Texas Railroad Commission should reinstate production limits

Oct. 30, James Coleman, an associate professor at the SMU Dallas Dedman School of Law with an expertise in energy, for a piece advocating that the Texas Railroad Commission reinstate production limits on Oil & Gas. Published in the Houston Chronicle under the heading Texas Railroad Commission should reinstate production limits: https://bit.ly/31UGWtM

Texas was the birthplace of the modern oil industry. The Texas Railroad Commission fostered this global industry by coordinating American production limits and then faded to the background as world oil production shifted overseas. But now the United States is once more the center of global oil production — even with the current oil bust, America produces far more oil than any other nation. So, Texas must once again take a central role in stopping oil and gas waste. The Texas Railroad Commission can lead the United States toward smart production limits and data that preserve Texas’s natural resources.

Texas dominated U.S. production during the oil boom that made the United States the world’s superpower. From 1931-1953, the United States was the world’s leading oil exporter and Texas alone produced one quarter of the world’s oil. Throughout this period, Texas worked with the federal government and the other states to set production limits that ensured oil and gas was not wasted during periods of low prices.

By James Coleman

This combination of free market competition with the commission’s production limits built the modern oil industry. These production limits may have been the most important energy policy of all time. They saved the industry from rock-bottom prices, preserved oil and gas and ensured consumers stable energy prices as American oil powered recovery from the Great Depression, Allied victory in World War II and the post-war economic expansion.

The commission receded into the background when the Middle East eclipsed American production. As the United States rapidly moved from being the world’s leading oil exporter to its leading oil importer, the national preference changed to low oil prices. Texas, and the other oil-producing states, went along with this new policy by dropping their price-boosting production limits.

At the same time, Saudi Arabia and the other new oil powers formed the Organization of Petroleum Exporting Countries, OPEC. They claimed to be creating “a kind of international Texas Railroad Commission” to cooperatively restrain oil production. For years, these limits benefited both OPEC and oil companies around the world by creating stable, higher prices.

But yet another shift in global oil power has made Texas again the center of global oil production. The last decade’s oil boom — the biggest the world has ever seen — has made the United States again the world’s biggest oil producer. OPEC alone can no longer support global oil prices. America produces 60 percent more oil than Saudi Arabia, and Texas alone produces more than 12 of OPEC’s 13 member nations.

Texas’s world-class oil industry needs a world-class regulator to take the lead in stopping oil and gas waste. In the past year, Texas has at times flared more natural gas than its residential customers use. Texas’s energy trading partners around the country and the world are eager to buy its gas and are building infrastructure to bring it to market. And recent reports from energy and financial experts make plain that oil prices will take significant time to recover from the pandemic and that Texas would benefit from slowing production to raise prices and preserve oil. But Texas’s laws are pushing companies toward all-out pumping that is wasting oil and gas that will be worth far more later.

Texas must remember its history and again lead the nation and world toward smart production limits that maximize the long-term benefit of our oil and gas. The commission should start by phasing in modest limits on natural gas production to curtail gas flaring. These limits will slightly restrain oil production as well, giving the beleaguered oil and gas industry a lifeline by marginally raising oil and gas prices.

The commission should also rapidly improve its data collection and presentation. Oil companies know more than ever about their real-time production, and the commission needs the same information to ensure its regulations are well-calibrated. Real-time data will help Texas phase in and fine tune production limits to maximize the value of its oil and gas.

The eyes of the world are again on Texas and its unparalleled oil industry. The commission must rise to this challenge, restore its leadership role, and preserve the industry and Texas’s 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 rebuilding the Texas Railroad Commission.