Energy Law
3 – Domestic Oil
Fall 2014
Sep 16, 2014
Alan Palmiter
Not for distribution- for study purposes only
Topic roadmap
1. Domestic oil in energy mix
– Compared to other energy sources
– History of domestic oil
– Future of domestic oil
2. How domestic oil production / transport work
– Oil production in the United States
– Transportation from the well to end user
3. Regulation of domestic oil
– State level: common law  conservation regulation
– Federal level: leasing of federal lands / OCS
3. Future of domestic oil
– Environmental impact of oil
– OCS drilling in wake of BP spill
– Shale oil
1. Domestic oil in the energy mix
3
Energy Flow, 2011 (Quadrillion Btu)
http://www.eia.gov/totalenergy/data/annual/diagram1.cfm
3
http://www.eia.gov/totalenergy/
Energy Sources  Uses
http://www.eia.gov/totalenergy/data/annual/pecss_diagram.cfm
Black Gold: The Secrets of Oil (Modern Marvels Documentary)
Click for video (0:00-14:00)
2. Oil exploration  distribution
(1) Exploration
•
•
geological / geophysical surveys
exploratory drilling
(2) Production
•
•
Onshore
Offshore
(3) Crude transport
•
•
(4)
•
•
(5)
•
•
Oil pipelines (200K miles / 80% of total crude)
Water carrier (19% of total crude)
Refining
Separation into component fuels
149 US refineries, 17.6 mill bar./day
Distribution
Railroad (4%), truck (7%), water carrier (26%)
More pipelines (63%)
Traditional land rig
http://www.manhattan-institute.org/html/ib_23.htm#.UjfBAbwXiP0
Types of offshore drilling rigs
Refining (between production  consumer)
Shale Basins and U.S. Pipeline Grid
Source: National Energy Board (Canada)
Pop Quiz
Domestic Oil – Production/Transport
1.
True or false? The percentage of
gas-generated electric power is
larger than the percentage of
petroleum-fueled transportation.
1.
Which is false –
a. U.S. oil production has
decreased since 2010.
b. Crude oil must be refined to be
useful.
c. U.S. oil reserves are owned by 4.
both private parties and the
federal government.
d. Most domestic crude oil
reaches refineries by pipeline.
3.
Which is false -a. The predominant use of oil is
in the transportation sector.
b. The first oil in the United
States was struck in Texas.
c. A fixed platform offshore oil rig
can drill for oil in up to 1500 ft.
of water.
True or false? One barrel of oil is
42 gallons and, when refined,
produces over 48 gallons worth of
petroleum products?
Answers: 1-F (2011) / 2-a / 3-B / 4-T
Pros and cons of domestic oil
Pros:
 Increased domestic
production = greater
energy independence.
 Potential to relieve stress
on domestic oil prices.
 Potential to lower oil
imports, improving U.S.
balance of trade.
 Positive economic impacts
(i.e. increase in oilproduction related
employment).
Cons:
 Negative environmental
impact: increase domestic
production encourages
greater consumption.
 Increased reliance:
disincentive to innovate
(transportation sector).
 Externalities: continued /
increased CO2 emissions.
 Safety and health issues:
production, transportation,
refining, distribution
Production
• Oil reserves often owned privately (not national gov’t)
• State common law (property, contract, tort)
• State regs (conservation / unitization / drilling permits)
• Federal gov’t: DOI leases federal lands / OCS
Transportation
• DOT regulates safety of interstate oil pipelines
• FERC oversees interstate pipeline rates/service
• State regulation: Intrastate transport
• Trucking and marine transportation: no price regulation;
safety/environ regulations (CAA, CWA, OPA & state level)
Refining
• State oversight along (OSHA + approved state programs
under federal environmental laws)
• Federal enforcement of applicable federal laws
Distribution
• State oversight of local activity
• Federal environmental regulations
3. Regulation
of domestic oil
Domestic oil regulation - timeline
1900
1930
1960
1990
2020
Pop Quiz
Domestic Oil - Regulation
1.
True or false? According to the ‘Rule of
Capture’ an underground resource
belongs to first person to extract it even
if once located under another’s land.
2.
Which is false –
a. ‘Rule of capture’ applies to oil
extracted by both traditional drilling
and hydraulic fracturing.
b. Conservation regulation sought to
preserve and restore natural
environment around oil well head?
c. Unitization is binds owners of a
common oil field to develop the field 4.
cooperatively.
d. The doctrine of correlative rights
prevents wasteful exploitation of an
oil reservoir.
Answers: 1-T / 2-b / 3-a / 4-F
3.
Which is true -a. DOI is responsible for leasing
the OCS for oil drilling?
b. Most US oil spill regulation has
been anticipatory, given
increases in oil shipments by
tanker in and around US ports.
c. CWA requires unconventional
oil extractors to disclose the
names of hazardous chemicals
used in fracking.
d. FERC ensures the safety of oil
pipelines.
True or false? The Oil Pollution Act
exempts oil companies from liability
for the removal costs and damages
resulting from an oil spill determined
to be accidental.
4. Future of domestic oil
Click for video (3:00-10:00 + 50:00-54:00)
Environmental impact? / Federal role?
Production Activities
Consumption Activities
Transportation Activities
Click for video (0:00 – 5:00)
Energy federalism
Domestic oil
Federal
State
Production
DOI licensing (fed, OCS)
Oil Pollution Act (1990)
State property law
State conservation regs
Oil transportation
DOT (pipeline safety)
FERC (pipeline rates/service)
EPA (marine environment)
States (intrastate pipeline)
State (CWA enforcement)
Refining
OSHA
CAA, CWA – regs + enforcement
State (oversight)
Distribution
CAA, CWA
State (oversight)
Group Hypo
The North Dakota state legislature is considering a bill to
limit the ability of a landowner to separate surface
ownership rights from mineral ownership rights. It’s
controversial.
There are three groups weighing in on this bill:
• Group 1: pro-drilling organization whose mission is to
facilitate the development of oil and gas resources
• Group 2: a local environmental NGO whose goal is to
protect the local environment
• Group 4: an advocacy group that seeks to keep mineral
wealth in the state.
Please prepare legislative testimony making points on behalf
of your group.
The end