Texas oil cut likely doomed
Official says a proposal to trim production in state by 20 percent ‘will not be happening’
A proposal to force oil companies operating in Texas to cut production by 20 percent has been defeated ahead of what was supposed to be a final discussion, a key supporter says.
The Railroad Commission of Texas, the agency that regulates the oil and gas industry in the state, is scheduled to discuss the issue Tuesday during an online hearing. In a Sunday tweet, however, Ryan Sitton, one of the agency’s three elected commissioners, conceded that the proposal would be defeated.
“Prorationing will not be happening,” Sitton tweeted. “I wish I could explain why so many Texans
will lose their jobs while oil production drops in the U.S. worse than anywhere else, but politics beats data, so there are no answers. Just ‘free market’.”
Citing free market principles, commission Chairman Wayne Christian wrote in an op-ed published Wednesday in the Houston Chronicle that he opposes state-mandated production cuts, saying tumbling oil prices are forcing operators to cut production on their own. The price
of oil dropped from about $60 a barrel in January to $20 Monday.
“I refuse to do something just to say I took action, because taking the wrong action can actually make things worse,” Christian wrote in his opinion piece.
The third commissioner, Christi Craddick, has said she’s concerned about potential lawsuits resulting from such an order.
That appears to leave Sitton alone in supporting the production cuts. Sitton, in an op-ed submitted Monday to the Houston Chronicle, criticized “free market politicians.” While they oppose state cuts, Sitton wrote, they provide special loans to the industry, fill up the Strategic Petroleum Reserves with domestic oil, waive rules and allow companies to stop paying royalties on public lands.
“If everyone were intellectually honest, they would admit government needs to act to save domestic energy production; the only question is which government and how should they act to best accomplish that goal,” Sitton said.
The oil industry is facing an unprecedented crisis as the coronavirus pandemic crushes global demand and a short-lived price war between Saudi Arabia and Russia added to the global oil glut.
As prices tumbled, Irving oil company Pioneer Natural Resources and Austin oil company Parsley Energy in March asked the commission to consider forcing production cuts for the first time since the 1970s.
The debate divided the industry, with smaller producers and environmentalists in favor of prorationing. Larger producers opposed mandatory cuts, saying economic forces would accomplish the same goal.
Texas last month produced more than 5 million barrels of crude per day, according to federal figures, or 5 percent of the world’s output of 100 million barrels per day. A 20 percent cut in Texas would reduce state output by about a million barrels a day, a fraction of the 29 million barrels’ worth of demand that was lost in April, according to the International Energy Agency.
As the ongoing oil crash forces thousands of workers to be laid off and threatens the future of dozens of companies, public interest in the topic is high. More than 30,000 people from 86 nations and 49 states tuned in online to watch the agency’s April 14 hearing, in which debate on the issue lasted more than 10 hours, the Railroad Commission said.