ADI Analytics hosted its first North America Natural Gas and NGL forum in Houston late February. The forum was well-attended with representatives from a wide range of companies including integrated oil and gas majors, refiners, E&P independents, industrial gas suppliers, equipment providers, technology licensors, investors, and media outlets.
The forum featured several presentations by ADI analysts and panel sessions featuring external speakers and industry experts. The presentations highlighted key demand drivers, supply outlook, pricing forecasts, strategic implications, investment opportunities, and regulatory concerns around natural gas and NGLs. The panel sessions built off of the presentations and featured in-depth discussions focusing on small- and mid-scale LNG, natural gas conversion to fuels, and new innovations including the Industrial Internet of Things.
ADI Analytics presented over the natural gas value chain regulatory environment. It is impossible to cover all regulations that impact natural gas production and use in a single presentation, but ADI Analytics focused on six regulations, three at the federal level and two at the state level, and detailed their current status and outlook.
There is a lot of regulatory activity that is impacting the natural gas and NGL value chain. Operators are facing increased regulatory scrutiny on flaring, fugitive emissions, seismicity, wastewater treatment and disposal, and more. A new presidential administration can have impacts on regulations at the federal level. In October of 2016, ADI Analytics prepared an article that highlights both candidates’ proposed energy policies. Some of the most talked about regulatory changes at the federal level include the elimination of the EPA’s Clean Power Plan, which looks likely due to a recent executive order, loosening of regulations concerning unconventional oil and gas development, easing of fugitive emission limits, opening onshore and offshore leasing on federal lands, and withdrawing from the Paris Agreement.
We expect federal level regulations to be less onerous moving forward. ADI Analytics focused on three federal level regulations that will likely have large impacts on the natural gas and NGL value chain. The first regulation we highlighted were the New Source Performance Standards (NSPS). The NSPS are a part of the Clean Air Act that regulates emissions from stationary sources. The overall goal is to limit fugitive methane emissions, spills, and leaks. A recent executive order by the Trump administration has ordered a review of energy regulations and is aimed at reducing the overall regulatory burden on oil and gas producers. Due to this, we believe that the NSPS may be weakened moving forward.
The next federal level regulation that was discussed was the EPA’s Clean Power Plan. At the time of the 2017 North America Natural Gas and NGL forum, there were questions on what will happen to the Clean Power Plan. The recent executive order explained above also named the Clean Power Plan specifically as far as regulations that will be under intense scrutiny from the new administration. It is fairly safe to say that the Clean Power Plan will not be moving forward. We discussed the implications of this in our presentation on natural gas in the power generation and industrial segments.
The final federal regulation discussed was the construction approval of new pipelines. Early in the new administration, executive orders were signed that approved the controversial Keystone XL and Dakota Access Pipelines. While these two pipeline approvals made headlines, pipeline construction is unlikely to change drastically. As FERC, which approves pipeline construction at the federal level, has long demonstrated independence in its decision making.
Further, pipeline construction approval is also handled at the local and state levels. Even if FERC was supportive, pipelines would also need to comply with local and state regulations before construction can begin. Finally, organized environmental groups can stall or delay pipeline construction through various means including litigation. Due to these factors, it’s unlikely that pipeline construction activity will change significantly in the coming years.
It is likely that state-level regulations will become more stringent in the future. There are dozens of state-level regulations that impact oil and gas producers. Even states that are very friendly to oil and gas producers are increasingly regulating the industry aggressively. For example, seismic events in Oklahoma caused a large public outcry and regulators responded. Any wastewater injection wells that were in specific areas of interest were required to record volume and pressure data daily and report it weekly. In all, seismic events have reduced 95% since the regulations were implemented.
Similarly, many states have implemented flaring regulations that either limit the volume or the number of days a well may flare after being completed. North Dakota has implemented limits on flare gas volumes. In 2014, North Dakota was flaring as much as one-third of all gas that it produced. In 2016, North Dakota operators flared only 12% of all gas produced. It is likely that flaring regulations will continue to become more stringent moving forward.
The regulatory environment may ease but is unlikely to change dramatically. Typically, regulations are developed, implemented, and changed over the course of many years. Between federal regulations becoming less onerous, state-level regulations becoming more stringent, and the time frame in which regulations are developed and implemented, it is unlikely that the regulatory environment will change dramatically in the next few years.
Presentations and videos from the 2017 North America Natural Gas and NGL forum will soon be available online. Additionally, we will be hosting the forum again on February 13th 2018 with more information and details to follow soon. Please contact us with any questions regarding the forum and our work.
-Tyler Wilson and Uday Turaga