When it comes to the energy business, Ryan Sitton believes there is no better focal point from which to operate than the U.S. — particularly, the state of Texas.
“We are in the most dynamic, most exciting position we’ve been in for more than 100 years,” Sitton said. “And that thought, that idea, permeates all aspects of this industry from upstream production to transportation, to pipelines, to midstream operations, to running a petrochemical company.”
Sitton should know. As Texas Railroad Commissioner, he is responsible for regulating the state’s oil and gas production, along with co-commissioners Christi Craddick and David Porter.
Addressing the Plant Maintenance, Inspection and Engineering Society Expo & Forum held recently in Pasadena, Texas, Sitton admitted his office’s title doesn’t accurately reflect his office’s responsibility.
“The Railroad Commission hasn’t done one thing with trains since the mid-1980s,” he said. “There’s a bill in the House right now to change the name from the Texas Railroad Commission to the Texas Energy Commission. All we do is regulate oil and gas production.”
Officially, according to the commission’s website, the Railroad Commission “serves Texas through stewardship of natural resources and the environment, concern for personal and community safety, and support of enhanced development and economic vitality for the benefit of Texans.”
Prior to explaining why he believes the U.S. and Texas are currently so well positioned in the energy race, Sitton shared a bit of the Texas Railroad Commission’s history and how it impacts the global economic landscape.
“The first oil well in Texas was drilled in 1866, and the first refinery was built in the United States in 1862,” Sitton said. “That was the real beginning of the oil industry.”
Throughout the early 1900s, the U.S. was, by far, the world’s leading oil producer. In 1915, the Railroad Commission, Texas’ first state agency, was given responsibility for regulating the development of its onshore oil. By 1919, the Railroad Commission was given a very specific charge by the Texas Legislature. There was too much fluctuation being seen in the price and the supply of oil. To bring stability to the market, the Railroad Commission would begin setting allowables, which led to its control of global oil prices.
“You might be surprised to learn what entity has controlled global oil prices for the longest amount of time,” Sitton continued. “It’s not Saudi Arabia, and it’s not OPEC.
“The Texas Railroad Commission has controlled global oil prices from the late 1920s all the way to 1973,” Sitton revealed.
Responding to military aggression in the Middle East in the 1970s, OPEC cut off oil supplies to the U.S. causing the price of oil to spike, engaging a ripple effect and destabilizing some sectors of the U.S. economy.
“In response, President Carter told the American people in 1977 we had to ‘get off’ oil,” Sitton said. “That was the last energy policy a U.S. president ever issued; we have not had one since. Even Carter’s 1977 plan wasn’t really an energy policy; it was more like a concept. We really haven’t had a good, articulate energy policy from the federal government in modern history.”
It was in the 1970s U.S. citizens began using the term “energy independence,” Sitton continued. “But in the 1980s, because the price of oil would go down so far, not only would we not become energy independent, we would buy even more oil overseas.”
Oil imports reached their peak in 2008, Sitton said, with a little over 60 percent of the oil used by the U.S. coming from foreign nations.
Recovery: NGLs and the shale revolution
In 2008, some very interesting things began to happen with the development of hydraulic fracturing combined with directional drilling into complex shale plays, Sitton said.
Around that time, experts estimated the U.S. had a supply of oil that would last 15 years.
“Today, we have over a 30-year supply, and it’s going up every year because new technology is opening up reserves we never thought were possible,” Sitton said. “In 2008, the world was importing 60 percent of the oil we used. Today, we import about 40 percent of the oil we use, and it’s still on the way down. In 2008, the world was using about 85 million barrels of oil per day. Today, we’re using about 92 million barrels of oil per day. This has happened in just the past six years.”
Despite these domestic gains, Russia has been the world’s No. 1 oil-producing country for the past six or seven years, producing approximately 10 million barrels of oil per day. Saudi Arabia is in second place, producing just under 10 million barrels of oil per day. The U.S. is the world’s No. 3 oil producer.
“Global consumption has increased by 7 million barrels a day,” Sitton reiterated. “But that oil has not come from Russia or Saudi Arabia.
“It came from the United States. The United States is filling the gap. Our production is currently a little over 9 million barrels per day, and we’re closing in on 10. Depending on what happens to rigs, we might be the No. 1 oil producer in the world within just the next couple of years.
“What this means is we are now players in the energy race.”
Defining the energy race
Inarguably, despite the introduction of renewables — some, in response to warnings sounded by environmentalists — the world is fueled by oil.
“We talk a lot in symposiums about alternative energy like wind, hydroelectrics and certainly coal, but hydrocarbons are going to fuel this world for a long time,” Sitton predicted. “I don’t say that as some sort of oil spokesman. I say it from a simple, practical fact. The human race has not determined any way to store energy as effectively as we can with hydrocarbons. Not even close. In terms of electric vehicles, an electric motor cannot produce enough torque to drive an 18-wheeler. It just doesn’t happen.”
Considering this hydrocarbon domination, as well as a century’s worth of energy sector history, it’s not hard to draw the conclusion whoever controls the energy controls the world, Sitton said.
“We saw that in the 1970s with the oil embargoes, and we saw that in Russia a year ago,” he added. “When Russia was going to try to advance into Crimea and make new moves into the Ukraine, how do you think were they fueling it?”
During 2013 and 2014’s wintery “Polar Vortex,” while the U.S. was paying approximately $4 per Btu for natural gas, Europe was paying three times that much — $12 per Btu, 40 percent of which came from Russia.
“Russia made over a billion dollars a day that winter, selling natural gas to Europe, and they used that energy to fuel a military agenda,” Sitton said.
Developers in the U.S., Sitton said, can be proud for bringing more and more hydrocarbon to market, including natural gas.
“It’s caused prices of these commodities to go down,” he said. “And now instead of talking about a renewed military agenda, Russia is talking about trying to stave off bankruptcy and the collapse of the ruble.”
Because Russia’s economy is based on its oil production, the U.S.’ ability to be competitive in this energy race has ramifications well beyond the price of energy, Sitton added. “We’re talking about global military stability and global trade. This is a big deal, and a lot of people don’t realize the ramifications.”
Achieving energy independence and more
In addition to being the world’s leading oil producer and achieving energy independence, the U.S. must also consider how to build dominant global energy markets, Sitton stressed. He envisioned a time when U.S. gasoline prices would impact the global economy with the same gravitas as OPEC.
“For the first time in 40 years, we are cost competitive,” he said. “Not only does the United States have the reserves, it’s also a better place to invest capital on a per-barrel basis; and it doesn’t have the political instability of the OPEC regions. That’s why you’re seeing all of this capital being invested in U.S. oil and gas production. It’s hugely powerful. The opportunities are gargantuan.”
Sitton said he believes within the next two decades, the U.S. will again be the global energy powerhouse it was in the early 1900s.
“In the 1970s, the U.S. lost control of the global energy market, but it will be in the 2020s we get it back,” he said. “Imagine what that would mean to presidents of the United States as they think about going into other countries, advancing a military or a pre-emptive agenda around the world.
“Imagine the prominence the United States would play. It is a revolutionary time.”
For more information, visit www.rrc.state.tx.us or call (512) 463-7158.
