.The Texas Energy Report

By Alex Mills

The oil and gas industry experienced unusual volatility in 2023 as production in the U.S. exceeded all expectations while facing many challenges.

Oil production reached a record high of 13.2 million barrels per day (b/d) in December, which is the most production by any country ever.

Even though oil prices remained fairly constant (beginning the year at $74 per barrel, rising to a high of $93 in September, and dropping again to $71 in December), the industry fought through many negatives.

On the international scene, war and military conflicts in Europe and the Middle East created uncertain situations, inflation in the U.S. and in Europe hampered demand, implementation of more anti-oil programs globally, and lack of capital to invest in future development.

Most U.S. oil companies experienced declines in their stock prices last year.

The two largest…
 

By Alex Mills

The Organization of Petroleum Exporting Countries – better known as OPEC – has become the major source of crude oil exports worldwide. During the pandemic, it took in several additional countries, including Russia and it became known as OPEC+.

The 22 countries of OPEC+ provided 27% of the world’s crude oil with Saudi Arabia and Russia leading the other nations with production totals of roughly 10 million barrels per day (b/d) each.

As time passed and worldwide demand changed, OPEC+ reduced its production quotas in an effort reduce the amount of oil on the market. Saudi Arabia’s currently produces 9 million b/d. Russia’s current production is more difficult to determine because of sanctions placed on it by the U.S. and other countries after Russia invaded Ukraine two years ago, but it is estimated to be about 8 million b/d.

Global inflation and slow economic growth resulted in less demand for oil from these countries in recent years.

At the same time, oil production in the U.S. increased to a high of 13 million b/d by the end of 2023.

An oversupply of oil caused a weakening of price. Brent crude, which is traded on the international market, dropped as did West Texas Intermediate, which is traded on the New York Mercantile Exchange, below $60 per barrel.

OPEC+ has reduced production quotas five times since October 2022 in an effort to stop the decline.

Brent crude oil closed at…
 

On average, U.S. electricity customers experienced approximately five and one-half hours of electricity interruptions in 2022, almost two hours less than in 2021, according to our recently released Annual Electric Power Industry Report. The annual decline was driven by fewer major events in 2022 compared with 2021.

Since 2013, the average duration of electricity interruptions each year has remained consistently around two hours after excluding major events. Major events that cause power interruptions include weather, interference from vegetation near power lines, and utility practices. We measure U.S. electric utility reliability using two indexes:

• The System Average Interruption Duration Index (SAIDI) measures the total duration (in hours) an average customer experiences non-momentary power interruptions in a one-year period.
• The System Average Interruption Frequency Index (SAIFI) measures the frequency of interruptions in number of occurrences.

We measure the impact these major events have on electricity reliability by comparing the SAIDI and SAIFI values of the affected states with the U.S. average (5.6 hours of outages and 1.4 outages per customer). In 2022, the United States had 18 weather-related disasters…
 

January 23, 2024 — In an ironic twist, a treasure trove of critical minerals is dumped out with water considered too polluted and expensive to clean.

Texas A&M University researcher Dr. Hamidreza Samouei is investigating the components of produced water and says this waste byproduct of oil and gas operations contains nearly every element in the periodic table, including those of significant interest to national economies.

His goal is to treat the water using unwanted carbon dioxide (CO₂) in stages to recover these valuable elements and ultimately produce fresh water for agricultural use once the processes are complete.

“Recognizing the latent value within produced water can offer tangible solutions to some of the world’s most pressing environmental challenges, from CO₂ emissions to the increasing scarcity of certain minerals and water itself,” said Samouei, a research assistant professor in the Harold Vance Department of Petroleum Engineering.

Samouei’s “brine mining” research was featured in a January 2024 article in the Society of Petroleum Engineers’ Journal of Petroleum Technology titled “Liquid Goldmine: unlocking the Critical Mineral Potential of Produced Water using Carbon Dioxide.” He introduced the topic at the Middle East Water Week Conference and Exhibition held December 2023 in Saudi Arabia and will report his most recent discoveries at the Annual Produced Water Society Conference next month in Houston.

Why Is Produced Water Thrown Away?

Water accumulates in subsurface areas where geological functions happen, like hydrocarbon reservoirs, and it dissolves and stores vast quantities of minerals and other elements. During oil and gas operations, an average of six 42-gallon barrels of this “produced” water are recovered for every one barrel of oil, and in rare cases, up to a staggering ratio of 500 to 1. It is up to 10 times saltier than seawater and contains about 6,000 times more minerals.

In 2020, the annual global quantity of produced water….
 

By Alex Mills

Apparently the changes to the electric power grid in Texas following the massive winter storm in 2021 have been successful in avoiding any power failure during the recent five-day storm.

The Texas Legislature and Governor Abbott passed legislation mandating the weatherization of natural gas facilities and securing additional natural gas inventories for emergency use, if needed.

The storm reached the Panhandle and North Texas during Friday, Jan. 12, and temperatures plunged below freezing. The sub-freezing temperatures stayed for more than 80 hours in many locations until Wednesday afternoon. In North Texas the low temperature of 7 degrees was a record.

The cold weather put the revisions to the electricity grid to its first major winter test.

The Electric Reliability Council of Texas (ERCOT) had predicted record-breaking demand of 79,000 megawatts (MW) during the storm. Demand peaked on Jan. 16 at 8 a.m. at 78,173 MW, and it came  close to reaching its committed capacity of 85,088 MW.

Natural gas was the major source of energy to generate the electricity providing 58% (44,622 MW) at 8 a.m. Jan. 16 followed by coal at 15% (11,855 MW), wind at 11% (8,491MW), solar 9% (7,185 MW), and nuclear 7% (5,125 MW), according to ERCOT.

ERCOT issued requests to consumers to conserve as much as possible from 6 a.m. to 9 a.m. on Jan. 15 and 16 when demand was at its highest. For example, on Jan. 16 early morning demand was 72,105 MW and peaked at 78,173 MW at 8 a.m. and fell to 71,121 MW by noon. By noon on Jan. 17, temperatures…
 

In our January Short-Term Energy Outlook (STEO), we expect average U.S. retail gasoline prices to decrease in 2024 because of increased inventories related to increased refinery capacity. In 2025, we expect slightly reduced gasoline consumption to further decrease prices. We expect similar supply-side factors to lower retail diesel prices in 2024 and 2025, although U.S. diesel consumption will likely exceed 2023 in both 2024 and 2025.

We expect crude oil prices in 2024 to be similar to those in 2023. As a result, our lower gasoline and diesel price outlooks next year reflect narrowing crack spreads, the difference between the wholesale prices of gasoline and diesel compared with crude oil. Crack spreads reflect the price of refining, and a lower crack spread indicates lower refining cost. Our lower forecast crack spread for gasoline is driven by our expectation of increasing availability of supply even as consumption is reduced.

In 2023, additional refinery capacity came online, raising U.S. operable refinery capacity from 18.06 million barrels per day (b/d) in January 2023 to 18.31 million…
 

January 10, 2024 — ERCOT has issued a Weather Watch from January 15-17 due to forecasted extreme cold weather across the ERCOT region, higher electrical demand, and the potential for lower reserves. Grid conditions are expected to be normal during an ERCOT Weather Watch.

ERCOT continues to monitor conditions closely and will deploy all available tools to manage the grid, continuing a reliability-first approach to operations. 

In 2023, January peak demand was 65,632 MW, with the current all-time peak demand record of 85,508 MW, set on August 10, 2023.

ERCOT encourages everyone to sign up for grid condition notifications through the Texas Advisory and Notification System (TXANS). Texans can also monitor real-time and extended grid conditions at ercot.com.

What is an ERCOT Weather Watch?
An ERCOT Weather Watch is an advance notification of forecasted significant weather with higher electrical demand and the potential for lower reserves. At this time, grid conditions are expected to be normal, and there is not a current expectation of an energy emergency. Texans should continue to monitor real-time and extended grid conditions at ercot.com.  

What Action is Needed?
No action is needed. You can monitor current and extended grid conditions on ercot.com.

Did You Know?
Reducing electric use during peak demand times can help you save and lower demand on the grid. Energy-saving tips can be found on the TXANS webpage. 

Stay Updated
Sign up for TXANS notifications on the TXANS webpage. You can also subscribe to ERCOT Emergency Alerts, which are not sent through TXANS notifications, and download the ERCOT Mobile App for additional notifications: iOS | Android.

By Alex Mills

January 6, 2024 — As oil and natural gas production in the U.S. are on pace to set records in 2023, industry analysts are pointing out the industry overcame some large obstacles making the achievement even more noteworthy.

Crude oil production will break the previous record set in 2019 of 12.3 million barrels per day. Oil production has been increasing monthly this year and topped 13.6 million b/d in October and will average about 13.2 for the entire year.

Natural gas also is on pace to set a production record exceeding 41 billion cubic feet per day (bcf/d), which would break the previous record of 39.1 bcf/d set last year.

World Oil magazine Editor-in-Chief Kurt Abraham recently pointed out some of the problems and inconsistencies the industry overcame.

The U.S. drilling rig count, which for many years has been considered a key factor in determining industry activity, declined in 2023. “…(T)he U.S. rig count has…
 

By Alex Mills

January 1, 2024 — Texans are blessed. It’s true.

The Good Lord has blessed us in many ways, especially with an abundance of natural resources. The same could be said about the United States, and the people who develop these resources into energy products that we consume around the clock every single day.

I have had the good fortune of writing this column since 2006, and working for energy associations in Texas and Washington, D.C. since 1980. I am constantly amazed at the drive and ingenuity of the wildcatters who explore and produce crude oil and natural gas, the pipeliners who transport the products, the refiners who make the petroleum products, and the retailers who sell to the public.

It’s not easy. It’s complicated from beginning to end with potholes and roadblocks at every turn.

During this year I wrote columns about production increasing in Texas and across the U.S., prices rising and falling and rising again, efforts by the President of the U.S.A. to put the oil and gas industry out of business, OPEC attempts to manipulate oil production and price, an international conference on climate change concludes proclaiming its desire to “transition” …
 

By Alex Mills

Last week had many big stories. Below is a summary of some.

Petroleum prices decline. Record oil and natural gas production in Texas and across the U.S. have created an oversupply causing prices to drop. West Texas Intermediate (WTI) crude oil prices traded on the New York Mercantile Exchange slipped below $70 on Wednesday and natural gas prices dropped to $2.55 per British thermal unit (Btu). The decline in prices in the oil patch is being felt by consumers as retail prices for gasoline went as low as $2.45 a gallon in many locations across Texas.

The Energy Information Administration (EIA) at the Department of Energy predicts Brent crude oil, which is traded on the international market in London, will drop from its previous forecast of $93 per barrel to average $83 in 2024. EIA forecasts natural gas will average $2.80 per Btu from November to March (the major consumption period) because of the high production rate and warmer weather.

EIA believes crude oil and natural gas production will set records in 2023 and again in 2024.

Capital expenditures expected to increase. U.S. oil producers will increase capital spending by 2% in 2024, according to…
 

December 19, 2023 — Texans responding to a UT poll disapprove overall of the job the state legislature did in ensuring the reliability of the ERCOT grid (among other issues), but the results unsurprisingly vary along ideological and partisan lines.

The Texas Politics Project at the University of Texas at Austin poll released Tuesday indicates that 44% of Texans “disapprove somewhat” or “disapprove strongly” of how the legislature handled grid issues this year, versus only 28% who approve either somewhat or strongly. Surprisingly, a full 20% neither approve nor disapprove, with 8% saying they “don’t know,” indicating more than one quarter of respondents to the poll didn’t register even a mild opinion.

However, in a “religiosity” subset of the poll, those to whom the legislature’s moves were “extremely important” registered a 38% approval as opposed to a 29% disapproval, while those identifying the issue as “not important at all” were overwhelmingly disapproving (71% disapproved while only 8% approved).

Along party lines, 39% of self-identifying Republicans…
 

December 17, 2023 — Cyber Enviro-Tech, Inc has developed a water remediation system that could help reduce the increased seismic activity in the Permian Basin by treating and repurposing oil production wastewater.  The current practice of deep underground injection of corrosive, high-sodium wastewater from oil production has not only exponentially increased fluid pressure, but also created salty contaminants, trapped gases and bacteria. All of these triggered earthquakes by decreasing the tight fit or clamping between rocks along natural faults through corrosion and extreme pressure. The Railroad Commission of Texas (RRC) has suspended more than 30 wastewater disposal sites aka SWDs (Salt Water Disposal wells) north of Odessa to Midland due to this surge in seismic activity.

Cyber Enviro-Tech’s solution is simple – remediate the wastewater instead of injecting it deep underground so it can be repurposed back into the communities. CETI uses its Sludge Master Series of products which employ a variety of cutting-edge, multidisciplined technologies to efficiently convert wastewater into environmentally friendly water that can be used for irrigation and, with further remediation, drinking water. Their Sludge Master Series wastewater remediation systems are portable, eliminating the need for expensive infrastructure and allowing for easy deployment.

The size of this problem is considerable.  In 2021, Rystad Energy reported a 400% increase in wastewater injections in Texas from 54 billion gallons in 2011 to 217 billion gallons in 2021. During this period, the US Geological Survey and the University of Texas reported that earthquakes in the Permian Basin were partially caused by the practice of disposing high-pressure saltwater…
 

A new Customs and Border Patrol (CBP) decision will make compliance with the Jones Act even more onerous for natural gas producers.

The Jones Act, a law that is over 100 years old, requires all ships used to move goods from one US port to another be US-owned, -built, -crewed, and -registered. This makes it impractical to ship goods from one US port to another because the amount of ships that meet these requirements is incredibly limited. Just 93 vessels worldwide were Jones Act compliant in January 2023, according to Statista. These problems are compounded for Hawaii, Alaska, and Puerto Rico because of their geography (e.g. distance, accessibility).

The law causes particular problems for the transportation of Liquefied Natural Gas (LNG). There is currently not a single LNG tanker that meets Jones act requirements. There are some smaller vessels in compliance, including barges, but nothing that can move LNG at scale. This means that US terminals…
 

By Railroad Commissioner Wayne Christian

Christmas came early for radical environmentalists at the end of the United Nations’ climate conference (COP 28). These anti-humanists got their wish of a UN pledge to end fossil fuels.

More than 190 governments feverously approved an agreement telling the world and global economy to start limiting use of coal, oil, and natural gas. This will certainly have an impact for producers who will see more bureaucratic red tape and increasing limits to an already drought-ridden financial capital market.

I’d love to put some coal in their stockings this Christmas. This pledge isn’t worth the paper it’s printed on—it denies reality.

It denies the fact fossil fuels power 80% of world energy. Are we going to replace that with wind and solar power? The U.S. has spent more than $15 billion on unreliable energy subsidies for them to…
 

December 14, 2023 — Hydrogen will soon become a vital component in the expansion of the energy industry in Texas, providing greater energy production and further boost the economy with job creation. After House Bill 2847 was passed by the 88th Legislature, The Texas Hydrogen Production Policy Council, (TxH2 Council) was established within the Railroad Commission and clarifies the agency’s regulatory jurisdiction over hydrogen pipelines and underground storage facilities.

The Council is tasked with making recommendations to the Legislature on updates necessary for the oversight and regulation of production, pipeline transportation, and storage of hydrogen. Duties of the Council will include developing a state plan for hydrogen production oversight by the RRC, analyzing the development of hydrogen industries around the state, and monitoring regional efforts for the application and development of a clean hydrogen hub authorized under the federal Infrastructure Investment and Jobs Act.

Pursuant to the bill, the chair of the Council is Chairman Craddick of the Commission, and RRC appointed 11 additional members…
 

December 11, 2023 — As expected, Occidental Petroleum on Monday said it will acquire CrownRock for $12 billion, adding an additional 170,000 barrels of oil equivalent per day to Oxy’s production….
 

By Railroad Commission of Texas Commissioner Wayne Christian

December 4, 2023 — Texas made headlines this weekend after the State Board of Education (SBOE) rejected efforts to villainize oil and gas in textbooks used by our public schools.

In the Lone Star State, education and fossil fuels have a symbiotic relationship. Here, 99% of the state’s oil and gas royalties are deposited in the Permanent School Fund and Permanent University Fund—meaning in 2021 alone, hydrocarbons contributed $2 billion towards educating the next generation of Texans. In return, the oil and gas industry gets an educated workforce.

Some basic facts. In Texas, our oil and gas industry employs about 350,000 workers at an average salary of $139,000—103% higher than other private sector jobs. Many of these jobs are trade labor, where skills can be acquired at a technical college, with lower tuition and easier admissions. At a time of record student loan debt and a stagnant economy, these are the kinds of jobs that the American economy needs, and it’s how you build a strong middle class.

It was with this in mind, that as an energy policymaker and regulator for Texas’ oil and natural gas industry, I felt compelled to weigh in on the…
 

Update: Add Cantium to the list of companies that have shut in production

November 25, 2023 — Although rough Gulf of Mexico waters have disspated most of the crude and therefore most of the threat, officials continue searching for the source of an oil spill that caused at least five companies to shut in production since last week.

No impact on coastlines has been observed, and OSHA, which is investigating along with the Coast Guard, hasn’t confirmed the amount spilled.

NOAA spokeswoman Brandi Todd said Friday only “very, very small sections of very, very light water sheen” have been observed about 50 miles south of the Louisiana coast during most recent aerial and satellite surveys.

The spill is estimated…
 

November 20, 2023 — A University of Houston engineering research team is pioneering a new method, based on percussion, to detect pipeline elbow erosion.  

It is no small problem.  

Below the surface of the earth, a veritable superhighway of piping carries corrosive liquids and transports elements like carbon dioxide, hydrogen, methanol and others for a variety of industrial needs from oil well cementing to chemical mining. And at each turn, a pipeline elbow is affixed to shepherd the flow in new directions.

Research reveals that due to erosion, the mass loss of the pipeline elbow is around 50 times larger than that of the straight pipe and the wall thickness of the pipeline elbow becomes thinner through continuous operation. This may lead to bursting or piercing of the pipeline elbow, resulting in economic losses, environmental pollution and other safety issues. 

Since the 90-degree pipeline elbows are prone to erosion caused by the transported medium, detection of pipeline elbow erosion is critical to the health of the pipeline system. Currently, most of the detection…