Navigating Oil & Gas Disruption Through Innovation

Transcript

Mike Mills
Partner, Environmental & Natural Resources

My name is Mike Mills. I am a partner in the Environment, Land Use and Natural Resources Practice Group. My office is in Sacramento, and I have been with the firm for almost 17 years.

What happens to supply and markets when refineries shut down? 

A key trend that I have been following is the recent announcement of the closure of the Valero refinery in Benicia. That announcement follows another announcement of a closure of the Phillips 66 refinery in Los Angeles, and a few years ago, the Santa Maria Phillips 66 refinery closed. It has brought a lot of attention to the fuel supply chain in California, and I think people are becoming increasingly concerned about the possibility of one additional refinery closing, what that would mean to the fuel supply for Californians.

Why is it important for energy clients to track fuel supply? 

Clients should be paying attention to this trend now because they need to start scenario planning for the possibility that their fuel supply might be curtailed. I say that generally for our clients who are not oil and gas clients, but at least as to the clients of the firm that are oil and gas clients, I think they have even more to consider. They have to consider who is buying their oil. Do they have a backup supply if their refinery that they are selling to goes out of business? They should be looking to see who owns the pipelines that they ship their oil on to make sure that those are not in jeopardy of being shut down. There are a lot of factors that clients need to consider right now.

How does energy source diversification help build resilience? 

One piece of advice I would give to clients is to diversify. I would not recommend to a client that they have just one fuel or oil sales agreement. They should have at least one backup. They should have backup alternatives to get their oil from their oil field to market. That will ensure that they are not left in a position where they have to shut say a field, because they cannot get their oil from the field to a refinery.

Are your clients prepared for future fuel supply shocks? 

I think a question that clients should be asking themselves is how do I stress test my business to prepare for a very dramatic change in the oil supply chain in California? For example, if another refinery closed, what would they do? I think it is important to run all of those scenarios to make sure that your business can withstand a significant change like that. For example, if a pipeline operator shuts down a pipeline that you rely upon, what would you do? A lot of those events have been happening in the last five years, and they have caught a lot of operators (oil and gas companies) by surprise.

How will innovation reshape the future of oil and gas?

I think when it comes to oil and gas and energy generally, there are so many technologies and innovations that will help us make bridges to the next era of energy that will address many people's concerns about pollution from traditional oil and gas energy sources. Sometimes I believe that policy would be best directed towards those technological solutions and encouraging them as opposed to command-and-control options that attack the industry as opposed to encouraging it to innovate.