U.S. Oil and Natural Gas Transformation and Effects

December 3, 2018

U.S. Oil and Natural Gas Transformation and Effects

Overview

U.S. oil and natural gas production has increased

substantially since 2008 (Figure 1). These increases have

important policy implications for energy markets,

infrastructure, security, and the environment. These

complex and interrelated implications have been both

positive and negative, depending on perspectives, resulting

in a variety of conflicts as well as enormous opportunities.

Stakeholders, at times, turn to the courts to address

conflicts, such as ensuring that fuel production and

consumption comply with federal environmental laws.

In the 115th Congress, the House and Senate debated major

energy legislation addressing expanding production,

pipeline permitting, exports, and energy development on

federal land, among other topics.

Oil and Natural Gas

The U.S. oil and natural gas industry has gone through a

“renaissance” of production. Technological improvements

in hydraulic fracturing and horizontal drilling, among other

factors, have unlocked enormous oil and natural gas

resources from unconventional formations, such as shale.

Oil has surpassed levels of production not seen since the

1970s. Natural gas has set new production records almost

every year since 2000. And the United States is the world’s

top producer of both commodities.

Figure 1. U.S. Natural Gas and Crude Oil Production

Source: Energy Information Administration (EIA). Prepared by CRS.

Commodity Prices. The expansion of natural gas supply

since 2008 has led to a dramatic drop in prices, with

implications for many different sectors, including electricity

generation and manufacturing. Over that time, oil prices

remained relatively volatile, but dropped in late 2014, and

have remained lower since then. Note that while oil is

traded on a global market, natural gas is much more of a

regional commodity due primarily to transportation

challenges. International price disparities for natural gas

have diminished as more liquefied natural gas (LNG) has

become available to global buyers.

Federal Lands. The rise in production of oil and natural

gas has taken place mostly onshore and on nonfederal

lands. Crude oil production from nonfederal land has

doubled over the past decade. Although production on

federal land has increased, it has not grown as fast as oil

production on nonfederal land, causing the federal share of

total (onshore and offshore) U.S. crude oil production to

fall from its peak of nearly 36% in 2009 to about 24% in

2017. U.S. natural gas production shifted even more

dramatically, with total U.S. production growing 33% since

2008, whereas gross withdrawals on federal lands (onshore

and offshore) declined by almost 32% over the same time

period. The federal share of total gross withdrawals

decreased from 25% in 2008 to 13% in 2017. Through

executive orders and subsequent implementing actions, the

Trump Administration has set a federal lands agenda

focused on U.S. energy dominance. Even with such a focus,

any increases in production on federal lands may be

outpaced by increases on nonfederal lands, particularly

because the shale formations, where most of the growth is

occurring, lie primarily on nonfederal lands.

Balancing energy production on federal lands against other

resource values has long been a fundamental question for

Congress. The 115th Congress debated this balance with

respect to, among other issues, the Administration’s

proposed five-year program (2019-2024) for offshore oil

and gas leasing; access to certain onshore federal lands for

conventional or renewable energy development (including

enactment of an oil and gas program for the Arctic National

Wildlife Refuge); proposed changes to environmental and

safety regulations; and efforts to streamline permitting. In

court, stakeholder groups have challenged, and will likely

continue to challenge, the federal leasing program for oil

and gas development on federal lands. For example, some

lawsuits seek to invalidate federal leases or leasing

decisions or require the leasing agency to analyze risks to

public health and the environment further.

Exports. As domestic production rose, industry sought to

export more U.S. oil and natural gas (see Figure 2). The

long-term prospects for further increases in either export

remain unclear. With growing U.S. crude oil production

and falling prices, there was interest in Congress in

eliminating a 40-year limitation on exports of most U.S.produced crude oil. In December 2015, Congress passed the

Consolidated Appropriations Act for FY2016, which

included a repeal of the oil export ban. Since the ban was

lifted, exports of crude have reached over a million barrels

per day or 10% of production. Additionally, U.S. exports of

petroleum products, which were not limited by the law,

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U.S. Oil and Natural Gas Transformation and Effects

have also increased significantly, almost tripling during the

time period to 5.2 million barrels per day from almost zero.

Total U.S. exports of 6.4 million barrels per day are still

less than exports from Saudi Arabia.

The first U.S. LNG exports from the lower-48 states began

in February 2016, but most LNG export projects remain in

the construction or planning phases. Nevertheless, the

United States became a net natural gas exporter in 2017, the

first time in more than 50 years, mainly driven by increased

pipeline exports to Mexico. Proposals have been introduced

in the 115th Congress to expedite DOE’s approval process.

Figure 2. U.S. Natural Gas and Petroleum Exports

Source: Energy Information Administration (EIA). Prepared by CRS.

Notes: Natural gas exports include LNG and pipeline. Petroleum

exports include crude oil and petroleum products.

Infrastructure. Increased North American oil and gas

production, particularly in areas that historically were not

major producers, has led to growth in demand to transport

those commodities to market. Oil shipments by rail and

barge have increased significantly. Massive investments

have been made in oil and gas pipelines, although

controversy has arisen around projects such as the Dakota

Access Pipeline and the Keystone XL Pipeline. As noted

above, many projects aim to export LNG: these projects

would encompass new terminal facilities at U.S. ports. In

the 115th Congress, various bills would have amended rail

safety standards, approved the Keystone XL pipeline, or

promoted other oil and gas infrastructure. In addition,

various legal challenges have tried to halt construction of

pipelines and terminals to ensure adequate environmental

review prior to construction.

Environmental Concerns. The use of unconventional oil

and gas production has resulted in some significant

environmental benefits (e.g., reduced air pollution from the

substitution of natural gas for coal in power generation), but

it has also raised concerns about other potential

environmental and health effects. These concerns centered

initially on water quality issues, including the potential

contamination of groundwater and surface water from

hydraulic fracturing and related production activities.

Concerns have since incorporated other issues, such as

water management practices (both consumption and

discharge), land use changes, endangered species impacts,

induced seismicity, and air pollution. Others have raised

concerns about potential long-term and indirect impacts

from reliance on fossil fuels and resulting greenhouse gas

(GHG) emissions.

States are the primary regulators of oil and gas production

on nonfederal lands, but various federal environmental

statutes can apply to certain activities in the sector. (For

example, the Clean Water Act regulates surface discharges

of water associated with natural gas drilling and production

as well as contaminated storm water runoff from production

sites; the Safe Drinking Water Act regulates the

underground injection of wastewater from crude oil and

natural gas production and the underground injection of

fluids used in hydraulic fracturing if the fluids contain

diesel fuel; and the Clean Air Act limits emissions from

associated engines and gas processing equipment as well as

some natural gas extraction, production, and processing

activities.) However, legislative proposals to address federal

regulation have been highly controversial. Some advocates

of a larger federal role point to a wide range of differences

among state regulatory regimes and argue that a national

framework is needed to ensure a consistent minimum level

of protection. Others argue against more federal

involvement and point to the long-established state

regulatory programs, regional differences in geology and

water resources, and concern over regulatory redundancy.

While congressional debate continues, the Trump

Administration has pursued a number of deregulatory

initiatives to promote oil and gas production. Executive

Order 13783, “Promoting Energy Independence and

Economic Growth” directs federal agencies to “review

existing regulations that potentially burden the development

or use of domestically produced energy resources and

appropriately suspend, revise, or rescind” them. The

executive order specifically cites several Obama-era

rulemakings that regulated oil and gas production activities

(e.g., the Environmental Protection Agency’s methane

standards and the Bureau of Land Management’s waste

prevention rule). Several states and other stakeholders have

sought judicial review of the Trump Administration’s

efforts to delay, revise, or repeal existing environmental

regulations.

States’ Roles

Many decisions about energy markets, infrastructure, and

regulation are implemented at the state level. Regardless of

whether the federal government takes a more or less active

role in the future, state and regional decisions often have

national impacts. For example, California’s 2002 decision

to regulate GHG emissions from automobiles has affected

other states. The interaction of state and local policies with

national decisions is often complex and can raise

constitutional issues regarding the relationship between

state and federal laws.

For more information, see CRS Report R44854, 21st

Century U.S. Energy Sources: A Primer.

Michael Ratner, Specialist in Energy Policy

Laura B. Comay, Specialist in Natural Resources Policy

Richard K. Lattanzio, Specialist in Environmental Policy

Linda Tsang, Legislative Attorney

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U.S. Oil and Natural Gas Transformation and Effects

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