Proposed regulations will not slow growth of US gas, oil production: ex-official

Houston (Platts)--17Oct2013/607 pm EDT/2207 GMT


Proposed US rules might cause oil and natural companies to spend a little more money on development but are unlikely to slow the rapid growth of production, a former US regulatory official said Thursday.

Speaking at the Bloomberg Oil and Gas Oil and Gas Conference in Houston, John Northington, president of the Washington-based Northington Strategy Group, said with US Congress in a state of dysfunction, the executive branch of the government likely will take the lead in setting energy policy in the next several years.

"The Congress can't get together to do anything positive on energy policy. They good news is they can't do anything bad on energy either," Northington said. "The executive branch is going to fill that void."

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Northington served as senior advisor to Energy Department for oil and gas and chief of staff for the Interior Departments' Office of Fossil Energy under the Clinton administration.

Northington, who also served as an advisor to the Bureau of Land Management, said one example in which new federal regulations would impact individual states will be seen when the BLM implements its proposed rule for regulating hydraulic fracturing and water flowback on federal lands.

Although energy industry groups have questioned whether the BLM should implement such rules, Northington defended the government's right to do so.

"We, the people, own 20% of all the minerals in this country and 20% of the surface," he said. They (the BLM) have the right to regulate all the surface and down-hole acreage."

Northington noted that the proposed BLM fracking regulation of fracking "has been watered down," from what had originally been proposed to allow more consideration of existing state fracking regulations. "They modified it to where if the states have rules equal to or better than federal regulations, the states will have the regulatory authority," he said.

However, in those states that do not already have strong rules in place to regulate the process of fracking, "the federal government will set the bar for state regulation."

For offshore oil and gas producers, the federal government has tightened up regulations in the years following the fatal Deepwater Horizon accident in May 2010, Northington said.

"A lot has changed and it's still dynamic," he said. "The operators in the deepwater have gotten used to the new normal."

After strengthening safety regulations for deepwater operations, federal regulations now have turned their attention to operators on the Outer Continental Shelf.

"The Shelf operators have had a very good lobbying effort and carved out an area where they didn't get the scrutiny of the deepwater," Northington said.

However, following several accidents on rigs in the shallower waters, federal regulators are beginning to invoke tougher requirements, such as requiring that blowout preventers be installed on rigs operating on the Shelf.

"There will be more scrutiny, more rules," he said.

On the controversial subject of securing Department of Energy approvals for liquefied natural gas terminals to export to countries that do not have free trade agreements with the US, Interior has to balance the desires of energy producers, who want an expedited approval process, with some segments of the manufacturing industry, which have called for a slowdown in the process to ensure continued adequate domestic supplies of inexpensive gas.

"Neither side is going to get what everything they want," Northington said. He noted that although the Obama administration has expressed its desire to increase LNG exports, "the regulatory process is excruciatingly slow."

In the long term, though, Northington said the market ultimately will decide which proposed LNG projects wind up getting built and which fall by the wayside.

"Some will get approved, but they will not get built. The market will decide where the gas goes," he said.

As to the question of whether the US would ever become a net exporter of crude oil, Northington said there are many historic and cultural challenges that would have to be overcome before that becomes a reality.

"Exporting crude oil that makes LNG exporting a picnic," he said. "We've fought wars over oil. That is a much tougher hurdle to get over."

--Jim Magill, jim.magill@platts.com
--Edited by Richard Rubin, richard.rubin@platts.com

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