Developing a Louisiana Energy Policy

By

Charles V. CusimanoChairman, Louisiana Energy Policy Advisory Commission &

President, Energy Self-Service Oil CompanyMetairie, Louisiana

&

T. Michael French, P.E.Member, Louisiana Energy Policy Advisory Commission &

Director, Technology Assessment DivisionLouisiana Department of Natural Resources

Baton Rouge, Louisiana

Presented at

The 50TH Mineral Law Institute ConferenceApril 3, 2003

• 1901 – Oil discovered in Louisiana near Jennings by Howard Brothers Drilling

• More than 220,000 wells have been drilled in Louisiana to date.

• Fossil fuels became the energy of the future:– Lamps to be lit– Motors to be run

– Heat for homes

HISTORICAL PERSPECTIVE

• With the development and innovation of need for fossil fuel, we now have creation of use of energy.

• To safeguard lands and reduce industry’s environmental impact, the State legislated industry regulations.

HISTORICAL PERSPECTIVE (Cont.)

• 1908 – Louisiana Commission for the Conservation of Natural Resources– Created to address problems of

conservation.

• Act 127 of 1912 – Required drilling permits be filed, use

of surface casing and cement, and abandoned wells be plugged.

Regulatory Agencies & Acts

• 1916 – Office of Conservation– Created with primary statutory

responsibility for regulation and conservation of oil, gas, lignite and other natural resources.

Regulatory Agencies & Acts (cont.)

• Act 133 of 1924 – Made it illegal to pollute natural

waterways with salt water, oil and other substances.

– First recorded environmental action taken on oil industry by legislature.

– Louisiana became the first state to regulate the use of the environment.

Regulatory Agencies & Acts (cont.)

• 1936 – State Mineral Board– Created and charged with

leasing and administering state-owned land for development and production of minerals and liquid or gaseous hydrocarbons

Regulatory Agencies & Acts (cont.)

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7.0T

rilli

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fe

et

State 5.4 1.5 1.6 1.5 1.3 0.7 0.4 0.5 0.5 0.4 0.3 0.3 1.0

Fed. OCS 0.9 3.8 0.2 0.0

TX LA OK NM WY CO AL AK KS CA MI UTOther

s

Natural Gas Production Ranking

Source: DOE-Energy Information Administration

0

100

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600

700

Mill

ion

ba

rre

ls

Fed. OCS 525 35 31 1

State 105 424 351 261 69 68 57 33 31 20 17 16 72

LA TX AK CA OK NM WY KS ND MS CO MOOther

s

Crude Oil Production Ranking

Source: DOE-Energy Information Administration

• Increase supply

• Reduce Demand

TWO FUNDAMENTAL ELEMENTS OF ENERGY POLICY:

• Increase supply or access to existing energy sources

• Develop and encourage use of alternative energy sources

INCREASE SUPPLY

• Develop and encourage energy efficiency and conservation

• Diversify economy to be less energy dependent

REDUCE DEMAND

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6001900

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1980

1990

2000

2010

2020

2030

Mill

ion

ba

rre

ls

Actual Forecasted

Source: Louisiana Dept. of Natural Resources-Technology Assessment Division

LOUISIANA STATE OIL PRODUCTION Actual and Forecasted Through Year 2030

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1

2

3

4

5

61

90

0

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19

90

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00

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30

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ub

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ee

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Actual Forecasted

Source: Louisiana Dept. of Natural Resources-Technology Assessment Division

LOUISIANA STATE GAS PRODUCTION Actual and Forecasted Through Year 2030

0

50

100

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250

1985

1986

1987

1988

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Act

ive

Rig

s

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8.00

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12.00

Do

llar

s p

er M

MB

TU

$/MMBTU Rigs - OCS Rigs - State

Active Rigs Versus Energy Market Price

Sources: Louisiana DNR-Technology Assessment Division

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1,000

1985

1986

1987

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of

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lls A

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ily N

atu

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as

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rod

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tio

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cf/

da

y

Bcf/day Gas Wells

Gas Well Productivity Falling Behind

Sources: Louisiana Dept. of Natural Resources-Technology Assessment Division

• An average of 620 new wells per year is needed just to maintain the current state production level.

• A 25% increase in well completions would only increase total state production by 3%.

Well Completion Statistics

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1,000

1,20019

00

1905

1910

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iner

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apac

ity

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Refinery Capacity LA Oil production

Refinery Capacity Versus State Production

Sources: Refinery Capacity, DOE-Energy Information Administration Production, Louisiana DNR-Technology Assessment Division

Petroleum Products and Crude Oil from Louisiana to other states

1,611.55

FOREIGNOCS

OTHERSTATES

2000 LOUISIANA PETROLEUM FLOW(Million Barrels)

CONSUMPTION

215

865.26485.23

157.48

10047

476

7

270

110

311.30

319

2

1

1159

148

907

Total Disposition =

1,027.34-15.88

1,217.86

Million Barrels

Source: DNR Technology Assessment Division & DOE-EIA

STATE107.18

Total Input = Storage =

Industria l

Uti lity

Trans portation

Commercia l

Residential

Total Louisiana'sexports to other states

2000 LOUISIANA NATURAL GAS FLOW(Billion Cubic Feet)

STATE

OTHERSTATES

OCSFOREIGN

CONSUMPTION

4,904.92

1,320.04

33

292

969

50

26

3,591.87

1,462.04

11Million Barrels

1,112.79

58.26

RAW MAKE

SOURCE: DNR Technology Assessment Division & DOE-EIA

0100

200300400

500600

700800

Louisiana

Missouri

N.CarolinaTexas

$ B

illio

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Mill

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GSP Population

Gross State Product and Population

Sources: GSP, Department of Commerce-Bureau of Economic AnalysisPopulation, Northeast Midwest Institute

28

29

30

31

32

33

34

35

36

Louisiana

Missouri

N.CarolinaTexas US

$ T

ho

us

an

d

Gross State Product per Capita

Source: Department of Commerce-Bureau of Economic Analysis

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120

Louisiana

Missouri

N.CarolinaTexas US

GS

P p

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tus

Gross State Product Per Billion BTUs

Source: Department of Commerce-Bureau of Economic Analysis

0

100200

300400

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600700

800900

1000

Louisiana

Missouri

N.CarolinaTexas US

MM

Btu

s p

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pit

a

Energy Consumption per Capita

Source: Department of Energy-Energy Information Administration

State Economics Energy DependenceExample

DIVERSIFIED INDUSTRY OR STATE ECONOMY

INPUT OUTPUTENERGY

ENERGY INTENSIVE INDUSTRYOR STATE ECONOMY

INPUT OUTPUT

ENERGY

FOR SAME ECONOMICOUTPUT,

Needs

ENERGY

ENERGYENERGYENERGY ENERGY

ENERGYENERGYENERGY ENERGY

Needs

• Completed tasks– Prepared resolution supporting HB236 for

reinstatement of 1994 drilling incentives for re-entry of inactive wells.

– Prepared resolution requesting federal incentives for deep subsurface gas drilling.

Energy Issues

• Perform independent general tax structure impact study as relates to usage, efficiency, and production.

• Encourage new and expanded LNG terminals through tax exemptions and other incentives.

Energy Issues

• Develop relocation incentives for energy companies.

• Explore reforming utility regulations.

Energy Issues

• Encourage funding of Clean Power and Energy Research Consortium (CPERC) with LSU, UNO, Southern University, and possibly Nicholls State.

• Develop blueprint for university-based energy-related technology research.

Energy Issues

• Investigate streamlining permitting aspects of oil and gas operations.

• Investigate how to resolve conflicts of dual jurisdictions.– Redefine all parish rules and regulations;

consolidate into one state permit.

Energy Issues

• Develop wholesale electricity market and merchant power plant activity.

• Encourage collaborative university-industry research efforts.

• Utilize Dept. of Natural Resources’ Energy Fund for more cost-effective energy efficiency improvements.

Energy Issues

• Evaluate long-term supply, demand, price projections for electric power and natural gas.

• Evaluate power generation and transmission issues.

• Evaluate energy conservation and renewable energy issues.

Energy Issues

• Determine energy’s role in state economy.

• Investigate renewable energy sources and biomass potential.

• Establish economic incentives for natural gas and crude oil production when prices drop.

Energy Issues

• Find cost-effective approach to plugging wells with potential of royalty reduction at re-entry.

• Seek legislation for reduction of ad valorem taxes for abandoned leases to be put into production.

Energy Issues

• Tax credit for production and operation in Outer Continental Shelf (OCS).

• Return depletion allowance to 27.5%.

Energy Issues

Energy Issues

• Reduce the tangible drilling costs at a rate of 60% the first year and 40% second year.

• Create tax benefit for repair of OCS equipment (drilling rigs and supplies).

1. Facilitate effective development of existing Louisiana energy resources by:

– Prepare annual report on barriers to development.

– Address tort reform related to environmental and class action litigation.

– Support efforts to supply reliable, economic energy supplies to state’s industries.

Additional Items for Consideration

2. Encourage investment in oil & gas and energy technology sector to create jobs by:– Developing blueprint of funding priorities

in energy related technology, including in:Alternative fuels, biomass, cogeneration,

energy efficiency, hydrogen cycle

Improved oil & gas technologies for onshore and offshore development

Additional Items for Consideration

3. Develop pro-active process for dealing with oyster leases in coastal zone.

4. Benchmark Louisiana oil & gas regulations & incentives vs. competing states.

Additional Items for Consideration

5. Prepare annual report examining barriers to energy efficiency applications including:– Distributed energy resources– Small power applications– Combined heat & power and cogeneration– Demand-side management services and

peak load reduction incentives

Additional Items for Consideration

Additional Items for Consideration

6. Develop incentive package for promoting lignite methane production.

7. Develop incentive package for promoting hydrogen technologies.

8. Develop incentive package for biomass.

Charles V. Cusimano&

T. Michael French, P.E.

Thank You for Your Attention

This presentation is available at the Technology Assessment Division Websitehttp://www.dnr.state.la.us/tad/data/index.html

For Assistance call:Janine Janney @ (225) 342-1270