The Texas Railroad Commission must tap the brakes on oil and gas production
The Texas Railroad Commission must tap the brakes on oil and gas production
It’s time for the Texas energy regulator to step into its historic role of setting regulations that keep the industry healthy.
By James Coleman on Jan 5, 2020 dallasnews.com/opinion/commentary
Texas is now the center of history’s biggest oil and gas boom. This boom, like past booms, is cementing the U.S. as the world’s superpower. But as in those earlier booms, our regulators may need to slow production slightly to preserve our natural resources and the health of our oil industry.
Texas producers are now draining so much oil and natural gas that there aren’t enough purchasers to use all of the gas. Oil and gas often come from the same well. The industry sells the oil but cannot build pipelines fast enough to get all the new gas production to distant gas consumers. As a result, producers are burning off, or flaring, more and more gas — wasting this clean burning gas, which is prized by consumers and industry around the world.
The U.S. Energy Information Administration recently reported that the U.S. is flaring more gas than ever before. Texas alone now flares more gas than many states use. These flares, burning round-the-clock, can be seen from space — nighttime satellite pictures make the Permian Basin look like Texas’s biggest metropolis. This tremendous waste of resources is sparking both public concern and private lawsuits, with regulators, landowners and the industry all pointing fingers at different villains. But for solutions, Texas need only look to its past.
The Railroad Commission of Texas, despite its name, is the world’s premier oil and gas regulator. During the 1930s, Texas dominated oil production to an extent never equaled, pumping as much as a quarter of the world’s oil. During that oil boom, the Railroad Commission learned an important lesson: Sometimes to maximize the value of an oil bonanza, you have to slow it down a little.
Everyone knows that as oil production rises, the price of oil falls. But individual companies can’t do anything about that. Instead, they have to take what they can get for their oil, find ways to produce more for less, and hope for higher prices. But a dominant regulator can help all companies by slowing down all production a bit. As production slows, prices rise, benefiting all companies.
In 1931, the Railroad Commission changed the oil industry forever when it began limiting oil production to ensure higher prices. Companies tried to evade these limits and cheating on the limits became more profitable as prices rose. Texas eventually had to send in the Texas Rangers and the National Guard to enforce the law. But when the limits were enforced, oil companies benefited. They sold slightly less oil, but received substantially higher prices. Ever since, the Railroad Commission’s limits on oil production have been used as a model by dominant commodity producers around the world.
Today, the Railroad Commission has far less influence on Texas oil prices. Our global oil market means that local prices depend on supply and demand around the world. But the commission can shape Texas gas prices. There aren’t enough pipelines and gas export facilities to bring the new flood of gas to market, so local prices are very dependent on local production. Modest reductions in local production can lead to substantial prices increases. Such limits could benefit all producers and preserve Texas’s natural resources until they can be brought to market for their full value.
The Railroad Commission should moderate the pace of the current boom to ensure that Texas gets full value for its gas. It could reject some new flaring permits, although that kind of all-or-nothing regulation might be unfair to the rejected companies. It could also impose modest limits on gas production, forcing all companies to slow their production and also ensuring higher prices for all. The commission is properly cautious about intervening in one of the free market’s biggest energy success stories. But careful regulations can build on the commission’s legacy of using production limits to ensure the long-term health of the oil and gas industry.
James Coleman is an associate professor at Southern Methodist University’s Dedman School of Law in Dallas and publishes the Energy Law Professor blog. He wrote this column for The Dallas Morning News.
Views: 979
Replies to This Discussion
-
Permalink Reply by John M Santamaria on -
Back in 1991 when we had the first unit hearing on the unit for the Sonat well near Cottonport they had a panel of Sonat people answering questions. Various people obviously from different walks of life were asking questions. Finally a guy from Houston as he identified himself as such in a suit and asked the question, "How big of a find is this?" The guy with Sonat said, "well, it's not another Spindletop." Of course I liked that "tongue in cheek" answer. Just sharing a little humor on a Monday.
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
John, I was told by an Episcopalian clergyman that wherever you find 4 Episcopalians gathered together, you'll find a fifth.
-
Permalink Reply by Hale Yayuh on
-
Jay, natural gas futures market price is about $2.15 right now. Tough to see a way that can be profitable. Nat gas future not looking good. In the recent past, the 'price' in some Permian areas was negative, requiring some Permian operators to PAY to get the gas out of there so they could sell the oil. There are 49 rigs in the Haynesville now and over 400 in the Permian basin. If the Texas Railroad Commission does not step in, what's your solution? Should we go back to when the oil companies had free reign to produce whatever and however? Are you one that says just let the market sort itself out? How long will that take? Is it moral to flare all that natural gas? Hmmm... it's 'cleaner burning' but also polluting when flared? Any solution to these challenges?
-
Permalink Reply by John M Santamaria on
-
Last night when I came home and got out of my car I heard a loud "clack clack clack" noise. I said what could be wrong with my car? Later realized it was coming from the Eagles Ranch well across the street. Had gone on all day and into the night. Any idea what that could be. Kinda made my wife and I wonder if it was gonna blow it was so loud and constant. Might be a silly question, but any idea of what this could be?
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
No reply button under your posts so I'm down here guys. The dollar value of oil and gas related tax breaks dwarf the those for renewables but lets look a little closer at the issue. The focus of interest in renewable energy is on solar and wind. The statistics you quote take in "all renewables" including those that are marginal or still in the development stage. If you want to add in the federal investments that underwrote and enabled the development of horizontal drilling and hydraulic fracture stimulation, the total spent by the good citizens of the US would be even greater for O&G. Hydropower, ethanol, biomass and hydrogen are lumped in with the previously mentioned renewable energy sources. I'm sure there are a few more that I am missing. The federal government has a history of supporting R&D for energy. And not all cutting edge projects work out.
Among the state tax breaks here in Louisiana are those severance tax exemptions for "deep" and "horizontal wells". No tax due until the well pays out or two years of production whichever comes first. Now those exemptions as incentives to exploration made back in the 1990s when both types of wells were rare and the technology was early in development. Now, almost thirty years later, those well types are common, the technology is mature and the tax exemptions are still in place.
And the trend to increase O&G tax breaks continues unabated while those for all renewables, especially solar and wind, are under attack. By our government, the O&G industry and some electric utilities. The public sentiment is trending toward support of solar+storage and wind and private investment is increasing. Some battles are won and some are lost but the public is tiring of rubber stamping more welfare for big business especially O&G.
https://ballotpedia.org/Louisiana_Amendment_1,_Property_Tax_Exempti...(October_2019)
https://www.swepco.com/info/news/viewRelease.aspx?releaseID=2674
https://www.mediamatters.org/legacy/utilities-try-exploit-local-med...
-
Permalink Reply by Steve P on
-
Skip: the two of us have exchanged views on this topic before. I find the testimony from the Congressional Budget Office posted by "full name" to be pretty compelling. You cite tax exemptions by various states, but the only "apples to apples" comparison we can really make is at the federal level. And the CBO statistics are pretty dramatic. Almost all of the federal funds for "energy" research flows through the Department of Energy. So, we can look at tax incentives from the federal government, and federally-funded research for the energy sector.
To start, the federal government funded almost $5B back in the 80's and 90's to clean up coal emissions and reduce "acid rain." Fair enough.
For the past 30 years, I've worked at four of the Department of Energy national laboratories. There is one of those that supports fossil energy development, and there is one dedicated to renewable energy. However, nearly every one of the 16 DOE national labs has a portfolio funded by DOE in renewable energy, and almost none of the 16 has a portfolio funded by DOE's Office of Fossil Energy. DOE's funding for renewable energy for 2019 was about $2.5B, with fossil energy research at about $1B. Many of the DOE labs are funded to research new materials for use in solar panels, batteries for solar and wind storage, and electrical grid research aimed at improving the ability of feeding power from renewable sources. Those funds may come from the renewable energy budget, but much of the research if considered "basic energy research" and comes from a different bucket of funds.
There is some research funded to find alternative uses of coal, cleaning up emissions from coal-fired power plants, and even less towards increasing the production from oil and gas fields. Those outlays are small change compared to the investments the federal government has made in the development of renewable energy. In addition, much of the O&G research performed at the DOE national labs are actually funded by the major oil companies, not the federal government.
I agree that states like Louisiana provide preferences for O&G exploration and production. But those preferences are, in effect, reductions in taxes already imposed by the state. Are there any state taxes per KW/hour imposed on solar or wind? No. Hard to provide a reduction below zero taxes.
And, the debate continues! :)
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Fair points. Steve. There is also an apples and orange conundrum involved as far as what is a research based incentive/subsidy and what is a business tax break. I go back to my early post of tax breaks, technically not a subsidy but ultimately amounting to the same, government support for the O&G industry. Renewables are relatively nascent technology which is a major requirement for reduction of GHG emissions, oil and gas is mature and largely incentivized by the market particularly in the age of unconventional production. There is no need for government grants to develop O&G technologies.
This nation was built on cheap energy and there was good reason to support that industry for one hundred years. We didn't know then what we know now. My biggest beef with the O&G industry is a failure to realize that things have changed and created a big challenge for their business model. It is a very recent development that hydrocarbon based business are reading the tea leaves and coming around to the need for modifying their approach.
What if the industry had realized that the problem going forward was emissions and formulated a different response. Let's say they supported the phased elimination of coal fired electric generation, supported the Clean Power Plan that incentivized the transition to gas fired electric generation, and committed to a robust voluntary effort to reduce natural gas emissions. They could also support CAFE standards, energy efficiency products (LED lighting, energy efficient appliances, etc.) and do a much better PR program instead of relying on paying off politicians.
For those willing to see it there is a middle road that is neither "drill, baby drill" nor "keep it in the ground". Both of those sides want to demonize the other which stifles a rational debate. I've tried a number of time to start that debate here on GHS but have found no success. Such is the state of our divided country. Rational debate can not find a foot hold.
-
Permalink Reply by Steve P on
-
I think that all of the Big 4 - Exxon/Mobil, Chevron, BP and Shell, have openly endorsed a carbon tax for a number of years along with other "green" initiatives. 30 years ago, many of the major oil companies were also invested in coal. I'm not sure if that is still the case now or not. Exxon used to have major mining operations in Wyoming. Not sure about now. The big issue with coal 30 years ago was not CO2, but SOX and NOX (the cause of acid rain).
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
BP and Shell have been more forthcoming and honest about taking climate change into account in their business models. Not surprising as they are European companies and Europe is more attuned to the climate crisis. Has more public and governmental support for actions. Although Exxon and Chevron have made some statements along the lines you mention, they have also, behind the scenes, supported groups and efforts that have lobbied against addressing climate change. I think that both US companies will continue to trend toward positions more close to their European counterparts but have been slow to read the tea leaves and begin to plan to take actions that bolster their standings with public opinion while decreasing their emissions and supporting climate actions that make sense but do not represent any significant near term threat to their businesses.
IMO, government should make it clear that fracking and pipelines will not be banned but will be appropriately regulated for environmental impacts. The government should support both research into renewable energy sources and provide incentives such as tax rebates for EVs. The O&G industry writ large meaning upstream, midstream and downstream will have to evolve and grapple with how to move into additional business niches particularly those associated with other energy sources. Natural gas should remain a key component of the energy evolution but should be highly regulated as to methane emissions. Coal needs to go away completely and quickly to provide more time for the entire industry to have more time to evolve.
-
Permalink Reply by Jesse Joyner on
-
In Louisiana, a part of our family land has been leased and drilled for over a hundred years. I'm thankful (and we're blessed) to have shared our minerals with some very decent operators over the years (even though some of the old leases had us at an 1/8th royalty, which are holding per HBP). Still, I know history and know how over-production can decimate petroleum prices. In the book "The Last Boom" -- I think a barrel of oil had gotten down to about 50 cents due to too much drilling in E. Texas. And no, that's not a typo. Read the book. Fifty cents a barrel or less. And right now, we're facing historic low prices for NG. It could easily drop down below $2 in the coming months. Now, like most landowners and mineral owners, I dearly like leasing and drilling. Mailbox money is a wonderful way to make an income. But I also very much like getting a decent price for my minerals since there's only so much of the Texas tea and associated gaseous bubbly under the ground in our land. Thus, if the state has to regulate operators to keep them from bankrupting themselves and the O&G industry, in general, I'm all for it, even if it means no mailbox money for a few years. In other words, if that's what it takes to get a fair price, I'll vote for it. Yeah, and I preach this with my eyes wide open, knowing when they eventually pull/pump our next series of horizontals, we may not have yet another formation to enjoy the benefits of.
-
-
My grandfather ("Paw-Paw") told me he would sell 3 small RR tanker-cars (per month) of hot oil back in the 30's for 10 cents per barrel. That is - 10 pennies, a/k/a "10 coppers". The oil came from our own wells on our own minerals. His justification was that he caught his neighbor doing the same thing & that well was 50 feet from the property line. Also, my grandmother told me she saw the tommy-gun toting Texas Ranger 'Gonzales' driving around in an open car - while he was arresting more men than the jails could hold. A significant amount of the arrested were there because they were running hot oil (after the RRC came up w/ rules on production).
The posted (legal) price was around 50 cents. The RRC justified the very small allowables based its theories of "waste". One was "economic waste" - that being a free-for-all slugout in cutting prices. The State of Texas (as well as local govt. entities) was/were not pleased w/receipts for severance taxes & property taxes. Also, a "waste" theory joined in with the discussion of that voodoo known at "reservoir engineering". It was shown that - if left unregulated - there was going to be a lot of oil left in the woodbine, due to mis-management of the reservoir ("let 'er rip")..
I think the jury is still out about reservoir damage in the shales because an operator will "let 'er rip". I understood some companies would NOT flow the wells as much as other operators... "hoping to ultimately get more gas out of a given well. If this practice is deemed to actually be valid, operators could bring an argument that BOTH of these reasons/theories caused the RRC to curtail production of OIL back in the 30s & now it's GAS's turn...
-
Permalink Reply by Skip Peel - Mineral Consultant on
-
Good stories, GoRicky. Lone Wolf Gonzales rented an abandoned church, put railroad rails down the pews and hand cuffed those arrested to the rails. The Kilgore jail was nowhere near big enough and Lone Wolf was always planning ahead. Over production caused formation pressure to drop drastically and slowed the natural flow of oil. Regulations weren't just to stop that through allowables, there were other problems like "slant hole" drillers. Leases too far east did not find economic volumes of oil so drillers learned to slant their drill strings back west to tap the formation where it did have sufficient oil under lands owned by others and leased by other companies. Look up the richest acre in Kilgore. An entire city block with wells crammed derrick to derrick. Not an efficient means to produce oil capable of flowing over hundreds of feet to a wellbore. Texas had good and sufficient reasons to start regulating drilling and production.
- ‹ Previous
- 1
- 2
- 3
- Next ›
Support GoHaynesvilleShale.com
Top Content
Blog Posts
The Lithium Connection to Shale Drilling
Shale drilling and lithium extraction are seemingly distinct activities, but there is a growing connection between the two as the world moves towards cleaner energy solutions. While shale drilling primarily targets…
ContinuePosted by Keith Mauck (Site Publisher) on November 20, 2024 at 12:40
Not a member? Get our email.
Groups
-
San Augustine, TX
386 members
-
Miller County, Arkansas
27 members
-
Sabine Parish, LA
455 members
-
South Caddo Parish Group
440 members
-
Natchitoches Parish
400 members
-
Bienville Parish, LA
244 members
-
Fayetteville Shale
149 members
-
North Caddo Parish
358 members
-
Central Texas Gas
63 members
-
Cass County, TX
119 members
© 2024 Created by Keith Mauck (Site Publisher).
Powered by
