Group: Regulations hinder energy development

Susan Fakharzadeh

Phil Castle

The Business Times

Colorado and other western states offer an abundant supply of oil and natural gas could reduce dependence on foreign sources as well as create jobs and generate tax revenue. But government regulations and policies hinder development, according to a Denver-based trade association of more than 400 companies involved in energy production.

“It’s unbelievable how quickly the red tape piles up,” said Susan Fakharzadeh, director of business development for the Western Energy Alliance. Fakharzadeh outlined the findings of a study projecting potential energy development as well as five recommendations for regulatory relief during an energy briefing hosted by the Grand Junction Area Chamber of Commerce.

The study, titled “The Blueprint for Western Energy Prosperity,” was conducted by EIS Solutions, a firm that handles government affairs and public relations for companies involved in the energy industry. The findings were based on data analysis by ICF International, a consulting firm that provides services to the energy industry and a range of other sectors.

The study projects that by 2020, the West could produce 1.3 million barrels of domestic oil and condensate and 6.2 trillion cubic feet of natural gas a year, Fakharzadeh said.

At those levels, the region would produce more energy on a daily basis than total U.S. imports from Algeria, Colombia, Iraq, Kuwait, Nigeria, Russia, Saudi Arabia and Venezuela. Western energy resources offer the potential to bend the domestic oil supply curve upward, she said.

The recent discoveries of significant oil reserves in the Bakken and Three Fork-Sanish formations in North Dakota and Montana and the Niobrara formation in Colorado and Wyoming bolster projections, she said. The Bakken and Three Fork-Sanish formations could produce more than 650,000 barrels of oil a day by the year 2020. From the Niobrara, 286,000 barrels of oil and condensate could be produced by 2020.

The discoveries of new natural gas reserves and technological advances in exploration and production have turned what once was thought to be a 57-year supply of natural gas in the United States to a more than 120-year supply. Colorado, Utah and Wyoming are expected to lead the way in increased production, Fakharzadeh said.

Natural gas offers a “trifecta” of sorts, she added, as an abundant, affordable and clean source of energy, she said. Natural gas offers a fuel for power plants as well as cars.

“It’s a very, very valuable fuel source for the future,” she added.

Fully developing energy resources in the West could not only help meet demand while reducing dependence on foreign sources, but also could bolster the economy with increases in capital investment, jobs and tax revenues, Fakharzadeh said.

By one estimate, capital investment in the energy sector in the region would increase to $58 billion in 2020 — more than double the 2010 level of $28 billion.

The number of direct, indirect and induced jobs related to the energy sector similarly would increase from 434,373 in 2010 to more than 504,120 in 2020 — a gain of 16 percent. Colorado payrolls related to the energy industry are projected to grow 26,000 over that span, she said.

Increased energy production — and along with it increased capital investment and jobs — would increase government tax revenues. In the six main energy producing states in the West, total severance tax revenues would more than double from $2.1 billion in 2010 to $5.5 billion in 2020. In Colorado, severance tax revenues are projected to grow from $264 million to $592 million over the next decade, Fakharzadeh said.

While the West offers the potential to increase domestic energy supplies and bolster the economy, government regulations and policies could hinder that potential, Fakharzadeh said.

Given that most energy resources in the West are located on public lands, federal policies and regulations affect the drilling permit process as well as exploration and production activities, she said. What’s more, though, producers also face state and even local regulations. “There’s so many redundancies.”

The Western Energy Alliance has developed five recommendations for regulatory relief that would allow for the full production of energy resources, Fakharzadeh said.

The first recommendation calls for a moratorium on new and additional layers of federal regulation, including efforts to impose federal restrictions on hydraulic fracturing techniques.

The association also has called for a comprehensive overall of the federal onshore processing, including leasing, project environmental analysis and permitting.

Fakharzadeh said there are instances in which regulations have the potential to actually hurt the environment because they discourage good resource management.

The Western Energy Alliance also recommends limits to litigation that unreasonably obstruct energy development in the West. The group calls for a review of the effects of lawsuits on oil and natural gas production; the establishment of fiduciary responsibility, standing requirements and new administrative participation requirements for plaintiffs; and legislation to limit the ability of environmental groups to stop or delay energy development. Moreover, the government should stop reimbursing groups for pursuing lawsuits.

Fourth, the association recommends changes to renewable energy portfolio standards to allow for fuel-neutral performance criteria. The changes would allow the use of natural gas to generate electricity on the basis of cost and emissions. Fakharzadeh said 42 states have implemented standards requiring that a portion of electricity come from renewable energy sources even if those sources are more costly, yet are similar to natural gas in terms of low emissions.

And finally, the association supports market-based policies that would allow natural gas to compete as a transportation fuel.

Fakharzadeh described the use of natural gas in cars and trucks as something of a “chicken and egg concept” because the fueling stations needed to encourage the use of such vehicles won’t be built until demand increases. At the same time, though, people are reluctant to switch to natural gas vehicles until more fueling stations are available. Nonetheless, the prevalence of fueling stations and natural gas vehicles is increasing, she said, citing the opening of a station in Grand Junction.

Government policies could help by offering incentives for installing refueling stations and converting vehicles to natural gas. At the least, policies should not favor one transportation fuel over another.

Founded in 1974 as the Independent Petroleum Association of Mountain States, the Western Energy Alliance represents mostly small companies with less than 12 employees, Fakharzadeh said. So advocacy efforts to help them deal with regulation are important, she said. “It’s a big battle and we’re out there every day.”