April 24, James Coleman, Energy Law Professor at Dedman School of Law, SMU Dallas, for a piece calling on Texas authorities to slow production of Oil & Gas. Published in the Austin-American Statesman: https://bit.ly/2zpNepT
On Monday, the U.S. price for a barrel of oil delivered in May fell to negative $37.63. Companies with oil had to pay almost $40 per barrel to find a company willing to take it off their hands. At the same time, barrels of oil in the rest of the world still traded for $20 to $30 per barrel. And barrels of U.S. oil delivered in June through October were also worth $20 to $30.
In recent years, it has become more and more common to see negative oil and gas prices for stretches of time. North American companies are struggling to keep up with the historic oil boom, unable to find enough storage and pipelines to save and transport oil and gas to when and where it is needed. In these extraordinary times, Texas and the other producing states should band together to carefully slow production. . .
By James Coleman
On Monday (April 20, 2020), the U.S. price for a barrel of oil delivered in May fell to negative $37.63. Companies with oil had to pay almost $40 per barrel to find a company willing to take it off their hands. At the same time, barrels of oil in the rest of the world still traded for $20 to $30 per barrel. And barrels of U.S. oil delivered in June through October were also worth $20 to $30.
In recent years, it has become more and more common to see negative oil and gas prices for stretches of time. North American companies are struggling to keep up with the historic oil boom, unable to find enough storage and pipelines to save and transport oil and gas to when and where it is needed. In these extraordinary times, Texas and the other producing states should band together to carefully slow production. Texas producers should not be paying to have their oil taken away or paying exorbitant rates to store their oil for a few months, when they could just conserve it in the ground and pump it later.
Companies need states’ help to conserve oil and gas in the ground. They cannot coordinate production cuts because of U.S. antitrust laws. And they often have contractual obligations to drill and keep pumping oil. These limits can be excused if the state forces them to stop. Even when the oil from a well can be sold, the natural gas from the same well often costs more to transport to market than it is worth, so it is increasingly just burned off. In recent years, Texas and North Dakota have been wasting staggering amounts of gas. The Texas Railroad Commission, the state’s oil and gas regulator, should adopt targeted and careful production cuts to stop negative oil pricing and gas flaring.
The oil-producing states should band together and restrain production even a bit more to raise prices enough to preserve the economic health of the oil and gas industry and stop oil and gas waste. Oil prices recovered a bit on Tuesday, but prices were still lower than $15 a barrel, which is simply too low. Restraining production will raise prices just a little now and it will preserve oil and gas for the future when it will be worth more. Extremely low prices cause severe economic dislocations and encourage wasteful use of oil and gas that harms our environment and squanders our natural resources.
The last time that oil production boomed when the economy tanked was when the East Texas oil field was discovered during the Great Depression. Oil prices fell to less than ten cents a barrel before Texas began restraining oil production. The federal government authorized the Interstate Oil Compact Commission to help Texas and the other oil-producing states coordinate production cuts to win maximum value for their oil and gas.
It is time for the Interstate Compact Commission, the Texas Railroad Commission and the other state regulators to join forces again to preserve the value of our oil and gas and stop economic and environmental waste. Texas and the other states need to step up and ensure the long-term health of the industry and value of our natural resources.
James Coleman is an associate professor at Southern Methodist University’s Dedman School of Law in Dallas and publishes the Energy Law Professor blog. He has a new research paper on oil state cooperation on production cuts at bit.ly/2VuswxR.