Old policies vs. new realities

Jan. 6, 2014
The single biggest oil and gas question for 2014 may be whether long-cherished US policies and assumptions can change to reflect surprising new realities. The fact that it's also going to be an election year isn't encouraging.

The single biggest oil and gas question for 2014 may be whether long-cherished US policies and assumptions can change to reflect surprising new realities. The fact that it's also going to be an election year isn't encouraging.

It's possible now to chuckle at some major US environmental organizations' assumptions that continued delays in the proposed Keystone XL crude oil pipeline's federal cross-border permit decision would keep Alberta's oil sands in the ground.

Rail transportation of crude not just from there, but also from North Dakota and Montana's Bakken tight oil formation, quickly emerged as an alternative in 2013. It wasn't an alternative the Sierra Club and Natural Resources Defense Council had in mind.

The July 6 accident near Lac-Megantic, Que.—where the apparent failure to set a brake on a parked train carrying Bakken crude led to a derailment and fire that took 47 lives—was almost as dramatic a policy wake-up call as the 2010 Macondo deepwater well blowout, explosion, and crude oil spill.

US and Canadian federal regulators responded quickly with emergency orders, and began work on longer-term solutions. Safety and public health protection obviously will be emphasized as the US Pipeline and Hazardous Materials Safety Administration and its Canadian counterpart develop new rules. Carriers will be equally anxious to make sure new requirements don't mandate retrofits and procedures that aren't effective or economic.

Potential development of previously inaccessible supplies also will increasingly compel oil and gas producers to deal with local consequences as well as global climate change.

Zoning discussions

"One of the biggest changes the last 20 years is that cities are on top of major energy resources, and we're involved more in zoning discussions as a major industry," observed Kenneth M. Cohen, ExxonMobil Corp.'s vice-president for public and government affairs, at a Dec. 12 briefing on its latest long-term outlook.

"We know governments will try to limit emissions and will assign a cost to carbon through their policies," said William L. Colton, ExxonMobil's vice-president for corporate strategic planning, at the same presentation.

It's also time for US policymakers to finally allow more crude oil exports, which would help stabilize the global market while creating jobs and generating revenue stateside, Erik Milito, the American Petroleum Institute's upstream and industry operations director, told reporters on Dec. 20.

This also would provide a needed outlet for surging US lighter crude production, he added. "The US has long been a refining powerhouse, but our capacity is largely designed to accommodate foreign, heavy crude," Milito said. "Trapping light, domestic crude within our borders only penalizes US production, which could mean higher costs for refiners and consumers."