OIl and Gas

As promised, this is the next installment on trying to understand the sources of what I call “oil and gas industry hate”. There’s a relentless campaign in some quarters to publish stories about how bad the oil and gas industry is- it seems like several times a week. “Big oil” makes a nice target, but of course reasonable people might ask “what is small oil and what about those people and companies?” What about Teresa, the propane dealer, who has a fund for people who can’t pay their bills, and her workers? Or is it just extraction that produces the hate and moral judgment, and the rest of us can just use their products, and kick back in a hot tub of whirling moral rectitude?

Another thing that interests me about this topic is that we had/have a minor version of hate in some quarters (Oregon?)with the forest products industry. Similarly, the mining industry. But even the mining industry, including uranium, does not seem to release the 3Vs.. vituperous, vehement, vitriol in the public sphere that the oil and gas industry does. We could study this question by looking at the frequency of negative articles in various outlets.

Why is hate bad? You can perhaps argue that this isn’t hate, and that’s certainly worthy of discussion. Perhaps it’s really “righteous anger at a group.” Or something different.

I’ll start with the Buddha: “holding onto anger is like drinking poison and expecting the other person to die.” Buddha was making the point that it’s not good for us as human beings in general.
Of course, I’m more of a pragmatist, so I’ll move on to this Rob Bell podcast (Rob is certainly not everyone’s cup of tea, but he made the point) idea that when someone angers you or you think they are wrong, use that energy to build something positive. Maybe talking about negative energy seems woo-woo to you, but if we’re going to go about moralizing and hating, then perhaps it’s time to reflect on wisdom of the ages, and what our ancestors had to say about moralizing and hating.

With all the words of all the university folks and media spinning by our heads about how simple and cheap the transition will be.. we can look out our windows and see combines and snowplows and transportation supply chains that depend on oil and gas right now. They won’t be carbon free until a) someone develops the technology and b) farmers and counties can afford to switch. So are we planning on hating on our neighbors.. oil and gas workers..until then? That will probably be fine for them, as “hated industry” folks tend to build psychic barriers to hate. But what are we doing to ourselves if we do? “What are you planning to do for the next 20 years, Vijay?” “Oh, I’m planning on spending my time castigating the oil and gas industry.” “But don’t you need to follow what they are doing? That’s a lot of work. All those companies.. all those metrics.” “No, I’m just going to follow a media outlet and they will tell me precisely how much anger and outrage I need to have.”

And to channel Rob Bell, what if we focused on sending positive energy, money and media coverage to those working on alternatives?

Ah, but Big Oil is bad so it’s OK to hate on them. But do institutions really possess their own morality? And do we have ground rules for when the past has tainted the institution sufficiently that we need to keep bringing it up? This Guardian article is a good example. It basically describes industry efforts to question the science behind climate change.. the article talks mostly about the 1980’s. There are two problems with this line of reasoning (they’re bad because they used to be bad and they haven’t changed), in my view.

The first is that they are blaming current executives, employees, investors, and other members of the corporate ecosystem for the sins of the past. Human beings have moral failings, and institutions are composed of human beings.. which.. change over time. If we’re in the business of institutional stone-casting, then, who among us? Certainly not the US Government, nor the Catholic Church, nor other industries (just think of alcohol, marijuana, sugar, media and the tech industry). None of these have clean records. The energies definitely have a scape-goaty feel to them.

The second is that it absolves everyone else of blame or “accountability”. Like, for example, the people who dreamed up cap and trade, a white collar solution (or neoliberal or whatever) for what I would frame as essentially an engineering problem (decarbonizing). And right after the meltdown of the financial industry? Of course, we should trust those people with the environment, they did so well with the economy- not. So perhaps other institutions bear their share of the blame for betting on a losing horse. Easier to predict than the climate in 30 years is the fact that the system was prone to gaming of various kinds including the known fact that forests burn up. Did people not know this..? And so we have articles like “forest offsets don’t actually help the environment” like this story in HCN. Thank goodness for federalism and for California, so that we can all watch their efforts to decarbonize and learn what paths work best. Or (some key) folks decided to ignore the Hartwell Paper. As a pragmatist, I always liked their language

accepting that decarbonisation will only be achieved successfully as a benefit contingent upon other goals which are politically attractive and relentlessly pragmatic.

I’m just a federal retiree with a WordPress account, but I’d like to see less stone-throwing, and more joint fact-finding and learning together about what works and doesn’t. I think we could do with less moralizing and more “relentless pragmatism.”

Many critiques involve oil and gas companies having well-paid executives.. well, every corporation does that, at least to some extent, including ones who run media outlets and internet apps and so forth. Not to speak of college athletic coaches, and celebrities.. that’s a much broader convo. As to influencing the government, the story is the same. I’m reminded of certain outdoor recreation interests (who depend on oil and gas products, of course) moving their trade show to Denver from Salt Lake City because of their views of the elected officials of Utah (they have since moved back). Personally, I think we should have special compassion for Utah because many people from a religious minority live there.. one that was persecuted by our own federal government. In all the coverage of the moves back and forth, though, I didn’t hear a critique of corporations trying to influence elected officials. So who is holding the bullhorn of rectitude and why do they point it at certain targets and not at others? That seems to be a key question.

When folks say “it’s morally wrong for you to do it, but it’s fine for me to do it”, we have a word for that- hypocrisy- which is also a moral judgment. But again, I’m a pragmatist so the problem with it for me is not morality. It’s simply that when you do it so obviously, people don’t trust you. Because as my wise forest economist friend once told me “you need to watch what people do, not what they say.” Lack of trust is the natural consequence of hypocrisy and lack of trust is ultimately a poison to our democracy. IMHO.

It’s surprisingly busy news day today, as many folks have vacations and religious holidays this weekend.  I thought we might want to take a look at this Interior announcement and guess how different groups will weigh in.

And of course, we’ll need some help from TSWites familiar with the issues to interpret it.

I guess the Biden Admin has a somewhat bifurcated attitude toward oil and gas folks.. “you shouldn’t produce”.and .”you should produce more.”  It seems like no matter what they do, they are wrong. It doesn’t actually seem like a rational policy, at least to me.

For too long, the federal oil and gas leasing programs have prioritized the wants of extractive industries above local communities, the natural environment, the impact on our air and water, the needs of Tribal Nations, and, moreover, other uses of our shared public lands.

This is an interesting statement since both Tribal leaders at the Interior Oil and Gas Leasing Public Forum (as I reported here) said they wanted “all of the above” energy strategies. It’s also somewhat ironic, as renewable energy infrastructure also may be also prioritized above the wants of these same folks. I get it ..the Admin doesn’t like the industry. And doesn’t believe that their dislike should influence investment decisions. Well, OK, then.

Note that these leases are released because a court ordered the Biden Admin to do so; they can’t just stop issuing them, despite hopeful (but questioned at the time) campaign promises.

On Monday, the BLM will issue final environmental assessments and sale notices for upcoming oil and gas lease sales that reflect this strategic approach. The lease sales will incorporate many of the recommendations in the Department’s report, including ensuring Tribal consultation and broad community input, reliance of the best available science including analysis of GHG emissions, and a first-ever increase in the royalty rate for new competitive leases to 18.75 percent, to ensure fair return for the American taxpayer and on par with rates charged by states and private landowners.

The BLM’s sale notices reflect the Interior Secretary’s broad authority to determine lands that are eligible and available for leasing. This pragmatic approach focuses leasing on parcels near existing development and infrastructure, such as gathering lines that can help reduce venting and flaring, and will help conserve the resilience of intact public lands and functioning ecosystems. The BLM has prioritized avoiding important wildlife habitat and migration corridors and sensitive cultural areas. As a part of its environmental analysis, the agency disclosed GHG emissions and the social cost of GHG emissions, which provided important context for the agency’s decision-making.

The BLM assessed potentially available and eligible acreage in Alabama, Colorado, Montana, Nevada, New Mexico, North Dakota, Oklahoma, Utah and Wyoming. It began analyzing 646 parcels on roughly 733,000 acres that had been previously nominated for leasing by energy companies. As a result of robust environmental review, engagement with Tribes and communities, and prioritizing the American people’s broad interests in public lands, the final sale notices will offer approximately 173 parcels on roughly 144,000 acres, an 80 percent reduction from the acreage originally nominated.

I wonder .. (1) how did the social cost of carbon and emissions “provide important context”? Will some leases emit less carbon that others?

(2) It seems like they’re controversial (to say the least) among folks that were promised no new leases. But they are all EAs.. so again, what makes something controversial? Will folks litigate them, and they will have to go back and do EIS’s and tell the judge who thinks they should be leasing that they’ve tried, but they’re tied up in court?

(3) Can Interior pick royalty rates for each lease sale? Because it seems like that could go either way, a future Admin could lower them. It just seems like it should be perhaps a rulemaking kind of thing (with some of the other improvements in the report). But I’m not familiar with the legalities.

I suppose folks who are against onshore leasing will have to decide if the Admin picked a good way to honor the legal decision and also protect the environment, or they’re going to argue that they didn’t go far enough. Should be interesting to observe.

The energy transition issue: we talked a little bit about this yesterday. I’d like to start with some thoughts by Tisha Schuller from her post this morning. She’s got a couple of peace-making suggestions from the industry side.

• Embrace civic leadership. The third gamechanger from The Gamechanger’s Playbook is back! Like the early days of COVID-19 panic, the war in Ukraine presents an opportunity for oil and gas leaders to step in as civic leaders. Let’s put forward bold solutions that give us the opportunity to acknowledge the complexity of the energy system and energy transitions.
• Even in this moment, put climate first. Especially in this moment. Climate will be front and center again, and we have an extraordinary opportunity to highlight the cleanest and most socially responsible oil and gas in the world.
• Skip the lectures. The drumbeat of “wake-up call” and “failed policy” narratives coming out of old-school industry executives smacks of “I told you so” and wastes the moment.
• Resist election-year politics. Playing politics is comforting but misses the opportunity to reframe. Let’s encourage our political allies to emphasize the climate and socially responsible focus of our industry, rather than suggesting that it no longer matters (or never did).

She adds:

Unfortunately, plenty of old-school oil and gas leaders are enjoying this moment — a little too much — by triumphantly doubling down on existing polarized and partisan talking points.

Schuller is suggesting.. not in so many words.. that this crisis is an opportunity to turn swords in plowshares.

Perhaps as Granholm says, the Admin means it:  “I’m here to extend a hand of partnership…because we’ll only be able to meet these challenges of oil and gas supply and climate change by working together.” But there well may be a trust problem. Is this a short-term alliance in light of the next election?  As a wise forest economist friend once said, “don’t watch what they say, watch what they do.” How will Admin actions match these words? Which harkens back to a a TSW theme, how can trust be built between groups currently in conflict?

At the same time, many of the Admin’s political allies may not agree with this peace-seeking approach.

For example,  Jane Fonda started a new (perhaps relatively ill-timed?) PAC on March 16 doubling down on swordliness:

It is for that reason that I started Jane Fonda Climate PAC, which is laser-focused on one goal: Do what it takes to defeat fossil fuel supporters and elect climate champions at all levels of government. 

I believe this is the most important thing I will do in my lifetime. 

The climate crisis poses unprecedented threats to our communities, our environment, our economy, and our security. It’s not too late to change our course. But it won’t happen as long as oil, gas, and coal companies maintain their stranglehold on American politics. 

In 2020, the fossil fuel industry poured $139 million into our elections. This money has real consequences. Major solutions are stopped cold: the Green New Deal, Build Back Better, clean energy investments, ending billions in tax subsidies to the fossil fuel industry — all because of politicians backed by Big Oil.

Fossil fuel lobbyists and their money control Congress. They block actions with huge donations to politicians from both parties. Jane Fonda Climate PAC will help elect leaders who will rise to the urgency of this moment and stand up to the fossil fuel industry.

Jane Fonda Climate PAC will leverage the donations of those who are climate concerned to counter the outsized influence the fossil fuel industry has on our government. We will make sure politicians who support oil and gas are as afraid for their jobs as we are about the impending climate disaster.

It’s an interesting view..the reason we use oil and gas is … not because it’s needed during the transition.. but because bad politicians are corrupted by money. And BBB was not defeated by common sense people who had many concerns (including me and many others) but by “politicians backed by big oil” (not by small oil, apparently).  And $139 mill is a drop in the bucket compared to Wall Street, which according to this story reported that “individuals and entities in the financial sector reported making individuals and entities associated with the financial sector reported making $1,964,240,861 in contributions to federal candidates for office during this election cycle (2019–20 for House and Senate candidates, plus the presidential election) through December 31, 2020 (as reported by February 17, 2021).

If many Admin supporters are that comfortable demonizing the industry, how will the Admin thread that needle? It will be interesting to see how this plays out.

President Biden campaigned on stopping oil and gas leasing on Federal land. Many decisions of the Biden Administration have created the impression that the oil and gas industry is not an appreciated partner in the energy transition. So what would it take to… make peace between the Admin and the industry and outline a role for the oil and gas industry during the transition. Secretary Granholm in her talk (see below) is moving in that direction, but what would it take to make “we need you at least for a while” into policy?

Perhaps a bipartisan commission? Where climate, national security, international relations, and considerations of people in the US are all incorporated? With a reality check for practicality, with practitioners from the entire energy supply chain involved? Of course, plenty of academics, especially energy experts. Also a look at the environmental and health impacts of alternatives at scale. We can imagine all the expertise that could be brought to bear to develop a roadmap. And the roadmap could encourage investment in oil and gas production within the framework. So all the climate policies across numerous agencies (e.g. climate and the SEC) would be following the same roadmap. Can you imagine? President Biden also talked about uniting, and such an effort would move in that direction. Representatives of Native Americans also called for an “all of the above” strategy when the DOI folks asked for their input on federal leasing. So it seems like there’s a tremendous zone of agreement.

Anyway, we’ve heard from Jen Psaki at the White House, as well as Energy Secretary Granholm (and many media and ENGO sources) something along the lines of “the industry has 9,000 permits (onshore, federal) while calling for more drilling”. So why does industry say those permits are currently unused?

Here’s the industry (independent, non-major) letter to the President, from their point of view on what it takes at the ground level.

Now, it is true that there are also about 9,173 outstanding approved permits, but there are factors that cause companies to wait to drill those wells:

• Because of the uncertainty of operating on federal lands, companies must build up a sufficient inventory of permits before rigs can be contracted to ensure the permits stay ahead of the rigs. Companies drill wells in a matter of days and rigs are very expensive, so it’s a delicate balancing act.

• The federal permit to drill is not the only government approval required. Rights of Way (ROW) can take years to acquire before companies can access their leases and put in natural gas gathering systems. With the pressure not to flare from regulators and investors, most companies cannot drill before gathering lines are in place. Timely approvals of ROWs would enable companies to develop sooner.

• Your administration has worked with anti-oil-and-gas activists to stop or slow pipeline infrastructure. Without pipelines to move the oil and natural gas produced, wells cannot be developed.

• Capital must be acquired. Activist investors, encouraged by an administration intent on expanding its financial regulatory powers, have worked to de-bank and de-capitalize the industry. Many companies, particularly the small independents who drill the majority of federal wells, are having difficulty acquiring the credit and capital necessary to develop. By ending bureaucratic efforts to deny financing to the industry, you would be sending a powerful signal to the U.S. and world markets that investments in oil and natural gas in the U.S. are safe and new production should move forward.

Other interesting points in the letter..

Leases
There are about 37,496 onshore leases in effect and actually 12,068 nonproducing leases, a 66% utilization rate, which is quite high. But there are many reasons not all leases will be used.

• Many leases are held up in litigation by environmental groups. For example, Western Energy Alliance is in court defending over 2,200 leases, most of which cannot be developed while those cases are ongoing.
• Companies must put together a complete leasehold before moving forward, particularly with the long horizontal wells that can cut across multiple leases. Sometimes a new lease is needed to combine with existing leases to make a full unit. Since the leasing ban remains in effect with no onshore lease sales held since 2020, some leases are held up, waiting for new leases or for the government to combine them into a formal unit.
• Before allowing development on leases, the government conducts environmental analysis under NEPA (the National Environmental Policy Act), which often takes years to complete. Many leases can be hung up by NEPA or awaiting other government approvals.
• Finally, not all leases will be developed because, after conducting exploratory work, companies may determine there are not sufficient quantities of oil and natural gas on them.

What the Admin could do to help:

Permits
There are 4,621 permits to drill awaiting approval by the Department of the Interior’s Bureau of Land Management. Your appointees could approve these permits now, enabling companies to forward with development.
So, yes Mr. President, your administration is “holding the industry back” in direct contradiction to your statements last week when you said your administration was not. The most recent example: according to published reports this week, the US Bureau of Land Management approved 95 permits to drill in January 2022, compared with 643 in April 2021 – the height of the pandemic.
If you want to truly be helpful, pick up the phone and direct Secretary Haaland to approve the permits immediately. We stand ready to assist in any way possible.

Energy Secretary Granholm gave this interesting talk at CERAweek 2022 in Houston on March 9.

Bravo to BP, Exxon, Shell and others in the private sector who are withdrawing from Russian operations. But there’s more to do. There are more battles.

Putin’s actions have sent the oil market reeling. I don’t have to tell you that when oil is $109 a barrel, and $4.25 at the pump, the impacts are severe and real for people who buy your product—regular working folks, from Uber drivers to teachers to farmers.

So, what else can we do in this fight? We are on a war footing—an emergency—and we have to responsibly increase short-term supply where we can right now to stabilize the market and to minimize harm to American families.

That means releases from strategic reserves across the world, like we’ve done. And that means you producing more right now, where and if you can.

..

That means we have to deploy clean technologies as fast as possible—but we’re under no illusion that every American will get an EV or a heat pump tomorrow or next month or next year.

It is a transition…and we’re pragmatic about what it means. We know it won’t happen overnight.

And we’re serious about decarbonizing while providing reliable energy that doesn’t depend on foreign adversaries.

That means we’ll walk and chew gum at the same time. So yes, right now, we need oil and gas production to rise to meet current demand.

I’m always interested in parallels between the forest products industry and the oil and gas industry, which are so different and yet.. so enemized by some (of the same) folks.  Here’s a case where according to some politicians, O&G is bad if they drill (we’ve been hearing about that for years) but now we are told that they are equally bad for …  not drilling, as political winds and international events have shifted.  It doesn’t seem altogether rational.  In my FS career, I found that when people aren’t logical.. there’s usually politics involved.  Of course, I’m sitting here on computer (powered by coal and natural gas), heated by propane, hoping for a snowplow (no electrical ones yet available) to run by.. The transition to low carbon energy will be at least ten years, and also adaptation may well  call for the increased of fossil fuels, say in fire suppression- airplanes, trucks and so on.

Are we planning to demonize the oil and gas industry from now until then? Because that seems like not a good use of our time and emotional energy, let alone the impacts on my neighbors and colleagues producing energy for which I, for one, am grateful.   Perhaps it’s easier to vilify industries if you don’t know the folks involved in producing it. Real people doing real things that we really use every day.  I think you can be for appropriate regulation without the good guy/bad guy rhetoric. I think there’s something else at work here, in this kind of industry-hate, but I don’t know what.

Anyway, I think E&E News had a good article on “fact-checking five claims in the Russian energy debate”.  As far as I can tell it’s open for non-subscribers.  Here’s what the reporters pieced together.  The Admin is apparently approving APD’s but not leasing.  Perhaps one of our legal friends can help us understand the difference between onshore and offshore litigation here.  Based on this story.. onshore leasing litigation led to court-induced stoppage, but the courts also struck down a freeze on offshore leasing.   Does offshore use a different social cost of GHG? Or wasn’t there an offshore lawsuit on that? Somewhat puzzling to observers.

When it comes to onshore leasing, a decision last month from a federal judge blocking the administration’s use of the social cost of greenhouse gas emissions has resulted in further delays for Biden’s planned auctions.

While the administration has continued to approve permits to drill new oil wells, it has yet to conduct onshore auctions for new leases, which are normally held four times a year across multiple states (Climatewire, Feb. 22).

But some industry advocates have dismissed the Interior Department’s excuses regarding climate litigation. They recall that candidate Biden ran on a plan to ban oil on federal lands.

And even though the courts have ruled against a leasing moratorium, Western Energy Alliance President Kathleen Sgamma argued a ban remains “in effect because no leases have been offered for sale. Period.”

Only recently has the president reversed course and urged oil companies to drill after he banned imports from Russia (Greenwire, March 9).

When it comes to offshore leasing, a judge last year struck down the early Biden freeze, and the Gulf’s largest offshore lease sale was held in November.

But conservation groups sued, and a judge for the U.S. District Court for the District of Columbia vacated the sale. The administration opted not to appeal the decision. The fate of an additional Gulf sale scheduled for later this year is unclear.

Industry advocates lamented the disruption of future oil and gas on those leases, which would have lasted for at least 10 years.

More broadly, industry players expressed concern the administration does not appear on track to release a lease schedule when the current one expires in June.

“Uncertainty around the future of the U.S. federal offshore leasing program may only strengthen the geopolitical influence of higher emitting — and adversarial — nations, such as Russia,” said Erik Milito, president of National Ocean Industries Association.

The U.S. hasn’t had an offshore lease sale since November 2020, but experts said general uncertainties about future plans are likely causing more trepidation.

“I don’t think you can just discount it,” Book said of Biden’s early signaling to industry on drilling. “It’s part of the story and it depends from company to company and project to project. But being told, ‘No more leasing’ is not nothing. It doesn’t mean that it stops production tomorrow, but it may discourage investment for years to come.”

And while the Biden administration approved more oil and gas permits on public lands in his first year than President Trump, in recent months the increase has tapered off (Energywire, March 14).

I could easily see a rush to get your APD approved.. if you think it’s only a matter of time until the Admin figures out a legal way to slow or stop those as well.  And..below is a big issue for those who follow NGO’s like the Center for Western Priorities..

In response to Republican attacks on the leasing ban, Biden and other Democrats note that oil and gas companies already hold thousands of approved permits on federal lands.

“They have 9,000 permits to drill now,” Biden said last week. “They could be drilling right now, yesterday, last week, last year.”

That number is correct, with the Bureau of Land Management reporting 9,173 onshore permits available to drill at the end of last year. But industry sources and observers said there are myriad reasons why a given company might not drill a permit right away — including that it might not have much oil.

White House press secretary Jen Psaki has also suggested reporters should be asking executives why they are sitting on their hands.

“Do you think the oil companies don’t have enough money to drill on the places that have been preapproved?” she asked.

The industry rejects that line of argument as a red herring, and experts generally said the White House is oversimplifying. Drilling programs are dictated by the rise and fall of the price of oil but also the amount of free cash to drill and investor support for that spending.

Companies with footprints in different oil and gas regions are weighing all their drilling opportunities against each other, for the best place to expend capital at any given time.

That said, experts expect drilling to pick up following a post-pandemic lag caused by companies shifting cash back to investors rather than in new projects.

Book also noted that companies are already going through their inventories of “drilled but uncompleted” wells, or DUCs, which have been drilled but not yet fracked.

“It’s not like not using a permit is a business strategy. If they’ve decided not to use a permit, it probably reflects conditions economically and to some degree their expectations for what they think the market future looks like,” Book said. “There’s a little latency built into this, but right about now I’d expect to see some more permits being used.”