The news cycle is relentless these days, with coverage of the coronavirus appropriately eclipsing all else. We worry about our loved ones, ourselves, and each other, and hourly news feeds offer continual glimpses into the abyss. We hope and we pray for glimmers of promise while safely attending to our own immediate needs. At this point in time, we’re focused more on the immediate and less on the long term.
Like you, I’ve been thinking a lot about how this happened, what we’re doing about it, and how we can improve our efforts if this type of crisis strikes again. As an engineer, I look to my own profession for insight into how proper planning, even in the face of this unlikely scenario, relates to my work in the oil and gas industry.
Make no mistake: I’m not confusing one for the other. While our national energy decisions pale in comparison to this life-and-death situation, I also appreciate the importance of good planning to solve both challenges.
While medical professionals-our cultural heroes-are vitally concerned with shortages of ventilators, hospital beds, and personal protective equipment (PPE), economists, executives, and hourly workers in the oil and gas industry are trying to figure out ways to store our excess oil and gas resources. While we’ve grounded many planes, dimmed our manufacturing switch, and parked massive numbers of our cars, oil and gas producers around the world continue to churn out product for a world that has largely shut down. Implementing a smart energy plan now, even under these stressful circumstances, can help us address the significant challenges ahead.
The oil markets have suffered a distinctive one-two punch: the jab of a glut of oil being produced around the world and the uppercut of the world’s economy almost completely shutting down in staggered geographic fashion. The two together deliver an inverse of supply-and-demand economics. Our energy surplus is our enemy and producers are encouraged to seek ways to collectively reduce production.
But the situation we’re in now is not a complete accident. Better planning can help us address the problems being exacerbated by the economic impact of the coronavirus.
The fracking boom exploded around 2005, a time when a barrel of oil cost about $66 and natural gas was slightly under $10. Today those prices are $51 and $1.65, respectively. Petroleum products are cheap and plentiful, which has propelled America into an energy giant.
On top of that, our current policies and practices are promoting increased production and decreased conservation.
- Sally Bethea, retired director of the Chattahoochee Riverkeeper and former Environmental Protection Agency staffer, says that the current administration has repealed or modified some 95 environmental regulations over the last three years, a good number of which involved loosening restrictions on the oil and gas industry. Among the most important of these regulatory rollbacks was one that sought to reduce methane emissions caused by pipeline leaks or from venting natural gas produced by fracking. According to The New York Times, last year Wyoming saw an almost 75% increase in flaring or venting from drilled wells compared to the previous two years. We can collectively expect the new emission standards for natural gas flaring to increase methane emissions by more than 350,000 short tons.
- The Department of the Interior has dramatically expanded (by millions of acres) the volume of land available for oil and natural gas drilling at a time of energy abundance. As the supply of new land available for drilling increases, the prices paid to the federal government for those leases decrease.
- The rate of drilling for oil and natural gas has outpaced our ability to store and transport (especially) natural gas. That disparity has led to significant market inequities. According to The Wall Street Journal, some utilities in New York City have stopped accepting new natural gas customers due to limited supply lines, especially in colder months. Meanwhile, in the Permian Basin of West Texas, refiners are burning off natural gas that is too expensive to harness, enough every day to fuel every home in the state.
These serious problems are not far in the distance. They’re here, knocking on our proverbial doors, especially in Texas and other energy-producing states. The Wall Street Journal notes that job cuts have already begun. As I write this, companies working in the oil and gas fields are reducing employment by 25% and expect to cut 100,000 jobs to offset a loss in energy demand. Oil rigs are lying idle, and Rystad Energy predicts that up to 35 oil producers in Texas may go bankrupt without an increase in oil and gas prices.
Solutions to these imminent problems require imminent progress on a long-term strategy. Allow me to contribute a few ideas to that strategy:
- Dial it down
With the recent global accord reached by the US, Russia, Saudi Arabia, and Mexico, we’ve made an important step forward. The agreement will reduce oil output by approximately 10 million barrels of oil per day, an important response to a 35% drop in oil demand. According to the BBC, this is the largest oil production cut ever agreed upon.
- Maximize what we have
Waste not want not, even in this age of abundance. Burning off vast quantities of valuable methane (natural gas remains in higher demand than oil and gas) makes economic sense for some producers. But it makes less sense for larger producers and little to no sense for consumers and the environment. Methane is a toxic contributor to climate change, and venting it into thin air is an unnecessary practice if viable alternatives exist. We need a global commitment to further research & development, plus the implementation of technologies that let energy companies collect combustible gases and direct them into local energy production. Investing in these biogas technologies to capture methane gas offers the promise of turning what some companies see as an economic liability into a revenue-generating, home heating and cooling consumer solution.
- Deliver what we drill
Pipelines aren’t popular neighbors and are met with NIMBY (not in my backyard) protests wherever they’re proposed, regardless of what they carry (crude, refined products, NGL, or CO2). I empathize. But pipelines are the price we pay for energy independence and are imperative for getting needed energy from where it’s produced to where it’s consumed. One of the reasons that those New York City utilities won’t accept new natural gas customers is because New York State wouldn’t allow Williams Companies to build a pipeline into the City to deliver it. We need to get oil and gas from major drilling sites in North Dakota, Texas, Mexico, and Pennsylvania to homes and businesses throughout the country. That requires trucks, trains…and pipeline.
Crafting a sustainable and efficient energy policy doesn’t compare with providing the number of ventilators necessary to save human lives. But that doesn’t mean it’s not important. Anticipating the future, solid planning, and an understanding of the complex relationships among economic, environmental, and quality-of-life issues surrounding energy development and delivery will help the US continue to move toward energy independence, a respect for the environment, and an appreciation for personal property rights. Like our battle with this virus, we’re all in the energy policy game together.
I welcome your thoughts and comments about how we achieve a rational energy policy balance. Feel free to reach out to me at TTurner@Prime-Eng.com.
Stay safe, my friends.