The People of America's Oil and Natural Gas Indusry

Central: Building a Secure Energy Future

21st Century Energy Infrastructure

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Energy is transformational. Access to reliable sources of energy is fundamental to alleviating poverty and lifting the fortunes of entire nations. Look at some broad measures of human prosperity – life expectancy, infant and maternal mortality, economic growth per capita – and there’s a correlation with the availability of safe energy. United Nations Secretary-General Ban Ki-moon has called energy the “golden thread” connecting education, economic growth, social equity and environmental sustainability. Oil and natural gas are major strands in that thread. The two supplied 55 percent of the energy used by the world in 2013, according to the International Energy Agency. A closer look shows that the use of natural gas to generate electricity across the globe has nearly doubled since 1973 to 21.7 percent in 2013. Access to safe, reliable energy runs modern economies and drives individual prosperity. Without a doubt, the U.S. energy revolution is a story of growing American energy self-sufficiency and opportunity. It is transforming our economy, our security outlook and the lives of individual Americans.

The game-changing impact of America’s innovation- and technology-driven energy renaissance is being seen in the U.S. heartland, where energy production in states like Texas, North Dakota and others is generating a beneficial economic wave. Yet, at the same time, the rapid growth of U.S. energy in recent years – thanks mostly to safe hydraulic fracturing and horizontal drilling – is directing attention to the infrastructure challenges facing the Central U.S., as well as the entire country, as it transitions from an era of ever-increasing oil imports to a one of surging domestic output that engenders a new feeling of the possible.

Production Surge

Safe and responsible fracking is unlocking vast amounts of oil and natural gas from shale and other tight-rock formations. The United States has become the world’s leading oil and gas producer, largely thanks to hydraulic fracturing. U.S. crude oil production has climbed from about 5 million barrels per day in 2008 to approximately 8.7 million barrels per day in 2014, according to the U.S. Energy Information Administration (EIA). That increase more than accounts for the decrease in net crude imports since 2008.

Six states in the Central U.S., plus Texas in the Gulf Coast region, are among the top 20 crude oil producers, with Texas and North Dakota ranking first and second, according to EIA. The increase in production from just those two states since 2007 is remarkable: Texas climbed from about 1 million barrels a day to approximately 3.1 million barrels per day, and North Dakota production increased from 124,000 barrels per day to more than 1 million barrels a day. It’s all about shale and fracking: In Texas it’s the Eagle Ford, Barnett and Permian Basin plays; in North Dakota, it’s the Bakken.

Oil from Central states – Oklahoma, Kansas, Illinois, Michigan and Arkansas also rank among the top 20 producers – plays a big part in driving down U.S. net crude imports, from 10 million barrels a day in 2007 to 7 million barrels a day in 2014. In an economy where oil and natural gas supply 63 percent of our energy, reducing oil imports means increased energy self-sufficiency, making the United States more secure in the world. Energy security has significant impacts on U.S. foreign policy, both in terms of stabilizing and diversifying world crude supply and in the ability for the U.S. to help friends abroad. By choosing the right energy policies, U.S. oil production can continue to increase, growing the economy and strengthening America’s world posture.

Economic Impacts

In North Dakota, industry supports 64,000 jobs and contributes $6.6 billion to the state economy, a share of more than 12 percent.

The American energy revolution is generating economic stimulus in the Central states, as it is doing elsewhere in the country.

In Oklahoma, the oil and natural gas industry supports 364,300 jobs, or nearly 17 percent of total state employment, according to PwC. In North Dakota, industry supports 64,000 jobs and contributes $6.6 billion to the state economy, a share of more than 12 percent. In Illinois, where the average salary across all industries and all sectors in the state is $54,286, the average oil and gas industry salary (excluding gas stations) is $85,675.

Other Central states figure significantly in the overall energy mix. For example, Wisconsin supplies more of the fine-particle sand used during hydraulic fracturing than any other state. Illinois is home to four refineries and tens of thousands of energy-related jobs. Major crude oil pipelines traverse Minnesota. Farther south, Kentucky is one of the leading oil producers from low-volume stripper wells. Arkansas is home to the Fayetteville shale play, and the oil storage/pipeline hub at Cushing, Okla., is one of the world’s largest.

Every state in the Central U.S. benefits from the energy industry’s vast supply chain, furnishing the materials for development, the equipment and tools, support services and more – all of which are critical to sustaining and growing the energy revolution.

Needed: Infrastructure

The United States needs significant energy infrastructure upgrades and improvements to accommodate the dramatic growth of domestic oil and natural gas production. It starts with additional pipeline capacity. Pipelines safely deliver 99.999 percent of crude oil and petroleum products to their destinations every year. This is due in no small part to the fact that liquid pipeline operators spent more than $2 billion in 2013 alone evaluating, inspecting and maintaining their pipelines.

Additional pipelines are needed to handle the surge in domestic oil and natural gas production, a lot of it occurring in the Central states. This is underscored in the dramatic increase in rail delivery of crude, rising from about 17,750 barrels of oil per day in 2008 to 921,000 barrels per day in 2014, according to the Association of American Railroads. Industry supports a holistic approach to enhancing the safety of crude transportation by rail. This includes prioritizing the prevention of incidents, investing in measures to mitigate incidents and providing emergency responders with the resources they need should an incident occur.

Infrastructure means investment. IHS estimates that needed energy sector infrastructure could spur $1.15 trillion in private capital investment from 2014 through 2025. The same study estimated that an average of more than $80 billion a year will be invested through 2025 on midstream and downstream petroleum infrastructure. A more narrowly focused study by ICF International says that the U.S. and Canada will need annual average midstream infrastructure investment of about $30 billion through 2035.

A significant portion of that investment and construction likely would occur in the Central states, as the United States shifts the orientation of its oil-delivery network, from one that sends volumes of imported crude from the coasts to the interior to one that connects surging domestic production from Texas, North Dakota and other states with demand on the East and the West coasts and the U.S. Gulf Coast. This includes investment in crude oil pipelines and gathering lines, refined product pipelines, storage facilities and more – all necessary because there’s a new paradigm brought about by the growth in American energy.

These projects will benefit America and Americans. IHS estimates that infrastructure investment nationally could support more than 1.1 million jobs, contribute $120 billion to U.S. gross domestic product and increase revenues to government by more than $27 billion over a time period extending to 2025.

These projects will benefit America and Americans. Infrastructure investments nationally could support more than 1.1 million jobs.

Rejection of the Keystone XL pipeline underscores a significant missed infrastructure opportunity, with the U.S. State Department estimating that during the project’s construction phase about 42,000 direct, indirect and induced jobs would be created, 3,900 of which would be direct construction jobs in states along the pipeline’s route (Montana, South Dakota and Nebraska). The State Department also indicated that property tax revenue during operations would be substantial, with an increase of 10 percent or more in 17 of the 27 counties with proposed facilities.

Such projections are based on recent history. Major energy infrastructure projects – such as the original Keystone pipeline and the Gulf Coast Pipeline (the Keystone XL project’s southern leg that didn’t require presidential approval and was completed) – generated significant local and regional benefits when they were built and provide ongoing benefits (jobs, taxes) since coming online. This is just one of the reasons the Keystone XL pipeline had vast support from labor unions, consumers and the majority of our elected representatives.

Opportunities

Increasing domestic energy development in the Central states presents a number of the same regulatory, safety and environmental considerations seen in other parts of the country. Here as elsewhere, industry is committed to safe and responsible development, worker safety, community engagement and environmental protection.

Energy development is regulated by the federal and state governments – including the federal Safe Drinking Water Act and the Clean Water Act, and state statutes that are tailored for those states’ specific geologies, hydrologies and other characteristics. Additional layers of federal regulation, as proposed by EPA (on methane emissions) and enacted by the Bureau of Land Management (hydraulic fracturing rules for federal and Indian lands), are unnecessary, potentially duplicative and could hinder development. For example, BLM’s fracking rules include prescriptive requirements on well cementing instead of requiring operators to meet performance standards and adhere to industry best practices. EPA’s proposed methane rule simply ignores the agency’s own data showing that emissions already are falling – mostly as a result of industry innovation and the strong market incentive to collect as much methane as possible to deliver to consumers. New prescriptive methane regulations could stifle the very innovation that has resulted in dramatic emissions reductions to date.

These will only layer additional government delays and red tape to federal processes that are complicating reasonable access to oil and natural gas reserves under Washington’s control. This is a big reason the federal share of U.S. crude oil production fell from 36.4 percent to 21.4 percent between 2010 and 2014, according to a Congressional Research Service report. Processing applications for permits to drill on federal lands took an average of 227 days in fiscal year 2014 (up from 194 days in FY2013) – 20 times longer than applications for state and private lands. Greater efficiency and speed are needed to ensure the kind of certainty that’s needed to foster privately funded energy development on federal lands.

The federal share of U.S. crude oil production fell from 36.4 percent to 21.4 percent between 2010 and 2014, according to a Congressional Research Service report.

Numerous pipeline projects continue to be delayed as they await permit approvals at the federal and state levels. As assets owned by the oil and natural gas industry, these projects are “shovel ready,” poised to provide jobs in their construction, revenue in their operation, and ultimately reliable and affordable energy to consumers. In addition to pipelines, locks and channels on the inland waterways suffer from age, the lack of proper maintenance, silting and narrowing. Our domestic ports also need investment to dredge and expand capacity to meet the new, larger design of tankers and cargo ships that will keep our nation competitive in a global marketplace. In the end, industry relies on the public sector to maintain the health of the locks, channels, ports and waterways to reduce delays in operation and the risk of incident.

Industry’s commitment to safe operations and environmental protection is seen in a number of standards and practices developed by API member companies in conjunction with key stakeholders. These range from well integrity to water management to properly engaging communities where development occurs.

In addition, API’s Monogram Program helps ensure that manufactured equipment and other products in energy development are consistent and conform to industry standards. Manufacturers can mark conforming products so they’re easily identifiable in the field. Licensees must install and continually improve quality management systems to meet industry’s specification. A safe operating environment is the focus of API’s Worksafe program, which is a way for operators to ensure that their workers and contractors have been trained to industry standards.