Global Warming, Economy, Politics Threaten Oil and Gas

The most pressing issue in the oil-and-gas industry today is anthropogenic (human-caused) global warming, according to Rayola Dougher, senior economic advisor with the Washington, D.C.-based American Petroleum Institute (www.api.org).

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“Legislatively, we’re looking at Waxman-Markey (the proposed American Energy and Security Act of 2009). We think it has some laudable goals, as currently written, but we need an equitable plan.”
 
Dougher believes that Waxman-Markey—which would establish the Safe Climate Act of 2009 to regulate greenhouse gases—“will hurt consumers and producers of motor fuels the most.” She is concerned about long-term impact of congressional decisions. “They will have repercussions for decades to come, so we really need to get this right.” One consequence she mentions is the cost of gasoline. “As currently written, this bill will raise gas prices by 75 percent by 2035,” she forecast in late May. A vote on the bill by the full House of Representatives may occur this summer.

Fred Williams agrees about the importance of greenhouse gas-related legislation. “It’s on the minds of executives,” notes Williams, director of product marketing in the refining-and-marketing group of automation vendor Aspen Technology Inc. (www.aspentech.com), Burlington, Mass. Two other Waxman-Markey issues on those executives’ minds are “alternative energy and cap-and-trade,” he adds. The latter is a market-based system to manage greenhouse gas emissions.

But there’s more on industry’s mind, Williams says. Trends since September 2008 include increased volatility and greater uncertainty for refiners and upstream operators. “What does that translate to?  The need to have a lot more reactive and agile operations.”
 
The biggest trend, though, is the year-to-year drop in demand for petroleum products, says Williams, who adds that “now is a bad time for this to occur.” Why? Because there is a “lot of downstream refining capacity coming on line: about two million barrels this year and the same next year.” This capacity was planned two or three years ago, he adds. But inventory levels are high, and “there’s no home for the product from these new refineries.”

 Other trends noted by Wiliams also will affect the global economy. First, national oil companies—those located in the Far East, Latin America and Eastern Europe—“are looking in a big way to purchase refining assets in the United States and the European Union.” One reason sales of such assets may be attractive now is that “refiners are looking to maintain profitability, [whereas they] used to want to maximize capacity.”

Delays fuel uncertainty

That motivation fuels further uncertainty. Dougher also notes that while the U.S. government is currently delaying exploration for oil resources, “it is also putting off development of natural gas. They (oil and natural gas) are usually found together,” she adds.

Perhaps that’s led to another U.S. trend: the reconsideration of oil-bearing shale. “Those properties and those opportunities have really taken hold. It’s caused the natural-gas industry to be in flux,” asserts Mike Strathman, who leads Aspen Tech’s efforts with the oil-and-gas exploration-and-production (E&P) industry. “This is long-lived gas production. The secret has been the ability to complete the wells in a way that allows them to produce. The industry has gotten very good at that,” he acknowledges.

Part of getting better, though, requires deeper wells, something now happening globally. “The easy and light low-sulfur crude that was easy to process in refineries becomes harder to come by,” Williams remarks.

But while the United States has “lots of reserves,” Strathman comments that political vs. technical decisions create challenges. “There’s no doubt we could do more activity in the U.S. to replace our reserve base.” However, politics overshadow everything now in the domestic market, Williams suggests. There is “increased uncertainty with the new administration and things are always shifting,” he observes. So the question facing industry is, he believes: “How do you operate effectively and profitably in this environment?”

C. Kenna Amos, ckamosjr@earthlink.net, is an Automation World Contributing Editor.

American Petroleum Institute
www.api.org

Aspen Technology Inc.
www.aspentech.com

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