MILLS: New EPA Head Stresses Cooperation With State Officials

Insiders ENERGY REPORT: Studies Predict Increase In Activity By Alex Mills AUSTIN Texas (Texas Insider Report)  It is unusual for the new leader of a federal agency to have sued the very agency that he now heads but thats exactly what happened when President Trump nominated and the U.S. Senate confirmed Scott Pruitt (right) as the new administrator of the Environmental Protection Agency (EPA). Pruitt former attorney general for Oklahoma has participated in several lawsuits against EPA the Department of Interior and the U.S. Fish & Wildlife Service over a variety of issues implemented by the Obama administration. Those issues included:

• Changes to Air Emissions
• Expansion of Water Regulation
• Sue & Settle" Agreements between Federal Regulators and Environmental Groups and
• The Endangered Species Act

Although these issues directly impacted the fossil fuel industries the main thrust of the suits involved states rights and federal overreach stepping on the toes of states that were already regulating these industries. Many industry leaders described the actions of the regulatory agencies under the Obama administration as harsh regulatory overreach" and runaway bureaucracy." During Pruitts first meeting with EPA staff on Tuesday he stressed a cooperative working relationship with state regulators.

For enforcement and other issues I seek to engender the trust of those at the state level so those at the state level see us as partners in this important mission we have as an agency and not adversaries" he said.

Regulators exist to give certainty to those that they regulate" Pruitt said.

Those that we regulate ought to know what we expect of them so that they can plan and allocate resources to comply. Thats really the job of the regulator and the process that we engage in in adopting regulation is very very important because it sends a message."

Pruitts comments highlight an historical difference between state and federal regulators. Federal agencies issue complicated rules that are often hundreds of pages long. Enforcement is more of a Gotchua!" approach accompanied with the threat of large fines. On the other hand states like Texas work with those regulated to solve problems. Of course fines can be implemented but they are not of the magnitude of federal fines and they are not used as a threat.

I believe that we as an agency and we as a nation can be both pro-energy and jobs and pro-environment" Pruitt said in the 12-minute speech to some 100 EPA employees.

We dont have to choose between the two."

Environmental activists worked to prevent Pruitt from being confirmed by the Senate. They funded a media campaign in states where they believed they had a chance to convince some Republican Senators to oppose Pruitt. However only one Republican Susan Collins of Maine voted against Pruitts confirmation. Two Democrats Heidi Heitkamp of North Dakota and Joseph Manchin III of West Virginia voted for Pruitt. The final vote was 52-46. Studies Predict Increase In Activity Several studies by economists financial institutions and the leaders in the oil and gas industry anticipate a much better business environment for the oil and gas industry in 2017. The oil and gas industry in Texas ended a punishing 24-month-long economic contraction in December according to Karr Ingham a petroleum economist who issues the Texas Petro Index (TPI) monthly. He said the TPI increased in December for the first time since peaking at a record high in November 2014. Ingham noted that the rise in crude oil and natural gas wellhead prices were key factors. Monthly average posted crude oil prices in Texas fell from $101.68 per barrel ($/bbl) in June 2014 to $27.08/bbl in February 2016 a decline of 73 percent but recovered to a little above $50 in December. The average monthly price of natural gas fell from more than $4.50 per thousand cubic feet ($/Mcf) in June 2014 to a $1.63/Mcf in March 2016 a decline of 64 percent. Natural gas prices recovered to average $3.46 in December. Ingham (right) also noted that other economic indicators such as the drilling rig count and drilling permits issued increased during 2016. The national accounting and consulting firm Deloitte released a survey of industry professionals that found six in 10 believe the recovery has started. A majority of those surveyed expect oil prices to reach $60-$80 per barrel prompting more investments in exploration and production.

Companies will spend 2.5 more on capital expenditure this year than they did in 2017 the first yearly growth in such spending since 2014 BMI Research reported.

Spending will increase to a total of $455 billion in 2017 from $444 billion this year BMI said but will be well below the $724 billion spent in 2014.

Another report from Thomas McNulty a director in the valuations and financial risk management practice at Navigant reveals large private-equity investors are falling back in favor with the beaten-down energy sector. They moved to the sidelines of energy-related corporate debt as crude oil prices fell. These days however theyre doing the due diligence that precedes making big deals on the sectors continued recovery according to McNulty. According to the Energy Information Administration (EIA) U.S. crude oil production is forecast to increase from an average of 8.9 million barrels per day (b/d) in 2016 to an average of 9.3 million b/d in 2018 primarily as a result of gains in the major U.S. tight oil-producing states:

• Texas
• North Dakota
• Oklahoma and
• New Mexico

Production in Texas the largest oil-producing state is driven by two major oil-producing regions the Permian and the Eagle Ford. The electricity industry is planning to increase natural gas-fired generating capacity by 11.2 gigawatts (GW) in 2017 and 25.4 GW in 2018 based on information reported to EIA. If these plants come online as planned annual net additions in natural gas capacity would be at their highest levels since 2005. On a combined basis these 201718 additions would increase natural gas capacity by 8 from the capacity existing at the end of 2016. Depending on the timing and utilization of these plants the new additions could help natural gas maintain its status as the primary energy source for power generation even if natural gas prices rise moderately.