Fix the Renewable Fuels Standard

There was good discussion of the Renewable Fuels Standard (RFS) during a Hill hearing this week. API supports the appropriate use of ethanol, biodiesel and other biofuels in transportation fuels, but, unfortunately, in some ways the standard is bearing out the law of unintended consequences.

API President and CEO Jack Gerard addressed the House energy and power subcommittee, noting that U.S. refiners have primary responsibility for meeting the RFS requirements, blending nearly 15 billion gallons of ethanol in gasoline. But the RFS’ requirements are producing some bad policy, Gerard said:

“EPA has allowed the RFS law’s volume requirements to drive decisions that are inappropriate and unwise.  The law has become increasingly unrealistic, unworkable, and a threat to consumers.  It needs an overhaul, especially with respect to the volume requirements.” 

Gerard detailed ill effects stemming from the RFS’s volume mandates:

E10 “Blend Wall” – 10 percent ethanol content in fuel is safe for U.S. vehicle engines, service station pumps and storage tanks. But under the law, the ethanol volume in the overall fuel supply is required to increase and could exceed 10 percent as early as 2013. That’s the so-called “blend wall.” At that point refiners will have only two options: produce E15 (15 percent ethanol) and flexfuel or E85 – a blend of between 51 percent and 83 percent ethanol by volume that can be used only in flexfuel vehicles, which make up about 5 percent of the U.S. vehicle fleet today. More on E15 below. The problem with E85 is that it has a lower fuel economy than gasoline, and less than 2 percent of retail stations offer it.

E15 – EPA has approved the use of E15 for part of the vehicle fleet to help accommodate increases in the RFS volume requirement. But a recent study showed that E15 could damage engines that weren’t designed to use it, as well as gasoline station pump equipment. The risk can be measured in the billions of dollars. The Auto Alliance weighed in on E15, here. U.S. Rep. James Sensenbrenner shared the concerns of auto makers in a letter to EPA Administrator Lisa Jackson last summer. Gerard:

“EPA should not have proceeded with E15, especially before a thorough evaluation was conducted to assess the full range of short- and long-term impacts of increasing the amount of ethanol in gasoline on the environment, on engine and vehicle performance, and on consumer safety.”

Cellulosic ethanol – A 2007 law requires increasing use of this advanced form of ethanol that theoretically can be made from a broader range of feedstocks. But it isn’t available, because no one is making it commercially. The Competitive Enterprise Institute’s Brian McGraw has more details, here. Even so, EPA continues to assert that aggressive mandates, not based on actual production, will somehow stimulate production. EPA could waive the provision but instead is insisting that refiners buy credits for a non-existent fuel, which will drive up costs and might harm consumers.

RINS – This stands for renewable identification numbers, which are used with renewable fuel credits that some refiners have purchased under a program created by EPA. Some refiners became fraud victims after buying invalid credits in good faith. EPA’s initial response was that the bad credits were the refiners’ problem, and that they’d have to buy more. This adds more costs to making gasoline. Industry currently is trying to work out the problem with EPA.

Again, industry supports renewable fuels. But the RFS as written threatens to become counterproductive. Gerard:

“The RFS law needs to be altered to fix what isn’t working and take into account the ability of the vehicle fleet and fueling infrastructure to safely use renewable blends. Mandates must have periodic technology/feasibility reviews to allow for appropriate adjustments. Biofuels are an important part of the nation’s energy mix.  But current law and how it is implemented have become increasingly problematic.  This could eventually hurt consumers and erode support for the RFS program.”  

The answer is commonsense problem-solving, including positive collaboration between government and industry. While the goals of the RFS are well-intentioned, the marketplace realities are concerning, with potentially negative effects on companies and consumers that should be fixed.

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Hailing the Chief’s Support for Natural Gas Development, Fracking

President Obama deserves credit for standing fast in his support for natural gas development through hydraulic fracturing – especially given the no-to-natural gas approach taken by some of his supporters in the environmental community, including the Sierra Club. Here’s the president on Monday in Cincinnati:

“… We’re moving in the right direction in terms of energy independence. Now, part of that is this boom in natural gas.  And this is something we should welcome, because not only are we blessed with incredible natural gas resources that are now accessible because of new technologies, but natural gas actually burns cleaner than some other fossil fuels, and is an ideal fuel -- energy source that we potentially can use for the next 100 years.  So I want to encourage natural gas production.  The key is to make sure that we do it safely and in a way that is environmentally sound.”

The president is spot on – and as a response to a negative question about natural gas, his remarks were all the more remarkable. Because of abundant, affordable gas, made accessible through fracking, the global energy balance could be shifting. The president continued:

“Now, you always hear these arguments that somehow there’s this huge contradiction between the environment and economic development, or the environment and energy production.  And the fact of the matter is that there are a lot of folks right now that are engaging in hydraulic fracking who are doing it safely.”

This also is true. The oil and natural gas industry has focused on making hydraulic fracturing safer and more efficient through a set of standards that guide operators, and it has worked with states to develop regulatory regimes tailored for their specific conditions. The president went on:

“The problem is, is that we haven’t established clear guidelines for how to do it safely, and informed the public so that neighbors know what’s going on, and your family, you can make sure that any industry that’s operating in your area, that they’re being responsible.”

Well, OK. The president is mistaken or misinformed on that point. Industry has been clear and detailed in developing the standards mentioned above. It also has supported FracFocus.org to create transparency about fracking itself – a website community members can use to learn where wells are being drilled in their area, as well as the chemicals being used in the fracking fluids themselves. The industry takes community engagement and support seriously and is committed to getting shale development right.

Back to the president:

“What we’ve said is, look, we are going to work with industry to establish best practices.  We are going to invest in the basic research and science required to make sure this is done safely and in a way that protects the public health.  And for responsible companies, they should be able to operate, make a profit, and we can all benefit and put people back to work."

Best practices, we’re on it, Mr. President. Industry also is supportive of new technologies to improve operations, including those to reduce or even eliminate water use during the fracking process. Shale energy is creating jobs, thousands of them, and boosting the economy.

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Innovation: Making Energy Production Cleaner, More Efficient

When we wrote last week about technologies to mitigate water demands during hydraulic fracturing, we knew we’d find more examples of energy innovation for the simple fact that there’s a lot of innovating going on. Here’s a little bit about two other advances in the area of fracking waste water, as well as another company’s initiative to make the development of Canada’s oil sands cleaner and greener.

Halliburton says it has a suite of solutions to reduce the demand for fresh water in hydraulic fracturing operations, called H2-Forward. You can read more about it, here. Basically, it’s a process that allows drillers to reuse fracturing fluid. Halliburton:

"The service includes new technologies such as CleanWave service that is used to process fracturing flowback and produced water, resulting in a clean brine fully suitable for well site operations including drilling, fracturing and completion fluids. … The system, which can treat 20 bbl/minute, uses an electrical process that destabilizes and coagulates suspended colloidal matter in water. Easy scalability enables quickly treating large volumes of water in reserve and flowback pits and, depending on the operation, treating flowback and produced water in real-time during a fracturing operation. The CleanWave system removes up to 99% of total suspended solids, heavy metals, hydrocarbon and bacteria."

Meanwhile, Pennsylvania-based Epiphany Solar Water Systems’ main product is a system that uses solar power to clean fracking waste water. Consol Energy, which is active in the Marcellus Shale area, recently announced it is investing $500,000 in Epiphany and will run a test site for the purification system beginning next month.

Here’s Ephiphany’s description of its technology:

"Dirty water passes into the distillation unit and instantly vaporizes due to the intense heat focused on the distillation unit. During the vaporization process, any dissolved solids … separate, and living organisms (bacteria) are killed due the intense heat. The water vapor (now void or any impurities) continues to pass through the distillation unit. As the steam reaches colder stages it begins to condense back down into distilled water. From the output of the distillation unit then comes freshly distillated water, safe for consumption."

Calgary-based N-Solv Corporation is promoting a technology it says will reduce the amount of energy needed to produce bitumen from oil sands, while reducing greenhouse gas emissions 85 percent without using any water. A $60 million field test in Alberta is scheduled for next April. It uses warm solvents such as propane or butane to melt the bitumen deposits, which the company says is more efficient than using in-situ steam technology. You can read more about it on the company’s website, here.

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Video: Refiner Plays Its Role in ND Energy Bonanza

The sights and sounds of energy-driven growth are all over this video, in which Ron Day of Tesoro Corporation talks about how the company’s Bismarck-Mandan oil refinery has grown along with development of North Dakota’s Bakken shale play:

For the benefit of the energy-jobs deniers out there, let’s underscore Day’s description of the multiplier effect associated with a growing energy sector, which is being seen across North Dakota, Pennsylvania, Texas and other energy states:

“We’re hustle and bustle. We’re growing. It’s a great opportunity for North Dakota: from restaurants to car parts stories, to repair shops – they’re definitely being impacted in a positive way (by energy development).”

Even better? America is energy rich, which means the North Dakota “miracle” can be repeated elsewhere – with the right policies and leadership.

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Crude Production Rise: Credit Where Credit’s Due

Last week the Energy Information Administration (EIA) told us that U.S. crude oil production in the first quarter of the year topped 6 million barrels per day (bbl/d) for the first time in 14 years. EIA’s chart:

EIA’s analysis:

“Strong growth in U.S. crude oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas, and federal leases in the Gulf of Mexico. … After remaining steady between 5.5 million and 5.6 million bbl/d during each of the first three quarters of 2011, EIA estimates that U.S. average quarterly oil production grew to over 5.9 million bbl/d during the fourth quarter and then surpassed 6 million bbl/d during the first quarter of 2012.”

Certainly, great news like that will restart discussion of who deserves credit for such a production milestone – beyond, of course, the energy companies that are actually pulling the oil from the ground or the seafloor. Politico Pro [subscription required] reports White House spokesman Clark Stevens emailed in the administration’s claim for credit:

“Despite misleading rhetoric by some in Washington, President Obama has made expanding responsible oil and gas production here at home a clear priority and the facts speak for themselves. Since the president took office, domestic oil and gas production has increased each year, with oil production in the first quarter of 2012 higher than any time in 14 years and natural gas production at its highest level ever, and that is certainly thanks in part to steps taken by this administration.”

That’s one view. Others disagree. Politico quotes Tom Kloza, chief oil analyst at the Oil Price Information Service:

“In the end, the president and Congress can’t take credit for what price and technology have delivered. It would be akin to taking credit for the iPad. … Unless there is a price collapse, or a true scientific indictment of fracking, one can expect to see plentiful growth in light sweet crude coming from the Rockies, North Dakota, and even Ohio or West Virginia.”

And Richard Newell, the EIA’s head from 2009-2011:

“In a political year, different parties would like to take credit for positive news in the energy sector and I think here the credit largely goes to technology."

And also Amy Myers Jaffe, an energy fellow at Rice University, who notes that North Dakota and Texas shale production has occurred mainly on private land, while increases from the Gulf result from the actions of previous administrations:

“Production rises from Gulf of Mexico would have been in the hopper way before President Obama took office.”

Settling the argument isn’t as important as recognizing that with the right policies the oil and natural gas industry can further develop America’s energy wealth. With the right strategies and leadership, the United States could see 100 percent of its liquid fuel needs met from North American sources. And along with it: jobs and tax revenues for government.

Strategies, policies and action: It’s what separates election-year rhetoric from substantive progress toward a more secure energy future.

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Bakken Shale: Supplying Energy, Supporting Communities

Check out a couple of new videos from North Dakota in which Hess employees and others talk about how energy development in the Bakken Shale formation is changing lives and growing the state’s economy.

Part 1:

Part 2:

The narrative isn’t complicated. As Hess’ Steven Fretland notes in the first video, the Bakken is believed to hold between 8 billion and 40 billion barrels of oil reserves. Companies developing the energy resources need workers, and workers need places to live and services to support their lives. Fretland, who was raised in North Dakota, says Bakken energy is reversing historic trends:

“Younger kids, after they left, you know, you hated to see them go but then they come back and they decide … it’s where they’re going to have their home and raise a family and hopefully retire with the industry.”

In the second video, Hess’ Steve McNally says hydraulic fracturing that has revolutionized energy development is responsible for North Dakota’s jobs boom:

“The impact on the North Dakota area and the U.S. in the short term is numerous jobs. There’s a tremendous amount of employment opportunities here. For anyone who wants to work, you can get a job.”

The point, underscored in this new industry spot, is that fracking has made an old frontier state like North Dakota a new energy frontier. Previously unreachable shale resources are now available in abundance through responsible development. Learn more at Energy From Shale.org.

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The Offshore Oil and Natural Gas Lease Sale We Need

Tomorrow’s scheduled Central Gulf of Mexico oil and natural gas lease sale in New Orleans will be the first in that area since March 2010. Setting aside for a moment the two-year gap in exploration and development caused by two years without new sales, tomorrow’s auction is important to America’s economic and energy security.

Unfortunately, the two-year gap is real and has real impact. Because it takes seven to 10 years for an offshore lease to start producing oil or natural gas, there’s a gap in the development timeline. It’s like a vintner who skips two years growing grapes; at some point in the wine-producing process there’ll be a lean vintage year. Here’s a chart that shows the stages and time requirements of offshore development:

A couple of other points about tomorrow’s lease sale, underscored by API’s Upstream and Industry Operations Director Erik Milito during a conference call with reporters: While it’s good the Bureau of Ocean Energy Management is holding the sale – which will generate significant industry interest – the areas in the Gulf being offered aren’t new, emphasizing the administration’s restricted approach to developing America’s energy resources. Milito:

“Every lease sale is important, but more important for our energy future than any individual sale is our nation’s broader energy policy framework. That, unfortunately, has been inadequate. The administration’s proposed five-year offshore leasing plan for 2012 through 2017 … would limit offshore development to where it historically has always been – parts of the Gulf of Mexico and offshore Alaska. It would restrict opportunities when it should be expanding them. It would not help prepare us well for our energy future.”

If the energy goal is to reduce oil imports, then tomorrow’s sale reflects a short-sighted vision that will struggle to take us there. Good news: It doesn’t have to be that way. America is energy-rich, with the resources, financial wherewithal and technological know-how to substitute domestic production for much of what we get now from foreign suppliers. It simply takes the right plan, the right approach.

With the right access policies – capitalizing on tight oil and shale gas discoveries, our offshore potential and increased supplies from neighbor and ally Canada – we could see 100 percent of our liquid fuel needs met by 2024, a little more than a decade away. Milito:

“We can do it safely. Industry continues to demonstrate a commitment to continuous improvement in operations to make things safer for our personnel, the public and the environment. In the offshore the industry, working closely with government, has enhanced its ability to prevent, contain and respond to a spill.”

Energy development is a long-term process. Limited vision and action sows seeds for the future. Milito:

“The proposed Department of Interior five-year plan is insufficient, and each year we implement it we will fall further behind what we really should be doing. The administration ought to begin working on a new plan immediately.  … Maintaining the status quo won’t work. Existing wells are continually depleting and need to be replaced with new discoveries. It is also important to open new areas for leasing so that industry can use new exploration technologies that will increase production.”

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Lights, Cameras…Fracking!

Great time Thursday night at the grand, lovely Warner Theater in Washington, D.C., for API’s “Big Screen Energy” event, featuring film trailers from pro-energy documentaries on hydraulic fracturing including “Truthland,” “Empire State Divide” and “Frack Nation.” After the trailers, representatives of the films talked about their projects and answered questions from the audience. Some important points that emerged:

#1: Shale Energy = Economic opportunity

For lots of people in the Marcellus Shale portions of Pennsylvania, energy from fracking is helping them alter the courses of their lives. And it could help even more if New York state approves hydraulic fracturing on some scale. “Empire State Divide’s” Karen Moreau said New York agriculture needs working capital to survive. Energy development from that state’s portion of the Marcellus could supply that, keep farms operating and allow them to be handed off to the next generation, said Moreau, who since making her film was named executive director of the New York State Petroleum Council.

#2: Countering Frack Fiction

“Truthland,” featuring Pennsylvania science teacher and mom Shelly Depue, spends much of its 34 minutes dispelling misinformation about hydraulic fracturing and natural gas development. The film is a step toward centering the national fracking debate on science and fact instead of fear and misrepresentation. “Frack Nation’s” Phelim McAleer said some opponents aren’t interested in responsible development; they want to block natural gas altogether.

#3: The Right to Prosper

Moreau said the divide in New York over fracking is actually a property rights test – whether individuals may develop resources on their land. She said some opponents of natural gas development in New York’s southern tier, the counties in the Marcellus along the Pennsylvania border, aren’t residents of those areas. Still, they are trying to control or block development. The contest is still playing out, as state officials weigh how much development, if any, to allow.

Again, the evening provided an interesting perspective on an important public policy issue. At the center of it is a truth, noted by McAleer: the ability of energy to lift lives, to lift standards of living. McAleer said the lack of affordable, reliable energy usually characterizes areas that are impoverished and unhealthy – places where people have little chance to lift themselves. Energy changes that, he said.

In energy from shale, the United States has an historic opportunity to be more prosperous – with abundant fuel for the lifestyles of its citizens and the power to revitalize critical industries like manufacturing and chemicals. The U.S. also can make its future more secure, less dependent on imports. Industry’s role is to develop these resources safely and responsibly. It is doing this while striving to continually improve technologies and performance.

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Made in America: For a Sustainable Energy Future

Access, common-sense regulation and a governmental approach that encourages energy investments: Each one is integral to an American-made, more secure energy future. Getting there will require continued improvements in efficiency and investments in renewable energy – two areas where the oil and natural gas industry has been a leader. This is the fourth recommendation in API’s recent report to the two political parties’ platform committees.

Today, the U.S. uses about half as much energy for every dollar of GDP as it did in 1980, according to the Energy Information Administration:

Efficiency helps energy companies manage costs, which in turn makes them more competitive and allows them to bring more affordable energy products to consumers.  Efficiency also helps reduce greenhouse gas emissions.

Industry is committed to technologies that help the environment, investing $71 billion in developments that reduce greenhouse gas emissions between 2000 and 2010 – far more than the federal government ($43 billion) and nearly as much as the rest of domestic private industry combined ($74 billion).

This is what energy companies do. They produce the oil and natural gas that run our economy now and which will continue to fuel it in the future. They work on efficiencies that will make our energy go further. They look to the future for additional resource options that will be necessary to complete the energy picture.

The question is whether governmental policies will or hinder these efforts. Some think the path to our energy future should be selected by Washington, using the tax code to preordain winners and losers. They think an industry sector that contributed nearly a half-trillion dollars to the economy in 2010, which already sends $86 million a day to the U.S. Treasury, should be taxed more.

The wrongheadedness of this path was detailed in a Wood Mackenzie study last fall, which compared the likely results of pro-energy development policies with policies leading to higher energy taxes:

With a pro-development approach, America’s oil and natural gas companies can add jobs, increase energy supply and generate more tax revenue for government. Higher taxes on our industry will likely lose jobs, decrease tax revenue and result in less energy production.

The United States has tremendous energy resources to support and grow our economy and meet the challenges of the future. With the right vision and leadership we can stride into the future confidently – as befits an energy-rich nation.

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Another Study ‘Showing’ No Contamination from Fracking

Where to begin in a review of Pro Publica’s article on new research into the migration of subterranean brine to shallow water above? The inflammatory, overreaching headline? The leap from Duke University’s study to conclusions suggesting to the public that hydraulic fracturing is polluting drinking water?

Let’s start there. On that point the article is self-rebutting. See the fourth paragraph:

"No drilling chemicals were detected in the (shallow) water, and there was no correlation between where the natural brine was detected and where drilling takes place."

Then, near the end of the article:

"Nevertheless, (Robert) Jackson, one of the study's authors, said he still considers it unlikely that frack fluids and injected man-made waste are migrating into drinking water supplies. If that were happening, those contaminants would be more likely to appear in his groundwater samples, he said. His group is continuing its research into how the natural brine might have travelled, and how long it took to rise to the surface. 'There is a real time uncertainty,' he said. 'We don't know if this happens over a couple of years, or over millennia.'"

As for the study itself, Jackson and his team say they found that naturally occurring brine migrates upward to shallower depths. They say the risk of the migration could be greater in areas that have undergone hydraulic fracturing. Yet, there’s this from the study’s introductory summary:

“The occurrences of saline water do not correlate with the location of shale-gas wells and are consistent with reported data before rapid shale-gas development in the region …”

Energy In Depth has solid analysis on the study, here. Highlights:

The study fails (as Jackson notes above) to establish whether the migration occurs over 10 years or 10 million years. Without that, it’s impossible to determine whether the phenomenon is cause for concern.If brine is traveling up from thousands of feet below the surface, why haven’t the pathways Duke’s researchers identify allowed natural gas in the Marcellus region to leak out and disappear over time?There’s no discussion of whether the Marcellus Shale – which is largely a dry region with “virtually no free water,” according to Penn State’s Terry Engelder – even contains enough brinewater to leak.

Engelder, a Marcellus expert who was asked by the researchers to review their work, notes a number of questions the study leaves unanswered, reducing its usefulness. He writes:

"My review is predicated on the objective of your paper which is stated as a search for '...specific areas of shale-gas development in northeastern Pennsylvania that are at increased risk for contamination of shallow drinking water resources with deeper formation brines...' (the last sentence of your abstract). The term, risk, suggests that your paper veers from a conventional geology paper and enters into the realm of science-based advocacy or if you like, science policy."

Engelder is on target there. Unfortunately, the academics, wittingly or unwittingly, produced a study that is easily morphed into a siren call by opponents of natural gas production. Pro Publica’s article is Exhibit A. Exhibit B is a Bloomberg News story under this headline: “Pennsylvania Fracking Can Put Water at Risk, Study Finds” – despite the fact the study found no evidence of such a risk.

Words like “can,” “may” and “might” camouflage the point that the study didn’t find a correlation between the location of shale-gas wells and occurrences of saline water. To suggest otherwise in a news article is disingenuous and counterproductive in the national discussion of energy from shale.

As Engelder notes, the study is a platform from which advocates can mislead. On this story, The Associated Press got it right, focusing its report on what the study showed: “Gas drilling in northeastern Pennsylvania did not contaminate nearby drinking water wells with salty water, which is a byproduct of the drilling.”

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