In late June, the US House of Representatives passed HR 2454 — the long-awaited climate legislation that is expected to prevent the Earth’s climate from changing for the first time in 4 billion years. Also known as the Waxman- Markey bill (named for its authors), HR 2454 was passed by roll call vote on June 26 (219 Ayes, 212 Nays, 3 Present/Not voting). The Senate version, S. 1399, is currently being prepared for debate and could reach a vote possibly as early as September.

While this legislative behemoth encompasses all things “energy,” it promises, among other things, a glut of green jobs, clean air for generations to come, renewed national security of energy supply and, last but not least, a renewable energy future relying on “clean” forms of energy.

It’s a dream. Apparently wind and solar are in; fossil fuel staples such as coal, oil, and natural gas appear to be “old hat” and out of sync with the new generation (it’s never good to forget where you’ve come from).

As for the upstream sector, the bill accuses the oil industry of providing about 35% of the greenhouse gas emissions in the US. While the cap-and-trade allowances provided by the bill would be given out free to many industries, the oil industry will only receive 2% of available credits. This possibly explains why several organizations such as Greenpeace and Friends of the Earth have officially opposed the bill (they would rather NO credits be issued to fossil fuel intensive industries). Saving whales doesn’t require fossil fuel.

While oil and gas E&P players will not be extremely hindered by carbon emission legislation, the refining business will wake to a new reality, receiving only 5% to 10% of their needed allowances. The climate legislation currently proposed covers a broad expanse of industries but seems to have paid special attention to the fossil fuels sector. It’s true, emissions do occur. Exploration, production, and refining or mining operations are driven by overall energy demand. It seems the legislations tack is to tax some demand out of existence. Does this exude “progress”?

The American Petroleum Institute (API) reported in August that Q2 2009 drilling activity had fallen nearly 50% from the previous year. According to API, an estimated 8,038 oil wells, natural gas wells, and dry holes were completed in the second quarter (46% below 2008). These levels had not been seen since 2003-2004. More specifically, the number of exploration wells drilled dropped 63% from 2008 to 336, with development wells dropping 46% to 6,761.

The report noted that natural gas continues to be a primary target for domestic drillers, with an estimated 4,225 natural gas wells completed in Q2 2009 (down 43% from 2008). Oil well completions continued to subside, with a total estimated decline of 53% from 2008. With new tax-laden legislation on the horizon, these numbers may continue to plummet. Climate change legislation promises to create jobs within the (burgeoning and untested) renewable energy sector, but at what cost to other better defined (oil and gas) sectors of US industry?

On the international scene, this could be a boon as imports rise while domestic production declines. However, it seems the debate has been muddied by an unclear distinction between what is needed versus what is possible.

Within the oil and gas industry, no one argues for a tainted environment. Conservation is on everyone’s mind. Through technology and innovation, the oil and gas industry has increased its reach for resources as it has labored to decrease the footprint it leaves behind in the process.

Efficiency breeds conservation. To believe that stringent tax regimes and legislative restraints can fix the problem is shortsighted and definitely not taken from history.
Why do they call it common sense when it’s so damned uncommon?