Natural Gas in the Fight for the U.S. Economy & Security

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President Obama touted the importance of embracing American natural gas in his State of the Union speech last month. He highlighted the $100 billion investment that businesses are making in new factories that use natural gas because of its abundance and affordability here at home.

While we appreciate the President’s recognition of the importance of natural gas, the President once again called it a “bridge fuel,” which implies that it’s a temporary, transitional source of energy that will do for right now, but not for the future.

IPAA disagrees and believes natural gas is the fuel of today and tomorrow. Experts say that we currently have a supply of natural gas that would power our nation for more than 100 years. That doesn’t take into account the new technologies the industry is developing every day to extract more natural gas in a more economic and efficient manner. Natural gas is not a bridge fuel. It’s as close as you get to a forever fuel.

Natural gas is powering our economy. It’s making up an increasing share of our electric power generation, lowering costs for consumers — both individuals and corporations. This is life-changing for the poor and marginalized, whose energy bills make up a huge share of their monthly income. It’s bringing manufacturing back to American shores. Right now, we’ve reached a “tipping point” in manufacturing decisions. It’s cheaper to build factories to produce goods here in America thanks to our abundant supply of energy rather than build factories abroad in China or India.

We have so much natural gas that companies are begging the administration to turn liquefied natural gas (LNG) import plants to export plants. The Department of Energy has confirmed that it is indeed a net gain for our economy to export natural gas to countries abroad that need it. However, the agency is still relying on a piece-meal approach to approve these permits. Speeding up this process by expediting LNG terminal approvals would create thousands upon thousands of new jobs, especially in states like Louisiana. Exporting more American-grown natural gas would also greatly help our trade deficit.

The economic gains are so great, that the gains in energy security often come second when explaining the benefits. However, they cannot be underestimated. Right now, the conflict between Russia and Ukraine demonstrates the desperate need of American natural gas in Europe. Russia is a huge producer of natural gas and they can wield this power to shut off their supply in their growing aggression with Ukraine. Increased natural gas from the United States would strengthen America’s leverage in this (and other) tensions with Russia and would give the Ukrainian people a chance at their independence.

Given these circumstances, it’s safe to say that natural gas cannot be simply deemed a “bridge fuel.” The President must recognize natural gas is the backbone of the economy and our energy security and should encourage American production and exportation in order to strengthen our place at home and in the world.

This post was submitted to the Louisiana Oil & Gas Industry’s monthly industry report.

The Time Has Come to Lift the Oil Export Ban

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The crude oil export ban was put in place in a very different time. It was a time when domestic oil production was weakening and our energy future looked dim. It was a policy that made more sense in a time of oil disruptions, but makes little sense today.

As we enter 2014, it is undeniable that the United States has entered a new energy era. Hydraulic fracturing has ushered in what’s being called a “revolution” in oil production, as this technology combined with horizontal drilling has unlocked a vast amount of American crude oil that was previously trapped in shale rock. In fact, the Energy Information Administration (EIA) heralded this new oil era when it announced last month that U.S. crude oil production rose to the highest level in a quarter-century.

The time has come to expand oil exports.

The U.S. is poised to become the oil leader in the world, and will surpass Saudi Arabia in oil production over the next decade. The EIA estimates that the U.S. will import about 25% of the petroleum it consumes in 2016, down from 60% in 2005. This is fantastic news with great impacts for our energy security. However, this security is directly tied to the amount of oil we produce — that is our leverage on the international scale. It’s important to note, due to the complexity and interdependence of the crude oil market, the U.S. will not likely be at a place where we achieve zero imports — and trying to force that market unreality hurts the American economy.

Here’s why: First of all, the price of oil is not set on the domestic market, but on the world market. Eliminating artificial barriers to free trade, such as the oil export ban allows the U.S. to trade freely with our allies, which opens new markets and boosts the economy.

Allowing American crude oil to reach both domestic and international demand is critical to making the American economy more competitive. On the other hand, trying to artificially cap exports will hurt American independent producers, who drill 95 percent of U.S. wells. It will end up shutting in production and shutting down development. This will in turn stunt the amazing job creation and vast economic stimulus brought to communities around the nation.

Furthermore, the kind of oil that is produced from the many active shale formations is a light, sweet variety of crude oil. The U.S. Gulf Coast refineries, built before the era of abundant shale oil, were engineered to handle a heavier, sourer variety of crude, the kind of crude the U.S. imports from Canada, Latin America, and Saudi Arabia. Giving oil producers the opportunity to sell their lighter, sweeter crude to buyers on both the domestic and international market makes the most economic sense, as there is strong international demand for U.S. light, sweet crude.

This is an oil era of abundance and opportunity. That’s why it’s time to revisit and repeal the crude export ban. That’s why, in the words of Department of Energy Secretary Ernest Moniz it’s a perfect example of a host of issues that “deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s.” Allowing for a freer oil market will boost American job creation, grow our economy, and secure our energy future.

Congress Votes Yea on Hydraulic Fracturing

dc_fallYesterday, the U.S. House of Representatives passed H.R. 2728, the Protecting States’ Rights to Promote American Energy Security Act and H.R. 2850 the EPA Hydraulic Fracturing Improvement Act by a bipartisan vote of 235-187. This legislation was introduced by Rep. Flores (R-TX-17), a Congressman with oil and gas industry experience.

On a macro level, this is a seminal moment, as it is one of the first times the U.S. House of Representatives has gone on record and recognized the technology that has spurred a promising era in our nation’s energy history. Hydraulic fracturing combined with horizontal drilling, technologies developed by independent producers, have reversed our nation’s energy fortune. In fact, just last week the EIA announced that for the first time in two decades, the U.S. is producing more oil and natural gas here at home than we are importing from foreign countries. This is thanks to the shale revolution, and the passage of H.R. 2728 affirms this progress.

On a micro level, the content of H.R. 2728 is a rebuke to the Department of Interior’s proposed rule on hydraulic fracturing and well construction on federal lands, set to be finalized next year. IPAA has fought this regulation since it was proposed in May of 2011. H.R. 2850 also injects sound science into the EPA’s study on the impacts of hydraulic fracturing on drinking water, which it has been drawing out for years. It would make the study accountable to a rigorous third-party peer review process and make the process more transparent and accountable to the American people. IPAA’s stance is that this legislative package is a pro-energy, pro-hydraulic fracturing vote.

But wait, what’s wrong with the federal government regulating hydraulic fracturing? Here’s the problem: the states are already doing it. In fact, they are doing a fantastic job and have done so for more than a century. States are even continuously updating their regulations. Of the approved permit applications to drill on federal lands, 98 percent were in seven states. Six of those seven states have updated their regulations, and the seventh (California) issued a regulation addressing operations standards and fluid disclosure in December 2012.

In the press release applauding the U.S. House of Representatives, IPAA President Barry Russell stated,

“This legislation, H.R. 2728, safeguards natural gas and oil development on federal lands by empowering states to regulate energy development, as they have been doing safely and responsibly. The long history of effective state regulation demonstrates that a one-size-fits-all federal requirement is unnecessary and will not increase environmental protection.”

We’ve seen what happens when the federal government gets involved in plans that area already working. We don’t want that to happen in the energy sphere, and we don’t want to jeopardize the shale revolution.

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IPAA has thus argued in its official comments to the administration that this is an unwarranted rule — a rule in search of a problem. The Department of Interior has yet to point to any systemic problems in the states’ regulation of hydraulic fracturing. The implications of the bureaucratic burden are large. In fact, IPAA and Western Energy Alliance commissioned a study this summer which demonstrated that the rule would cost $96,913 per well for a cumulative annual cost of $345 million.

Not only would it hurt independent producers, further driving them from federal lands, but it would cut jobs and energy supply. This week, Interior announced it received $14.2 billion dollars from energy production on public lands and offshore. This is money that goes to our children’s education, infrastructure, and national security efforts. Decreased oil and gas production resulting from this rule would limit revenue to the U.S. Treasury, further constraining federal budgets.

That’s why the vote on H.R. 2728 and H.R. 2850 are so important and why IPAA spent much of the last month educating legislators and their staff in the House on the importance of hydraulic fracturing and this legislative package. Outside groups varying from the National Association of Manufacturers to Heritage Action weighed in, echoing IPAA’s call that a vote for H.R. 2728 was a vote for energy, national security, jobs, and growth. It was a vote for hydraulic fracturing. IPAA urged our membership to tell their congressman to vote for this bill and we also scored the bill.

Yes, it’s unlikely that it will go anywhere in a Democratic-controlled Senate. But thirteen Democrats (mostly from shale states) voted for the legislation, which shows that those who are familiar with hydraulic fracturing have nothing to fear. It shows that IPAA’s education campaign, Energy in Depth, and its efforts to educate about the safety of hydraulic fracturing are gaining traction.  And despite his praise of the shale revolution, the president has threatened to veto if it crossed his desk.

But this legislation passed by the U.S. House of Representatives sends a message that hydraulic fracturing has reversed our nation’s energy fortune and that it is safe. It sends a message that the American people are the collective owners of federal lands, not bureaucrats in Washington. It puts the U.S. House of Representatives, the body most directly accountable to the American electorate, on record as saying “If the states like their energy plans, they can keep them.” If given the chance, we think they will. Thank you to those members who voted for this legislation.

U.S. Oil Production Overcomes Imports — Don’t Mess it Up, Feds

This week, the U.S. broke yet another energy record. For the first month in almost twenty years, we produced more oil here at home than we imported. This has been a remarkable turnaround in our nation’s energy sector. Just a few years ago, Peak Oil theory reigned, and these theorists had convinced most of the country that it was only a matter of time until the U.S. ran out of oil completely. People scoffed at the idea of lowering America’s oil imports, let alone getting to a place where our country could become increasingly energy secure. So much for that.

Fracking sites and farmland outside Tioga, in the North Dakota’s oil-rich Bakken Formation. (National Journal)

Fracking sites and farmland outside Tioga, in the North Dakota’s oil-rich Bakken Formation. (National Journal)

Now, we are in the midst of what’s now called being called the “shale revolution,” brought on by advancements in the technologies of horizontal drilling and hydraulic fracturing. And this has unleashed a surge of production in the United States. Guess who are the pioneers of these technologies? You got it — independent producers, the wildcatters. These companies, such as Mitchell Energy which was acquired by Devon Energy, an IPAA member, risked everything to combine and develop horizontal drilling to a point where producers could extract oil and natural gas from tight, shale rock.

That risk paid off. Other independents followed suit, opening up oil and natural gas plays that the industry elites doomed were offline forever. Now, the majors are in on the game, with companies like ExxonMobil focusing increasing on the U.S. shale plays.

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Now, the Energy Information Administration announced Wednesday that crude oil production, from the Bakken in North Dakota to the Eagle Ford in Texas, has topped more than 7.7 million barrels per day. The decreased imports and increased production has great implications for America’s economic and national security picture. For one thing, it is decreasing our trade deficit as we buy more energy here at home. Also, because of increased natural gas production and its associated low cost, manufacturing is coming back to the United States, which means thousands more jobs on top of the millions of jobs created by both oil and gas directly and the indirect jobs that come from development.

Of course, this week, White House Press Secretary Jay Carney has been touting these numbers as a demonstration of the administration’s own energy policies. But IPAA knows and has informed the country that increased production is occurring in spite of the President’s policies, not because of it. Take the President’s new proposed rule from the Department of Interior, which would impose a federal standard on hydraulic fracturing on federal lands, which the states have successfully regulated for years. This bodes major trouble for independent producers who have already been driven from federal lands because of additional burdensome regulations there.

One of IPAA’s major priorities is to fight this encroachment of federal government on the shale revolution and ensure that production increases and our imports continue to decrease. IPAA has submitted comments pushing back on this misguided rule and this was a major topic at IPAA’s 84th Annual Meeting last week, when our members gathered in San Antonio. After all, development of onshore oil and natural gas is occurring safely and responsibly and is already subject to many federal environmental regulations. Let’s not jeopardize this energy achievement with more bureaucracy from Washington.

Oil & Gas Should Transcend Party Politics

It’s been quite a week in Washington, D.C. As everyone and their cousin knows, the federal government has shut down due to Congress’ inability to pass a continuing resolution to fund the federal government. In the midst of party politics and tensions running high when it comes to just about every issue, it would be nice if energy at least could be seen as a more bipartisan issue.

Last week, as part of IPAA’s new Energy Leader series, Host Russ Capper spoke with  chemical and petroleum engineer Dr. Michael Economides, a professor at the Cullen College of Engineering, University of Houston, and an internationally renowned expert on energy geopolitics. He spoke to this exact frustration.

Dr. Michael Economides holds a PhD in Petroleum Engineering from Stanford and is a self-proclaimed liberal democrat who bemoans the fact that oil and gas is a controversial industry whose support is too often divided along party lines. In fact, Dr. Economides said, “Energy and energy abundance should actually be the most populist of all issues.” After all, it is a driver of economic growth, job creation, and energy security. He explained that if you took the entire oil and gas industry worldwide and it would be the biggest economic entity besides the United States. That is huge.

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More from the interview:

  • “The production of natural gas from shale is arguably the biggest and best story in the history of the American oil and gas business in the last 50 years. There is no doubt about that. This is an extraordinary feat — the quintessentially American character, the can-do attitude, innovation, private industry taking the lead, letting the economy function as it has without government interference. You put all of these things together and truly, shale gas should be one of the best stories — not just energy stories — but one of the best stories that an American would be proud of.”
  • “The bottom line for most people is this: Right now we have gas for 300 years. There goes in shambles this whole idea that we are running out of hydrocarbons. Oil is expanding also dramatically…every estimate right now suggests that the United States will surpass Saudi Arabia and Russia as the world’s largest producer of oil. What a dramatic turnaround.”
  • “The energy industry is no question generating the best-paying jobs. Let me shock you a little bit. From my university, a BS in Petroleum Engineering right now starts at $100,000 a year. That’s a 21 year old kid…A PhD in Petroleum Engineering will start at $125,000.”

And just yesterday, the Wall Street Journal reported that the U.S. is overtaking Russia as the largest oil and gas producer. U.S. imports of natural gas and crude oil have fallen 32 percent and 15 percent respectively in the past five years, narrowing the U.S. trade deficit.

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Adam Siemenski, head of the U.S. Energy Information Administration said, “This is a remarkable turn of events. This is a new era of thinking about market conditions, and opportunities created by these conditions, that you wouldn’t in a million years have dreamed about.”

Red or blue, the shale revolution is something we can all celebrate.

American Shale Is Reviving the Economy

In the midst of a troubling week as our nation’s lawmakers contemplate how to respond to the chemical weapon attack in Syria and discern our role on the international stage, our country received some much-needed, heartening news regarding the U.S. energy picture, which holds great hopes for our economic future.

The Energy Information Administration reported that last week’s oil production more than two decades of daily production. The U.S. produced an average of 7.621 million barrels of crude oil per day last week, the highest daily average in 24 years.

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IPAA’s chief economist Fred Lawrence affirmed the independents’ part in this economic success story on The Energy Makers’ 100th epsidode. “The independents played the key role in the transformation taking place…twining two very important technologies hydraulic fracturing and horizontal drilling to access new geological horizons for both shale gas and tight oil.”

Fred continued, “The specific DNA of the independent was critical because they had the entrepreneurship and the technological acumen to figure out how to develop these wells. They drilled a lot of wells and did a lot of tests and they weren’t afraid to take risks and that led to the development of the Barnett shale and since then a proliferation of shale gas plays and now, tight oil plays.”

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That was the beginning of the story, a story that is only getting bigger and better.

Newspaper headlines from around the country echoed the same rally this week: This eruption of U.S. oil and natural gas production is huge, and it’s rescuing our economy.  

An IHS Cera report released  by the U.S. Chamber of Commerce brought new findings of the vast economic benefits to light. The expanded energy development resulting from horizontal drilling and hydraulic fracturing now supports 2.1 million jobs, directly and indirectly. This number is only expected to grow. By 2020, oil and gas activities will support 3.3 million jobs. For people struggling to find work, this is welcome news.

The shale revolution contributed $163 billion to U.S. households last year. But what does that mean for the average family? IHS found that the oil and gas boom added about $1,200 to the average American household income, thanks to lower energy costs brought about increased natural gas production. These added savings are also only expected to grow. By 2020, IHS projects that shale energy production will contribute just over $2,700 to the average household. By 2025, it will reach $3,500 a year. In a time when many families are living paycheck to paycheck, this added money makes a world of difference.

Check out more great headlines:

USA Today: U.S. energy lifting economy more than expected

Bloomberg: Fracking Boom Seen Raising Household Incomes by $1,200

San Antonio Business Journal: Recent rise of U.S. shale plays an economic game changer

Fox News: Energy Boom to Help Boost American Jobs, Salaries

National Journal: Let Us Frack or the Economy Will Suffer

The Hill: Booming oil production boosted GDP estimate, White House advisers say

Open for Energy Business

In the midst of a nation that’s hitting many speed bumps on its way to economic recovery, the question must be asked: How does a state become successful? Why are different cities and different states so different from each other? Detroit, Michigan is filing for bankruptcy, while Houston, Texas is booming beyond belief. The economic situation in Detroit looks so bleak but Houston’s future looks so bright.

Luck is at work in the potential prosperity of a state. Factors from the desirability of a climate to its historical significance can draw tourism and residents. How much energy does the state have? States with abundant energy, particularly fossil fuels, have the amazing opportunity to capitalize on development of these natural resources. Oil and natural gas development creates jobs, boosts support industries, and attracts manufacturing. States without oil, natural gas, or coal must find other ways to attract business.

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But many controllable factors are at work as well. The state’s policies could propel it to a rich state status or hinder growth, increasing its likelihood to become a poor state. How business-friendly is the state? High tax rates and burdensome, unpredictable regulations make business owners question if a state is really open for business. If not, they may find themselves closing up shop and moving to another state – states that are opening businesses with open arms.

The upstream side of the oil and natural gas industry, the exploration and production side, is unique in that there must be oil and natural gas for the business to be successful. Thus, independent producers will expand their business (thereby creating jobs and injecting money into state economies) where the energy is. However, for better or worse, energy development does not occur in a political vacuum. States must be open for energy development. They must have stable, working regulatory regimes and predictable policies.

If States Produce It, Jobs Will Come

The U.S. Energy Information Administration’s data on proved oil reserves demonstrates that jobs are created when states are abundant in energy. This week, USA Today highlighted the Top 10 most oil-rich states. As the piece noted, not only is the oil and gas industry the backbone of these states’ economies, development of the energy creates support jobs in all kinds of sectors as well.

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A recent PricewaterhouseCoopers study commissioned by the American Petroleum Institute found that the industry supported more than 9.8 million American jobs in 2011. That’s 5.6 percent of our nation’s total employment. Thanks to the shale production that has changed America’s energy outlook, it’s has grown dramatically in the last two years. More than 600,000 jobs have been added in just two years. Each direct job supported 2.8 jobs elsewhere, according to the PwC study. That means that the jobs created from energy production are by no means confined to major oil and gas producing states.

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One of the best examples of a state who is doing the right thing by its citizens and welcoming energy development is North Dakota. Because of the Bakken shale play and the state’s open-armed reception of the oil and gas industry, North Dakota’s unemployment rate stands at the lowest in the nation – 3.1 percent in June. Before the advent of hydraulic fracturing and horizontal drilling which unlocked the oil and gas trapped in the Bakken shale, people were fleeing the previously barren, desolate state. Now, stories of signing bonuses at McDonalds and new airports opening up to accommodate business travel demonstrate that energy abundance brings the jobs. This week, Department of Interior Secretary Sally Jewell visited North Dakota to witness the revival going on there and praised the industry for advancing environmentally-friendly technologies.

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Another example – you won’t be too shocked to hear – is Texas. But just because this state has historically been a major energy producing state doesn’t mean it shouldn’t get the praise it deserves. Texas is actually undergoing a huge oil and gas revival. From the Eagle Ford shale to the Permian Basin, new technologies have injected new life into West and South Texas. Also, Houston is one of the best places for recent college graduates to find a job – in no small part thanks the industry jobs there.

Stop Indefinitely

The Marcellus shale – the most extensive natural gas play in the United States – lies underneath New York, Pennsylvania, and West Virginia (with the Utica shale underneath eastern Ohio). The industry has indeed gone in and developed this energy-rich shale, transforming the economies of all of those states…except New York that is. Why? Because the New York state government has banned the use of hydraulic fracturing in natural gas development. This action virtually forbids the oil and natural gas industry from operating in New York.

Thus, the citizens of upstate New York are struggling to find jobs, but right over the state border, landowners are becoming “Marcellus Millionaires” overnight and manufacturing is returning to Ohio’s Rust Belt. Sadly, the citizens of New York are the victims of horrible, misguided, ideological policy. Without the ban, the industry would have been more than willing to go in and operate in the state of New York, but for most, the future is too uncertain. The geography is the same – it’s the politics that’s different. It’s a stark example of a missed opportunity for energy development, job creation, and economic growth.

Transformative Power

California is an interesting case. No one can deny that the state is undergoing troubling economic times. The economy is suffering, taxes are high, and jobs are scarce. People and businesses are fleeing to states like Texas where the economy is booming, taxes are low, and jobs are plenty. However, the Monterey shale is a chance for California’s economic growth. Spanning 1,750 square miles in central and southern California, its potential development holds the promise for thousands of new direct and support jobs.

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However, policy challenges loom. Environmental activists in California have been trying to get the California state legislature to ban hydraulic fracturing, seeking to push California towards the path of New York and stop the development of the shale altogether. Recently, the future has looked brighter. The governor has (thankfully) been optimistic about oil and gas development, confirming the safety of hydraulic fracturing; recent bills to ban hydraulic fracturing have failed to win support in the legislature.

As our country struggle to deal with economic challenges in states, one thing should be a no-brainer. As a nation, we must welcome oil and natural gas development and remain open for energy business. The transformative power is evident in states like North Dakota, Ohio, Oklahoma, Texas…the list keeps going and growing. When a state is rich in energy and the states’ policies make it a stable place to invest, the likelihood of becoming a prosperous state is all but certain.

IPAA Ranks Top 10 U.S. Oil & Natural Gas Records

The past few years has been an incredible time for America’s independent producers and the entire upstream oil and natural gas industry. The shale revolution, spurred by horizontal drilling and hydraulic fracturing, has propelled the United States to be one of the biggest energy plays in the world. Take a look at some of the most amazing industry records, compiled by the Independent Petroleum Association of America’s economic team, Fred Lawrence and Ron Planting.

 Domestic Liquids Production and Net Imports

U.S. Records in 2012

  1. U.S. crude oil production rose by the largest volume ever in its history, nearly 850,000 barrels per day, or 14.9 percent. Natural gas liquids production rose by over 180,000 barrels per day, or 8.3 percent. For the first time ever, the combined increase for all liquids exceeded 1 million barrels per day, a 13.1 percent rise. U.S. crude oil production averaged 6.5 million barrels per day, and with natural gas liquids output, total liquids output was the highest since 1991 at 8.9 million barrels per day. (Energy Information Administration)
  2. U.S. output of natural gas liquids reached an all-time high. Natural gas liquids output averaged 2.4 million barrels per day, up nearly 40 percent from 2005’s 1.7 million barrels per day. (EIA)
  3. U.S. marketed production of natural gas set another all-time record, at 25.3 trillion cubic feet. That was up 34 percent from 2005. (EIA)
    Domestic Natural Gas Production and Net Imports
  4. In just a few years, the U.S. has greatly reduced its reliance on oil imports.  In 2005, 60 percent of U.S. oil consumption was supplied by net imports; in 2012 that share dropped to just under 40 percent, the result of increased U.S. production and reduced U.S. consumption. ”In 2005, the US and EU imported similar amounts; in 2012, US net imports were nearly one-third below those of the European Union.” (BP)
  5. In just a few years, the U.S. has favorably reversed its trade balance on refined products.   In 2005, the U.S. was a net importer of nearly 2.5 million barrels per day of products. In 2012, it was a net exporter of over 1 million barrels per day of products. Gross exports of products exceeded 3 million barrels per day in 2012 for the first time ever. (Energy Information Administration)
  6. U.S. proved oil reserves were 26 percent higher than a year ago. “Overall, proved oil reserves were 26 percent higher than a decade ago, and 60 percent higher than in 1992 – despite the production of nearly 600 billion barrels of oil over the past two decades. Proved gas reserves are up 21percent over the past decade and 59 percent compared to 1992.” (BP)
  7. The share of natural gas in U.S. energy consumption has grown faster than for any other energy source in the past two years, while coal’s share has declined the most.  U.S. natural gas consumption rose to a record 25.5 trillion cubic feet in 2012, up 5.9 percent from 2010. Compared with 2005, natural gas’s share of total energy has risen from 23.7 percent to 27.3 percent, while coal’s share has fallen from 24.0 percent to 18.3 percent, largely because of displacement of coal by natural gas for electricity generation. (EIA)
    Change in Electric Power Inputs Since 2005
  8. U.S. consumption of natural gas reached an all-time high of 25.5 trillion cubic feet, while consumption of natural gas liquids was the highest since 2000. Natural gas consumption was up 4.6 percent from 2011’s level. NGL consumption rose close to 1 percent to 2.32 million barrels per day, 4.5 percent below the all-time high of 2.43 million barrels per day reached in 2000.
  9. U.S. exports of natural gas reached an all-time high of 1.62 trillion cubic feet, up more than 7 percent from 2011 and double the level of five years earlier. More than 98 percent of these exports were by pipeline to Canada and Mexico, with the remainder exported as LNG to other parts of the world. With declining imports and rising exports, U.S. net imports of natural gas sank to 1.52 trillion cubic feet, the lowest since 1990.
  10. Increased demand for U.S. natural gas (a less carbon-intensive fuel for power generation) helped bring about the lowest energy-related carbon dioxide (CO2) emissions since 1994. With the exception of 2010, emissions have declined every year since 2007. (EIA)

World Records in 2012

  • The U.S. had the largest increases for both oil and natural gas production of any country in the world. “Driven by tight oil growth, US production has  expanded by 2 Mb/d over the last five years,  the largest increase in the world and twice  that of Iraq (1 Mb/d), which accounted for the  second largest increment.” (BP)
    Top 10 Oil Producers BOTH CHARTS
  • The U.S. is the largest producer of natural gas in the world, and third largest oil producer. U.S. oil production is exceeded only by Saudi Arabia and by the Russian Federation.  The U.S. has become the largest producer of natural gas in the world when it overtook the Russian Federation in 2009. (BP)

Top 10 Natural Gas Producers BOTH CHARTS

  • The Non-OECD accounted for all the net growth in world energy consumption.  China and India accounted for 90 percent of the net increase in world energy consumption. “Over the last ten years, global energy consumption increased by 30%, almost all of which outside the OECD. Then, over the last 2 five years, OECD consumption fell – four out of these last five years, to be precise, and in three of these four despite positive GDP growth.” (BP)
  • Energy consumption for the OECD declined as it has for four of the past five years. “…the OECD is now back to where it was in 2002 – despite cumulative GDP growth of 26% over that same period.” (BP)
  • Organization of the Petroleum Exporting Countries controlled 72.6 percent of the world’s proved oil reserves (BP). North America (U.S., Canada, and Mexico) accounted for 48.2 percent of non-OPEC proved reserves.

 

International Perspectives:

  • The IEA forecasts a reduction in the need for OPEC oil in 2014, even with rising world demand, as U.S. and Canadian output rise 1 million barrels per day. Smaller production increases for some other non-OPEC producing countries are also forecast. (IEA July release). OPEC itself has also forecast (July 2013) a decline in 2014 for the need for OPEC oil with an increase in non-OPEC supplies of 1.1 million barrels per day offsetting a OPEC production decline of 0.3 million barrels per day. (IEA, OPEC)
  • It is interesting to note that in their World Oil Outlook, OPEC did not truly recognize the U.S. unconventional revolution until the 2010 issue – “whether shale gas is a ‘game-changer’ remains unclear. However, its potential is undisputed.” In earlier editions, they focused primarily on the impact of U.S. fuel efficiency standards and biofuels and even in the 2011 edition they viewed the Caspian, Brazil and Canada as the main drivers of non-OPEC supply growth. However, in the 2012 edition, they did note that “shale gas has large potential but mainly in the U.S. for now” and noted that “replicating U.S. success internationally requires key challenges including water shortages, lack of infrastructure, higher population densities, shortage of skilled labor and the NIMBY effect.” (OPEC World Oil Outlook)
  • The IEA forecasts world natural gas consumption will rise 17 percent between 2012 and 2018, aided by the revolution in shale gas production.  It forecasts that the U.S. alone will account for over one-fifth of the worldwide increase in gas production, “benefiting from technological developments and cost-efficient field services.”  The IEA also noted that the U.S. could become “the world’s biggest producer in a decade” and “the exploitation of ‘unconventional’ fossil fuels represented the biggest redrawing of the energy map for decades.” (IEA)
  • Russia’s view on the U.S. shale revolution has transformed from denial to skepticism. Putin originally denounced shale for ‘costing too much and ruining the environment’ while the head of Gazprom described the shale revolution as a ‘myth’ and ‘a bubble that will burst soon.’ Now, with more numbers to back up the sustainability of shale and tight oil, Putin admits that there may indeed be a ‘real shale revolution’ after all and he is monitoring the situation carefully and has urged Russia’s energy companies to ‘rise to the challenge’ of shale. (The Economist) Given the dependence of Europe on Russian natural gas (and oil) and the rising sensitivities to energy security from Poland to the U.K., the Russian interpretation of the U.S. unconventional revolution and export policies bears further study. Meanwhile, EIA has put Russia at the top of its list of countries with technically recoverable shale oil resources.

A Pivotal Policy Month for Oil & Gas

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May has been quite a month for the oil and natural gas industry. There have been several policies that could have serious impacts for the future of the United States in its role in the energy revolution that’s sweeping the entire globe.

Let’s start with the not-so-good. On May 16, the Department of Interior released the new draft of the Bureau of Land Management’s (BLM) rule for regulating hydraulic fracturing and well construction on federal lands. The BLM released the original draft last May, and IPAA took issue with it immediately because it created an extra level of federal bureaucracy to a regulatory system that the states are carrying out effectively. IPAA and the Western Energy Alliance submitted comments which detailed the many issues our members have with the rule. In this new draft, there were some changes that corresponded with IPAA’s comments on the draft, such as utilizing the efficient FracFocus system for chemical disclosure.

However, IPAA still rejects the premise that this federal, one-size-fits-all rule is necessary in the first place.  In a press release, IPAA President Barry Russell expressed independent producers’ concern. He explained that “the rule solves no existing problem, but creates additional burdens for independent producers and state regulators.” IPAA believes the proper role of the federal government is to “encourage energy development” but this rule “discourages the promise of new energy supplies, threatening jobs and the progress we’ve made on energy security.” IPAA asked the administration for more time to deliberate this rule through a comment period extension from 30 days (where it currently stands) to no less than 120 days. It’s expected that this will be granted, since all stakeholders involved have asked for more time.

Furthermore, there is a danger that this rule will become a policy precedent that eventually will extend beyond federal lands and be forced upon state and private land. It’s essentially a “rule in search of a problem.” Regulations without reason end up costing jobs, hinder innovation, and eliminate business expansion.

As IPAA board member Jack Ekstrom, Vice President of Government & Corporate Relations at Whiting Petroleum Corporation testified at the House Natural Resources hearing on energy development on federal lands, federal policy has a real impact for independent producers trying to develop energy on federal lands. Jack explained, “The federal government owns millions of acres prospective for oil and gas across the Inter-Mountain West. The unmistakable conclusion is that the prosperity, the jobs, the harvest of domestic resources – from unconventional oil and gas plays, enhanced recovery projects and technology breakthroughs to come – can only be realized to their potential by mandating the Department of the Interior devise and publicize a plan to: encourage development, provide leasing certainty and streamline oil and gas permitting.” IPAA appreciates the oversight work that the House of Representatives is doing to push back against this troublesome regulation.

LNG export facility in Louisiana

LNG export facility in Louisiana

Now here’s the good news. There has been a great deal of speculation in Washington over the past few months about how the Obama administration will act in regard to the future of natural gas exports. The great story here is that just a few years ago, the U.S. was considering how it could import natural gas, since we were in great demand of it. Liquified natural gas (LNG) import facilities were being constructed. Now, thanks to horizontal drilling and hydraulic fracturing, independent producers have unlocked an amazing abundance of natural gas — an abundance that has the U.S. supplied with natural gas for well over a hundred years! Really, the U.S. has so much that we are swimming in it, and companies want to switch these LNG import facilities to LNG export facilities, so countries that need it (and pay more for it) can get access to our excess natural gas.

This seems like a no-brainer policy decision, but unfortunately, as often happens, bad politics could stop this good distribution of resources. Some enviro groups are seeking to stop exports in order to limit additional development. They reason that if the price remains very low, producers won’t develop as much, and hydraulic fracturing will be limited. Some manufacturing companies have gotten mixed up as well – they would like to continue to take advantage of the low price of natural gas for their operations. The reality is that if the price remains so low, producers won’t develop, which will actually cause the price to rise, which will then make it worthwhile to develop again. However, good jobs, economic progress, and energy supply will be lost in the interim — and producers will be greatly damaged.

IPAA has long held the view that the federal government should not put an artificial limit on the energy market. In response to President Obama’s energy plan released in March, IPAA specifically criticized the President for remaining silent on the much-debated topic of liquefied natural gas (LNG) exports. After all, President Barry Russell explained, “exporting natural gas to countries that need it will ensure that more production takes place, which would grow our economy and assure its prominent place in our nation’s fuel mix.” In addition, IPAA submitted comments in praise of a Department of Energy report that actually said that exporting natural gas will be a net economic gain to the United States.

I always consider the question of LNG exports to be one of those facets of politics that one couldn’t make up. Hoarding something we have an abundance of (natural gas) to artificially control a price that cannot, in reality, be controlled by a domestic policy decision sounds like something out of an Onion article.

So it was good to hear the Department of Energy announce its decision to authorize the Freeport Liquefied Natural Gas (LNG) Terminal on Quintana Island, Texas. Also, good political timing. The Obama administration announced this the day after BLM HF was announced, strategic timing to try and soften the blow from to industry. IPAA sent out a press release supporting the administration’s decision to allow the export of natural gas. IPAA explained its support on behalf of independent producers: “Due to technologies pioneered by America’s independent oil and natural gas producers and service companies, the U.S. has been able to access its vast supply of natural gas. Exporting natural gas to countries that need it will encourage production, while strengthening the U.S. trade balance and creating thousands of jobs for Americans.” As an association, we will continue its efforts to promote regulatory and tax policies that encourage production of natural gas for all markets.

There’s a lot ahead. Last week, the Senate Energy and Natural Resources Committee has just convened its informal hearings on natural gas policy, so we’re likely to hear some legislative movements in regard to natural gas development from the Senate side.  Right now, we’re in a quick Memorial Day recess, so Hill action will resume in full force next week. Stay tuned.

Technology — and Policy — Transforming American Energy Outlook

wrightbloomberg

It’s no secret that the American energy picture is undergoing a transformation. The advent of multi-stage hydraulic fracturing combined with horizontal drilling has enabled independent producers to reach deeper, wider, and into once impenetrable shale rock, unleashing millions upon millions of barrels of new oil and natural gas supplies. This technology has allowed producers to tap into new plays such as the Marcellus in Pennsylvania and the Bakken in North Dakota.

IPAA’s oil education campaign, the Declaration of Independents, has been profiling the most prominent shale plays in the U.S. Most recently, they gave the history and the current outlook of the Permian Basin in West Texas. This is a region that encompasses plays upon plays, or “stacked plays” such as the Bonespring, Cline, Spraberry, Wolfcamp, and the combination plays nicknamed the “Wolfberry” and the “Wolfbone.”

What’s most notable about this play is its rich history. The first commercial well in the Permian was drilled in 1921. As the analysis noted, “This [first] discovery set off further drilling activity, with several notable finds, including Yates Field (1926), which is still producing today, and is still one of the top 50 fields for proved oil reserves in the United States. A number of major fields discovered in the 1930s, such as Wasson, Slaughter, and Seminole are still producing today, and are still ranked by the Energy Information Administration among the top 20 in the U.S. for remaining proved reserves.” 

Permian map 5-1-13

The Permian truly exemplifies the renewed life cycles that new technology and new generations of industry minds have given to these historic plays. As the profile concludes, the Permian Basin “is a story about combining the various talents of independents, majors, and service companies in using advancing technologies to sustain the lifespan of existing fields, to tap into zones that were previously uneconomic or inaccessible, and to increase the Permian’s proven reserves in a remarkable fashion.”

Check out these recent news articles that exemplify the state of shale in the United States.

  • Associated Press: Oil Drilling Technology Leaps, Clean Energy Lags. Technology created an energy revolution over the past decade — just not the one we expected…Oil companies big and small have used technology to find a bounty of oil and natural gas so large that worries about running out have melted away. New imaging technologies let drillers find oil and gas trapped miles underground and undersea. Oil rigs “walk” from one drill site to the next. And engineers in Houston use remote-controlled equipment to drill for gas in Pennsylvania.
  • Bloomberg News: Oil Shockwaves From U.S. Shale Boom Seen by IEA Ousting OPEC. The International Energy Agency (IEA) reported this week that North America will provide 40 percent of new supplies to 2018 through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries (OPEC) will slip to 30 percent.
  • CNBC: US Oil Production Nearly Even With Imports. The amount of oil produced in the U.S., now at a 21 year high, is nearly even with the amount being imported, and the gap is narrowing. The Energy Information Administration said Wednesday in its Short-Term Outlook that U.S. oil production averaged 7.1 million barrels per day in the first quarter, and that should rise to 8.5 million barrels per day by the fourth quarter of 2014.

The U.S. is in a critical position. Policymakers have a choice – either encourage this amazing rebirth of homegrown energy that the industry is safely developing or choose to turn away from this hopeful energy picture. Two critical issues are facing the Obama administration this month: the future of natural gas exports and hydraulic fracturing regulation on federal lands.

President Obama has said that he must make a decision soon (and we agree) on the future of LNG exports. Radical environmentalists urge to ban natural gas exports because it will increase the use of hydraulic fracturing. It’s no coincidence they are targeting the very technology that has spurred this shale revolution and expanded development of fossil fuels across the nation. Putting an artificial ban on the market of natural gas would hurt not do any favors to the American people, because it would restrict expanded development of natural gas. It would especially hurt independent producers, who seek a larger market for America’s natural gas supplies. Additionally the Department of Energy has stated in a report released in December that exporting natural gas to U.S. allies would be a net economic positive for the United States. It’s thought that the White House will adhere to DOE and approve at least some LNG export facilities in the coming weeks.

Additionally, the Department of Interior is set to release the Bureau of Land Management’s hydraulic fracturing and well construction rules for federal lands. IPAA came out strongly against the first version of the rule, originally released last May, which would cause unnecessary confusion for independent producers who are already struggling to operate on federal lands. The rule is expected to take into account some of industry’s concerns, but IPAA holds that any federal rule to regulate hydraulic fracturing, when the states are already successfully doing so, is burdensome and duplicative. Different plays in different states have varying geology and environmental issues – putting a one-size-fits-all blanket rule on top of the existing state regulatory regimes makes no sense, will only cause more bureaucracy and confusion, and will certainly further drive producers from federal lands. That rule is set to drop this week (possibly today).