How GOP Regulation Cuts Will Affect Oil and Gas

Gas industry giants have muddled through eight years of roadblocks, courtesy of the Obama administration, however the past months’ political upheaval has seen petroleum prospects finally looking a bit less sludgy. In fact, the path to a new black gold era seems to be clearing swiftly, thanks to industry support from a GOP-dominated congress, and a Republican president, both of which are currently shredding through Obama’s red tape like a pair of hyperactive scissors.

 

Before the Trump phenomenon and the GOP power scramble-turned-surge, pandemonium was felt not by the established political order, but petroleum execs, who fed around $300 million per year to hordes of lobbyists in hopes of derailing regulatory momentum. Bret Sumner, O & G lawyer and lobbyist with the Western Energy Alliance, said of his group’s push to break limitations on federal land drilling, “This has been a full-court press to block these rules, from a legal standpoint, a policy standpoint and a political standpoint.” Despite its expensive weaponry, the struggle to deregulate oil and gas won sparse success against Obama’s maneuvering.

 

The days following inauguration witnessed an altogether different outcome. Congressional supremacy again rests firmly with the GOP, who have wasted no time driving forward a new agenda presented by a coalition of oil and gas interests as “A Roadmap to Repeal,” or a list of Obama-era environmental initiatives to be considered for immediate slashing.

 

Rules requiring a more efficient approach to methane emissions, disclosure of foreign transactions with publically offered oil, gas and mining companies, and less debris deposited in streams are among the first Roadmap repeals. More are sure to follow, as the president himself has begun taking executive action against several Roadmap items, including the Dodd-Frank Act, a collection of financial reforms issued by Obama as a response to the 2008 recession.

 

If the new political order has its way, the sweeping rules championed by Obama’s administration won’t for much longer stall expansion of “extractive” industries (oil, gas, mining, etc). Excessive bureaucratic interference done with the blessing of the executive branch was business as usual for O & G under the old guard, but now it seems not entirely unwise to anticipate a return to laissez faire approaches not taken since Reagan. Unwarranted intrusion by Obama’s EPA and Departments of Interior and Energy, such as blocking promised drilling permits without explanation, are no more; maybe now, stability for the O & G sector isn’t such a pipe dream.

 

The Oil and Gas Industry: A Recap of 2016 Events

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To say the least, 2016 has been a tumultuous year for the Oil and Gas (O &G) industry. In truth, market events year have blasted O & G like the pressurized spray of hydraulic fracking drill rips through shale, sending investors, prices and predictive analyses on a whirling, white-rapid roller coaster of a route, eventually ending in a place altogether alien. Yes, the industry has moved on and if 2016 events are any indication, those invested in O & G should accustom themselves to quick, ambiguous shifts as modern energy practice continues its metamorphosis.

 

Any year this memorable begs a recap, so with the following list let’s examine 2016’s major oil and gas happenings, and brace ourselves for the moment when pressure strikes the market again.

 

 

  • Drilling costs took a dive – Costs of installing and operating wells have plummeted, with a significant number of companies reporting a 50% decrease in expenses involved in installing wells throughout 2016’s later months. This price dive owes itself to the industry tradition of consistently innovating new and efficient drilling and rig tech.

 

 

 

  • Expected ultimate recoveries climb – EURs, or predictions for net recoverable product in a given area, flew to new heights this year, subsequently dropping economic barriers for the startup of new drilling projects. Technical tweaks like advanced hydraulic fracking techniques and fine-tuned detection equipment have contributed to this, since workers can now more efficiently target large, concentrated pockets of oil.

 

 

 

  • Oil booms in the Permian Basin – The US Geological Survey estimates that around 20 billion barrels worth of oil flows beneath the Wolfcamp shale play in Texas’s Permian Basin oil region, blowing away previously underwhelming predictions regarding the outlook of US oil supplies.

 

 

 

 

 

 

  • The US is now a net exporter of natural gas –  Discoveries of huge reserves of natural gas hidden in Southwestern US shale plays, as well as the construction of continental pipelines which ship gas to Canada and Mexico, sent LNG (liquefied natural gas) exports rocketing past previous records. The US now exports more natural gas than it imports, a phenom unimaginable even a decade prior.

 

 

 

  • Fracking is absolved of its environmental sins – Inaccurate media reports claiming the EPA had reversed its findings regarding fracking’s non-impact on natural water sources had no bearing on actual EPA findings, which indicated that fracking itself has no widespread impact on the stability and safety of America’s underground water stores.

 

 

With the election of a president who certainly seems to be pro O & G, and the cabinet and congressional powerhouse shaping up much the same, it seems oil production companies which struggled coming into 2016 might at last breathe a sustained sigh of relief as the new year dawns and passes. Or not. Whatever happens, I, for one, am enthusiastic to see how 2017 plays for O & G.

 

Shifting Industry Trends Could Combat Oil and Gas Bust

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It is hardly a secret that the oil and gas industry has been racked with struggles in recent years. Extensive supply and waning demand have borne a global price plummet which blindsided investors and left oil execs itching to seek out innovative and efficient ways to streamline production and heal financial hemorrhages.

Andreas Kleinshimdt, in an article for Siemens, one of the world’s largest energy and engineering companies, states  

The low price of oil is both a challenge and an opportunity for the industry. Well-run oil and gas (O&G) companies that are strong today are likely to emerge even stronger after prices rebound. While the availability of oil fields and the associated equipment is always paramount for them, during a slump they have every reason to also focus on cost-effective production.”

For O & G to optimally shrug off price drops and re-stimulate industrial growth, the industry must adapt to a changing landscape where resource scarcity is no longer an issue and advances in oil production methods mean a one-size-fits-all approach to operational procedure is no longer ideal.

Creating a less centralized and more agile management structure could allow companies to mediate challenges rapidly and efficiently. A loose, informal, team-based management style would take advantage of individual expertise to quickly generate specific, objective-based operational prototypes and quickly respond to issues.

Innovations in digital analytics and monitoring tools are another agent of optimization; digital tech could allow companies to act proactively to avoid profit pitfalls such as machinery breakdown and dwindling reservoirs. According to projections by Mckinsey and Company, applying digital technologies to the oil and gas sector could cut capital expenses by as much as 20%.

Digitized resource management could bring an as yet unprecedented level of transparency into oil and gas operational processes, providing data which boosts the accuracy of predictive models and increases workforce efficiency. In addition, replacing manned labor with automated manual processes would limit instances of human error and dispel potential safety catastrophes.

For years, analytics have been employed in retail and other sectors to gauge consumer habits and gain clarity into market trends. As digital practices continue their leak into the oil industry, oil companies can expect a better view into oil and gas consumption trends, facilitating contingencies for or even preventing unexpected price fluctuation.

Digital tech’s potential to ease efficiency and revolutionize operational methods within the oil and gas sector should not be ignored. Nor should analytic practices and decentralized, objective based management, as all have proven themselves a boon when applied in numerous industries, and there is no reason that oil and gas should not expect to gain from making good use of them.

Pirates Posing a Threat to Oil and Gas

Pirates may seem like an issue of the past, but in some parts of the world, they’re still a very real threat to ships, especially those carrying valuable cargo like oil and gas. Because oil tankers are traditionally older, larger ships, they don’t have the speed like the smaller speedboats of the pirates do. They also don’t often carry weapons, whereas pirates will board ships with machetes and guns, then incapacitate the crew so they can have easy access to the oil. Not only does the piracy of tankers harm the oil and gas industry, it harms the lives of those who work on these ships and also the people and environment around where the ships travel.

Recent news

The biggest hotspot of pirate attacks against oil tankers occurs in the South China Sea. Many tankers travel in this area, shipping oil amongst the hundreds of islands. Due to the high density of waterways and islands, pirates have taken advantage of these conditions. Sophisticated organizations have been established and grown much longer, so they can plan elaborate attacks, often multiple times in a week, against oil tankers, taking millions of dollars over a few attacks.

It’s possible that the pirates began as simple fishermen in the area who were driven by desperation to make some quick money. Unfortunately, highjacking these oil ships is incredibly lucrative, so a huge organized crime system has developed around it, pushing more and more people to turn to piracy in exchange for the rewards it offers.

The South China Sea also isn’t the only location where oil tankers are targeted. In the waters around Africa and even the Red Sea, pirates attack tankers and make off with the oil barrels, usually boarding the ship, typing up or killing the crew, then transporting the barrels onto another boat. The media has pulled back on reporting these incidents of piracy, but experts warn that it continues at a high rate and transporters should not become complacent and let their guards down.

Issues

Various issues exist with this oil tanker piracy, including the monetary loss of the oil stolen. Along the Somali coast, hundreds of attacks occur, which cost the oil and gas industry upwards of $1 billion. There’s also the threat to human life, primarily that of the crew, who are often held at gunpoint once the pirates board their ships and then left to drift around in the ocean after their communications are destroyed – if they’re lucky. Some crews are simply killed. There’s also the threat of the ship crashing into land or another boat if no one is left to safely navigate it. A possibility of a spill exists as well, if inexperienced pirates are transporting large amounts of oil, or leaving oil on an abandoned ship.

Fracking and Local Economies

 

Tony Vanetik Fracking

Despite having its roots in US energy production dating back to the early 1900s, fracking has long been looked at as an unconventional and perhaps temporary means of producing natural gas and oil within the United States.

I’ve written in the past on TonyVanetik.com about how fracking was conceived and how the process actually plays out, disspelling some of the fears around the process of collecting oil and gas within the United States. For at least 65 years, it has been used in a commercial capacity, helping to reduce the United States’ dependence on foreign oils and spur on the surge in domestic energy production. While the process does present environmental concerns when done at enormously high volumes, fracking has allowed for tremendous increases in US energy, revolutionizing the energy industry as a whole.

Fracking has reduced the cost of energy production hugely across the nation–the so called fracking revolution has caused gas prices to drop by about 47% according to Brookings. Fracking wells as a whole produced the good majority of US natural gas across the nation–two third according to the Energy Information Association.

In short, the fracking boom has hugely influenced the US economy and energy production. Few people will debate the large-scale economic benefits of increasing nationwide fracking, environmental concerns aside. But how does fracking affect local economies?

Even in scenarios in which the national economy is bouncing back or doing well at large, there are always struggling local economies. Without a booming populous or a bustling business center, some small cities and towns struggle to keep themselves afloat. Fracking, though, in areas in which shale is a valuable resource, can be the answer.

According to two Duke energy experts who studied the matter, fracking’s local benefits are enormous and unparalleled. The local government in Weld County, home to the largest shale deposit in Colorado, has brought in $110 million in property tax revenue since the shale boom. This money, combined with severance tax allocations from the government has allowed Weld County to put millions back into the school system, strengthen the police and local businesses, and rebuild roads within the county.

Weld County isn’t an exception either, similar benefits in local economies have been recognized almost universally where fracking is found. With the continued pressure to strive for energy independence within the United States, fracking is likely here to stay, much to the benefit of the economy at both the micro and macro levels.

Will the US Ever Achieve Energy Independence?

Depending largely on who you believe, where you’re getting your information and what you’d like to hear, the United States could be on the verge of turning completely energy independent in the near future. Or, on the other hand, it could not.

It seems as though every week a new article pops up online either detailing why the US will be energy independent in the next few years, then later claiming it’s a bit further from that, then claiming it will never happen, then claiming that it may, in fact, happen. This is because, in the most straightforward of terms, no one really knows.

The Case for Independence 

I’ve touched on the potential for America’s energy independence briefly in the past on my blog here.

The price volatility of oil has had an enormous impact on the state of the United States economy. The less we have to rely on foreign nations (primarily in the Middle East) for their oil production, the more stable our own economy can grow, further utilizing the energy sources domestically. Additionally, energy independence would theoretically solve issues regarding national security and the military. While 100 percent energy independence is quite the task, moving towards independence even short of the 100 percent metric is important nonetheless.

“For the U.S. to have more options and be more independent, it reduces our national security vulnerability and makes more oil available to the rest of the world, which enhances geopolitical stability to the rest of the world,” said Mike Ming, Oklahoma Energy Secretary.

With the oil and fracking booms that the United States has seen explode in recent years, our dependence on foreign oil is dropping drastically. Oil imports have shrunk from 61 percent in 2005 to about 28 percent in 2015. Some suggest that that number could push single-digits within the next few years. In April of 2015, some experts forecasted that the US could be independent as soon as 2019; while that may seem like a far cry from where we sit now, additional vehicles of independence, like solar power and wind power are champing at the bit to become the US’s new source of energy.

Why It May Not Happen

Some, including The Street and The Atlantic, do not see energy independence in America’s future at all. The big player in this train of thought is simple: the price of American energy. While the US is one of the three biggest oil producers in the world, we are also one of the more expensive. While Middle East OPEC countries continue to produce oil at cheaper prices, the US is wise to remain oil dependent for at least the foreseeable future. The oil market is, simply put, not stable enough for America to ever comfortable fall into complete energy independence. As one of the largest users of oil in the world as well, the US needs to first examine its usage and where that can be cut back before we can set sights on energy independence.

 

 

Economy Woes, Oil Companies Go On Auction Blocks

Right now, the oil industry is enduring on of its weakest prolonged periods in recent memory. With the emergence of fracking and easier, cheaper extraction of natural gases throughout the United States, oil producers have their hands tied with how to handle the situation. With limited access to capital, many producers are being forced to sell assets or, in some cases, sell the business.

The number of mergers and acquisitions is up hugely this year, far outpacing what we’ve expected to see in the past, though the bulk of this comes from the purchase of Canadian Oil for over $8 billion.

How Tech is Changing Oil and Gas

No one in their right mind would dare say that technology hasn’t changed the way we’ve lived in recent years. Everything around us, from the homes we live in to the watches on our wrists, have been profoundly affected by technological advances. Even the cars we drive have found themselves with new pieces of tech both inside and out, changing everything from our navigation systems to the fuel efficiency of cars both large and compact.

The fuel efficiency of our cars has been rising for years, according to the Washington Post, the cars we drive now are more fuel-efficient than they ever have been previously. Some have reached the point of not needing fuel at all, as electric vehicles have begun to become more and more common on the roads around us.

And that could lead to an oil crisis, at least according to Bloomberg. With battery prices dropping seemingly every year, and new scientific advances leading to more advanced battery technology, electric vehicles (EVs) are primed to begin making the transition from high-end luxury purchase to something that just about everyone can afford, regardless of status.

“By 2040, long-range electric cars will cost less than $22,000 (in today’s dollars), according to the projections. Thirty-five percent of new cars worldwide will have a plug,” says Bloomberg.

Whether or not EVs actually cause the need for oil to drop enough to cause a crisis similar to the one we experience in 2014 is yet to be determined. It will largely depend on how low (or high) prices remain in the next few decades when electric vehicles insert their way into the market for more and more people. Low prices, combined with the need for developing countries to continuously depend on foreign oil could have a considerable impact on the prediction that Bloomberg made.

Technology, though, isn’t worth paying attention to simply due to electric cars for oil and gas. As new technologies are developed that wind up lessening our dependence on oil, new technologies also emerge that increase oil and gas outputs more efficiently. Fracking, for example, has caused the price of US natural gas, which has historically been similar to oil, to plummet as the means of gathering it become easier.

 

What Affects Gas Prices?

According to the Los Angeles Times, there are approximately 253 million cars and trucks motoring down highways, coasting through scenic country roads, and experiencing the frustration of stop and go city traffic across the United States. Recent census data indicates there are about 242 million adults in the United States right now, meaning there are about 1.05 cars per adult in the US. That means, if you’re reading this, there’s a good chance you drive fairly regularly, and a good chance that you, like so many others, monitor gas prices.

 

Most people seem to keep a fairly cursory watch over world happenings when it comes to things like the price of crude oil. Few people who live outside of the world of economics, government or politics keep close tabs on OPEC or oil reserves and limits. What many do follow, quite stringently in fact, is the price of gasoline around them.

 

Current prices, just about $2.12 per gallon nationally, is the lowest prices have fallen in inflation-adjusted dollars since about 2002. While state to state prices differ greatly–from about $2.734 per gallon in Hawaii to $1.821 in South Carolina–the national average remains at one of the lowest prices we’ve seen in decades.

 

So who or what is to blame (or thank, perhaps) for low gas prices around the country? Many people look solely at the price of crude oil per barrel when determining the price of gasoline, though this doesn’t paint an entirely accurate picture. Oil is currently hovering around $42-$45 a barrel, though that’s not the only determiner for the prices of gasoline in America.

 

In recent years, the price of crude oil has actually had less of an impact on the price of gasoline as it has in the past according to the Energy Information Agency. Distribution and marketing costs, the costs of refining that oil, and taxes have all began contributing more to the price of gasoline in the last year as crude oil prices have become less impactful.

 

Another portion of the gas prices comes from our consumption, which is up this year, and threatens to break the all-time single year consumption record. This is the same reason that we also see gas prices rise during the summer: with the warm months comes more road trips, more driving, and more demand for gasoline. Simple supply and demand denotes that, with larger demand for gas by US drivers would come an accompanying rise in prices if the supply doesn’t increase at a comparable rate.

 

Carbon Emissions and Climate Change

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For a long, long time, it was the one thing on the mind of almost everyone across the country–and the world–almost endlessly. It spawned feature-length documentaries, endless scientific studies and debate after debate. The hole in the ozone was the paramount concern of environmentalists everywhere for years. And now the concern has seemingly disappeared as the hole is headed in a better direction thanks to huge action on the part of nations all over the world. Now, how will action taken to combat climate change affect the Earth?

 

The so called fracking boom in the United States has slowed as oil prices have dropped. In February of this year, it was reported that the number of natural gas rigs in the US has been dropping steadily for quite some time now. It’s been well-established by studies and backed by President Obama that natural gas has a smaller negative impact on our environment than oil and coal. So when the fracking boom reached its height, murmurs of the US’s energy independence began to grow louder. Talks of the relationship between less foreign dependence and lower carbon emissions have been abound, spurring headlines speaking to the possibility of imminent US energy independence.

 

But recent studies have indicated that mitigating climate change may not be quite as simple as gaining energy independence from other countries.

 

The study, published on June 7th from the Universiteit van Amsterdam is titled in fairly conclusive language, “Pursuing energy independence will hardly mitigate climate change.” According to Bob van der Zwaan, who is cited in the study, “This study refutes the idea that a policy focusing on energy independence more or less automatically results in sufficient reduction of greenhouse gases.”

 

The key, according to van der Zwaan, a professor of Sustainable Energy Technology at Universiteit van Amsterdam is reducing emissions as a whole. “In planning future energy systems, countries can best focus on technology that contributes to both emissions reductions and energy independence, although the emphasis should always be on technology lowering humankind’s carbon footprint.’”

 

In order to enact the level of change we saw with the ozone layer’s seeming reversal of fate a decade or so ago, larger-scale change will be necessary, more directly related to renewable energy. Natural gas, despite being better for the environment (perhaps “less bad” would be a better way of putting it) is still at its core a nonrenewable energy source. So while the US may lead all nations on Earth in terms of its natural gas usage, the nation ranks 10th in terms of renewable energy use.

 

The 14 percent of electricity that was generated by renewable sources in 2014 pales in comparison to countries like Scotland or Costa Rica whose 97 and 99 percent renewable sources rank them numbers three and two in the world. Sweden recently became the first fossil fuel independent nation recently, setting the bar high for the US.

 

Political leaders tend to be torn on the subject. Typically, those on the right tend to lean towards a reliance on fossil fuels, considering green energy to be a waste of time, money and effort on our behalf. Those on the left, in contrast, often put a higher priority in switching from fossil fuels to natural gas, then to completely green and renewable energy. Few from either side of the political spectrum, however, have concrete plans as to how our reliance on their energy-source of choice will be implemented, and how it will affect our planet.