Daily on Energy: Texas debates mandating oil production cuts

Sheffield opened all-day testimony before the Texas Railroad Commission, which is considering imposing “pro-rationing” on oil companies in the largest-producing state. The measure would require drillers to reduce their production by certain percentages until it no longer exceeds market demand.

Pioneer is one of two Austin-based companies with Parsley Energy that has called on the Texas oil regulator to act, despite the overwhelming opposition from large oil majors, refiners, and the trade groups that represent them, who fear a mandate would upset the free-market system in the U.S.

Sheffield, in strikingly blunt comments, suggested the financial problems of shale producers existed before the current crisis driven by the coronavirus, as companies took on too much debt amid the shale rush and produced more than the market demanded.

“No one wants to give us capital because we have all destroyed capital and created economic waste,” Sheffield said. But he said regulators could bring the market back in balance when it’s needed most.

What’s a ‘real’ oil cut?: Sheffield said the OPEC+ plus agreement to cut oil production nearly 10 million barrels per day, coupled with some 5 million barrels per day in market-driven cuts from G-20 countries like the U.S., won’t be sufficient to compensate for the lost demand from the coronavirus.

“Texas can lead in getting a real G-20 cut of 5 million, not a fake 5 million barrels per day,” Sheffield said.

The market-driven cuts in the U.S. touted by President Trump and Energy Secretary Dan Brouillette “are happening,” Sheffield said, “but it’s a very, very slow process.” He said most independent companies like his are hedged and are continuing to drill, and significant cuts won’t happen until later this year, and mostly in 2021.

Sheffield called on the commission to mandate a 1 million barrel per day production cut in May, and to be prepared for more in future months.

Texas can’t do it alone: But he said Texas should act as part of a “global deal,” and the commission should make its cut contingent on Oklahoma, a neighboring state also considering pro-rationing, doing the same, along with OPEC+ and the G-20 imposing additional cuts.

“We have never recommended Texas do it by itself,” Sheffield said.

Ryan Sitton, one of the three Texas railroad commissioners, all Republicans, has advocated for the state to consider pro-rationing. But he was more cautious about the prospect on Tuesday. Since the global oil surplus (decline in demand) is between 20 million barrels and 30 million barrels per day, he noted, how would cutting Texas’ production by 1 million barrels per day make a difference?

“If we were to pro-rate, how is that going to resolve this?” Sitton asked.

Do free-markets matter? Lee Tillman, CEO of refiner Marathon Oil, argued in his testimony that pro-rationing will “not have any meaningful impact on oversupply and will hurt Texas producers.”

He said Texas producers are already shutting in the least profitable and efficient wells in response to market forces. “Economic forces will ultimately drive supply and demand back in balance,” Tillman said.

Sheffield, however, argued the partnership in recent years between Saudi-led OPEC and Russia has already distorted the concept of free markets, and the principle isn’t so sacred.

“If anyone thinks we really have a free market, you have to be joking,” Sheffield said.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

ENERGY DEPARTMENT TALKING WITH 9 COMPANIES TO RENT STORAGE IN SPR: The Energy Department announced Tuesday it is negotiating contracts with nine U.S. companies to store excess oil in the nation’s emergency Strategic Petroleum Reserve to help alleviate a historic glut.

The awards for companies to rent storage space, which follows a request for proposals on April 2, would be for roughly 23 million barrels of crude oil storage to be distributed into all four SPR sites.

Most of the deliveries for storing crude would be received at the SPR in May and June 2020, with possible deliveries in April.

Allowing companies to rent space in the federal government’s emergency reserve would aid the oil industry, which is projected to run out of storage for the first time in history as it faces a historic drop in demand for its product and a global glut.

The Energy Department’s move to permit companies to rent storage space comes after Congress, as part of its phase three pandemic relief package, chose not to fund a request from Trump to purchase low-priced oil to store in the SPR.

BIDEN LOOKS TO PARTNER WITH SANDERS ON CLIMATE: The presumptive Democratic presidential nominee Joe Biden is looking to swap ideas on climate change policy with formal chief rival Bernie Sanders as he seeks to win over the party’s progressive wing.

After Sanders endorsed Biden on Monday morning, the duo announced they are creating various shared task forces on key policy issues, including one on climate change.

Biden has already embraced some of Sanders’ ideas on college debt and health care. It will be interesting to see if he is comfortable adopting some of Sanders’ positions on climate change, some of which are potentially riskier in a general election, such as banning fracking.

Biden already has a more progressive climate platform than his former boss, President Barack Obama. But liberal groups such as the influential youth-driven Sunrise Movement have held off on endorsing Biden as they say he has struggled to articulate his climate agenda and failed to outline near-term clean energy goals.

“Hopefully @JoeBiden will continue working prominently with @BernieSanders throughout the campaign, and these tasks forces will produce real progressive policies & personnel commitments, not just empty gestures,” tweeted Evan Weber, the Sunrise political director.

OBAMA FINALLY ENDORSES BIDEN, WITH A NOD TO CLIMATE: In a 12-minute endorsement video Tuesday, Obama said Biden “already has what is the most progressive platform of any major party nominee in history.”

On climate change, Obama didn’t mention the Green New Deal, but he said “science tells us we have to go much further” than simply rejoining the Paris climate agreement, one of his administration’s signature climate accomplishments. “It’s time for us to accelerate progress on bold new green initiatives that make our economy a clean energy innovator, save us money, and secure our children’s future,” Obama said.

Obama also knocked Trump and other administration officials for giving polluters “unlimited power to poison our air and water” and denying climate change science “just as they denied the science of pandemics.”

EPA WON’T TIGHTEN SOOT STANDARDS: The move, which the agency announced Tuesday, runs counter to recommendations by the agency’s own scientific staff to strengthen the pollution standards. An independent panel of experts disbanded by Trump officials back in 2018 also called for tighter limits.

Nonetheless, EPA Administrator Andrew Wheeler said the agency determined current standards for fine particulate matter, or PM2.5, are protective of public health. He said there are “still a lot of uncertainties” regarding recent scientific research on PM2.5 that the agency can consider in its next five-year review cycle. (By law, the EPA must review national standards for the six so-called criteria air pollutants every five years).

What does the science say? Scientific experts and environmentalists say the EPA is disregarding research showing soot pollution can cause adverse health impacts even at low levels, below the current standard. They also pointed to preliminary research released just last week by Harvard scientists showing areas in the U.S. with higher PM2.5 pollution are experiencing a greater number of deaths from the novel coronavirus.

Wheeler said the agency will review the Harvard study once it’s complete and peer-reviewed, but he suggested the scientists who conducted the study “seemed to have a bias” against the Trump EPA. More in Abby’s story from this morning.

EPA INVENTORY CONFIRMS UPTICK IN 2018 EMISSIONS: U.S. greenhouse gas emissions increased 3% in 2018, largely due to higher energy consumption that year, according to the EPA’s final greenhouse gas inventory released Monday. The uptick in 2018 emissions reverses a downward trend from recent years, but the EPA expects 2019 emissions to decrease based on preliminary data, Wheeler said in a statement.

ENERGY STORAGE TO TAKE A BIG HIT IN Q2: A quarter of the companies surveyed by the Energy Storage Association said they expected they’d have to start laying off staff, with most of those expecting to cut up to 20% of their workers.

The new survey by the trade group, released Tuesday, found more than half (63%) of the storage companies polled expect at least a 20% decline in revenues this quarter, due to delays caused by the coronavirus pandemic and associated economic fallout. Manufacturers in the storage sector will be hit the hardest, according to the survey.

The trade group notes that many companies are hoping to delay any layoffs, but they might not be able to avoid them in the third quarter if the economic downturn continues and delays worsen. “Depending on how significantly projects are delayed the impacts of this virus could result in hundreds of millions of dollars worth of capacity moved from 2020 into 2021 or out further towards 2025,” said Daniel Finn-Foley, head of energy storage at Wood Mackenzie.

GRIJALVA PROMISES ‘VERY STRICT SCRUTINY’ OVER INTERIOR’S ROYALTY RELIEF POLICY: Democrat Raul Grijalva, the chairman of the House Natural Resources Committee, is not satisfied with the Interior Department’s assurance that it won’t grant across-the-board royalty relief to companies producing oil and gas on federal lands and waters.

Grijalva, in a statement Monday, said Interior’s decision to allow companies to apply for discretionary royalty relief on a case-by-case basis amounts to “a de facto cut across the board” if the agency does not apply “real scrutiny” to each decision.

“This administration should expect very strict scrutiny of how these case-by-case requests are handled going forward,” Grijalva said.

INTERIOR ASSISTANT SECRETARY COMBS TO LEAVE AGENCY: Interior Secretary David Bernhardt tweeted Monday that his assistant secretary of policy, management, and budget, Susan Combs, is leaving the agency this month. Combs will “head back home to Texas,” Bernhardt said, after leading a reorganization of the agency. Her last day at Interior will be April 25.

The Senate confirmed Combs on a bipartisan basis in June 2019, after she previously served as Texas Comptroller and in the state legislature, and was the state’s first female agriculture commissioner.

NRC DEFERS FEE PAYMENTS FOR NUCLEAR PLANTS: The Nuclear Regulatory Commission has decided to temporarily defer the collection of fees and charges from nuclear plant licenses by 90 days during the coronavirus pandemic.

The move comes a few weeks after it was requested by Republican Senator John Barraso, chairman of the Environment and Public Works Committee, ranking Democrat Tom Carper, and Rep. Greg Walden, the top Republican on the Energy and Commerce Committee.

“Deferring annual payments to the NRC will not sacrifice the NRC’s nuclear safety mission, but it will give some much needed flexibility to our nation’s nuclear power utilities and the medical facilities that may use nuclear materials for medical purposes,” Carper said Monday.

The Rundown

Wall Street Journal North America’s oil industry is shutting off the spigot

Bloomberg Saudis slashing oil prices to Asia shows supply war isn’t over

Financial Times How coronavirus stalled climate change momentum

Foreign Affairs The strategic case for US climate leadership

Calendar

TUESDAY | APRIL 14

Neither the Senate nor the House is expected to meet before May 4.