Replies to post #139 on The Rising Influence of Rising Affluence

[DewDiligence]

John, if it were up to me, a “climate” bill would have included some provisions to deal with US reliance on oil imports for transportation. That the bill specifies minimum thresholds for solar and wind—while being utterly silent about how we supply energy for transportation—is an unconscionable missed opportunity, IMO.

[DewDiligence]

Big Oil’s Answer to Carbon Law May Be Imports, Idle Refineries

http://www.bloomberg.com/apps/news?pid=10000103&sid=a1ZiIqv3E4QE

›By Joe Carroll and Edward Klump

June 26 (Bloomberg) -- America’s biggest oil companies will probably cope with U.S. carbon legislation by closing fuel plants, cutting capital spending and increasing imports.

Under the Waxman-Markey climate bill that may be voted on today by the U.S. House, refiners would have to buy allowances for carbon dioxide spewed from their plants and from vehicles when motorists burn their fuel. Imports would need permits only for the latter, which ConocoPhillips Chief Executive Officer Jim Mulva said would create a competitive imbalance.

“It will lead to the opportunity for foreign sources to bring in transportation fuels at a lower cost, which will have an adverse impact to our industry, potential shutdown of refineries and investment and, ultimately, employment,” Mulva said in a June 16 interview in Detroit. Houston-based ConocoPhillips has the second-largest U.S. refining capacity.

The same amount of gasoline that would have $1 in carbon costs imposed if it were domestic would have 10 cents less added if it were imported, according to energy consulting firm Wood Mackenzie in Houston. Contrary to President Barack Obama’s goal of reducing dependence on overseas energy suppliers, the bill would incent U.S. refiners to import more fuel, said Clayton Mahaffey, an analyst at RedChip Cos. in Maitland, Florida.

“They’ll be searching the globe for refined products that don’t carry the same level of carbon costs,” said Mahaffey, a former Exxon Corp. refinery manager.

Prices Seen Rising

One in six U.S. refineries probably would close by 2020 as the cost of carbon allowances erases profits, according to the American Petroleum Institute, a Washington trade group known as API. Carbon permits would add 77 cents a gallon to the price of gasoline, said Russell Jones, the API’s senior economic adviser.

“Because it’s going to be more expensive to produce the stuff, refiners will slow down production and cut back on inventories to squeeze every penny of profit they can from the system,” said Geoffrey Styles, founder of GSW Strategy Group LLC in Vienna, Virginia. “We will end up with less domestic product on the market and a greater reliance on imports, all of which means higher, more volatile prices.”

U.S. motorists, already facing the steepest jump in gasoline prices in 18 years, would bear the brunt as refiners pass on added costs, Exxon Mobil Corp. Chief Executive Officer Rex Tillerson told reporters after a May 27 meeting in Dallas.

Carbon Allowances

“U.S. refineries get 2 percent of allowances to cover any increases in costs they may incur,” said Drew Hammill, a spokesman for Pelosi.

Drivers, airlines and trucking companies would pay an additional $178 billion annually, or about $560 for each man, woman and child in the U.S., according to the API, whose 400 members include Irving, Texas-based Exxon Mobil and the U.S. unit of Royal Dutch Shell Plc, Europe’s largest oil company.

“That kind of price impact would significantly hurt the competitiveness of U.S. refiners versus importers,” said Glenn McGinnis, chief executive officer at Arizona Clean Fuels Yuma, a Phoenix-based company that’s attempting to build the nation’s first new refinery in three decades.

Such estimates and talk of rising imports are scare tactics that oil companies are using to wheedle concessions from lawmakers, said John Coequyt, the Sierra Club’s chief lobbyist in Washington [LOL]. Refiners are trying to gain relief on carbon- permit costs that’s meant for manufacturers such as steelmakers that are threatened by foreign competition, he said.

‘Saber Rattling’

“It’s definitely saber rattling, and it’s a hell of a threat,” Coequyt said. “The strategic value of this is pretty obvious. They want to qualify for rebates under the competitiveness test, which of course they do not.”

GSW’s Styles, a former Texaco Inc. refinery and trading manager, said the risks are real. Plants unable to turn a profit under the new rules would be closed, he said.

The permit-cost imbalance would open the door for overseas refiners, such as India’s Reliance Industries Ltd., owner of the world’s largest crude-processing complex, to ship more fuel to U.S. oil companies, said Bill Holbrook, spokesman for the National Petrochemical and Refiners Association in Washington.

“It’s going to give domestic refiners a distinct disadvantage,” said Holbrook, whose trade group represents such fuel makers as Chevron Corp. and Valero Energy Corp.

Acquisitions Possible

Companies such as San Antonio-based Valero, the biggest U.S. refiner, will respond by stepping up efforts to acquire overseas plants that can ship fuel to their home market, said Brian Youngberg, an analyst at Edward Jones & Co. in Des Peres, Missouri. Valero said last week that it will continue to seek acquisition opportunities after Total SA bought the stake it had agreed to purchase in a Netherlands refining venture.

Carbon costs will stress fuel makers already coping with slumping fuel demand and higher costs to meet a federal mandate for increased ethanol use, said Roger Ihne, an energy client portfolio leader at Deloitte Consulting in Houston. Stricter mileage standards that take effect in 2011 will squeeze demand further, he said.

About 2 million barrels of daily U.S. refining capacity will shut down because carbon costs will be several times the operating profits for some plants, Ihne said. That’s equivalent to 12 percent of the nation’s fuel-making capacity. Jones, the API economist, said there could be as much as 3 million barrels of idled processing capacity.

Plants at Risk

“There’s no question there are some marginal refiners that probably will not survive,” said Exxon Mobil’s Tillerson, whose company has the largest worldwide refining capacity. “They may go out of business.” Exxon Mobil derived 18 percent to 24 percent of its profit from refining in the past five years.

Neither Tillerson, 57, nor ConocoPhillips CEO Mulva, 63, said how their companies would respond to climate rules like those in the Waxman-Markey bill. The legislation would cap emissions and create trading of allowances that polluters would need to meet their requirements.

Chevron CEO David O’Reilly, 62, said in a June 11 speech that the bill is “unnecessarily complex” and would be more damaging and less transparent than a carbon tax.

Chevron, based in San Ramon, California, has fallen 9.6 percent this year in New York stock trading. Exxon Mobil has dropped 12 percent, and ConocoPhillips is down 19 percent. Valero has tumbled 23 percent.

Reliance on Imports

Refiners and brokers already import 3.12 million barrels of gasoline, diesel and other fuels each day, enough to supply every car, truck, train, airplane, boat and oil-burning power plant in Africa, U.S. Energy Department figures showed.

Those cargoes are in addition to the 9.76 million barrels of raw crude delivered to U.S. ports daily to supply refineries and chemicals plants. Foreign shipments of crude, gasoline and other fuels provide 66 percent of the petroleum burned in the world’s largest economy, according to the Energy Department.

Carbon prices will soar as U.S. refiners compete with each other and other industrial companies for a limited number of allowances, said Bill Durbin, head of carbon research and global energy markets at Wood Mackenzie.

Durbin, a former policy official in the Energy Department during the George H.W. Bush administration, said permit prices may top $100 a ton. Oil companies and their products emit more than 2 billion tons of carbon dioxide a year in the U.S., according to the Energy Department.

“If you can import fuels without the same carbon costs as domestic refiners, you will have an advantage,” Durbin said. “Does that open the door for offshore refiners? I think it does.”‹

[DewDiligence]

ConocoPhillips’ CFO said on a CC today that he does not expect Congress to act on the “cap & trade” bill until at least 2011. My kneejerk response is hallelujah!

[DewDiligence]

Senators Want a Carbon Tariff in Lieu of ‘Cap & Trade’

[This is an editorial from today’s WSJ.]

http://online.wsj.com/article/SB10001424052970204908604574336844278574578.html

›AUGUST 12, 2009

President Obama says his cap-and-trade energy tax won't hurt the economy, but at least 10 Senate Democrats disagree. Last week they sent Mr. Obama a letter demanding that any bill taxing U.S. CO2 emissions must include a carbon tariff "to ensure that manufacturers do not bear the brunt of our climate change policy."

Hmmm. This sure sounds like an explicit admission that cap and tax would add so much to the cost of doing business in the U.S. that it would drive factories and jobs overseas. The 10 mostly liberal Senators come from states like Ohio, Michigan and West Virginia whose economies rely heavily on manufacturing and coal. "We must not engage in a self-defeating effort that displaces greenhouse gas emissions rather than reducing them and displaces U.S. jobs rather than bolstering them," wrote the Senators.

Thus their demand that "a longer-term border adjustment mechanism"—a euphemism for tariffs—"is a vital part of this package to prevent the relocation of carbon emissions and industries" to countries that aren't as foolish as to impose a similar tax. Those countries include China and India, which have told Obama officials that they have no intention of signing on to the rich world's growth-killing obsessions.

All of which puts the President in an economic policy bind. When the House passed its cap-and-tax bill in June, he warned against a carbon tariff by saying "I think we need to be very careful about sending any protectionist signals." But these 10 Senate Democrats are saying explicitly that protectionism is the price of their support. So Mr. Obama can opt to impose a huge carbon tax and drive jobs overseas, or he can impose the tax along with a tariff, and kick off a trade war. Better to call the whole thing off.‹

[DewDiligence]

‘Cap & Trade’ Bill Shows Democrats' Unease

[See #msg-40453185, #msg-39317284, #msg-40023386, and #msg-39091782 for related stories.]

http://online.wsj.com/article/SB125743140978130853.html

›NOVEMBER 6, 2009
By PETER WALLSTEN and SIOBHAN HUGHES

Divisions among Democrats were on display Thursday in a Senate committee vote approving a climate-change bill.

Sen. Max Baucus (D., Mont.) voted against his own party's climate-change bill, calling for a scaled-back measure that might win more bipartisan support. Mr. Baucus, a key player in the health-care overhaul debate, said the measure set too ambitious a target for reducing greenhouse-gas emissions by 2020, and hadn't done enough to protect farmers.

Republicans boycotted the 11-1 vote in the Senate Environment and Public Works Committee. They said more study needed to be done on the potential harm to the economy from the measure's cap on emissions, and its requirement that businesses buy permits, which could be traded, to emit carbon dioxide and other gases.

The tensions among Democrats point to the wider debate within the party about how aggressively to push the leading issues on President Barack Obama's agenda after Tuesday's election setbacks. Moderate Democrats worry about moving too fast for voters, while liberals say swift action on issues like climate change and health care will remotivate the party's base.

One of the climate bill's co-sponsors, Sen. John Kerry (D., Mass.), signaled Thursday he was well aware of the political challenges facing his more conservative colleagues. Mr. Kerry has launched discussions with Sen. Lindsey Graham (R., S.C.) and Connecticut independent Sen. Joseph Lieberman to fashion a compromise measure.

Doubts about cap-and-trade played a role in swinging some previously Democratic coal-mining areas of southwestern Virginia toward Republican gubernatorial candidate Bob McDonnell, the winner in Tuesday's election. Mr. McDonnell attacked his Democratic opponent, R. Creigh Deeds, as a supporter of Mr. Obama's cap-and-trade energy plans. Mr. Deeds argued that he would oppose any tax increases related to energy, but lost by a 2-to-1 margin in coal country.

Rep. Rick Boucher, a Democrat whose Virginia district encompasses the state's coal-mining region, said Thursday the election results in his state should have no bearing on the climate issue or the broader Obama agenda.

But he said any climate measure would have to accommodate industry concerns and minimize costs to consumers, and that candidates in conservative districts next year should be armed with those arguments.

Senate Democrats considered vulnerable in the 2010 election include Majority Leader Harry Reid of Nevada and moderates Blanche Lincoln of Arkansas and Arlen Specter of Pennsylvania.‹