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API Says Natural Gas, Oil Permitting Top Priority for U.S. Energy Security in 2023
The American Petroleum Institute (API) has put permitting reform at the top of the ticket for U.S. lawmakers to address in 2023 as the agency executes its plan to “make, move and improve” the oil and gas industry.
“In the past year, the global energy crisis, driven by surging post-pandemic demand outstripping supply and exacerbated by Russia’s invasion of Ukraine, has shown that the world needs American energy leadership now more than ever,” said CEO Mike Sommers on the API’s 2023 State of American Energy virtual media event.
At the event, Sommers called on the 118th Congress to lift restrictions on natural gas and oil development in federal waters to meet increasing demand in the post-Covid-19 era.
The API, which issued a formal 2023 State of American Energy Report to accompany the event, noted that over the last 15 years, 10 major natural gas and oil infrastructure projects in Appalachia have been canceled or delayed.
These projects, if pushed forward, would have supported 4.6 Bcf/d in production and represented about $34 billion in capital expenditures, according to API.
The picture for U.S. LNG permits has been even bleaker, API said in its report.
The U.S. Department of Energy (DOE) takes about 25 times longer to approve permits for projects that would export liquefied natural gas to countries to every country, whether it has a free trade agreement (FTA) or not. Permitting hold ups have left about 20.9 Bcf/d of non-FTA permit applications up in the air, the agency said.
But companies do no sanction projects anyway without enough contracting.
API is “calling for solutions that help move American energy,” which include focusing on critical infrastructure projects in the national interest, streamlining reviews for such projects to two years, supporting pipeline safety, revising the National Environmental Policy Act (NEPA) process, “accelerating LNG exports, and listing supply chain bottlenecks to ensure the free flow of energy and commerce,” said API’s Frank Macchiarola, senior vice president of Policy, Economics and Regulatory Affairs.
NEPA’s impacts reach farther than oil and gas infrastructure, API noted. Wind farms, airports and traffic-related infrastructure are all impacted when environmental impact statements take “four-and-a-half years to complete, and 25% of completed impact statements” can take more than six years, according to API.
“In all, $157 billion in energy investment is waiting in the NEPA pipeline, and a two-year NEPA review time limit could spur $67 billion in energy investment,” the report reads.
Sommers added that U.S. oil and gas production, while expected to continue to recover from the Covid-19 slump in 2023, may be slightly stymied by supply chain issues, workforce challenges and the exploration and production firms’ increased fiscal discipline amid “difficult economic conditions.”
In the past year, oil and gas producers have added “184 new rigs, so production is going up, and we’re producing about 12.1 million b/d.
“There are a couple of conditions in the marketplace right now that continue to hinder American oil and gas development…people are having trouble getting the workforce that they need to continue production,” Sommers said.
“They’re also facing supply chain issues, particularly when it comes to steel, which is a key component to drilling activity,” the CEO added.
API said it would recommend President Biden rescind steel tariffs that were enacted during the Trump administration, which affect about $7 billion/year in steel imports. Energy companies, according to the agency, spend $9.5 billion/year on steel for drilling, and $4.8 billion/year on steel for pipelines.
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One major factor impacting the industry “is the lack of access to capital,” Sommers said.
The CEO noted that the Federal Reserve Bank of Dallas is suggesting that “access to capital is a key component for why drilling hasn’t been where it needs to be.”
Energy analysts are projecting that in 2023, North American exploration and production companies may be more financially disciplined than in 2022 amid lower commodity prices and tightened free cash flow, according to Moody’s Investors Service.
Governmental Ups And Downs
That said, Sommers added that the political rhetoric from the Biden administration is concerning, particularly “about the fact that they don’t believe we’re going to need oil and gas in ten years…why would someone build a new facility if the government is saying that we’re not going to need these facilities in the future?”
The API, however, found some solace with the results of the Inflation Reduction Act (IRA) in 2022, noted Macchiarola.
“Specifically, with respect to the Gulf of Mexico, which we think Sen. Manchin ensured that we’d have two lease sales this year,” with one coming in March, and another in the fall. “We’re hopeful that the provision that ties wind lease sales to oil and gas lease sales, really pushes the administration to include more lease sales in the Gulf going beyond 2023,” Macchiarola said.
Other bonuses for the industry in the IRA included the expansion of the Internal Revenue Service Section 45Q tax credit for carbon capture and sequestration, though API noted more clarification is needed.
API reported that increased natural gas use has contributed to a 60% reduction in the U.S. electricity generation sector as a result of power plants switching from coal to gas, and more reductions could come from the carbon capture incentives included in the IRA, so long as the tax credits are implemented efficiently.
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