Energy Law

4 – International Petroleum

Fall 2014Sep 23, 2014

Alan Palmiter

Not for distribution- for study purposes only

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

4. Future of international petroleum– Peak oil – Unconventional drilling

Click for video (0:00-14:00)

Black Gold: The Secrets of Oil (Modern Marvels Documentary)

http://www.eia.gov/totalenergy/data/annual/diagram1.cfm

4

Energy Flow, 2011 (Quadrillion Btu)

1. Int’l petroleum in the energy mix

http://www.eia.gov/totalenergy/

4

(Click for 4:00 video)

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

http://www.aei-ideas.org/2013/07/some-lessons-from-the-long-run-path-of-world-oil-prices/

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

1. True or false? World oil prices have risen dramatically in the past 15 years.

2. Which is false – a. Year over year increases in

OPEC production are typically followed by oil price declines.

b. U.S. net imports of oil have declined each of the past 3 yrs.

c. OPEC was first formed in 1945.

d. A majority of U.S. oil imports come from nations in the Western Hemisphere.

3. Which is true --a. In 1990, as a result of the first Iraq

war, OPEC began an oil embargo against the United States.

b. Saudi Arabia was not a founding member of OPEC.

c. In the 1980s, the price of oil on the global market reached its all-time low price of $20/bar.

d. The U.S. midwest imports most of its oil from the Mideast.

4. True or false? Most oil imported into the United States is used for power generation purposes?

Pop QuizInt’l petroleum and energy mix

Answers: 1-T / 2-c / 3-c / 4-F

Smart Planet: How oil-producing countries stacked up in 2012

How oil-producing countries stacked up in 2012

2. Int’l petroleum: production & transport

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

Keystone Pipeline

Start: Alberta, Canada

Delivery: Nebraska, Oklahoma, Gulf Coast, Illinois

What Will It Carry: Tar Sands Oil

Completion Dates: 2009-2014 (Phases 1-3) / Phase 4 on hold

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.

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

“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

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

3. Governance of int’l oil operations

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

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

Early co

ncession agreements (

1930s)

WWII (im

portance of o

il – 1939-1945)

US oil embargo (1

973)

Oil cris

is: low pric

es (1980s)

OPEC form

ed (1960)

Iranian Revo

lution (1979)

1900 19901960 20201930

International petroleum- timeline

Texas oil fi

elds (~1900)

Creation of Arab sta

tes (beginning in

1930s)

Peak oil id

entified (Hubbert i

n 1956)

Seven Sisters (

1940s – 1970s)

2nd Venezuelan nat’l

(2007)

Tar sands (2

010)

Fracki

ng (2010)

1st Venezuelan nationaliza

tion (1975)

Click for 4:11 audio

1. True or false? Over 50% of subsurface mineral rights in Canada are owned by individuals.

2. Which is false – a. Ad-hoc contract structures

allow for the greatest deal of flexibility in structuring oil agreements.

b. Mineral rights in Mexico belong to the state.

c. Common law jurisdictions allow for private ownership of mineral rights.

d. Nigeria is the African nation that produces the most oil.

3. Which is false --a. Foreign governments typically

auction oil production contracts.b. In 2012, China produced more

oil than Mexico.c. Norway produces more oil than

any other European nation. d. 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 QuizInt’l oil – production, transport & governance

Answers: 1-F / 2-c / 3-d / 4-T

4. Future of international petroleum – peak oil

(Click for 8:28 video)

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

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

Click for video (5:00)

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

Class HypoTransCanada submitted a final permit application in 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: Nebraska Governor

In April 2014, the Obama Administration postponed a final decision on whether the proposed Keystone XL pipeline is in the national interest. The State Department said needed additional information regarding potential alternative routes around the Sand Hills in Nebraska – thus to determine if the proposed Keystone XL pipeline is in the “national interest.”

In making the “national interest” determination, DOS (in consultation with other agencies) will consider:

1. Environmental impacts of the proposed project 2. Impact on the diversity of supply to meet U.S.

crude oil demand3. Stability of trading partners from whom the U.S.

obtains crude oil 4. Relationship between the U.S. and various foreign

suppliers 5. Impact of proposed project on broader foreign

policy objectives, including a comprehensive strategy to address climate change

6. Economic benefits to U.S. of constructing and operating the pipeline

The end