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By Alan Kovski
The new Congress and presidency of Donald Trump have opened up a wealth of possibilities for changes that would benefit the discovery, transportation, processing and profitability of oil and natural gas.
Oil and gas industry lobbyists hope to see action soon on legislation and regulatory changes to promote drilling opportunities, pipeline permits, revised air and water regulations, revamped renewable fuel requirements, lower corporate taxes and amended rules on financial hedging.
Industry would like to see the Trump administration modify many regulations and wants Congress to go further by repealing or heavily modifying regulations that the administration cannot change on its own.
Investments in oil and gas pipelines and other energy infrastructure are high on companies’ priority lists, but the Keystone XL and the Dakota Access crude oil pipelines have generated fierce debates. President Barack Obama halted both after they had run the gauntlet of environmental reviews.
“The first thing we need to do is honor the rule of law,” Jack Gerard, president of the American Petroleum Institute, told reporters Jan. 4. Once regulators have reached a decision, it should be respected, he said.
Oil pipeline companies typically have no big quarrel with the procedural requirements of the National Environmental Policy Act or the regulations of the Pipeline and Hazardous Materials Safety Administration, said John Stoody, vice president of government and public relations at the Association of Oil Pipe Lines.
“We are actually looking forward to a return to existing laws and processes,” Stoody said Jan. 6.
The Keystone XL pipeline, which would cross the U.S.-Canada border, was required to go through a State Department review to determine whether it was in the national interest, after which a presidential approval was needed. Obama rejected it, primarily on grounds of contributing to climate change.
“I think everyone would agree the presidential approval process was broken under Obama and is ripe for reform,” Stoody said.
Geoffrey Moody, senior director of government relations of the American Fuel & Petrochemical Manufacturers, said his refining company members hoped Trump would reverse Obama’s Dakota Access decision. That line would take crude oil from the Bakken Shale region of North Dakota to an oil pipeline hub in Illinois.
Trump similarly has been encouraged to reverse Obama’s decision to block the northern segment of the Keystone XL Pipeline, from the Canadian border to Steele City, Neb. That line would be able to take Canadian and Bakken crude south to connections reaching to refiners and export points on the U.S. Gulf Coast.
Trump has said he would reverse Obama on Keystone and has said he supports Dakota Access, though he has not delved into the specific details of pipeline routing, which has been the holdup for that project.
Congress has started the new year with several bills to require more legal, scientific and economic justifications for regulations and congressional approval for the costlier regulations: the Regulatory Accountability Act of 2017 (H.R. 45), Regulations from the Executive in Need of Scrutiny Act of 2017 (H.R. 26) and Midnight Rules Relief Act of 2017 (H.R. 21).
Moody expressed support for the bills as steps toward greater accountability and scientific integrity in regulation. Gerard said the American Petroleum Institute supported the bills as what he called a recovery of congressional authority to decide policy.
“We support those efforts to say that’s where the policy should be written,” Gerard said. He described it as part of a broader debate over the role of regulatory agencies, which in his view should not be given carte blanche to write rules.
Oil and gas associations would like to see several recent regulatory initiatives rescinded. Gerard said oil and gas companies especially question federal regulations that appear to be unnecessary, such as rules that do not respond to a need or that duplicate state regulations.
He mentioned as examples the Environmental Protection Agency’s rule to control methane and volatile organic compounds from oil and gas production sites and the Bureau of Land Management’s rule on venting, flaring and leaking of natural gas from oil and gas exploration, production and transportation operations.
Gerard also emphasized the idea of allowing oil and gas companies more access to federal offshore acreage for exploratory drilling.
Moody said recent changes in Clean Air Act regulations, notably a recent reduction by EPA in the allowable ambient levels of ground-level ozone, are creating problems for refining and petrochemical companies.
“It is absurd that EPA has to go back and look at the science every five years,” Moody said, arguing that the science and technology of ozone emissions do not change that quickly. Something as simple as lengthening the review cycle for ozone standards would be valuable, he said, echoing the common industry concern for a stable regulatory environment.
The renewable fuel standard ranks very high on the target list for oil producers and refiners. They would like to see it repealed or significantly modified, according to Gerard and Moody.
Requirements to blend renewable fuels into gasoline and diesel have been complicating life for fuel wholesalers and retailers for decades, starting in the 1990s with “reformulated gasoline” standards to reduce ozone pollution and broadened by the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007.
“We’ve been seeking reforms of the program for many years now,” Moody said. Prospects for reform now are “closer than ever” and could see some activity in the next few months, he said.
Gerard cited the example of a 2016 bill proposed by Reps. Bill Flores (R-Texas) and Peter Welch (D-Vt.) that would have limited the amount of ethanol in gasoline to 9.7 percent.
“I expect that something similar to it will be introduced soon and that you’ll see a broad bipartisan support for the need to fix the renewable fuel standard,” Gerard said.
The renewable fuel standard enjoys strong support from farm states, which might explain why Gerard said he anticipated a cap rather than a full repeal.
Congress is expected to make efforts at fundamental changes in tax law, with much support and some disagreement from Trump.
“The House blueprint that they released last summer was great,” said Moody, referring to a Republican leadership proposal for tax law changes, shaped in part by House Speaker Paul Ryan (R-Wisc.) and House Ways and Means Committee Chairman Kevin Brady (R-Texas).
“We continue to work with him and his team,” Moody said, referring to the American Fuel & Petrochemical Manufacturers working with Brady.
The House leaders and Trump both want lower corporate taxes and the elimination of some tax deductions at the same time, a balancing act that generally draws support from oil and gas companies.
Trump has spoken of wanting a “border adjustment tax” on imports, something that elicits cautious skepticism from House leaders. Oil and gas companies are concerned about the import tax idea but have not yet taken a hard position on it, Gerard said.
Companies wanting to foster healthy markets for natural gas hope to see amendments to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. No. 111–203), enacted after the shock of the 2008 recession.
The Commodities Futures Trading Commission, implementing parts of Dodd-Frank, has not respected the intent of Congress to distinguish between commodity companies engaged in hedging and financial companies facilitating a variety of financial activities, according to Jenny Fordham, senior vice president for markets and government affairs at the Natural Gas Supply Association.
“They really departed from what we felt the statute directed them to do,” Fordham said of the CFTC.
She said the gas suppliers have been surprised at the amount of time they have had to devote to the subject over the years, and now they will give it more work.
“We will rejuvenate that effort,” Fordham said Jan. 5.
The goal of the gas suppliers is to allow companies sufficient freedom to hedge their commodity positions, both in terms of what hedging they want to do and how fast it can be done.
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