More infrastructure could ease emissions concerns
“I hear from so many folks that emissions issues could be resolved or helped if there was more takeaway capacity instead of having to flare gas, push into pipelines instead,” observed Grant Swartzwelder, president of OTA Environmental Solutions.
“On the flip side, it’s near impossible to get more pipelines built,” he concluded.
One good thing about the just-passed Inflation Reduction Act is it offers the opportunity for permit reform, agreed Jason Modglin, president of the Texas Alliance of Energy Producers, speaking with Swartzwelder as part of OTA’s Oilfield Strong webinar series.
While he called the legislation a missed opportunity, Modglin said his association likes the opportunity it contains to ensure more pipelines are built, along with other critical infrastructure like liquefied natural gas terminals and export terminals. “It could also help alternative energy, like wind and solar, that need to build transmission lines across state lines,” he noted.
There is urgency in expanding infrastructure, Modglin said.
“One, the Permian is rocking it, back to record production levels and nearing capacity again as it did several years ago. We need big pipeline investment into the Permian to get that stranded gas out of there. There have been some exciting new consumers of that gas in the Permian, whether it’s Bitcoin or other manufacturers. That’s the solution to flaring. We need more pipelines.”
The industry is being challenged on several fronts, Modglin continued, beginning with the recently announced proposed emissions rules announced by the Environmental Protection Agency.
“This will be federal rule making and we’ll have to see what the states need to do to be compliant with state implementation plans,” he said, adding it could change the dynamic between the Railroad Commission and Texas Commission on Environmental Quality.
Secondly is the proposed methane fee contained in the Inflation Reduction Act, which could result in a tax bill beginning in 2024. That, he warned, will raise costs for producers and ultimately for consumers.
“It makes for quite a challenging dynamic, particularly for smaller producers. That’s why it’s so important to be active with us or the Permian Basin Petroleum Association or someone that’s paying attention,” Modglin said.
He acknowledged the legislation does include some grants, particularly for monitoring technology. “That’s certainly where the industry has shined the last several years,” he said.
The irony, observed Swartzwelder, is that the administration is talking about the need for increased production to improve energy security yet also implementing regulations that stymie production.
Texas producers have returned to output levels seen in 2019 and the beginning of 2020 and by the end of the year will have probably exceeded those record-setting levels as well as records set in 1972 and 1973, responded Modglin.
“I don’t see the rest of the country having caught up. There’s still that million-barrel deficit that doesn’t appear to be going away any time soon,” he said. “We don’t have enough federal water production, we don’t have enough from western states like California and Colorado, where we rely on steady production. New Mexico has been going in the Permian side but not other parts of the state.”
In Texas, he said producers are limited by a lack of steel to be used in drilling and completions. He said his association has compiled a report on steel availability and forwarded it to the federal government to see if that could bring about some relief in the form of reducing tariffs or quotas on imported steel.
At the state level, he expects several legislative proposals in the upcoming session of the Texas Legislature to address inactive wells and find ways to bring them, or low-producing wells, back in production.
The state, Modglin noted, is flush with cash – looking at a $27 billion surplus – and legislators will be looking for ways to return that to taxpayers in the form of temporary property or sales tax reductions.
“I think they will come up with a variety of different ways to help citizens. I’ve heard of a sales tax break. I’ve heard of returns on electricity bills as a way to push that money out quickly,” said Modglin. “Hopefully it doesn’t result in ongoing spending commitments so that if we get two years down the road and we’re in the middle of a recession, they don’t have to figure out ways to make up the difference or implement tax cuts.”
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