U.S. CHAMBER OF COMMERCE

Energy Blog

Energy Blog

US Chamber of Commerce Blog

J.D. Harrison Louisiana businessesShrimp boats in Venice, Louisiana (Photo via finchlake2000 / Flickr Creative Commons)

One thousand miles separate Louisiana from Washington, D.C., but that certainly hasn’t stopped regulators in the nation’s capital from extending their reach deep into the Bayou State.

Federal regulations have a more significant impact in Louisiana than in any other state in the country, according to a new study measuring the relative impact of D.C.’s rules on businesses in every state. The analysis suggests that the effects of federal regulations on Louisiana businesses has expanded considerably over the past two decades, to the point where Washington’s impact on the Louisiana businesses is now 74 percent greater than the national average.

What’s driving the crippling impact on Bayou businesses? More than anything, it’s the Environmental Protection Agency’s onslaught of new regulations, according to the analysis, which was conducted by researchers at George Mason University’s Mercatus Center. The EPA’s rules have dealt a major blow to several industries that are vital to the state’s economy, including chemical products manufacturing and oil and gas extraction.  

Alaska and Wyoming landed second and third on the list, respectively, as their mining and oil and gas extraction sectors have been similarly bludgeoned by EPA’s recent regulatory tear. Indiana, Kentucky, Texas, Nebraska, West Virginia, North Dakota and Montana round out the top 10.

While those states have felt a disproportionately large share of the pain, the researchers note that the impact of federal regulations on private companies has been trending alarmingly higher in every state across the country, without exception. And while every agency has contributed to the surge, there are two culprits that stand out in the crowd. As the researchers explain:

For the years in which data are available, two factors have significantly driven the increase in overall regulation. The first has been the ongoing growth in environmental regulation, which represents the most significant contributor to the increase in regulation overall since 1997. Using the BEA industry classification system, 5 of the 10 industries that experienced the largest increase in regulation since 1997 are particularly targeted by environmental regulation: utilities; chemical products manufacturing; motor vehicles, bodies and trailers, and parts manufacturing; forestry, fishing, and related activities; and petroleum and coal products manufacturing.

The second major driver of regulations in recent years has been the reaction to the financial crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 set off a massive increase in the number of regulations in the CFR, outpacing all other laws passed during the Obama administration combined. This explosion of new restrictions significantly affected 3 of the top 10 industries experiencing regulation growth since 1997: professional, scientific, and technical services; securities, commodity contracts, and investments; and Federal Reserve banks, credit intermediation, and related services.

In fact, Dodd-Frank “is associated with more new restrictions than are all other laws passed during the Obama administration put together,” according to the analysis. However, it’s not just Dodd-Frank’s sheer number of rules and restrictions that are unprecedented – it’s scope is rather unique, too. By that, we mean the number of regulatory agencies that were required to add new rules due to the law as well as the number of industries impacted by those rules. As the analysis points out, it’s hardly just financial services firms that have been felt the effects of the law.

“A typical act of Congress instructs one, two, or perhaps even a handful of regulatory agencies to engage in some rulemaking activity,” the researchers wrote. “Conversely, Dodd-Frank has – so far – precipitated regulatory actions by at least 32 different agencies.” They go on to point out that the law has impacted far more sectors of the economy that other major financial reform laws.

“In the wake of Dodd-Frank, states that depend heavily on financial services may see fewer firms, diminished employment opportunities, less entrepreneurial activity, and a migration of business to countries with more favorable regulatory climates,” they conclude.

This new analysis reinforces a point that the business community has been making for years – that our country’s regulatory system, particularly when it comes to environmental and financial rulemaking, is utterly out of control. We have to rein in what has essentially become a fourth branch of government that is spewing new, onerous and poorly-vetted rules at American businesses and threatening the drive our weak economy back into a recession.

It’s yet another reminder of the urgent need for real regulatory reform in Washington.

“Without systemic reform, we will continue to see agencies like EPA roll out massive new regulations with little concern for costs, practicality, or even legality, and with real consequences for U.S. jobs, economic growth, and personal and economic freedoms,” Tom Donohue, President and CEO of the U.S. Chamber of Commerce, wrote recently. He noted that the U.S. Chamber is working to “to attack the root of the problem by advocating a reform package to restore accountability, transparency, and common sense to the rulemaking process.”

Without such a reform package, businesses in Louisiana, Wyoming, Alaska and every other state across the U.S. will continue to get knocked down by regulations. It’s just a matter of how hard.

Sean Hackbarth 350.org founder, Bill McKibben, speaks at a Bernie Sanders campaign rally.350.org founder, Bill McKibben. Photo credit: Scott Eisen/Bloomberg.

A big part of public policy debates involves countering misleading claims. In this regular feature, I highlight important facts about the key issues being debated around Washington, D.C.

Claim: Fracking causes water and air pollution.

What you need to know: After leading the charge against the Keystone XL pipeline, anti-affordable-energy zealot Bill McKibben's next target is fracking.

“Natural gas” has “to be left in the ground," he declared in The Nation. “We need to stop the fracking industry in its tracks, here and abroad.”

First, McKibben blames fracking for water contamination, despite it taking place thousands of feet below the ground, far away from water supplies:

The Marcellus Shale, though, underlies densely populated eastern states. It wasn’t long before stories about the pollution of farm fields and contamination of drinking water from fracking chemicals began to make their way into the national media.

The key word is “stories.” Researchers from EPA, Yale, and elsewhere have found that fracking is done safely and doesn’t contaminate water.

Most-recently, researchers at the University of Cincinnati tested water from wells before, during, and after fracking took place nearby. Their conclusion: There is “no evidence for natural gas contamination from shale oil and gas mining.”

But what really scares McKibben is supposed methane leakages. He cites a Harvard study claiming to show that “U.S.  methane emissions had spiked 30 percent since 2002.” “We closed coal plants and opened methane leaks, and the result is that things have gotten worse,” he writes.

But like claims of water contamination, facts don’t live up to McKibben’s methane horror.

According to EPA data, “Methane emissions from hydraulically fractured natural gas wells are down nearly 79 percent since 2005,” writes Mark Green at Energy Tomorrow.

This makes sense since methane is natural gas, and energy companies are in the business of selling that to customers. There is an obvious incentive to minimize leaks and capture as much product to maximize sales.

energytomorrow_methane_from_fracked_natgas_wells.jpg Methane released from fracked natural gas well completion has fallen since 2005.Methane released from fracked natural gas well completion has fallen since 2005.Source: Energy Tomorrow.


But if that’s not enough, a top environmental thinker thinks the McKibben is “misleading” the public. Ted Nordhaus, co-founder of The Breakthrough Institute, read the same Harvard study that got McKibben quaking in his hiking boots and came to a very different conclusion:

[Researchers] concluded that while the United States has seen a 20% increase in oil and gas production since 2002, “the spatial pattern of the methane increase… does not clearly point to these sources.”

To use Nordhaus’ words, the scientists that McKibben puts on a pedestal don’t “clearly point to a source of the increase in atmospheric methane concentrations.”

Fracking opponents like McKibben understand that they can’t win the public debate when it’s about the benefits the technology has given us: access to abundant, affordable energy; millions of new jobs created; and increased energy security. That’s why a recent University of Texas at Austin poll found that more people support fracking than oppose it.

Instead, they have to scare people and mold facts like Play-Dough to push their unrealistic, irrational, “keep it in the ground” fantasies of meeting America’s energy needs without fossil fuels.

The biggest energy challenge is low prices--which is a great boon for consumers. That’s a 180-degree turn from only a decade before. Fracking and the shale boom that resulted from it is an impressive illustration of the power of American enterprise and innovation. Opponents cannot be allowed to undercut that success story by misleading the public.

 
Sean Hackbarth An oil jack near Corpus Christi, Texas.An oil jack near Corpus Christi, Texas. Photo credit: Eddie Seal/Bloomberg.

Even with almost two years of low oil prices, United States production hasn’t collapsed.

How can this be when services firm Baker Hughes reported that the number of oil and natural gas drilling rigs operating right now number 443, a multi-decade low?

eia_crude_oil_production_2009-2016_800px.jpg  2009-2016.EIA chart: U.S. crude oil production: 2009-2016.


The answer comes from an Energy Information Administration report showing that “costs in 2015 were 25% to 30% below their 2012 levels.”

Energy companies are enduring the oil prices slump by relying on innovation and technology to produce more energy for less.

eia_well_drilling_costs_2006-2015.png  2006-2015.EIA: U.S. well drilling costs: 2006-2015.Source: Energy Information Administration.


Here are a few ways companies are doing this.

1. Finding the Sweet Spot

Companies are focusing their efforts on the wells with the highest potential oil and natural gas production, CNBC reports:

Most of the cost of a new well lies in drilling and fracking it, so producers are only spending money to bring new production online in places where they're reasonably certain they can extract oil on the cheap.

Not only are producers moving rigs to their best land, but they're also completing more fracking stages per well, Charles Cherington, co-founder of the energy-focused private equity firm Intervale Capital.

"That's caused the sort of rollover in U.S. production to happen more slowly than people might have anticipated," he told CNBC's "Squawk Box" on Monday.

2. Big Data Computes

Companies are finding these sweet spots by using Big Data processing power to analyze the massive amounts of data their sensors provide, as Technology Review explains:

Thanks to new sensing capabilities, the volume of data produced by a modern unconventional drilling operation is immense—up to one megabyte per foot drilled, according to [the Manhattan Institute’s Mark] Mills’s “Shale 2.0” report, or between one and 15 terabytes per well, depending on the length of the underground pipes. That flood of data can be used to optimize drill bit location, enhance subterranean mapping, improve overall production and transportation efficiencies—and predict where the next promising formation lies. Many oil companies are now investing as much in information technology and data analytics as in old-school exploration and production.

3. Walk on the Wild Side

When companies determine the best places to drill, they use drilling rigs that walk from drilling pad to drilling pad, instead of being taking apart and rebuilt over and over, as Bloomberg reports:

More efficient drilling rigs that cost a third less than just a year earlier are changing the face of the U.S. shale industry, helping boost per-rig output in the four largest fields by at least 40 percent since the crude price plunge began in 2014.

4. More, More, More

After drilling comes the fracking, and the innovation continues. As Reuters puts it, shale producers are pushing fracking technology to the limit.

One way is driving more water and sand into a well to create more cracks in the shale, releasing more oil and natural gas, CNBC reports:

For example, drillers are now adopting a hydraulic fracturing method pioneered by companies such as Liberty Resources and EOG Resources that uses larger amounts of water and minerals. While it's a more costly process, it has been shown to boost production rates in the first crucial year of a well's life, after which output drops off dramatically.

Processes such as these have reduced the break-even cost of producing a barrel of oil and kept profitable some acreage that drillers might otherwise have left idle.

The Manhattan Institute’s Mark Mills explains, “Sand used per well has risen, from 5 million to 15 million pounds, on average,” and “Operators, for example, increasingly use more powerful pumps to move the water-sand mixture faster and at higher pressures, greatly increasing the amount of sand used to keep shale cracks open.”

Another way is fracking a well again. Bloomberg reports that 80 wells in North Dakota’s Bakken region showed “30 percent more oil in the month after the refrack than they did after the original completion.”

5. Rethinking the Entire Production Process

Another approach is being taken by Liberty Resources in North Dakota. It is rethinking the entire process of producing energy from shale formations by maximizing operational efficiency and optimizing each part of the production process with a “massive centralized oil production facility in Tioga, North Dakota, called Stomping Horse.” The Wall Street Journal dubs it a 10,000 acre, 96-well “oil factory” [subscription required]:

The self-contained facility was designed with efficiency and cost savings in mind. It can process wastewater on site, obviating the need to run trucks to and from the drilling site, and wells were intended to be fracked 10 at a time, to improve the network of fractures.

One way Liberty Resources is squeezing out costs is by relying more on pipelines:

Notably absent were tanker trucks. Liberty Resources has spent $16.2 million building pipelines to deliver fresh water and send out natural gas and oil, greatly reducing the need for trucks. Another pipeline sends gas from its wells to drilling rigs and other machinery, cutting diesel consumption in half and reducing the number of fuel trucks required.

“Getting trucks off the road is one of the main drivers in controlling the costs,” says Chris Clark, the production manager. Trucking water for disposal, for example, can cost $1.75 a barrel, about 50 cents more than shipping water via pipeline, he says. Overall, pipeline usage helps Liberty make an additional $3 a barrel for oil, mostly from reduced costs but also because the company can more easily get its oil to locations where it brings in higher prices, he says. “We are spending more to make more,” Mr. Clark says.

6. Tech Applied After Fracking

Innovation doesn’t stop after fracking. The Manhattan Institute’s Mills notes how one company is successfully analyzing its well data to maximize energy output:

ConocoPhillips combined the latest sensors (which extract data by the minute rather than daily), wireless networks (often requiring building dedicated remote cell and Wi-Fi towers), and big-data analytics to boost output by 30 percent in existing wells.

Information Week added that ConocoPhillips jumped into the “Internet of Things” movement by building a network of radio and wi-fi towers to collect real-time natural gas well data and spot ones that aren’t producing efficiently.

In each step of the energy development process--from where to drill and how to drill to studying data after drilling—companies are using the latest technologies to get us the oil and natural gas that helps power the American economy.

Not sitting still, always innovating. That’s how companies are persisting in the low oil price environment.