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Rising U.S. Oil Supply and the Impact on Global Markets

2013-05-17T19:42:51+00:00

Increasing U.S. domestic production of oil matters. Energy Information Administration (EIA) chief Adam Sieminski had this analysis at an energy conference earlier this week (h/t Breaking Energy):

“There’s a fairly significant, long-standing relationship between spare production capacity in OPEC and what the pricing environment is for oil. So the 2 million barrel per day increase in U.S. oil production that surprisingly took place over the last five years has resulted in higher OPEC spare capacity, and undoubtedly, has been a factor in why Brent oil prices are $103-$104/bbl rather than $125-$130/bbl.”

In other words, the head of the federal agency that analyzes energy data says the recent growth in U.S. production has helped reduce the price of Brent crude, a leading global benchmark, by about $25 a barrel. That’s big, because the cost of crude oil is the single biggest factor in the price of gasoline, as this infographic shows:

Sieminski refers to the impact on the global crude market of growing U.S. oil production, which rose to 6.5 million bbl last year, compared to 5 million bbl in 2008. Sieminski said OPEC spare capacity “is a function of what demand is globally and what supply is outside of OPEC, with OPEC then filling in.” More U.S. production means more global supply outside OPEC, bolstering OPEC spare capacity and exerting downward pressure on global crude prices.

Another takeaway from Sieminski that’s as important: Continued growth in U.S. oil production could impact the global crude market even further. Breaking Energy reports:

If the agency’s high resource case for liquids production were to come to fruition, the US could be a net exporter of oil sometime in the 2034-2035 timeframe, and “oil prices themselves could be a lot lower than EIA’s reference case forecast, which has prices out in the year 2040 up close to $160/bbl,” (Sieminski) said.

First – thanks, fracking. The combination of hydraulic fracturing and horizontal drilling techniques, plus advances in the use of them, is unlocking vast U.S. reserves of natural gas and tight oil – from shale and other tight rock formations. Recently, the International Energy Agency said U.S. oil production would be the main driver of global supply growth over the next five years. At the IHS CERAWeek conference earlier this year, Sieminski suggested U.S. oil output is growing so fast a number of past EIA production projections were obsolete.

The challenge is to build on that growth by increasing access to U.S. reserves, onshore and offshore – where 87 percent of federal acreage remains off-limits to development. With greater access to federally controlled areas we will see more production gains, increased job creation and more revenue generated for government – while exerting downward pressure on the global crude oil market. Good things all.

Energy Today – May 17, 2013

2013-05-17T19:01:01+00:00

Free Enterprise – Keystone XL: Real Benefits for the U.S.

Sean Hackbarth notes Keystone XL pipeline developments this week: The House Transportation Committee advanced a bill that would allow construction of the full pipeline – the third congressional committee to do so; Canadian Prime Minister Stephen Harper was in New York City touting the project’s benefits for both the U.S. and Canada; and a small business owner in Maryland told the president that businesses like his would get a boost from the project.

The Hill – DOE Approves Natural Gas Export Project

A Texas LNG facility has the green light from DOE for exports to non-free trade nations. DOE noted that project opponents “have not demonstrated that the requested authorization would be inconsistent with the public interest.”

The Sunday Dispatch – Marcellus Shale Helps Rural Hospital Become Cutting-Edge

Thanks to support from local oil and natural gas companies in the Marcellus Shale region, one hospital gained funding needed to expand the facility – nearly doubling its square footage and adding new technology to assist patients.

NJ.com – Increased Natural Gas Production Holds Great Benefits for Consumers, Environment

Who will gain from increased natural gas production? Responding to an article critical of natural gas development, former Pennsylvania Department of Environmental Protection Secretary Michael Krancer argues that continued hydraulic fracturing will have broad benefits for consumers and won’t endanger the environment.

Philly.com - $1 Million in Shale Money Coming to Philadelphia Region

The Pennsylvania Department of Environmental Protection awarded $6.7 million in grants this week to 18 organizations. The grants are funded bythe $206 million in impact fees from energy development in the Marcellus Shael.

First Look: BLM’s New Fracking Rule Proposal

2013-05-16T21:41:56+00:00

An early look at the Bureau of Land Management’s (BLM) proposed new rule governing hydraulic fracturing on federal and Indian lands shows the challenge of trying to create a new rule that doesn’t just add regulation on top of effective state rules already in place.

Certainly, BLM’s aim with this rule, compared to a previous version, was to take hydraulic fracturing regulation in a better direction – acknowledging the role of the states and measures including FracFocus.org, the online fracking fluid registry. And it appears BLM has done that to some degree. Yet, the executive summary in BLM’s rule announcement and request for public comment suggests BLM itself is concerned about duplication, additional layers and potential additional delays to oil and natural gas development (emphasis added):

The BLM developed this revised proposed rule and the initial proposed rule with the intention of improving public awareness and strengthening oversight of hydraulic fracturing operations without introducing unnecessary new procedures or delays in the process of developing oil and gas resources on public and Indian lands.

And later on:

The BLM has revised the proposed rule to reduce some of the information requirements to avoid duplication with the requirements of States (on Federal land) and tribes (on tribal land).

And still later:

The BLM will work with States and tribes to establish formal agreements that will leverage the strengths of partnerships, and reduce duplication of efforts for agencies and operators, particularly in implementing the revised proposed rule as consistently as possible with State or tribal regulations.

The question, then, is why try to create an additional regulatory regime where strong state regimes already exist – tailored by them to address the specific conditions of their individual geology, hydrology and other characteristics?

API’s Erik Milito, director of upstream and industry operations:

“States have led the way in regulating hydraulic fracturing operations while protecting communities and the environment for decades. While changes to the proposed rule attempt to better acknowledge the state role, BLM has yet to answer the question why BLM is moving forward with these requirements in the first place.”

Indeed, BLM acknowledges the key role played by FracFocus.org, which provides specific, well-by-well details on the chemicals used in fracking across the country. Again, as indicated in the passages above, the agency also acknowledges the hard work the states have done to make oil and natural gas development as safe and clean as possible – to be expected since the states have a deep interest in protecting the local environment.

More on BLM’s proposal to come, but the point worth underscoring is this: America’s oil and natural gas wealth in shale and other tight-rock formations is a game-changer in terms of energy security, jobs and economic growth, thanks largely to hydraulic fracturing. With production in federal areas currently lagging because of federal leasing and permitting policies, imposing additional regulatory layers and processes on top of effective state regulatory regimes is not the way to increase production in federal areas. Milito:

“The production of oil and natural gas from shale and tight sand formations is the most significant development in U.S. energy in generations. Confusing the regulatory system would stand in way of economic growth, job creation and the opportunity to generate billions in revenue for federal, state and local governments.”

Study: No Groundwater Contamination from Arkansas Fracking

2013-05-16T19:37:43+00:00

There’s no evidence of groundwater contamination from shale natural gas production in Arkansas’ Fayetteville play. So says a new study by a team of Duke University-U.S. Geological Survey scientists. Their key conclusions:

"Our results show no discernible impairment of groundwater quality in areas associated with natural gas drilling and hydraulic fracturing. … Only a fraction of the groundwater samples we collected contained dissolved methane, mostly in low concentrations, and the isotopic fingerprint of the carbon in the methane in our samples was different from the carbon in deep shale gas in all but two cases.” – Avner Vengosh, professor of geochemistry and water quality at Duke's Nicholas School of the Environment

"These findings demonstrate that shale gas development, at least in this area, has been done without negatively impacting drinking water resources." – Nathaniel R. Warner, Duke PhD student and study lead author

In the study, whose findings parallel those in a USGS report issued earlier this year, scientists sampled 127 shallow drinking water wells in near Fayetteville Shale natural gas production areas in north-central Arkansas. The samples were analyzed for major and trace elements and hydrocarbons, and used isotropic tracers to identify the sources of possible contaminants. Scientists compared the chemical makeup of the contaminants to those found in water and natural gas samples from nearby shale drilling sites, and determined that methane found was produced primarily by biological activity in the region’s shallow aquifers and not by shale natural gas contamination.

Vengosh said drilling practices and wellbore integrity play a role in preventing or allowing natural gas leakage into shallow aquifers from drilling sites – which, again, the Duke-USGS study did not find in Arkansas. Vengosh:

"The take-home message is that regardless of the location, systematic monitoring of geochemical and isotopic tracers is necessary for assessing possible groundwater contamination.”

The findings are quite important – especially in the large public conversation on hydraulic fracturing, our vast shale wealth and what they could mean for our country. Opponents of natural gas and hydraulic fracturing often claim fracking is contaminating water sources – even though Lisa Jackson, who stepped down as EPA administrator earlier this year, said a number of times (see here and here) that her agency knew of no such occurrence.

The researchers are correct: Safe and responsible development of natural gas through hydraulic fracturing depends on sound standards and technical skill in applying them during drilling and production. Strong state regulatory regimes – which result from professional competence, experience and industry cooperation – are effectively overseeing development (something else Jackson acknowledged), making the process safer and cleaner – as the Arkansas study certainly suggests.

Industry is working hard to do its part. As the ad below (shot in Arkansas) shows, community buy-in is essential for energy development:

It’s about conversation – listening and responding. The result is a partnership that produces jobs, economic growth broader than just the industrial activity itself, and the energy that powers our modern lives.

Energy Today – May 16, 2013

2013-05-16T17:55:21+00:00

Breaking Energy – Sieminski: U.S. Tight Oil Growth Helping Lower Global Crude Price

U.S. tight oil production has helped to shave about $20-$25 per barrel from Brent crude oil prices, and continued output growth could further impact global pricing, says Energy Information Administration Administrator Adam Sieminski.

E! Science News – Groundwater Unaffected by Shale Gas Production in Arkansas

Duke University and U.S. Geological Survey scientists sampled 127 shallow drinking water wells in areas overlying Fayetteville Shale gas production in north-central Arkansas and found no ground water contamination from hydraulic fracturing.

AEI Ideas/Carpe Diem Blog – North Dakota Sets New Oil Production Record in March

Mark J. Perry writes that March was another record-setting month for oil output in North “Saudi” Dakota, and the shale oil boom there continues to make it one of the most economically successful states in America.

Forbes – America’s Manufacturing Boomtowns

Leading the way is Houston. Since 2009 the city’s industrial employment has grown 15 percent, almost three times as fast as the overall economy. This energy-driven growth is also seen in other sectors: construction and professional and business services.

The Hill – Consumers, Economy and Environment Lose with Renewable Fuel Standard

In an opinion piece, the American Fuel and Petrochemical Manufacturers’ Charles Drevna writes that because of the standard “American food producers and retailers are being hit hard, and these costs are passed along to consumers who have seen an 18 percent rise in food prices since the RFS was enacted.”

Wall Street Journal – What the Well-Dressed Fracker is Wearing

WSJ has a piece today on the way hydraulic fracturing is benefitting retailers and clothing manufacturers. These businesses are seeing an increase in demand for shoes and fire-resistant clothing for workers in the oil and natural gas industry.

Report: Big Job, Economic Numbers Would Accompany LNG Exports

2013-05-15T20:58:59+00:00

Key findings in a new report by ICF International, analyzing the potential impacts of exporting U.S. liquefied natural gas (LNG):

Jobs – Average net growth is projected to range from 73,100 to 452,300 between 2016 and 2035.

ICF:

This wide estimated range reflects the fact that the net job impacts will depend, in part, on how much “slack” there is in the economy and how much the demand for LNG-export-related labor will “crowd out” other labor demands. Manufacturing job gains average between 7,800 and 76,800 net jobs between 2016 and 2035, including 1,700-11,400 net job gains in the specific manufacturing sectors that include refining, petrochemicals, and chemicals.

Economic Growth – Net effect on U.S. GDP is projected to range from $15.6 billion a year to $73.6 billion by 2035.

ICF’s GDP projection includes the impacts of additional hydrocarbon liquids that would be produced along with the natural gas, greater petrochemical production using more natural gas liquids feedstocks and all economic multipliers.

Government Revenue – LNG exports are projected to produce annual increases in revenue to federal, state and local governments of between $6.4 billion to $9.3 billion in the base scenario to $27.9 billion to $40.4 billion in the high-export scenario by 2035. ICF:

Increased government revenues resulting from LNG exports are expected to be in the form of federal, state, and local taxes on GDP gains associated with additional economic activity, as well as additional royalty payments to the government for natural gas production taking place on government lands. State and local taxes (which include severance taxes associated with natural gas production) comprise the largest share of government revenues, with federal taxes making up a smaller portion. A slight increase in federal royalties is anticipated to comprise the remaining source.

The report’s lead author, Harry Vidas, says the findings confirm key portions of a study done for the Energy Department by NERA Economic Consulting that was released late last year – that LNG exports would have a net positive effect on the U.S. economy and that the bigger the level of U.S. exports, the bigger the resulting benefits. Vidas said ICF’s analysis indicated job growth would be real, not existing workers simply swapping one energy-sector job for another.

ICF studied the impacts of export scenarios ranging from 4 billion cubic feet per day to 16 bcfd – if not limited by government regulation. ICF projects that U.S. LNG exports could have 12 to 28 percent market share of new LNG contract volumes in 2025 and 8 to 25 percent in 2035.

The caveat about government regulation is key. The Energy Department is reviewing federal permit applications for 20 U.S. LNG export facilities. Thanks to America’s vast shale deposits and hydraulic fracturing, we have ample supplies of natural gas to support domestic needs as well as demand from allies overseas. But competition in the global LNG market is developing. Government shouldn’t pick winners and losers here. Rather, it should approve valid export applications and let the market make its determinations. The ICF report suggests that continued delay in considering these applications means delaying significant benefits to U.S. workers and our economy. API President and CEO Jack Gerard:

“Increasing LNG exports is clearly in our national interest and will help the U.S. reach the president’s goal to double U.S. exports. The industry is ready to invest in American infrastructure to create jobs and produce more domestic energy as soon as the Department of Energy moves forward with the approval of LNG export applications. Timely approval of LNG exports is crucial if we want to be competitive with international projects rushing to be first to market. Allowing the export of LNG would mean more jobs, growth in U.S. GDP, and less debt – key priorities of the American people."

Energy Today – May 15, 2013

2013-05-15T15:54:24+00:00

Washington Examiner – Fracking Could Create New Wealth for New York

In a guest column, former Department of Labor Chief Economist Diana Furchtgott-Roth discusses the opportunities hydraulic fracturing could bring to New York state. “Using the Pennsylvania data to project fracking's effect on New York counties, I find that the incomes of those who live in the 28 New York counties above the Marcellus Shale have the potential to expand by as much as 15 percent over the next four years -- if the state's moratorium is lifted.”

National Journal – Natural Gas Exports Loom Large Over Washington

NJ’s Amy Harder takes a look at the liquefied natural gas debate after a visit to Dominion’s Cove Point, Md., facility – a former import terminal waiting for federal approval to add export capabilities.

NPR – Huge Boost in U.S. Oil Output Set to Transform Global Market

"U.S. shale oil will help meet most of the world's new oil needs in the next five years, even if demand rises from a pick-up in the global economy," the International Energy Agency predicted Tuesday. The rise in North American supply is largely due to a rise in U.S. natural gas development through hydraulic fracturing.

Bloomberg Businessweek – U.S. Boom Transforming Global Oil Trade

U.S. petroleum imports have fallen 22 percent since hitting a record in the middle of the last decade, writes BW. Thanks to a surge in oil production in the U.S. and shrinking oil consumption in the developed world.

KRISTV.com – Shale-Related Jobs Expected to Double in Texas’ Nueces County

The total revenue the Eagle Ford Shale brought Nueces County in 2012 was $8.5 billion, and experts project that number will climb to $19.8 billion by 2022. KRISTV’s report details the benefits of shale development on the local economy.

Keystone XL and Possibilities

2013-05-15T13:47:45+00:00

Lots to like in President Obama’s remarks earlier this week from New York:

“When it comes to energy, not only have we been able to double our production of clean energy, but even in terms of traditional energy, we will probably be a net exporter of natural gas in somewhere between five and ten years. And so the idea of the United States being energy independent – which seemed far-fetched as recently as 10 years ago – now is actually a possibility.”

As well as those from Texas earlier this month, where he talked about job creation and driving economic momentum:

“… we've got to make America a magnet for good jobs. … And even as we’re working to reverse the trend of communities that have been hard hit with old manufacturing leaving, we’ve got to propose partnerships with local leaders in manufacturing communities to help attract new investment in the infrastructure and the research that will attract new jobs and new businesses, so that communities that have been knocked down can get back up and get back on their feet. And we’re poised for a time of progress – if we’re willing to seize it. … American energy is booming. But we’ve got to keep moving forward, and we’ve got to make sure that Washington is not administering self-inflicted wounds when we’re making progress.”

There’s a nexus between energy, jobs and moving forward. It’s the Keystone XL pipeline.

The president is right: We shouldn’t administer self-inflicted wounds in the midst of progress. America is experiencing an oil and natural gas renaissance – thanks to the game-changing development of vast shale reserves with hydraulic fracturing and horizontal drilling.

Abundant supplies of natural gas could support our domestic needs as well as demand from friends overseas. Meanwhile, the International Energy Agency said this week that U.S. oil production will be the main driver of global supply growth over the next five years.

Sustaining this energy boom hinges on access to U.S. reserves, smart regulatory oversight that doesn’t unnecessarily chill investment and development and visionary leadership that sees America’s oil and natural gas wealth as the key to our energy security.

The Keystone XL pipeline is a critical, available piece of an all-of-the-above energy strategy because it will put Americans to work, help grow our economy and strengthen our partnership with our largest source of imported oil, Canada. Yet, the full pipeline project remains on hold while the administration works its way through another review – extending a process that has taken more than four years. In terms of energy, shovel-ready infrastructure, jobs and economic growth, delaying approval of the Keystone XL is the definition of a self-inflicted wound.

Here’s what’s being delayed, according to the most recent State Department analysis:

42,100 average annual jobs across the United States over the pipeline’s one- to two-year construction period.
$2.05 billion in employment earnings.
$3.3 billion in direct spending on construction and materials.
$65 million in short-term revenues for government from sales and use taxes in states that levy them.

Check out this video that describes the kind of broad economic impact the pipeline already is having in Cushing, Okla., where the southern leg of the project has been under way:

Americans understand the Keystone XL pipeline’s value to our economy and energy security. They’ve said so in poll after national poll:

Pew (April 2013) – 66 percent favor the full Keystone XL’s construction.
Rasmussen (March 2013) – 58 percent favor.
Harris Interactive (February 2013) – 69 percent.
Fox News (February 2012) – 67 percent.

The country is ready to get on with building the full pipeline. Further delay is delayed benefit to the country. The pipeline will bring 830,000 barrels of oil a day to U.S. refineries. Most of that will come from Canada, but about 25 percent will come from the Bakken region of the U.S.

If we build it - if the president will end the delaying and agree with ample evidence that the project is in our country’s national interest – and is a key to the economic growth he seeks.

Energy Today – May 14, 2013

2013-05-14T16:58:05+00:00

Energy Biz – Shale Gas Shifting Global Energy Map

The global development of shale gas has the potential to boost worldwide natural gas supplies and help reduce market costs, writes Siemens Financial Services President Kirk Edelman. “For the U.S., the shale gas boom is still perhaps only a potential game changer, however, if realized, the economic benefits will be significant.”

Breaking Energy – The Science Behind the Keystone XL Pipeline Decision

Breaking Energy recaps the congressional Energy and Environmental Subcommittees’ joint hearing on the Keystone XL pipeline last week. Rep. Chris Stewart noted that Keystone XL has been under review for more than four years, which is how long it took to fight World War II, build most of the transcontinental railroad and the typical length of a college education.

Wall Street Journal – IEA: North American Oil to Dominate World Supply Growth

North American oil production will dominate world-wide supply growth over the next five years, the International Energy Agency predicted Tuesday, the result of growing production from hydraulic fracturing and other technologies that access once-inaccessible shale reserves.

TribLIVE.com – Company Finds Second Calling in Shale Service Industry

Businesses like Twin Pines Manufacturing in Blairsville, Pa., are benefitting from the surge in hydraulic fracturing in the Marcellus Shale region. “We were specializing in plastic and rubber molding equipment for the auto industry. But things slowed down” during the recession, said CEO Bob Kovalchik. “Then we got a few orders from gas companies… now it's our biggest thing — 80 percent of our business is from gas and oil.”

The Globe and Mail – Shale Gas: An Energy Revolution for Your Portfolio

“A surplus of natural gas production will give North American refiners and chemical producers a long-term competitive advantage over their peers worldwide,” according to Steven Wood, managing director at Moody’s. “The shale boom also improves the credit profiles of U.S. electric and gas utilities.”

The Ethanol-Gasoline Cost Gap

2013-05-14T16:06:43+00:00

Ethanol advocates often assert that ethanol costs less per gallon than gasoline while trying to justify the Renewable Fuel Standard (RFS). While it’s true that on a gallon-to-gallon basis ethanol historically has been cheaper than gasoline, ethanol contains far less energy than gasoline and therefore has cost consumers more to travel the same distance, as I pointed out (here, here and here). Look at the graphics below, produced by EPA and the Energy Department: The real costs to consumers, measured in fuel economy, has been significant.

As you can see, vehicles that can run on either gasoline or E85 (average 74 percent ethanol content) get significantly fewer miles per gallon when using comparatively low energy ethanol blended fuels. This means that in addition to the extra money consumers have been forced to spend per year if they choose to use E85, they also have needed to refuel more often. The recent rise in corn prices suggests this price difference could continue.

Sure, consumers have the right to choose which fuels to purchase. But Big Ethanol should stop the misinformation campaign that glosses over the fact that ethanol has been a more expensive fuel. Promoting the benefits of mid/high-level ethanol blends, while basically ignoring the higher cost on a per-mile basis, is a disservice. Ethanol has some favorable properties and makes a good additive, but misleading consumers, claiming it has been less expensive than gasoline, is shameful and unfair.

The ethanol mandates in the RFS are unworkable and need to be repealed. If ethanol advocates want to claim otherwise and use the government to force consumers to buy their historically more expensive product, they should make their case based on the facts.

Building Momentum for LNG Exports

2013-05-13T20:45:42+00:00

The Associated Press has this look at momentum for exporting U.S. natural gas, driven by an abundance of natural gas from shale via hydraulic fracturing. Bill Cooper, president of the Center for Liquefied Natural Gas, tells AP:

“LNG exports are a huge opportunity for the United States economy, our workers and our geopolitical relationships with countries such as Japan that are seeking to import natural gas. LNG exports will create jobs, increase government revenue and benefit consumers.”

Cooper is right. Studies – like this one for the Energy Department and this one by ICF International – show how America’s wealth in natural gas from shale could support demand here and overseas, to America’s benefit in terms of job and economic growth.

Currently, the Energy Department is reviewing federal permit applications for 20 U.S. LNG export projects. One of those is for Dominion’s Cove Point (Md.) facility – an LNG import terminal that would undergo an expansion to add liquefaction capability for exporting purposes, costing between $3.4 billion and $3.8 billion. The project would create up to 4,000 jobs during construction, support more than 14,000 jobs once operational and generate an estimated $1 billion a year in additional revenue to federal, state and local governments. A photo gallery from my recent visit to Cove Point.

Energy Today – May 13, 2013

2013-05-13T19:21:26+00:00

Associated Press – Natural Gas Export Plans Stir Debate

The AP highlights describes the natural gas export debate, which is being driven by an abundance of domestic supply. Sen. Ron Wyden, chairman of the Senate Energy and Natural Resources Committee, said officials should seek a "sweet spot" for LNG exports — allowing enough to spur drilling and increase gas supplies, but not enough to create export-driven price hikes.

Free Enterprise – Interior Secretary: Hydraulic Fracturing is "Essential"

Free Enterprise’s Sean Hackbarth recaps Secretary Sally Jewell’s recent testimony before the Senate Appropriations Committee during which she stated that hydraulic fracturing is an “essential technology” that “can be done safely and responsibly.”

The Post-Journal – Hydraulic Fracturing Is An Economic Necessity

“By allowing hydraulic fracturing to move forward in New York … we'd be putting family and friends back to work, boosting our own economy, writes Machias, N.Y. resident Janice Miller.

Forbes – Old Technology Fuels new Energy Boom

Forbes contributor Richard Martin writes that innovations in the oil and natural gas industry are not “new technologies,” but exciting innovations. “The technologies underlying today’s petro-boom are not new at all; they are innovative applications and refinements of technology that has existed for decades.”

The U.S.-Mexico TBA and Fair Disclosure

2013-05-10T20:47:05+00:00

Two of the most strategic energy partners for the United States are undoubtedly Mexico and Canada. With the right policies toward our energy neighbors – approval of the Keystone XL pipeline and the U.S.–Mexico Hydrocarbon Transboundary Agreement (TBA) - we have the potential to be North American energy self-sufficient by 2030 and enhance our energy security.

Keystone XL has drawn a lot of headlines, and it is well known that the project is in the national interest. Less well known is the U.S.–Mexico TBA.

The U.S.–Mexico TBA will govern the treatment of resources in the Gulf of Mexico that are located near the maritime border with Mexico. Congress is currently reviewing the agreement and both the House and Senate have introduced implementing legislation.

Included in the House of Representatives’ version is a very important provision that exempts U.S. companies that enter into agreement under the authority of U.S–Mexico TBA from the disclosure requirements of Dodd-Frank Section 1504. Section 1504 as implemented by the SEC requires listed companies to report payments to foreign governments, subnational governments and the federal government.

The U.S.–Mexico TBA will provide the legal framework necessary for the joint production of oil and natural gas reserves with Mexico’s state-run oil company, Petroleos Mexicanos (PEMEX). Since PEMEX is 100 percent state-owned, all payments from SEC-listed companies will be subject to the reporting requirements of Section 1504. This becomes problematic when contractual provisions or foreign laws prohibit disclosure, creating a competitive advantage for companies not subject to disclosure.

Section 1504 is anti-competitive and may even harm investors. As such, all efforts to minimize its impacts are welcomed, including the exemption in the U.S.–Mexico TBA. As API’s Surya Gunasekara and others explained recently in Forbes:

“This rule has nothing to do with investors and might actually harm investor interests by decreasing U.S. companies’ ability to compete with state owned companies from Russia, China, Venezuela and Iran. Indeed, some companies have even disclosed to investors in their annual 10-K that Section 1504 presents a governmental risk which undermines international competitiveness.”

API has sued over the 1504 rules because they put U.S. companies at a competitive disadvantage. We will continue to advocate for transparency programs like the Extractive Industries Transparency Initiative that provide for a disclosure system that maintains a level, competitive playing field for U.S. companies. U.S. policy should be driving investment by U.S. companies, not the opposite.

Certainty is hugely important for U.S. companies making billion-dollar, long-term investments. The Section 1504 exemption language in HR 1613 provides that certainty by ensuring companies will not have to violate their contractual obligations or foreign laws in order to comply with the SEC’s anti-competitive reporting requirement.

Good Words on Regulatory Certainty

2013-05-09T20:40:33+00:00

New Interior Department Secretary Sally Jewell is on the right track in her remarks at this week’s Offshore Technology Conference in Houston, committing Interior to providing “regulatory certainty, predictability (and) consistency” in oil and natural gas development.
This is critical to reverse recent declining development in federal areas. According to the Congressional Research Service, while oil production in non-federal areas was up 2009 to 2012, in federal areas it was down 6 percent:

Similar story for natural gas – rising production in non-federal areas compared to a 21 percent decline in areas controlled by the federal government:

The uncertainty Jewell wants to address shows in how long it takes to get a federal drilling permit, compared to the wait for a state permit (House Natural Resources Committee graphic):

All of this is to say Secretary Jewell has a big job, and we wish her well. The situation in California shows some of the challenges. The state’s Monterey Shale play, believed to hold 15 billion barrels of oil, could be a prolific energy producer and job creator. Californians recognize this. A new poll (see question #30) finds they support Monterey Shale development 46.3 percent to 29.7 percent.

Yet, recently the Bureau of Land Management announced it is putting off an auction planned for later this month after a federal judge ruled that BLM was auctioning drilling rights before conducting a sweeping environmental review. While there are specific issues to be addressed in that case, the larger point is that federal and state officials need to move forward with developing our oil and natural gas reserves, in California and other states. API Chief Economist John Felmy discussed these points during a conference call with reporters:

“The California example is not unique. It is, in fact, emblematic of a broader pattern of the federal government taking too much of America’s vast energy resources off the table. For the last several years, the federal government has shown virtually no interest in promoting new energy development. Today, 87 percent of federal offshore areas remain off limits to oil and natural gas production. And where development is possible in federal areas, permitting and leasing is a slow and cumbersome process.”

Felmy said a recent study found that the Monterey Shale’s potential benefits could include creating 500,000 new jobs in two years and 2.8 million by the end of the decade, while generating $4.5 billion in government revenue in two years and $24.6 billion by 2020. Realizing those benefits will take leadership – increased access and common-sense regulation – that still is lacking in Washington. Felmy:

“From Day 1 we’ve seen this administration take actions that draw out, drag on and don’t promote the development of oil and (natural) gas on federal lands. … We’ve seen a pattern over the past five years of slow downs and that’s been reflected in terms of the production numbers and the leasing numbers.”

California is on the cusp of major new oil and natural gas development, if it will allow it. Felmy:

California “needs to move forward, understand how hydraulic fracturing has been heavily regulated in other states, learn from those opportunities … to recognize that there are good regulations that you can put on the books that allow for exploration and production, jobs and revenue – and there are onerous ones.”

Because of her background, which includes work in the oil and natural gas industry, the new Interior secretary appears uniquely positioned to handle the challenge of balancing federal responsibilities and advancing “all-of-the-above” policies that encourage safe and responsible oil and natural gas development.

Integral to this is using safe, technologically advanced hydraulic fracturing in America’s vast shale plays to sustain the ongoing U.S. energy renaissance. “Fracking as a technique has been around for decades,” Jewell said recently. “I have performed the procedure myself very safely.”

Certainly, this is a useful perspective in developing a vision for America’s energy future. Felmy:

“As we look ahead we know that our nation has the workforce, the innovative and the entrepreneurial spirit to make the most of the energy renaissance created by the energy from the shale revolution. We also know that all too often, what’s lacking is political leadership and vision. We therefore urge lawmakers on all levels to work together to create a fact-based energy policy, so that our nation can take full advantage of its bright energy future and secure its place as a 21st century global energy leader.”

Energy Today – May 9, 2013

2013-05-09T14:55:02+00:00

AEI Ideas – The Economic Ripple Effect of the Bakken Shale Boom

Blogger Mark J. Perry writes about a recent analysis by the Minneapolis Fed that delved into the economic impact of increased shale development in the Bakken area of North Dakota. The report found that counties within 100 miles of the Bakken experienced the next-largest increase in wages and the next-lowest level of unemployment, compared to other counties in the state.

CNBC – Marcellus Shale Turns Pennsylvania into ‘Saudi Arabia’ of Natural Gas

CNBC highlights the surge in natural gas production through hydraulic fracturing in the Marcellus Shale play. The Marcellus "is at the sunrise of this [energy] renaissance. This is going to be just the beginning of an economic juggernaut for the US and Pennsylvania."

Fuel Fix Blog – Technology Leads to Abundant Energy

Technology is the enabling factor that has led to the abundant onshore supply opportunities in … America’s “unconventional” plays, writes Marathon Oil’s Annell Bay in a guest column. “Advances in horizontal drilling and hydraulic fracturing have helped to unlock massive new supplies of oil and natural gas that previously were inaccessible.”

Midwest Energy News – Utica Shale Gets Infrastructure boost with New Processing Plant

A sign of the times: A factory that builds natural gas processing equipment opened its doors Tuesday in Youngstown, Ohio. The plant will serve the oil and natural gas industry in the state which has seen a rise in development thanks to hydraulic fracturing.

Chicago Tribune – Why We Shouldn’t Ban Natural Gas Exports

Columnist Steve Chapman writes that with domestic natural gas production booming thanks to hydraulic fracturing, not only will the U.S. no longer have to import, we will actually be able to start exporting. (Subscription publication)

‘A Recipe for Disaster’

2013-05-08T20:43:36+00:00

EPA’s proposed Tier 3 rule requiring refiners to further reduce sulfur levels in gasoline is just one part of a regulatory wave being unleashed by the agency that would provide limited benefits at significant cost.

An ENVIRON analysis found that gasoline sulfur reductions equivalent to those in the proposed Tier 3 rule would “yield only very small additional improvements” in air quality, while a Baker & O'Brien study shows Tier 3 carrying a price tag for refiners totaling $10 billion in capital costs and $2.4 billion in annual compliance costs. According to Baker & O’Brien, that could add 6 to 9 cents per gallon to the cost of making gasoline – which already contains 90 percent less sulfur than it did a decade ago.

This scenario of high cost for virtually no benefit that characterizes Tier 3 might be true about other EPA initiatives that could impact the economy and consumers. API’s Patrick Kelly, senior policy advisor for downstream and industry operations, noted them during a conference call with reporters:

Gasoline vapor pressure reductions, which could increase gasoline costs an additional 16 cents per gallon beyond the Tier 3 costs, according to the Baker & O’Brien study.
Renewable Fuel Standard costs, which NERA Economic Consulting says could increase gasoline costs by 30 percent and result in rationing and other serious disruptions.
New greenhouse gas rules, new source performance standards and more stringent ozone standards also under consideration.

Kelly:

“As the studies show, this is a recipe for disaster for American consumers. This tsunami of refinery rules also could put refineries out of business, reducing U.S. fuel manufacturing capacity and increase our reliance on imported fuels.”

The oil and natural gas industry is working to improve air quality. Yet, proposals for new regulatory standards should be able to show that meaningful environmental results will follow. The Tier 2 fuel program has provided benefits that will continue to accrue as more and more pre-Tier 2 cars on the road are replaced by newer ones. The question is whether massive new refinery capital costs – driving up the cost of manufacturing gasoline and potentially weakening the nation’s energy security for little, if any, environmental benefit – are justified. Kelly:

“Refiners and their products area already heavily regulated. These regulations are contributing to a cleaner environment and safer workplace, but unnecessary, inefficient and excessively costly requirements hamper our ability to provide and distribute fuels to America – while also employing hundreds of thousands of people and enhancing our national security.”

Again, with EPA moving ahead on a number of regulatory fronts, the issue is broader than just Tier 3. These questions should be fully explored and explained by the agency, which is why EPA efforts to limit the official Tier 3 review process, explained here, is so concerning. Considering Tier 3’s potential costs, stakeholders and the public are entitled to a fair and appropriate opportunity to know EPA’s justification for this rule, as well as the broader impacts on the economy.

Keystone XL Pipeline: ‘It’s Ready to Go’

2013-05-08T19:47:15+00:00

The folks at Oil Sands Fact Check have a new video that shows strong support for the Keystone XL pipeline from union members at a recent rally in Washington:

Worth underscoring:

“The Keystone XL pipeline does not require an act of Congress; it does not require an appropriation. It’s privately funded, it’s ready to go. All it needs is one last permit and we go to work.”

– Sean McGarvey, president, Building and Construction Trades Department (AFL-CIO)

“It’s about jobs; that’s what it’s about – put Americans back to work again in an industry that has a 14.7 percent unemployment rate. It’s good for our economy, it’s good for our country; it’s good for our energy independence and it’s good for working men and women in the building trades.”

– Terry O’Sullivan, general president, Laborers’ International Union of North America

“And those pipelines coming down from Canada down through America, those are nothing but jobs so it means a lot to me.”

– Rally participant

Energy Today – May 8, 2013

2013-05-08T19:33:42+00:00

The Advocate – Our Views: Riches Await in the Gulf

The Baton Rouge, La., paper touts the energy potential in the Gulf of Mexico after Interior Secretary Sally Jewell’s recent visit to an offshore rig there. The editorial backs Jewell’s statement that “maintaining the public’s trust in the safety and environmental performance of oil and gas production is critically important as we continue to tap into the Gulf’s abundant resource potential.”

TribLIVE – How’s the Economy? Looking Up

Washington County, Pa., leads the greater Pittsburgh region in terms of economic development projects, energy production and job creation – thanks to natural gas development and hydraulic fracturing.

The Oklahoman – Proposed EPA Standards Could Fuel Higher Gasoline Prices

The newspaper highlights the pros and cons of the EPA’s proposed Tier 3 gasoline standards – which could raise costs in the production of gasoline.

Washington Times – Keystone XL Would Reduce U.S. Emissions

The newspaper picks up coverage of House testimony by North Dakota energy official Lynn Helms: “For every year the Keystone is delayed, we emit 1 million kilograms of greenhouse gases per day that would not be emitted if the pipeline were built.”

Politico – Ex-Senators Back Markets in Natural Gas Export Debate

Former Senators Byron Dorgan and J. Bennett Johnson discussed U.S. natural gas exports at a House Energy and Commerce Committee subpanel yesterday. “We believe the market should make the decision about the exports of natural gas,” said Dorgan.

National Journal – What the Oil and Natural Gas Boom Means for America

Infographic: NJ breaks down the opportunities and challenges of America’s surging oil and natural gas development.

Energy Rich – Decision Poor

2013-05-07T20:53:34+00:00

The Wall Street Journal has an incisive editorial this week that compares the diverging trajectories of two big, energy-rich states: Texas and California.

Texas is flush with well-paying oil and natural gas jobs, supported by shale development spurred by advances in hydraulic fracturing and horizontal drilling. The Journal notes that more than 400,000 Texans work in the oil and natural gas industry – nearly 10 times as many as in California – and the state has doubled its oil output since 2005. California? It used to be mentioned in the same breath as oil giants Texas and Alaska, but oil production is down 21 percent since 2001 and it has slipped out of the top-three tier of oil-producing states. The editorial:

This is not because California is running out of oil. To the contrary, California has huge reservoirs offshore and even more in the Monterey shale, which stretches 200 miles south and southeast from San Francisco. The Department of Energy estimates that the Monterey shale contains about 15 billion barrels of oil, which is about double the estimated supply in the Bakken (in North Dakota and Montana).

The contrast between these two states – not unlike the differing paths (and fortunes) of pro-fracking, pro-energy Pennsylvania and no-fracking, no-energy New York – points to the national discussion of expanding domestic oil and natural gas production, which President Obama has backed in calls for an “all-of-the-above” energy strategy.

The question is whether we’ll embrace America’s oil and natural gas wealth with comprehensive pro-development policies. Texas and Pennsylvania have, New York and California haven’t. The Journal:

Texas loves being an oil-producing state while California is embarrassed by it. … So the oil remains locked in the ground, as one million Californians look for work, as its schools and roads deteriorate, and as it keeps raising taxes to balance the budget. What a tragedy. Imagine how fast the U.S. economy would grow if California were more like Texas.

Again, we’re seeing a similar contrast between Pennsylvania and New York: Pennsylvania supports safe and responsible shale development; New York has spent five years studying fracking while its residents watch farms, business opportunities and their futures slip away. A new report by the Manhattan Institute describes what New Yorkers are missing:

Pennsylvania counties with fracking have performed better economically than those with no wells. Between 2007 and 2011, per-capita income in counties with more than 200 wells rose 19 percent, by 14 percent in counties with between 20 and 200 wells and by 12 percent in counties with less than 20 wells. In countries with no fracked wells, income went up just 8 percent.
Pennsylvania counties with more than 200 wells added jobs at a 7 percent rate over the same period, while in counties where there was no drilling or only a few wells, the number of county jobs shrank 3 percent.

The report:

Using the Pennsylvania data to project hydrofracking's effect on New York counties, we find that the income of residents in the 28 New York counties above the Marcellus Shale has the potential to expand by 15 percent or more over the next four years—if the state's moratorium is lifted. Our data also suggest that had New York allowed its counties to fully exploit the Marcellus Shale, those counties would have seen income-growth rates of up to 15 percent for a given four-year period, or as much as 6 percent more than they are experiencing.

The question is, if the relationship between oil and natural gas development and economic growth is so strong, why do California and New York remain on the outside looking in? An important factor, as the Journal editorialized, is that California’s predominant political culture doesn’t like oil and natural gas, the wealth right under Californians’ feet. So, though Democratic Gov. Jerry Brown backed drilling on some level during a press conference last month:

"[When people in California] can get around without using any gasoline, that’s the time for no more oil drilling. Maybe. Because they’ll be many other people still driving. ... Now, do you want to get the oil from Venezuela [or from] 100 miles away? ... So we want to get the greenhouse gas emissions down, but we also want to keep our economy going. And that’s that balance that’s required ... Whether it’s fracking, or whether it’s a low-carbon fuel standard, or anything else, we keep our eyes open and we’re not jumping on any ideological bandwagons.”

… His party remains obliged to powerful environmental interests that have blocked development, largely through scare tactics designed to generate public doubt and fear. The same influences are at work in New York.

The fact is our industry is subject to federal environmental standards, contrary to suggestions otherwise (debunked in detail here). At the same time energy-producing states have strong, efficient regulatory regimes in place, tailored for each state’s geology, hydrology and other characteristics. And they’re doing a good job, which federal officials acknowledge.

It’s time for California, New York and perhaps other states to make energy policy decisions based on fact. Both states have vast oil and natural gas reserves that could put residents to work in good jobs and stimulate their economies. The energy-jobs-economy model that's working in Texas, Pennsylvania, North Dakota and other states can work elsewhere, too.

Energy Today – May 7, 2013

2013-05-07T20:48:05+00:00

The Hill – The Case for Keystone XL Goes Beyond Jobs and Energy Independence

In a guest column, Brigham McCown argues the benefits of the Keystone XL pipeline would extend beyond jobs and energy security to safety. According to government statistics, pipelines are the safest way to transport energy supplies, writes McCown.

U.S. News and World Report – Lawmakers: Natural Gas Exports Could Erode Political Might of U.S. Adversaries

U.S. News recaps today’s House Subcommittee on Energy and Power hearing, which focused on legislation that would expedite U.S. natural gas exports. Supporters say shipping natural gas to allies could strengthen diplomatic ties, undermine political leverage of adversaries, while also shaving the U.S. trade deficit and creating jobs.

The Journal News – Editorial: It’s Time for Cuomo’s Decision on Fracking

The Journal News highlights a recent Manhattan Institute study detailing gains for Pennsylvania’s economy – thanks to hydraulic fracturing – and the potential for the same in New York state. According to the report, in the 28 New York counties above the Marcellus Shale, incomes could expand 15 percent if Gov. Andrew Cuomo approves fracking.

Houston Chronicle – Coastal Governors Implore Obama to ‘Step Up’ Offshore Drilling

Six Republican governors from coastal states urged President Obama to open up areas for offshore drilling. All agreed drilling would create jobs and stimulate the U.S. economy.

Tulsa World – Fracking Regulation is States’ Turf

Thirteen state attorneys general say in a letter to the EPA this week that the federal government should leave hydraulic fracturing regulation to the states. The letter notes that states like Oklahoma have effectively regulated fracking for decades.

Energy Today – May 6, 2013

2013-05-06T20:04:31+00:00

Wall Street Journal – A Tale of Two Oil States

The Journal’s editorial highlights oil-and-natural gas booming Texas and California – where oil output is down 21 percent since 2001. The difference between the two energy-rich states? “Texas loves being an oil-producing state while California is embarrassed by it.”

Christian Science Monitor – Drive to Make Energy Cleaner Has Stalled, Shale Could Help

“As we see from places like Texas and Oklahoma, where wind supplies up to 30% of all generation, shale gas and renewables can work together to build a low carbon future,” writes guest blogger Nick Grealy.

AEI Ideas Carpe Diem Blog – Petroleum Engineering the Highest Paid Major for the College Class of 2013

“Add petroleum engineering majors in the College Class of 2013 as another group in a very long list of beneficiaries of America’s shale revaluation,” writes Mark J. Perry. In fact, college graduates with petroleum engineering degrees are averaging starting salaries of $93,500 – more than twice the average for all college graduates.

The Associated Press – New Jobs, Energy Gains Helping Lift U.S. Economy

According to a Labor Department report, America’s oil and natural gas industry helped boost the U.S. economy in April, AP reports. “The economic good news is also drawing attention to the importance of private-sector innovation rather than government policy in fostering growth.”

Washington Examiner – Editorial: Two Cheers for Obama on Fracking

In an editorial, the Examiner notes a number of encouraging developments in terms of the administration’s attitude toward increasing domestic oil and natural gas producing. The paper says that with the recent nomination of Ernest Moniz to be energy secretary, “Obama appears willing to at least minimize regulatory obstacles to fracking and thereby reap the rewards of clean, cheap, abundant domestic energy.”

The Tier 3 Game

2013-05-03T18:32:54+00:00

It’s one thing to have genuine differences over energy regulatory policy – as the oil and natural gas industry has with EPA’s proposed Tier 3 rule further lowering sulfur levels in gasoline. It’s quite another to see that the rulemaking process is being gamed.

API highlighted substantive and procedural concerns about the Tier 3 proposal at recent public hearings. The rule would require refiners – who invested about $9 billion over the past decade to reduce sulfur in gasoline 90 percent (300 parts per million to 30 ppm) – to lower sulfur content another 6 percent, to 10 ppm. According to one study, the reduction would produce little environmental benefit, while another said it could add 6 to 9 cents per gallon to the cost of making gasoline. API Senior Policy Advisor Patrick Kelly, from EPA’s Tier 3 hearing this week in Chicago:

“API opposes this discretionary rulemaking as we have serious doubts as to the Agency’s justification for it. We have been insisting that EPA demonstrate a scientific justification for two and a half years. API commissioned research on the costs and benefits associated with further reductions in gasoline sulfur. We found some clear conclusions: The proposed standard will yield little immediate or longer term air quality benefits. And, reducing average sulfur from 30 parts per million to 10 parts per million will impose enormous costs. Further reducing gasoline sulfur is not necessary for meeting more stringent vehicle emissions standards, and automakers are unlikely to introduce vehicle emission technology that is enabled by the lower sulfur fuel.”

Kelly supplied additional detail in Chicago and at a second Tier 3 hearing last week in Philadelphia:

Research by Baker & O’Brien indicates further reductions in sulfur content could require $10 billion in capital costs.
Annual compliance cost is $2.4 billion – or 6 to 9 cents per gallon marginal cost in the making of gasoline, according to the same study.
EPA’s use of average cost in calculating the impact of the proposed rule ignores the important role marginal cost plays in gauging the market’s response to the regulation.
EPA’s proposed three-year time lead for Tier 3 implementation is “grossly inadequate” to design, permit, construct and startup the equipment needed to produce the fuel.
Air quality benefits under the current Tier 2 program are considerable and are still being realized. More than half the cars on the road today are pre-Tier 2, so benefits will keep accruing as the fleet turns over.
EPA’s proposal to make E15 the certification fuel (up to 15 percent ethanol content) is flawed because the vast majority of vehicles on the road weren’t designed to operate on fuels exceeding E10. E10 should be the certification fuel because that’s the fuel new vehicles are mostly likely going to use.

These are significant cost/benefit problems with the Tier 3 proposal – problems that undermine EPA’s ability to justify the new rule. But the rulemaking process itself is flawed, with evidence EPA is trying to truncate the critical review period:

Under the Clean Air Act, rulemaking is supposed to begin when EPA publishes the proposed rule in the Federal Register. As of May 3, that has not occurred, yet EPA still held public hearings.
The Act also requires EPA to make available, when the proposed rule is published in the Federal Register, the data upon which the rule is based, the methodology used to obtain and analyze the data and the major legal interpretations and policy considerations underlying the proposal. More than 700 new documents were added to the docket last week, leaving no time for analysis before public hearings on the rule.

What’s happened here is that without detailing its justification for the Tier 3 proposal, including the supporting factual data, EPA started the clock on public comments. By narrowing the window for public discussion, EPA is distorting the process. Kelly:

“It is outrageous for EPA to hold public hearings as the docket continues to be populated with supporting information. It is invalid for EPA to hold these hearings in advance of the publishing the rule in the Federal Register. … EPA cannot set a deadline for public comments on a proposal that has not yet been published, and the supplemental publication that merely identifies the hearing dates and locations is a clear attempt to circumvent public participation in the rulemaking process.”

EPA should follow the law. Once the Tier 3 rule proposal is published in the Federal Register, the clock on the commenting period should be restarted. Another public hearing should be scheduled – after there’s been enough time for fair public review of all of EPA’s data and analyses.

The Tier 3 proposal has significant manufacturing cost impacts for marginal benefits. That’s what research shows. Meanwhile, the way EPA is advancing this proposal is limiting review – thereby limiting the agency’s accountability to the public. It’s improper and fundamentally unfair.

Managing Continuous Improvement in Offshore Safety

2013-05-02T20:37:24+00:00

In an interview with Fuel Fix, Charlie Williams, director of the Center for Offshore Safety, fields a question about the perceptions surrounding the safety of drilling operations in the Gulf of Mexico:

“I think the biggest misconception is that not much has been done, when there has been a tremendous amount of effort by the industry and by regulators in moving this forward. … There has been more collaboration, cooperation and improvement in working together to make things better than I think we have ever done before.”

Steadily improving offshore safety in oil and natural gas development was the main reason for the center’s creation and Williams’ selection as director last year. The center gathers industry practices that foster safe and responsible operations, shares the information and helps operators improve their safety and environmental management systems (SEMS). The center also helps companies synch their SEMS with new regulations from the U.S. Bureau of Safety and Environmental Enforcement (BSEE). Companies must submit the first audit of their SEMS programs to BSEE in November.

During a conference call with reporters this week, Williams stressed industry’s commitment to continuous improvement of safety:

“We think that SEMS is absolutely critical as a driver to this continuous improvement process. What SEMS focuses on is actually completely embedding safety in the way you manage your business and you manage your projects when you make operational decisions. … The emphasis is on safety leadership … and (establishing) skills and knowledge in your workforce.”

Williams elaborates in the Fuel Fix interview:

“(BSEE’s) James Watson has said that he wants audits to be a learning tool, and the Center for Offshore Safety wants them to be a learning tool and find areas of improvement. But because we come from a culture of inspections and prescriptiveness, people still have the concern that it is going to be an exercise around finding faults and issuing incidents of non-compliance and not really improving things. … We are going to continually improve and the proof will be in the results. The proof can only be in the results. Ten years from now we have to be better than five years from now. … When it comes to managing safety, you have to manage it for the long term and you can’t think about it as an initiative where you can stop with what you have already accomplished. It is about capabilities of organizations to manage change and things that need this constant attention and constant improvement. It is not something we are ever going to be done with. That does not mean we are not improving – it just means we have to continually improve.”

This is an important distinction for industry, but also for the U.S. public. Industry’s commitment to continually improving safety in deep-water operations is a moral obligation – to our workers, to the American people and to the environment. It’s also sound business. The quality required in safety programs that will ensure responsible, long-term development is unlikely to be “inspected” in.

Rather, quality comes from companies building safety programs and processes – and the monitoring systems so that those programs keep improving. That’s not diminishing the role of enforcement; it’s saying that the best safety programs and monitoring mechanisms will come from industry. Erik Milito, API director of upstream and industry operations, described industry’s safety commitment as forward and proactive – versus an approach driven by a government checklist:

“Safety is much broader than that. We’re creating a mindset that we’re always asking about (safety).”

Williams:

“It’s key that the oil and natural gas industry continue to provide reliable and affordable energy from our domestic supplies. But obviously that has to be done safely and in a way that protects the environment, protects the public and protects all of our stakeholders. It’s really the goal of the Center for Offshore Safety and the programs that we have to both enable and continue this lasting commitment the industry has to this continuous improvement and to continue raising the bar as to how we manage safety.”

Energy Today – May 2, 2013

2013-05-02T20:22:25+00:00

The Atlantic – How Oil Made Working-Class North Dakota a Whole Lot Richer

In North Dakota’s Bakken Shale formation, Americans have been able to find high-paying work in the oil and natural gas industry as the state’s employment number grew by more than 35 percent from 2007 to 2011. But another part of this American success story is that jobs and paychecks have surged across industries – including technical services, transport, construction and food services.

Reuters Canada – TransCanada to Build $900 Million Alberta Oil Pipeline, Terminal

Keystone XL opponents claim that stopping the pipeline will keep Canada’s oil sands in the ground. However, as the U.S. waits for President Obama to decide on the Keystone XL Canada is moving forward with plans to move its growing crude oil supplies – and ship them elsewhere.

Washington Post – Oil and Natural Gas Drillers Make Technological Leaps, While Renewable Energy Industry Struggles

AP reporter Jonathan Fahey writes that “technology created an energy revolution over the past decade — just not the one we expected … in the race to conquer energy technology, ‘Old Energy’ is winning.”

Washington Times – Driessen: The High Cost of Zero

In a guest column, Paul Driessen writes on the costs of EPA’s rising regulations – 1,920 and counting. Case in point is the new Tier 3 fuel proposal that “would cost $10 billion in upfront capital expenditures and an additional $2.4 billion in annual compliance expenses.”

The Tennessean – Nation Will Benefit From Natural Gas Exports

"Why single out for punishment an industry that has pumped billions of dollars into the economy and the tax coffers to create a century’s supply of natural gas? Let free enterprise be free.” - Energy consultant Gerry Calhoun, guest column.

Keystone XL: Safe for the Environment

2013-05-01T20:58:31+00:00

Each of the State Department’s four reviews of the Keystone XL pipeline – during the more than four years the project has been under consideration – focused primarily on the Keystone XL’s impacts on the environment: air, ground and surface water, wetlands, vegetation, wildlife and more. State went beyond the Keystone XL itself, evaluating the environmental impact of oil sands crude that would be delivered through it – as well as the impacts on Canada.

Bottom line: Each review came to the same conclusion – the Keystone XL’s construction and operation will not significantly impact the environment. From the most recent State assessment, issued in March:

The analyses of potential impacts associated with construction and normal operation of the proposed Project suggest that there would be no significant impacts to most resources along the proposed Project route …

API’s official comments on State’s review support this conclusion for a number of reasons:

Little impact on climate as measured by greenhouse gas (GHG) emissions.
Minimal impact to wetlands, vegetation, wildlife and fish.
Unlikely to impact ground or surface water.

On climate, while the Keystone XL itself would have virtually zero emissions, it’s a proxy issue for opponents of oil sands. Yet, the State Department notes that oil sands crudes are only “somewhat more” GHG intensive than other crudes. Here’s a chart from the Canadian Association of Petroleum Producers illustrating the point:

As you can see, the large majority of GHG emissions occur during gasoline consumption, regardless of the type of crude. API:

… the DOS (State Department) analysis shows that GHG emissions from Canadian oil sands crude are comparable to many other crude oils commonly refined in the United States. … This finding is supported by research by Bergerson … which indicates that depending on the production and refining methods, oil sands crudes can have a carbon footprint lower than conventional crudes. DOS further finds that as we move forward, the difference in GHG emissions from Canadian oil sands crudes and other crude oils is likely to become smaller. Specifically, DOS states “(i)t is not clear how changes in technology will affect the relative GHG-intensity of reference crudes and WCSB oil sands derived crudes, but it is believed the gap between these crudes is more likely to narrow than widen.” (Appendix W, page 69) Moreover, the SEIS finds that “in 10 years it is possible that oil sands will be less energy intensive, well to wheels, than Saudi Arab Light delivered to the same Gulf Coast destination.”

The latter point is very important – and one that EPA missed in its recent criticism of State’s review: Technologies and innovation very likely will make oil sands extraction less GHG intensive over time. They already have. The government of Alberta, where oil sands reserves are located, found that the oil sands industry reduced GHG emissions per barrel of oil an average of 26 percent since 1990, with some facilities reaching reductions of 50 percent.

Let’s look at impacts on the physical environment. Again, State says they would be minimal:

Just 28 acres of wetlands affected permanently.
Impacts to vegetation will be minimized through 64 measures to protect grasslands, forests and upland areas.
Fifteen measures will be employed to protect wildlife – including buffer zones, a ban on nest destruction and the use of surveys and conservation plans to provide appropriate care for potentially affected species.
Measures will be used to protect fisheries, including steps to avoid accidental introduction of pathogens as well as others minimizing erosion, while timing construction to avoid spawning periods.
Where the pipeline goes under water bodies it will be buried deep enough to keep it from increasing water temperature.

Water – surface and below-surface water – is everyone’s concern. Again, State finds that adverse impacts are unlikely. API on groundwater:

… the proposed pipeline area does not cross any sole-source aquifers, as designated by U.S. Environmental Protection Agency (USEPA) Region 8 (USEPA 2012). In addition, the pipeline is underlain by a very shallow groundwater resource … over only very limited stretches (the most extensive and continuous of which is its crossing of the Platte River Valley). A limited number of public water supply wells are located within one mile of the proposed pipeline area (39 along the entire route; Montana-1, South Dakota-0, Nebraska-38), and a very limited number of private water supply wells are located within 100 feet of the pipeline (Montana-6; South Dakota-0, Nebraska-14).

API on surface water:

With regard to surface water, Section 3.3.3 (of the review) shows that KXL would make numerous water body crossings (1,073), but only 56 (5.2%) are crossings of perennial streams. No public water supplies are located within one mile of the right-of-way in Montana, South Dakota or Nebraska. In only one instance does the right-of-way cross upstream of a public water supply, and in that circumstance crosses a tributary to the stream from which the water is diverted 44 miles upstream.

The Keystone XL pipeline is the most scrutinized infrastructure project ever. The State Department reviews, a separate, extensive study by the state of Nebraska, public hearings, commenting periods – all have been part of an exhaustive vetting of the project and its environmental impact. It has been a good and valuable discussion.

Indeed, safety and protecting the environment are key industry priorities. Everyone associated with the project, from the pipeline builder and operator to the companies that own the oil that will move through it wants to keep that oil in the pipeline.

So let’s move on. The full Keystone XL would create jobs, lift state and regional economies as well as the national economy and make the United States more energy secure while fortifying our unique and deep relationship with Canada. Let’s get started.

Energy Today – May 1, 2013

2013-05-01T20:18:19+00:00

Texas Tribune – Shale Boom Has Major Impact on Texas' Budget

Increased shale development in Texas has helped business surge in the Lone Star State, providing jobs not just in the industry but across the service sectors. But the most significant effect may be seen in the revenue provided to the state, according to the paper.

Press Connects.com – New York Deserves a Fracking Chance

In a guest opinion piece, Dr. Charles Carpenter points out that as the debate over hydraulic fracturing continues in the Empire State, more than 800,000 New Yorkers are currently unemployed, and since 2001 at least 1.6 million people have left the state. That’s the highest number of any state in the country – but fracking could change that.

National Journal – U.S. Has Much, Much More Natural Gas and Oil Than We Thought

In an article on new government estimates showing a two-fold increase in the size of shale oil reserves in the Williston Basin area, Interior Secretary Sally Jewell says North Dakota’s “world-class formations contain even more energy-resource potential than previously understood, which is important information as we continue to reduce our nation’s dependence on foreign sources of oil.”

Washington Post – America's Comeback Kid: Manufacturing

Blogger Brad Plumer notes trends favoring a revival of U.S. manufacturing, including abundant and affordable natural gas developed thanks to hydraulic fracturing.

Billings Gazette – Energy Advocate Supports Natural Gas Exports

Former EPA official J. Winston Porter says in an interview that affordable natural gas has spurred a renaissance in the U.S. chemical industry. Porter says he has seen no evidence that hydraulic fracturing has damaged water wells and that states are better able to regulate fracking than “one size fits all” EPA regulation.

Bakken Bonanza: More Oil and Natural Gas – Thanks to Drilling Innovation

2013-04-30T20:14:27+00:00

The U.S. Geological Survey has new estimates for oil and natural gas in the Williston Basin shale area that simply blows the doors off previous estimates:

3.65 billion barrels of undiscovered, technically recoverable oil for the Bakken Formation.
3.73 billion barrels for the Three Forks Formation.
The total, 7.38 billion barrels, is a two-fold increase over USGS’ 2008 estimate, which included only the Bakken Formation because Three Forks wasn’t thought to be productive.

The chart below shows how resource estimates have skyrocketed since 2008 and 1995, when the assessment totaled only in the millions of barrels:

The main reason for the dramatic increase is drilling innovation – advances in hydraulic fracturing and horizontal drilling over just the past five years. USGS:

Since the 2008 USGS assessment, more than 4,000 wells have been drilled in the Williston Basin, providing updated subsurface geologic data. Previously, very little data existed on the Three Forks Formation and it was generally thought to be unproductive. However, new drilling resulted in a new understanding of the reservoir and its resource potential.

In other words, when you’re allowed to look for oil, you find it and the resulting, previously unavailable geologic data helps you find more. USGS Acting Director Suzette Kimball:

“The USGS undertook this assessment of the Bakken and Three Forks Formations as part of a nationwide project assessing U.S. petroleum basins using standardized methodology and protocol. Through this improved understanding of our energy resources, government, industry, and citizens are better able to understand our domestic energy mix and make wiser decisions for the future.”

In addition to oil, USGS estimates the two formations contain a mean of 6.7 trillion cubic feet of undiscovered, technically recoverable natural gas and 0.53 billion barrels of undiscovered, technically recoverable natural gas liquids. The estimate is a nearly threefold increase in mean natural gas and a nearly threefold increase in mean natural gas liquids resources from the 2008 assessment.

The dramatic increases in these oil and natural gas estimates are a credit to industry initiative and the application of ideas and technology – in non-federal areas where oil and natural gas development is supported and encouraged. These reserves underscore the game-changing nature of unconventional oil and natural gas – again, thanks to hydraulic fracturing – that could support the creation of 3.5 million jobs and more than $5.1 trillion in industry cumulative capital spending by 2035, according to an IHS Global study.

America has ample supplies of oil and natural gas – the energy sources that run our economy and make modern living possible. To realize America’s energy potential and to increase America’s security in the world, we need policies that expand development – as we’ve seen in the Williston Basin – to federal areas onshore and offshore where access is limited (or blocked altogether) and where production has lagged. Access to reserves, accompanied by predictable leasing and timely permitting, will foster investments in exploration, infrastructure and other areas that will turn America’s energy potential into reality. API’s Carlton Carroll:

“Today’s report is further proof of a new energy reality brought about by advancing technologies that could turn America into a global energy superpower. … We are now the largest natural gas producer in the world and are poised to surpass Saudi Arabia to become the world’s top oil producer in a few short years. … Americans everywhere are benefiting from the energy revolution occurring in our country. … These benefits could become much greater in the future, creating even more jobs, reducing our debt and further strengthening America’s position in the world on energy.”

Energy Today – April 30, 2013

2013-04-30T18:13:03+00:00

Bloomberg – Approve Keystone Now

Bloomberg’s editorial board argues that rather than encouraging more study on the Keystone XL pipeline, President Obama should “now prod the State Department to move as fast as possible” to approve the project.

AEI Carpe Diem Blog – Texas Oil Output Continues

Mark J. Perry writes, “The exponential increase in Texas oil production over the last several years is nothing short of phenomenal, and is a direct result of … game-changing drilling technologies in America that have now revolutionized the nation’s production of shale oil.”

Daily Caller – Fracking Doesn’t Pose Health Risks

“No documented instances of adverse health effects have been linked to fracking, nor have any occurrences of groundwater contamination been confirmed from the more than 1 million wells that have been hydraulically fractured over the past 50 years,” writes Dr. Elizabeth Whelan, the president of the American Council on Science and Health.

Bloomberg Businessweek – Celebrity Tour Notwithstanding, Fracking Not To Blame

In January, an anti-fracking bus tour featuring Yoko Ono and Susan Sarandon and filmmaker Josh Fox visited Franklin Forks, Pa., stoking claims that methane from natural gas development was tainting water wells in the area. Not so, according to a new report from the Pennsylvania Department of Environmental Protection.

Forbes – Which State Pays the Most in Gasoline Taxes?

Kelly Phillips Erb writes about the states where residents pay the most in state gasoline taxes – New York, California and Hawaii – and recent polling showing Americans wouldn’t embrace an increase in the federal gasoline tax, an issue that continues to be debated in Congress.

Domestic Oil Production Growth and Lower Net Imports

2013-04-30T14:01:08+00:00

Imports of crude oil have decreased significantly over the past four years as the U.S. has become more self-reliant in meeting its energy needs domestically. In fact, as the graph below shows, from the beginning of 2008 through the end of 2012 net U.S. oil imports have declined by more than 1.3 million barrels per day (bpd) while domestic production has increased by almost 1.5 million bpd. In short, the increase in domestic production accounts for all of the reduction in imports and then some.

The 2008-to-2012 timeframe is especially significant, because the Energy Independence and Security Act of 2007 (EISA 2007), which set the required ethanol volumes for the current Renewable Fuel Standard (RFS), was signed into law Dec. 19, 2007.

Here’s the point: The ethanol industry and its proponents like to claim that the RFS is working exactly as it was intended and point to the sharp reduction in imports since the RFS’ passage as proof. The truth is that while ethanol production increased by 260,000 bpd since the current RFS was enacted, that level of production is too small to deserve credit for reducing imports – not when domestic oil production growth accounts for all of the import reduction and more.

The EISA 2007 goal to move the United States toward greater "energy independence and security" was the right one. But, at the time the bill was passed by Congress and signed by the president, no one knew that we would soon discover vast, accessible domestic oil supplies. Without government support, or a law requiring it to act, the oil and natural gas industry has moved the country toward greater “energy independence and security” as called for in EISA 2007 while pouring $57.5 billion in rents, royalties and bonuses into the U.S. Treasury - not to mention more than $34 billion in income taxes from 2008–2010 in addition to billons more in still-to-be-released tax numbers for 2011 and 2012.

This chart provides another look at the inverse relationship between domestic production and imports of crude oil. At the bottom you can see the line tracking fuel ethanol consumption. While the line inches slightly north, it has no role in the big picture you see toward the top of the chart.

There are a number of ways to explain that domestic production, not the RFS, is responsible for reduced crude oil imports over the past five years. But in this case, pictures – or better, graphs – speak far louder than words.

Energy Today – April 29, 2013

2013-04-29T20:09:19+00:00

Washington Times – Pa.: High Methane in Town’s Water Supply Not Caused by Fracking

After a 16-month investigation, the Pennsylvania Department of Environmental Protection says there’s no evidence connecting hydraulic fracturing with high levels of methane found in private water supplies in Franklin Forks.

Wall Street Journal – Impact Fees Benefit Pennsylvania Towns

The Journal details ways the fees from hydraulic fracturing have been used by different communities. Cumberland Township, a small farming community in southwest Pennsylvania, got $1 million or nearly half its annual operating budget, which it used to buy new police and fire equipment as well as pay for other public needs. (Subscription required for this publication)

AEI Carpe Diem Blog – 6 Facts About North Dakota Oil

Mark J. Perry highlights the impact of the oil and natural gas development surge in the Roughrider State. Oil production has increased more than 600 percent in recent years, and the state currently provides about 11 percent of total U.S. oil production. Oil development is providing royalties to landowners, tax revenues to government and boosting the state’s economy.

Dallas Morning News – Texas Oil Production Up 37 Percent in February

Texas’ oil and natural gas surge continued to grow in February – to more than 1.5 million barrels a day. That’s a 37 percent rise from last year and 9 percent more than January. (Subscription required for this publication)

CantonRep.com – Local Business Sharing in Utica Shale Bonanza

Shale development in Ohio is boosting growth in businesses beyond primary oil and natural gas activity. Increased investment in shale energy from hydraulic fracturing is lifting the service sector as well as companies involved in paving and excavating.

Fuel Fix Blog – It’s Time to Export U.S. Natural Gas

In a guest column, the Center for Liquefied Natural Gas’ Bill Cooper writes that America has enough natural gas to satisfy both growing domestic demand and our trading partners abroad.

Times Reporter – Colleges Prepare Students for New Jobs in Oil and Natural Gas

Thanks to the surge in natural gas development, more colleges and universities are offering courses focused on the oil and natural gas industry. Two years ago, Zane State University introduced a natural gas engineering technology program to its students. This year, 10 of those students can add college graduate to their resumes.

Stepping Forward on Offshore Drilling

2013-04-26T20:07:22+00:00

Take a look at the map below, one we’ve used before to show the vastness of America’s offshore oil and natural gas reserves – the overwhelming majority of which (in red) that’s off-limits for development.

That should be changed – and could be changed with the right policies in Washington. Legislation introduced today in Congress to allow drilling off Virginia’s coast is a step in that right direction. The bill sponsored by U.S. Rep. Scott Rigell of Virginia would require the Interior Department to sell at least one offshore lease for oil and natural gas development there, mandating that a portion of any federal revenue be shared with the commonwealth.

Access to areas offshore and onshore is vital to the kind of expanded domestic oil and natural gas production needed to make the United States more energy self-sufficient, which would strengthen our energy security. It’s unfortunate that such development is blocked for so much of our offshore reserves – again, look at all that red above – and especially off the coasts of states like Virginia that want drilling. Sales of Virginia leases were expected to begin in 2011 but that was put on hold until at least 2017 by the administration. Rigell’s legislation aims to change that policy. Erik Milito, API director of upstream and industry operations:

“Eighty-seven percent of federally-controlled offshore areas remain off-limits to energy production. Unlocking this oil and natural gas could provide a major boost to domestic energy production, state and local economies, and government revenue. The legislation proposed by Congressman Rigell is an excellent first step. Tapping resources off the coast of Virginia and other Atlantic states will be a key part of the all-of-the-above energy plan President Obama has promised. Before the first well can be drilled, the federal government must schedule lease sales and permit modern seismic surveys, which are essential for locating undersea energy resources.”

Policies that continue to block access to American oil and natural gas reserves means lost opportunities for jobs, capital investments and broader economic growth – in other words, the kinds of industrial/business activity President Obama has talked about as vital to boosting the national economy.

Forward-looking, pro-energy development policies will help sustain a U.S. energy renaissance built on increasing domestic production of oil and natural gas. Energy/economics blogger Mark J. Perry has a post detailing how U.S. fossil fuel production, after peaking in 1969 and flattening out over the next 40 years, set new records in 2011 and 2012. Perry’s chart:

Perry:

Domestic oil production has increased by another 25% so far this year through April, so it’s likely that US production of fossil fuels will set another new record this year. The rise of domestically produced fossil fuels to a new record high last year is yet another important milestone in America’s amazing energy revolution. That production record was only possible because of the advances in drilling technology that were developed in America and are now being used in America to access the nation’s energy treasures.

Amen. Technologies like hydraulic fracturing have made it possible for the U.S. to produce more oil and natural gas and take greater control over its energy future – provided there’s increase access as well.

Energy Today – April 26, 2013

2013-04-26T19:17:20+00:00

CNN Money – America’s Air is Getting Cleaner and Less Costly

Increased natural gas production in the U.S. will be a huge driver in improving air quality, writes CNN Money in a report about improving air quality in the U.S. Also notable: In 2012, for the first time ever, natural gas generated as much electricity as coal, and with energy production surging, this trend is likely to continue.

Fuel Fix Blog – 'Frac Daddy’ to Represent Oil Field Workers in Kentucky Derby Run

Owners Carter Stewart and Ken Schlenker say they named Derby entrant “Frac Daddy” as a nod to their energy industry occupations – and hydraulic fracturing. “[We] consider this horse a tribute to the oilfield workers of America,” Stewart says.

The Weekly Standard – The Fractured Left

In a guest article, University of Maryland professor Robert Nelson discusses how a growing national consensus that fracking, abundant supplies of low-cost natural gas and the resulting economic and environmental benefits for the country could cause political fractures for Democrats.

Bloomberg TV – Choosing a College Major? One Word: Fracking

Georgetown University’s Anthony Carnevale lays out the benefits of an engineering degree – specifically a petroleum engineering degree. “One word: fracking. If you want to make the most money, become a petroleum engineer,” he says.

US News & World Report – Former State Department Official: Keystone XL Will Be Approved

While Canadian officials like Natural Resources Minister Joe Oliver continue to press Washington to approve the pipeline project, former State official David Gordon tells the magazine approval is a virtual slam dunk. “It’s overwhelmingly likely that Keystone XL will be approved,” Gordon says.

Energy Earnings, Taxes and the Right Path for America

2013-04-26T15:07:53+00:00

An interesting discussion this week at a Politico Pro event hosted by API on the impacts of tax policy on the U.S. energy sector – timely, because if past is prologue oil and natural gas earnings reports this week and next likely will be accompanied by new calls for higher industry taxes. Let’s take a look at each issue.

First, earnings. Reported first-quarter earnings for America’s largest oil and natural gas companies reflect big companies with correspondingly big operations and investments. Yet, looking at earnings per dollar of sales helps contextualize the numbers. While not all oil and natural gas companies had reported their first-quarter earnings as of week’s end, here’s how that measure looked in the last quarter of 2012:

The point, as the chart below shows, is that industry earnings have been well in line with the rest of U.S. manufacturing, averaging about 8 cents per dollar of sales over the past five years ...

… while paying an effective tax rate that tops those paid by other business sectors.

One more: effective tax rates for 2012, broken out by individual companies:

A final word on earnings: By and large the beneficiaries are regular Americans. If you own a mutual fund, as 52 million U.S. households do, there’s a good chance it invests in oil and natural gas stocks. If you have an IRA, and 49 million U.S. households do, there’s a good chance it invests in energy stocks. If you have a pension plan as 61 million U.S. households do, there’s a good chance it is invested in oil and natural gas.

Now, let’s talk about calls for higher energy taxes, which may be renewed as industry earnings reports come in. The battle lines on this issue were underscored at this week’s Politico event during an exchange between Rep. Mike Pompeo of Kansas and Sen. Debbie Stabenow of Michigan. First Stabenow:

This is a national security issue as well as a national economic issue. Because this is of strategic economic and energy security interest to us in terms of energy independence, jobs in the economy as well as focusing on what’s happening in the environment, we have a stake in partnering with the private sector in a broader way than we have done in terms of energy security. If every other form of energy had had the tax preference of oil … we’d have a different look.

Then Pompeo:

There’s this idea that the oil companies have had decades of subsidies. I’d love somebody to show them to me. … These are depreciation schedules, the IDCs (intangible drilling costs) are depreciation schedules so it’s just a question of how quickly one can expense it, and we can argue about what the right time period is for expensing it. But this isn’t a tax credit, it’s not a hand out, there’s no cashed check. It’s just a matter of saying you had a cost of doing business and we don’t tax on revenue in this country, we tax on profits. …

Pompeo is correct. Our industry doesn’t receive “subsidies” – a full discussion of which you can read here. In most cases those calling for higher industry taxes are targeting cost-recovery mechanisms used by other sectors, not just oil and natural gas. These are not subsidies. Neither is the Section 199 deduction, enacted by Congress in 2004 to spur hiring and investment and used by most U.S. businesses - which some have said should be repealed for a handful of oil and natural gas companies. Continuing to call these tax treatments “subsidies,” as Stabenow did during the Politico event, distorts the public debate and ultimately could hinder achieving goals everyone agrees on: job creation, economic growth and more domestic energy production. API Chief Economist John Felmy, during a recent conference call with reporters:

“Unfortunately, some believe industry earnings justify punitive, counterproductive tax treatment for our industry, and the president in his recent budget proposal has proposed an increase in taxes again. This is wrong. It is wrong because the industry pays its fair share and more. It is wrong because it is bad for workers, retirees and the economy. And it is wrong because it will hurt revenues to the government.”

Key points Felmy noted about the energy taxes debate:

The oil and natural gas industry sends about $85 million a day to the federal government every day in the form of rents, royalties, fees and income taxes. It is the federal government’s largest taxpayer.
Raising taxes on oil and natural gas companies likely would be counterproductive – deterring investment here at home and costing jobs. Wood Mackenzie’s study says by 2030 the higher-taxes path would result in a cumulative decrease in revenue to the government of more than $220 billion and 22,000 jobs lost.
Conversely, increasing access to domestic oil and natural gas reserves, bringing more investment, exploration and production activity, would generate more than $800 billion in cumulative revenue for government by 2030, Wood Mackenzie says, as well as the creation of more than 1.4 million jobs.

Felmy:

“If you want more revenue from the industry, encourage oil and natural gas companies to invest in more projects here in the United States. That would put people to work, produce earnings, and generate more income to tax, both corporate and personal. And the new activity also would increase other revenues like royalties.”

Energy Today – April 25, 2013

2013-04-25T20:28:35+00:00

Fuel Fix Blog – Report: Petrochemical Plants See Big Benefits from Low-Cost Natural Gas

Low-cost shale natural gas has made North America – specifically the United States – a more competitive region for petrochemical producers. The sector has plans to add $120 billion in investments through 2030, according to an IHS analysis.

AEI Ideas Carpe Diem Blog – Spectacular Rise in America’s Oil Output

The U.S. last week reached a 21-year high for domestic oil production, more than 7.3 million barrels of oil per day, something that is “nothing short of phenomenal,” writes blogger Mark J. Perry. The last time U.S. output exceeded the 7.3 million bpd mark was in 1992.

The Philadelphia Inquirer – Dispelling Myths About Fracking

In a guest column, Breitling Oil & Gas CEO Chris Faulkner debunks a number of falsehoods about hydraulic fracturing. “Every community in America stands to gain from fracking, and, despite what detractors say, there's almost no downside,” he writes.

US News and World Report – Is the Oil Industry Really Getting a Sweet Deal on Taxes?

Collectively, the major oil producers paid $96 billion in taxes in 2012. Looking at it another way: energy companies paid $3 in taxes for every dollar of profit. The magazine notes that the oil and natural gas industry still pays some of the highest taxes compared to other industries.

CNBC – Pressure Mounts on U.S. to Export Natural Gas

The U.S. natural gas surge continues to drive the push for liquefied natural gas (LNG) exports. CNBC has coverage of a conference this week at which the LNG export question got a lot of attention.

New York Times – By 2023, a Changed World in Energy

The newspaper takes an in-depth look at the way energy could look a decade from now. “Much of the future of energy will depend on government policy, of course, and several major decisions in the United States are coming soon.”

Keystone XL: Safe for Our Country

2013-04-25T17:36:00+00:00

The Keystone XL pipeline is squarely in President Obama’s court. He should approve the full project – for the jobs, economic lift and strengthened energy security this shovel-ready project would provide for our country. (Photo below by Joe Wertz/StateImpact Oklahoma)

There’s no good reason to continue blocking the Keystone XL. Concerns about the environment? Answered. The State Department’s recent review:

The analyses of potential impacts associated with construction and normal operation of the proposed Project suggest that there would be no significant impacts to most resources along the proposed Project route …

Note that State’s favorable environmental assessment includes the pipeline’s operation. It, too, will be safe, as API underscored in its official comments on State’s review:

(Pipeline builder) TransCanada will also follow all requirements of (federal regulations) applicable to facility response plans and safety requirements for hazardous liquids pipelines – plus 57 special conditions for operations and maintenance. As mentioned in the draft (State Department review), the proposed project will be state of the art in materials, coating, construction practices, and monitoring systems. When coupled with the operations and maintenance practices described and the extra 57 special permit conditions that TransCanada has agreed to follow, the pipeline should be one of the safest ever built and operated …

Before reviewing the safety specifics of the Keystone XL itself, some points about pipelines in general:

The oil and natural gas industry’s goal for pipeline safety is zero spills.
Over the past 20 years, 99.9992 percent of about 13.5 billion barrels of petroleum liquids transported by pipeline each year is moved safely.
When you compare three-year averages for 2009-2011 with those of 1999-2001, the number of releases per 1,000 miles of pipeline was down nearly 60 percent.

The U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA):

Pipelines are one of the safest and most cost-effective means to transport the extraordinary volumes of natural gas and hazardous liquid products that fuel our economy. To move the volume of even a modest pipeline, it would take a constant line of tanker trucks, about 750 per day, loading up and moving out every two minutes, 24 hours a day, seven days a week. The railroad-equivalent of this single pipeline would be a train of seventy-five 2,000-barrel tank rail cars every day.

API President and CEO Jack Gerard on the record of pipeline safety in this country:

“Those are reassuring numbers and reason for each of us, as we consider the benefits of oil and natural gas products – reliable, energy-intensive fuels and countless products that make modern, healthy living possible – to accept the challenge of managing limited risks associated with developing these energy resources.”

A quick rundown of the Keystone XL’s safety features, including the 57 special conditions it has worked out with PHMSA officials:

Plans to bury the pipeline deeper underground than is required.
Strong steel pipe will be employed at river crossings.
Increased frequency of inspections and maintenance updates compared to existing standards.
21,000 data sensors along the pipeline’s 1,179-mile route, transmitting information every five seconds so that highly trained pipeline controllers can monitor things in real time.
More shut-off valves than is typically used, allowing controllers to isolate any section within minutes.

The Keystone XL will deliver about 830,000 barrels of oil per day to America’s Gulf Coast refineries – about 25 percent of that from the U.S. Bakken region and the rest from Canada’s oil sands. Contrary to misinformation spread by oil sands/pipeline opponents, the Canadian crude is not riskier to the pipeline’s integrity than other crudes. API:

The primary focus of pipeline operators is to keep oil in the pipe. … In examining liquid pipeline incident data collected by PHMSA from 2002 through mid-2012, not one release from pipelines moving any Canadian crude was caused by internal corrosion.

The Keystone XL has been delayed long enough. During more than four years of federal review, questions have been raised and answered. The Keystone XL has passed all the tests. API’s Cindy Schild, senior downstream manager for oil sands:

“No pipeline has been analyzed as long and as thoroughly as the Keystone XL pipeline. It’s been under review for more than twice as long as it will take to build the entire project.”

President Obama should approve this safe, environmentally sound energy infrastructure project – for the jobs it would create, the boost it would give to our economy and for the oil that will support that economy as well as our modern way of life.

Corn Ethanol and Market Share

2013-04-24T20:20:20+00:00

Over the past few months we’ve talked about problems with the Renewable Fuel Standard (RFS) and the risks its mandates for higher blends of ethanol in fuel may pose to vehicle engines and fuel systems, as well as to service station pumps and storage tanks. But backers of increased ethanol use – major corn growers and the Renewable Fuels Association (RFA) – claim that the science detailing these risks is irrelevant, that the concerns of environmental groups, consumer safety advocates like AAA, food groups, state regulators and the oil industry are unfounded and are designed to protect the oil industry’s fuel market share. Yet, as we'll discuss here, it appears that RFA’s main concern about the RFS is its market share – which may explain why the group frequently is so willing to ignore facts.

Take this comment letter that RFA sent the EPA on April 7. RFA wrote:

EPA should revise its proposed 2013 cellulosic biofuel standard to better correspond with current expectations of actual 2013 cellulosic biofuel production volumes.

And:

EPA should partially reduce the 2013 advanced biofuels standard, as sugarcane ethanol imports are unlikely to be available in sufficient volume to meet the requirement.

Essentially, RFA recommended that while EPA should maintain its overall volume mandate for ethanol use in 2013, the agency should reduce both the cellulosic biofuel and advanced biofuel share within the overall mandate, to match the production expectations for those two. Of course, if EPA followed that course, the only possible result would be a greater share for corn ethanol within the overall mandate. Basically, RFA would kick cellulosic and advanced biofuels producers to the curb while protecting the interests of corn ethanol producers. And RFA wants to lecture others about market share!

Let’s be clear: If RFA’s goal is to reduce oil consumption through use of home-grown fuels, as it claims, it should support cellulosic and other advanced biofuels. But RFA’s clear intent is to increase the market share of corn ethanol. If production levels of cellulosic and other advanced biofuels are going to be below EPA’s previous estimates, the logical course would be to reduce EPA’s overall ethanol use mandate accordingly – not maintaining the same overall target so that corn ethanol can make up the difference.

In a recent post, energy blogger Robert Rapier did a good job identifying the irony in RFA President Bob Dinneen’s market-share claims:

Dinneen says this is the way Congress envisioned the mandate working: more and more ethanol over time in a gallon of fuel, and less and less petroleum. “This is about market share,” Dinneen says. “This is about their profitability; it’s not any more complicated than that.”

Apparently, irony is lost on Dinneen … because it’s also about the ethanol industry’s market share. It’s about their profitability. Or does Dinneen want us to believe that his motives are as pure as the driven snow?

With the recent move detailed above, it’s clear RFA will attack anyone who stands in the way of a government-mandated increase in their market share. (After a series of attacks on the oil industry, we were beginning to think that RFA was trying to make it personal.)

Even without a federal mandate, the oil industry will continue to buy ethanol and blend it into gasoline in volumes that are economic and safe for marketers to store and dispense and for consumers to use in their automobiles. But the RFS requires more than that, which is why it should be repealed. While to RFA this is a fight over market share, for the oil industry it is an opportunity to protect consumers from the unintended consequences of an outdated policy.

Keystone XL: For Our Economy

2013-04-24T13:50:22+00:00

Let’s recap the economic reasons for construction of the full Keystone XL pipeline project, which has been waiting on the president’s approval for more than four years. According to the State Department’s most recent review Keystone XL would:

Create 42,100 average annual jobs across the United States over its one- to two-year construction period.
Generate $2.05 billion in employment earnings.
Result in $3.3 billion in direct spending on construction and materials.
Produce $65 million in short-term revenues for government from sales and use taxes in states that levy them.

Considering the plight of construction workers in this country the past few years, suffering double-digit unemployment, those are handsome numbers indeed. They suggest an even greater boost that would ripple throughout the economy from an infrastructure project of this size. From API’s officially submitted comments to the State Department:

The construction of KXL will make a significant contribution to America’s continuing economic recovery. There is no doubt that this project is a tremendous job creator – whether specific to the project or for the hundreds of thousands of American workers who are gainfully employed due to oil sands development in Canada or the immediate well-paying jobs that the construction and manufacturing of the full KXL pipeline will create.

More detail on Keystone XL’s economic benefits:

For every dollar the United States spends on Canadian goods and services (including oil), Canada spends 89 cents on U.S. goods and services, according to the Census Bureau. Here, we detailed how – by buying a little more than 200 million barrels of oil per year from Canada instead of another oil supplier with whom our trading relationship isn’t as strong – the trade differential is about $9 billion a year in potential U.S. exports. That translates into an additional 48,297 U.S. jobs per year, according to the Commerce Department.
The Canadian Economic Research Institute (CERI) estimates U.S.-Canadian trade activity generated by Keystone XL would increase U.S. GDP by $172 billion over a 25-year period and increase U.S. employment by 117,000 jobs.

Continued development of Canadian oil sands crude has other economic/energy benefits for the United States. API:

Despite the growth of United States oil production, the Canadian oil sands will continue to play a critical role in supplying the U.S. market. According to the SEIS, “(w)hile the increase in U.S. production of crude oil …will likely reduce the demand for total U.S. crude oil imports, it is unlikely to reduce demand for heavy sour crude at Gulf Coast refineries.” … The Department of State is not alone in its assessment of the U.S. oil market. IHS CERA in a detailed study arrived at the same conclusion stating that though supplies of U.S. light oil are substantial and growing, “the United States will still require oil imports…from Canada and the oil sands.”

U.S. refineries along the Gulf Coast are second to none in the world in their capacity to process heavy crude oil, which means we have a competitive edge against other refining centers around the world. This translates into support for well-paying U.S. refining jobs.

A final economic/oil markets point: Canada’s oil sands will be developed with or without the Keystone XL. That was State’s conclusion:

“…it is unlikely that construction of the proposed Project would have a substantial impact on the rate of development of the WCSB oil sands.”

As API Chief Economist John Felmy told reporters on Tuesday, Canada’s oil sands has a value estimated to be 10 times greater than the country’s current GDP. That value will find markets and willing buyers, with or without the Keystone XL. API:

The Market Analysis section and Appendix C make it very clear that, in the absence of KXL, the oil sands will be developed. This result hinges on the conclusion that moving (oil sands) crudes by rail is a viable substitute for the KXL pipeline. To arrive at this conclusion, the SEIS carefully examines whether rail capacity could grow to keep pace with growing oil sands production by looking at development of loading and offloading facilities, track capacity, and rail tank car availability. On all three counts, there is ample evidence that it is logistically and economically possible for rail and existing or planned pipelines to transport the needed quantity of (oil sands) crude oil to the US refineries in the Gulf.

And:

Perhaps the strongest piece of evidence cited is the fact that companies, who would have had a clear incentive to study the costs and returns closely, have orders for more than 28,000 new insulated rail tank cars that are used only to transport bitumen (page 1.4-50). This fact alone trumps some KXL opponents’ latest claims that the economics won’t support rail. While the SEIS makes the case that production will not be significantly impacted by denial of KXL, the SEIS also implicitly highlights the reason why approval of KXL is important. The SEIS estimates that the incremental increase in cost of rail versus pipeline is $5 per barrel (1.4-51). Given that the pipeline will be transporting 830,000 bpd, the additional cost is over $1.5 billion a year.

The economic and energy market reasons for approving the full Keystone XL pipeline are strong. Energy activity equals jobs, income and spinoff economic activity. API:

It will create jobs now when we need them most. It will help bolster economic growth and provide energy security. With such positive contributions to the U.S. economy and the potential for increased supplies from our stable neighbor, Canada, we hope that (State) recognizes this project is in our national interest and facilitates a swift approval.

Parlaying Your Energy IQ

2013-04-23T20:47:20+00:00

So you think you know something about energy, eh? Starting tomorrow you can test your knowledge during thehill.com’s First 100 Days Contest, tying energy trivia questions to the first 100 days of the second Obama administration. There might be an iPad Mini in your future.

The API-sponsored contest will run through Tuesday, April 30. It will include 30 multiple-choice questions supplied by API, five per day (except for Sunday). Visitors to thehill.com and subscribers to its e-newsletters will see branded contest ads each day, and it also will be pushed out on social media.

Contestants can answer the daily questions for a chance to register and win an iPad Mini. You can play each day, and each day you play you increase your chances of winning. It’s a fun way to get into some of the facts underlying the major energy policy discussions going on in our country today.

So … what do you know about BTUs, hydraulic fracturing and energy capital expenditures? Look for the First 100 Days Contest and find out.

Energy Today – April 23, 2013

2013-04-23T19:35:48+00:00

The Hill’s E2 Wire – Interior Chief Jewell on Fracking Rules: ‘One Size Doesn’t Fit All’

New Interior Secretary Sally Jewell hosted her first a public video chat this week. Jewell, a former oil and natural gas industry engineer, talked about her personal experiences with hydraulic fracturing, saying, “fracking as a technique has been around for decades. … I have performed the procedure myself very safely.”

Bloomberg – Eagle Ford Crude Oil Production Reaches Record High in February

Bloomberg reports that the nine geographic fields that make up the majority of Eagle Ford shale play in Texas yielded 471,258 barrels of crude a day in February, a 74 percent increase from last year.

News Max – Clinton Advisor: Fracking Has Cut Greenhouse Gas By 12 Percent

Jeffrey Frankel, Harvard professor and former member of President Bill Clinton’s Council of Economic Advisors is quoted as saying that “fracking is the main reason for the 12 percent fall in greenhouse gases in the United States… No other factor comes close to providing a plausible explanation.”

Bloomberg Businessweek – Pro-Pipeline Group Collects 33K Nebraska Signatures

Nebraskans for Jobs & Energy, which supports building the Keystone XL pipeline, says it gathered more than 33,000 signatures from state residents in support of the project.

US News and World Report – Obama Recycles Old Plan to Tax Oil and Natural Gas

Of the 10 largest taxpayers in corporate America, three are oil companies, writes the magazine. Collectively, the major oil producers paid $96 billion in taxes in the most recent year. Looking at it another way, energy companies paid $3 in taxes for every dollar of profit.

New York Post – Tribeca Festival Shuts Out Dissent

In a guest column, “FrackNation” director Phelim McAleer writes that a group of farmers from upstate New York and Pennsylvania were not allowed to view the premier of “Gasland, Part Two” at the Tribeca Film Festival last weekend in New York City after they tried to ask director Josh Fox some questions.

Dear EPA: Keystone XL Has Been Studied and Studied and Studied

2013-04-23T18:41:20+00:00

The EPA was out yesterday with a letter urging yet even more delay for the Keystone XL pipeline – a project that already has been thoroughly reviewed by the State Department over more than four and a half years. In that context, EPA’s simply trying to heap delay on top of delay. Let's have a look at the first of EPA’s objections to State’s latest review:

The DSEIS reports that lifecycle GHG emissions from oil sands crude could be 81% greater than emissions from the average crude refined in the U.S. in 2005 on a well-to-tank basis, and 17% greater on a well-to-wheels basis.This difference may be even greater depending on the assumptions made.

Sounds ominous, but it’s also true that the difference could be even less, depending on the assumptions. Take the government of Alberta’s assessment:

There’s a 4.9 percent difference between the average oil sands emissions (well to wheels) and those of the average U.S. imported crude oil. Back to EPA:

The incremental emissions from oil sands crude transported by the Project would therefore be 18.7 million metric tons C02-e (carbon dioxide equivalent) per year when compared to an equal amount of U.S. average crudes, based on the Project's full capacity of 830,000 barrels of oil sands crude per day.

But the pipeline won’t be carrying 830,000 barrels a day of oil sands crude. The State report notes that 100,000 barrels of the 830,000 bpd will be crude from the U.S. Bakken region, not Canada’s oil sands. Other estimates indicate about 25 percent of the crude delivered daily by the Keystone XL will be from the Bakken. At the risk of sounding cynical, it looks like EPA is less concerned with the makeup of the Keystone XL’s daily payload and more concerned with getting the highest possible number for calculating climate impact. EPA’s letter:

To place this difference in context, we recommend using monetized estimates of the social cost of the GHG emissions from a barrel of oil sands crude compared to average U.S. crude. If GHG intensity of oil sands crude is not reduced, over a 50 year period the additional C02-e from oil sands crude transported by the pipeline could be as much as 935 million metric tons. It is this difference in GHG intensity - between oil sands and other crudes - that is a major focus of the public debate about the climate impacts of oil sands crude.

Again, it looks like EPA is going for headlines by leaving reason aside. EPA says, “If GHG intensity of oil sands crude is not reduced ...” Is it realistic (or fair) to assume that there will be no technological advances in reducing GHG emissions from oil sands production over the next five decades? No. Back to the government of Alberta:

The oil sands industry has reduced GHG emissions per barrel of oil produced by an average of 26 per cent since 1990, with some facilities achieving reductions as high as 50 per cent.

And back to the State Department:

… on balance the gap in GHG intensity is likely to decrease over time.

But fine, let’s use EPA’s numbers. And then let’s throw in some from the Energy Information Administration (EIA), which projects the U.S. will emit 5,368 million metric tons carbon dioxide equivalent in 2013. Using that number over the 50 years EPA cites, total U.S. emissions would be 268,398 million metric tons – which means, according to EPA, the Keystone XL would represent 0.35 percent of U.S. emissions. And remember, EPA assumes that without the Keystone XL the oil sands crude will not be produced at all. Looking at other options the State Department found a reduction of:

…0.07 to 0.83 million metric tons carbon dioxide equivalent (MMTCO2e) annually if the proposed Project were not built…

Even using the high estimate, that would give us 42 million metric tons over EPA’s 50 years, or approximately 0.02 percent of U.S. emissions during that time period. Otherwise known as darn near zero.

Again, the State Department now has conducted four environmental reviews of the Keystone XL, and the project has cleared each one. In the most recent review, State concluded that the Keystone XL’s construction and operation would pose “no significant impacts” to the environment. More than four and a half years of federal scrutiny, four environmental studies - “no significant impacts.” The record is clear. EPA’s letter, asserting this minimal impact, is just a barely veiled attempt to inject more delay – delaying the job creation, the economic stimulation and the strengthened energy security that this project would bring. Given the wave of energy-related regulation that’s been building over at EPA, can’t say we’re surprised.

Keystone XL: In the National Interest

2013-04-22T19:52:49+00:00

On the Keystone XL pipeline, President Obama’s decision boils down to this: Is the $7 billion project in the United States’ national interest? Economic, energy and environmental considerations figure into the answer, but ultimately the president is charged with determining whether Keystone XL will make our country stronger and safer without significantly impacting the environment and the people along its 1,179-mile route.

We say yes – for a number of good reasons.

The pipeline will make the U.S. stronger – economically, by creating jobs and providing broad economic stimulus, and more energy secure by bringing more than 800,000 barrels of oil a day to our Gulf Coast refineries from a friendly, stable source (Canada) as well as the U.S. Bakken region. As for the environment, four separate State Department reviews have said the pipeline can be built and operated while posing “no significant impacts.”

Over the next few days we’ll take a closer look at the main issues that should persuade the president to approve the full Keystone XL project – economics/energy, pipeline safety and the environment – developed from API’s official public comments on the State Department’s most recent assessment. These comments underscore what the oil and natural gas industry and other pipeline supporters have been saying for more than four years – that the full Keystone XL should be approved. API:

We support (the State Department’s) findings which confirm, once again, that there will be no significant impacts to most resources along the proposed project route. After more than four years of an unprecedentedly thorough review, it is time to move forward beyond the findings of this review, which has been conducted in coordination with dozens of other federal, state and local agencies, and determine that this project is in our nation’s interest.

API welcomes the next stage of the Keystone XL approval process, a period of inter-agency discussion of whether the project serves the national interest that is expected to involve the Defense, Justice, Interior, Commerce, Transportation, Energy and Homeland Security departments and the Environmental Protection Agency. API:

With the environmental assessment repeatedly assessed, it is time to move forward in this national interest determination process. … This project is absolutely in our nation’s interest. The proposed Keystone XL pipeline should be approved immediately. … It will create jobs now when we need them most. It will help bolster economic growth and provide energy security. With such positive contributions to the U.S. economy and the potential for increased supplies from our stable neighbor, Canada, we hope that (State) recognizes this project is in our national interest and facilitates a swift approval.

Energy Today – Earth Day Edition

2013-04-22T19:07:22+00:00

AEI Carpe Diem Blog – On Earth Day

Mark Perry writes: “As we observe Earth Day this year, it might be a good time to appreciate the fact that Americans get most of their plentiful, affordable energy directly from the Earth’s ‘natural environment’ in the form of fossil fuels (coal, natural gas, and petroleum).”

The Globe and Mail – What I’d Like to See this Earth Day: More Fracking

“If fracking happens across the world, emissions would likely decline substantially by 2020,” writes Bjorn Lomborg in a guest column. “This Earth Day, we need a dose of realism about real environmental challenges …and the real opportunities that exist for environmental innovation, to make our planet a better place.” (Note: This piece originally appeared in The Australian: http://bit.ly/ZIpmjk)

Forbes – Thank Mother Earth for Oil, Natural Gas and Other Fossil Fuels

Contributor David Blackmon writes that as we celebrate the 44th annual Earth Day, “Let’s all try to remember that one of the greatest gifts Mother Earth has ever given us is the fossil fuels that make such worldwide celebrations possible.”

Chicago Tribune – Put Illinois to Work

Companies interested in exploring for oil and natural gas in the Land of Lincoln remain on hold, waiting for the state’s legislature to pass a bill that would allow regulated hydraulic fracturing. “The stall on fracking is a job-killer,” writes the paper in an editorial – bad news for a state where unemployment tops 9.5 percent.

Journal Star – Keystone XL Would Raise Construction Wages

Construction workers would get a boost from approval of the Keystone XL pipeline, according to a study by Bloomberg Government. Some workers would see an increase of as much as 30 percent.

Fact vs. Fiction on the Renewable Fuel Standard

2013-04-19T19:50:10+00:00

It’ll take more than 60 seconds to debunk the main untruths in Fuels America’s video, “The Truth Behind High Gasoline Prices in 60 Seconds” – but then fact often is more complicated than fiction.

First, a few words about Fuels America. It’s a collection of groups committed to “protecting” the flawed Renewable Fuel Standard (RFS), with its broken mandates for increasing use of ethanol. The organization that includes the Renewable Fuels Association (RFA) and major corn growers is attacking America’s oil and natural gas industry – ironically, ethanol’s biggest customer. Why? Because it has identified significant problems with ethanol mandates under the RFS, which also have generated concern from auto manufacturers, consumer safety groups like AAA, farmers, grocery manufacturers, environmental non-profits, think tanks, anti-hunger groups, the California Air Resources Board and lawmakers.

The mission of Fuels America and the RFA is a no-holds-barred defense of the corn ethanol industry and the defective federal biofuels standard, not the interests of U.S. consumers. If Fuels America had its way, Americans could bear a number of adverse impacts from the RFS, ranging from costs to repair vehicle engines and fuel systems damaged by using gasoline with higher levels of ethanol, to macro-economic costs associated with continued implementation of the RFS’ ethanol mandates – including significant increases in the cost of gasoline and diesel that ripple through the economy by 2015. That’s the backdrop for Fuels America’s video.

While it purports to explain gasoline prices it barely mentions the biggest factor: the price of crude oil. Apparently, too complicated for the 60-second treatment. Check here for a thorough discussion. But as you can see in the infographic below, the price of crude has recently accounted for about 67 percent of the price at the pump.

It’s difficult to have a serious discussion about gasoline prices without discussing crude prices. So it’s not surprising that the video also dismisses the positive effects of increased domestic oil production. We’ll keep it simple: Because the laws of supply and demand also apply to crude oil markets, increased supply can exert downward pressure on crude prices – as noted above, the biggest factor in the price of gasoline. From an interview with energy analyst James L. Williams last spring:

“If we increase supply in the U.S., will there be an effect on crude markets? Absolutely. … If the U.S. increases domestic production, over time that’s going to bring prices lower. … The laws of supply and demand do work, even if it’s not as obvious as it should be. If we produce more, the price will be lower than it would have been otherwise. … I don’t care who increases oil production, it will decrease oil prices.”

Let’s move on to the video’s biggest whoppers – implying that renewable fuels are substituting for gasoline in the U.S. fuel supply and that they’ve lowered the cost of gasoline. The video:

“Because of renewable fuel use today, we’ve extended the nation’s fuel supply by 10 percent, and that helps lower gas prices by $1.09. And we’re just getting started. When you think about how renewable fuel has lowered gas prices it’s obvious why the oil industry is working so hard to block the competition.”

We dispelled the notion that ethanol replaces gasoline here. Basically, ethanol is primarily an additive to gasoline, not a replacement for gasoline. It only replaces gasoline when it’s sold as E85 (fuel that contains between 51 and 83 percent ethanol). Last year, only about 100 million gallons of E85 were sold, meaning ethanol sold as a fuel, rather than an additive, displaced just about 50.7 million gallons of gasoline (after accounting for ethanol’s lower energy content). That’s less than 0.1 percent of the 128 billion gallons of gasoline the U.S. uses every year.

A 2012 analysis by a pair of MIT professors scuttles the $1.09 claim:

“Given the obvious importance of these estimates, we investigate their robustness. We show that they are driven by implausible economic assumptions and spurious statistical correlations. Put simply, the empirical results merely reﬂect the fact that ethanol production increased during the sample period whereas the ratio of gasoline to crude oil prices decreased. These trends make the empirical analysis extremely sensitive to model speciﬁcation; however, we ﬁnd that empirical models that are most consistent with economic and statistical theory suggest eﬀects that are near zero and statistically insigniﬁcant.”

The Council on Foreign Relations’ Michael Levi recently put it this way:

“… what’s amazing here is that (ethanol supporters) apparently don’t account for the fact that a gallon of gasoline has 50 percent more energy than a gallon of ethanol. Blending ethanol lowers the price of a gallon of fuel – but that gallon of fuel now gets you less mileage in your car. The net result is to increase the cost of driving. Claiming in this way that ethanol blending lowers fuel costs is like claiming that buying smaller boxes of cereal lowers the cost of getting yourself a nutritious breakfast.”

Finally, the Fuels America video attacks the earnings of the “Big Five” oil and natural gas companies over the past decade. Lots of detail in our updated “Energizing America” primer, but over the past five years average industry earnings have been comparable with the rest of the U.S. manufacturing industry, averaging about 8 cents for every dollar of sales. The chart below shows that in the fourth quarter of last year, the industry earned 5.5 cents for every dollar of sales while the rest of manufacturing earned 7.7 cents per dollar of sales.

Who do those earnings benefit? Fuels America’s video depicts shadowy figures with money stuffed in their pockets. Accurate would have been images of everyday Americans – representing the millions of U.S. households with mutual funds, IRA or personal retirement accounts and pension plans. If you have one of these there’s a good chance they’re invested in oil and natural gas stocks. Again, probably too much detail to handle in 60 seconds.

It’s seldom useful when important public policy issues are relegated to talking points in a quick animation. Gasoline prices affect every American, and the real issue is developing national energy policies that help America become more self-sufficient and help put downward pressure on global crude prices that will benefit consumers – chiefly, through increased access to U.S. oil and natural gas reserves that will continue to grow domestic production and common-sense oversight to ensure safe and responsible development.

The RFS is simply broken, its mandates are not based in reality and its potential impacts loom large for U.S. consumers. Let’s repeal it.

Energy Today – April 19, 2013

2013-04-19T18:59:09+00:00

Forbes – LNG Exports Would Have Minimal Impact on U.S. Prices

Although some say exporting U.S. natural gas would increase domestic prices, a Deloitte analysis says “the impact domestically is small in terms of upward price movement, and the impact (of exports) on the economy is very large… So exporting should be a good idea.”

Wall Street Journal – Rise in U.S. Gas production fuels Unexpected Plunge in Emissions

Last year, the paper reports, 30 percent of power in the U.S. came from natural gas, up from 19 percent in 2005, driven by hydraulic fracturing and horizontal drilling that have unlocked large and inexpensive new supplies of the fuel. This increase in natural gas production has helped drop U.S. CO2 emissions to their lowest level since 1994.

Daytona Times – Natural Gas is Boosting the U.S. Economy

Harry Alford, the CEO of the National Black Chamber of Commerce, writes that natural gas production through hydraulic fracturing is “creating jobs, expanding manufacturing at a rate that was inconceivable a few years ago.”

Fuel Fix Blog – Natural Gas Industry Experiencing ‘Paradigm Shift’

Fuel Fix has a recap of the 17th International Conference & Exhibition on Liquefied Natural Gas, which brought together industry and government officials from around the world to discuss the past, present and future for LNG. Industry officials discussed the opportunities LNG represents, noting that "by 2020, LNG could meet one-fifth of the world’s gas needs."

The Hill’s E2 Wire – Murkowski: Obama’s Energy Plan Dead Without Wider Drilling

U.S. Sen. Lisa Murkowski (R-AK) tells The Hill that the president’s “Energy Security Trust” proposal “is not going to go anywhere” if it doesn’t include plans to open currently off-limits areas to oil and natural gas development.

Jobs, the Economy and the Keystone XL Pipeline

2013-04-18T17:11:57+00:00

Terrific video below from the folks at Oil Sands Fact Check, featuring regular Americans with a message for President Obama: Approve the Keystone XL pipeline now.

Listen to the pleas for approval of the full Keystone XL project – from people who’ve been waiting more than four years for the jobs and economic benefits construction of the pipeline would bring:

“We just want jobs. … A key part of the election was the economy. We need the jobs.”

“Delaying it any further is just harming the United States of America, and it’s harming the workers that are skilled and trained and ready to get to work.”

“Mr. President, I hope you stand behind your word and support labor, and you get behind the pipeline and you give American workers a job.”

“I’d have more money to support my family, I’d have a better Christmas, I’d have a better life.”

Jobs and the economy. According to the State Department’s most recent analysis the Keystone XL would bring:

42,100 average annual jobs across the U.S. over a one- to two-year construction period.
$2.05 billion in employment earnings.
$3.3 billion in direct spending on construction and materials.
$65 million in short-term revenues for government from sales and use taxes in states that levy them.

Cindy Schild, API’s senior downstream manager for oil sands, underscored reasons for the president to approve the full pipeline during a conference call with reporters:

“No pipeline has been analyzed as long and as thoroughly as the Keystone XL pipeline. It’s been under review for more than twice as long as it will take to build the entire project.”

Indeed, the project has cleared four separate reviews by the State Department – each of which has found that Keystone XL would bring economic benefits while posing “no significant impacts to most resources along the proposed Project route …” Schild:

“The State Department should be commended for the comprehensive nature of its analysis, and it should come as no surprise that they have reached the same conclusion in this review that they did in their previous three reviews: the Keystone XL pipeline is safe and will create tens of thousands of well-paying jobs.”

Now is the Keystone XL pipeline’s time. The workers have waited, the country has waited. The energy – more than 800,000 barrels of oil per day from friend and partner Canada and the U.S. Bakken region – would strengthen our energy security.

Oil from Canada’s oil sands region is safe, secure and plentiful. It’s in our national interest to expand our energy partnership with Canada by bringing more of this resource to U.S. refineries, whose capacity to safely process heavier crudes is second to none in the world.

If we pass on the opportunity, Canada’s oil will find other buyers, and the U.S. will have to get it elsewhere – in some cases from countries that aren’t our friends. Schild:

“We’ve got to look out for our energy future and security. This is the best mechanism to do it for our energy security. … The science supports it. A bipartisan congressional majority supports it. Organized labor is anxiously awaiting its approval. The environmental assessment is complete. Its contribution to our economy, to our long-term energy security and to our national security is clear. There should be no question it is in our national interest, so it is time to approve the project.”

Energy Today – April 18, 2013

2013-04-18T15:48:08+00:00

Forbes – It’s Time To Repeal the Renewable Fuel Standard

A "consensus has concluded that EPA fuel standards are sorely at odds with the interests of fuel and food consumers in the United States,” writes contributor Robert Bradley. “The direct economic cost of implementing and enforcing these fuel standards far outweighs the questionable benefits."

The Washington Post – Keystone XL Opposition Wanes Among Nebraska Landowners

With the Keystone XL debate set to head back to Nebraska today, the Post reports that folks in the state “largely support the pipeline project.”

Star-Gazette – Anti-Fracking Equals Pro-Poverty for New York

In the heart of the fracking moratorium debate in New York’s Southern Tier, Corning resident Mike Morrongiello writes a guest column on the booming economy of neighboring Pennsylvania – while he and other Empire Staters are left waiting for state leaders to approve natural gas development.

Master Resource – America’s Growth Corridors (Walking Away from CO2 Regulation)

Blogger Robert Peltier: “The energy industry has led the nation in job creation over the past decade. Oil and gas extraction jobs alone, predominately located in the Red States, have increased over 27% since early 2008, producing the highest number of jobs in that industry since late 1987.”

Cleveland.com – Federal Hydraulic Fracturing Rules Aren’t Needed

Local leaders from Ohio, Texas and Utah told the House Natural Resources Committee Wednesday their states can effectively monitor hydraulic fracturing without federal intervention. “They fear federal involvement would impose an inappropriate one-size-fits-all approach to the industry,” the paper writes.

Energy Today – April 17, 2013

2013-04-17T20:42:39+00:00

Washington Times – Is It Time to End Ethanol Vehicle Fuel mandates?

Steve Goreham recaps the pros and cons in the ethanol, Renewable Fuel Standard debate.

Press Connects – Guest Viewpoint: NY Can’t Afford to Pass on Natural Gas

In a guest piece, New York resident Bob Tiberio writes that affordable energy “is the lifeblood of our economy and lowers the cost of almost everything we make and use. It drives economic growth and gives the United States a competitive edge in global markets. For most Americans, a high “quality of life” begins with low cost energy, which increasingly means natural gas from shale.”

Forbes – How Cheniere Energy is Leading America’s LNG Export Revolution

The magazine profiles the natural gas export debate, focusing on Houston-based Cheniere Energy’s Sabine Pass LNG export facility port. “It’s a revolutionary thing, absolutely astonishing, that America will be an exporter of hydrocarbons,” Cheniere’s CEO Charif Souki says.

Wall Street Journal – An Ethanol Spring

There’s bipartisan progress to change “an impossible mandate” the newspaper editorializes. The piece cites a recent Georgetown conference in which Senate Energy and Natural Resources Chairman Ron Wyden (an ethanol supporter) conceded that he is “not convinced that the current requirements are achievable.”

Bloomberg BusinessWeek – Incitec Plans $850 Million US Ammonia Plant

Thanks to affordable American natural gas, Australia’s largest fertilizer maker is set to open a plant in Louisiana. Points for American energy: The plant will bring manufacturing jobs to the Bayou State as well as much-needed revenue for government.

Project Syndicate – Fear of Fracking

Harvard University professor Jeffrey Frankel writes that U.S. emissions of carbon dioxide have fallen 12 percent as of 2012 – back to 1995 levels – thanks to horizontal drilling and hydraulic fracturing to recover deposits of shale gas. “No other factor comes close to providing a plausible explanation,” he writes.

At New York’s Feet

2013-04-17T13:57:13+00:00

You can’t help but feel empathy for New York state residents, struggling with high unemployment and low economic growth. Ads touting the “new” New York’s open-for-business attitude are airing nationally, trying to encourage new start-ups and to convince enterprises from other states to relocate in the Empire State.

Yet, the potential for dynamic economic growth and robust job creation is right under New Yorkers’ feet. The state’s Southern Tier counties sit atop the natural gas-rich Marcellus Shale – the same play that has fostered boom conditions in much of Pennsylvania.

But New York has had a moratorium on natural gas drilling – hydraulic fracturing – since 2008. The effect is a moratorium on shale energy jobs, shale energy economic growth and shale energy revenue for state and local governments. So, while Pennsylvanians benefit from natural gas jobs and associated economic growth, New Yorkers wait. And wait. A recent Marist survey reports:

Although a majority of New York State voters — 53% — think the state’s economy is staying about the same as it has been, there has been an uptick in the proportion of voters who think it is getting worse and a drop in the proportion who believe it is getting better. Nearly three in ten — 29% — say the state’s economy is getting worse, and 18% report it is getting better.

Meanwhile, Empire State Development Corp., the state’s economic development agency, is hard at work trying to drum up business, literally – even as shale energy’s vast potential remains buried while state leaders delay development. As the infographic below illustrates, the price is high in the thousands of jobs that could be created in New York – as well as billions of dollars in economic output and tax revenues.

New York State Petroleum Council Executive Director Karen Moreau:

“With every day that goes by in Upstate New York when well production doesn’t begin, these communities are losing out on local property taxes that could be generated from producing gas wells, land owners are losing out from royalties, farmers who can‘t pay their taxes are seeing their farms go under; and they all have this resource under the ground.”

“Big Happens Here” is the slogan in Empire State Development’s ongoing ad campaign. “Big” certainly could happen – if state leaders quit the dithering and cleared the way for safe, responsible development of New York’s shale wealth.

Energy Today – April 16, 2013

2013-04-16T19:52:51+00:00

LA Times – EPA: U.S. Greenhouse Gases Drop

The newspaper highlights the latest good news from the EPA: Increased use of natural gas, much of it developed with hydraulic fracturing, has helped the United States lower its greenhouse gas emissions 1.6 percent from 2010 to 2011 and nearly 7 percent since 2005.

Roll Call – Redford: Keystone XL an Environmentally Sound Way to Enhance Energy Security

Alberta Premier Alison Redford’s op-ed argues that Canada is “the safest, most secure and responsible energy supplier to the United States and a reliable trading partner.” This comes after her recent visit to the U.S. advocating approval of the Keystone XL pipeline project. Approving the pipeline “is the choice of reason,” she writes.

Master Resource – EPA’s Tier 3: Transportation Overreach

Paul Driessen writes on the EPA’s “tsunami of regulations,” including the agency’s proposed Tier 3 rule requiring a further lowering of sulfur content in gasoline that could add costs to refiners and consumers.

Washington Post – Small Businesses Brace for New Fuel Taxes in Virginia, Maryland

Business owners are preparing for higher gasoline costs resulting from new state taxes – even as federal environmental officials consider a new gasoline rule that also could increase costs.

Fuel Fix Blog – Houston to Launch Energy-Focused High School

Houston’s economy has surged thanks to energy development in the state. Case in point: An area high school is set to open that will be geared toward energy education. Students will learn skills valuable in finding employment in the oil and natural gas industry.

Natural Gas Notables

2013-04-16T15:16:30+00:00

A pair of noteworthy items point to the sustainability of America’s shale natural gas revolution – and also its added benefits.

First, the newest biennial report by the Potential Gas Committee (PGC) says the United States has a total future natural gas supply of 2,688 trillion cubic feet (tcf) as of the end of 2012, a significant increase from its 2010 year-end estimate. Details:

2,384 tcf in technically recoverable reserves, including 2,226 tcf from conventional sources, tight sands and carbonates and shales, plus 158 tcf in coalbed reserves. The overall future supply number is the sum of PGC’s technically recoverable figure and the Energy Department’s latest figure for proved reserves (dry gas).
Compared to the year-end 2010 estimate, assessed resources increased by 28 percent.
The assessment is the highest in PGC’s 48-year history.

Dr. John B. Curtis, professor of geology and geological engineering at the Colorado School of Mines:

“The PGC’s year-end 2012 assessment reaffirms the Committee’s conviction that abundant, recoverable natural gas resources exist within our borders, both onshore and offshore, and in all types of reservoirs—from conventional, ‘tight’ and shales, to coals. … Our knowledge of the geological endowment of technically recoverable gas continues to improve with each assessment. Furthermore, new and advanced exploration, well drilling, completion and stimulation technologies are allowing us increasingly better delineation of and access to domestic gas resources—especially ‘unconventional’ gas—which, not all that long ago, were considered impractical or uneconomical to pursue. Consequently, our present assessment, strengthened by robust domestic production levels, demonstrates an exceptionally strong and optimistic gas supply picture for the nation.”