Energy Law

3 – Domestic Oil

Fall 2014Sep 16, 2014

Alan Palmiter

Not for distribution- for study purposes only

Topic roadmap1. Domestic oil in energy mix

– Compared to other energy sources– History of domestic oil– Future of domestic oil

2. How domestic oil production / transport work– Oil production in the United States– Transportation from the well to end user

3. Regulation of domestic oil– State level: common law conservation regulation– Federal level: leasing of federal lands / OCS

3. Future of domestic oil– Environmental impact of oil– OCS drilling in wake of BP spill– Shale oil

http://www.eia.gov/totalenergy/data/annual/diagram1.cfm

3

Energy Flow, 2011 (Quadrillion Btu)

1. Domestic oil in the energy mix

http://www.eia.gov/totalenergy/

3

http://www.eia.gov/totalenergy/data/annual/pecss_diagram.cfm

Energy Sources Uses

Click for video (0:00-14:00)

Black Gold: The Secrets of Oil (Modern Marvels Documentary)

2. Oil exploration distribution

(1) Exploration• geological / geophysical surveys• exploratory drilling(2) Production• Onshore• Offshore(3) Crude transport• Oil pipelines (200K miles / 80% of total crude)• Water carrier (19% of total crude)(4) Refining• Separation into component fuels• 149 US refineries, 17.6 mill bar./day(5) Distribution • Railroad (4%), truck (7%), water carrier (26%) • More pipelines (63%)

Traditional land righttp://www.manhattan-institute.org/html/ib_23.htm#.UjfBAbwXiP0

Types of offshore drilling rigs

http://www.bbc.com/news/science-environment-23280894

Refining (between production consumer)

Shale Basins and U.S. Pipeline Grid

Source: National Energy Board (Canada)

1. True or false? The percentage of gas-generated electric power is larger than the percentage of petroleum-fueled transportation.

2. Which is false – a. U.S. oil production has

decreased since 2010.b. Crude oil must be refined to be

useful.c. U.S. oil reserves are owned by

both private parties and the federal government.

d. Most domestic crude oil reaches refineries by pipeline.

3. Which is false --a. The predominant use of oil is

in the transportation sector.b. The first oil in the United States

was struck in Texas.c. A fixed platform offshore oil rig

can drill for oil in up to 1500 ft. of water.

4. True or false? One barrel of oil is 42 gallons and, when refined, produces over 48 gallons worth of petroleum products?

Pop QuizDomestic Oil – Production/Transport

Answers: 1-F (2011) / 2-a / 3-B / 4-T

Pros and cons of domestic oil

Pros: Increased domestic

production = greater energy independence.

Potential to relieve stress on domestic oil prices.

Potential to lower oil imports, improving U.S. balance of trade.

Positive economic impacts (i.e. increase in oil- production related employment).

Cons: Negative environmental

impact: increase domestic production encourages greater consumption.

Increased reliance: disincentive to innovate (transportation sector).

Externalities: continued / increased CO2 emissions.

Safety and health issues: production, transportation, refining, distribution

3. Regulation of domestic oil

Production• Oil reserves often owned privately (not national gov’t)• State common law (property, contract, tort)• State regs (conservation / unitization / drilling permits) • Federal gov’t: DOI leases federal lands / OCS

Transportation• DOT regulates safety of interstate oil pipelines• FERC oversees interstate pipeline rates/service • State regulation: Intrastate transport• Trucking and marine transportation: no price regulation;

safety/environ regulations (CAA, CWA, OPA & state level)

Refining• State oversight along (OSHA + approved state programs

under federal environmental laws)• Federal enforcement of applicable federal laws

Distribution• State oversight of local activity • Federal environmental regulations

Barnard v. Monangahela Natural G

as Co. (P

a. 1907)

Gilmore v.

Oil & Gas C

onserv. Comm’n (W

yo. 1

982)

1900 19901960 20201930

Domestic oil regulation - timeline

The Pipeline Cases, 2

34 U.S. 548 (1

914)

Elliff v.

Texon Drill

ing Co. (Tex. 1

948)

Ohio Oil Co. v

. Indiana (U

S 1900)

Champlin Refining Co. v.

Corporation Comm’n of OK (U

S 1932)

Coastal O

il v. G

arza Energy Tr

ust

(Tx 2008)

Coastal Zone M

anagement Act

(1972)

Outer Continental Shelf L

ands Acts

(1953 + 1978)

National Enviro

nmental Policy

Act (1969)

Safe Drinking W

ater Act

(1974 + 1986 + 1996)

Clean Air Act

(1963 + 1971 + 1977)

Clean Water A

ct (1972 + 1977)

Oil Pollu

tion Act (1990)

Pipeline Safety Act

(2011)

Hepburn Act (1906)

Mineral Leasin

g Act (1920)

1. True or false? According to the ‘Rule of Capture’ an underground resource belongs to first person to extract it even if once located under another’s land.

2. Which is false – a. ‘Rule of capture’ applies to oil

extracted by both traditional drilling and hydraulic fracturing.

b. Conservation regulation sought to preserve and restore natural environment around oil well head?

c. Unitization is binds owners of a common oil field to develop the field cooperatively.

d. The doctrine of correlative rights prevents wasteful exploitation of an oil reservoir.

3. Which is true --a. DOI is responsible for leasing the

OCS for oil drilling?b. Most US oil spill regulation has

been anticipatory, given increases in oil shipments by tanker in and around US ports.

c. CWA requires unconventional oil extractors to disclose the names of hazardous chemicals used in fracking.

d. FERC ensures the safety of oil pipelines.

4. True or false? The Oil Pollution Act exempts oil companies from liability for the removal costs and damages resulting from an oil spill determined to be accidental.

Pop QuizDomestic Oil - Regulation

Answers: 1-T / 2-b / 3-a / 4-F

4. Future of domestic oil

Click for video (3:00-10:00 + 50:00-54:00)

Production Activities

Environmental impact? / Federal role?

Consumption Activities

Transportation Activities

Click for video (0:00 – 5:00)

Energy federalism

Domestic oil Federal State

Production DOI licensing (fed, OCS)Oil Pollution Act (1990)

State property lawState conservation regs

Oil transportationDOT (pipeline safety)FERC (pipeline rates/service)EPA (marine environment)

States (intrastate pipeline)State (CWA enforcement)

Refining OSHACAA, CWA – regs + enforcement

State (oversight)

Distribution CAA, CWA State (oversight)

Group Hypo

The North Dakota state legislature is considering a bill to limit the ability of a landowner to separate surface ownership rights from mineral ownership rights. It’s controversial.

There are three groups weighing in on this bill:

• Group 1: pro-drilling organization whose mission is to facilitate the development of oil and gas resources

• Group 2: a local environmental NGO whose goal is to protect the local environment

• Group 4: an advocacy group that seeks to keep mineral wealth in the state.

Please prepare legislative testimony making points on behalf of your group.

The end