OKLAHOMA CITY– Energy executives say their industry is paralyzed; environmentalists wonder what happened to policies promising alternative energy. The next four years could shape the American energy landscape for decades.
On Friday, five of the best minds in energy in Oklahoma sat down to discuss how the election will affect our nation’s energy policy for generations to come.
Miles Tolbert, energy and environmental attorney and director at Crowe and Dunlevy law firm, joined Harold Hamm, chairman and CEO of Continental Resources; J. Larry Nichols, executive chairman of Devon Energy; Oklahoma Secretary of Energy Michael Ming; and environmental and energy attorney Jim Roth.
For those in the energy industry, the next four years are the best of times and the worst of times, Tolbert said.
Hamm said, and Nichols agreed, that for the first time in their lives, North America could achieve energy independence. That accomplishment is not just technologically remarkable; both consider it a patriotic feat.
If America stopped importing oil, U.S. troops would no longer have to die to protect energy resources in the Middle East, Hamm said.
But an increase in federal regulations from the Environmental Protection Agency and the Fish and Wildlife Service stands in the way of drilling our way to freedom from Middle Eastern petroleum, the energy executives said. To add insult to injury, these executives believe some Americans are opposed to all fossil fuels at any cost. This future of solar and wind energy only isn’t realistic. All five experts want the administration to be realistic in developing an energy policy that won’t forsake the economy on behalf of the environment.
Not all regulations are bad, Nichols said. But the state has the most experience and the best ability to control environmental damage and safety hazards, he said, and while the president seems to be reluctantly embracing natural gas as a cleaner fuel, his actions and the actions of his administrative agencies will tell the true story.
At a crossroads
Part of the problem President Barack Obama has is that his political base is in favor of renewable energy sources, such as wind and solar. Keeping that political base happy when there’s a newfound abundance of fossil fuels available in the United States is a challenge, said Roth, an attorney with Phillips Murrah.
The Keystone XL pipeline controversy is a perfect example of that crossroads, Nichols said. Labor unions were in favor of building the pipeline from Canada to the Gulf of Mexico, but environmentalists put pressure on the administration to delay the permit to cross international borders.
“He punted on that,” Nichols said. “He endangered our relationship with China, and now Canada is actively working with China to build a pipeline (to supply that market).”
The next four years will show how sincere Obama is about the all-of-the-above approach to energy policy, Ming said. As new supplies of oil and gas came on-line in the last few years, producers helped keep the Oklahoma economy above water, he said.
“Our policy is that the greenest thing we can do is take the energy we have and make it better,” Ming said.
Drilling a single well deeper and longer can tap more resources underground with less effects to the surface, he said.
State knows best
Energy executives and state officials see new federal regulations as unnecessary and burdensome. New air quality rules will limit smog-forming pollution and hazardous chemicals emitted by power plants, drilling operations and oil tank farms.
Roth said that the EPA doesn’t have the resources to regulate Oklahoma operations to the level of that by state agencies.
Nichols said the federal agency doesn’t have the decades of expertise, either. Hamm agreed, saying the first state rules on underground injection in oil and gas drilling were created in 1913.
In the absence of environmental harm or safety risks, more regulations only hinder the oil and gas industry, Nichols said. He said some regulations are necessary; a fly-by-night operator that doesn’t follow basic safety or environmental standards gives the entire industry a bad reputation.
However, there are some instances in which the state intervenes in the market, Roth said. Without the state supporting Oklahoma Natural Gas building compressed natural gas stations in rural areas, the alternative-fuel stations likely wouldn’t get built at all. There isn’t enough demand for a business such as OnCue or Love’s to invest in a CNG station. But on a national level, Hamm and Nichols agreed that government policies promoting natural gas exports are unnecessary.
Nichols said it isn’t a good idea to interfere with the free market, especially when it comes to exports. Ten years ago, dozens of terminals were built on the coasts to import liquefied natural gas. But as advances in technology increased natural gas supplies in the U.S., the Energy Department is now considering ways to export that commodity. There are 20 billion cubic feet per day of capacity to import natural gas, and those terminals are mothballed.
Nichols said he doesn’t think the U.S. will ever export much natural gas. But industry needs the ability to do so, to have a safety valve of sorts.
“I would not invest a penny in LNG export plants,” he said.
On Friday, the oil terminal in Cushing lost its status as the benchmark for West Texas Intermediate. There has been a bottleneck at Cushing, due in part to a lack of pipeline infrastructure. The oversupply and excess storage led to a depressed price for WTI crude, $22 less than Brent crude. That price differential means a $100 million loss to Oklahoma each year, Ming said.
Losing the benchmark is unfortunate, Hamm said, but could also create a positive effect for Oklahoma. Because there isn’t pipeline infrastructure for Continental to send its vast supplies of Bakken crude oil from North Dakota, the company is shipping the commodity by rail to markets on the East and West coasts.
Industry insiders say the southern leg of the Keystone XL pipeline from Cushing to Gulf Coast refineries, now under construction, will provide a crucial link.
“You need sufficient takeaway capacity,” Hamm said. “If you don’t have that, there is a chance to destroy the market.”
Hamm said another type of crude will be the new benchmark.
“The Bakken will become a premium benchmark before it reaches 1 million barrels per day of production,” he said.
What Hamm dubbed the BKN has the best oil in the world, he said – a higher grade with fewer impurities that is ideal for the gasoline and diesel refinery markets. Because producers are taking their products to higher-priced markets, that could improve gross production tax receipts, he said.
Rhetoric and reality
The difference between the rhetoric among politicians in the nation’s capital and the reality of how the energy industry evolved in the last several decades is obvious to Hamm and Nichols.
Obama taking credit for the increase in natural gas drilling in the last several years is disingenuous, Nichols said.
Hamm said the president’s attitude toward the energy industry is caustic.
Ming said that while it is encouraging to hear the president talk about developing fossil fuels in the U.S., he wants to see the policy to back it up.
Hamm and Nichols agree that there is hope for the future. New drilling technology will produce what they estimate is more than a hundred years’ worth of energy supply.
“There is a case for optimism in America,” Hamm said. “For people who oppose fossil fuels, there is still a lot of supply left.”
Nichols said that every president since Richard Nixon has promised to achieve energy independence in their term of office.
“All my life I snickered at that,” he said, “but with the technology we have, for the first time in my life I think it is possible, at least for North America.”
But Obama’s attitude toward fossil fuel projects is hostile, from new coal-fired power plants to the Keystone XL pipeline, Nichols said. New air quality regulations threaten these developments from becoming a reality. To Oklahoma’s energy experts, these regulations are slowing the progress of U.S. energy independence.
Ming said that local experts don’t get recognized for their contribution to the path to energy independence. In an April Fortune Magazine article listing the 12 greatest entrepreneurs, Bill Gates of Microsoft and the late Steve Jobs of Apple made the list.
“There was no Aubrey McClendon (of Chesapeake Energy), no Harold Hamm, no Larry Nichols,” Ming said. “There were no people who literally changed the energy supply in America. That hasn’t’t been recognized.”
The president is in a political bind: He promised an alternative-energy future to his base, but it is impossible to get rid of fossil fuels overnight without bringing the country to a near-grinding halt. Our economy is built around fossil fuels, and these resources are necessary to transition to a less-polluting future.
Ming’s idea to make the oil and gas more efficient and have less effects on the environment is a good way to get to that bridge. He is hoping that Oklahoma and its energy experts can lead the rest of the country there.