Carbon Bill Could Cost US Refiners $100 billion/Year

As reported in the Oil and Gas Journal, proposed legislation (Waxman-Markey climate bill HR 2454) on carbon capture and sequestration potentially could cost US refiners $100 billion/year, threatening the sustainability of the domestic refining industry and giving undue favor to non-US refiners.  Carbon capture is a means of mitigating the contribution of fossil fuel emissions to global warming, based on capturing carbon dioxide (CO2) from power plants. Carbon sequestration is a technique for the long-term storage of carbon dioxide or other forms of carbon by injecting the CO2 below the surface of the earth. The proposed Senate climate change and energy legislation has even more stringent emissions targets than the hotly debated Waxman-Markey bill.

Commentary – Currently carbon capture and sequestration technology is being developed and not commercially viable. If this legislation is passed, these costs will be passed on to consumers, otherwise US refiners will be out of business and we will be importing all of our gasoline needs. Either way get ready for $4.00/gallon prices or higher. In my opinion, “cap and trade” is a convoluted form of tax increase and may not even reduce emissions. If the government really wanted to save all this legislation and bureaucracy, all they needed to do is pass a carbon tax on gasoline, except that wouldn’t provide the politicians and administration with cover. They want you to blame private industry for high prices because they are causing global warming.

Dallas Going Green With Natural Gas

It was just reported that the Dallas Area Rapid Transit DART board (no pun intended) voted to solicit bids from firms able to supply nearly 600 new natural gas-powered buses. They cited falling natural gas prices as the reason they no longer think diesel buses are the best buy. The cost was estimated at $100 million, but they claim the fuel savings will offset the expense. Dallas Mayor Tom Leppert said that choosing natural gas over diesel would help brand Dallas as an environmentally friendly, forward-looking city.

Commentary – The US market for Natural gas-powered vehicles (NGV’s) is expected to remain dominated by fleet sales to government and commercial customers. The fuel is cheaper than gasoline/diesel and has substantially lower CO2 emissions and other pollutants. The current price for compressed natural gas (CNG) in the Dallas area is $1.95/gallon. In Oklahoma City the average price is $1.11 per gallon.

 

 

Are Gasoline Prices Going Higher?

The EIA says gasoline retailers and wholesalers account for about 13% of the total cost of gasoline. Refiners get another 7% and taxes eat up 16%. The remaining 64% is crude oil. Based on a price of $2.55 per gallon the breakdown is as follows: Crude oil – $1.63, Taxes – 41 cents, Refining - 18 cents and Distribution/Marketing – 33 cents.

From January 2003 to October 2009, oil prices have increased 125% while gasoline prices have risen 75% (Based on data from the Energy Information Administration). For the most part, the price increases for both crude oil and gasoline track reasonably well. But during the period September 2007 to October 2008 they started deviating with crude oil price increases accelerating faster than gasoline prices.  It appears that in the past 3 months crude oil prices and gasoline prices are starting to deviate again.

Commentary – I believe the explanation for the deviation in price increases was a result of decreased demand. Consumers cut back on their gasoline usage and the refiners and retail outlets responded by not increasing prices despite the fact that crude oil prices were still rising. This has been proven out by lower refiner profit margins. It appears that the deviation is starting again. Strictly based on the chart above it appears that we are either going to see crude prices decline or gasoline prices are going higher. Refining margins are already low, so this time I believe gasoline prices will go higher. If crude oil price increases continue, we may see $4.00 gasoline again.

Big Investments Needed in Natural Gas Infrastructure

According to a new study by the Interstate Natural Gas Association of America (INGAA) projected growth in North American natural gas supplies and market growth in the U.S. and Canada will require billions of dollars of additional investment in pipeline, storage and other midstream infrastructure through 2030. The study analyzed future natural gas infrastructure requirements under different market scenarios and came up with a range of investment from $133 to$210 billion over the next 20 years.These investments would be required to bring increased domestic natural gas production from unconventional shale basins and tight sands to the pipeline network.

By 2030, the U.S. and Canada will need approximately 29,000 to 62,000 miles of additional natural gas pipelines, 370 to 600 billion cubic feet (Bcf) of additional storage capacity, 6.6 to 11.6 million horsepower of new gas transmission pipeline compression, 20 to 38 Bcf per day of new natural gas processing capacity and 3.5 Bcf per day of new LNG import terminal capacity in order to meet market requirements. About three-fourths of the market growth occurs in the power sector. The growth rate of natural gas consumption in the electric generation sector is the predominant determinant of the growth rate of the entire natural gas market.  Electric load growth, timing and development of renewable generation technologies, clean coal with carbon capture and sequestration, and expansion of nuclear generation are areas of uncertainty.

Commentary - The study seems to rely heavily on the growth rate of natural gas use in electrical generation. I am assuming that this is due to the belief that natural gas fired power plants will replace coal-fired power plants in the future. They might want to check with the coal industry lobbies before they put to much faith in their study. If the study is accurate in its assumptions, these investments would create many new jobs within the natural gas industry and create many new opportunities for midstream pipeline companies

New Poll On Global Warming

A national survey was released this week by the Pew Research Center for the People & the Press. According to the survey, the number of Americans who believe there is solid evidence that the Earth is warming because of pollution is at its lowest point in three years. The poll of 1,500 adults found that only 57 percent believe there is strong scientific evidence that the Earth has gotten warmer and is attributed to humans. The poll’s results differ from previous surveys which have shown an overwhelming majority of Americans believe global warming is happening.

Commentary – These polling results show that the public is beginning to catch on to the scam Al Gore and his cohorts have been perpetuating. Maybe an informed citizenry will show their opposition to the carbon tax Congress is about to impose on a struggling economy.

US Natural Gas Potential (Updated Study)

The Potential Gas Committee (PGC), an incorporated, nonprofit organization, consists of knowledgeable and highly experienced volunteer members who work in the natural gas exploration, production and transportation industries and in the field and technical services and consulting sectors. Although the Committee functions independently, the Potential Gas Agency at the Colorado School of Mines provides the Committee with guidance, technical assistance, training and administrative support, and assists in member recruitment. Every two years the PGC puts out their assessment of the potential natural gas resources of the United States.

In June of this year, the PGC released the results of its latest biennial assessment of the nation’s natural gas resources. The new 2008 PGC estimate of potential natural gas resources of 1,836 Trillion cubic feet (Tcf), is a 516 Tcf (or 39 percent) increase over their 2006 estimate. This is the highest resource evaluation in the Committee’s 44-year history. Most of the increase from the previous assessment arose from reevaluation of shale-gas plays in the Appalachian basin and in the Mid-Continent, Gulf Coast and Rocky Mountain areas. When the PGC’s results are combined with the U.S. Department of Energy’s latest available determination of proved gas reserves, 238 Tcf as of year-end 2007, the United States has a total available future supply of 2,074 Tcf, an increase of 542 Tcf over the previous evaluation.

Commentary -  Since I was a member of this Committee several years ago I can assure you that the committee does a creditable job in assessing our natural gas resources. If you dig deeper into their report you will find that Shale gas now comprises 616 Tcf or 34% of the potential gas resources. Dr. John B. Curtis, Professor of Geology and Geological Engineering at the Colorado School of Mines and Director of the Potential Gas Agency said “our present assessment demonstrates an exceptionally strong and optimistic gas supply picture for the nation.”

Canadian Oil Sands and the US Economy

The development of the Canadian oil sands could represent an economic boom for the United States creating more than 342,000 new (not saved) US jobs, according to a study by the Canadian Research Institute and commissioned by the American Petroleum Institute. The study entitled “Canada’s Oil Sands and Economic Impact on the USA”, said that more oil sands production could stimulate economic activity in both countries. With increased production and investment in oil sands, demand for US goods and services would add an estimated $34 billion to US gross domestic production in 2015 and $42 billion in 2025. The heaviest job growth in the US would take place during 2011-2015 when 342,000 new jobs would be created. These new jobs would cover a broad range of industries and sectors.

Oil sands reserves play an increasingly important role in the economic development of Alberta Canada and the United States. The study is based on the assumption that oil sands production would rise from the current 1.4 million b/d to around 4.0 million b/d in 2025. The study further estimated that about $25 billion in new investment would be required and $7 billion in annual operating costs in the peak year of 2015 would be needed to meet the oil sands output.

Commentary - The US relies heavily on about 2.1 million barrels of oil per day from Canada or about 23% of our total imported oil per day. The Canadian oil sands development is very important to the US economy in many ways. If this study is correct and the investments are made, the US economy could benefit greatly with the addition of new jobs. According to the study the benefits do not fall to just one industry but are broadly shared across many industrial sectors, especially the steel industry. I do have some concerns about the environmental impact of the oil sands, hopefully the environmental concerns will be addressed. The study did not address these concerns.

Natural Gas Legislation Doomed

A bill currently moving through the US House (H.R. 1835) that promotes the use of natural gas as a transportation fuel was introduced by Dan Boren (D-Okla).The name of the bill H.R. 1835 is “The New Alternative Transportation to Give Americans Solutions Act” or otherwise referred to as the “The Nat Gas Act”. The Nat Gas Act will provide tax incentives for owners of trucks and other fleets to convert their vehicles to natural gas and to open up refueling stations. This bill is targeting municipal, county and state vehicles, utility and express delivery trucks; municipal buses and refuse/recycling trucks. These type of vehicles can be refueled at central locations. Using domestic natural gas as a substitute for diesel fuel is expected to reduce imported oil and improve the environment. Natural gas burns much cleaner than either gasoline or diesel and produces virtual no particulate emissions.

A similar bill was introduced in the Senate (S. 1408) by Senators Reid and Hatch. This bill allows a tax credit of $12,500 for the purchase of a natural gas-fueled vehicle. Boone Pickens has been working with Mr. Reid on this bill and Pickens has said that this bill if enacted will replace 6.5 million diesel trucks with natural gas fueled trucks in seven years. The bill also would mandate that all new trucks purchased by the government would be natural gas vehicles. He further states that this will save 2.5 million barrels of oil per day of foreign oil imports.

Commentary – The US has an abundant supply of natural gas and I praise those senators and congressmen that have brought forward these bills. One of our main energy goals should be to reduce our dependency on foreign oil. However, the Obama Administration and Energy Secretary Steven Chu do not understand that our addiction to foreign oil imports is resulting in a drain on our wealth. I hope I’m wrong but I believe that these bills will never see the light of day. Using natural gas as a transportation fuel will increase demand and the oil companies will seek out additional drilling opportunities to increase production. According to Obama’s Budget, the so-called “Green Book”, increasing production of either oil or natural gas is not consistent with the Administration’s Energy Goals. The Green Book states that the current oil company tax deductions have contributed to over-production of fossil fuels such as oil and natural gas in the U.S. I have mentioned these ludicrous statements by the Administration in some of my previous posts. Just this week Interior Secretary Ken Salazar moved to freeze natural gas and oil exploration on 60 parcels of Federal Land auctioned off by the Bureau of Land Management for exploration by the Bush Administration.

Global Warming: Real or Hoax?

Rep. Henry Waxman, D-Calif., chairman of the Energy and Commerce Committee and author of the Global Warming Bill (Cap and trade legislation) that recently passed the House, said the bill represents “decisive and historic action” to increase America’s energy security and deal with global warming. “When this bill is enacted into law, we will break our dependence on foreign oil, make our nation the world leader in clean energy jobs and technology, and cut global-warming pollution,” said Waxman.

Commentary – I wonder if this bill cures cancer too. Please read the article entitled “Dispelling the Global Warming Myth by John Hinderaker at the following link: http://www.powerlineblog.com/archives/2009/03/023144.php He has several slides that are quite powerful and convincing. Due to the efforts of the Heartline Institute and others the public is beginning to catch on to the scam by Al Gore and others. If only Congress would open their eyes, maybe we could stop this Cap and Trade bill from becoming law.

Obama’s Death Panels for Oil and Gas Industry Workers

U.S. President Barack H. Obama released his final fiscal 2010 federal budget back in May. It included $32 billion of new oil and gas taxes over 9 years. The collection of these taxes is expected to begin in fiscal 2011. The tax changes include the following: elimination of the tax deduction that is available to other U.S. manufacturers, repeal of the percentage depletion allowance, new excise taxes on new Gulf of Mexico production, repeal of expensing intangible drilling costs, repeal of enhanced oil project injectant costs, plus many others. The budget also establishes new fees on non-producing leases and additional permit fees. It is expected that Congress will pass all of these new taxes.

According to Barry Russell, the President of the Independent Petroleum Association of America, the new taxes and other provisions in the budget will make it more difficult to develop domestic energy. He said, “This budget does not recognize that in order to decrease our reliance on foreign oil, we need to increase our own American supplies of natural gas and oil.” Natural Gas Supply Association President R. Skip Horvath said, “Obama’s budget was bad news for American consumers and worse news for American jobs. Four million Americans depend on domestic gas for their livelihoods.” Horvath said, “Tax policies directly impact the decisions that are made regarding drilling, especially for smaller companies. More importantly, over 80% of the natural gas in the US is actually produced in this country. We are in trouble when this administration has such a basic misunderstanding of how domestic gas markets will be impacted.”

The Texas Alliance of Energy Producers (TAEP) recently completed a study based on the Obama Administration’s tax proposals on the oil and gas industry and submitted their report to the U.S. Senate Finance Committee on Energy, Natural Resources and Infrastructure on September 10th as the committee held a hearing on Obama’s proposals. TAEP’s study says the proposed tax changes will have an adverse impact on the Texas alone of $20 billion over the next 4 years. The proposal will hurt independent producers since the major oil companies are not eligible for some of the tax deductions. The study noted that Texas would lose about 70,000 oil patch workers because drilling activity would decline to record lows in a matter of months. Oil and gas revenues in Texas would drop $2.1 billion over the next 3 years as a result of not finding and replacing oil and gas reserves. US crude oil imports would increase from foreign suppliers. They predict that the oil and gas industry in the US would collapse if Congress adopted these proposals. The repeal of these tax deductions as proposed would be a quick death

Commentary – It appears to me that the Obama Administration and the Democratically controlled Congress is punishing the oil and gas industry. To fund some of their vast government programs they need new tax revenues and why not the oil and gas industry. They have been demonizing these companies for years. When a subcommittee member, Jim Bunning (R-Ky.), asked Alan B. Krueger, assistant US Treasury Secretary for Economic Policy, if the administration was currently singling out the oil and gas industry as it seeks tax incentive repeals, the Treasury official replied, “That is correct.”