18T20:26:51+00:00

It will take some time to fully digest the EPA’s new rule governing emissions from oil and natural gas production, including hydraulic fracturing, but it’s clear the agency heard industry’s concerns and worked to improve the regulation from its preliminary version.

Significantly, companies will have until 2015 to comply with some of the requirements of the new rule. Industry had maintained more time was needed to develop the equipment needed for compliance and to train workers to use it. Howard Feldman, API’s director of regulatory and scientific affairs on the final rule:

“The industry has led efforts to reduce emissions by developing new technologies that were adopted in the rule. EPA has made some improvements in the rules that allow our companies to continue reducing emissions while producing the oil and natural gas our country needs. This is a large and complicated rulemaking for an industry so critical to the economy, and we need to thoroughly review the final rule to fully understand its impacts.”

There He Goes Again…

2012-04-18T14:23:03+00:00

There has been a lot of good analysis of the president’s latest pursuit of alleged manipulation in the oil trading markets. The Council on Foreign Relations’ Blake Clayton makes a number of good points here, and energy blogger Robert Rapier notes the two-way risk inherent in commodities trading, here.

What’s clear is that the president’s concern isn’t new (see 2008, 2009 and 2011), and that White House officials had trouble connecting today’s announcement with anything substantive, as can be seen in a succession of tweets by Yahoo! News’ White House correspondent, Olivier Knox:

“White House punts on whether today's Pres Obama announcement re: oil speculation would have any impact on gas prices. (cont’d)”

“(cont'd) "We would leave that to outside analysts to disentangle,” senior administration officials tells reporters on conference call.”

“White House also refused to describe impact/extent of enforcement of laws re: oil speculation over past year."

“In short: White House won't describe extent of the problem of oil speculation, won't predict impact of today's announcement.”

But we digress. What caught our ear was the president plowing some familiar rhetorical turf, with a couple of demonstrably misleading riffs. Presidential Riff 1:

“The problem is we use more than 20 percent of the world’s oil and we only have 2 percent of the world’s proven oil reserves.”

This is a favorite of the president’s but it’s simply misleading, using a technical classification of one kind of oil reserve to camouflage the fact that the United States is sitting on approximately 200 billion barrels of oil, which the president never mentions, discussed here and here. This line earned “two Pinocchios” from the Washington Post Fact Checker back in March and probably deserves three Pinocchios now, because the White House keeps using it.

Presidential Riff 2:

“Even if we drilled every square inch of this country right now, we’d still have to rely disproportionately on other countries for their oil.”

False. According to the Wood Mackenzie energy consulting firm, if the United States pursued a pro-development strategy that included more domestic drilling – offshore, in remote Alaska and other places – as well as a stronger partnership with Canada (including the Keystone XL pipeline), we could see 100 percent of our liquid fuel needs supplied here and from Canada by 2024.

The real problem here is an administration that continues talking as if the United States is energy poor when in fact we’re energy rich. The president talks about an all-of-the-above approach to energy but has done little to support and enhance oil and natural gas, which supply more than 60 percent of our energy now and will continue to supply about 55 percent of it in 2035.

Job Creation and the Effects of Regulation

2012-04-16T21:02:51+00:00

A follow-up to our follow-up on a Washington Post article that dismissed the effects of increased U.S. oil production on global crude oil markets. The story also took shots at the oil and natural gas industry’s ability to create jobs, as well as industry assertions about the potential effect of a new gasoline standard on refineries.

Let’s start with jobs. A Wood Mackenzie study released last fall said that with the right policies the oil and natural gas industry could create 1.4 million new jobs by 2030. Here’s what the job-creation growth looks like in a chart from that study:

As it has done in previous articles, the Post suggested the projection isn’t valid because it includes direct, indirect and “induced” jobs – “everything from day-care workers to valets to rocket scientists.” We discussed that here and here. Kyle Isakower, API vice president for policy analysis:

“Estimates include induced economic benefits, as do the administration and its supporters’ estimates of green jobs created by the stimulus package. Including estimates of induced employment effects is a common practice in economic modeling. Increased economic activity in one sector provides more income to the economy that will have a ripple effect in other sectors.”

Isakower continues:

“Increased oil and gas exploration requires more steel for well casings. More steel means more steel foundry workers. As the steel mill expands and hires workers, those workers’ incomes increase and they spend more on other goods and services – housing, cars, food, etc. So when a new sandwich shop opens up across the street from the steel mill, those workers hold real jobs that would not exist without the increase in oil and gas development. I doubt any policymaker wants to tell any of these people that their jobs aren’t real, or that they don’t matter.”

This isn’t theory. It’s happening in states including North Dakota, Pennsylvania, Texas and Ohio, where oil and natural gas development is creating boom conditions in state and regional economies.

Now, as for the potential connection between increased regulation and refinery closures, the Post wrote:

“API has also said new EPA standards will mean high gas costs. An API study said standards for low-sulfur gasoline would add 12 to 25 cents a gallon to the price and force the shutdown of four to seven refineries. However, a new study by API’s consultants, Baker & O’Brien, says EPA’s new standards would add six to nine cents a gallon and that no refineries would have to close. George R. Schink, managing director at Navigant Economics, testified at a congressional hearing that the standards would add 2.1 cents a gallon.”

Isakower said the Baker & O’Brien findings changed because EPA, which originally was considering lower sulfur and gasoline volatility (or RVP) requirements – leading to the 12 to 15 cents per gallon estimate of increased production costs – later decided it would not include an RVP reduction:

“We asked Baker & O’Brien to revise their study to estimate increased costs for the lower sulfur requirement alone, which resulted in the 6 to 9 cents estimate. Given EPA’s lack of transparency in the early stages of this rulemaking, and their change in regulatory plans, the differences in Baker & O’Brien’s estimates are to be expected.”

And Schink? Isakower:

“(His) testimony that the costs for gasoline production would only increase 2.1 cents per gallon simply averaged Baker & O’Brien’s cost estimate across all refineries. However, the Baker & O’Brien study estimates the marginal cost for those refineries that must upgrade to meet the new requirements, so his analysis is not directly comparable to the Baker & O’Brien marginal cost estimate. Refiners compete with one another – those that do not have to upgrade will not share in the cost of the upgrades for the facilities that do, as Schink’s testimony suggests.”

White House Fracking Group: Positive Step Forward

2012-04-13T21:00:27+00:00

Credit where credit’s due: The White House issued an executive order Friday creating an interagency working group to coordinate the administration’s review of hydraulic fracturing. It’s a welcome step considering what was developing – a regulatory mishmash wrought by the 10 separate federal agencies that were looking at fracking rules and policies. API President and CEO Jack Gerard:

“We’re pleased that the White House recognizes the need to coordinate the efforts of the 10 federal agencies that are reviewing, studying or proposing new regulations on natural gas development and hydraulic fracturing. We have called on the White House to rein in these uncoordinated activities to avoid unnecessary and overlapping federal regulatory efforts and are pleased to see forward progress.”

The United States is enjoying an energy revolution thanks in large part to hydraulic fracturing – producing record amounts of oil from North Dakota and ample supplies of affordable natural gas from a handful of other states. Energy, energy-related jobs and associated economic growth are the result – as well as boosts to other sectors including manufacturing and the chemical industry.

Yet, the possibility loomed that fracking and its benefits could be smothered by a regulatory jungle from Washington, with needless delays and unnecessary costs discouraging investment and innovation. If the new working group prevents this, it will be a good thing.

We recognize the new group is less than 24 hours old, but some key points it should consider:

Hydraulic fracturing is the chief reason the U.S. is having an energy revolution. Without fracking, there’s no revolution.
The states already have sound regulatory regimes in place, assisted by initiatives like STRONGER, which are tailored to the different geographies, geologies and other specific factors where fracking is under way.
Industry has led the way in terms of technological innovation and the development of operating standards, as well as efforts to provide information and create transparency in fracking operations.

Gerard:

“We have one of the largest known reserves of natural gas in the world, and we need public policies based on sound science in order to develop this affordable source of energy.”

The new working group is a step in that direction.

FracFocus Turns One!

2012-04-13T17:13:11+00:00

A year ago this week the FracFocus.org online chemical disclosure registry was created, and what a year it has been: 130 companies logging in the chemicals used in the hydraulic fracturing of more than 15,000 wells. More than that, the site is information rich on fracking, groundwater protection, state regulatory efforts and more.

The registry was developed by the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission. Most importantly, it has been embraced by the oil and natural gas industry as a useful response to legitimate questions about the pressurized fluids – 99.5 percent water and sand, 0.5 percent chemicals – used to fracture subterranean shale formations, freeing natural gas and oil.

According to a report in The Oklahoman, the site has become a clearing house for state and federal regulators fielding questions about hydraulic fracturing. “That's what we intended,” said Gerry Baker, the Interstate Oil and Gas Compact Commission’s associate executive director. Officials estimate about 75 percent of all wells drilled in the U.S. are accounted for on FracFocus.

Transparency equals information, which fosters confidence in communities where hydraulic fracturing is under way. Community support is an essential element in the process that is driving an energy revolution, seen in North Dakota, Pennsylvania, Texas, Ohio and other states.

Happy birthday, FracFocus – and many more!

EPA Should Improve Emissions Rule Before Finalizing

2012-04-12T20:51:06+00:00

Here’s something to keep in mind as we discuss the Environmental Protection Agency’s proposed rule on emissions from oil and natural gas development: A Rasmussen Reports poll this week showed 44 percent of likely voters believe, generally, that EPA’s regulations and actions hurt the economy. Just 17 percent disagree and say EPA’s policies help the economy.

EPA has a new policy on the way, the proposed New Source Performance Standards. As presently crafted, the standard would require hydraulic fracturing operators to use “green completion” equipment to control emissions of volatile organic compounds or VOCs.

But in a conference call with reporters, Howard Feldman, API director of regulatory and scientific affairs, said the proposed rule could needlessly impose significant costs – more than $780 million over four years – and troublesome delays on energy producers:

“First, the proposed rule would require more emissions equipment for sources that emit little to no regulated pollutants and should not be subject to these requirements. … Second, EPA recognized that there will be a significant increase in reduced emission completions but failed to analyze whether or not there is enough of the specific emissions reduction equipment available.”

Joined by Sara Banaszak of America’s Natural Gas Alliance, Feldman said industry has urged EPA to apply the new rule only to sources with significant VOCs emissions – and not to those whose vent streams contain less than 10 percent VOCs. Industry also believes more time is needed to develop and deploy the equipment needed to reduce emissions, as well as to train workers to use it. Feldman:

“The fact is that the industry is already leading efforts to reduce emissions. Our companies, after all, are in the business of selling methane, which is natural gas, so they don’t want it to escape into the atmosphere. The technology and equipment being used to reduce emissions were created by the industry itself – not by the EPA or by our critics in the environmental movement – and companies are already implementing it in many locations. … The (EPA) proposal took too much of a one-size-fits-all approach to regulating an industry that varies greatly in the type, size and complexity of operations.”

Critics say oil and natural gas companies are trying to avoid compliance with emissions-reducing efforts, which Feldman rejected:

“I want to be clear that we do not oppose these rules. … The whole concept of the VOCs threshold, let me emphasize, is to make sure that the rule is cost-effective for the regulated pollutant. It would be unprecedented to try to fit a standard that would have an extremely high [cost] approaching infinity. … You don’t force controls where there are no significant emissions. … Where there’s no emissions, to require control equipment doesn’t make any sense.”

Although environmentalists say the proposal as written would pay for itself or even produce revenue for industry, Feldman and Banaszak said EPA cost-effectiveness estimates are based on flawed data. Drillers say compliance costs and delays would be significantly greater. Feldman said if the choice is between the estimates of “lawyers in Washington” and operators, he would go with people doing the work on the ground.

EPA’s proposed rule is scheduled to be finalized next week. Earlier Thursday, API President and CEO Jack Gerard sent a letter to EPA Administrator Lisa Jackson, outlining industry’s concerns. Will EPA listen? Rasmussen’s results certainly suggest it should.

Behind the Latest Gulf Rig Count Numbers

2012-04-12T14:26:48+00:00

Reuters reports that eight deepwater drilling rigs are expected in the Gulf of Mexico this year, which would bring the active deepwater contingent to 29 – just short of the number before the 2010 Macando accident. While that will be a positive step, here are some reasons to hold off popping the champagne corks:

The eight rigs are not yet in the Gulf, not yet working.
While permit applications to work on Gulf jobs have been submitted, the rigs will return there only if the permits are approved.
Given “A” and “B” above, it’s still premature to talk about Gulf drilling being back to normal or “close to pre-moratorium levels.”
The eight rigs would bring the Gulf rig count to “just short of the level” before the administration’s permit moratorium, not equal to levels of two years ago.

But here’s the most important point missed by the report: The lost Gulf production caused by the moratorium – the difference between where production is now and where it was forecast to be by government officials a couple years ago.

According to the Energy Information Administration, Gulf production fell from 1.55 million barrels per day in 2010 to 1.32 mb/d in 2011, and was estimated to fall to 1.23 mb/d this year. That’s a 21 percent decline. But look at EIA’s 2010 forecast. Two years ago production was predicted to reach 1.76 mb/d this year. The difference between that forecast and the most recent Gulf production estimate is a whopping 30 percent.

Here’s a chart we’ve used before to illustrate the gap:

API’s Vice President for Policy Analysis Kyle Isakower:

“We should not forget that the (December 2011) Quest study demonstrated that without the moratorium, the rate of drilling was projected to increase, not just stay flat. We remind those following this issue that the baseline they should compare current levels to is the previously planned activity level, not just the activity level at the time the moratorium was put in place.”

Oil Sands, Refined Products, and Exports: Just the Facts

2012-04-12T14:14:27+00:00

U.S. Crude Oil Stays in the United States. According to the U.S. Energy Information Administration (EIA), in 2011, 99.7 percent of the crude oil produced in (or imported into) the United States was also consumed here, which means less than one-half of one percent (0.3 percent) was exported. Simply put, the United States does not export crude oil in any significant way.

The United States Exports Very Little Gasoline. Of the total on-road fuel produced in the United States in 2011, 92 percent of it was refined and consumed in the United States; only eight percent was exported. And of all the petroleum products that the United States does export, finished motor gasoline only represents about 21 percent. The majority of exported products (79 percent) are things like propane, ethanol, heating oil, and kerosene, which are produced in amounts in excess of U.S. demand.

What the United States Is Exporting Is Going to Mexico, which Benefits the United States. Of the gasoline that is exported, 60 percent goes to Mexico, from which the United States imports crude oil. This exchange benefits the United States: Gasoline is worth more than oil, so we’re purchasing a good and then selling back a more expensive good, not only creating a net value-add for the U.S. economy, but also creating manufacturing jobs and generating tax revenue.

The Oil Sands Would Replace Declining Supplies. According to the EIA, increased imports from the Canadian oil sands would likely replace heavy crude imports from Mexico, Venezuela, and Ecuador. Heavy oil imports from those three countries are about 900,000 barrels per day less than what they were in 2005, and they are projected to decline by an additional 540,000 barrels per day by 2020 and 845,000 barrels per day by 2035.

No Reason to Export Heavy Oil. The U.S. Department of Energy (DOE), in reviewing the Keystone XL project, concluded that “there would be no economic incentive to ship Canadian oil sands [crude] to Asia via Port Arthur” without a surplus of heavy oil. And since heavy oil imports are declining (DOE noted that heavy oil imports “are likely to decrease by a significant amount within the next five years”), oil sands crude from Canada would be filling a gap, not creating excess supply.