Primary energy regulation by states, industry already adopting cleaner, more efficient technologies
While President Donald Trump continues to suck the oxygen from news cycles with controversy after scandal after midnight twitter war, the American oil and gas industry is preparing for a steady as she goes approach to energy and climate policy.
This may surprise some readers who have read inflammatory comments from American Petroleum Institute CEO Jack Gerard or Continental Resources CEO Harold Hamm, once rumoured to be the leading candidate to head up the Dept. of Energy, about a Trump energy revolution.
Trump actively courted energy companies during last year’s campaign, promising to slash Obama Administration regulations and restrictions, creating millions of jobs in the process.
And he has followed through on some of those promises. For instance, newly confirmed Environmental Protection Agency head Scott Pruitt – who frequently sued the EPA while Oklahoma attorney general – wasted no time gutting the Waters of the US rule.
But there are limits to what Trump can do, according to Bernadette Johnson, VP of market intelligence for Drillinginfo. I interviewed Johnson for a Markham On Energy webinar in Jan. before Donald Trump’s inauguration. The interview has been edited for clarity.
MH: One of the things that President Trump ran on during his campaign is reducing the amount of regulation on oil and gas producers. Is that going to have a significant impact on break-even costs for gas and oil producers in the Basin and other shale basins?
BJ: We don’t believe it will. Where you’re going to see some definite changes is the administration, of federal land, including the Gulf of Mexico. For instance, there is a lot of federal land in the Rockies and with the Obama administration the permitting times were pretty long. There were additional regulations that were being proposed. It made for a very difficult environment for a producer to go in and say, “I’m going to develop my federal land.” That in many ways gets easier. That doesn’t really apply to much of Texas, but it does apply to New Mexico.
It goes back to economics. Do we really need to develop that federal land large-scale? We probably don’t because we have other options in the Permian, in the Eagle ford and Texas, up in the Northeast. None of those regions are really going to be impacted widely by the Trump Administration.
MH: What effect will scaling back the EPA regulations have on the American oil patch, particularly in the Permian?
BJ: We don’t know exactly what’s going to happen with the EPA – with clean water, with clean air rules – and that could play a role. But generally companies are also beholden to their shareholders and the overall push is to develop these resources as cleanly and as safely as possible. That need doesn’t go away just because you have some small regulatory changes.
We’ve gotten very efficient, very good at producing these hydrocarbons safely and cleanly, and reducing the carbon footprint. I think those trends are just going to continue because we are in a world where we have to compete with renewables and other clean energy technologies. We don’t think it’s going to be a wide-scale change because of the Feds.
MH: There’s talk about how the trend towards being more efficient, less carbon-intensive, is now baked into the culture of the oil patch in a way it wasn’t ten years ago. It sounds like you agree with that?
BJ: That’s fair to say. You also have most oil and gas regulations are administered at the state level. For instance, Colorado has led the charge on capturing additional natural gas. That’s a state-level rule, that doesn’t change with the Trump Administration.
And technology has changed. We are better at capturing the gas. We use the flared gas from some of these wells – we’re better at capturing that now. Once we have the technology, once we know we can make it work efficiently, there’s no reason to go backwards, especially considering we don’t know what’s going to happen in four years with the next election. We don’t know what’s going to happen in eight years after a new administration comes in.
All signals are – from public, from shareholders, from everyone – “We need to do what we do efficiently, safely, and in the best way possible.” If anything that need just grows over time.
MH: United States has gone from using coal for 49% of its power generation coal down to 30% in 2016. What are the trends for coal and natural gas as fuels for making electricity?
BJ: We track power demand for natural gas pretty closely and we believe gas demand from power generation will continue to grow. We track all of the facilities we’re building, we track the coal retirements, and all signals point to additional gas being used in the US for power going forward.
Gas is a logical backup for any kind of renewable – whether it’s solar or wind – because gas plants can fire up quickly and they’re very efficient. We’re also living in a world now where our gas prices are going to be low for the perceivable future. We had prices up to $14 back in 2008; we haven’t had a price anywhere near that except for very short periods of time because of snowstorms or something since then. We are range-bound for gas prices between about $2.50 and $5 and that’s not going to change.
Because of that, gas is going to be competitive. We can produce a lot of gas quickly, we can very quickly move that gas all across the country to meet power demand. Gas is the logical feedstock to replace coal and to backstop any growth in renewables.
So, we track all of that pretty closely and we are definitely of the opinion that gas-fired power generation is going to grow; renewables are also going to grow. Coal’s going to continue to kind of lose the battle and it’s going to be a source of demand growth for US natural gas markets.