MILLS: Congress Gets Busy On Oil Gas Issues

An Insiders ENERGY REPORT By Alex Mills AUSTIN Texas (Texas Insider Report) For the first time since Barack Obama became President Republicans took control of the U.S. House and Senate and they wasted no time in taking on some of the energy issues that have been languishing in the Congress for years. Senate Republicans made good on a pledge to pass the long-pending Keystone XL oil pipeline on Jan. 29th.   Senators voted 62-36 on the bill to bypass the Obama administrations delaying tactics on the Keystone XL only 5 short of the number needed to override a presidential veto which is expected. All Republicans present voted for the bill as did nine Democrats. Approving the Keystone XL has been the top priority of Republicans in the new Congress after they won control of the Senate in November. Majority Leader Mitch McConnell said the Keystone XL would be good for the middle class and pump billions of dollars into the economy." Debate on the bill lasted most of the month with Senators engaging in an open process espoused by McConnell to debate dozens of amendments. Only a handful of the amendments passed including one from Senator Lisa Murkowski the chair of the energy committee in which companies transporting crude from Canadas oil sands would have to contribute to an oil spill fund. The project would bring some 800000 barrels per day of heavy oil from Alberta and light US crude to Nebraska en route to refineries on the Gulf Coast. The House of Representatives has voted 9 times to approve the project. LNG Exports The U.S. House of Representatives passed a bill aimed at increasing US LNG exports by requiring the Department of Energy to determine whether a project is in the national interest once its federal environmental reviews were complete. Forty-one Democrats joined 236 Republicans in voting for the bill which Energy and Commerce Committee member Bill Johnson (R-Ohio) introduced on Jan. 14. One Republican Chris Gibson (NY) and 132 Democrats voted against it. The Senate Energy and Natural Resources Committee plans to hold hearings on LNG exports. Hydraulic Fracturing The Senate defeated a measure that would have allowed the Environmental Protection Agency to regulate hydraulic fracturing. The vote was an amendment to the Keystone Pipeline bill and it was offered by Sen. Kirsten Gillibrand (D-NY). The vote  was 63-35 against passage. All of the Senate Republicans present voted against the amendment in addition to a number of Senate Democrats including:

1. Sens. Bennet (CO)
2. Heinrich (NM)
3. Heitkamp (ND)
4. Kaine (VA)
5. Manchin (WV)
6. McCaskill (MO)
7. Tester (MT)
8. Udall (NM) and
9. Warner (VA)

The Texas Petro Index Crude oil inventories grew again last week putting more downward pressure on crude oil prices. The U.S. Energy Information Administration (EIA) reports that crude oil imports totaled 413.1 million barrels compared to 358.1 for the same period last year.  Thats a 55 million barrel increase or 15. The oversupply of crude oil has caused the U.S. average price to decline from $97.49 per barrel to $48.24 according to EIA which is a $49.25 decline (51). Petroleum economist Karr Ingham who authors the Texas Petro Index said last week that the oil and gas industry is in for a rough ride in 2015.

There is every reason to believe the Texas Petro Index will lose 40 of its value dropping to well below 200 from its peak of 312.9" Ingham (right) said. In the 2008-2009 contraction the price decline was deep but short-lived and the TPI declined by nearly 35.  While it is possible the duration of price decline this time around could be short-lived as well the fundamentals dont quite suggest that will be the case" he said.

Ingham said the industry could lose two-thirds of the drilling rigs from 906 down to 300 and about 50000 jobs during this downturn. Over 130000 jobs have been directly added to the upstream oil & gas industry in Texas over the course of the expansion now coming to an end (and we do not yet know for sure whether industry employment has peaked or not - but if it hasnt its about to)" he said. Again a realistic assessment suggests that we are going to lose at least 50000 of those jobs over the course of this contraction and frankly that number could be higher." Ingham said that is the nature of the falling dominoes. Price first and the resulting decline in production value then drilling permits rig count and ultimately employment with a lag time of a few months" he said. The last domino to fall will be the actual volume of crude oil production.  This is of course the signal being sent by the market to producers -- to reduce production and do it ASAP.  But it just doesnt happen that quickly. New production is still being brought online as we speak and production will continue to grow for months into the future perhaps even all through 2015.  So the one occurrence that needs to happen the soonest will actually take the longest." Ingham said that this decline is unlike the events of 2008-2009.

This is very much a supply-driven event and it just looks like production will need to peak and then decline before much upside price support can be expected" Ingham said.

Its not that we may not get some moderate relief from current low prices but prices will need to rise fairly significantly in order to begin to turn things around and we should prepare for the possibility that that may not happen in 2015." Alex Mills is President of the Texas Alliance of Energy Producers. The opinions expressed are solely those of the author.