Overnight Energy: Court upholds Trump repeal of Obama fracking rule | Oil price drop threatens fracking boom | EPA eases rules on gasoline sales amid coronavirus
AN OBAMANATION: A federal judge on Friday upheld the Trump administration’s decision to repeal an Obama-era rule that established standards for hydraulic fracking on federal land.
California and several environmental groups sued over the repeal, claiming it was unlawful. California particularly claimed that the federal government was in violation of the Administrative Procedure Act and the National Environmental Policy Act.
However, Judge Haywood S. Gilliam Jr., an Obama appointee in the District Court for the Northern District of California, sided with the Trump administration, writing: “The record does not compel the conclusion that [the Bureau of Land Management] arbitrarily ignored foregone benefits or arbitrarily overvalued the costs associated with the 2015 Rule, as California Plaintiffs urge.”
“Although BLM could have provided more detail, it did enough to clear the low bar of arbitrary and capricious review, and that is all the law requires,” he added.
The 2015 Obama administration rule would have required companies to say what chemicals they use in fracking, make them cover surface ponds that contain fracking fluids and also set well construction.
But it never went into effect because it was temporarily halted by another federal judge in 2015. The judge later overturned the rule in 2016.
The Interior Department celebrated the court’s decision on Friday, saying in a statement that it will “allow the Department to continue to implement the President’s direction to repeal overly burdensome regulations and ensure America’s energy independence, while protecting the safety of our workers and the health of our environment.”
“We are grateful the Court has affirmed that the Department’s actions were fully compliant with all legal requirements,” it added.
An adviser to California Attorney General Xavier Becerra (D) told The Hill that they are reviewing the decision.
The Sierra Club, one of the groups that sued over the repeal, is also reviewing the decision and will consider its options.
“Fracking on public and tribal lands puts our air, water, and communities at risk,” Sierra Club senior attorney Nathan Matthews said in a statement. “The Trump administration was wrong to rescind this commonsense protection, and it’s disappointing that the court is allowing this dangerous rollback to stand.”
Read more on the ruling here.
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FOR FRACK’S SAKE: Plummeting oil prices caused by a Saudi-Russian feud and the coronavirus outbreak may lead to a decline in fracking, the controversial practice that has fueled the domestic energy revolution in the U.S.
Fracking, which involves blasting water and other chemicals deep within the ground to lift oil out of rock crevices, is more expensive than using a traditional oil derrick, making U.S. producers more sensitive to dropping prices.
Oil sank to $23 from a high of $53 dollars in mid-February, far below the “break even” point that producers need to drill new wells to maintain supply, and with volumes rapidly diminishing at existing wells.
“These wells are more expensive, they produce a larger portion of all their oil and gas that first year,” said Lynn Helms, director of North Dakota’s Department of Mineral Resources, which regulates the oil industry. “We’re just starting to see the economic impacts and expect them to grow quite a bit over the next six to nine months.”
It’s not just that fracking is more expensive — it costs anywhere from $6 million to $10 million to drill a horizontal fracked well versus about $2 million for the traditional bobbing oil derricks dominant in the rest of the world — fracked wells can also deliver half of their contents to the surface within the first year, giving a well little time to wait out shocks to the market.
Major oil players have already told stockholders they will slash their budgets in response.
Schlumberger, one of the largest oilfield services companies in the world, said it would cut its budget by 30 percent this year. Halliburton, another oilfield services giant, has already furloughed 3,500 of its employees in Houston.
In North Dakota, where 5 percent of the state’s workers are tied to an oil industry dependent on fracking, unemployment has soared, with claims jumping from 600 in the middle of last week to more than 2,500 by the week’s end, according to The Bismarck Tribune.
But while fracking is key to an industry that is the lifeblood of many communities, there’s a growing movement to restrict the practice given its impact on the environment. Beyond the effects to the climate from simply burning fossil fuels, fracking relies on a variety of chemicals and risks polluting water.
Most Democratic presidential candidates this cycle vowed to end the practice on federal lands, and Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) have introduced a bill that would ban fracking entirely.
“We need to cut our emissions by 2030, so we need to get off of fossil fuels,” said Randi Spivak at the Center for Biological Diversity, which advocated against any assistance for the oil industry in the coronavirus stimulus package. “From a climate perspective this downturn should be seen as a way to pivot away from fossil fuels and into clean renewable energy.”
But as oil hits its lowest price in 18 years, economics rather than politics are likely to fuel a decrease in fracking, at least in the short term.
Experts say the price drop will hit the industry in waves.
First to go will be the crews operating rigs that drill new wells, as companies likely won’t have the multimillion-dollar cash flow needed to begin work. Oil is far below the approximately $50 break-even figure needed to keep pumping existing wells while drilling new ones.
“I’ve never been a fan of the term ‘break even’ because no one is in business to break even,” said Ron Ness, head of the North Dakota Petroleum Council. “But do you want to produce some of the highest quality, best crude oil in the world at $20 a barrel? Do you want to keep producing that oil or be patient?”
The number of rigs in the U.S. has already dropped by about 20, falling to 772 last week from around 790 the month before — a significant drop in a figure said to measure the health of the industry.
Without drilling new wells, oil supply will decline.
“The best day of life for an oil and gas well is its birthday,” when oil rushes to the surface, said Raoul LeBlanc, an oil industry expert at IHS Markit. But after that, “They decline relentlessly.”
Read more on the decline in fracking here.
LESS (AIR) QUALITY TIME: The Environmental Protection Agency (EPA) said Friday that it will extend the amount of time that winter gasoline can be sold this year as producers have been facing lower demand due to the coronavirus.
It will allow companies to sell the winter-grade gasoline through May 20, whereas companies would have previously been required to stop selling it by May 1 to protect air quality.
“Due to the steep fall-off in gasoline demand as a result of the COVID-19 pandemic, gasoline storage capacity is limited and more time is needed to transition the distribution system in order to come into compliance for the summer driving season,” the EPA said in a statement.
Summer-grade gasoline has a lower volatility than winter-grade gasoline, which means that it is less likely to evaporate into the atmosphere in the summer heat, causing smog.
David DeGennaro, a climate and biofuels policy specialist at the National Wildlife Federation, slammed the agency’s action.
“In responding to an international health crisis, the last thing the EPA should do is take steps that will worsen air quality and undermine the public’s health,” he told The Hill in a statement.
There are also ethanol implications…
In its statement, the EPA also said that it wouldn’t rescind any biofuel requirement exemptions for small refineries.
A court this year determined that the agency was using its authority to grant exemptions too often, and ordered it to reconsider three waivers. The agency declined to appeal that decision this month.
Renewable Fuels Association President and CEO Geoff Cooper in a statement characterized this as an “attempt to kick the can on nationwide application of the Tenth Circuit Court decision [that has] nothing to do with COVID-19 and everything to do with politics.”
“There is absolutely no reasonable justification for delaying implementation of the court’s decision,” Cooper said.
Read more on the gasoline rules here.
In other oil news…
U.S. oil rigs saw the largest single-week drop in drilling activity in four years as low oil prices take a toll on the industry.
The number of active rigs dropped by about 44, falling to 728 this week, according to rig data provider Baker Hughes.
Read more on that here.
OUTSIDE THE BELTWAY:
One Corner of US Oil Market Has Already Seen Negative Prices, Bloomberg reports
California approves climate change target that critics say is far too weak, the Los Angeles Times reports
Utility Dive looks into how COVID-19 is impacting five state energy legislation efforts
ICYMI: News from Friday…
EPA relaxes rules regarding gasoline sales amid coronavirus outbreak
US oil rigs see largest single-week drop in drilling in four years
Court OKs Trump repeal of Obama public lands fracking rule
Oil price drop threatens US fracking boom