Petroleum

Today's Wall Street Journal featured a front page story highlighting that US crude oil production grew by 14% last year. The finding came from an annual compilation of industry trend lines that is published by BP  called the Statistical Review of World Energy, which noted that the increase was the largest in the world and the largest in US history. Rising domestic crude oil production, according to the report, was largely tied to increased use of hydraulic fracturing that has led to rapid growth in shale production in North Dakota and Texas.

A new proposal, HB 2615, endorsed by both industry and environmental groups has received bipartisan support in the Illinois State House which may lay the groundwork for a regulatory path forward on the often controversial issue of hydraulic fracturing. According to news reports, the filed bill - titled the "Hydraulic Fracturing Regulatory Act" - would require oil and natural gas operators to test water in all phases of drilling, require chemical disclosure of fracking solutions, address air pollution concerns, and hold companies liable for water contamination found after drilling operations.

On Tuesday, the Energy Information Administration (EIA) announced that crude oil production in the U.S. reached a 15-year high with nearly 6.5 million barrels per day in September. The boom was attributed to the use of hydraulic fracturing and horizontal drilling techniques which yielded a 16 percent increase, or an extra 900,000 barrels per day, from September 2011 levels.

A report released last week by the Energy Information Administration (EIA) found that U.S. distillate fuel exports hit a record high in April, with 981,000 barrels per day being shipped overseas. That same government report estimated that foreign distillate imports fell to their lowest level since 1985.

According to the state Industrial Commission, North Dakota recently passed Alaska to become the second largest oil producer in the country. In March, North Dakota's oil wells produced 17.8 million barrels or 575,490 barrels per day - providing roughly 9% of overall US production. The advancements in horizontal drilling and hydraulic fracturing have catapulted the state from a minor producer to a major player in the oil boom across the country, with production more than doubling since 2009.

A number of factors make the world of refining complicated and complex. The article supplies basic information on how refineries operate, where they are located, and the general economic, regulatory, and policy challenges facing the industry.
 

Delta Airlines announced yesterday that it reached agreement with ConocoPhillips to purchase its troubled Trainer refinery for $150 million, preventing the removal of 185,000 barrels per day of refining capacity from leaving fuel markets in the Northeast. The facility had been idled since last year because of difficult financial head winds facing East Coast refiners because of declining domestic fuel demand and they are more heavily reliant on expensive foreign crude oil than its competitors in the South and Midwest. Delta will become the first US airline to own a refinery, which it believes will help them hedge against rising jet fuel prices.

Consumers may be in for more bad news on the dreary march to $4 a gallon gasoline as the largest refinery on the East Coast is expected to close this Summer - eliminating nearly 25 percent of the region's gasoline refining capacity. The closure of the Sunoco refinery is due in large part to high oil prices and decreasing domestic fuel demand, leading to substantial economic losses. Unfortunately, the trend may continue in the region as experts predict two other refineries are expected to close because of unsustainable financial impacts. If so, nearly half of the refining capacity on the East Coast will be gone with some economists predicting a 15 cents per gallon spike in New England because more imported gasoline will be needed to meet demand. 

North Dakota has now officially become the third largest oil producer in the country, due in large part to the increasing use of hydraulic fracturing. The state moved past California, according to data from the North Dakota Industrial Commission, and is now behind Texas and Alaska in overall production numbers. 

States have a significant role to play in regulating the safety of the nation's enormous pipeline network. Policymakers at the state level should be aware that additional federal scrutiny of damage prevention programs is likely to increase from congressional directives and increasing safety expectations from the general public. 
 

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