Today’s Key Takeaways: Supermajors benefit from carbon capture, hydrogen tax credits. Small producers at risk from leasing curbs and methane fee. Investors confident in climate deal. Independence Mine restoration project gets big donation. Natural gas replaces nuclear as top source of power in Europe in July.
NEWS OF THE DAY:
Big Oil Sees Upside of Climate Bill As Small Drillers Brace for New Fees, Taxes
Jennifer A Dlouhy, Kevin Crowley, and Zahra Hirji, Bloomberg, August 10, 2022
Oil and gas executives from Exxon Mobil Corp. to Occidental Petroleum Corp. have been quick to applaud parts of the $437 billion climate, tax and health-care legislation that Congress is poised to pass this week.
The enthusiasm from Big Oil isn’t shared by some smaller and independent producers, which pump the vast majority of the crude and gas produced in the US. They’re bracing for a raft of new fees and taxes, including penalties on leaking methane and much higher payments for drilling on federal land.
While Occidental’s Chief Executive Officer Vicki Hollub hailed the Democrats’ sprawling bill as “very positive,” and Exxon’s Darren Woods dubbed it “a step in the right direction,” for many smaller oil producers there’s little in the legislation to like, said Dan Naatz, executive vice president at the Independent Petroleum Association of America.
The bill “is going to reduce investment,” Naatz said. It will cause “long-lasting changes to the industry and long-lasting changes to the ability of our guys to get out there, which is all bad.”
The clash over the landmark piece of legislation — officially known as the Inflation Reduction Act — underscores longstanding tensions between large, public oil companies and their smaller rivals when it comes to federal policy on climate change. By providing hefty tax credits for carbon capture, hydrogen and biofuels, the bill would help underwrite supermajors’ green transition strategies at a time when they’re under intense pressure to accelerate investments in clean energy. Smaller oil producers that don’t have refining arms or renewable investments are more exposed to provisions that take aim at fossil fuels.
“The oil and gas industry is actually many different industries under a single umbrella,” said Andrew Logan, a senior director at Ceres, a not-for-profit coalition of investors and companies advocating sustainability. This bill “endorses the vision that many of the large companies have put out around what the transition will look like,” he said.
Even so, small companies are a big part of US energy production. Independent producers account for 83% of America’s oil production and 90% of natural gas and natural gas liquids, according to the IPAA.
Read more: Oil Drilling on US Federal Land Gets a Rare Shake-Up in Tax Bill
Exxon and Occidental are among the large oil companies that stand to benefit from the legislation’s expansion of a tax credit for capturing and storing carbon dioxide emissions from their industrial operations. Both have big carbon capture projects on the drawing board, and the bill would give them more time to claim the incentive, as well as provide a higher credit of as much as $180 per ton for operations that suck carbon dioxide directly out of the air. Conventional carbon capture projects stand to get as much as $85 per ton — up from $50 today.
Most of those credits will be out of reach for some smaller oil companies whose businesses are concentrated on crude production, said Kathleen Sgamma, president of the Western Energy Alliance, which represents scores of oil and gas companies.
“We engage in carbon capture as well, but we’re not focused on getting a handout for it,” she said. “We’re focused on getting more crude out of the ground.”
And when that ground is leased by the federal government, the process is set to get a lot more costly. The bill would create a nonrefundable fee to simply nominate federal land for potential oil leasing, as well as hiking minimum bids for the acreage, rental payments and royalties on any oil and gas that’s extracted from the territory.
The new charges are a potentially huge hit to independents that have revenue streams tethered to drilling on federal land.
OIL:
Pioneer CEO Says Tax Bill May Crush USA Mom-N-Pop Oil Drillers
D.Wethe, G. Johnson, K. Greifeld, Bloomberg, August 10, 2022
The proposed new minimum tax on corporations and fees for methane emissions, both of which are in a sweeping bill passed by the US Senate this week, could make life impossible for many small US oil and gas producers, according to one of the country’s biggest independent producers.
The ultimate impact of Democrats’ landmark climate bill on the roughly 15,000 small oil and natural gas explorers in the US could be fewer wells being drilled in the future, Scott Sheffield, chief executive officer at Pioneer Natural Resources Co., said Tuesday in a Bloomberg TV interview.
“There’ll be more pressure on that small mom-and-pop independent,” Sheffield said. “It may put a lot of them out of business.”
While some energy industry groups have protested at the Biden administration’s tax, health, and climate bill, some of the largest US oil and gas companies have been supportive, particularly on the steps to mitigate methane, a powerful greenhouse gas.
Pioneer along with Devon Energy Corp. and ConocoPhillips last month announced its commitment to reduce methane emissions by joining the Oil and Gas Methane Partnership 2.0 Initiative. Pioneer expects to not pay a tax on emissions as a result of its plan to ban routine flaring by 2025, Sheffield said.
GAS:
Europe Turns to Gas Even More to Keep the Lights On as Cuts Loom
Rachel Morison, Bloomberg, August 10, 2022
- Natural gas replaced nuclear as top source of power in July
- Rystad data highlights difficulty in using alternatives to gas
Natural gas overtook nuclear as the biggest source of power in Europe last month, highlighting the challenge of replacing the fuel ahead of winter when supply will get more scarce.
Nuclear power lost the top spot for the first time in two years, mainly due to French reactors being hobbled by extended outages, according to data from Rystad Energy AS. At the same time, the continent has faced low wind power and hydro output has been restricted by heat and drought.
The data highlights the few alternatives to gas European countries have to generate electricity, Rystad analyst Fabian Roenningen said. Other power sources will be critical this winter with the threat of possible gas-supply cuts and blackouts amid cold weather that boosts heating demand.
Europe’s energy supplies are already strained and prices are near record highs as Russia cuts gas supplies and heat waves disrupt rivers and waterways used to carry fuel and cool power plants. Further restrictions at nuclear plants and key coal stations trying to conserve fuel are increasing demand for gas at a time when Europe is racing to store as much as as possible ahead of winter.
Governments across the region are drawing up plans for how they will ration supplies to industry if needed in winter. In Germany, this will be extended to steel, glass, pharmaceutical and chemical sectors, which are large gas users. However, the German Federal Network Agency has received a stream of requests from industry asking for exceptions on gas rationing, Rystad said.
MINING:
Independence Mine, a ‘gem’ in state park system, gets big donation for restoration work
Yereth Rosen, Alaska Beacon, August 9, 2022
A private charity has donated $1.3 million to restore historic buildings at a popular Alaska state park.
The Leona M. and Harry B. Helmsley Charitable Trust has provided the money to restore buildings at the Independence Mine Historical Park. The site, in the Talkeetna Mountains near Palmer, once housed a thriving gold-mining operation but have fallen into disrepair despite being listed in 1974 on the National Register of Historic Places.
“This work will help preserve an iconic state treasure,” Walter Panzirer, a trustee of the Helmsley Charitable Trust, said in a statement. “I was captivated by the history and beauty of Independence Mine State Park when I first saw it, and we are committed to the shared vision for protecting the Park’s buildings, which capture such a significant part of Alaska’s history.”
Restoring the historic buildings and protecting the Independence Mine site has been a high priority for years, said Stuart Leidner, the superintendent of the Division of Parks and Outdoor Recreation’s Mat-Su and Copper River Basin region.
“It’s a gem of the state park system,” he said.
But making good on those preservation ambitions has been difficult, Leidner said. Conditions at the site, which sits at an elevation of about 3,500 feet, are harsh and taking a steep toll on the structures, he said. And money for restoration work has been tight and difficult to obtain through the state budgeting process.
The last time there was significant work to protect the buildings was around 2013 or 2014, when paint was reapplied, he said.
“Since then, it’s been a matter of just trying to have sufficient funds to work on a backlog of deferred maintenance,” he said. For the Mat-Su/Copper River Basin region alone, one of six Alaska state park regions, there is probably $16 million in deferred maintenance needs, he said. Even some routine needs like trail upkeep and latrine service are pressing, he said. “It’s a challenge to keep up with basic maintenance,” he said.
Officially, the $1.3 grant from the Helmsley trust will go officially to the nonprofit Mat-Su Trails and Parks Foundation. The repair, restoration and preservation work is to be guided by a team to include Leidner, Wes Hoskins of the Mat-Su Trails and Parks Foundation and experts from the Alaska Office of History and Archaeology and the National Park Service.
The work, to start next year, will focus on four buildings at the site: the manager’s house, two bunkhouses and the mess hall.
It is hoped that most of the work will be done next year, but work will continue in following year or years if needed, Leidner said.
The park’s mining history dates back to the start of the 20th century.
The first lode gold claim was staked in 1906, according to the state parks division. Two separate mines and two companies established operations in the decades to come, merging in 1938 as the Alaska-Pacific Consolidated Mining Company.
The site was almost a city onto itself, with 200 employees and 22 families living in a residential area called “Boomtown,” their children attending school operated in a bunkhouse, according to the division.
Mining was shut down during World War II, resuming at only a low level after the war. In 1951, after nearly $6 million worth of gold had been extracted, the mine shut down permanently. In 1980, the area was designated as a state park.
It now draws crowds of tourists, sightseers, hikers and, in the snowy months, skiers. That includes high school teams and elite U.S. Ski Team members who use the site for early season training or post-season training.
This is not the first big Alaska donation from the Helmsley Charitable Trust. Last year, it donated $20 million to a project aimed at improving water and sanitation services in rural Alaska, with a focus on the Bering Strait region.
POLITICS:
Investors like the climate deal
Ben Geman, Axios, August 10, 2022
The early verdicts have arrived: Investors are confident the Democrats’ climate deal will translate into expanded real-world deployment of low-carbon energy.
Driving the news: The movement of exchange-traded funds and individual companies in several segments of the energy sector tell a similar story.
- The Climate Tech Index from the VC firm Energy Impact Partners tallies a basket of companies’ performance against the wider market (though it’s not an investment vehicle).
- The index is both wide-ranging and combines new market entrants and more established players.
Zoom in: The Invesco Solar ETF is up 16% since the deal emerged in late July and passed the Senate over the weekend, while the iShares Global Clean Energy ETF is up 14%.
- Companies like EVgo (charging), Sunrun (solar), and Orsted (wind), to name just a few, have all seen gains since the surprise revival of the bill that’s heavy on expanded and extended tax breaks.
Yes, but: If the bill passes, a lot needs to happen before it translates into a deployment surge, given workforce challenges, project siting hurdles and more.
- And the bill is unlikely to end volatility in the clean energy sector, where companies are grappling with input cost fluctuations and other variables.
- “Republicans are expected to take back control of Congress this fall, so it’s important to remember that policy uncertainty contributes to their volatility and that’s unlikely to change over the next few years,” DataTrek Research’s Jessica Rabe tells Bloomberg.
What they’re saying: The CEO of wind turbine maker Vestas said this morning that the bill is “very supportive of renewable energy in the United States over the next ten years,” should it pass the House, which is expected to take up the bill on Friday, per Reuters.
- A recent note from Goldman Sachs analysts said the legislation is bullish for utilities “as the wind, solar and storage tax credits would reduce the costs of building new renewables in the U.S.”
- On solar specifically, the bill’s announcement was a “welcome surprise for investors who by that point had become less confident on climate-related policy support being passed this year,” Goldman’s note states.