Internet Oil Drum

With the boom in unconventional oil and gas development, the petroleum industry is ready to rock and roll.  I guess that is why the Rolling Stone Politics page did an article on March 1 called “The Big Fracking Bubble: The Scam Behind The Gas Boom” by Jeff Goodell.

I don’t know the author’s background, but it doesn’t seem to be the oil business.  He mentioned that Kerr-McGee was the ExxonMobil of its time.  I don’t recall Kerr-McGee ever being called one of the Seven Sisters of that — or any — time like Exxon and Mobil were before those companies merged.

Chesapeake Energy and hydraulic fracturing were the main targets of the piece.  He noted that Chesapeake blasts apart rocks and pumps natural gas to the surface.

Blasting apart rocks conjures up some other visualization of how the fracturing occurs rather than using pressurized water to create cracks in the formation.  I’m not sure how the oil company is “pumping” gas to the surface, but later in the story the author did correct that point, saying that the oil and gas flowed to the surface.

The article compared the current unconventional gas boom to the sub-prime mortgage mess before that industry went south.  He didn’t mention, though, that the same boom is providing jobs and expanding the economy, which in turn is bringing us out of the recession fueled by the sub-prime mortgage fiasco.

Chesapeake, the author pointed out, has 15 million acres under lease, and, to paraphrase the article, has turned “large swaths of farmland into industrial moonscapes.”  Those must be much larger drilling pads than I thought the company was using.

With its recent farm-outs, the company is more like Enron than ExxonMobil.  Goodell quoted someone that is said to be a Texas energy consultant, who likened Chesapeake’s financial operations to a Ponzi scheme and accused the industry of “magical thinking.”

The author does like those Oklahoma oil hands — Aubrey McClendon, Robert S. Kerr and T. Boone Pickens.  It must have been something endemic to the state that had all of these native sons in the oil and gas business.  The article did mention one Texan — George Mitchell — as the reason for hydraulic fracturing leading to the unconventional gas boom.

This is a tongue-in-cheek look at the article.  It is a mix of facts and a rehash of all the negative information regarding hydraulic fracturing.  The article cherry picks phrases designed to be inflammatory – “dire warnings from scientists and environmentalists,” “junk bonds,” “convoluted off-book accounting,” “dark underbelly of fracking,” “Ponzi scheme,” and “Enron” to name a few.

Regardless of whether you agree with the author or not, the article is reaching a definitely different audience.  In 2011, Rolling Stone’s circulation was 1,467,739, according to Wiki-pedia.   There is no telling how many others, like me, saw it on the Internet and read it.  After all, you don’t see many oil and gas articles in Rolling Stone.

Of course, with most media outlets these days, sensationalism sells.  The idea for the media is that the more outlandish the article, the more people will read the publication or watch the television show (National Enquirer and any “reality” show are prime examples).  The more people that read or watch, the more advertising can be sold.  And, that media is taking the oil industry to task for the way it does business.

This kind of publicity does point to the need within the industry to get its message out to a wider audience using all sorts of outlets — social media, Internet, documentaries (Gasland), and even the Rolling Stone.

It’s time to rock and roll.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

Polarizing actions regarding the polar region involving actress Lucy Lawless, Greenpeace and the Noble Discoverer drillship are making headlines around the world.

Lawless, who has been a celebrity ambassador for Greenpeace since 2009, climbed aboard the drillship at the Port of Taranaki in New Zealand to protest Shell’s plans to use the vessel to drill wells offshore Alaska this year.

The actress and other Greenpeace activists were arrested for burglary on Feb. 27 and taken to jail after occupying the vessel for three days.  They climbed the derrick, unfurled their banners, took pictures of Lawless and got a lot of publicity.

After the protestors were removed, the Noble Discoverer started its 3,730-mile voyage on Feb. 28 to the Chukchi Sea, where drilling operations are expected to begin after Shell receives all of its permits.

If convicted, Lawless will likely be fined, according to the Taranaki Daily News, when she arrives in the New Plymouth District Court on March 1.

A legal expert, quoted by the New Zealand Herald, said the conviction could impact her ability to travel to the U.S., where much of her TV work is done.

One of the funny things that came out of this brouhaha was that Lawless’ past came up to haunt her.  Some 20 years ago, before she gained her notoriety as Xena, she  appeared in a television ad for — of all companies — Shell.

She remembered she was pumping gasoline in the commercial and one of the lines was about the Shell gasoline being the fuel of the future.

Fast forward to the future, and the now 43-year-old has had a change of heart (and income) and opposes Arctic drilling.

That’s the anti-industry campaign and now for the pro-industry campaign.  Colorado Gov. John Hickenlooper is taking heat from environmentalists for appearing in ads paid for the by Colorado Oil and Gas Association.

He was promoting the tougher regulations passed in Colorado, which is now one of the first states that requires full disclosure on fluids used in hydraulic fracturing.   The governor was talking about not having any contamination of groundwater from drilling and fracing since its rules went into effect in 2008.
The environmentalists challenged the claims immediately, using older reports and studies to counter the ads.

These are examples of actions both for and against the industry.  The term I used earlier sums up these efforts — polarizing.  The problem with polarization is that there is little room for effective action and worthwhile dialogue.

The Greenpeace protest in New Zealand was dangerous.  Although it got publicity, nothing has really changed.

The Colorado ads probably won’t change the minds of people on either side of the fracing issue.

There are points to be made on both sides of any issue.  But, like the impasse in the U.S. Congress these days, compromise is not an option for polarizing sides.

It would be great to see more dialogue and less demagoguery.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

After having been relatively quiet in recent years, the Arctic National Wildlife Refuge (ANWR) is once again front page news - and battle lines are being drawn.

A large number of Republicans in Congress are facing off against environmentalists and most of the Democrats in the House of Representatives.   The U.S. Senate will likely vote the opposite way.

The PIONEERS Act was introduced.  It includes provisions for using revenues from new oil and gas drilling projects both offshore and in the ANWR Wildlife Refuge in Alaska to pay for what Congress will spend money on in the next five years.

The bill also includes approval for the Keystone XL Pipeline from Canada.

Not all the Republicans voted yes and not all the Democrats voted no.  The final version passed by a vote of 237 to 187.  An even number of Democrats and Republicans went the other way — 21 each.

As Rep. Don Young (R-AK) said in a statement, this is the twelfth time he has voted to open ANWR.

The act is supported by the American Petroleum Institute, the American Public Gas Association, the Association of Oil Pipe Lines, the Independent Petroleum Association of America, the Interstate Oil & Gas Compact Commission, the Natural Gas Supply Association, and a lot of major oil companies.

One website — MapLight.org — has a motto of “revealing money’s influence on politics.”  In an article posted on the website on Feb. 20, it was noted that U.S. representatives have received almost $12 million from oil and gas interest groups.  Republicans received 86% of the total.

As the article noted, House Speaker John Boehner is the number one recipient of contributions from major (international) oil and gas companies and is among the top 10 recipients of contributions from the entire oil and gas industry to U.S. representatives.

The battle over opening up new areas for exploration, drilling in the Arctic and the Keystone XL Pipeline will likely get even nastier as it goes along.

Shell Oil has been on the front lines in its efforts to begin drilling in the Chukchi and Beaufort seas.  The company recently received approval from the Department of Energy for its spill response plan.  It is one of the final hurdles the company needs to clear to begin drilling.

But, environmentalists and Alaskan Natives still are adamantly opposed to drilling in the Arctic Ocean.

Interior Secretary Ken Salazar said in a prepared statement, “In the Arctic frontier, cautious exploration — under the strongest oversight, safety requirements, and emergency response plans ever established — can help us expand our understanding of the area and its resources, and support our goal of continuing to increase safe and responsible domestic oil and gas production.”

Especially following the Macondo blowout in the Gulf of Mexico, the opponents don’t believe what the DOI secretary says.

Oceana is one environmental organization that doesn’t like the DOI decision.  “We all deserve clean air and clean water,” said Michael LeVine, Pacific senior counsel for Oceana.  “Shell, like anyone else, must comply with the law, and it is the government’s responsibility to enforce the laws that protect our air, water and ocean resources.  Neither Shell nor MMS has lived up to its legal obligations in this case, and it is our responsibility to take action to make sure that our air and water are protected.

“Oceana, local communities, and many others have tried to work with the Obama administration to bring science back to decisions about the Arctic Ocean,” said LeVine.  “Unfortunately, Shell and MMS are focused only on oil and gas, and we have been forced to go to court to have a broader conversation about clean air and water in the Arctic.”

The oil industry continues to face some very tough battles — moving safely into frontier areas, legal challenges and winning in the court of public opinion.

Finding the best and cleanest energy will take all the resources the energy industry can bring to bear.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

“This is the story of a man named Jed,
A poor mountaineer, barely kept his family fed.
Then one day, he was shooting at some food
And up from the ground came a-bubbling crude.
Oil that is, Texas Tea.
The next thing you know old Jed’s a (former) millionaire . . . .”

If you remember the opening sequence to “The Beverly Hillbillies,” you’ll remember crude oil flowing out onto the ground after he shoots his rifle at a rabbit.  That might have gotten by in Jed Clampett’s day, but it wouldn’t happen in today’s world.

All a Tennessee landowner wanted to do was drill a new waterwell.  But, now, instead, he faces a massive clean-up bill for oil that began seeping out of the ground after the waterwell was drilled.  At that rate, he’ll be a former millionaire before he even gets a chance to be a millionaire.

A story in the Feb. 14 edition of The Tennessean noted that the Rev. John Gouldener is now one of those oil polluters quite by accident.  And, he has no idea how much the clean-up of his oil spill will finally cost him.

As the newspaper noted, state and local officials have been putting a lot of effort into sopping up the oil spill, which seeped out of Gouldener’s property and into Brushy Creek.  His property is just outside the Fairview, TN, city limits and southwest of Nashville.

The newspaper had pictures of oil-absorbent booms draped across the creek and noted that you could easily smell the crude oil.  The oil is migrating from holes in the creek bank and the creek bed.

The state agencies believe the waterwell drillers tapped into a shallow oil reservoir on the minister’s land.  Although the cause of the leaking oil has been identified yet, inspectors think the waterwell opened the oil flow.

The oil was still flowing over the weekend of Jan. 11-12.  The state agencies were getting a little antsy, hoping the oil flow would stop.  If not, a more aggressive response would be needed, which would run up the bill for the clean up.

Gouldener is the pastor of Crossroad Community Church in Nashville.  The 66-year-old “oilman” is afraid the “wildcat” well will cost him money.  It’s not quite the same thing that Jed Clampett did.  Gouldener won’t be moving to “Californy.”

According to the newspaper, state records show that 77 wells have been drilled in Williamson County where the oil seep is.  All of these wells are classified as either dry holes or water wells.  There are no oil producing wells in the county.

The oil in Brush Creek has been slow in coming.  The oil has likely migrated through the aquifer to the creek.  The waterwell was drilled last fall, and only recently has anyone noticed that it was coating the creek’s surface.

The townfolks are wondering how long the oil has been has been filtering into the creek, how much oil has floated downstream and how much longer it will be a problem.

Gouldener drilled the water well because the underground spring on his property dried up, the newspaper added.  He’s only owned the land for a year.

State geologists expect the reservoir to empty fairly soon, if the well follows the patterns of similar oil discoveries in the state.

You’ve got to have some sympathy for Gouldener.   After all, he wasn’t looking to be swimming in oil.  Think of all the oil companies that have been looking for oil and only found natural gas.  Maybe those companies should put him to work since his oil-finding record is 100%.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

Don’t tell Virginia Gov. Bob McDonnell that President Barack Obama’s administration is opening up vast amounts of offshore acreage for exploration.  He fully supports drilling off the Virginia coastline but the federal government has its heels dug in and is ignoring his pleas.

“For too long, the Obama administration has hindered the development of valuable domestic energy resources located off the Virginia coast which provide the potential for a safe, cost-effective and economically viable source of domestic energy production for our state and for the nation,” McDonnell said in a press release on Feb. 2, following the passage of legislation by the U.S. House of Representatives Natural Resources Committee to open new offshore areas.

On Jan. 26, during a speech in Las Vegas, President Obama said, “We’ve opened millions of new acres for oil and gas exploration.  Right now, American oil production is the highest that it’s been in eight years.  Eight years.  Last year, we relied less on foreign oil than in any of last 16 years.  We’re moving in the right direction when it comes to oil and gas production.

“And today, I’m announcing that my administration will soon open up around 38 million acres in the Gulf of Mexico for additional exploration and development, which could result in a lot more production of domestic energy,” he added.

But, are these really “new” acres for oil and gas exploration and production?  The acres are not new according to the National Oil Industries Association (NOIA).

“We’re pleased to hear that the long delayed Central Gulf of Mexico sale will finally occur in June.  Sales are an essential step in providing much needed American jobs and energy, not only in the Gulf of Mexico, but across the country,” said Randall Luthi, NOIA president.

“However, this sale has been on the books since 2007 under the current five-year plan.  It’s nothing new, nor is the claim that 75% of the resources on the OCS are open to development. It is just smoke and mirrors to hide the fact that we’re still exploring in the same areas we have been for the past 30 years,” he emphasized.

On the Dept. of the Interior’s website, it was noted that the agency manages 1.7 billion underwater acres of Outer Continental Shelf.   Let’s see, 75% of that is 1.27 billion acres.  And, Pres. Obama was bragging about 38 million acres (2.2%) in the Gulf of Mexico.  And, most of that acreage has been offered multiple times.

The Virginia governor, a Republican, and the state’s two U.S. senators — Mark Warner and Jim Webb, who are Democrats — support opening up the acreage offshore Virginia.

The legislation introduced by the U.S. House committee was passed on a bipartisan vote of 25 to 19 and would reopen the area offshore Virginia.

“In his State of the Union speech last month, the president stated that the road to economic prosperity and energy security for our nation must be built upon an ‘all of the above’ approach to responsible energy exploration and production,” McDonnell stated.

“That is the approach our nation needs. That is the approach Virginia supports. We must utilize all of our domestic energy resources, from oil and gas and coal and nuclear, to wind and solar and biomass, to generate energy and create new jobs for our citizens. As part of this comprehensive approach, we should utilize the offshore oil and gas deposits available right here off the coast of Virginia,” he continued.

And, the governor knows the value of oil and gas exploration and development to the state.  In a 2010 study, it was estimated that offshore oil and natural gas exploration and production in Virginia could create 1,900 new jobs, add $365 million to the gross domestic product and provide $19.5 billion in new government revenues at the federal, state and local levels.

“We need more energy, and we need more jobs. Offshore energy production will help provide both. It is an important component of the all-of-the-above approach that the president has advocated, and Virginians support,” he added.

The president backs Virginia’s request.  Congress backs Virginia’s request.  And, what is the Dept. of the Interior’s (DOI) position on this?  Well, because of the U.S. Navy base at Newport News, VA, the entire area is being saved for naval exercises.

McDonnell even had a “informal” conversation with DOI Sec. Ken Salazar about the leasing program.  Salazar gave him the same excuse.  Given that the U.S. military is the largest user of fossil fuels in the country and that the president ordered more lease sales, you would think that the Secretary of the Interior would be more interested in opening up more offshore acreage to finding oil.

The legislation introduced in the House, though, deals with “the treatment of lease sale blocks that conflict with important military training areas,” McDonnell said.  “I think it’s a huge missed opportunity for energy independence.”

In a separate interview reported by the Associated Press, Salazar was said to have stated that seismic testing is planned for a triangular area off Virginia to assess how much oil and gas is there.

Somebody should tell Salazar that drilling is the only way you can find out if oil and gas is there.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

America’s Natural Gas Alliance (ANGA) hosted a reception at the Museum of Fine Arts in Houston on Jan. 23 and one of the pieces of “art” on display was a brand new, LNG-powered Peterbilt truck.

It was an impressive display of the latest technology for LNG-powered vehicles.  The truck was fitted with 120-gallon tanks that give the vehicle a range of about 600 miles.  The engine includes Westport Innovations’ high-pressure, direct-injection (HPDI) fuel injection technology.

ANGA was using the occasion to honor Texas State Sen. Tommy Williams for his landmark natural gas vehicle legislation, passed by the 2011 Texas Legislature, that will pave the way for wider-scale deployment of lower cost, cleaner fuel vehicles across Texas.

ANGA’s Texas State Committee presented Williams with the Blue Flame Award for his work with local and state elected officials to highlight the benefits of Senate Bill 20, his legislation that created the Texas Clean Transportation Triangle, which is a sustainable network of natural gas refueling stations connecting Houston, San Antonio, Austin and Dallas/Fort Worth along I-10, I-35, and I-45.

That would be the second major LNG transportation triangle in the country.  The first network is from San Francisco to Los Angeles to Salt Lake City.

As these networks begin to expand, the long-haul trucking industry is in for some big changes in fuels and delivery systems.  Clean Energy, T. Boone Pickens’ company, completed its latest LNG fueling station in Las Vegas near the UPS Depot.  This is another link in the chain of stations from Los Angeles to Salt Lake City.

President Barack Obama used the occasion, speaking at the UPS Depot, to promote gas-powered trucking. Obama proposed several federal initiatives including getting more natural gas vehicles on the road, offering new tax incentives to help companies buy more clean trucks, working with the private sector to help develop natural gas fueling stations and launching a competition to encourage new breakthroughs for natural gas vehicles, according to Clean Energy.

Clean Energy committed in 2011 to support development of “America’s Natural Gas Highway” from the West Coast to the East Coast and from the Canadian border to the Mexican border by building the backbone network of 150 fueling stations.  About 70 LNG stations are expected to be open in 33 states by the end of 2012 and the balance in 2013.

Having covered the LNG-powered transportation business for 11 years, I can say this effort has been a very long time in coming.  Development of LNG/CNG fuel stations was very sporadic and widely scattered across the country.

Now there is an even greater push for long-haul trucking to begin using LNG as a fuel.  Virtually every major trucking company has studied LNG for fuel, but the infrastructure was lacking.  Now, with a surplus of shale gas production, LNG-powered trucking is getting a huge boost in switching from diesel to natural gas.  It is excellent to see more widespread use of domestic natural gas resources in backing out petroleum imports.

And, it is not only LNG-powered trucks we’re beginning to see, but also ships.  According to a Jan. 6 announcement from the American Bureau of Shipping (ABS), offshore supply vessels (OSVs) in the U.S. Gulf Coast region are seen as likely targets for switching to LNG for propulsion fuel — at least partly replacing marine gasoil (MGO) or heavy fuel oil (HFO).

ABS recently classified two new LNG/diesel dual-fueled OSVs under construction in Houston for Harvey Gulf International Marine.

“This is likely to be the beginning of a trend for OSVs in the region.  The availability of LNG and the implementation of the U.S. [marine vessel] Emission Control Area (ECA) starting in August 2012 make it a natural choice for fuel both from the commercial and environmental point-of-view,” explained ABS chief engineer Kirsi Tikka.

The new Harvey LNG vessels “will be among the first to be classed under the ABS Guide for Propulsion and Auxiliary Systems for Gas Fueled Ships released in May 2011,” according to ABS.

Shane Guidry, Harvey Gulf International Marine chairman, added that “these will be the first dual-fueled LNG-powered vessels under the U.S. flag.”

Of course, the effort to power offshore vessels with LNG isn’t new.  In 1987, the University of Alabama (UA) placed an LNG-powered, 70-ft. shrimp boat into service in the Gulf of Mexico and operated it until 1990.  The LNG was used to freeze the shrimp as well as power the vessel, saving $10,000 per year in ice purchases, according to UA.

UA also completed preliminary designs and studies for CNG- or LNG-powered 130-ft. crewboats for Exxon in Santa Barbara, CA, in 1992 and for Amoco in New Orleans in 1994. The U.S. Coast Guard approved the Exxon preliminary design.

Statoil has been using LNG-powered service vessels in the North Sea for several years.

There is a wealth of information on LNG-fueled transportation available today.  We should use more of it and open up new domestic markets for natural gas.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

In the Monday Morning Report for Jan. 23 from the California Independent Producers Association and California Natural Gas Producers Association, the lead article was about Democrats from Ohio, California, Rhode Island and Michigan co-sponsoring the Gas Price Spike Act (House Resolution 3784).

Yes, our Congress is once again after a windfall profits tax.  This is the latest effort from people who wouldn’t know a balanced budget if it bit them and would find ways to fritter away any income from such legislation.

The bill would apply a windfall tax of 50% to 100% from profits on sales of oil and gas when those profits are between 100% and 102% of a “reasonable profit.”  The tax would escalate to 75% when profits are between 102% and 105% of reasonable.  And above 105% of reasonable, kiss it all good bye.

Dennis Kucinich (D-OH) is leading the charge to control oil company profits.  John Conyers Jr. (D-MI), Bob Filner (D-CA), Marcia Fudge (D-OH), Jim Langevin (D-RI) and Lynn Woolsey (D-CA) are also behind the effort.

Here is one of the major industries creating jobs in the U.S. and Congressional Democrats are out to hamstring that industry.

According to Kucinich, the tax revenues would be used to fund alternative transportation programs when oil and gas prices spike.  What exactly would alternative transportation be?  The money would be used to fund a tax credit to purchase a fuel-efficient cars and a grant program for mass transit programs.

The bill would set up a “Reasonable Profits Board” to determine what would be a “reasonable profit.”  Of course, the legislation provides no specific guidelines for determining that magical number.

The board would consist of three members nominated by the president.  Each member would serve a three-year term.  There would be no nominees from Congress.  Now, that’s a relief.

No industry representatives or anyone who has a financial interest in the oil and gas industry would be allowed to determine reasonable profits for that industry.

The Congressmen don’t know how big the grants would be or how much money might be collected from the tax.  You can bet they will be licking their chops on how to get their hands on that money to spend on their pet projects.  The original intent will be lost.

It makes you wonder if they actually do understand what that kind of legislation would do to oil and gas prices.  Without reinvestment in exploration and production, there will be less domestic oil and gas, and those oil and gas price spikes will be even worse.

Given the investment in the shale plays, natural gas price spikes have been few and far between recently.

In listening to President Barack Obama’s State of the Union message on Jan. 24, there is greater acceptance in the current administration about the contribution the oil and gas industry is to job creation and economic growth.

Lower natural gas prices, for example, will certainly boost his goal for bringing manufacturing back to the U.S.

Could the oil companies pay more taxes?  That is probable.  But a windfall profits tax is not the way to do it.  The oil companies wouldn’t be able to make the investment to tap into that 75% of federal offshore acreage the president said his administration was going to open up.

Contact the author, Scott Weeden, at sweeden@estreet.com.

An article on the Forbes website on Jan. 18 noted that Judge Daniel Hovland of the U.S. District Court in North Dakota dismissed criminal charges against three oil companies operating in the Bakken shale play for killing six birds in slush pits.

Brigham Oil & Gas, Newfield Production and Continental Resources were the target of the charges brought by the U.S. Dept. of Justice on behalf of the U.S. Fish & Wildlife Service.

It is a good example of the law of unintended consequences, which seems to be engaged frequently when government agencies go after one aspect of an issue without looking at the broader picture.  It sometimes looks as though these agencies are trying to make new laws rather than enforce the ones on the books.

Hovland’s ruling in this particular case provides an example of how far reaching some of these agencies’ decisions can go awry.

The suit was based on the Migratory Bird Act of 1918.  The case was based on four mallards, one northern pintail, one red-necked duck and a say’s phoebe that were found in the slush pits.

As the judge pointed out, the Migratory Bird Act is too vague to be the basis for criminal charges.  As Forbes noted, he doubted that Congress meant to criminalize the deaths of birds by drilling operations.

The act was originally written to address poaching and out-of-season “taking” or “killing” migratory birds, not the accidental killing of those birds.

If the accidental killing of birds in slush pits is criminal, then there are a lot of law-breakers in the United States.  Cutting of trees and brush would be prohibited since that could kill birds.  Anyone driving a car that killed a bird would be guilty.  Cat owners, especially, would be liable for all those dead birds.  And, those nasty wind energy farms would have to be shut down immediately.

Forbes quoted the same U.S. Fish & Wildlife Service on just how many birds are killed by human activity every year.  About 100 million birds are killed by crashing into windows.  Up to 174 million are done in by power lines.  Another 60 million fall victim to cars.  Those wind turbines claim 33,000 birds per year.  And cats?  Those felines put an end to millions of birds each year.

The article added that 72 million birds die each year due to pesticides while oil field slush pits kill about 2.0 million.

Yet, that same government agency went after criminal charges against three oil companies for six birds.  It makes you wonder what the priorities are for those folks.

For the oil companies, it was very costly and time-consuming to have to defend the case.

Did the Justice Department really consider all the implications of this suit?  Was this a wise use of the department’s resources?  How many millions of lawsuits would have been filed if the decision was upheld?  And would the federal government put someone in jail for the accidental death of a few birds?

It boggles the mind.  Thankfully, the judge did look beyond the immediate implications of the lawsuit.

There are examples of the law of unintended consequences from nearly every government agency — the Environmental Protection Agency, Minerals Management Service (BOEMRE) and the Internal Revenue Service come to mind most quickly.

Given the need for regulation and enforcement, how can our government agencies be held accountable for addressing the most pressing needs?  When you hear about these situations, it is almost like watching Don Quixote jousting with windmills.  There are those bird-killing windmills again.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

In the Nov. 27, 2012, issue of The Houston Chronicle, there was an article about the Clear Creek nature preserve and ETC NGL Transport LLC.  It seems the NGL company wanted to build a pipeline across the 144-acre preserve.

The Bayou Land Conservancy manages the preserve for a trust that owns it.  The conservancy said that the preserve was the only “protected riparian habitat along Clear Creek,” according to the newspaper.

The preserve is about 20 miles south of Houston.  If you know anything about Houston, it is that open land is scarce.  And, property in its “natural and scenic condition” is even rarer.

The pipeline company threatened to use eminent domain to acquire the right of way.  The land owners were fighting that in court.

The Justice Pipeline will run 129 miles from Jackson County, TX, to Mont Belvieu.  The company was seeking a 115-ft-wide easement through the preserve.

The Clear Creek preserve was established by a federal judge to offset the environmental impact from two nearby industrial plants that were shut down.  The court order wanted the preserve kept in perpetuity.

The property already had a dozen pipelines running through it.  These pipelines were built before the court order was issued.  What’s one more pipeline?

In an article in the Jan. 5, 2012, issue of The Houston Chronicle, the pipeline company had agreed to route the pipeline around the preserve.  The pipeline will now go through a nearby golf course.  That is one way to come to a settlement that isn’t “par for the course.”

The preserve won in that no further damage from development would occur.  The water oak, cedar elm and loblolly pine trees won’t be cut down.  There will be a preserve in the middle of development for people to enjoy.

The company was the winner because it addressed the concerns of the landowner and rerouted the pipeline.  It can rightfully claim that it made a difference in providing a place for people to enjoy.  And, the pipeline will still be able to deliver NGLs with minimum impact in laying the pipe.

That is exactly the kind of public relations that the oil and gas industry needs.  When the industry can continue to show that it works with people rather than running roughshod over them, it makes it easier to build the infrastructure the country needs to supply energy to meet demand.

These land and wetlands conservancies along the Gulf Coast provide opportunities to protect natural habitat for waterfowl and wild animals.  It’s a much better picture to leave people with than crude oil spewing from a well in the Gulf of Mexico.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

A story in USA Today caught my attention this week because of its topic — Congress did not renew the three-decade-old subsidy for ethanol, saving an estimated $6 billion a year.  The subsidy expired on Dec. 31, 2011.

There were very few ripples from the ethanol industry over the demise of the 45-cent-per-gallon subsidy.  As the Renewable Fuels Association noted, “. . . the tax credit that long served as the boogeyman for anti-ethanol interests has expired.”

The association stated, “Without protest, U.S. ethanol producers allowed the $0.45-per-gallon tax incentive for ethanol blending to expire. The offsetting secondary tariff on imported ethanol will also expire. The domestic ethanol industry has evolved, policy has progressed, and the market has changed making now the right time for the incentive to expire.

“Ethanol producers never intended for the tax incentive to be permanent. Like all incentives, it was put in place to help build an industry and when successful, it should sunset. Unfortunately, the same mentality does not extend to century-old tax subsidies supporting 20th century petroleum technologies,” the association added.

Ethanol makes up 10% of the U.S. gasoline supply, which means that much foreign oil is replaced.  That’s a definite benefit to the U.S. balance of payments and deficit.

If you were buying E-10 fuel, then gasoline would cost an additional 4.5 cents per gallon without the subsidy.  It remains to be seen whether or not gas prices will go up.

It likely won’t have much impact in Oklahoma, for example.  For quite some time, the service stations and convenience stores in the state have advertised 100% gasoline with no ethanol on the gasoline pumps.
In states with air emissions problems, there will still be demand for ethanol.  After all, ethanol got a big boost when methyl tertiary butyl ether (MTBE) had to be replaced as an oxygenate in gasoline.  It is still required as an oxygenate.

After 30 years, it is time to see if ethanol can stand on its own merits as a fuel.  If an industry is not viable without subsidies, then it will continue to be a drain on government coffers.

And, there are other consequences to fuel subsidies — just ask Nigeria, India or Indonesia, for examples.  Each time the government attempted to allow fuel prices to increase to market rates, riots ensue.

Now the ethanol industry gets to stand on its own two feet and compete with — or cooperate with — the refining industry in meeting fuel standards.  It’s a game worth playing.

Speaking of level playing fields, have you ever wondered why the market for LNG-powered trucks has been slow to develop?  You might ask the Internal Revenue Service (IRS).

In August 1995, the IRS ruled that LNG (liquefied natural gas) is a liquid fuel and would be taxed as a “special motor fuel.”  Even though LNG goes into the engine cylinders as a gas, the IRS said it was a liquid.

Non-liquid fuels that substitute for gasoline and diesel, such as compressed natural gas, were taxed at 5.9 cents per gallon, while liquid substitutes were taxed at 18.4 cents per gallon.

The IRS concluded that since the Omnibus Budget Reconciliation Act of 1993 made no specific provision on the LNG tax rate, LNG would be taxed as a liquid.

I never heard if this particular ruling was ever changed, but I doubt it.  There was an opportunity to provide impetus to boost use of LNG in long-haul trucks, and the IRS used its interpretation of the law to squash it.

Now, 16 years later, there is all of this excitement for using LNG in long-haul trucks.  Maybe it’s a good time to revisit the IRS tax ruling and support something that would lower dependence on foreign oil, boost domestic natural gas demand and lower fuel costs for truckers.

But, that would probably make too much sense for the government.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.