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rates. The tax credit increase, from USD 10 to USD 35 per tonne of stored CO2, has been well received by the oil industry (see Chapter 6, “Energy Technology Research, Development and Demonstration”).

Tax reform

In December 2017, Congress passed and the president signed the Tax Cuts and Jobs Act, which, among its various provisions, reduced the corporate tax rate from 35% to 21%. The act took effect on 1 January 2018.

Its impact on the economics of multiple energy projects is complex as it depends on the interplay with other factors such as new depreciation and capital structures. However, the lowering of the corporate tax rate has been positive for oil and gas producers.

Permitting and mineral rights

A unique aspect of US oil and gas development is the structure of mineral rights. In the United States, ownership of subsurface mineral resources is granted to the individuals or organisations that are surface landowners. These property owners have both surface rights and mineral rights. This complete private ownership is known as "fee simple” ownership, under which an owner controls the surface, the subsurface and the air above a property. The owner also has the freedom to sell or lease these rights individually or entirely to other entities. Most states have laws that govern the transfer of mineral rights from one owner to another. They also have laws that govern mining and drilling activity. The ownership structure for mineral rights in the United States has helped enable the growth of onshore production as property owners are more economically vested in resource development compared with many other countries, where the government owns all subsurface mineral rights.

Permits for oil wells mostly fall under the jurisdiction of state governments where the drilling will take place, rather than the federal government. The exception is OCS drilling, which falls under the authority of BOEM, as well as drilling on onshore federal lands, which falls under the authority of the Department of the Interior’s Bureau of Land Management. The Environmental Protection Agency (EPA) has jurisdiction over oil spills.

Similarly, state governments also take the lead on environmental regulations for oil and gas wells within their territories, though the EPA also sets federal environmental regulations. Following rules to tighten regulations around emissions from new oil and gas wells in 2016 (specifically to target methane emissions), the administration in 2018 proposed rolling back those requirements, in line with “American energy dominance” efforts to lower the costs of environmental regulations in order to promote increased production.

Infrastructure

Pipelines

Pipelines are the most commonly used mode of transport for moving oil across the United States. In 2018, the country had 215 625 miles (346 940 kilometres) of crude gathering and distribution pipelines operated by more than 2 300 companies, and the top 10 operators were responsible for 30% of the network.

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Box 7.2 Oil flows from Canada

In 2017, Canada exported around 3.3 mb/d of crude oil, which represents more than 85% of its production. The majority went via pipelines to the United States, with a small portion going by rail and ship. In 2018, Canadian crude oil exports by rail were around 250 kb/d. Exports from Canada to the United States of Canadian oil sands and crude have almost doubled in the last decade.

At the end of 2017, the amount of oil available in Canada for export to the United States was 310 kb/d higher than pipeline takeaway capacity. When the Keystone pipeline closed for an unplanned outage in November 2017, operational capacity fell even more. The shutdown left Canadian producers with few choices other than to store crude or cut output. Canadian oil delivered at the Hardisty, Alberta, terminal came under significant price pressure as a result and traded USD 32 per barrel (bbl) below WTI Cushing on average during 2018. Keystone restarted in late November 2017 and operated at reduced rates until late January 2018. Rail shipments have picked up in recent months to partially address the bottleneck on pipeline takeaway capacity. Despite this increase, new rail car standards (which resulted in the decommissioning of a lot of older units), competition from grain exports and a lack of trained staff have made it difficult to ramp up rail exports quickly.

In 2019, most of the gains in Canadian takeaway capacity are likely to come from the optimisation or replacement of existing pipelines. Enbridge plans to replace its Line 3 pipeline (maintaining its 760 kb/d capacity) between Hardisty and Superior, Wisconsin. The project received a green light from the Canadian government in 2016 but is still awaiting approval from Minnesota. This project is planned for completion by the end of 2020.

Kinder Morgan is also planning to expand the capacity of the Trans Mountain pipeline to 890 kb/d (from 590 kb/d) by the addition of a parallel line. The Trans Mountain pipeline starts in Edmonton, Alberta, and ends in Vancouver, British Columbia, from where crude oil is shipped to US refineries on the West Coast. This project was approved by the Canadian government in 2016 but lawsuits have caused major delays. The pipeline was acquired by the Canadian government in 2018.

Finally, the largest project is TransCanada’s new-build 830 kb/d Keystone XL crude oil pipeline, which would take a more direct route from Canada to Cushing, Oklahoma, than the existing Keystone line. The US administration put this project on hold in 2015 but revived it in 2017 based on a presidential permit issued that year and again in 2019. TransCanada has secured 500 kb/d of firm supply commitments and has started to plan construction work, though it has faced a few legal setbacks related to its permits. The pipeline could be operational by mid-2021, at the earliest, due to the requisite permitting and construction timelines.

Sources: IEA (2018), Oil 2018: Analysis and Forecasts to 2023; IEA (2019), Oil 2019: Analysis and Forecasts to 2024.

Price differentials

The historical hub for crude oil prices in the United States is in Cushing, Oklahoma, where contracts for WTI are settled. Additional hubs exist for WTI Midland, located near the Permian and Eagle Ford basins, and more recently at the refining and export hub of Houston.

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Based on price data from 2012 to 2014, WTI Midland saw discounts to Cushing of up to USD 20/bbl, reflecting a lack of pipeline takeaway capacity. Since 2014, the WTI price in Midland has largely been in line with the Cushing price based on new pipeline capacity. Early in 2018, WTI Midland was trading above WTI Cushing, reflecting the commissioning of the 300 kb/d Sealy pipeline and the expansion of the Cactus pipeline. However, WTI Midland traded at an average discount of USD 7.30/bbl compared with WTI Cushing later in 2018, due to planned maintenance shutdowns of refineries.

Since 2010, WTI Houston has consistently been at a premium to WTI Midland, due to increased crude shipments from Canada to Cushing, increased US production in the Cushing area, and a lack of pipeline infrastructure from Cushing to the US Gulf Coast. The Midland discount versus Houston increased sharply during 2018, up to USD 25/bbl, as pipelines from the Permian to Houston filled up.

Expected new pipeline projects will further alleviate the current bottlenecks in takeaway capacity, but with additional strong production growth in the Permian and Eagle Ford basins over the next few years, the question of whether new pipeline takeaway capacity will keep pace with crude oil output to avoid regional price differentials might arise again.

Refining

As of January 2019, there were 132 refineries operating in the United States, with the top 10 refineries representing 25% of total capacity (18.8 mb/d). The refineries operated with an average capacity utilisation rate of 91%, which is considered high. More than 45% of the refining capacity is located along the US Gulf Coast (8.4 mb/d), which corresponds to PADD 3. In 2017, the Gulf Coast region was the exit point for 79% of crude oil deliveries to both domestic (Northeast and Midwest) and overseas markets (Latin America, Europe and Asia).

Table 7.1 Top ten refineries in the United States

Note: The table includes only refineries with atmospheric crude oil distillation capacity. Source: EIA (2019), Top 10 US refineries operable capacity, www.eia.gov/energyexplained/index.php?page=oil_refining#tab4.

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