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.

 

 

What’s Happening With Ethanol?

According to the Energy Information Administration (EIA) approximately 5 billion gallons of ethanol was produced in the U.S. in the first 6 months of 2009. The US also imported 79 million gallons of ethanol during this same period. Based on the first 6 months of production it is estimated that 10.5 billion gallons will be consumed in 2009. The imported volumes from Brazil and the Caribbean for 2009 are estimated to be 157 million gallons.

Current ethanol production capacity stands at 13 billion gallons. The idle production is a result of the financial crisis when some ethanol plants went into bankruptcy. The capacity is being put back into service as they come out of bankruptcy. Ethanol producers were squeezed by escalating corn prices and overcapacity as the industry overbuilt. In late 2008, most producers were at breakeven levels or worse as ethanol prices fell significantly in tandem with crude oil.

Commentary – The ethanol industry was created by the U.S. government by subsidizing it. They protected it from imports by putting tariffs on ethanol from Brazil and other countries. To create demand the government then mandated its use as an additive in gasoline and this triggered the rapid growth of the ethanol industry. In 2008, ethanol has displaced only 3% of our oil usage. The Obama Administration is pushing a big expansion in ethanol, including a mandate to increase the share of the corn-based fuel required in gasoline to 15% from 10%. Apparently no one in the Administration has read a pair of new studies, one from its own EPA, that expose ethanol as a bad deal for consumers with little environmental benefit. A second study — by the Environmental Protection Agency’s Office of Transportation and Air Quality — explains that the reduction in CO2 emissions from burning ethanol are minimal and maybe negative. The government has put a maximum on the amount of ethanol that can be produced from corn at 15 billion gallons. All ethanol is made by the fermentation of corn. To meet the new mandated volumes of 36 billion gallons by 2022 without exceeding the 15 billion gallons of corn-based ethanol, the ethanol industry will be challenged to commercialize cellulosic ethanol technology.

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

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.

A Smart Solution to Driving Green

Experts are calling natural gas the smart, clean and readily available fuel for America’s mid-term transportation needs. According to reported information, there are over 150,00 natural gas vehicles (NGVs) on American roads, over 1,100 NGV fueling stations, and one-in-five of all new transit buses are being powered by natural gas. Not only does natural gas cost on the average one-third less at the pump, there is an oversupply of natural gas and it is a clean-burning fuel. NGA drivers can now fill up their tank at home due to new technology. In addition, natural gas cars can also run on regular gasoline if needed.

Recently, US Secretary of Energy Steven Chu has requested that the National Petroleum Council (NPC) conduct studies on two topics: a study on future transportation fuels that will analyze US fuel prospects through 2030 for auto, truck, air, rail and waterborne transport; and an assessment of “prudent” development of US natural gas and oil resources.

Commentary – I am encouraged that Secretary Chu is at least studying the possibility of using natural gas as a  transportation fuel. But where has he been? When I was working for a natural gas pipeline company in Midland Texas back in the 1970’s our field operations trucks were fueled by natural gas. Also, why is it necessary to study the development of US natural gas resources. In recent years, independent oil companies have found so much natural gas that we are now have a short-term surplus and a 100 year supply.

Global Oil Consumption Decline

We now have experienced four consecutive quarterly declines in world oil use, with another decline expected in the current quarter. The Energy Information Administration (EIA) says this is an unusual situation, as declines in global oil consumption over that long a period have occurred only twice before over the past 50 years. The Organization for Economic Cooperation and Development (OECD) countries accounted for most of the decline. The OECD is includes US, Europe, S. Korea, Japan, Canada, Australia and the United Kingdom.

On an annual basis the EIA forecasts that world oil consumption could decline 1.8 million barrels of oil per day in 2009 or a decline of 2.1% from 2008. The current outlook assumes that the world economy begins to recover at the end of this year by non-OECD Asia. As a result, EIA expects world oil consumption to grow in the fourth quarter of 2009. It is projected that world oil consumption will grow by 0.9 million bbl/d in 2010 with relatively strong growth in non-OECD countries. This may be partially offset by a slight decline in OECD consumption.

Commentary – In addition to the world economic recession reducing oil demand, many countries have been raising fuel economy standards and increasing use of alternative fuels. Some believe that the OECD countries are not going to get back to the previous oil demand levels. The primary growth in oil demand is expected to come from Asian countries like India and China.

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.”

Unknown to Lawmakers: The Availability and Economics of Natural Gas

The United States now has abundant and predictable gas supplies. While the U.S. oil production continues to decline and politicians talk about alternative supplies, unconventional gas has helped US natural gas production increase within the last year. Proven natural gas reserves have increased 10 of the past 11 years, according to the Energy Department’s Energy Information Administration, and thousands of miles of new pipelines have been built in every direction. In just the past 10 years, more than 20,000 miles of new natural gas pipelines have been built and brought on line. Those pipelines can carry more than 97 billion cubic feet of natural gas each day.

The bulk of the new natural gas supply is in the energy-rich Rockies and Texas. Producers are drilling traditional oil and gas wells and drilling into coal-bed methane reserves in Wyoming, Colorado and Utah. In Texas, it’s the Barnett Shale and the Bossier Sands tight-gas formations. The U.S. Geological Survey classifies the Barnett as an unconventional gas play. The Barnett shale wells are known for long-lasting production and a high drilling success rate. Two other plays, Haynesville in Louisiana and Texas, and the Marcellus shale in the U.S. Northeast, also are expected to boost U.S. production. More shale plays are expected to be found and large oil and gas independent producers will be the primary developers of these regional gas plays.