A Smart Solution to Driving Green

Experts are calling natural gas the smart, clean and readily available fuel for America’s mid-term transportation needs. According to reported information, there are over 150,00 natural gas vehicles (NGVs) on American roads, over 1,100 NGV fueling stations, and one-in-five of all new transit buses are being powered by natural gas. Not only does natural gas cost on the average one-third less at the pump, there is an oversupply of natural gas and it is a clean-burning fuel. NGA drivers can now fill up their tank at home due to new technology. In addition, natural gas cars can also run on regular gasoline if needed.

Recently, US Secretary of Energy Steven Chu has requested that the National Petroleum Council (NPC) conduct studies on two topics: a study on future transportation fuels that will analyze US fuel prospects through 2030 for auto, truck, air, rail and waterborne transport; and an assessment of “prudent” development of US natural gas and oil resources.

Commentary – I am encouraged that Secretary Chu is at least studying the possibility of using natural gas as a  transportation fuel. But where has he been? When I was working for a natural gas pipeline company in Midland Texas back in the 1970’s our field operations trucks were fueled by natural gas. Also, why is it necessary to study the development of US natural gas resources. In recent years, independent oil companies have found so much natural gas that we are now have a short-term surplus and a 100 year supply.

Giant Oil Discovery by BP in the Gulf

British Petroleum recently announced a large oil discovery in the Gulf of Mexico. The discovery well named Tiber was drilled to a total depth of 35,055 feet or 6.5 miles. It is one of the world’s deepest wells. The company said Tiber, after appraisal to determine its size, should be larger than the 3 billion barrels of oil equivalent that BP expects to recover from its 2006 Kaskida discovery 45 miles to the southeast. BP operates Tiber with 62% interest. Brazil’s Petroleo Brasileiro SA has 20% and ConocoPhillips has 18%. The Kaskida unit covers 51,840 acres on nine offshore blocks. BP plans to apply enhanced oil recovery techniques to maximize recovery. BP owns 73.33% of Kaskida and Devon Energy corp. owns 26.67%.

Commentary: If you recall in one of my earlier posts, Devon Energy is also interest owner in the Jack Field operated by Chevron which was discovered in 2004. Back in March of this year, George Kirkland, executive VP of Upstream and Gas for Chevron revealed new details about development plans for Chevron’s high profile Jack Field and St Malo discoveries in the Gulf. He said Chevron has begun design work for a production facility that will have a capacity of between 120,00 and 150,000 barrels of oil-equivalent per day. The facility will co-develop the Jack field and the nearby St. Malo field, which have combined recoverable resources in excess of 500 million barrels. Devon Energy also owns a 22.5 percent working interest in the St Malo field. It is expected that deep water drilling will account for 25% of offshore oil production by 2015 compared to just 9% now.

Global Oil Consumption Decline

We now have experienced four consecutive quarterly declines in world oil use, with another decline expected in the current quarter. The Energy Information Administration (EIA) says this is an unusual situation, as declines in global oil consumption over that long a period have occurred only twice before over the past 50 years. The Organization for Economic Cooperation and Development (OECD) countries accounted for most of the decline. The OECD is includes US, Europe, S. Korea, Japan, Canada, Australia and the United Kingdom.

On an annual basis the EIA forecasts that world oil consumption could decline 1.8 million barrels of oil per day in 2009 or a decline of 2.1% from 2008. The current outlook assumes that the world economy begins to recover at the end of this year by non-OECD Asia. As a result, EIA expects world oil consumption to grow in the fourth quarter of 2009. It is projected that world oil consumption will grow by 0.9 million bbl/d in 2010 with relatively strong growth in non-OECD countries. This may be partially offset by a slight decline in OECD consumption.

Commentary – In addition to the world economic recession reducing oil demand, many countries have been raising fuel economy standards and increasing use of alternative fuels. Some believe that the OECD countries are not going to get back to the previous oil demand levels. The primary growth in oil demand is expected to come from Asian countries like India and China.

Ludicrous Comments by Administration Officials on Domestic Oil and Gas Production

According to the Oil and Gas Journal, American Petroleum Institute President Jack N. Gerard said he continues to be amazed by Obama administration statements that oil and gas tax incentives should be repealed to prevent overproduction of domestic resources. The following is an excerpt from the Treasury Department’s so-called Green Book titled “General Explanations of the Administration’s fiscal Year 2010 Revenue Proposals”:

The expensing of IDCs (intangible drilling costs), like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent expensing encourages overproduction of oil and gas, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program.

Mr. Gerard thinks that this laughable. He thinks that there needs to be some serious dialogue about what these proposals mean and about ways to get back to producing more oil and gas. According to the API, the US oil and gas industry supports 9 million jobs and contributed more than $1 trillion, or 7.5% of the US gross domestic product in 2007. Mr. Gerard thinks it is ludicrous that the administration is focusing on these tax repeals during a recession.

Commentary: I can’t understand the belief that there is overproduction of oil and gas in the US. The US is currently importing 12 million barrels of crude oil per day and only producing 5 million barrels of oil per day. How is this overproduction? If these tax repeals become enacted into law along with the Cap and Trade Bill, domestic oil and gas production in the US could decline substantially and unless we cut our consumption substantially, imported oil volumes will increase. I question whether anyone in the Administration or Congress have any common sense. It almost feels like the Obama administration wants to put the oil and gas companies out of business so they can nationalize the oil and gas industry. Of course, something like this could never happen in America.

Global Warming: Real or Hoax?

Rep. Henry Waxman, D-Calif., chairman of the Energy and Commerce Committee and author of the Global Warming Bill (Cap and trade legislation) that recently passed the House, said the bill represents “decisive and historic action” to increase America’s energy security and deal with global warming. “When this bill is enacted into law, we will break our dependence on foreign oil, make our nation the world leader in clean energy jobs and technology, and cut global-warming pollution,” said Waxman.

Commentary – I wonder if this bill cures cancer too. Please read the article entitled “Dispelling the Global Warming Myth by John Hinderaker at the following link: http://www.powerlineblog.com/archives/2009/03/023144.php He has several slides that are quite powerful and convincing. Due to the efforts of the Heartline Institute and others the public is beginning to catch on to the scam by Al Gore and others. If only Congress would open their eyes, maybe we could stop this Cap and Trade bill from becoming law.

Obama’s Death Panels for Oil and Gas Industry Workers

U.S. President Barack H. Obama released his final fiscal 2010 federal budget back in May. It included $32 billion of new oil and gas taxes over 9 years. The collection of these taxes is expected to begin in fiscal 2011. The tax changes include the following: elimination of the tax deduction that is available to other U.S. manufacturers, repeal of the percentage depletion allowance, new excise taxes on new Gulf of Mexico production, repeal of expensing intangible drilling costs, repeal of enhanced oil project injectant costs, plus many others. The budget also establishes new fees on non-producing leases and additional permit fees. It is expected that Congress will pass all of these new taxes.

According to Barry Russell, the President of the Independent Petroleum Association of America, the new taxes and other provisions in the budget will make it more difficult to develop domestic energy. He said, “This budget does not recognize that in order to decrease our reliance on foreign oil, we need to increase our own American supplies of natural gas and oil.” Natural Gas Supply Association President R. Skip Horvath said, “Obama’s budget was bad news for American consumers and worse news for American jobs. Four million Americans depend on domestic gas for their livelihoods.” Horvath said, “Tax policies directly impact the decisions that are made regarding drilling, especially for smaller companies. More importantly, over 80% of the natural gas in the US is actually produced in this country. We are in trouble when this administration has such a basic misunderstanding of how domestic gas markets will be impacted.”

The Texas Alliance of Energy Producers (TAEP) recently completed a study based on the Obama Administration’s tax proposals on the oil and gas industry and submitted their report to the U.S. Senate Finance Committee on Energy, Natural Resources and Infrastructure on September 10th as the committee held a hearing on Obama’s proposals. TAEP’s study says the proposed tax changes will have an adverse impact on the Texas alone of $20 billion over the next 4 years. The proposal will hurt independent producers since the major oil companies are not eligible for some of the tax deductions. The study noted that Texas would lose about 70,000 oil patch workers because drilling activity would decline to record lows in a matter of months. Oil and gas revenues in Texas would drop $2.1 billion over the next 3 years as a result of not finding and replacing oil and gas reserves. US crude oil imports would increase from foreign suppliers. They predict that the oil and gas industry in the US would collapse if Congress adopted these proposals. The repeal of these tax deductions as proposed would be a quick death

Commentary – It appears to me that the Obama Administration and the Democratically controlled Congress is punishing the oil and gas industry. To fund some of their vast government programs they need new tax revenues and why not the oil and gas industry. They have been demonizing these companies for years. When a subcommittee member, Jim Bunning (R-Ky.), asked Alan B. Krueger, assistant US Treasury Secretary for Economic Policy, if the administration was currently singling out the oil and gas industry as it seeks tax incentive repeals, the Treasury official replied, “That is correct.”