January 2012 Archives

January 31, 2012

Texas Wesleyan Law Review Energy Symposium March 29-30

The law school at Texas Wesleyan is hosting a two-day conference on oil and gas law that is packed with good speakers and very inexpensive - $140 for both days.

TWU 2012 Energy Symposium.pdf

There is a lot on the program about the Marcellus Shale. To see the program, go here: 


January 27, 2012

Texas Railroad Commission Proposes Rules for Penalty Assessments

The Texas Railroad Commission this week approved publication of proposed rules establishing guidelines for admistrative penalties for violations of Commission rules related to pipeline safety, LP gas, CNG and LNG safety, oil and gas operations, and underground damage prevention. The proposed rules will be published February 10, and the comment period ends at noon on Monday, March 12. I encourage anyone who is interested in how the Commission enforces its rules to submit comments. To submit comments online, go to


and look for proposed rule 3.107.

The RRC was reviewed by the Sunset Commission in the last legislative session. The Sunset Commission report criticized the RRC for not assessing enough fines. Among the Sunset Commission's findings:

- RRC inspectors conducted more than 128,000 inspections in FY 2009, finding more than 80,000 violations. The field staff forwarded less than 4 percent of those violations to the central office for enforcement action. (In contrast, the TCEQ forwarded about 20 percent of its more than 11,000 violations for enforcement action in the same year.) The RRC issued 379 penalties, assessing more than $2 million in fines.

- In FY 2009, the RRC found more than 18,000 water protection violations. it took enforcement action on less than 1 percent of those violations, about 150.

- The RRC received 681 complaints related to oil and gas production in FY 2009, and found 1,997 violations based on those complaints. But those complaints resulted in only 91 enforcement actions.

The report concludes that the RRC does not make enough use of penalties for violations: "The efficient and fair use of penalties plays a key role in deterring and punishing violators, and thus increases compliance. The Commission and its field staff go to great lengths to ensure complaince through monitoring and inspections; however, the Commission takes relatively few enforcement actions, resulting in a lack of deterrence for future non-compliance."

The report notes that complaints of limited enforcement action taken by the RRC are not new. The issue was raised in the 2001 Sunset review of the RRC. The report notes that oil and gas drilling has moved into urban areas and is having greater potential impact on underground water resources, which will result in greater scrutiny for the industry and RRC enforcement. "A lack of consistent enforcement can contribute to a public perception that the Commission is not willing to take strong enforcement action."

The report also criticized the RRC for not adequately tracking violations, so that it is unable to determine when repeat violators deserve harsher penalties.

To force the RRC to increase its enforcement activities, the report recommended that

    • The RRC be required to develop, by rule, an enforcement policy to guide staff in evaluating and ranking violations.
    • The RRC be required to deveop and adopt a rule establishing penalty guidelines, assigning penalties to different violations based on their risk and severity.
    • Hearings on enforcement actions should be conducted before the State's independent State Office of Admistrative Hearings, rather than before administrative law judges that are employees of the RRC.
    • The RRC be directed to establish a method of tracking violations and enforcement actions and develop a clear and consistent method for analyzing violation data and trends.
    • The RRC be directed to publish additional complaint and enforcement data on its website.

The Legislature did not act on any of the Sunset Commission's recommendations; instead, it postponed any action on the recommendations to the next legislative session.

The proposed rules now being published are in response to the Sunset Commission's proposals. Notwithstanding the Sunset Commission's criticism that the RRC does not make enough use of penalties as a deterrent to violations, however, the proposed rules provide that the RRC Commision's policy on violations is unchanged. It says that the proposed guidelines are

a formal restatement of the penalty guidlines that have been used for many years. Significantly, the rule expressly states that the Commission favors a compliance-based approach to enforcement, with safety and environmental protection being the favored outcomes of any enforcement action. Encouraging operators to take appropriate voluntary corrective and future protective actions once a violation has occurred is an effective component of the enforcement process. Deterrence of violations through penalty assessments is also a necessary and effective component of the enforcement process.

The RRC's "compliance-based approach to enforcement" in practice means that the RRC does not fine an operator when a violation has occurred, as long as the operator cooperates in correcting the violation. In my experience, this means that operators don't have to worry about being fined because the RRC will simply notify them of the violation and they can then fix the problem. The proposed rules ignore the Sunset Commission's recommendation that the RRC increase its use of penalty assessments as a deterrent to violations, thus increasing compliance.

January 27, 2012

NASA on Global Warming

NASA has prepared a report on the rise of global temperatures that contains a great time-lapse view of global temperatures over time. You can view it here:




January 26, 2012

EIA Annual Energy Outlook 2012

The Energy Information Administration has issued its annual energy projections.


Domestic crude oil production is expected to grow by more than 20 percent over the coming decade: Domestic crude oil production increased from 5.1 million barrels per day in 2007 to 5.5 million barrels per day in 2010. Over the next 10 years, continued development of tight oil combined with the development of offshore Gulf of Mexico resources are projected to push domestic crude oil production to 6.7 million barrels per day in 2020, a level not seen since 1994.

With modest economic growth, increased efficiency, growing domestic production, and continued adoption of nonpetroleum liquids, net petroleum imports make up a smaller share of total liquids consumption: U.S. dependence on imported petroleum liquids declines in the AEO2012 Reference case, primarily as a result of growth in domestic oil production of over 1 million barrels per day by 2020, an increase in biofuel use of over 1 million barrels per day crude oil equivalent by 2024, and modest growth in transportation sector demand through 2035. Net petroleum imports as a share of total U.S. liquid fuels consumed drop from 49 percent in 2010 to 38 percent in 2020 and 36 percent in 2035 in AEO2012.

U.S. production of natural gas is expected to exceed consumption early in the next decade: The United States is projected to become a net exporter of liquefied natural gas (LNG) in 2016, a net pipeline exporter in 2025, and an overall net exporter of natural gas in 2021. The outlook reflects increased use of LNG in markets outside of North America, strong domestic natural gas production, reduced pipeline imports and increased pipeline exports, and relatively low natural gas prices in the United States compared to other global markets.

Use of renewable fuels and natural gas for electric power generation rises: The natural gas share of electric power generation increases from 24 percent in 2010 to 27 percent in 2035, and the renewables share grows from 10 percent to 16 percent over the same period. In recent years, the U.S. electric power sector's historical reliance on coal-fired power plants has begun to decline. Over the next 25 years, the projected coal share of overall electricity generation falls to 39 percent, well below the 49-percent share seen as recently as 2007, because of slow growth in electricity demand, continued competition from natural gas and renewable plants, and the need to comply with new environmental regulations.

Total U.S. energy-related carbon dioxide (CO2) emissions remain below their 2005 level through 2035: Energy-related CO2 emissions grow by 3 percent from 2010 to 2035, reaching 5,806 million metric tons in 2035. They are more than 7 percent below their 2005 level in 2020 and do not return to the 2005 level of 5,996 million metric tons by the end of the projection period. Emissions per capita fall by an average of 1 percent per year from 2005 to 2035, as growth in demand for transportation fuels is moderated by higher energy prices and Federal fuel economy standards. Proposed fuel economy standards covering model years 2017 through 2025 that are not included in the Reference case would further reduce projected energy use and emissions. Electricity-related emissions are tempered by appliance and lighting efficiency standards, State renewable portfolio standard requirements, competitive natural gas prices that dampen coal use by electric generators, and implementation of the Cross-State Air Pollution Rule.


January 25, 2012

Gas Price Drop In the News

Natural Gas Glut.jpg

Natural gas prices are much in the news. Prices have fallen precipitously in the past few weeks. Natural gas futures have fallen 35% in the past year. Warm weather this winter has created a gas glut. In his state of the union address, President Obama said the US now has 100 years of natural gas supply and touted gas as the energy future. Analysts are predicting that prices will continue to fall. Predictions are that natural gas storage capacity will be tested this year.




Fallout from lower gas prices:

Exploration companies are moving to oil plays and drilling only those gas wells necessary to hold acreage. In many plays, such as the liquids-rich portion of the Eagle Ford, lots of gas is being flared in order to get the liquids to market. That gas will eventually go on line, further increasing supply. Producers in some areas can give the gas away and still make money on the liquids. In the Barnett Shale, gas production continues to increase despite the decline in drilling rigs. Barnett shale production set an all-time high of 5.9 Bcf/day in October 2011, with 2/3rds less drilling activity.


Chesapeake, the nation's second-largest gas producer, recently announced that it is shutting in as much as one Bcf/d of its production - about 16% of its total -- until prices improve.


Most analysts are revising their price predictions down. But Anadarko predicts that natural gas prices will rise as soon as drilling slows.


Electricity prices are falling - good for consumers, not so good for power producers. Prices of fertilizer and plastics are also falling. More electric power plants are switching from coal to gas, and coal plants on the drawing board are being reconsidered. Over the past decade, electricity from gas-fired plants has increased by 50 percent, while coal-fired electric generation has declined. Gas-fired power plants are cheaper to build and easier to get permitted. They are also easier to turn on and off, as electricity demand fluctuates. The power industry is beginning to have some confidence in the domestic gas supply. Export of excess supplies of U.S. natural gas are being discussed and planned.


Low gas prices have dampened enthusiasm for nuclear power plants and generation from wind and solar. The cost, including construction, to generate one megawatt hour of gas-fueled electricity is now less than that for coal, wind and solar, according to Bloomberg.


But Energy Secretary Steven Chu says that the alternative energy industry can benefit from low gas prices. Because of gas generating plants' ability to "swing" in output, it should be easier for wind and solar generation to sell into the market when they are able to provide generating capacity.


Cheap gas has caused owners of a methanol plant in Chile to consider moving a methanol plant to Louisiana. Natural gas is the feedstock for methanol.


To take advantage of low gas prices, the Texas Commission on Environmental Quality is offering $4.5 million in grants to build natural gas fueling stations, to encourage use of natural gas in the transportation sector.


Meanwhile, the debate over the safety of hydraulic fracturing continues. One report says that state agencies who have traditionally regulated the oil and gas exploration industry are tightening their regulations to avoid a takeover of their responsibilities by the EPA.


And, the debate continues (at least in Ithaca NY) over whether burning natural gas in fact has less of a global warming impact than coal.



January 16, 2012

Industry News

Recent news of interest:

The new Texas law requiring reporting of chemicals in frac fluids becomes effective February 1. The law also requires operators to report the volume of water used. Dr. Dan Hardin, resource planning director of the Texas Water Development Board, projects that in 2020, more than 40 percent of water demand in La Salle County (in the Eagle Ford Shale) will go toward fracing. http://www.nytimes.com/2012/01/15/us/new-texas-rule-to-unlock-secrets-of-hydraulic-fracturing.html

Last year, Dr. Robert Howarth, a professor at Cornell University, published an article concluding that natural gas causes more global warming per unit of energy created than coal, upsetting the widely published belief that natural gas is a more climate-friendly fuel. Dr. Howarth said that previous studies did not take into account that as much as eight percent of produced natural gas escapes into the atmosphere between the wellhead and its consumption. Now a colleague of Howarth at Cornell has published a study challenging Howarth's fugitive gas estimate. Dr. Lawrence Cathles concludes that gas has one-half to one-third the greenhouse gas footprint of coal.

The U.S. Energy Information Administration said that the average wellhead price for natural gas fell from $4.37 per MMBu in 2010 to $3.98 in 2011, the lowest since 2002. http://fuelfix.com/blog/2012/01/10/natural-gas-production-drives-price-down/ Cheap natural gas is making it hard for wind and solar projects to compete. http://blogs.desmoinesregister.com/dmr/index.php/2012/01/05/cheap-gas-a-threat-to-renewables/http://www.npr.org/2012/01/05/144526652/solar-panels-compete-with-cheap-natural-gas 

With low gas prices and high oil prices, rigs continued to move toward shale plays:


Baker Hughes Rig Count.jpg



NGI's shale rig count.jpg


2011 saw a record $86 billion in 2011 U.S. oil and gas upstream deals, up 15% from 2010 -- a year that was itself a record. Top deals in 2011: BHP Billiton's acquistion of Petrohawk, $15.1 billion; Kinder Morgan's acquisition of El Paso Corp, $7.2 billion; BHP Billiton's acquisition of Chesapeake's Fayeteville Shale properties, $4.75 billion; Statoil's acquisition of Brigham Exploration, $4.7 billion; Marathon's acquistion of Hilcorp Marcellus Shale interests for $3.5 billion. All of these deals were driven by shale plays. China's Sinopec oil company recently announced that it will pay $2.2 billion for a one-third stake in Devon Energy's plays in five shales in Mississippi, Colorado, Ohio, and Michigan. Oil & Gas Journal estimated that E&P spending will rise 9.3% this year to a record $595 billion.

In New York, the four-month comment period is closing on regulations proposed by the Department of Environmental Conservation for fracing. The DEC received more than 20,800 comments, a record. State Democratic leaders called on the governor to withdraw the proposed regulations and for a permanent ban on fracing. Industry lobbyists called the proposed regs excessively restrictive, inequitable and unjustified. The Independent Oil and Gas Association of New York claimed that the rules would render half of the desirable drilling parcels unuseable. Environmental groups are divided. The Sierra Club,the Natural Resources Defense Council and the Nature Conservancy have been working with regulators and the industry to come up with workable regulations, seeing natural gas as a cleaner "bridge fuel" for transition to renewable energy sources. Other local environmental groups are opposed to any regulations that would allow development of the Marcellus in New York. Clair Sandberg, a founder of Frack Action, called the cooperation between national environmental industry groups and industry a "marriage of convenience." "It was too daunting to try to take on coal and gas at the same time. Now they find themselves with a mutiny on their hands."

Reports continue to surface in Pennsylvania of methane contamination of water wells allegedly caused by fracing. The Pennsylvania Department of Environmental Protection cited Cabot (again) for contaminating three water wells in Lenox Township, citing inadequate casing. DEP is also investigating methane contamination in wells in Wyoming County, Pa. operated by Chief Oil & Gas. A Chief spokesman said that the levels of methane in the water matched levels found in the water before the wells were drilled.