Crude exports unlikely to cause shortage

by Jay F. Marks and Adam Wilmoth and Paul Monies Modified: February 11, 2014 at 11:09 am •  Published: February 11, 2014
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Our NewsOK Energy team chatted with readers Tuesday about crude exports.

You can join our energy Q&A’s on the second Tuesday of every month at 10 a.m. and submit your questions about energy companies and developments across the state. Below is an unedited transcript of Tuesday's chat.

NewsOK 9:33 a.m. Good morning everyone. We'll get this chat started at 10 a.m., but you can start submitting your energy or oil and gas questions now.
Paul Monies 9:54 a.m. Hello, everyone. We'll get started here in five minutes.
Paul Monies 9:56 a.m. We've already got a couple of questions ready in the queue. Get your own questions ready.
Paul Monies 10:01 a.m. Let's get started with our first question.
Terry 10:01 a.m. Harold Hamm and others want to export crude oil. Do you think this would create a shortage of supply, thereby driving up gasoline prices here in the U.S.?
Jay F. Marks 10:02 a.m. Oil is a global commodity, so gasoline prices are always subject to price spikes.
Jay F. Marks 10:03 a.m. Given the recent gains in U.S. oil production, it doesn't really make sense to bar imports.
Jay F. Marks 10:03 a.m. I mean exports.
Adam Wilmoth 10:03 a.m. I don't think it would create a shortage, but it likely would minimize a glut, which could cause prices to fall.
Jay F. Marks 10:04 a.m. The export ban is a holdover from the 70s, when we were convinced oil and gas were about to run out...
Jay F. Marks 10:04 a.m. I think exports could be beneficial.
Jay F. Marks 10:05 a.m. It makes no sense for a producer like Continental Resources to go all the way to Houston to find a market for its Bakken oil if there is a demand in nearby Alberta, Canada.
Jay F. Marks 10:06 a.m. Allowing exports likely would make domestic oil more competitive with crude from elsewhere in the world, which would be a good thing for our economy.
Guest 10:07 a.m. Are there any Oklahoma state policy proposals having to do with clean energy right now?
Paul Monies 10:07 a.m. There's a couple of bills having to do with wind that we're looking into and should be writing about soon.
Paul Monies 10:08 a.m. Also, there was an effort last year to increase the goal for state generation of renewable energy to 20 percent, up from the target of 15 percent by 2015.
Paul Monies 10:08 a.m. That bill was held over from last session and might come up again. We already hit the 15 percent target in late 2012.
Terry 10:09 a.m. You mean to tell me that U.S. oil producers can't even export oil to Canada?
Jay F. Marks 10:09 a.m. I think there have been some exceptions granted in limited cases, but for the most part domestic crude oil must stay here.
Terry 10:10 a.m. Didn't the government eliminate the subsidies for Wind turbines?
Jay F. Marks 10:10 a.m. Canada obviously has no such restrictions, as our neighbors to the north are our largest suppliers of imported oil.
Paul Monies 10:12 a.m. Yes, Terry, the federal government production tax credit expired Dec. 31. There's still talk of reviving it as part of a package of tax credits called extenders. Despite that, there's still state incentives for wind, although the federal PTC is the largest and had the most use to developers because of the large upfront costs of these wind farms.
Terry 10:12 a.m. Elliot Roosevelt Jr. (grandson of FDR) plans to use CO2 to extract oil from his west Texas parcel. Why is this method (carbon dioxide-enhanced oil recovery) not used more often, especially as compared to fracking? Is it the cost or availability of CO2? I hear they've been using this method in the oil patch since the 70's and it sounds safer than fracking and doesn't deplete water in the vicinity that's needed for other uses.
Jay F. Marks 10:12 a.m. First you need to gain access to the reservoir, which today means hydraulic fracturing.
Jay F. Marks 10:13 a.m. CO2 is used later on to free up some of the oil that can't be produced after the well is fracked.
Jay F. Marks 10:14 a.m. CO2 operations are typically called tertiary recovery, which comes after traditional drilling and water floods.
Jay F. Marks 10:16 a.m. Currently, CO2 operations are used in older fields (like ones mostly depleted back in the 70s or before) to free up more oil.
Adam_Wilmoth 10:19 a.m. Fracking is part of the primary drilling process. CO2 flooding is considered a tertiary process. It is used only after primary well production has depleted. Then companies use a secondary process like water flooding to push the oil through the rock formation.
Paul Monies 10:19 a.m. We've got a few questions in the queue, so bear with us.
Adam_Wilmoth 10:19 a.m. Chaparral is using CO2 flooding in Osage County and other parts of the state.
Neal 10:20 a.m. I live in Southern California but wanted to ask you oil patch guys if you can think of the best way to retrieve the off-shore oil in California. I heard that horizontal wells can now be drilled as far out as 17 miles and thought that maybe on-shore wells could be drilled horizontally that could access that oil. Currently, many of these pools of oil seep oil into the ocean, polluting the beaches where I often end up with tar on my feet after a visit to the beach.
Jay F. Marks 10:21 a.m. I don't think that is possible, with current technology.
Adam_Wilmoth 10:21 a.m. Horizontal wells are usually one to three miles long. Going much longer than that would require a very powerful rig and would be very expensive.
Jay F. Marks 10:21 a.m. The depth of those offshore wells is probably prohibitive as well.
Paul Monies 10:23 a.m. We've got a couple of questions on the Oklahoma tax rates coming up.
David 10:23 a.m. If OK had a similar tax to ND and or TX on oil and gas how much $ more would the state have in their budge every year?
MB 10:23 a.m. Rep. Dank has proposed a sensible compromise on the gross production tax issue, linking mid-range rates to whether oil producers actually employ people here. With Speaker Shannon, the primary advocate of keeping the 1 percent rate intact out of his leadership role, where do you expect the GPT to wind up?
Adam_Wilmoth 10:24 a.m. The gross production tax issue is a key issue in this legislative session. North Dakota and Texas have much higher rates than the Oklahoma has on horizontal wells. Other states in the area are much lower.
Jay F. Marks 10:26 a.m. It's tough to compare states like North Dakota and Texas because they have so much more oil, which will attract drillers no matter what.
Adam_Wilmoth 10:26 a.m. Those who want to raise the rate say the production will follow the geology and will be here regardless of the tax rate. They say a higher tax rate would increase state revenue.
Jay F. Marks 10:26 a.m. Oklahoma is a natural gas state, which is a tough sell given the historically low prices that have greeted producers over the past couple of years.
Paul Monies 10:27 a.m. Gov. Mary Fallin and her budget director said keeping the rate at 1 percent wasn't a good start for negotiations. New House Speaker Jeff Hickman hasn't publicly weighed in on the issue yet, but he was just elected Speaker yesterday.
Joshua 10:27 a.m. Other states are much lower than OK or Texas and ND? It's hard to be lower than 1% isn't it?
Adam_Wilmoth 10:27 a.m. Those who want to leave the rate where it is say the lower rate has led producers to look more at the state and that a higher rate would make some Oklahoma wells less profitable and could reduce drilling activity in the state.
Joshua 10:29 a.m. It should be pretty easy to have one tax on Natural Gas and another on Gas Liquids and Oil. If we want to encourage help with falling gas prices, just have a graduated tax rate based on the price of gas.
Jay F. Marks 10:29 a.m. I'm not sure that will work, given that producers can't predict exactly what they'll get back when they drill, even with today's technological advances.
Adam_Wilmoth 10:31 a.m. Oklahoma's tax rate is 7 percent for vertical wells. Horizontal wells are taxed at 1 percent for the first 48 months before the rate returns to 7 percent.
Jay F. Marks 10:31 a.m. But that is something that could be considered during this debate, which probably won't be resolved quickly.
Neal 10:34 a.m. I just read that the Anschutz Corp.(half owners of the Staple Center) plan to build a huge wind farm in Wyoming that could supply power to California generating as much as three nuclear power plants. Doesn't sound like they're too concerned about the government subsidies. Seems like they've been pampered long enough.
Paul Monies 10:34 a.m. Full disclosure here: Mr. Anschutz owns our newspaper.
Jay F. Marks 10:36 a.m. That wind farm deal has been proposed, but it hasn't been built and no contracts have been signed.
Paul Monies 10:36 a.m. His Wyoming project was proposed about a year ago. I'm not sure what the status of it is, since it's a little outside of our coverage area. One of his companies proposed building 3,000 megawatts of wind farms on 2,000 acres. It also wanted to build a high-voltage transmission line to ship the electricity to near Las Vegas for sale to southern California.
Jay F. Marks 10:37 a.m. It seems like a good idea to take resources from Wyoming, which has some of the lowest power prices in the nation, to California, which has some of the highest, but it's probably not that simple.
Jay F. Marks 10:37 a.m. As federal regulations make it more onerous to burn coal, Wyoming may decide it wants that wind power for itself.
Jay F. Marks 10:38 a.m. Folks all over the country also have balked at the kind of high volume transmission lines needed to make the proposed Wyoming-to-California project work.
Paul Monies 10:39 a.m. The Anschutz transmission project also would have to cross lots of private and federal land, so getting rights-of-way for that line would probably take quite a while, too.
Joshua 10:39 a.m. After 48 months, production on horizontal wells is down significantly. Usually by 48 months the entire well has been paid back and the state only gets paid on the remnants of the play. Drilling for oil has always been risky business. Raise the taxes, accountants can figure out the details for the break even point.
Neal 10:40 a.m. Why would depth be a problem drilling for oil off California if they can drill in the Gulf where the ocean floor is a mile deep? California coastal depth varies a lot but much of that oil could be retrieved in much shallower water.
Neal 10:40 a.m. Occidental and others have been using the fracking method here in California and I believe even in off-shore situations. If so, in off-shore drilling wouldn't that extra pressure create more oil and hazardous chemical seepage thru the naturally existing seepage cracks?
Jay F. Marks 10:41 a.m. The use of fracking in offshore exploration has seemingly caughts folks off-guard in California, where officials are still trying to figure out the potential risks.
Jay F. Marks 10:41 a.m. I'm not sure anyone has any definitive answers at this point.
Adam_Wilmoth 10:43 a.m. I'm not as familiar with California geology, but I think we're talking about two different things. There may be seepage from shallow rock layers, but the oil companies are drilling -- and fracking -- in large reservoirs deep below ground.
just curious 10:43 a.m. My family leased our mineral rights for our land in Grant county for three years which expired the first of February. They have not done anything on our section and we have not been contacted by anyone to re-lease it. We have no rider in the lease about them getting to lease it again. What should we do about getting it leased again?
Adam_Wilmoth 10:44 a.m. Companies secure and retire leases on a regular basis.
Adam_Wilmoth 10:45 a.m. When companies enter a play, they often buy up as much acreage as they can in the area. Then through drilling and testing, they determine where the best spots are for oil production.
Adam_Wilmoth 10:46 a.m. If the operator has allowed your lease to expire, it could be that there are better minerals elsewhere, or it could be that other areas are more easily tied into their infrastructure.
Adam_Wilmoth 10:47 a.m. That doesn't mean that company or another company won't be interested in your land again in the future.
Jonathan 10:47 a.m. What's the reason for the decrease of drilling in the Mulhall area?
Adam_Wilmoth 10:47 a.m. But I'm not sure you can do anything to make your land more attractive to the companies.
Jay F. Marks 10:48 a.m. I don't know anything specific about the Mulhall area right now, but typically results drive drilling. Companies will keep spending if they are getting the right amount of oil and gas back.
Jay F. Marks 10:49 a.m. Maybe that area hasn't given them the desired production...
Terry 10:49 a.m. I know the Williams Co. reused many of their old pipelines to extend fiber-optic lines. Are these still being used that way or is Williams converting their pipelines back to oil distribution to take advantage of the current lack of pipeline infrastructure?
Jay F. Marks 10:51 a.m. I'm not sure what became of those lines, but location is the key issue right now.
Jay F. Marks 10:52 a.m. The industry is trying to get pipelines into areas that haven't been traditional oil-producing states.
Jay F. Marks 10:52 a.m. I doubt there was any fiber-optic line in North Dakota.
Neal 10:52 a.m. Just curious since you mentioned that most horizontal wells don't extend out beyond three miles. What's the furthest horizontal well extension you've ever heard of?
Paul Monies 10:53 a.m. We've got a couple of more questions in the queue, and will try to wrap this chat up by 11 a.m.
Adam_Wilmoth 10:53 a.m. It has to do with regulatory requirements and well spacing.
Adam_Wilmoth 10:55 a.m. In Oklahoma, most wells are limited to one section, which is one mile. A few years ago, the legislature changed the rules to allow horizontal laterals to extend over two sections in certain shales.
Kevin 10:58 a.m. Any word on the .50 cent credit for CNG. Gas that expired. In Dec coming back. CNG over 2 bucks is not ideal
Jay F. Marks 10:59 a.m. I haven't heard any indication that tax credit is coming back.
Adam_Wilmoth 10:59 a.m. Most stations in Oklahoma still have it well lower than $2.
Adam_Wilmoth 11:01 a.m. CNG also does not fluctuate as much as gasoline. The price of natural gas is up more than $1 per thousand cubic feet over the past two months, but the price at the pump has changed little other than the tax credit.
Paul Monies 11:02 a.m. OK, thanks for joining us today.
Paul Monies 11:02 a.m. Our next chat will be 10 a.m. March 11.
by Jay F. Marks
Energy Reporter
Jay F. Marks has been covering Oklahoma news since graduating from Oklahoma State University in 1996. He worked in Sulphur and Enid before joining The Oklahoman in 2005. Marks has been covering the energy industry since 2009.
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by Adam Wilmoth
Energy Editor
Adam Wilmoth returned to The Oklahoman as energy editor in 2012 after working for four years in public relations. He previously spent seven years as a business reporter at The Oklahoman, including five years covering the state's energy sector....
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by Paul Monies
Energy Reporter
Paul Monies is an energy reporter for The Oklahoman. He has worked at newspapers in Texas and Missouri and most recently was a data journalist for USA Today in the Washington D.C. area. Monies also spent nine years as a business reporter and...
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