State Regulators Hold The Key To U.S. Participation In A Global Oil Supply Deal

The energy media was filled with speculation on Friday and Saturday about how much higher crude prices might spike on Monday as OPEC and Russia prepared to hold an emergency conference call meeting that day. That speculation has now evaporated as the call has been postponed, now scheduled to take place on Thursday.

As the Wall Street Journal reported on Sunday, “Saudi Arabia and Russia have said privately they are unlikely to cut oil output unless North American producers join in.” While Canada has signaled its willingness to be a part of a larger, global approach to cutting supply, it is unclear how exactly officials from Russia and Saudi Arabia envision the United States joining the party.

I’ve written about this several times in the past, but it deserves repeating here: America is simply not like these other countries. It is called the “United States” for a reason. The federal government of the United States has no existing authority to just cause oil wells to be turned off and on at the snapping of a president’s fingers.

Yes, as we saw in the wake of the tragic Macondo blowout and spill in April, 2010, a president can declare an environmental emergency and cause all production to be shut in in the Gulf of Mexico. But beyond 3 miles of the coastline (roughly 12 miles offshore Texas) the Gulf of Mexico is a federal province. The order issued on May 27, 2010 by President Barack Obama to shut-in Gulf of Mexico production applied only in waters of 500 feet or more in depth, limiting it to areas safely within the federal province. In this way, he avoided challenges from state governors that would have certainly resulted had he attempted to shut down the entire Gulf, including all state waters.

This is what the United States calls “federalism,” and it is a concept that leaders in many other countries appear to have a very difficult time grasping. Given that the great preponderance of U.S. oil production comes mainly from beneath state and private lands, solving the conundrum of any U.S. participation in any global agreement to limit oil supply will necessarily involve participation from key state regulators.

In states like Texas, North Dakota, Oklahoma, Wyoming and New Mexico, which together are producing the preponderance of U.S. crude oil, regulatory bodies possess various authorities to limit production within their state borders. Those states combined to produce about 68% of the oil produced in the U.S. in January, the latest month for which the U.S. Energy Information has data. Another 15% was produced in federally-owned waters in the Gulf of Mexico and off the Pacific coast.

Thus, at least in theory, roughly 83% of U.S. oil production could be artificially limited by the federal government and state regulators on a coordinated basis. It is important to note that this kind of coordination is the only real way for the U.S. to become a meaningful part of any such deal.

Read The Rest at Forbes.com

2 thoughts on “State Regulators Hold The Key To U.S. Participation In A Global Oil Supply Deal

  1. Gregg - April 5, 2020

    Interesting and great info Dave about the role the states play in setting US oil production and price – that is why I, and others, are so engaged in your updates..

    I wrote a little yesterday about using our oil for our use and cut out the middle-man, and you stated that we cannot refine most of our own crude as the reason we must import refinable crude, and how difficult it is to rectify that problem.

    If that is the prevailing situation, then we are really no more ‘energy independent’ than we are medication independent. I have no doubt the Trump administration will take direct and drastic steps to shed our medicine dependence on China and other bad actors in the name of national security. Why can’t and why wouldn’t he do the same for our energy security? Because if things were to really go to hell, and even if we were still able to get the other countries to refine oil for us, it would not be all that hard for an enemy to sink the oil tankers which would then be the weak link in our national security.

    I remember the Iranian mining of our tankers in the Persian Gulf in the 1980s, and the disruption that caused. Just ask England how a submarine blockade twice nearly cost them a war; ask Japan how our submarine blockade strangled their military machine during WWII. With tankers being so big and so few, relative to the size and numbers during WWII, it wouldn’t take many losses to upset the entire US and world economy if a similar event occurred. Our navy, thanks to the four presidents prior to Trump is entirely too small to be able to effectively protect every tanker traveling the world’s oceans. Convoys, with their inherent inefficiency, would have to be resumed because tankers and merchant ships are the same large, slow, undefended, targets they were in 1914-1918 and in 1939-1945.

    I know we haven’t built a nuclear power plant since Three Mile Island in 1979, and I believe the same sorry situation pertains to building new oil refineries. I also remember hearing several years ago that we have to import a majority of our refined oil as we lack the refining capability. This buttresses your statement of yesterday.

    I have confidence that PDJT knows this and will make it a fast-tracked priority in any ‘infrastructure’ bill he comes up with and signs into law. He must do this as a matter of national security and it will produce real jobs and real security.

    As I postulated, in a previous column, I hope the president has someone on his staff (campaign or other) looking to get real and positive suggestions from folks like us. That would be every bit as important as having his campaign staff scoping out the demographics of who is attending his now suspended, but soon to be resumed, rallies.

  2. Jimmy MacAfee - April 5, 2020

    Dave,
    President Trump stated today that we have our own oil, period. Not sure why he said that, based upon what you’ve said about differences in crude and refining capabilities.

    What I’m sensing about the demand that US producers join the setting of prices is that they want the US to be part of OPEC. Sounds ridiculous, like having Surinam join NATO, but then…we ARE exporting oil.

    As you said: we have a system of government that won’t allow for this. But we all know how that goes, don’t we? The TPP (Trans-pacific Partnership Agreement) was another end-run on the Constitution and national sovereignty. Good that it never went through.

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