–US DOE Negotiating Oil Storage In Strategic Reserve For Private Companies
WASHINGTON (MaceNews) – The three-person Texas Railroad Commission Tuesday is contemplating restrictions on oil production in the country’s largest oil-producing state, something not done since the 1970s, to tackle the supply glut that has caused prices to plummet.
This comes as the U.S. Department of Energy announced it is negotiating to store excess crude oil produced by private companies temporarily in the Strategic Petroleum Reserve.
Opening the meeting – during which representatives of 35 organizations are to testify for or against the proposal – TRRC Chair Wayne Christian described the decision as a “sobering responsibility.”
Earlier, OPEC and other major oil-producing nations agreed to a 9.7 million barrels per day cut in oil supply until June 30. The U.S. government signed on to the commitment by G20 energy ministers to stabilize oil markets, but only state regulatory bodies have the power to limit oil output.
Christian said he has reservations about limiting Texas oil production but is open to the discussion. “We do not want a foreign entity controlling … oil and gas from the United States, and we especially do not want that in Texas in times ahead,” he said.
As the question and answer session got under way, he noted oil production is already down as a result of the COVID-19 pandemic and the resulting drop in demand, and he questioned why additional state-mandated cuts were required.
Fellow commissioner Christi Craddick voiced her concern about Texas going it alone, and if it would have any meaningful effect. “If we are the only ones doing it, will it have a market impact?” she asked, and does Texas risk being the only state that acts – putting it at a disadvantage vis a vis other oil-producing states such as Oklahoma and North Dakota.
Commissioner Ryan Sitton said his focus is on whether there is waste occurring as a result of an oversupply of oil, and if the TRRC does decide to prorate production, would it have a positive impact in terms of addressing waste.
The emergency meeting stems from calls by two producers, Pioneer Natural Resources and Parsley Energy, who called for as much as 1 million barrels per day of production cuts.
Parsley Energy CEO Matt Gallagher argued in his testimony that Texas production cuts in line with market demand would be a “critical component” of a larger effort as “part of a symphony of solutions.”
“An orderly reduction in oil supply will protect the viability of many of our country’s independent oil producers and service providers,” Pioneer, the second largest oil producer in Texas, in a petition to state regulators.
However, small companies have joined with multinational giants such as Exxon Mobil in opposing Texas production cuts. The American Petroleum Institute released a statement arguing for a free-market approach. “A Texas quota system imitating OPEC is not the answer to the challenges facing the industry and would only penalize the most efficient producers and create long-term negative consequences for American energy leadership,” API said.
The combination of weak demand and excess supply has companies scrambling for dwindling options to store unwanted crude. To address the storage crunch, the Energy Department is negotiating with nine U.S. companies to temporarily store their crude oil in the Nation’s Strategic Petroleum Reserve “Providing our storage for these U.S. companies will help alleviate some of the stress on the American energy industry,” Energy Secretary Dan Brouillette said in a statement.
The awards under negotiation are for approximately 23 million barrels of crude oil storage, and will be distributed into all four SPR sites. Most of the deliveries will be received in May and June, with possible early deliveries in April. Awardees can schedule return of their oil through March 2021, minus a small amount of oil to cover the SPR’s cost of storage.
The nine companies will be storing oil aggregated from numerous small, medium, and large U.S. producers at the SPR.