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DEPA BLOG
  • 16
    February

    Studies Predict Increase In Activity

    By Alex Mills


    Several studies by economists, financial institutions, and the leaders in the oil and gas industry anticipate a much better business environment for the oil and gas industry in 2017. 

    The oil and gas industry in Texas ended a punishing 24-month-long economic contraction in December, according to Karr Ingham, a petroleum economist who issues the Texas Petro Index (TPI) monthly.    He said the TPI increased in December for the first time since peaking at a record high in November 2014.

    Ingham noted that the rise in crude oil and natural gas wellhead prices were key factors.

    Monthly average posted crude oil prices in Texas fell from $101.68 per barrel ($/bbl) in June 2014 to $27.08/bbl in February 2016, a decline of 73 percent, but recovered to a little above $50 in December.

    The average monthly price of natural gas fell from more than $4.50 per thousand cubic feet ($/Mcf) in June 2014 to a $1.63/Mcf in March 2016, a decline of 64 percent.  Natural gas prices recovered to average $3.46 in December.

    Ingham also noted that other economic indicators, such as the drilling rig count and drilling permits issued, increased during 2016.

    The national accounting and consulting firm Deloitte released a survey of industry professionals that found six in 10 believe the recovery has started.

    A majority of those surveyed expect oil prices to reach $60-$80 per barrel, prompting more investments in exploration and production.

    Companies will spend 2.5 percent more on capital expenditure this year than they did in 2017, the first yearly growth in such spending since 2014, BMI Research reported.

    Spending will increase to a total of $455 billion in 2017 from $444 billion this year, BMI said, but will be well below the $724 billion spent in 2014.

    Another report from Thomas McNulty, a director in the valuations and financial risk management practice at Navigant, reveals large private-equity investors are falling back in favor with the beaten-down energy sector. They moved to the sidelines of energy-related corporate debt as crude oil prices fell. These days, however, they're doing the due diligence that precedes making big deals on the sector's continued recovery, according to McNulty.

    According to the Energy Information Administration (EIA), U.S. crude oil production is forecast to increase from an average of 8.9 million barrels per day (b/d) in 2016 to an average of 9.3 million b/d in 2018, primarily as a result of gains in the major U.S. tight oil-producing states: Texas, North Dakota, Oklahoma, and New Mexico. Production in Texas, the largest oil-producing state, is driven by two major oil-producing regions, the Permian and the Eagle Ford.

    The electricity industry is planning to increase natural gas-fired generating capacity by 11.2 gigawatts (GW) in 2017 and 25.4 GW in 2018, based on information reported to EIA. If these plants come online as planned, annual net additions in natural gas capacity would be at their highest levels since 2005. On a combined basis, these 2017–18 additions would increase natural gas capacity by 8% from the capacity existing at the end of 2016. Depending on the timing and utilization of these plants, the new additions could help natural gas maintain its status as the primary energy source for power generation, even if natural gas prices rise moderately.

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    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

  • 09
    February

    Global Warming Debate Heats Up

    By Alex Mills


    The global warming debate got even hotter last week when Dr. John Bates, an award-winning retired National Oceanic and Atmospheric Administration (NOAA) scientist questioned the validity and preservation of data collected by the NOAA, causing Congressman Lamar Smith (R-Tx.), Chairman of the U.S. House Science, Space, and Technology Committee to remark during a Feb. 6 hearing that “EPA has pursued a political agenda—not a scientific one.” 

    Chairman Smith added that EPA had “relied on questionable science,” leading to “expensive and ineffective regulations.”

    A few days before the Congressional hearing, Dr. Bates wrote a paper criticizing both the procedures used during an NOAA temperature study and one of the people who conducted that study.

    The study, conducted by Tom Karl et al. in 2015 (K15), attempted to disprove the results of previous studies conducted by United Nations (UN) scientists. The UN studies showed an unexplained “hiatus” in global warming from 1998-2013; K15 attempted to counter those studies and prove there never was any “pause” in global warming. Consequently, the K15 study earned the moniker, “Pausebuster Paper”.

    The “pause” UN scientists observed in global warming had puzzled climate scientists for years because as temperatures remained steady, emissions continued to rise, leading some to question exactly how much influence manmade emissions have on Earth’s climate.

    Bates said Karl “failed to disclose critical information” to NOAA, and that “The land temperature dataset used in the K15 study had never been processed through the station adjustment software before, which led me to believe something was amiss.”

    Bates, whose “visionary work in the acquisition, production, and preservation of climate data records” earned him a U.S. Department of Commerce Gold Medal, was “dumbstruck that Tom Karl, the NCEI Director in charge of NOAA’s climate data archive, would not follow the policy of his own agency, nor the guidelines in Science magazine for dataset archival and documentation.”

    Bates also revealed that Karl “worked the co-authors, most subtly but sometimes not, pushing choices to emphasize warming,” and that “Gradually, in the months after K15 came out, the evidence kept mounting that Tom Karl constantly had his ‘thumb on the scale’ […] in an effort to discredit the notion of the global warming hiatus, and rushed to time the publication of the paper to influence […] deliberations on climate policy.”

    K15 was published just before the release of EPA’s Clean Power Plan, and before the adoption of the Paris climate agreement.

    As questions about the data’s validity arose, computer “software problems” began: “All software has errors, and it is not surprising there were some, but the magnitude of the problem was significant and a rigorous process of software improvement like the one proposed was needed,” Bates wrote. “However, this effort was just beginning when the K15 paper was submitted, and so K15 must have used data with some experimental processing [that had] known flaws.”

    “I later learned that the computer used to process the software had suffered a complete failure, leading to a tongue-in-cheek joke by some who had worked on it that the failure was deliberate to ensure the result could never be replicated,” Bates wrote.

    Bates’s disclosures give yet another example of questionable actions by people at the center of the global warming debate. In 2009, thousands of leaked emails were released that indicated scientists were manipulating data to conceal inaccuracies in an effort to support their global warming theory, a scandal that later became known as “Climategate.”

    Chairman Smith issued subpoenas demanding data relevant to the “Pausebuster Paper”, including internal emails, but NOAA refused to comply.

    Dr. Bates said he decided to speak out after reading comments from scientists who said they feared the Trump administration would fail to maintain and preserve NOAA’s climate records.

    “I read with great irony recently that scientists are ‘frantically copying U.S. climate data’, fearing it might vanish under Trump,” Bates wrote, stating, “The most serious example of a climate scientist not archiving or documenting a critical climate dataset was the K15 study.”

     
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    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.
  • 02
    February

    Russian Propaganda Machine Attacks U.S. Oil Industry

    By Alex Mills


    A recent U.S. intelligence report re-confirmed several other studies that the Russian government has an ongoing program to limit oil and natural gas production in the U.S.

    Those finding are documented in an analysis released Jan. 6 by the Office of the Director of National Intelligence, which includes information from the Central Intelligence Agency (CIA), Federal Bureau of Investigation (FBI), and the National Security Agency (NSA).

    The focus of the report centered on the presidential election between Donald Trump and Hillary Clinton.  The report discloses the use of cyber tools and media campaigns to influence public opinion and undermine public faith in the U.S.

    “We assess with high confidence that Russian President Vladimir Putin ordered an influence campaign in 2016 aimed at the U.S. presidential election, the consistent goals of which were to undermine public faith in the U.S. democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency,” the report stated.

    Even though the report centered on the election, it also stated that the Russian government has been trying to undermine the oil and gas industry, too.

    The report stated the Russian propaganda highlighted U.S. environmental issues involved in the debate on hydraulic fracturing and infrastructure development, such as pipelines. 

    “This is likely reflective of the Russian Government’s concern about the impact of fracking and U.S. natural gas production on the global energy market and the potential challenges to Gazprom’s profitability,” the report stated.  Gazprom is an oil and gas company owned by the Russian government, and it is a monopoly.

    Russia is a major exporter of crude oil and natural gas.  It relies heavily on revenues from oil and gas exports.  Increased production in the U.S. has increased competition for oil and gas internationally.  It has affected the price of both commodities.

    If Russia could create a movement against hydraulic fracturing, it might have a negative impact on U.S. production, which would reduce some competition and possible increase price.

    Russia's government-funded international media outlet, RT, "the Kremlin's principal international propaganda outlet," has attacked the environmental integrity of hydraulic fracturing in a report that interviewed environmental activists in the U.S. and abroad in an effort to build public opposition and government bans on hydraulic fracturing.

    Newsweek published on Jan. 29 a story by Drew Johnson, senior fellow at the Taxpayers Protection Alliance, which stated in 2014, intelligence information led then-NATO secretary general Anders Fogh Rasmussen to conclude that Moscow conspired with environmental groups to block fracking activities in Romania, Lithuania and Bulgaria.  "Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called non-governmental organizations -- environmental organizations working against shale gas -- to maintain dependence on imported Russian gas," said Rasmussen.  

    Johnson reported that a U.S. Senate report found the Sea Change Foundation funneled more than $43 million to environmental causes in 2011.  He said the Foundation is heavily funded by a Bermuda-based shell corporation with direct ties to Putin and Russian oil interests.

    The revelation that Russia wants to limit oil and gas production and exports from the U.S. is not new.  There have been numerous reports in recent years linking the Kremlin to propaganda campaigns and the funding of environmental groups, attempting to restrict energy development in the U.S.

    However, the energy renaissance continues even after years of low commodity prices, massive layoffs, and attacks from environmental groups.

    The battles continue.  The legislative director of the Sierra Club, one of the many environmental groups dedicated to limiting oil and gas production, said: "We're preparing for the fight of our lives.”

    Yes, many people see this battle as a fight for their lives, but Russia does not have America’s best interest at heart.
     
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    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.
  • 26
    January

    New Policies Aimed At Increasing Economy, Energy Independence


    Anyone who had a connection to the oil and gas industry felt the power of federal bureaucracy during the eight year Barack Obama governed the nation from the White House.  The industry, however, did not know magnitude of all of the new federal regulations until last week when House Majority Leader Kevin McCarthy of California wrote in the Washington Post that the Federal Register, where all new regulations are published, hit 97,110 pages in 2016 alone.

    “Washington’s many agencies, bureaus, and departments propagate rules that weigh down businesses, destroy jobs, and limit American freedoms,” McCarthy wrote. “Career bureaucrats who never face the voters wield punishing authority with little to no accountability. If there’s a swamp in Washington, this is it.”

    McCarthy said federal regulations cost the American people about $1.89 trillion every year, according to the Competitive Enterprise Institute. “That’s more than 10% of GDP, or roughly $15,000 per American household.”

    He said the House of Representatives has a plan “to strip power from the bureaucracy and give it back to the people.”

    The House already has passed the Regulations From the Executive in Need of Scrutiny (REINS) Act, which would require congressional approval before new regulations that cost at least $100 million can become law, and the Regulatory Accountability Act, which would require agencies to choose the least-costly option available to accomplish their goals. That bill would also prohibit large rules from going into effect while they are being challenged in court. Further, it would end the “Chevron deference,” a doctrine that stacks the legal system in favor of the bureaucracy by directing judges to defer to an agency’s interpretation of its own rules.

    Also, the House next week will begin repealing specific regulations using the Congressional Review Act, which allows a majority in the House and Senate to overturn any rules finalized in the past 60 legislative days, McCarthy wrote.

    “Perhaps no aspect of America’s economy has been as overregulated as energy,” he noted in the column.  “So the House will repeal the Interior Department’s Stream Protection Rule, which could destroy tens of thousands of mining jobs and put up to 64% of the country’s coal reserves off limits, according to the National Mining Association.

    “Likewise, the Obama administration moved at the 11th hour to limit the oil-and-gas industry through a new methane regulation. It could cost up to $1 billion by 2025, the American Petroleum Institute estimates, even though the industry is already subject to the Clean Air Act and has leveraged technological advances to dramatically reduce methane emissions. The additional regulation would force small and struggling operations—in the West in particular—to close up shop, which is why it will be one of the first to go.”

    The House will also take the axe to the Securities and Exchange Commission’s disclosure rule for resource extraction, which adds an unreasonable compliance burden on American energy companies that isn’t applied to their foreign competitors, he said. This rule, which closely mimics a regulation already struck down by the courts, would put American businesses at a competitive disadvantage.

    President Trump delivered on a campaign promise in his first full day in the White House on Jan. 23 by directing the State Department to begin a re-examination of approving the Keystone XL Pipeline, which will transport crude oil from Canada to the Gulf Coast.  He also implemented action to get the Dakota Access pipeline completed in North Dakota, where protesters have blocked further construction.

    The actions of the president and the House are clear signals that the energy and economic policies of the nation are headed in a new, pro-growth era designed to increase employment and bolster energy independence.
     
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    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.
  • 19
    January

    Pruitt Believes EPA Has ‘A Very Important Role’

    By Alex Mills


    Scott Pruitt, Donald Trump's choice to lead the Environmental Protection Agency (EPA), faced Republican and Democratic members of the Senate Environment and Public Works Committee on Jan. 18 during his confirmation hearing.

    Democrats explored his record as Oklahoma’s Attorney General trying to create some sort of problem with his relationship with the oil and gas industry and Pruitt’s lawsuits against former President Obama’s federal regulatory agencies, including EPA, Fish and Wildlife Service, Department of Interior, and others.


    Actually, Pruitt had little official oversight of the oil and gas industry as Attorney General

    Several Democrats criticized Pruitt for sending a letter in 2011 to EPA stating problems he saw with its proposed methane rule.  They alleged the letter appeared to closely resemble a similar letter from Devon Energy Corp., an oil and gas company based in Oklahoma City.

    "It was sent not on behalf of one company," Pruitt said. "It was sent on behalf of industry."

    The oil and gas industry worked with Pruitt and other attorney generals from Texas and some 30 other states in several cases challenging federal overreach that infringes on states’ rights.

    One such case was a lawsuit filed by Pruitt and the Domestic Energy Producers Alliance, which included the Texas Alliance of Energy Producers, in 2014 against the Department of Interior and Fish and Wildlife Service regarding a practice known as “sue and settle.”

    “Sue and settle” was a game regulators within the Obama administration played with environmental groups, who would bring legal action against a federal agency to enforce a regulation by a specific deadline.  The agency frequently would miss the deadline and the environmental groups and the agency would then work out an agreement behind closed doors.  A draft consent decree or settlement agreement would be lodged with the court.  The court finalizes the decree or agreement.  In many cases, the environmental group was awarded funds from the federal agency to pay their legal fees.

    Pruitt stated in the petition “sue and settle” violated the 5th Amendment of the Constitution, the Endangered Species Act, and the Administrative Procedures Act.

    The process is also described in a 49-page study conducted by the U.S. Chamber of Commerce in 2013 that outlined settled agreements involving the Clean Air Act, Clean Water Act, and the Endangered Species Act.

    Pruitt’s actions focused on the close relationship between federal regulators and environmental groups, which circumvented the rights of other citizens to participate in the process.  Before the aggressive behavior and overreach of the Obama regulatory machine, states seldom brought legal action against the federal government.

    However, President Obama decided he would use the power of the executive order and regulatory process to achieve the changes he desired, because working through the legislative process took too much time and effort.  The only remedy the states had was legal action.

    Pruitt told the committee he did not believe climate change is a hoax, but the amount of human involvement is subject to debate.

    Pruitt’s opponents have alleged that he is a climate denier because he has participated in many lawsuits against federal agencies, and some involved the EPA.  However, Pruitt believes in the rule of law and states’ rights.

    Pruitt said he believes that states and federal agencies should partner together to protect the environment.  He said the EPA has a “very important role.”

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    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.