Global Coal Boom. Biden Blueprint Drilling Rights. EU emissions trading flop.

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Oil Prices Loom Over Biden Drilling Rights Blueprint
Jennifer A. Dlouhy, Bloomberg, July 12, 2021

The Biden administration is preparing to release a blueprint for limiting sales of U.S. drilling rights that falls short of the outright ban sought by some environmentalists, as rising oil and gasoline prices highlight the risks of curtailing domestic crude production.

A draft of the leasing report has already been shared with the White House Office of Domestic Climate Policy and is set to be released within weeks by the Interior Department, according to three people familiar with the matter who asked not to be named before the formal announcement.

Recommendations are set to include key changes to the government’s sale of oil and gas leases on federal lands and waters, including the boosting of royalty rates companies pay to extract fossil fuels and overhauling financial bonding requirements to ensure U.S. taxpayers don’t pay for any future cleanup.

Interior Secretary Deb Haaland has said the review is intended to ensure taxpayers get a fair return on the oil and gas extracted from federal lands.

The Interior Department also is expected to limit new leases in some sensitive coastal and Western areas and begin a broad study of the climate effects of oil and gas development on federal property. But the efforts would still fall short of the permanent leasing ban that dozens of environmental groups have said is necessary to address the climate crisis, according to two of the people familiar with the administration’s approach.

“We’re out of time for tinkering around the edges to address the problem of a climate crisis,” said Randi Spivak, public lands program director for the Center for Biological Diversity. “The science is so clear that there is no room in the carbon budget for any new investment in new fields, so the idea that we will give taxpayers their fair share is just anathema to the climate emergency we face.”

An Interior spokeswoman declined to comment on the matter. But Haaland was direct with lawmakers last month on the topic: “I don’t think there is a plan right now for a permanent ban.”

Environmentalists say modest changes are not enough. More than 50 groups insisted in a letter late last month that President Joe Biden should expand his campaign commitment to “not only end the federal leasing programs, but to wind down existing federal oil and gas production.”

The tightrope walk underscores how the Biden administration faces political risks in any moves to quash leasing on federal territory in New Mexico, the Gulf of Mexico and other regions that collectively supply roughly a quarter of the nation’s crude production — especially as oil and gasoline prices rise.

Since Biden took office on Jan. 20, the price of West Texas Intermediate crude has climbed from $53.24 to $74.56 per barrel — a surge that reflects growing fuel demand as coronavirus fears ease in the U.S. and consumers return to the roads. The price of gasoline, which is closely linked to the crude used to make it, has also increased, reaching a nationwide average of $3.14 per gallon on Thursday, according to auto club AAA.

The Organization of Petroleum Exporting Countries and its partners have failed to reach an agreement to increase oil production for August and later months, despite pressure from Biden administration officials for a deal that could blunt prices globally.

At the same time, federal pandemic aid and economic stimulus checks are subsiding, heightening the effects of increasing gas prices on U.S. consumers and increasing potential political risks for Biden.

“Six months ago, with people still sequestered in their homes and global oil demand still in the basement, this wasn’t going to be as worrisome as it is today,” said Kevin Book, managing director of the research firm ClearView Energy Partners. “In politics and optics, there’s no way to separate a president who is imposing new strictures on federal lands from a high pump price. The Republican attack lines write themselves.”

‘Radical Agenda’

The attacks are already coming.

Representative Steve Scalise of Louisiana, the second-ranking Republican in the House, has accused Biden and congressional Democrats of pushing a “radical agenda” that’s led to “higher energy prices.” And Representative Bill Johnson, an Ohio Republican, used a video taped at a filling station to highlight the sharp rise in gasoline costs earlier this month, asserting “the Biden administration and his policies are trying to stamp down America’s energy development here at home.”

White House Press Secretary Jen Psaki stressed the administration is “constantly monitoring gas prices” when asked about the stalled OPEC talks on July 6. “The president wants Americans to have access to affordable and reliable energy, including at the pump,” she said.

Oil industry advocates, including Republicans on Capitol Hill, argue that significant leasing restrictions would harm U.S. national security, energy independence and the economy by forcing the country to rely more heavily on crude produced in foreign nations with lax environmental controls.

The Interior Department already paused new leasing while it conducted its review. Although a federal judge ordered the agency to resume selling leases in a June 15 ruling, it has yet to announce new auctions.

“It’s sensible to review the program, but we’re hopeful that review is expedited and that its recommendations are don’t hinder our energy security and our production,” said American Petroleum Institute senior vice president.

“It’s sensible to review the program, but we’re hopeful that review is expedited and that its recommendations are don’t hinder our energy security and our production,” said American Petroleum Institute senior vice president Frank Macchiarola.

The National Ocean Industries Association has argued for resuming auctions of long-tapped territory in the Gulf of Mexico that provided 17% of U.S. crude production in 2020.

“There’s a lot at stake from an economic standpoint,” said Erik Milito, president of the group. Right now, “you’ve got demand picking up, you’ve got constrained supply, and if there are decisions that are made to further constrain supply over the long term, that’s going to send a terrible signal about the administration’s efforts when it comes to helping the consumer out with affordable energy.”

The Biden administration faces legal obstacles to permanently and immediately stop selling drilling rights, but environmentalists are urging Haaland to seize her power under federal law to withdraw land from leasing for two decades. Although another statute requires the government to prepare a five-year program of offshore oil and gas lease sales, activists say the administration could develop a lean plan for just a handful of auctions of sparse territory.

Concerns about climate — not oil prices — should drive the decisions, said Athan Manuel, director of the Sierra Club’s Lands Protection Program.

“Traditionally gas prices have been the big X factor,” but the public seems to care about it less in comparison to the consequences of climate change they are experiencing now, Manuel said. “If they do make decisions under that frame of climate, we think they’re going to get to a drilling ban — maybe not in this report but eventually.


America’s depressed oil production
Sam Ro, Axios, July 12, 2021

The demand for oil has been rising as consumers emerge from their homes, and businesses rev up to serve them. However, oil companies are dragging their feet on ramping up production, new data from Baker Hughes showed Friday.

Why it matters: When production doesn’t keep up with demand, it drives prices higher. Oil companies used to respond enthusiastically to rising prices by drilling more, in an attempt to cash in.

  • But that resulted in supply gluts that lowered prices, sending many companies into bankruptcy.
  • Now, they’re more disciplined, increasing production very slowly in response to demand.

By the numbers: Each week, Baker Hughes provides a tally of all the active oil rigs in the U.S.

  • As of July 9, there were just 378 active rigs, up only slightly from 376 the week before — but down from over 600 pre-pandemic.
  • A barrel of WTI crude is about $73, up from about $40 a year ago.

Meanwhile, crude inventories have fallen to their lowest level since February 2020. The inventory drawdowns confirm supplies are getting tighter.

Our thought bubble, via Axios’ Ben Geman: “Producers are exercising caution despite the demand revival and price rise. We’re a long ways off from seeing the pre-pandemic output peak, if ever.”

What to watch: Rising crude prices are visible to consumers in the form of what we pay for gasoline at the pump.

  • The Consumer Price Index report to be released on Tuesday will show how much energy prices are inflating.
  • And throughout earnings season listen for what companies say about energy costs they absorb versus the costs they pass on to customers through higher prices.


Shell signs five-year contract to supply PetroChina with carbon neutral LNG
Susan Twidale, Reuters, July 12, 2021

Oil major Shell (RDSa.L) has signed a five-year contract with PetroChina (601857.SS) to supply the Chinese company with carbon-neutral liquefied natural gas (LNG) cargos, Shell said on Monday.

Many companies, particularly those in the fossil fuel industry are using tools such as carbon offsets to compensate for emissions they are unable to cut in their operations. read more

For each cargo delivered under the agreement the two companies will “cooperate to offset life-cycle carbon dioxide equivalent (CO2e) emissions generated across the LNG value chain, using high-quality carbon credits from nature-based projects,” Shell said.

Nature-based offset projects such as reforestation, protect, transform, or restore land and enable nature to add oxygen and absorb carbon dioxide emissions.

The announcement came as PetroChina received its first carbon-neutral LNG cargo at Dalian port of China, Shell said.

“This first term deal is an important step in scaling up the market for carbon-neutral LNG and we are very grateful to our valued partner PetroChina for their collaboration in enabling this industry milestone,” Steve Hill, Executive Vice President Shell Energy said in a press release.

Shell said the offsets would come from its own portfolio of nature-based emission reduction projects.

Many environmental groups are skeptical about the use of carbon offsets and warn the ability to pay for emission reductions elsewhere could prolong the use of fossil fuels widely blamed for climate change. read more


Count on Coal Blog, July 7, 2021

The global energy transition is feeling far more like global energy addition. Fossil fuels are having quite the moment. The Biden administration is lobbying OPEC to pump more oil and provide relief at the gas pump. Global natural gas prices are soaring, and coal prices and coal demand have jumped to record levels.

Energy and climate rhetoric seem to be increasingly detached from the ground truth of consumer demand. As reporting from Bloomberg recently surmised, “the [global] coal industry is booming. Prices are at a thirteen-year high as recovery from the pandemic revives power use around the world. China, which burns half the world’s coal, has been forced to try and cool the market. In the U.S., where coal has been on the retreat over the last decade, consumption is expected to rebound 16% this year. Even in Europe, coal use is inching up as demand stretches electricity grids.”

Coal demand the world over is on a tear. And while Asia is certainly the heart of consumption and new plant and mine development, there’s no question coal is having a resurgent summer in the U.S. as well. Struggling grids across the country are once again calling on coal to come to the rescue. According to Argus, in June, coal generation on the PJM grid hit a three-year high. Coal demand on the Midcontinent Independent System Operator (MISO) grid rose 37% in June and 42% in Southwest Power Pool (SPP) territory.

This summer’s rising coal generation in the U.S. underscores global reality: the security, reliability and affordability of coal won’t be easily replaced. Even in nations and on electricity grids that have actively worked to push coal aside – such as the U.S. – the remaining coal fleet continues to underpin efforts to keep the lights on and ACs running.

With inflation pushing up the cost of necessities of all kinds, the affordability provided by coal is helping check power prices on those grids that are lucky enough to still have significant coal capacity.

Coal-enabled fuel diversity is not only a reliability lifesaver during cold weather when natural gas infrastructure struggles to keep up (the MISO and SPP grids can attest to that), it’s a critical hedge to U.S. natural gas prices that are increasingly shaped by strong demand from the global market. LNG prices in Asia are now nearly four times the cost of benchmark natural gas prices in the U.S. It’s no surprise then that U.S. LNG exports keep notching records as new export capacity comes online.

Bridge to the Future

Coal’s fuel security, reliability, and global ubiquity, coupled with U.S. natural gas’ increasing interconnection with global markets, raises some important questions—questions about whether the U.S. is doing enough to advance low-emission coal technologies but also about the wisdom of building new natural gas generating capacity as a bridge to the future.

The Tennessee Valley Authority, for example, is proposing to close well operating coal capacity and build six new gas turbines to replace it. Considering U.S. emissions reduction goals, including the Biden administration’s call for an emissions-free power sector as soon 2035, as well as rising natural gas prices, building new natural gas plants, or expanding natural gas infrastructure doesn’t make sense.  

The importance of dispatchable fuel diversity points to maintaining the existing coal fleet – not greater reliance on natural gas – as the bridge we need to get to the low-emission future we all want.

Despite rhetoric suggesting otherwise, the world is affirmatively not running away from coal, nor should we. The existing U.S. coal fleet provides the fuel security and balance the grid and consumers need to navigate the transition ahead. Recognizing coal’s global staying power also should be a wakeup call that meeting global emissions reduction targets requires doubling down on advanced coal technology, not abandoning it. This summer’s coal boom should be all the signal we need for a parallel boom in leadership on emissions control technologies.


Alaska GOP leaders endorse challenger to US Sen. Murkowski
Associated Press, July 11, 2021

The leaders of Alaska’s Republican Party on Saturday endorsed a challenger to incumbent U.S. Sen. Lisa Murkowski, who has been one of the GOP’s most outspoken critics of former President Donald Trump, the Anchorage Daily News reported.

The Alaska Republican State Central Committee endorsed Kelly Tshibaka in the 2022 race for the U.S. Senate seat held by Murkowski. The committee approved Tshibaka’s endorsement in a 58-17 vote during a meeting in Fairbanks, the newspaper reported.

In a statement, Tshibaka said she will uphold conservative ideals and be a senator who Alaskans “can depend to make every decision based on what is best for our great state.”

Tshibaka, who ran the Alaska Department of Administration, announced March 29 that she would run for the Senate seat held by Murkowski, who has been in office since 2002.

On March 13, the Republican State Central Committee voted 53-17 to censure Murkowski, citing her vote to impeach Trump and other votes that have broken with GOP leadership. Alaska Republican Party leaders said at the time that they would recruit someone to run against her.

Trump has endorsed Tshibaka. “Lisa Murkowski is bad for Alaska,” Trump said in a statement last month. “Murkowski has got to go!”

Murkowski said in a statement to the Daily News that she has fought for Alaskan values in the U.S. Senate and will continue to do so.

“Alaskan voters will decide who represents them in DC, and I work every day to earn their support,” Murkowski said.


Here Come the Climate Protectionists
The Editorial Board, The Wall Street Journal, July 12, 2021

Europe starts the bidding on CO2 tariffs. Will Biden follow?

Western politicians have failed to persuade their own voters to commit economic suicide by banning fossil fuels, and forget about China, Russia, or India. The climate lobby’s fallback, which is starting to emerge, is to punish the foreigners and their own consumers with climate tariffs.

Bureaucrats at the European Commission are due to unveil the proposed Carbon Border Adjustment Mechanism (CBAM) later this month, but a draft recently leaked. Brussels wants to impose tariffs to bring the cost of carbon-dioxide emissions tied to an imported good into line with what a European producer would pay to produce the same good.

This is an admission that the European Union’s emissions-trading scheme (ETS) is bad for the economy. European companies are less competitive because they have to pay for their emissions and foreign companies don’t. Environmentalists say the ETS encourages companies to send production offshore to avoid the ETS, which greens call “carbon leakage” and most people would call common sense. The CBAM is intended to level the playing field, at least within the European market.

Even on those terms, the draft plan is a failure. It starts small, applying at first to a handful of industries such as iron, steel, and fertilizers. And it doesn’t account fully for environmental compliance costs. The CBAM will be tied to the cost of tradable emissions permits, but it won’t factor in the expenses European companies bear for a complex web of green subsidies, feed-in tariffs and the like that increase energy costs at factories.

The bigger problems are that a carbon tariff would impose an enormous burden on companies seeking to sell to the EU—even the low-emitting firms—and as a result probably will trigger a trade war. China, India, Brazil, and South Africa are already objecting.

Under the leaked plan, foreign firms would have to undertake detailed carbon audits to report emissions to EU regulators, and then would have to work out what proportion of the emissions attributable to goods shipped to the EU already were covered by carbon taxes elsewhere. If a company isn’t able to complete such complex and expensive calculations, its carbon tariff will be estimated on the basis of the emissions of the dirtiest 10% of European producers for the same good.

The choice between costly compliance or a punitive default tariff risks deterring smaller foreign companies from trying to navigate this system. That’s a point the EU’s trading partners are sure to raise when this inevitably lands at the World Trade Organization. WTO rules allow for some climate-related tariffs, but trade lawyers will spend years sorting out whether the EU’s plan complies with WTO principles.

At a minimum, the EU probably will have to scrap its subsidies for high-emission industries, such as generous allocations of free credits under the current ETS. We’d love to be a fly on the wall when someone in Brussels sits down to explain this to industry leaders. Nor are WTO rules likely to allow another favor European companies might request, a refund of ETS charges for exported goods in order to restore European competitiveness abroad.

The carbon-tariff plan may be intended to goad the Biden Administration into imposing a carbon tax that would burden U.S. businesses with the same climate costs as Europe’s. The list of targeted industries appears calculated to minimize the effect on trade with the U.S., but the threat of expansion to cover more goods is serious. John Kerry, President Biden’s climate envoy, has said the Administration is evaluating a climate border tax. And the political temptation to please climate greens and protectionist unions with tariffs, especially toward China, will grow.

The climate tariff is a tacit admission that Western elites haven’t convinced their voters to pay the price of their climate obsessions. Like Donald Trump, they now want to blame foreigners. In the process they’ll force their consumers to pay more for imports and domestic goods, and they’ll harm their own exporters if countries retaliate.

The last thing the world economy needs as it recovers from a pandemic is a climate-change trade war.