Checking in on West Texas – June 13, 2015

Today we talk about five things in the news for the week of June 7, 2015:

  1. Hillary’s Launch Touches on Energy
  2. Pres. Obama’s Trade Policy Goes Up in Smoke
  3. Texas Regulators See No Earthquakes
  4. Iran Trying to Get Back Into the Gas Game
  5. Reports Put U.S. on Top and Urge Open Exports

And our interview is with Katherine Stokes, the Executive Director of the West Texas Energy Consortium.

Click below to listen or find us on iTunes or Stitcher.

 1. Hillary’s Launch Touches on Energy

Hillary Clinton relaunched her campaign on Saturday, June 13 with a rally at Roosevelt Island in New York City.  Energy popped up in a number of ways.

First up, she mocked Republicans who are skeptical of climate change:

Ask many of these candidates about climate change, one of the defining threats of our time, (cheers, applause) and they’ll say:  “I’m not a scientist.”  (Laughter.)  Well, then, why don’t they start listening to those who are?  (Cheers, applause.)

This is a tactic that has been used successfully by a number of recent Democratic candidates, most notably Virginia Governor Terry McAuliffe.  This line lets Hillary talk about climate change without talking about any of the negative consequences.  President Obama, of course, set the standard for the wrong way of talking about it back in 2008 when he said his climate policy would cause energy prices to “skyrocket.”

Later, Hillary spoke about energy in a way that reflects today’s energy abundance.  Rather than talk about driving up the price of coal, she was able to talk about deploying cleaner energy while helping those hurt by the changes.

And we will make America the clean energy superpower of the 21st century.  (Cheers, applause.)

Developing renewable power – wind, solar, advanced biofuels…

Building cleaner power plants, smarter electric grids, greener buildings…

Using additional fees and royalties from fossil fuel extraction to protect the environment… (cheers, applause)

And ease the transition for distressed communities to a more diverse and sustainable economic future from coal country to Indian country, from small towns in the Mississippi Delta to the Rio Grande Valley to our inner cities, we have to help our fellow Americans.  (Cheers, applause.)

Now, this will create millions of jobs and countless new businesses, and enable America to lead the global fight against climate change.  (Cheers, applause.)

Now, if you are in the oil and gas industry there are a couple things in there that should give you pause.  First, she is talking about raising taxes.  That is pretty much a standard talking point for Democrats, though, and not much of a revelation here.  The speech also begs the question of where natural gas fits into the “clean energy” landscape.  Hillary has been a supporter of natural gas in the past.  At the State Department, she created a Global Shale Gas Initiative that was aimed at spreading natural gas production around the globe to create a more stable world and reduce climate emissions.  She has been moving left, however, so it will be worth keeping an eye on how she talks about gas.

2.  Pres. Obama’s Trade Policy Goes Up in Smoke

The current law on liquefied natural gas exports greatly favors exports to countries that have free trade agreements with the United States.  Many potential LNG customers are involved in negotiating free trade agreements with the Obama Administration.  For him to get those agreements passed, he will need legislation passed by Congress that more or less guarantees whatever deal he negotiates will be approved.  Unfortunately for him, that effort hit a brick wall last week, as Politico reported:

The House on Friday dealt a staggering blow to President Barack Obama’s trade agenda, as Democrats turned en masse against the president just hours after he made a direct appeal to salvage a centerpiece of his second-term platform.

The vote on the key part of his trade bill failed 126-302.  In a twist, it was Republicans led by Rep. Paul Ryan (R-WI) who were left struggling to get the legislation passed.  Some say Rep. Ryan committed a gaffe while arguing with Rep. Michael Burgess (R-TX), and that led to much of the trouble because Rep. Ryan explained that the trade legislation needs to be passed so that the text of the agreements can be made available to Congress.

3.  Texas Regulators See No Earthquakes

Earthquakes caused by “fracking” have been in the news a bit lately, with Jon Stewart covering the “shakes on a plain.”

Regulators are, however, seriously looking at whether wastewater disposal wells are causing seismic activity.  Just over a year ago, the Texas Railroad Commission, which regulates oil and gas in the state, hired their first seismologist:

Railroad Commission Executive Director Milton Rister announced today the Commission has hired a seismologist, Dr. David Craig Pearson…“My objective is to develop a broad understanding of the impact of oil and gas extraction activities on the day-to-day lives of Texas residents,” Pearson said. “I believe the Railroad Commission must be able to quickly and factually determine the accurate location of all earthquakes in the state and be able to determine the cause of earthquakes, be they natural or man-made.

Last month, the Commission threatened the future of two specific wells:

The Railroad Commission of Texas today directed the Commission’s Hearings Division to initiate proceedings requiring the operators of two disposal wells in the area of Azle, Texas to show cause why the injection permits for the wells should not be cancelled and the wells ordered shut-in due to an alleged connection raised by new seismic research between ongoing operation of the wells and seismic activity in the vicinity….Chairman Christi Craddick said [that] “In light of SMU’s study linking disposal well activity to earthquakes in 2013, it is important to assess this new information in relation to the continued operational safety of the wells.”

One June 10, 2015, lawyers for XTO, an Exxon subsidiary, spent several hours defending their well at a Railroad Commission.

XTO made two basic arguments.  First, the oil and gas accumulations in the area show that is has long-active faults.  Second, the company has recorded the same seismic events in areas where no wells are located.  The Oil and Gas Lawyer Blog has a good rundown of the whole situation:

Only XTO appeared at the hearing, represented by their attorney Tim George, who called three witnesses and introduced more than 30 exhibits. XTO argued that the earthquakes were natural phenomena not caused by their injection activities. No witnesses appeared to oppose XTO’s position. A staff attorney at the RRC did ask some questions of XTO’s witnesses and offered the SMU study as evidence, over XTO’s objection…. [The administrative law judge] admitted the study as evidence over George’s objection, saying “in a way, [the SMU study] is why we’re here today.”

Another company, Enervest, has a similar hearing next week.  The administrative law judges who listen to the hearing will draft up a proposed decision and that the Railroad Commissioners will vote on.

4.  Iran Trying to Get Back Into the Gas Game

Bloomberg Business had some coverage coming out of the World Gas Conference a few days ago that looked at Iran’s desire to get back into the game of being a major natural gas player.

Iran needs $100 billion to rebuild its gas industry and has met with European energy giants as an end to decades of international sanctions looms, according to the state-run company in charge of discussions….Deputy Oil Minister Hamid Reza Araghi met with international companies at the World Gas Conference in June…

The prospect of renewed fossil-fuel supplies from Iran is one of the great unknowns for global energy markets already shaken by surging U.S. shale output and Saudi Arabia’s decision to keep pumping oil even as prices collapsed.

According to the New York Times, the Iranians expect those sanctions to be lifted soon:

With a little more than two weeks before the deadline for a nuclear deal, Iran’s president, Hassan Rouhani, said Saturday that he expected relief from economic sanctions within a “couple of months” after an agreement with six world powers was signed.

Speaking at a news conference to recognize the second anniversary of his election, Mr. Rouhani dismissed reports that Iranians would have to wait more than a few months for the lifting of sanctions, which have crippled Iran’s economy. Asked whether the wait for relief could be as long as a year, he said, “A one-year difference is totally untrue.”

5.  Reports Put U.S. on Top and Urge Open Exports

BP released their annual statistical review last week.  This, along with BP’s annual outlook, in one of the most widely respected reports in the industry.  The big news for the United States is that, in a “changing of the guard,” it became the world’s top oil producer in 2014.

Another important note from the report is that the U.S. continues to have much cheaper gas than other regions of the world.

Gas Prices Per BP

Last week the Harvard Business School teamed up with the Boston Consulting Group to release a comprehensive plan for U.S. energy policy.  They set it up by saying:

America’s new energy abundance can not only help restore U.S. competitiveness but can also create geopolitical advantages for America. These benefits can be achieved while substantially mitigating local environmental impact and speeding up the transition to a cleaner-energy future that is both practical and affordable.  However, America is currently caught in an unproductive, divisive, and often misinformed debate about our energy strategy…

The report made a comprehensive list of recommendations, including:

  • Continuing the timely development of efficient energy infrastructure
  • Delivering a skilled workforce
  • Eliminating outdated restrictions on gas and oil exports
  • Minimizing local environmental impacts
  • Speeding the transition to a cleaner-energy, lower-carbon future

Interview with Katherine Stokes of the West Texas Energy Consortium (Starts at 24:35)

Katherine grew up in Texas around the oil and gas industry.  She learned the business from the inside of an office by filing bills, typing up well logs, and answering phones.  She also frequently joined her dad on well site visits.  After school, Katherine took a job in management at a health care facility and she later worked in the administration of a couple different Texas colleges.

Today, Katherine is the Executive Director of the West Texas Energy Consortium.  The group calls itself “a collaborative effort to foster and sustain economic growth, meet the needs of the energy industry, support community development, and preserve a high quality of life for all citizens in our 49 county region.”  That is about 60,000 square miles, much of it very rural. The area has been producing oil since the 1920s, and it produces more than half the oil in the state.

Katherine says the shale boom has revitalized the area.  It has brought a lot of new technologies to the field, and companies are spending a lot of money on research and development.  The Consortium sponsored a field tip to North Dakota awhile back that Katherine participated in, and that really underscored the strengths of West Texas.  Katherine noted that North Dakota was struggling with basic infrastructure and also human needs like hospitals and schools.

West Texas communities seem to be friendly to the industry, and the region has not seen much local push back against fracking.  That may be because the industry has come a long way in working with the communities they work in.  The key is getting the right information out to inform local leaders.  Katherine conceded that it is difficult to fully understand issues like earthquakes.  Water is apparently always a challenge in West Texas, but many communities are working to address the issue.  The industry is helping as well.  Many oil and gas operators not using any fresh water, for example.

The Consortium also spends a lot of time on workforce development.  Katherine sees an upcoming exedus of baby boomers from the industry, and those jobs will have to be filled.  The Consortium works to get kids thinking about oil and gas and also STEM careers more broadly.  She is working with veterans groups and the local technical colleges to create a pipeline for folks to get into the industry.

Katherine says West Texas is handling the current downturn in oil prices pretty well.  She noted that oil and gas production has not really slowed yet.  She does hope the crude oil export ban will be lifted, and that will help boost the industry.  Companies are continuing to refine their processes to drill more efficiently.  Producers are also focusing on their most promising areas.  Katherine says the few people who have been laid off have not been left unemployed for long, as the economy in West Texas continues to do well.  She feels like many people in Texas are used to oil and gas being cyclical, and so they did not overextend themselves during the boom.

The West Texas Energy Consortium holds regular trainings and events around the region.  That includes quarterly forums throughout the region that focus on hot topics in the industry.  The group is also putting on a number of career fairs to help get students thinking about jobs in oil and gas.  There is plenty more information available on their website, www.wtxec.org.