American Oil and Gas Reporter - August 2015 - 155

U.S. Department of Transportation.
W. Jonathan Airey, a partner with attorneys Vorys, Sater, Seymour and Pease
LLP in Columbus, Oh., who chairs IPAA's
Law Committee and sits on the Natural
Gas Committee, said DOT was expected
to proffer new definitions of production facilities, and natural gas gathering subject
to regulation by the Pipeline and Hazardous Materials Safety Administration.
"DOT has been incredibly effective at
keeping its plans close to the vest and not
engaging with industry for any discussion,
but none of the rumor mill is positive,"
Airey remarked. "It sounds like a real effort to dramatically extend the level of reg-

ulation over gathering systems."
Susan Ginsberg, staff liaison to the Natural Gas Committee and IPAA's vice president of crude oil and natural gas regulatory affairs, said DOT's concern was
driven largely by the rapid build-out of
gathering to keep pace with burgeoning
shale gas production. A lot of this infrastructure entails larger diameters and
higher pressures than have been associated historically with gas gathering, she said.
Airey commented there were gathering
lines 12-36 inches in diameter operating
at 1,400 psi in suburban Fort Worth because of the Barnett Shale.
Add to that some high-profile pipeline

accidents, and Ginsberg said Congress was
pressuring DOT for action.
Airey noted the current regulatory
structure was based on American Petroleum Institute Recommended Practice 80,
which was developed in 2001 with input
from IPAA and other organizations.
Ginsberg characterized RP 80 as "well
crafted and strong. Probably its main
problem is that it was never updated."
She said IPAA would attempt to convince DOT to retain RP 80 as the basis for
any new regulation, rather than starting
from scratch. "We don't want to throw this
out; we want to build on it," Ginsberg
averred.
❒

Shale Oil Transforming World Markets

SANTA FE. N.M.-The U.S. shale
revolution has been credited with a lot of
things. Jamie Webster wants to add one
more: making possible for practically the
first time in history a truly free market for
oil worldwide.
In a keynote address to the Independent Petroleum Association of America's
midyear meeting, June 24-26 in Santa Fe,
IHS Energy's senior director for crude oil
markets told the assembled independent oil
producers, "You have shifted the oil industry profoundly in a way people are still going to be grasping several years from now.
This is the sort of change that comes only
once a generation, or less."
Thanks to U.S. independents and today's drilling and completion technology,
the world no longer needs an arbiter of
crude oil production, Webster suggested.
He pointed out, "In 2014, U.S. oil production grew by the most any country has
grown in the history of oil. We brought the
equivalent of Iraq onto the oil market."
Of course, decline rates meant the
United States also lost the equivalent of
Venezuela's oil production, Webster
quickly added. Still, he said, U.S. production last year grew a net 1.3 million-1.4
million barrels a day.
That prompted the Organization of Petroleum Exporting Countries to do something "uncharacteristically American" at its
Nov. 27 meeting, Webster posited. "It decided to just let the market go where it
would, and (OPEC) was going to continue
to produce at the sort of levels it had before.
"This is a big shift," Webster insisted.
"In my mind, it is a positive thing."

Controlling Volatility
What isn't always recognized, Webster
posed, is that for the past 40 years, OPEC
has held a role previously occupied by the
Texas Railroad Commission. "In the his-

tory of the oil market," he explained, "you
always had the problem that projects took
a long time to bring on. Capital expenditure was quite high, but once (begun), operating expenditures were quite low. We
always had to have an entity that could
help balance the market."
To illustrate his point, Webster observed that 18 months before Edwin
Drake drilled his famous Pennsylvania
well, oil sold for $2,500 a barrel, in today's
dollars.
Drake, Webster laughed, "had to sell his
first barrel for only $680 because, of
course, his well doubled the country's oil
production. After that, it being America,
everybody rolled into the Pennsylvania oil
fields and in 18 months the price was down
to $3 a barrel, until everybody left and it
went back to $75 or $80."
That sort of volatility is bad for producers and consumers, Webster held. Consequently, he said, "It is the sort of environment where you have to have an artificial
balancer of the market."
But thanks to U.S. independents and
shale oil, that may no longer be true, Webster went on. "The reason is, you can make
a decision and bring a well on in a few

months," he said, contrasting that with the
years-long lead times of deepwater projects.
"This is changing the market quite dramatically, and is still being understood,"
Webster remarked.
Meanwhile, he observed, U.S. producers are becoming much more efficient.
Thanks to high-grading and lower costs,
he said, "The amount of production you
can bring on line this year for $1.00
would have cost you as much as $1.60 last
year."
Webster surmised that OPEC believed
its decision last year not to defend crude
oil prices would cause U.S. production "to
completely fall apart." But instead, he predicted, "You won't be the marginal producer; you actually can join the ranks of
low-cost producers-maybe not quite as low
as Saudi Arabia-but you can bring on and
take off production very quickly, relatively speaking, and at very low prices.
"I think the U.S. production boom is
here to stay," Webster concluded. "I don't
see this going away, even if prices drop to
$20 or $30. You can restart so quickly.
That is something that really has changed
the market."
r

IPAA Chairman Michael Watford
(left), chairman, president and
chief executive officer of Ultra Petroleum, talks with keynote speaker Jamie Webster, senior director
for crude oil markets at IHS Energy, during the June 26 general
session at IPAA's midyear meeting
in Santa Fe, N.M.

AUGUST 2015 155

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