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Energy Law 4 – International Petroleum Fall 2014 Sep 23, 2014 Alan Palmiter Not for distribution- for study purposes only.

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Presentation on theme: "Energy Law 4 – International Petroleum Fall 2014 Sep 23, 2014 Alan Palmiter Not for distribution- for study purposes only."— Presentation transcript:

1 Energy Law 4 – International Petroleum Fall 2014 Sep 23, 2014 Alan Palmiter Not for distribution- for study purposes only

2 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

3 Click for video (0:00-14:00) Black Gold: The Secrets of Oil (Modern Marvels Documentary)

4 4 4 Energy Flow, 2011 (Quadrillion Btu) 1.Int’l petroleum in the energy mix

5 4 4


7 (Click for 4:00 video)



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

11 1.True or false? World oil prices have risen dramatically in the past 15 years. 1.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 Quiz Int’l petroleum and energy mix Answers: 1-T / 2-c / 3-c / 4-F

12 Smart Planet: How oil-producing countries stacked up in 2012How oil-producing countries stacked up in 2012 2. Int’l petroleum: production & transport


14 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.

15 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

16 “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

17 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

18 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

19 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

20 Early concession agreements (1930s) WWII (importance of oil – 1939-1945) US oil embargo (1973) Oil crisis: low prices (1980s) OPEC formed (1960) Iranian Revolution (1979) 19001990196020201930 International petroleum- timeline Texas oil fields (~1900) Creation of Arab states (beginning in 1930s) Peak oil identified (Hubbert in 1956) Seven Sisters (1940s – 1970s) 2 nd Venezuelan nat’l (2007) Tar sands (2010) Fracking (2010) 1 st Venezuelan nationalization (1975)

21 Click for 4:11 audio

22 1.True or false? Over 50% of subsurface mineral rights in Canada are owned by individuals. 1.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 Quiz Int’l oil – production, transport & governance Answers: 1-F / 2-c / 3-d / 4-T

23 4. Future of international petroleum – peak oil

24 (Click for 8:28 video)

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

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

27 Click for video (5:00)

28 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

29 Class Hypo TransCanada 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: 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 demand 3.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

30 The end

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