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Energy Law 4 – International Petroleum

Energy Law 4 – International Petroleum. Fall 2013 Sep 24, 2013 Alan Palmiter Brian Bowman. Topic roadmap. 1. International petroleum in energy mix Compared to other energy sources Oil and global politics Relation to energy s ecurity 2. Int’l petroleum extraction / transportation

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Energy Law 4 – International Petroleum

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  1. Energy Law 4 – International Petroleum Fall 2013 Sep 24, 2013 Alan Palmiter Brian Bowman Not for distribution- for study purposes only

  2. Topic roadmap 1. International petroleum in energy mix • Compared to other energy sources • Oil and global politics • Relation to energy security 2. Int’l petroleum extraction / transportation • Global oil production • Transportation 3. Governance of int’l petroleum operations • Concessions / agreements • Nationalization • Future of international petroleum • Peak oil • Unconventional drilling

  3. 1. Int’l petroleum in the energy mix 4 Energy Flow, 2011 (Quadrillion Btu) http://www.eia.gov/totalenergy/data/annual/diagram1.cfm

  4. (Click for 4:00 video)

  5. http://www.eia.gov/finance/markets/supply-opec.cfm

  6. Source: US EIA, Petroleum and Other Liquids – Data (through June 2013)

  7. True or false? The Midwest imports little to no crude oil from Middle Eastern nations. Which is false – Year over year increases in OPEC production are typically followed by oil price declines. U.S. net imports of oil have declined each of the past 3 yrs. OPEC was first formed in 1965. A majority of U.S. oil imports come from nations in the Western Hemisphere. Which is false -- In 1973, OPEC began an oil embargo against the United States. Saudi Arabia was a founding member of OPEC. In the 1980s, the price of oil on the global market reached its all-time low price of $20/bar. The U.S. east coast imports more oil from Africa than any other region. 4. True or false? Most oil imported into the United States is used for power generation purposes? Pop Quiz Int’l petroleum and energy mix Answers: 1-T / 2-c / 3-c / 4-F

  8. 2. Int’l petroleum: production & transport How oil-producing countries stacked up in 2012 Smart Planet: How oil-producing countries stacked up in 2012

  9. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/08/how-oil-travels-around-the-world-in-one-map/http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/08/how-oil-travels-around-the-world-in-one-map/

  10. Keystone Pipeline Project Start: Alberta, Canada Delivery: Illinois and Oklahoma What Will It Carry: Tar Sands Oil Completion Date: 2009-2012 Strategic Impact: Extensive use of shale oil on North American continent. Allows for reduced need of oil from non-North American sources. Significant business for U.S. refineries.

  11. Subsurface rights • United States: subsurface rights go with surface title, unless specifically separated • Mexico: before 1911 landowners could own mineral rights, after 1911 revolution, ownership is in state. • Canada: before 1887, individuals could own sub-surface rights; today 10% owned by individuals; 10% by federal state; 80% by provinces • Great Britain: Petroleum Act (1934) vests ownership to the Crown

  12. “Energy Security” Pros: • Insulation from higher global energy prices • Avoids OPEC engaging in political blackmail • Improves our geopolitical posture • Would improve balance of trade Cons: • Perhaps requires energy not cheapest available • Substantial time and money to develop suitable domestic energy resources • Perhaps requires relying on ‘dirtier’ forms of energy

  13. 3. Governance of int’l oil operations • International petroleum contracts: • Form • Ad-hoc • Hybrid • Structure of agreements: • concession or license • production sharing • technical service • Processes for awarding contracts: • complete gov’t discretion • public auction • open competition

  14. What is a concession agreement? • Oil-rich countries contracting with international oil companies to develop reserves • What do concessions look like? • Typically: • Stock ownership in local exploration company • Bonus upon signing agreement • Oil company obligated to pay royalties to the foreign state based on oil produced

  15. What is international oil arbitration? • Submission of disputes under international oil agreements • to binding resolution by one or more arbitrators • Why is arbitration preferred over court litigation? • Time, expense • Confidentiality • Expert decision maker • Avoid court roadblocks: Sovereign immunity / Political question doctrine / Act of state doctrine / Forum non conveniens

  16. International petroleum- timeline Seven Sisters (1940s – 1970s) Creation of Arab states (beginning in 1930s) Texas oil fields (~1900) Peak oil identified (Hubbert in 1956) WWII (importance of oil – 1939-1945) 1st Venezuelan nationalization (1975) 2nd Venezuelan nat’l (2007) Early concession agreements (1930s) Oil crisis: low prices (1980s) Iranian Revolution (1979) US oil embargo (1973) OPEC formed (1960) Tar sands (2010) Fracking (2010) 1900 1930 1960 1990 2020

  17. Click for 4:11 audio

  18. True or false? Over 50% of subsurface mineral rights in Canada are owned by individuals. Which is false – Ad-hoc contract structures allow for the greatest deal of flexibility in structuring oil agreements. Mineral rights in Mexico belong to the state. Common law jurisdictions allow for private ownership of mineral rights. Nigeria is the African nation that produces the most oil. Which is false -- Foreign governments typically auction oil production contracts. In 2012, China produced more oil than Mexico. Norway produces more oil than any other European nation. In 2012, Russia produced more oil than the United States. 4. True or false? More oil travels through the Straits of Hormuz than any other “chokepoint” in the world? Pop Quiz Int’l oil – production, transport & governance Answers: 1-F / 2-c / 3-d / 4-T

  19. 4. Future of international petroleum – peak oil

  20. (Click for 8:28 video)

  21. Source: EIA, Analysis and Projections – Shale Oil Study (2013)

  22. Source: EIA, Analysis and Projections – Shale Oil Study (2013)

  23. Click for video (5:00)

  24. Alien Tort Claims Act Arguments for: • Non-citizen can bring suit in the United States • Elevates the standing of international law in U.S. courts • Allows aggrieved party to bring suit for egregious acts that may not otherwise fall within the jurisdiction of a U.S. court Arguments against: • Could lead to entanglements with other nations • Statutory language is ambiguous, thus limits its effectiveness • Supreme Court ruled that Act does not provide jurisdiction over claims brought against corporations

  25. Class Hypo On November 10, 2011, the Department of State postponed a final decision. DOS said needed additional information regarding potential alternative routes around the Sand Hills in Nebraska. DOS said this info would inform the determination whether issuing a permit for the proposed Keystone XL pipeline would be in the “national interest.” In making the “national interest” determination, DOS (in consultation with other agencies) will consider: Environmental impacts of the proposed project Impact on the diversity of supply to meet U.S. crude oil demand Stability of trading partners from whom the U.S. obtains crude oil Relationship between the U.S. and various foreign suppliers Impact of proposed project on broader foreign policy objectives, including a comprehensive strategy to address climate change Economic benefits to U.S. of constructing and operating the pipeline TransCanada submitted a final permit applicationin May 2012 for the construction of the Keystone XL pipeline from the Canadian Tar Sands to the United States. President Obama needs to decide on whether or not to approve permit for construction of Keystone XL. Please come up with a list of talking points reflecting your group’s position: Group 1: 350.org Group 2: TransCanada Group 3: White House

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