Crude Production Rise: Credit Where Credit’s Due

Last week the Energy Information Administration (EIA) told us that U.S. crude oil production in the first quarter of the year topped 6 million barrels per day (bbl/d) for the first time in 14 years. EIA’s chart:

EIA’s analysis:

“Strong growth in U.S. crude oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas, and federal leases in the Gulf of Mexico. … After remaining steady between 5.5 million and 5.6 million bbl/d during each of the first three quarters of 2011, EIA estimates that U.S. average quarterly oil production grew to over 5.9 million bbl/d during the fourth quarter and then surpassed 6 million bbl/d during the first quarter of 2012.”

Certainly, great news like that will restart discussion of who deserves credit for such a production milestone – beyond, of course, the energy companies that are actually pulling the oil from the ground or the seafloor. Politico Pro [subscription required] reports White House spokesman Clark Stevens emailed in the administration’s claim for credit:

“Despite misleading rhetoric by some in Washington, President Obama has made expanding responsible oil and gas production here at home a clear priority and the facts speak for themselves. Since the president took office, domestic oil and gas production has increased each year, with oil production in the first quarter of 2012 higher than any time in 14 years and natural gas production at its highest level ever, and that is certainly thanks in part to steps taken by this administration.”

That’s one view. Others disagree. Politico quotes Tom Kloza, chief oil analyst at the Oil Price Information Service:

“In the end, the president and Congress can’t take credit for what price and technology have delivered. It would be akin to taking credit for the iPad. … Unless there is a price collapse, or a true scientific indictment of fracking, one can expect to see plentiful growth in light sweet crude coming from the Rockies, North Dakota, and even Ohio or West Virginia.”

And Richard Newell, the EIA’s head from 2009-2011:

“In a political year, different parties would like to take credit for positive news in the energy sector and I think here the credit largely goes to technology."

And also Amy Myers Jaffe, an energy fellow at Rice University, who notes that North Dakota and Texas shale production has occurred mainly on private land, while increases from the Gulf result from the actions of previous administrations:

“Production rises from Gulf of Mexico would have been in the hopper way before President Obama took office.”

Settling the argument isn’t as important as recognizing that with the right policies the oil and natural gas industry can further develop America’s energy wealth. With the right strategies and leadership, the United States could see 100 percent of its liquid fuel needs met from North American sources. And along with it: jobs and tax revenues for government.

Strategies, policies and action: It’s what separates election-year rhetoric from substantive progress toward a more secure energy future.

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Another Study ‘Showing’ No Contamination from Fracking

Where to begin in a review of Pro Publica’s article on new research into the migration of subterranean brine to shallow water above? The inflammatory, overreaching headline? The leap from Duke University’s study to conclusions suggesting to the public that hydraulic fracturing is polluting drinking water?

Let’s start there. On that point the article is self-rebutting. See the fourth paragraph:

"No drilling chemicals were detected in the (shallow) water, and there was no correlation between where the natural brine was detected and where drilling takes place."

Then, near the end of the article:

"Nevertheless, (Robert) Jackson, one of the study's authors, said he still considers it unlikely that frack fluids and injected man-made waste are migrating into drinking water supplies. If that were happening, those contaminants would be more likely to appear in his groundwater samples, he said. His group is continuing its research into how the natural brine might have travelled, and how long it took to rise to the surface. 'There is a real time uncertainty,' he said. 'We don't know if this happens over a couple of years, or over millennia.'"

As for the study itself, Jackson and his team say they found that naturally occurring brine migrates upward to shallower depths. They say the risk of the migration could be greater in areas that have undergone hydraulic fracturing. Yet, there’s this from the study’s introductory summary:

“The occurrences of saline water do not correlate with the location of shale-gas wells and are consistent with reported data before rapid shale-gas development in the region …”

Energy In Depth has solid analysis on the study, here. Highlights:

The study fails (as Jackson notes above) to establish whether the migration occurs over 10 years or 10 million years. Without that, it’s impossible to determine whether the phenomenon is cause for concern.If brine is traveling up from thousands of feet below the surface, why haven’t the pathways Duke’s researchers identify allowed natural gas in the Marcellus region to leak out and disappear over time?There’s no discussion of whether the Marcellus Shale – which is largely a dry region with “virtually no free water,” according to Penn State’s Terry Engelder – even contains enough brinewater to leak.

Engelder, a Marcellus expert who was asked by the researchers to review their work, notes a number of questions the study leaves unanswered, reducing its usefulness. He writes:

"My review is predicated on the objective of your paper which is stated as a search for '...specific areas of shale-gas development in northeastern Pennsylvania that are at increased risk for contamination of shallow drinking water resources with deeper formation brines...' (the last sentence of your abstract). The term, risk, suggests that your paper veers from a conventional geology paper and enters into the realm of science-based advocacy or if you like, science policy."

Engelder is on target there. Unfortunately, the academics, wittingly or unwittingly, produced a study that is easily morphed into a siren call by opponents of natural gas production. Pro Publica’s article is Exhibit A. Exhibit B is a Bloomberg News story under this headline: “Pennsylvania Fracking Can Put Water at Risk, Study Finds” – despite the fact the study found no evidence of such a risk.

Words like “can,” “may” and “might” camouflage the point that the study didn’t find a correlation between the location of shale-gas wells and occurrences of saline water. To suggest otherwise in a news article is disingenuous and counterproductive in the national discussion of energy from shale.

As Engelder notes, the study is a platform from which advocates can mislead. On this story, The Associated Press got it right, focusing its report on what the study showed: “Gas drilling in northeastern Pennsylvania did not contaminate nearby drinking water wells with salty water, which is a byproduct of the drilling.”

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Hailing the Chief’s Support for Natural Gas Development, Fracking

President Obama deserves credit for standing fast in his support for natural gas development through hydraulic fracturing – especially given the no-to-natural gas approach taken by some of his supporters in the environmental community, including the Sierra Club. Here’s the president on Monday in Cincinnati:

“… We’re moving in the right direction in terms of energy independence. Now, part of that is this boom in natural gas.  And this is something we should welcome, because not only are we blessed with incredible natural gas resources that are now accessible because of new technologies, but natural gas actually burns cleaner than some other fossil fuels, and is an ideal fuel -- energy source that we potentially can use for the next 100 years.  So I want to encourage natural gas production.  The key is to make sure that we do it safely and in a way that is environmentally sound.”

The president is spot on – and as a response to a negative question about natural gas, his remarks were all the more remarkable. Because of abundant, affordable gas, made accessible through fracking, the global energy balance could be shifting. The president continued:

“Now, you always hear these arguments that somehow there’s this huge contradiction between the environment and economic development, or the environment and energy production.  And the fact of the matter is that there are a lot of folks right now that are engaging in hydraulic fracking who are doing it safely.”

This also is true. The oil and natural gas industry has focused on making hydraulic fracturing safer and more efficient through a set of standards that guide operators, and it has worked with states to develop regulatory regimes tailored for their specific conditions. The president went on:

“The problem is, is that we haven’t established clear guidelines for how to do it safely, and informed the public so that neighbors know what’s going on, and your family, you can make sure that any industry that’s operating in your area, that they’re being responsible.”

Well, OK. The president is mistaken or misinformed on that point. Industry has been clear and detailed in developing the standards mentioned above. It also has supported FracFocus.org to create transparency about fracking itself – a website community members can use to learn where wells are being drilled in their area, as well as the chemicals being used in the fracking fluids themselves. The industry takes community engagement and support seriously and is committed to getting shale development right.

Back to the president:

“What we’ve said is, look, we are going to work with industry to establish best practices.  We are going to invest in the basic research and science required to make sure this is done safely and in a way that protects the public health.  And for responsible companies, they should be able to operate, make a profit, and we can all benefit and put people back to work."

Best practices, we’re on it, Mr. President. Industry also is supportive of new technologies to improve operations, including those to reduce or even eliminate water use during the fracking process. Shale energy is creating jobs, thousands of them, and boosting the economy.

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Hot Dogs, BBQs…and Fracking

Kudos to Fuel Fix.com for cooking up a link between hot dogs and fracking in time for the Fourth of July – making the point that chemicals used in hydraulic fracturing are all around our daily lives, in some of the things we eat and other products that make our lives better.

Take the hot dog. Fuel Fix points out that the staple at cookouts, ballparks and fireworks displays often contains something called sodium erythorbate for fast curing and retention of the hot dog’s distinctive pink color. In fracking, it helps prevent precipitation of metal oxides, improving the process.

Going to a barbecue? Many BBQ sauces contain guar gum, derived from (you guessed it) the guar bean. In hydraulic fracturing, guar gum thickens the water in the fracking fluid, better suspending the sand that keeps tiny cracks in rocks open so oil or natural gas can be recovered.

It’s true: Not all of the stuff that goes into fracking fluid can be ingested by humans, yet these substances are found in things people use all the time. Check out Fuel Fix’s neat slideshow for a different way of looking at a drilling process that’s revolutionizing this country’s energy production.

Final point: The typical fracturing fluid is made up of 99.5 percent water and sand. Just half of 1 percent is chemical ingredients. See FracFocus.org for more information on fluid composition and other aspects of the hydraulic fracturing process, as well as the Energy From Shale website – and Happy Independence Day!

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Caution Warranted as E15 Launches in Kansas

From Kansas we hear that a gas station owner in Lawrence has become the first in the country to offer E15 fuel – gasoline with 15 percent ethanol instead of the 10 percent blend that’s standard around the U.S. According to the New York Times, Scott Zaremba may expand E15 to more of his eight stations.

Before motorists in the Lawrence area rush down to fill up, they might take the time to check their vehicle warranties. Even though the EPA has approved E15 for cars and light trucks from model year 2001 forward, a Coordinating Research Council study showed that the fuel can cause engine damage. Automobile manufacturers have said vehicle warranties will not cover damage from E15. Bob Greco, API downstream group director:

“We need to press the pause button on EPA’s rush to allow higher amounts of ethanol in our gasoline. The new fuel could lead to engine damage in more than 5 million vehicles on the road today and could void the manufacturer’s warranty.”

Greco said E15 also could damage engines in boats, recreational vehicles and lawn equipment. Consumers should follow the fueling recommendations in their owner’s manuals and carefully read all gasoline pump labels before refueling, he said.

Potential problems with E15 – which is being advanced as a way to help meet volume requirements set out by the Renewable Fuels Standard – were discussed at a hearing on Capitol Hill this week. API President and CEO Jack Gerard criticized EPA’s rush to push E15 into the marketplace:

“EPA should not have proceeded with E15, especially before a thorough evaluation was conducted to assess the full range of short- and long-term impacts of increasing the amount of ethanol in gasoline on the environment, on engine and vehicle performance, and on consumer safety.”

Greco said consumer protection is paramount:

“Our first priority should be protecting consumers and the investments they’ve made in their automobiles. EPA has an obligation to base this decision on science and not on a political agenda.”

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Made in America: For a Sustainable Energy Future

Access, common-sense regulation and a governmental approach that encourages energy investments: Each one is integral to an American-made, more secure energy future. Getting there will require continued improvements in efficiency and investments in renewable energy – two areas where the oil and natural gas industry has been a leader. This is the fourth recommendation in API’s recent report to the two political parties’ platform committees.

Today, the U.S. uses about half as much energy for every dollar of GDP as it did in 1980, according to the Energy Information Administration:

Efficiency helps energy companies manage costs, which in turn makes them more competitive and allows them to bring more affordable energy products to consumers.  Efficiency also helps reduce greenhouse gas emissions.

Industry is committed to technologies that help the environment, investing $71 billion in developments that reduce greenhouse gas emissions between 2000 and 2010 – far more than the federal government ($43 billion) and nearly as much as the rest of domestic private industry combined ($74 billion).

This is what energy companies do. They produce the oil and natural gas that run our economy now and which will continue to fuel it in the future. They work on efficiencies that will make our energy go further. They look to the future for additional resource options that will be necessary to complete the energy picture.

The question is whether governmental policies will or hinder these efforts. Some think the path to our energy future should be selected by Washington, using the tax code to preordain winners and losers. They think an industry sector that contributed nearly a half-trillion dollars to the economy in 2010, which already sends $86 million a day to the U.S. Treasury, should be taxed more.

The wrongheadedness of this path was detailed in a Wood Mackenzie study last fall, which compared the likely results of pro-energy development policies with policies leading to higher energy taxes:

With a pro-development approach, America’s oil and natural gas companies can add jobs, increase energy supply and generate more tax revenue for government. Higher taxes on our industry will likely lose jobs, decrease tax revenue and result in less energy production.

The United States has tremendous energy resources to support and grow our economy and meet the challenges of the future. With the right vision and leadership we can stride into the future confidently – as befits an energy-rich nation.

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Bakken Shale: Supplying Energy, Supporting Communities

Check out a couple of new videos from North Dakota in which Hess employees and others talk about how energy development in the Bakken Shale formation is changing lives and growing the state’s economy.

Part 1:

Part 2:

The narrative isn’t complicated. As Hess’ Steven Fretland notes in the first video, the Bakken is believed to hold between 8 billion and 40 billion barrels of oil reserves. Companies developing the energy resources need workers, and workers need places to live and services to support their lives. Fretland, who was raised in North Dakota, says Bakken energy is reversing historic trends:

“Younger kids, after they left, you know, you hated to see them go but then they come back and they decide … it’s where they’re going to have their home and raise a family and hopefully retire with the industry.”

In the second video, Hess’ Steve McNally says hydraulic fracturing that has revolutionized energy development is responsible for North Dakota’s jobs boom:

“The impact on the North Dakota area and the U.S. in the short term is numerous jobs. There’s a tremendous amount of employment opportunities here. For anyone who wants to work, you can get a job.”

The point, underscored in this new industry spot, is that fracking has made an old frontier state like North Dakota a new energy frontier. Previously unreachable shale resources are now available in abundance through responsible development. Learn more at Energy From Shale.org.

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Energy Quest and ‘Britain’s Atlantis’

A couple of fascinating reports detail discoveries at the bottom of the North Sea that some scientists say indicate the existence of “Doggerland,” an area that connected modern-day Great Britain to continental Europe until about 7,000 years ago.

CBS News reports that fossilized evidence of mammoths and other large game, harpoons, flint tools and suspected burial mounds mark settlements of hunters and gatherers who lived on dry land all around the British Isles – in areas connecting England to France and the Low Countries, as well as the area between Scotland and Denmark. London’s Daily Mail calls it “Britain’s Atlantis.”

Interesting stuff, you say, but what the heck does it have to do with energy?

It turns out divers with oil companies that are operating in the North Sea found remains of the submerged world, the Daily Mail reports, and scientists have used industry geophysical modeling data to help piece together what the area looked like when it was dry ground. Research team leader Richard Bates, a geophysicist at the University of St. Andrews:

“Through a lot of new data from oil and gas companies, we’re able to give form to the landscape - and make sense of the mammoths found out there, and the reindeer. We’re able to understand the types of people who were there.”

There’s much work to be done, Bates says: 

"We haven't found an 'x marks the spot' or 'Joe created this', but we have found many artifacts and submerged features that are very difficult to explain by natural causes, such as mounds surrounded by ditches and fossilized tree stumps on the seafloor. There is actually very little evidence left because much of it has eroded underwater; it's like trying to find just part of a needle within a haystack. What we have found, though, is a remarkable amount of evidence, and we are now able to pinpoint the best places to find preserved signs of life."

We’ll let you know if they turn up any signs of pre-historic oil and natural gas exploration.

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EPA’s Unjustified Particulate Matter Proposal

Three good reasons EPA should shelve a proposal to tighten its air pollution standard governing particulate matter:

Science doesn’t justify it.Current control programs are working.A more stringent standard could harm jobs and economic growth.

EPA is scheduled to hold public hearings on its PM 2.5 standard today in Philadelphia and Sacramento – part of a commenting period that runs into August. The proposal, which is to be finalized by the end of the year, would tighten the standard from 15 micrograms per cubic meter to 12 or 13 micrograms.

API’s Howard Feldman, director of regulatory and scientific affairs, discussed the proposal during a conference call with reporters:

“Changing the standard should be supported by clear scientific analysis. The science in this case cannot demonstrate a proven ‘cause and effect’ between levels below the current standard and health consequences. In part, this is because in EPA’s analysis it failed to adequately address confounding factors. EPA also assumed rather than demonstrated a linear relationship between pollution and health effects, concluding that harm to health must occur even at very low levels.”

Feldman, who was to deliver testimony in Philadelphia, said a tighter standard could result in higher costs for providing and using energy, meaning fewer businesses would be created, fewer would expand and fewer workers would be hired. Feldman:

“Existing control programs are working. According to EPA, between 2000 and 2010, concentrations of PM 2.5 in the air fell by 27 percent. As a result, more than three-fourths of Americans today live in areas where air quality meets today’s standards.”

Dr. Julie Goodman of Gradient, an expert in toxicology, epidemiology and in assessing health risks from chemicals in products and the environment, also joined the call. Goodman said EPA has not produced “coherent evidence” that a new PM standard is necessary:

“There’s no evidence that lowering (the standard) 2 to 3 micrograms will have any effect on health. In other words, there’ll be no (real) health benefits from lowering the standard.”

Goodman’s remarks for the Philadelphia hearing can be read here.

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Lights, Cameras…Fracking!

Great time Thursday night at the grand, lovely Warner Theater in Washington, D.C., for API’s “Big Screen Energy” event, featuring film trailers from pro-energy documentaries on hydraulic fracturing including “Truthland,” “Empire State Divide” and “Frack Nation.” After the trailers, representatives of the films talked about their projects and answered questions from the audience. Some important points that emerged:

#1: Shale Energy = Economic opportunity

For lots of people in the Marcellus Shale portions of Pennsylvania, energy from fracking is helping them alter the courses of their lives. And it could help even more if New York state approves hydraulic fracturing on some scale. “Empire State Divide’s” Karen Moreau said New York agriculture needs working capital to survive. Energy development from that state’s portion of the Marcellus could supply that, keep farms operating and allow them to be handed off to the next generation, said Moreau, who since making her film was named executive director of the New York State Petroleum Council.

#2: Countering Frack Fiction

“Truthland,” featuring Pennsylvania science teacher and mom Shelly Depue, spends much of its 34 minutes dispelling misinformation about hydraulic fracturing and natural gas development. The film is a step toward centering the national fracking debate on science and fact instead of fear and misrepresentation. “Frack Nation’s” Phelim McAleer said some opponents aren’t interested in responsible development; they want to block natural gas altogether.

#3: The Right to Prosper

Moreau said the divide in New York over fracking is actually a property rights test – whether individuals may develop resources on their land. She said some opponents of natural gas development in New York’s southern tier, the counties in the Marcellus along the Pennsylvania border, aren’t residents of those areas. Still, they are trying to control or block development. The contest is still playing out, as state officials weigh how much development, if any, to allow.

Again, the evening provided an interesting perspective on an important public policy issue. At the center of it is a truth, noted by McAleer: the ability of energy to lift lives, to lift standards of living. McAleer said the lack of affordable, reliable energy usually characterizes areas that are impoverished and unhealthy – places where people have little chance to lift themselves. Energy changes that, he said.

In energy from shale, the United States has an historic opportunity to be more prosperous – with abundant fuel for the lifestyles of its citizens and the power to revitalize critical industries like manufacturing and chemicals. The U.S. also can make its future more secure, less dependent on imports. Industry’s role is to develop these resources safely and responsibly. It is doing this while striving to continually improve technologies and performance.

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Oil and Natural Gas Companies: Betting On America

Who’s doubling down on America? Companies in the U.S. oil and natural gas industry, which owned five of the top 11 spots on the Progressive Policy Institute’s list of the top 25 nonfinancial U.S.-based companies, ranked by their 2011 capital spending inside this country:

Kudos to PPI for compiling this interesting list. ExxonMobil ranked No. 3 with $11.7 billion in U.S. capital expenditures and was joined on the list by No. 6 Occidental Petroleum ($6.2 billion), No. 7 ConocoPhillips ($5.6 billion), No. 9 Chevron ($4.8 billion) and No. 11 Hess ($4.4 billion).

It’s more than a novelty or a talking point. The $136.2 billion in capital spending by these companies was a direct input into the U.S. economy. PPI:

"Domestic business investment generates growth, raises productivity, increases wages and creates jobs for Americans. It can span the gamut from new office buildings to improved production lines to faster communications equipment to deeper natural gas wells."

Indeed. America’s oil and natural gas companies support 9.2 million jobs and contributed $476 billion to the economy in 2010. PPI calls the top 25 companies “Investment Heroes” for plowing dollars into growth and job creation. PPI’s overarching point is that more capital investment is needed to get the economy rolling again. The key is unlocking those private dollars.

Though it has invested a lot already, the oil and natural gas industry is willing to do much more. With greater access to U.S. natural resources, onshore and offshore, the industry could create 1.4 million jobs and generate $800 billion in revenue for governments. This will require policy changes – including a commonsense regulatory structure and a positive, proactive approach to developing America’s energy assets. As PPI notes:

"Multiple layers of regulation, even if well-intentioned, have the impact of discouraging capital investment and innovation."

Former Shell president John Hofmeister talked about that very point at an energy forum this week hosted by the New America Foundation. Hofmeister said government must decide whether it will be an “enabler of prosperity” or a “disabler of markets”:

“I think if I’m heading an American oil company looking at use of capital in America, I would be very careful, I would be selective. And I think that’s what we’re seeing.”

The good news is that despite the current investment climate, America’s oil and natural gas companies are investing in America – and can be an engine that drives the entire economy.

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