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Furious pace of regulatory rollbacks has some in oil industry asking Trump to slow down



Originally published in Politico PRO

By Ben Lefebvre

08/21/2017 05:02 AM EDT

Updated 08/21/2017 09:08 AM EDT


Oil and gas companies have largely celebrated President Donald Trump’s drive to roll back regulations, but some are now wishing he’d tap the brakes.


The Trump administration has set its sights on undoing as much of Barack Obama’s regulatory agenda as possible, with a particular emphasis on easing the burden on oil and gas companies. While the industry has generally cheered the administration’s approach, there are growing worries that its efforts could backfire, according to interviews with a dozen executives, lobbyists, lawyers and analysts.


“It’s not helpful if regulations are streamlined so as to allow something to happen — say, a methane explosion or a spill — and we’d be painted with it as an entire industry,” said a source at one oil and gas company who requested anonymity to speak freely.

In addition to major disasters, some large companies fear being undercut by unscrupulous competitors if the administration reverses rules they have already spent money to comply with. And an industry that prizes regulatory certainty is uneasy with Trump’s efforts to renegotiate lucrative trade deals like NAFTA and reorganize the agencies responsible for overseeing offshore drilling — not to mention his delays in filling key positions across the government.


“Every industry wants regulations that make sense, but you don’t need to roll things back so far that it opens an opportunity for outsiders to criticize, or something bad happens and then [rulemaking] goes the other way but even further,” said Brian Youngberg, an energy analyst at investment firm Edward Jones.


One example where oil and gas lobbyists and industry sources said the administration may be expending too much effort is its quest to dismantle an Obama-era Interior Department rule tightening methane emission standards for oil and gas wells and pipelines on public lands. Congress failed to repeal the rule earlier this year after three GOP senators joined Democrats in voting to keep it in place.


Now Interior Secretary Ryan Zinke says he will try to rewrite it, a process that would take years and in the meantime leave the industry unsure of what will be expected of it.


Trade associations American Petroleum Institute and Western Energy Alliance publicly cheered Zinke’s decision to change the rule.


“It is definitely our focus to rewrite or rescind those rules,” said WEA President Kathleen Sgamma. The group has met with BLM officials and is involved in a lawsuit seeking to overturn the methane rule, among other activities.


But behind the scenes, Exxon Mobil, BP and other large oil and gas companies considered the rule relatively minor, lobbying and industry sources said. The companies had the technology and engineering in place to meet the standards, and they expected to pay down the cost to comply by selling the extra methane they captured, sources said. Those operating in Colorado already had to comply with a state rule that closely matched the federal standards.


The Obama administration estimated the industry would spend up to $279 million per year to comply with the rule, while the overall net benefit would reach up to $1.2 billion over a decade.


To be sure, the industry has unequivocally supported some of Trump’s rollbacks. The administration’s plans to open up more federal waters in Alaska for drilling, and its backing of U.S. LNG exports, have been universally praised by oil and gas developers.


But Trump’s sluggish pace in staffing up his administration has some worried whether he will be able to follow through.


“There’s definitely people concerned about it,” said Tyler Nelson, a former aide to Rep. Pete Olson (R-Texas) who is now a vice president at lobbying firm Cornerstone Government Affairs. “If you don’t have enough people in place across the executive branch, it’s hard to implement and get things done right.”


A White House spokesperson did not reply to questions.


The administration just this month was able to restore a quorum at FERC, the commission in charge of approving natural gas pipelines that had been unable to conduct any major business since February, delaying $13 billion worth of projects.


The White House still hasn’t nominated a permanent administrator for the Pipeline and Hazardous Materials Safety Administration, the agency responsible for inspecting and setting safety standards for pipelines, nor has it tapped anyone to lead key agencies at Interior that oversee energy production on federal lands or offshore.


The 12 largest oil and gas companies and trade associations cut their lobbying by an average of 30 percent in the second quarter compared with the first three months of the year, according to an analysis of their lobbying disclosure forms. A large part of the reduction was because there was no work to do on pipeline projects, according to Nelson and other lobbyists.


Several regulatory revisions the administration is pursuing were never even on the industry’s wish list and could result in severe setbacks, several lobbyists and congressional aides said.


The most potentially damaging policy push is the administration’s attempt to rip open NAFTA for a redo. The U.S., Mexican and Canadian energy markets have become strongly enmeshed over the past decade despite Mexico’s energy industry not even being a part of the original North American trade plan.


Opening up NAFTA for talks could unleash a Pandora’s box of trade issues and threaten business relations, sources said.


Valero and other refiners are shipping ever-increasing volumes of U.S.-made gasoline and natural gas to Mexico. Valero itself just signed a deal to bring tankers of gasoline into the Mexican port of Veracruz. Fellow refining company Andeavor formerly Tesoro is now building gas stations in Mexico as well, reversing years of that country’s dependence on the state-owned oil company Pemex.


The last thing Andeavor, Valero and other refiners want to happen is Trump ratcheting up trade tensions with tough talk that could sour the relationship, sources said.


“In most respects, companies that engage in cross-border trade are most concerned with ensuring that this [NAFTA renegotiation] process does no harm,” said Josh Zive, senior principal at lobbying firm Bracewell.


Another action that has some in the industry scratching their heads is Interior’s review of whether to combine BOEM, which leases the federal Outer Continental Shelf to energy companies, with BSEE, which regulates the companies’ activities.


BOEM and BSEE were created during the Obama era under former Interior head Ken Salazar. Interior spent millions of dollars and countless man-hours to carve the two agencies out of the larger Minerals Management Service after a series of scandals in the Bush administration and the 2010 Deepwater Horizon explosion created the impression that the oil industry was too close to regulators.


Zinke told POLITICO in June he was considering the merger as part of a larger reorganization of Interior agencies. He is also taking another look at regulations the Obama administration put in place after Deepwater Horizon, including BSEE’s Well Control Rule that required oil companies to have up-to-date spill-prevention technology in place.


He had planned to release details of any reorganization by the end of summer. A BOEM spokesman said there was no update on when those details may be made public. BSEE plans to convene a forum in Houston on Sept. 7 to gather input on whether to rewrite its offshore drilling rules.


Efforts to rejoin the two bureaus would probably be as costly as it was to split them, all the while distracting agency staff from processing lease sales, lobbyists said. And no one seems to know why Interior called for the review in the first place.


“We did not ask for it,” said National Ocean Industries Association spokeswoman Nicolette Nye, echoing others in the industry. “We were surprised when it was first mentioned by DOI. That was the first we heard of it.”


If the two agencies did merge, companies operating offshore oil rigs and Trump administration officials would most likely be on the political hook if and when an offshore drilling accident occurred, sources said.


“When there’s — God forbid — the inevitable accident in the Gulf of Mexico, why would you want to be known as the administration that made that move?” said one lawyer representing oil and gas companies.


In the end, these sorts of rollbacks could backfire, said Jason Bordoff, former senior director for energy and climate change in the NSC under Obama and currently the founding director of Columbia University’s Center on Global Energy Policy.


“An approach that is, basically, ‘What are the regulations put in place by the previous administration, here’s the list, let’s go down the list and repeal them,’ doesn’t build public confidence in the industry,” Bordoff said.