Energy

 

• According to recent reliable statistics for carbon emissions, the United States (US) is currently the second-greatest yearly world carbon emitter, with about 14% (behind the Peoples’ Republic of China, way out front in first place with about 30%, but followed closely by India in third place with about 7%, and catching up fast, and Russia in fourth place, with about 3%), and within the US, vehicle emissions are the greatest source of carbon emissions, with (surprisingly) carbon emissions from buildings in second place; the good news is that US carbon emissions keep decreasing year by year, while the carbon emissions of less-developed countries (such as China, India, Russia and many African and Asian countries, keep increasing year by year).

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• Thus clearly, not only the US, but every country around the globe, must make concerted efforts not only to improve the efficiency of current energy sources, but also to explore new possibilities for energy production, transportation and use.

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• Energy sources may generally be grouped into three (3) categories: primary (they may take millions of years to reach maturity in the Earth’s crust through natural processes and so they are exhaustible – perhaps as soon as within the next 50 years, depending on the various sources opining on the probabilities – but they may produce much more energy per unit than secondary energy sources, and so they are more-efficient than secondary sources); secondary (they are virtually inexhaustible – renewable – because they produce energy through man-made processes, but currently they are less-efficient than primary energy sources because the energy they produce per unit is not comparable to the energy produced per unit from primary energy sources); and, tertiary (can produce energy from either primary or secondary energy sources).

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• Primary energy sources include: fossil fuels (such as for example: coal; natural gas; oil); nuclear; renewable (such as for example: biomass; geothermal; hydro; solar; tidal; wind).

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• Gas in its raw state (natural gas) is considered to be a primary energy source.

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• Synthetic gas (which results from production through man-made processes from coal– a primary energy source) is considered to be a secondary energy source.

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• How an energy source is classified may depend on the energy source from which it was generated; thus, if electricity is generated from primary energy sources (such as for example: fossil fuels – coal; natural gas; oil – nuclear, or renewables – biomass; geothermal; hydro; solar; tidal; wind), the resulting electricity generated would then be considered to be a secondary energy source; but if electricity is generated from secondary energy sources (such as for example: synthetic gas), the resulting electricity generated would then be considered to be a tertiary energy source.

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• The oil and gas industry is the oldest US energy industry, dating back to 1859, when Edwin L. Drake discovered rock oil in Titusville, Pennsylvania.

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• US law generally treats petroleum as a single commodity, whether a transaction may actually consist of crude oil, natural gas or some combination of them.

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• The oil and gas industry here in the US is generally referenced in three (3) categories, based on the activities being performed in each category, such as for example: upstream (for exploration and production); midstream (for processing, storage and transportation); and, downstream (for distribution, marketing and refining).

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• From a regulatory perspective, oil and natural gas are treated as individual commodities.

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• The price of oil produced and sold in the US is set by the conditions on the international market, whereas the price of gas produced in the US is generally set by the exigencies of supply and demand in the US.

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• The Natural Gas Act (NGA) regulates not only natural gas, but also liquefied natural gas (LNG), compressed natural gas and compressed gas liquids, but the US Army Corps of Engineers (ACE), Federal Energy Regulatory Commission (FERC) and the US Coast Guard (USCG) collectively have the responsibility for authorizing the siting and construction of offshore liquefied natural gas (LNG) export or import facilities, as well as issuing certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline, and preparing environmental assessments or environmental impact statements for LNG facilities; FERC will have oversight responsibility for such facilities for the entire lifecycle of the completed facilities.

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• The price of oil transportation is determined by an index created and managed by FERC, and futures contracts for oil are traded publicly on the New York Mercantile Exchange (NYMEX) and a few other exchanges.

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• The increased gas supply in the US due to hydraulic fracturing (a/k/a “fracking”) has brought down the average price of natural gas, which is the cleanest-burning of the fossil fuels.

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• State common law and statutes vest in a landowner (who has the surface rights – the surface estate) the primary right to extract anything under the surface and within the soil of the landowner’s property (the subsurface rights – the mineral estate); thus, the owner of the land holds both the surface estate and the mineral estate, until such time as such land owner may server those estates through a formal writing, such as a sale or lease of either estate; oddly, once this occurs, the holder of the subsurface rights is considered t hold the dominant estate, and generally has more legal rights that the holder of just the surface estate; however, Federal, state and local laws does regulate how a landowner may perform any extraction and transport any extracted materials from the subsurface estate; for example FERC, regulates interstate natural gas pipeline transportation, as well as the construction and abandonment of natural gas storage facilities; the DOT has the responsibility for administering safety regulations applicable to oil and gas pipelines.

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• Oil and gas rights may be transferred, whether temporarily or permanently, through a variety of legal documents, such as for example: concession; deed; joint operating agreement; lease; or license; such leases may have either a finite term of years, or until a specified event occurs (such as the discovery of oil or gas, plus subsequent development time).

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• Under the Submerged Lands Act (SLA) each coastal state owns the land extending 3 nautical miles from the shore at mean low tide (except for the coastline on the west coast of Florida, and all of the Texas coastline, which own the land out to 16 nautical miles), and has jurisdiction to decide whether or not, and under what terms, to lease the area for oil and gas; however, in 1983, a Presidential Proclamation extended Federal jurisdiction out to 200 nautical miles, for the US Exclusive Economic Zone.

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• The Bureau of Land Management (BLM) awards oil and gas development leases (generally for a term of up to 10 years) on Federal onshore lands, while the Bureau of Ocean Energy Management (BOEM) awards oil and gas development leases (generally for a term of up to 10 years) for the submerged Federal lands.

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• There are conflicting state legal doctrines covering the private ownership of extracted oil and gas: the rule of capture; and, the doctrine of correlative rights.

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• Under the rule of capture, the producer of oil or gas from a well the producer has constructed on someone else’s property under a deed or leased to the well owner is allowed to produce any oil or gas from such well; however, ownership of such oil or gas is not determined until it reaches the surface; whomever then takes control of such oil or gas is deemed to be the owner, even if some or all such oil or gas actually migrated underground to the well from a neighboring property; in such case, the neighboring owner is completely out of luck, and does not own any of the oil or gas coming to the surface from the well.

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• The doctrine of correlative rights may be a bit more equitable than the rule of capture; under the doctrine of correlative rights, the rights of all the owners of oil and gas that comes to the surface from the well in an immediate area are considered by restricting the number of wells in a given immediate area to the minimum number capable of a common source of supply (the reservoir); each owner of the oil or gas shares pro rata in the production from the wells permitted to be drilled in the reservoir.

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• The domestic system of natural gas pipelines is very similar to the domestic railroad system; natural gas shippers and suppliers may choose and plan transportation routes for their natural gas based on the availability and cost of any such pipeline or combination of pipelines from point of origin to point of distribution, and may even interconnect between pipelines systems from one pipeline system to another; state-regulated local distribution companies (LDCs) distribute the majority of natural gas to large-scale end users, and are generally either investor-owned utilities or public gas systems owned by local municipalities, co-operatives or other governmental bodies, but some large end users, such as for example commercial and industrial developments, and electric generation facilities, may receive natural gas directly from the interstate and intrastate pipelines.

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• Retail distribution of of natural gas is regulated by the states, through regulatory commissions that set availability and prices.

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• The Federal government also has such rights, but only for the land actually owned (such as the vast areas of the western US and Alaska, administered by the US Department of the Interior (DOI) or controlled by (such as offshore areas designated by the Federal government for potential mineral and wind development) by the Federal government.

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• The Federal government and state governments derive income not only by imposing excise taxes (taxes assessed on the sale or production of a good or service, or against a particular type of conduct – such as a tax on gas-guzzling vehicles) on whatever is extracted and transported, but also by imposing corporate taxes on the entities doing the extracting and transporting.

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• The Federal government may also derive income from auctioning the rights to explore for oil and gas on Federal lands and offshore areas, and then allowing the holders of such rights to develop processing facilities in areas with potential for high profitability.

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• Abandonment of gas facilities is regulated by the Federal government under the NGA (the facility owner must receive authorization to do so from the Federal government), as well as constructing new gas facilities that may transport gas in interstate commerce (the facility owner must file for a certificate of public convenience and necessity prior to commencing any construction).

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• Developers must receive prior state authorization to construct or abandon any oil pipeline within the state.

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• The Outer Continental Shelf Lands Act (OCSLA) regulates constructing or decommissioning of any oil or gas facility located within offshore areas controlled by the Federal government; if the facility is to be decommissioned (whether due to obsolescence or the expiration or termination of the lease governing the seabed upon which the facility was constructed), all vestiges of such facility must be completely removed by the developer, and the seabed must be restored to the condition in which it was prior to any construction.

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• The Energy Policy and Conservation Act (EPCA) (which established the US strategic petroleum reserve) regulates all cross-border (to Mexico and Canada) oil exports and imports.

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• The Interstate Commerce Act (ICA) designated oil pipelines as “common carriers”, meaning that the owners of such pipelines must grant all reasonable requests for access to such pipelines by third-parties, and must make space for the oil of such third parties, even if it means that such owners must decrease the flow of their own oil to make such space.

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