» State regulators weigh plan to slash oil production.
The Railroad Commission of Texas, the agency that regulates the state’s oil and gas industry, could vote Tuesday on a proposal to cut oil production by 20 percent, or about 1 million barrels per day.
The proposal, which exempts small companies, would fine producers $1,000 for every barrel pumped in excess of the limit.
The commission, led by three elected members, hasn’t ordered production cuts since the 1970s, but the industry is facing an unprecedented collapse of prices amid a global oil glut.
Efforts to slow the spread of the coronavirus and a production battle waged by OPEC and Russia helped push the price of oil from $60 in January to as low as negative $40 per barrel last week. It settled Wednesday at $15.
The ongoing crisis, which threatens thousands of industry jobs in the state, prompted executives from Pioneer Natural Resources and Parsley Energy to call for state-mandated production cuts. The proposal is backed by smaller producers and environmentalists and staunchly opposed by industry trade associations, larger producers and pipeline operators.
The eight-page order detailing the proposed cuts would exempt small companies who produce less than 1,000 barrels of oil per day. The Railroad Commission is accepting emailed public comments about the proposed order through May 4.
Texas produced about 5.4 million barrels of crude per day in January, according to the Energy Information Administration. A 20 percent cut would reduce
Texas production to 4.3 million barrels per day. The U.S. produces about 12 million barrels a day.
Many operators already are halting production amid the sagging oil prices.
With global demand for crude oil falling from 100 million barrels per day before the pandemic to 85 million barrels per day, Railroad Commissioner Ryan Sitton said supply needs to come down to meet demand.
OPEC, its allies and Russia agreed this month to cut oil production by 10 million barrels per day, but deeper cuts are needed to balance the market, Sitton said. The proposed Texas cuts would be lifted when supply declines to match demand.
Sitton said he is expecting a lively discussion during the commission’s meeting, which will be conducted virtually because of the pandemic.
“They could vote for this, they could vote against it, they could not vote at all, or they could make changes,” Sitton said.
If approved, the order could take effect in June or July.
Ed Hirs, a University of Houston economics professor specializing in the oil and natural gas industry, said he thinks that based on past comments, the two other commissioners — Wayne Christian and Christi Craddick — likely would vote against the order. And with oil companies already ratcheting down production and scaling back requests for drilling permits, the order is moot, he said.
“Texas could shut in 100 percent of production, and it wouldn’t do anything to raise prices or save jobs,” Hirs said. “The fall in demand is more than the entire state of Texas produces. The 20 percent cuts would be roughly 1 million barrels per day — and that would have no impact.”
James Coleman, an energy law professor with Southern Methodist University in Dallas, supports the production cuts. With other oil-producing states such as North Dakota and Oklahoma meeting to debate the same issue next month, Texas could take the lead, he said.