Texas Oil & Gas Regulator: 'Welcome to Texas, We're Glad to Have You'
For oil and gas producers and pipeline developers concerned about the Biden administration's early moves to more tightly regulate and restrict their business, the chairwoman of the Texas agency that regulates oil & gas drilling has a countervailing message: Come to Texas.
Separately, Texas Governor Greg Abbott threw a Texas-sized challenge at Biden's moves: In a January 28 executive order, Abbott directed "every state agency to use all lawful powers and tools to challenge any federal action that threatens the continued strength, vitality and independence of the (Texas) energy industry. Each state agency shall work to identify potential litigation, notice-and-comment opportunities, and any other means of preventing federal overreach within the law."
"Regulatory overreach in the energy sector ... can damage the stability of the Texas economy and the livelihoods of countless Texans," the order continued, adding that Biden's early executive orders "signaled extreme hostility towards the energy industry, and thus towards Texas."
In other words, like the bumper sticker says, "Don't Mess with Texas."
Speaking on a late-January virtual executive oil conference on the Permian Basin organized by Hart Energy (Houston, Texas), Christi Craddick, chair of the Texas Railroad Commission (RRC) (Austin, Texas), said less than 5% of Texas' land was federal land. So executive orders from the president pausing new oil and gas leasing and permitting on federal lands doesn't apply to 95% of the state's land, though she did not address Texas' federal waters. "We've got some of the best rocks in the world," she said, adding the state's business environment is, "Welcome to Texas, and we're glad to have you."
For more on the Biden's administrations executive orders on oil and gas leasing and permitting on federal lands and waters, see January 28, 2021, article - Big Oil, Big Business Slam Biden's Pause on New Oil & Gas Leases on Federal Lands and Waters.
"We're a little less effected in Texas by the Biden administrations executive orders," she commented. "But there are methane (flaring) rules, there are pipeline rules, there is the Waters of the U.S. rule. We assume most of the 140 rules that were changed by the Trump administration will be coming back at us."
Given that, she expects operators and the state will push back, arguing against inflexible rules when it comes to energy and environmental regulations: "A one-size-fits-all regulation from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) doesn't work because Texas is different from Oklahoma."
While the Lone Star State is famous for its go-it-alone ethos, Craddick said Texas needs a supportive federal partner to fully realize its oil and gas potential. "Will the Federal Energy Regulatory Commission (FERC) (Washington, D.C.) continue to permit pipelines? You can drill all you want, but if you can't get it to market, it doesn't matter."
She questioned if the Biden administration's commitment to lowering carbon dioxide (CO2) emissions also could cause it to stop permitting liquefied natural gas (LNG) export terminals. Corpus Christi and the Port of Houston plan to do a lot of dredging now, partly to accommodate larger LNG tankers, Craddick noted. But if Biden freezes LNG export permits, some of that investment will be wasted.
Production of oil, natural gas and natural gas liquids (NGLs) are almost back to what they were before the COVID-19 pandemic, Craddick said. Prior to the pandemic, Texas produced about 4.3 million barrels of oil per day (BBL/d), and today production is just under 4 million BBL/d. Other speakers at the conference predicted production from the Permian Basin alone would approach 5 million BBL/d by 2030.
Natural gas production reached about 28 billion cubic feet per day (Bcf/d) prior to the pandemic, and it has returned to that level of production now, Craddick said.
She added that NGL production has actually grown, from 13,000 BBL/d before the pandemic to roughly 16,000 BBL/d now.
"We're almost back to where we were pre-COVID," she said.
But the efficiency trends that have resulted in more production from fewer drilling rigs continue to cast a shadow over oilfield services companies. The state has about 165 drilling rigs working now, down roughly 66% from the pre-COVID period, she said. Yet production is nearly back to what it was a year earlier.
"The industry has figured out how to be more innovative, more efficient, and how to use technology smarter so that we're producing about what we did last year" with far fewer rigs, she said. "We expect drilling permits to be down in 2021, but with little impact on production."
"The industry is not completely out of the woods yet," she said, although oil and gas producers have largely recovered from the nadir of last spring, when a price war between Saudi Arabia and Russia, on top of plummeting demand caused by the pandemic, briefly drove the price of West Texas Intermediate oil to -$37.63 per barrel. Today, a barrel of West Texas Intermediate crude sells for about $52.
She criticized the Biden administration for "changing the rules and putting a lot of uncertainty into the market" when it comes to production and pipelines. She said Texas understands the importance of consistent rules.
Calling flaring "the biggest challenge facing Texas, New Mexico and North Dakota," Craddick said, "a lot of that had to do with takeaway capacity. We need pipelines to continue to be built here; we're going to need that infrastructure."
Craddick said the RRC has been asking "a lot more questions (of producers and pipelines) over the last 18 months about current takeaway capacity: what the plan is for future takeaway capacity, [and] are there opportunities to flare less gas." She said flaring was down to 2% in the Permian, and "if anyone has a magic bullet (to reduce flaring), we'd love to hear it. Being overly onerous is not the right answer."
While she expressed confidence in the state and its energy industry, Craddick acknowledged "the challenge is just beginning. We weathered the Obama administration and managed to do pretty well." So maybe the Biden administration, despite its early moves, won't be that bad after all?