January 2019 Industry Digest

WASHINGTON–The U.S. Energy Information Administration’s petroleum balance sheet shows that the United States exported 210,000 barrels a day more crude oil and petroleum products than it imported during the week ending on Nov. 30.

The headline in a Bloomberg report shortly thereafter–which subsequently was echoed in other media outlets–declared “The U.S. Just Became a Net Oil Exporter for the First Time in 75 Years.” Although it falls short of signifying U.S. energy independence, experts say, the development constitutes a notable milestone.

“Signficantly, this is the first time this category of weekly crude plus finished products became an export number since the EIA began reporting this information in 1991,” acknowledeges Forbes market analyst Robert Rapier. “This is a far cry from 2005, when that weekly (import) number hit an all-time high of 14.4 million barrels a day. As far as I can tell, Bloomberg is correct that this hasn’t happened in the past 75 years.”

According to EIA, U.S. output for the week was 11.70 MMbbl/d of crude and 6.89 MMbbl/d in other supply, which includes natural gas liquids and fuel ethanol. With regard to crude oil, the country imported 7.22 MMbbl/d and exported 3.20 MMbbl/d. On finished products, it imported 1.62 MMbbl/d and exported 5.85 MMbbl/d.

WASHINGTON–Legislation intended to provide Native American tribes greater flexibility to manage their energy resources has been signed into law by President Donald Trump.

According to congress.gov, S 245, the Indian Tribal Energy Development and Self-Determination Act Amendments of 2017, was passed by the U.S. House of Representatives on Dec. 10 and was signed by President Trump on Dec. 18. The bill, which was introduced by Senator John Hoeven, R-N.D., in January 2017, passed the Senate by unanimous consent on Nov. 29.

“This legislation empowers tribes to manage their own energy resources, cuts red tape, drives economic growth and promotes energy development for Indian country,” says Hoeven, who adds that the legislation streamlines the process for tribes to enter tribal energy resource agreements with the Department of Interior.

Local press accounts quote Chairman Mark Fox saying the Mandan, Hidatsa and Arikara Nation supports S 245. About a fifth of North Dakota’s oil production comes from the Fort Berthold Reservation, the reports note.

Among the provisions of S 245, according to congress.gov:

• It directs DOI to provide tribes with technical assistance in planning their energy resource development programs.
• It makes intertribal organizations eligible for grants used to increase their capacity to manage energy development and efficiency programs.
• It requires DOI to make available to a tribe the amount of money the agency would have expended to carry out an activity the tribe is undertaking pursuant to a tribal energy resource agreement.

WASHINGTON–Seismic surveys in the Atlantic Ocean cleared one bureaucratic hurdle after the National Oceanic and Atmospheric Administration Fisheries Service issued “incidental harassment authorizations.” The agency published its actions in the Dec. 7 Federal Register.

Final permitting from the Bureau of Ocean Energy Management still is required before the surveys can begin. If that authorization is granted, five marine contractors–ION GeoVentures, TGS NOPEC Geophysical Co., WesternGeco LLC, CGG and Spectrum Geo Inc.–will be able to conduct oil and natural gas surveys between Delaware and Central Florida.

The action follows President Trump’s April 28 Executive Order 13795, Implementing an America First Offshore Energy Strategy, which encourages energy exploration and production, while ensuring those activities are safe and environmentally responsible.

NOAA’s authorizations are valid for one year, and will allow applicants to conduct two-dimensional marine seismic surveys using airgun arrays, the Federal Register notice says. The surveys will take place as far as 200 nautical miles from shore in the BOEM’s Mid- and South Atlantic Outer Continental Shelf planning areas, as well as additional waters out to 350 nautical miles.

According to the agency, its authorizations under the Marine Mammal Protection Act allow incidental, but not intentional, harassing of marine mammals, and require monitoring, reporting and mitigation measures to reduce impacts on marine mammals, including:

• Deploying observers on the geophysical survey vessels to listen and watch for marine life, and alert operators if a protected species comes within a certain distance;
• Imposing operational restrictions to eliminate or reduce impacts to sensitive species in their preferred habitats;
• Stopping activities when certain sensitive species or groups are observed; and
• Gradually increasing seismic activity to alert animals in the areas, reducing potential exposure to intense noise.

Several anti-development groups filed a lawsuit in the U.S. District Court for the District of South Carolina seeking to block the surveys, alleging the airguns pose significant harm to sea life.

The National Ocean Industries Association says it is working with its member companies and other trade associations to better understand the nuances of NOAA’s mitigation requirements and their likely operational impacts. NOIA adds Atlantic oil and gas surveys have not taken place for 30 years, unlike surveys for scientific research and renewable energy siting.

“The ultimate fate of these first-in-a-generation surveys will be shaped by the Trump administration’s determination of if and where to include Atlantic areas in its upcoming 2019-2024 OCS five-year leasing program,” NOIA notes.

WASHINGTON–Adopting battery storage to enable development of greater renewable energy sources will be slower than anticipated, even if battery prices drop and higher natural gas prices incentivize their use, the American Petroleum Institute says.

The study making that case, Exploring the Implications of Electricity Storage on Natural Gas Consumption Using NEWS-REStorePlus, corroborates what API has long maintained–that natural gas is the natural baseload partner for renewable energy sources, argues Todd Snitchler, API’s vice president of market development and industry operations. He points out the U.S. Energy Information Administration still projects renewables will only make up 15 percent of domestic energy use by 2050.

“Even if battery storage prices drop precipitously in the coming years, they still will not be adopted at the rates necessary to make a dramatic impact on natural gas power generation, and likely won’t lower electricity prices for consumers, according to this study,” Snitchler says.

The report analyzes a set of scenarios, targeting costs for grid storage and natural gas availability as the variables. The study’s low-cost, low-resource case, in which battery costs plunged 40 percent and natural gas prices jumped to an average greater than $6 a million Btus in 2050, projected only 47 gigawatts of battery storage capacity adopted for the study period. API says this scenario shows the highest amount of battery storage capacity, with battery adoption significantly higher than in other scenarios after 2030.

In addition, Exploring the Implications finds that storage penetration does not measurably impact electricity prices, residential electricity and total energy expenditures, and concludes that subsidizing battery storage is unlikely to bring down consumer costs. Electricity sales and natural gas volumes also were not measurably affected by storage penetration. The report points out when costs for battery storage fall, the primary technology it is projected to replace is not natural gas but solar photovoltaic capacity.

PARIS–Global oil stock growth–which increased sharply in the middle months of 2018 thanks to gains in the Middle East, Russia and the United States more than compensating for production declines in Iran, Venezuela and elsewhere–has accelerated. The International Energy Agency cautions that the higher output, combined with Iranian sanction waivers issued by President Trump, implies a stock build of 700,000 barrels a day in the fourth quarter of 2018.

According to the agency’s November Oil Market Report, oil stocks held by members of the Organization for Economic Cooperation and Development have increased four months in a row, with products back above the five-year average. The agency predicts that–based on its outlook for production outside the Organization of Petroleum Exporting Countries and global demand, and assuming flat production; i.e., losses from Iran and Venezuela are offset by gains elsewhere–the implied stock build is 2.0 million barrels a day.

The August Report described replacing Iranian and Venezuelan oil as “challenging,” and warned there was a danger of prices rising too high, too fast. IEA says producers have heeded those warnings and more than met the challenge. According to the agency, Russia, Saudi Arabia and the United States now are producing at record levels, and total non-OPEC production in August was 3.5 MMbbl/d higher than a year ago, with 3.0 MMbbl/d alone coming from U.S. wells.

Data also point to slowing non-OECD demand, the agency cautions. While China still is showing robust growth, other non-OECD countries have been affected by higher oil prices, amplified by depreciating currencies and deteriorating economic activity. IEA points to India, Brazil and Argentina as notable examples. It projects total non-OECD demand to increase by 950,000 bbl/d in 2018, accelerating to 1.1 MMbbld/ in 2019.

IEA says its November Report incorporates the International Monetary Fund’s latest outlook, in which it revised world economic growth forecasts from 3.9 percent to 3.7 percent for both 2018 and 2019. While slower economic growth in some countries reduces the outlook for oil demand, the agency points out a significant downward revision in price assumptions is supportive. The November Report uses a Brent futures price curve averaging $73.10/bbl in 2018 and $72.20/bbl in 2019. With the prices $1.70/bbl and $9.75/bbl lower for 2018 and 2019, respectively, IEA says in theory those reductions could add 40,000 bbl/d to demand in 2018 and 235,000 bbl/d in 2019.

The U.S. Bureau of Land Management intends to offer nearly 800,000 acres across four states for oil and gas leasing this spring that includes acreage pulled from planned December sales following an adverse federal court ruling.

In late September, U.S. Chief Magistrate Judge Ronald E. Bush in the U.S. District Court for the District of Idaho ordered BLM to return to Obama-era guidance for public participation in lease sales involving sage grouse habitat in a lawsuit brought by the Western Watersheds Project and the Center for Biological Diversity (AOGR, November 2018, pg. 18).

As a consequence, BLM delayed some December quarterly lease sales and rescinded others.

On Nov. 20, BLM’s Billings, Mt., office announced it would offer 322 parcels totaling 180,366 acres in Montana, North Dakota and South Dakota at its March 2019 quarterly lease sale. Included in that acreage, BLM says, are 76 parcels removed from its December quarterly sale. The Nov. 20 announcement commenced a 30-day public comment period on the associated environmental assessment, BLM notes, to comply with Judge Bush’s order.

Then on Nov. 29, BLM’s Ely, Nv., office announced it was offering 291 parcels totaling 604,164 acres in Nevada’s March quarterly sale. Among those parcels are 166 that were removed from the state’s December sale. Again, BLM says, the sale announcement commenced a 30-day comment period to comply with Bush’s order.

On Dec. 10, BLM published final environmental impact statements and proposed amendments to its resource management plans addressing greater sage grouse conservation for Wyoming, Colorado, Idaho, Oregon, Utah, Nevada and northeastern California (see story page 119).

WASHINGTON–The U.S. Environmental Protection Agency has entered into a memorandum of understanding with the State Review of Oil and Natural Gas Environmental Regulations (STRONGER).

According to EPA Acting Administrator Andrew Wheeler, the agreement between the agency and the nonprofit, multi-stakeholder, educational organization is aimed at cooperation. While STRONGER will continue to develop guidelines and conduct reviews of state oil and natural gas regulatory programs, he says, the MOU will expand the parties’ opportunities for mutually beneficial collaboration.

EPA says it will work with STRONGER to identify specific areas for collaboration, which may include providing platforms for meaningful stakeholder engagement, identifying emerging issues impacting states and tribes, or developing improved compliance assistance tools.

“In the spirit of cooperative federalism, the parties recognize that success in protecting human health and the environmental outcome cannot be realized fully by any single entity operating alone,” the MOU reads. “Rather, the balance is achieved when states, in conjunction with affected communities, work together with the EPA to build partnerships rooted in trust and respect.”

The MOU’s section on objectives and responsibilities contains five items:

• With the approval of the EPA’s Office of General Counsel, two EPA officials (one from the Office of Air and Radiation and one from the Office of Land and Emergency Management) will continue to represent the agency’s interests as ex-officio, nonvoting liaisons to the STRONGER Board of Directors.
• STRONGER will continue to develop and improve its guidelines for evaluating state oil and natural gas regulatory programs as resources allow, and agrees to update EPA when the guidelines change.
• STRONGER will continue to review state oil and natural gas environmental programs as resources allow, and will provide EPA with state review reports.
• The signatories will identify and implement projects and activities that are in the mutual interest of both parties, consistent with EPA’s authority and within EPA’s legal and ethical constraints.
• Both parties will participate in periodic conference calls with the EPA’s Office of Congressional and Intergovernmental Relations to identify opportunities to collaborate on oil and natural gas stakeholder activities relevant to the MOU’s scope and purpose.

“This MOU will provide more opportunities for EPA and STRONGER to work together to improve both environmental protections and economic outcomes,” Wheeler states. “By collaborating with STRONGER, we can enhance our enforcement and compliance efforts while ensuring America’s historic energy production under President Trump continues.”

“We are very excited to enter this MOU with EPA and look forward to new opportunities for cooperation as we continue STRONGER’s important work enhancing protection of human health and the environment,” responds STRONGER Executive Director Ryan Steadley.

LANSING, MI.–The outlook for a new-and-improved version of Enbridge Inc.’s 65-year-old Line 5 oil and natural gas liquids pipeline, which crosses under Michigan’s Mackinac Straits, took a turn for the better in late 2018, but became less clear at the beginning of 2019. Citing the risk of leaks, anti-development activists seek to kill the project (AOGR, Feb. 2018, pg. 28).

According to Enbridge, the planned replacement for Line 5 will run inside a tunnel under the straits–which connect Lake Michigan and Lake Huron–and reduce chances of a leak to a near impossibility. The project received a green light on Dec. 19, when the Mackinac Straits Corridor Authority approved the project. The decision was the first approval by an agency created on Dec. 12, after outgoing Republican Governor Rick Snyder signed legislation creating Act 359, which shifts responsibility for the tunnel from the Mackinac Bridge Authority to the new agency.

However, in a Jan. 1 letter, newly-elected Democratic Governor Gretchen Whitmer asked Attorney General Dana Nessel to analyze the new law. Media reports note that although such opinions fall short of a court ruling, barring a court reversal, state agencies are bound by them.

“An oil spill in the Great Lakes would be absolutely devastating to our environment and our economy,” Whitmer’s letter concludes. “Resolving any legal uncertainty regarding Act 359, the corridor authority, and activities of the corridor authority is necessary to assure that we can take all action necessary to protect the Great Lakes, protect our drinking water and protect Michigan jobs.”

The Michigan Oil & Gas Association assures the project offers more than adequate protection. “Pipelines are proven as the safest, most reliable way to transport oil and other fuels,” MOGA says. “This agreement provides a clear path forward to further protect the Great Lakes, while protecting families and the real jobs that depend on Line 5 for moving energy to where it’s needed.”

Enbridge describes Line 5 as a 645-mile, 30-inch pipeline running from Superior, Wi., to Sarnia, Ontario. As it travels under the Mackinac Straits, it splits into two 20-inch parallel pipelines that are buried on shore and taper off deep under water. Line 5 supplies 65 percent of propane demand in Michigan’s Upper Peninsula and 55 percent of the state’s propane needs. The company says it transports as much as 540,000 barrels a day of light crude, light synthetic crude and NGLs.

Under the agreement signed by the company and state, Enbridge will pay for design, construction and maintenance for 99 years of a tunnel running 100 feet below the straits. The project, with construction costs estimated at $500 million, is scheduled for a 2024 completion. The company notes the tunnel, in which it could lease space, has room for additional infrastructure, such as broadband and electric lines.

According to MOGA President and Chief Executive Officer Erin McDonough, if industry opponents succeed in killing Line 5, it will set a dire precedent for energy infrastructure across the country and constitute one of the first times an existing, safely operating piece of critical infrastructure has been shut down.

Published reports indicate that Nessel has offered no timetable for issuing her legal opinion, but has called it a top priority and has said “In no way should any entity rely on this (Act 359) act to move forward unless and until these matters have been resolved.”

WASHINGTON–Underground natural gas storage in the United States stood at 2.725 trillion cubic feet on Dec. 21, 19.2 percent below the five year average, according to the U.S. Energy Information Administration. That was down 330 billion cubic feet from the 3.055 Tcf in storage on Nov. 23, which was 19.1 percent below the five-year average. The Dec. 21 storage number was 623 Bcf less than a year ago, when gas storage stood at 3.348 Tcf.

According to EIA, gas storage in the East Region was 676 Bcf on Dec. 21, 14.4 percent below the five-year average and 102 Bcf less than on Nov. 23, when storage stood at 778 Bcf, which was 12.9 percent below the five-year average. East Region gas storage on Dec. 21 was 110 Bcf less than it was a year ago.

Gas storage in the Midwest Region stood at 818 Bcf on Dec. 21, 12.2 percent below the five-year average and 120 Bcf less than the 938 Bcf in storage on Nov. 23, which was 12.3 percent below the five year average. Dec. 21 gas storage in the Midwest Region was 129 Bcf less than a year ago.

In the Mountain Region, EIA says, gas storage was 150 Bcf on Dec. 21, 21.9 percent below the five-year average and 21 Bcf less than the 171 Bcf stored on Nov. 23, which was 20.8 percent below the five-year average. Gas storage in the Mountain Region was 46 Bcf less than a year ago.

Gas storage in the Pacific Region was 223 Bcf on Dec. 21, 27.4 percent below the five-year average and 31 Bcf less than the 254 Bcf stored on Nov. 23, which was 26.8 percent below the five-year average. Pacific Region gas storage on Dec. 21 was down 60 Bcf from a year ago.

In the South-Central Region, gas storage levels on Dec. 21 were 858 Bcf, 25.5 percent below the five-year average and down 56 Bcf from the 914 Bcf in storage on Nov. 23, which was 26.8 percent below the five-year average. The Dec. 21 gas storage level for the South-Central Region was down 278 Bcf from a year ago.

CLINTWOOD, VA.–The Virginia Oil & Gas Association reports that a team of sixth graders from Ridgeview Middle School in Clintwood, Va. captured the first Virginia Energy Bowl. The event was organized by VOGA, the American Petroleum Institute, Virginia Coal and Energy Alliance (VCEA), and the Virginia Cooperative Extension, an extension of Virginia Polytechnic Institute and Virginia State University.

The program, piloted in Dickenson County, Va., by VOGA and VCEA, is aimed at sixth-grade students. They received study guides earlier in the semester to prepare for the competition. Energy Bowl questions correlate to Virginia Standards of Learning (SOL) material, VOGA notes. The guides were reviewed by VOGA, VCEA, the Virginia Department of Mines, Minerals and Energy, API and Virginia Cooperative Extension agents.

“VOGA worked with VCEA on this joint project to raise awareness of the importance of energy in our daily lives,” says VOGA Public Relations Director Beth Stockner. “The questions developed touch on all forms of energy, and also factor in math skills and more to match what Virginia SOL expectations are for sixth graders.”

According to Barbara Altizer, VCEA’s director of education and outreach, the groups worked for several years to create the energy bowl format. “Developing the questions and sharing them with others for review as to accuracy and correlation to the standards of learning was a critical component of the project. We are so pleased to finally see this day come,” she applauds.

The inaugural Virginia Energy Bowl saw the Ridgeview Middle School team of Ashley Goodman, Ashley Price, Cameron Deel, LeaChelle Boggs and Ryder Bowens win the eight-team, double elimination academic tournament, the groups note. According to the groups, based on the success of this inaugural program, they plan to expand the competition to additional counties next school year.