The Trump Administration’s Impact On Oil and Gas Activities

The Trump Administration has made it clear that it seeks to unleash the potential of American-produced energy. Towards that end, it has taken actions on a variety of fronts to encourage production of oil and gas and decrease regulatory burdens on the industry.   

President Trump has issued a number of pronouncements regarding energy production. On his first day in office, January 20, 2017, the America First Energy Plan was released. Essentially, the Plan is a blueprint for future action in order to “maximize the use of American resources, freeing us from dependence on foreign oil.”  It declares that the industry has been “held back by burdensome regulations,” such as the Climate Action Plan and Waters of the United States Rule, and pledges to eliminate these and other “harmful and unnecessary policies.”  Further, the Plan recognizes the “$50 trillion in untapped shale, oil, and natural gas reserves,” and promises to “embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans.”

The Plan was followed up in quick succession by two executive orders. On March 28, 2017, EO 13783, Promoting Energy Independence and Economic Growth, was signed. It required a review of all regulations potentially burdening the development or use of domestically produced oil, gas, and other energy resources with the goal of suspending, revising, or rescinding these type of rules. It further revoked multiple Obama-era climate policies, including the Climate Action Plan and the Strategy to Reduce Methane Emissions, both of which contained components involving the oil and gas industry. It also directed the Secretary of the Interior to review several rules that related to oil and gas production on federal lands.

On April 28, 2017, EO 13795, Implementing an America-First Offshore Energy Strategy, declared that the policy of the United States was “to encourage energy exploration and production, including on the Outer Continental Shelf.”  It ordered the Secretary of the Interior to give full consideration to revising the schedule of proposed oil and gas lease sales so that it included previously off-limit areas.

The Department of the Interior and the Environmental Protection Agency heeded these orders. Each has taken multiple steps to advance the goals of the Administration.

Interior Order 3350, issued May 1, 2017, ordered the development of new five year leasing program for 2019-2024 for the outer continental shelf, noting that the program for 2017 – 2022 excluded Atlantic and parts of Alaska and prevented the development of tens of billions barrels of oil and 100 trillion cubic feet of gas. A Draft National OCS Program for 2019-2014 was issued which covers ninety percent of the OCS. Opening up offshore areas for development does not lead to immediate results as the areas must be leased, drilling plans finalized, equipment secured, and then moved into place. Nevertheless, the process has begun.

Interior also took steps as to production on federal lands. Interior Order 3354, issued July 6, 2017, noted that there had been a steady decline in oil and gas leases on federal lands between 2009 and 2016. To remedy the situation, the order requires quarterly lease sales and faster permitting for oil and gas production. Congress also provided an assist to onshore development, including the opening of Area 1002 in the Arctic National Wildlife Refuge in the 2017 Tax Cut Act. Interior also rescinded the Hydraulic Fracturing Rule and is attempting to rescind the Waste Prevention Rule. These two Obama-era rules were widely criticized by industry as being unnecessary and unduly burdensome.

EPA has taken numerous actions to roll-back Obama-era regulations and policies. EPA has taken steps to rescind the 2016 Methane Rule, which is applicable to new oil and gas upstream facilities. EPA’s efforts to rescind the rule have not been successful. A three-month stay was vacated, it has not finalized a proposed two-year stay, and the actual revisions to the rule focused on a few narrow provisions. Otherwise, the rule is in effect. EPA did withdraw the Information Collection Requests that were sent by the Obama Administration to existing oil and gas facilities in order to collect information to support emission standards on those existing facilities.

EPA’s seems to have more success in revising or withdrawing numerous policies generally relating to permitting air emissions, which can impact oil and gas operations. One policy relating to source determination can have a direct impact on oil and gas activities. EPA issued a memorandum on April 30, 2018 which provided clarity as to whether emissions from several sources in a general area should be combined, or aggregated, to determine where such sources are a major source of air emissions. Generally, emissions from sources can be aggregated to determine if the source is major if the sources are within the same industrial grouping, are located on contiguous or adjacent properties, and are under control of same person or persons. EPA clarified that its prior interpretations as to what constitutes ‘common control’ were too broad and would now focus only on the authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.

Other rules have impact on oil and gas activities. The 2015 Ozone Rule, which lowered the standard to 70 parts per billion, was allowed to go into effect. EPA has indicated it will focus its attention on the upcoming statutorily mandated review of the ozone standard instead of trying to repeal the 2015 rule. EPA is also in the process of trying to repeal the Waters of the United States Rule issued in 2015. It proposed to rescind the rule and recodify the regulatory text that was in effect prior to the 2015 rule. In the meantime, EPA also finalized a rule establishing the applicability date for the 2015 rule as February 6, 2020. EPA is preparing to propose a new definition along the lines set out by Justice Scalia in the Rapanos opinion, which should be issued in the summer of 2018.

The Trump Administration’s efforts have been mainly successful at an administrative level through the use of executive orders and policy revisions. Efforts to revise or rescind rules through the rule-making process have inherently delays in that a rationale for revision or rescission must be prepared and there must be notice and comment. Further, judicial review by those opposed to the revision or rescission can stymie the rule-making effort. As a result, the success of these efforts is mixed.

Nevertheless, energy production is steadily increasing. The U.S. Energy Information Agency estimates that crude oil production will increase to an average of 10.3 million barrels per day in 2018, an increase of about 1 million barrels per day from 2017. The 2018 level will be the highest annual average on record, surpassing the previous record of 9.6 million barrels per day set in 1970. But it will not stop there. For 2019, crude oil production is forecast to rise to an average of 10.8 million barrels per day. The Permian Basin area in West Texas is the epicenter of this activity. This area will produce 3.6 million barrels per day by the end of 2019, accounting for about 33 percent of the total U.S. crude oil production.

Natural gas production also increased in 2017 by about 1 percent. The largest growth was in the Appalachia region, primarily in the Marcellus and Utica shales. Interestingly, EIA expects the US to become a net exporter of natural gas on an annual basis for the first time since 1957. The US is exporting more natural gas to Mexico and more liquefied natural gas to at least 20 countries, while importing less natural gas by pipeline from Canada.

While it is somewhat unclear whether all of the increase in production can be attributed to the Trump Administration, it is clear that the new oil and gas production boom has a ripple effect on the economy. Infrastructure must be built, such as tanks and terminals, to handle the output. Further, jobs are created to meet the demand for drilling, decreasing unemployment in shale-rich areas, new equipment is being purchased, assisting the manufacturing sector, pipelines are put into place to handle the demand, and state and local tax revenues increase.

In short, the Trump Administration has taken steps to increase production and decrease regulatory burdens and will surely take additional steps to advance the America First Energy Plan. As a result, during the next several years at least, the economic benefits of increased production will likely continue.

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