Articles Posted in Oil and Gas News

The Bipartisan Policy Center published a study in May 2013 about the U.S. gas market and its supplies, entitled “New Dynamics of the U.S. Natural Gas Market”. This interesting research was part of the New Dynamics of Natural Gas Supply and Demand project. This project looks at new gas supplies in the U.S. and methods to improve the economic and environmental impacts of the energy industry. This current work builds on past reports on shale gas and on ensuring the stability of natural gas markets.

Specifically, the study looked at the potential impact of increased use of natural gas, taking into account various assumptions about future natural gas supplies. It examined increasing demand for natural gas from sources like industry and power stations as they replace coal with gas. The report concentrated on two main issues: 1) the price impact when multiple demand drivers increase demand at the same time; and 2) how the impacts would vary with either high or low gas production output. Even when the demand for natural gas rises in several areas, the report found that natural gas prices were unlikely to rise significantly. In other words, even when the supply is low and the demand is high, the peak prices of gas that were seen in past years would not be reached again. Significant increases in gas exports from the U.S. are also not likely to increase prices.

The report determined that most of the growth in natural gas will be driven primarily by economic growth combined with the switch from coal to gas for power plants and industrial use. The report also stated that natural gas vehicles will likely continue to get more popular and may make great gains in the market by the year 2035. The report also concluded that the United States is in a favorable and unique position to take advantage of various factors, including the environmental, energy and economic security benefits that our country’s natural gas reserves allow. Natural gas can improve both the energy and environment sectors, while promoting a growing economy and more jobs.

Experts at the Bipartisan Policy Center held a conference in June 2013 and as part of that conference concluded that U.S. oil and gas exploration and production can reshape global energy geopolitics. The chairman of IHS Cambridge Research Associates, Daniel Yergin, said that “(a) better supplied world is a safer world, but it doesn’t mean there still aren’t above-ground and below-ground risks. It could help us play a leadership position in the world that wouldn’t have been possible a decade ago, however.” Government officials at the conference were likewise optimistic, asserting that more oil resources can help the economy and business interests and influence the world. A U.S. State Department special envoy, Carlos Pasqual, said, “(i)f we manage it with environmental responsibility, it will be historic.

In terms of the relationship between U.S. military action and oil supplies, Luis Giusti from the Center for Strategic and International Studies told the conference not to expect the U.S. to defend oil producing counties abroad. Mr. Giusti said this kind of military action would make the markets very volatile.

Mr. Yergin, Mr. Pasqual and Mr. Giusti all agreed that the increase in U.S. oil production gives our country more clout in dealing with other countries. An example that Mr. Pasqual gave is the government’s ability to persuade countries not to buy Iranian crude oil or to buy less of it. He noted, “Countries understand the need to restrain Iran’s nuclear ambitions. They’re likelier to do something about it if they’re confident they can buy the oil elsewhere.” He also stated that “(i)f we can help Asia diversify its gas supplies, its positive influence on global markets will be important.”

The Texas oil and gas industry has had a busy year. In June 2013 Kinder Morgan Energy Partners announced it was expanding its pipeline system into the Eagle Ford shale in Karnes County, Texas. This new pipeline project is the result of a long term contract with ConocoPhillips and will extend the already existing 178 mile pipeline another 31 miles from DeWitt County to ConocoPhillips distribution facility in Karnes County. Kinder Morgan also plans to build holding tanks and a truck unloading facility at ConocoPhillip’s site in Karnes County. The project began construction in July 2013 and the new section is expected to be operational by the third quarter of 2014, with a capacity of 300,000 b/d of crude and condensates.

This news follows on Kinder Morgan’s announcement in May 2013 that it was expanding another pipeline to its refinery in Brazoria County. The original pipeline, part of the same pipeline system described above, went into service in June 2012 and brings Eagle Ford oil to Houston. That pipeline expansion is expected to start service by the end of 2013 and will increase the capacity to 100,000 b/d. Kinder Morgan indicated that it plans, as part of this project announced in May, to add new pumps and a storage tank in Wharton County, Texas, and offloading capabilities for trucks in DeWitt County.

In July, Exco Resources Inc. announced it was buying undeveloped oil and gas assets in Eagle Ford and also in the Haynesville shale from Chesapeake Energy Corporation. The purchased assets are located in Zavala, Dimmit, La Salle, and Frio counties in Texas, as well as some in Louisiana. Exco paid Chesapeake a total of $1 billion for these oil and gas assets.

A new gas pipeline is planned through Texas to bring natural gas to the Gulf coast. Two companies, Kinder Morgan and MarkWest Utica EMG, have entered a joint venture for a 1,100 mile gas pipeline and to develop a fractionation plant on the Gulf coast. The facility and pipeline will process and transport liquid natural gas from the Utica and Marcellus shales in Ohio, Pennsylvania, and West Virginia.

Kinder Morgan’s CEO Richard Kinder issued a statement that “(t)he combination of Kinder Morgan’s strategically located and existing pipeline assets that traverse through the heart of the Utica and Marcellus shale plays, along with MarkWest’s existing and significant midstream footprint throughout the Utica and Marcellus shale plays, should provide significant growth opportunities for the (joint venture).”

A gas complex is planned to be built in Tuscarawas County, Ohio. The complex, on a 220 acre piece of land for which Kinder Morgan has an option, will have a 400 million-cubic-foot-per-day (MMcf/d) cryogenic processing facility. It can be expanded to accommodate one billion cubic feet per day. The first processing plant is expected to be completed by the fourth quarter of 2014. The companies are also exploring options to increase fractionation capacity in the Gulf region. MarkWest is planning to install a de-ethanization plant in its Seneca complex as well, after starting up a de-ethanization plant in Houston, Pennsylvania in July 2013. MarkWest is also expanding a gas processing plant at Mobley in West Virginia, as well as expanding at other facilities in Pennsylvania and West Virginia.

Recently, Chevron‘s Chief Executive Officer John S. Watson spoke at the Center for Strategic and International Studies and addressed the issue of whether the current boom in the oil and gas industry could serve as an opportunity for sensible energy policy reforms by the federal government. His suggestions included reforming the federal tax code, increasing access to public lands, and more rational environmental policies.

In terms of environmental policies, Mr. Watson pointed out that these policies must be transparent and honest, discussing the controversial Renewable Fuel Standard which currently requires biofuels that can’t yet be produced. As far as the future of biofuels, he told the CSIS that, “We haven’t cracked the code yet, but we’re working on it. Renewables have their place, and they will grow. But right now, $500 billion of subsidies support them around the world. We have to make them affordable.” Mr. Watson also touched on carbon emissions on an international level, saying that wealthier economies might withstand the higher prices from carbon taxes by increasing efficiency, but this will not work with emerging economies, noting “[g]overnments want to feed and shelter their people, so their carbon use will grow.”

Mr. Watson also spoke optimistically about the energy industry as a whole, on a global scale. He said that right now, there are unprecedented opportunities to produce many different kinds of energy products, but it was crucial to have appropriate commercial terms and physical security. He said that Chevron’s key to working in countries around the world, in some cases for many decades, is sensitivity to the host government and to each country’s needs. He praised American companies like Chevron who are exploring and producing around the world, for their advanced technology and skills, but also for American values that Chevron tries to embody, such as environmental awareness, respect for the rule of law and transparency.

The US Department of Interior’s Bureau of Land Management proposed new regulation for drilling on federal or Indian land. The BLM actually already amended the proposed regulation once, after there was serious criticism of their impact. To evaluate the amended proposal, the Independent Petroleum Association of America and Western Energy Alliance commissioned a study on the topic by John Dunham and Associates, an economic consulting firm based in New York City.

Under the original proposal of last year, oil and gas producers would have to pay an additional $1.284 billion in costs. Changes were made to that proposed regulation after producers, manufacturers, state regulators, and others adversely impacted by the regulation change lobbied the BLM to fix the problems. The major changes included: elimination of the requirement that all well simulations undergo the full requirements; elimination of the requirement that all oil and gas well development must be applied for through the BLM before completing a well; modification of the requirement for cement logs on all wells; and substantial changes to administrative reporting and permitting. The comment on the amended regulation closed in August 2013.

Under the amended proposal, according to JDA, oil and gas producers would still have to pay $345 million more per year. JDA noted in the study that the costs of the regulations clearly exceed $100 million, at which point an economic assessment is required by law, and this has never been done. JDA calls the $345 million a “best case scenario” number, that is, in the event that BLM approves 100 percent of applications and capital costs are only 7%. Per well, JDA expects the cost of the revised proposed regulation to be $96,913. These numbers are certainly not nominal or inconsequential to the industry, and independent producers will be the hardest hit.

The U.S. Department of the Interior issued a proposal in May 2013 for hydraulic fracturing regulations for federal and Native American land. The Department claimed that the goals were to maintain safety standards, improve integration between states and Native American tribes, and increase flexibility for oil and gas companies.

The new proposal was in response to the 177,000 comments from the public regarding the first proposal on this issue, all within the 120 day public comment period last fall. The Department said many of these comments were addressed in the new proposal, and that due to the large number of comments, they decided to start with a new proposal rather than amend the old one. (Yes, the former proposal was that flawed).

The Department claimed this latest proposal has three main elements, which are: (1) requiring operators to disclose chemicals they use in fracing on public land; (2) additional well bore integrity assurances to verify that fracing fluids do not contaminate groundwater; and (3) confirmation that oil and gas operators have a water management plan for handling flowback fluids.

A new Texas oil pipeline started shipping condensates from Eagle Ford in May 2013. The new pipeline is owned by Double Eagle Pipeline LLC, a 50-50 joint venture between Magellan Midstream Partners and Kinder Morgan Energy Partners (KMEP). The condensates are coming from Karnes County and Live Oak County in Texas and are being transported via KMEP’s already existing 50 mile pipeline from Three Rivers, where Double Eagle’s new unloading and storage facility is also in operation, and from there to Magellan’s Corpus Christi terminal

Construction is expected to be completed on the new Double Eagle 140 mile long western leg of the pipeline, from Gardendale in LaSalle County to Three Rivers, within the next few months. The expected capacity is 100,000 b/d with a possible maximum of 150,000 with additional pumps. The project costs $150 million, to be shared equally between KMEP and Magellan. Magellan Chairman and Chief Executive Officer Mike Mears said that shipper interest in the Double Eagle pipeline has increased as completion on the new pipeline gets closer. In preparation for these expansions, Magellan improved the terminal at Corpus Christi, including construction of new 50,000 barrel condensate storage and a new dock delivery pipeline.

This is just the latest news in pipeline construction and expansion in Texas, particularly in this oil rich area of southern Texas. Last month, Plains All American Pipeline LP announced it is building a 310 mile Cactus Pipeline from McCarney in Upton County to Gardendale. The estimated cost will be $350-$375 million. The Cactus Pipeline is expected to be functional in 2015 and will have a capacity of 220,000 b/d of sweet and sour crude oil from the Permian Basin. It will connect with the Plains All American-Enterprise Products Partners Eagle Ford Joint Venture Pipeline, which serves Three Rivers and Corpus Christi as well as the Houston area through the Enterprise South Texas Crude Oil Pipeline. This will displace foreign imports of sour crude oil into the Gulf.

A disagreement between groups of states is threatening to spill into a lawsuit over methane emissions regulations. Several northeastern states, including Connecticut, Delaware, Maryland, Massachusetts, New York, Rhode Island and Vermont, are threatening to sue the Environmental Protection Agency (EPA) under the Clean Air Act, trying to force the EPA to reconsider its decision not to impose regulations on methane emissions for oil and natural gas drilling, production and processing facilities.

In response to that threat, Oklahoma Attorney General E. Scott Pruitt wrote a letter to the EPA, joined by Alabama, Arizona, Indiana, Kansas, Montana, Nebraska, North Dakota, Ohio, South Dakota, Texas, West Virginia and Wyoming, calling on the EPA to resist this attempt to force a reconsideration of the methane emissions issue.

Attorney General Pruitt’s letter noted that the New Source Performance Standards (NSPS), pursuant to the Clean Air Act, may be reviewed and revised every eight years and that in the most recent review, the EPA did not chose to regulate the methane emissions at issue here. The EPA decided to review state standards instead. In their attempt to change the EPA’s decision, the northeastern states put forth several arguments, each of which the Attorney General countered in his well reasoned letter.

As many of you are already aware, oil and gas pipelines in Texas and in the United States are being constructed at a record pace. Oil and gas pipeline construction is expected to be up by 73% in 2013. The Pipeline & Gas Journal recently reported that 116,837 miles of pipeline are planned this year worldwide, and almost 42,000 miles of new pipeline are planned for North America alone. Part of the increase in construction is due to shale oil and gas plays, that have resulted in increased production of both oil and natural gas.

I am honored to have been asked to present a telephone conference regarding the basics of oil and gas pipeline negotiation on October 3, 2013. It is basically my version of “Texas Oil & Gas Pipelines 101”. I’m looking forward to it and it should be fun. If you have any interest in attending, you can sign up at the National Business Institute CLE page for this telephone conference, which you can access here.

if you are an attorney, you can get CLE credit for the seminar. However, if you are a landowner faced with a request for a pipeline easement, you may find this informative as well.