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
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.
