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Texas Regulator Pushes Crude Limits Amid Legal Questions

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A vote by Texas regulators to limit crude production -- contingent on the participation of other states and nations -- is the sort of formality that may get the Opec-plus alliance to negotiate reductions beyond its deal reached over Easter weekend, said a member of the Texas Railroad Commission (RRC) pushing for the change. But whether it would be legal is another issue altogether. Commissioner Ryan Sitton was the sole member of the panel’s three elected officials eager for a vote on Tuesday, and he came prepared with a plan: reduce Texas production by 20% beginning Jun. 1, provided oil-producing states in the US and elsewhere pony up 4 million barrels per day in similar reductions. Chairman Wayne Christian was reticent, having pulled together a task force to study the issues on both sides of the prorationing debate. But Commissioner Christi Craddick, the only attorney on the dais, had questions regarding the legal side of the debate that she wants answered. Otherwise, she said, a protracted court battle doesn’t help the state, the industry or those losing their jobs in the oil patch. “We need to make sure that we have the legal grounds,” she said. “If we do something right now that isn’t legal, then it shouldn’t be done.” While he said he appreciated the chairman’s desire to consider the positions from all sides, Sitton added urgency to the meeting. “Let’s be clear, taking weeks, even days, right now to act is in itself a choice,” he said. “I’m ready for us to vote on prorationing.” To be sure, it would be a choice -- but perhaps one that violates federal law, according to US Energy Secretary Dan Brouillette. “The antitrust rules are pretty clear. Cartel type activity in the United States -- collusive activity with the intent of affecting the price of a product -- that’s clearly illegal,” he said in an interview Tuesday afternoon (related). “We’re not going to engage in that sort of conversation.” The potential action by the Texas agency is perhaps an example of an instance in which state law allows individual action to limit production within its geographic borders, he noted. “If the Railroad Commission chooses to [prorate], they’re free to do so,” Brouillette said, noting the Interstate Oil and Gas Company Commission is composed of producing states that discuss energy issues. “Whether or not they can actually collude to set a price, that’s a pretty murky area. It’s not something that I think most Americans would like to see occur here in the United States.” Given that the matter was not an action item on Tuesday's agenda, a vote was unlikely. But Sitton pledged to file a motion to remedy that by the time the commission reconvenes on May 5. Sitton took up the mantle of reviving the agency’s 100-year-old authority to prorate oil production at the behest of Pioneer Natural Resources and Parsley Energy, two Permian Basin independents. The commission says it is a matter of waste; Pioneer CEO Scott Sheffield says it’s a matter of industry survival. In a market oversupplied by as much as 30 million b/d, the Opec-plus agreement to take 9.7 million b/d off the market simply is not enough to bring stability to the market until demand from places like China rebounds, Sitton said. Using a Jun. 1 start date, Sitton said an affirmative vote on May 5 gives 25 days of runway for others to get on board “knowing that Texas has chipped in 1 million [b/d].” During an interview with CNBC after his plan was shot down, Sitton said the oil ministers in Canada and Russia are supportive of his plan. “Any discussion of additional action by Opec would likely be dependent on whether or not Texas is able to make something formal happen,” Sitton quoted the Russian oil minister as saying on Monday. “I think there is a lot of momentum, and it is incumbent on us to act.” Deon Daugherty, Houston, and Emily Meredith, Washington

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