Energy Law
4 – International Petroleum
Fall 2014
Sep 23, 2014
Alan Palmiter
Not for distribution- for study purposes only
Topic roadmap
1. International petroleum in energy mix
– Compared to other energy sources
– Oil and global politics
– Relation to energy security
2. Int’l petroleum extraction / transportation
– Global oil production
– Transportation
3. Governance of int’l petroleum operations
– Concessions / agreements
– Nationalization
4. Future of international petroleum
– Peak oil
– Unconventional drilling
Black Gold: The Secrets of Oil (Modern Marvels Documentary)
Click for video (0:00-14:00)
1. Int’l petroleum in the energy mix
4
Energy Flow, 2011 (Quadrillion Btu)
http://www.eia.gov/totalenergy/data/annual/diagram1.cfm
4
http://www.eia.gov/totalenergy/
(Click for 4:00 video)
http://www.eia.gov/finance/markets/supply-opec.cfm
http://www.aei-ideas.org/2013/07/some-lessons-from-the-long-run-path-of-world-oil-prices/
Source: US EIA, Petroleum and Other Liquids – Data (through June 2013)
Pop Quiz
Int’l petroleum and energy mix
1.
True or false? World oil prices
have risen dramatically in the
past 15 years.
1.
Which is false –
a. Year over year increases in
OPEC production are
typically followed by oil
price declines.
b. U.S. net imports of oil have
declined each of the past 3
yrs.
c. OPEC was first formed in
1945.
d. A majority of U.S. oil
imports come from nations
in the Western Hemisphere.
3.
Which is true -a. In 1990, as a result of the first
Iraq war, OPEC began an oil
embargo against the United
States.
b. Saudi Arabia was not a
founding member of OPEC.
c. In the 1980s, the price of oil on
the global market reached its
all-time low price of $20/bar.
d. The U.S. midwest imports most
of its oil from the Mideast.
4.
True or false? Most oil imported
into the United States is used for
power generation purposes?
Answers: 1-T / 2-c / 3-c / 4-F
2. Int’l petroleum: production & transport
How oil-producing countries stacked up in 2012
Smart Planet: How oil-producing countries stacked up in 2012
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/08/how-oil-travels-around-the-world-in-one-map/
Keystone Pipeline
Start: Alberta, Canada
Delivery: Nebraska, Oklahoma, Gulf
Coast, Illinois
What Will It Carry: Tar Sands Oil
Completion Dates: 2009-2014
(Phases 1-3) / Phase 4 on hold
Strategic Impact: Extensive use of
shale oil on North American
continent. Allows for reduced
need of oil from non-North
American sources. Significant
business for U.S. refineries.
Subsurface rights
• United States: subsurface rights go with
surface title, unless specifically separated
• Mexico: before 1911 landowners could
own mineral rights, after 1911 revolution,
ownership is in state.
• Canada: before 1887, individuals could
own sub-surface rights; today 10%
owned by individuals; 10% by federal
state; 80% by provinces
• Great Britain: Petroleum Act (1934) vests
ownership to the Crown
“Energy Security”
Pros:
 Insulation from higher
global energy prices
 Avoids OPEC engaging in
political blackmail
 Improves our
geopolitical posture
 Would improve balance
of trade
Cons:
 Perhaps requires energy
not cheapest available
 Substantial time and
money to develop
suitable domestic
energy resources
 Perhaps requires relying
on ‘dirtier’ forms of
energy
3. Governance of int’l oil operations
International petroleum contracts:
• Form
• Ad-hoc
• Hybrid
Structure of agreements:
•
•
•
concession or license
production sharing
technical service
Processes for awarding contracts:
•
•
•
complete gov’t discretion
public auction
open competition
What is a concession agreement?
Oil-rich countries contracting with
international oil companies to
develop reserves
What do concessions look like?
Typically:
• Stock ownership in local
exploration company
• Bonus upon signing agreement
• Oil company obligated to pay
royalties to the foreign state
based on oil produced
What is international oil
arbitration?
•
•
Submission of disputes under
international oil agreements
to binding resolution by one
or more arbitrators
Why is arbitration preferred
over court litigation?
•
•
•
•
Time, expense
Confidentiality
Expert decision maker
Avoid court roadblocks:
Sovereign immunity / Political
question doctrine / Act of
state doctrine / Forum non
conveniens
International petroleum- timeline
1900
1930
1960
1990
2020
Click for 4:11 audio
Pop Quiz
Int’l oil – production, transport & governance
1.
True or false? Over 50% of
subsurface mineral rights in
Canada are owned by
individuals.
1.
Which is false –
a. Ad-hoc contract structures
allow for the greatest deal
of flexibility in structuring
oil agreements.
b. Mineral rights in Mexico
belong to the state.
c. Common law jurisdictions
allow for private ownership
of mineral rights.
d. Nigeria is the African nation
that produces the most oil.
3.
Which is false -a. Foreign governments typically
auction oil production contracts.
b. In 2012, China produced more
oil than Mexico.
c. Norway produces more oil than
any other European nation.
d. In 2012, Russia produced more
oil than the United States.
4.
True or false? More oil travels
through the Straits of Hormuz than
any other “chokepoint” in the
world?
Answers: 1-F / 2-c / 3-d / 4-T
4. Future of international petroleum – peak oil
(Click for 8:28 video)
Source: EIA, Analysis and Projections – Shale Oil Study (2013)
Source: EIA, Analysis and Projections – Shale Oil Study (2013)
Click for video (5:00)
Alien Tort Claims Act
Arguments for:
 Non-citizen can bring
suit in the United States
 Elevates the standing of
international law in U.S.
courts
 Allows aggrieved party
to bring suit for
egregious acts that may
not otherwise fall within
the jurisdiction of a U.S.
court
Arguments against:
 Could lead to
entanglements with
other nations
 Statutory language is
ambiguous, thus limits
its effectiveness
 Supreme Court ruled
that Act does not
provide jurisdiction over
claims brought against
corporations
Class Hypo
TransCanada submitted a final
permit application in May 2012
for the construction of the
Keystone XL pipeline from the
Canadian Tar Sands to the United
States.
President Obama needs to decide
on whether or not to approve
permit for construction of
Keystone XL. Please come up
with a list of talking points
reflecting your group’s position:
Group 1: 350.org
In April 2014, the Obama Administration postponed a
final decision on whether the proposed Keystone XL
pipeline is in the national interest. The State
Department said needed additional information
regarding potential alternative routes around the Sand
Hills in Nebraska – thus to determine if the proposed
Keystone XL pipeline is in the “national interest.”
In making the “national interest” determination, DOS
(in consultation with other agencies) will consider:
1.
2.
3.
4.
5.
Group 2: TransCanada
Group 3: Nebraska Governor
6.
Environmental impacts of the proposed project
Impact on the diversity of supply to meet U.S.
crude oil demand
Stability of trading partners from whom the U.S.
obtains crude oil
Relationship between the U.S. and various foreign
suppliers
Impact of proposed project on broader foreign
policy objectives, including a comprehensive
strategy to address climate change
Economic benefits to U.S. of constructing and
operating the pipeline
The end