Today’s Key Takeaways: WA legislators fuel export tax triggers retaliation from AK and other states. Saudi Arabia warns of under-investment in oil and gas, new energy crisis. Biden touts plans for critical, strategic minerals, then deals set back to Ambler mining plans. Murkowski talks resource development in Juneau.
NEWS OF THE DAY:
Is Washington starting a trade war with Oregon, Alaska, and Idaho?
John Ley, Clark County Daily, February 22, 2022
Proposed fuel export tax triggers multiple responses in retaliation
Have Washington Democrats in the legislature started a trade war? Their $16.8 billion transportation package includes raising taxes on Oregon, Idaho, and Alaska citizens via a tax on exported fuels. It is expected to raise $2 billion over 16 years. Washington Democrats want to impose a 6 cent per gallon tax on fuel refined in the Puget Sound but shipped out of state.
The transportation package is the largest in state history. There have already been three other significant transportation packages enacted in the past 20 years. Those included the “nickel tax” in 2003, a 9-cent increase in 2005, and another 12-cent gas tax increase in 2015.
“House Bill 2119 is just a bad step by the state of Washington,” Randy Pepple of Affordable Fuel Washington told KVI’s John Carlson this morning. “It puts our economy at risk and puts our tax policy at risk of starting a trade war.” The Senate version has already been passed.
Oregon, Idaho, and Alaska legislators have spoken about retribution. The Idaho Gov. Brad Little joined Oregon’s Kate Brown in calling Gov. Jay Inslee and saying the export fuels tax is unfair and unacceptable. Little wrote in a letter to Inslee that the Washington State Legislature “is venturing into new, uncertain territory” and called on Inslee to veto the legislation if it reaches his desk.
Alaska Gov. Mike Dunleavy tweeted the following. “Washington State is currently debating a tax that targets Alaska’s fuel costs. Their view of Alaska as a colony is reflected on a tax on all of us. Take a moment and listen to Rep. Kevin McCabe, calling out the hypocrisy of Washington taxing Alaskans.”
McCabe is proposing retaliatory taxes on fish and oil exported from Alaska to Washington state after Washington lawmakers unveiled a plan to levy a 6-cent-per-gallon tax on fuel refined in Washington and exported to neighboring states.
“Frankly, I’m tired of being thought of as a Washington colony,” McCabe said on the House floor last week. “I’m tired of them depending on us and taxing us for their needs and ignoring ours.”
McCabe has already drafted two bills in response. “One which will be a 6 cent per pound tax over the landing tax on fish that are landed in Alaska,” he described. “The other one would be a 6 cent per foot tax on any boat that moors or anchors in Alaska harbors.” Alaskans could apply for a credit on the boat tax.
That would apply to all Washington fishing vessels with home ports in the Puget Sound but fish in Alaska. If passed, McCabe’s proposals could send the cost of seafood in the state skyrocketing.
Pepple pointed out that the tax could also backfire, costing Washington citizens as well.
“It will lead to Washington residents potentially being double taxed on gas because they’ll pay the nation’s second highest gas tax if they buy their gas in Washington,” he said. “But if that gas started in Washington, and took the pipeline down to Portland, it’s often trucked back across the river into Southwest Washington because that’s more efficient.”
The State Senate acted with the haste of someone that knows they’re doing the wrong thing, Pepple pointed out. They introduced it on a Tuesday, heard it on a Wednesday, voted on it on a Friday in committee. They brought it to the full Senate on Monday for the next vote and passed it on Tuesday; all in one week.
The complete tax package could increase taxes and prices on natural gas, electricity, and other utilities in Washington as well. “They either don’t understand, or they don’t care,” Pepple said.
House Bill 2119 is just a bad step by the state of Washington. It puts our economy at risk and puts our tax policy at risk of starting a trade war.”
“I suppose, if enacted, Oregon will look at ways to retaliate,” said Oregon Sen. Lee Beyer. He chairs the state’s transportation committee and also sits on the Bi-state Bridge Committee of 16 legislators from Oregon and Washington that provide oversight to the Interstate Bridge Replacement (IBR) program.
Asked whether the tax proposal could sour the ongoing discussion about replacing the Interstate Bridge, Beyer said: “I don’t want to jump to any conclusions on that.”
Last week, Sen. Annette Cleveland (Democrat, 49th District) voted against an amendment offered by Sen. Curtis King (Republican, 14th District) to kill the fuel export tax. Twenty minutes after the Senate Transportation Committee killed the King amendment, Cleveland introduced her own which delayed the tax by five months. She told her fellow senators that the tax was a “grave concern” to Oregon yet refused to eliminate the tax.
One legislator argued turnabout is fair play when it comes to the export fuel tax. Rep. Sharon Wylie (Democrat, 49th District) represents tens of thousands of commuters who live in Washington but have Oregon taxes withheld from their paychecks because they work at jobs in the Portland area.
“My people pay 10 percent Oregon income tax if they don’t have a job on my side of the river,” Wylie said. She is one of the sponsors of HB 2119.
Another response being discussed would impose a $15-per-barrel surcharge on Alaska crude oil going to refineries in Washington.
McCabe expressed his belief that Washington’s proposed export tax would be a clear violation of the federal commerce clause, which prevents states from taxing items exported between them.
“I mean, anybody that has read a little bit of the Constitution understands that, but apparently the Washington lawmakers don’t,” he said.
Washington Senate Transportation Committee Chair Marco Liias (Democrat, 21st District), said there is precedent for a state to charge an exported fuel tax that targets a neighboring state’s drivers.
“Florida, Texas and Tennessee … have taxes that they apply to exported fuel from their in-state refineries,” Liias said during a Feb. 8 virtual press conference. “Washington will not be the first to consider this as a revenue tool.”
Texas does have an export tax, but it’s not written the same way according to one news report. This leaves Washington’s proposal in uncharted territory. Tennessee also levies a tax on all petroleum products it exports to other states, but at a much lower rate of one-twentieth of one cent per gallon.
The Washington bill has already passed the state Senate. There will be an executive session of the House Transportation Committee later today (Tuesday). If the bill is signed into law, the tax measure will take effect in February 2023 in the House version, or June 30 in the Senate version.
Much of Alaska’s oil is refined outside of the state and transported back to Alaska by barge. Many rural Alaskan communities rely on diesel electric generators for power. Alaska ranks second only to Hawaii in the share of its electricity — 16 percent in 2020 — generated from petroleum, according to the U.S. Energy Information Administration.
As for how potential retaliation from other states might affect Washington’s proposed transportation package, KIRO News radio reporter Hanna Scott says Democrats in the legislature don’t appear to be backing down on the export tax for the time being.
This is not the first time Alaska lawmakers have proposed a retaliatory tax in response to a Washington tax proposal.
In 2009, Alaska lawmakers proposed imposing a $16 a barrel surcharge on North Slope crude destined for Washington state in response to a Washington bill that would tax fuel that’s refined in Washington and exported to other states, including Alaska. After Alaska lawmakers proposed the retaliatory tax in 2009, the Washington proposal failed to pass.
“Washington State tried this before and we had the same exact response,” McCabe said. But he added that it’s hard to say if the measures he is proposing will have the same effect this year.
OIL:
Saudi Arabia Slams Shortsighted Campaign Against Oil
Tsvetana Paraskova, OilPrice.Com, February 22, 2022
- Saudi Arabia has a stark warning about the dangers of underinvesting in oil.
- The world’s top oil exporter is cautioning that the underinvestment in oil and gas could spark a new energy crisis.
- “Net-zero does not mean cherry-picking, net-zero does not mean zero oil.”
The world’s top oil exporter, Saudi Arabia, has repeatedly said it wants to be the producer that will pump the very last barrel of oil. Until that time comes, the world and its growing economy will still need oil and gas, even as renewable energy capacity soars globally.
The rebound of economies after the 2020 COVID slump has shown that global oil demand is not only not declining, but it is just months away from reaching pre-pandemic levels and exceeding them.
This weekend, Saudi Arabia once again deplored the underinvestment in oil and gas and said that focusing only on renewables while campaigning against oil and gas was a mistake.
“Net Zero Does Not Mean Zero Oil”
The insufficient investment in the oil and gas industry harms consumers, raises concerns about short-term supply shortages, and creates challenges for policymakers, Saudi Energy Minister Prince Abdulaziz bin Salman said at the 2022 International Petroleum Technology Conference (IPTC) in Riyadh this weekend. The campaign against oil and gas investments is shortsighted, the minister said, as carried by Arab News.
The sole focus on renewables is a mistake, said the most influential oilman of the OPEC+ coalition.
“The net-zero does not mean cherry-picking, net-zero does not mean zero oil,” he added.
The sharp decline in oil and gas investments has created a danger “that the world will not be able to produce all the energy it needs to promote recovery,” Prince Abdulaziz bin Salman said at the conference, per the Saudi Press Agency.
The Saudi minister also criticized the International Energy Agency (IEA) for its contradictory messages, from “no new investment ever again” last year to calls last week for more investment in oil and gas amid the current energy crisis and soaring oil prices.
Saudi Arabia Boosts Oil Production Capacity
While the supermajors and U.S. shale are not racing to invest in new supply, Saudi Arabia plans to raise its crude oil production capacity by 1 million barrels per day (bpd) within five years. Saudi Arabia’s oil giant Aramco targets to increase its oil production capacity to 13 million barrels per day by 2027 from 12 million bpd now.
“We are targeting our production capacity to become 13.4, 13.5 million barrels a day by 2027,” Prince Abdulaziz Bin Salman told TIME’s Vivienne Walt in an interview published earlier this month.
“We believe oil consumption will continue to grow. The demand for oil will continue growing. At what level, I do not know, because the jury is out. Anyone who tells you that they have a good grasp of where and when and how much is certainly living in a fantasy land,” he said.
So, Saudi Arabia and its state oil giant Aramco are doubling down on oil, expecting robust global demand. The world’s top oil exporter is doing its part in ensuring oil production capacity for later this decade when chronic underinvestment in oil will have impacted supply already.
“We intend to remain the world’s top producer,” Yasir Othman Al-Rumayyan, Chairman of Saudi Aramco’s Board of Directors and the Governor of the Public Investment Fund, said at the same conference in Riyadh this weekend.
Renewable energy sources depend on materials that can only be produced with hydrocarbons, Al-Rumayyan said, noting the steel, diesel trucks, and resin-coated blades inputs in building, transporting, and erecting a wind turbine, for example.
“So, make no mistake, oil and gas are part of this transition. We have a vital role to play. And we intend to be in business for a very long time,” Aramco’s chairman said.
“It’s often assumed that the only thing holding back a net-zero future is a lack of ambition. That’s wrong. Our industry has ambition in abundance. The truth is that there are still some very complex technology challenges that we haven’t yet solved,” Al-Rumayyan added.
Underinvestment Could Create Next Supply Shortage Shock
Throughout the net-zero commitments and “keep it in the ground” calls of the past few years, Saudi Arabia hasn’t changed its message to the energy industry—renewables are not enough, underinvestment in oil and gas threatens to create supply shortages, and a rushed transition will lead to increased volatility and higher energy prices.
Over the past few months, the world saw first-hand what fossil fuel shortages could be like. Government priorities turned from actions to reduce emissions in the long term to addressing the immediate energy crunch, soaring energy bills, and catering for the near-term energy security.
Global annual upstream spending needs to increase by as much as 54 percent to $542 billion if the oil market is to avert the next supply shortage shock, Moody’s said last year.
The chief executive of Saudi Aramco, Amin Nasser, said that the World Petroleum Congress in Texas in December:
“Right now, the world is facing an ever more chaotic energy transition. Several highly unrealistic scenarios and assumptions about the future of energy are clouding the picture.”
“Energy security, economic development, and affordability imperatives are clearly not receiving enough attention. Until they are, and unless the glaring gaps in the transition strategy are fixed, the chaos will only intensify,” Saudi Aramco’s CEO noted.
Commenting on the current commodity markets, Jeff Currie, global head of commodities research at Goldman Sachs, said earlier this month that “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”
GAS:
Natural Gas Prices Hit Record High In China
Irina Slav, OilPrice.Com, February 23, 2022
- Temperatures in many parts of China were colder than usual for the season and may continue to put pressure on gas supplies until later this week.
- Bloomberg: besides the weather, restocking LNG may also have affected demand for the commodity in the world’s largest importer.
Natural gas prices in China have gained as much as 80 percent over the last month to reach a record high amid freezing weather and tight supply.
Bloomberg reports that temperatures in many parts of China were colder than usual for the season and would continue to put pressure on gas supplies until later this week, especially in the northern part of the country. This could prompt Chinese traders to look for LNG cargoes on spot markets, which would further aggravate the deficit on those markets.
This could, in turn, create problems for Europe, which is still grappling with tight gas supply and dangerously low inventories, because Chinese LNG is trading at a premium to the Asian benchmark, and traders might be tempted to snatch up LNG cargos to sell to China.
According to one Bloomberg analyst, besides the weather, restocking LNG may also have affected demand for the commodity in the world’s largest importer.
Meanwhile, Shell forecast that global natural gas demand could surge by as much as 90 percent between now and 2040 and top 700 million tons annually.
Asia will account for most of the increase in LNG demand through 2040, considering that natural gas production in many Asian countries will decline, while regional economies will grow and LNG will replace more polluting energy sources, Shell said. Around 70 percent of the total growth in global LNG demand through 2040 will come from Asia.
In this context, China may soon turn into a major LNG trader, according to analysts. Chinese businesses are already setting up trading firms across the world to compete with majors Shell, BP, and Vitol as the country is seen retaining the top spot among LNG importers for the observable future. Meanwhile, China is closing long-term LNG supply deals with U.S. producers, which would boost the availability of gas to trade.
MINING:
Biden administration moves to review Ambler Road plans
Alex DeMarban, Anchorage Daily News, February 22, 2022
The Biden administration is moving to review a Trump-era decision supporting development of a controversial, 200-mile industrial road in Northwest Alaska, a setback for the effort to access deposits of valuable minerals in the region.
Newly filed Biden administration court documents raiseconcerns about the analysis that led to the issuance of a federal right-of-way permit for the road to the Alaska Industrial Development and Export Authority, a state agency. The concerns center on the needs of Alaska Native tribes in the region that rely on subsistence hunting and fishing.
The Department of Justice, on behalf of the Interior Department, filed the documents on Tuesday in a federal court case asking Alaska District Court Judge Sharon Gleason to allow the agency to revisit a study conducted during the Trump administration that allowed the road to advance.
In a statement, the Interior Department also said it intends to suspend right-of-way for the road during the review, “to ensure that no ground-disturbing activity takes place that could potentially impact the resources in question.”
The Alaska Industrial Development and Export Authority is leading the effort to build the road, which is expected to cost more than $500 million and would stretch from the Dalton Highway to deposits of zinc and critical minerals such as copper in the Ambler Mining District.
[Earlier coverage: Proposed Ambler project underscores promise and peril of the Alaska Native Claims Settlement Act]
It would link Alaska’s skeletal road system north of Fairbanks to the district, ending near Ambler and other villages. It would cut through caribou habitat and many rivers and streams. A portion would cross the Gates of the Arctic National Park and Preserve.
POLITICS:
Murkowski touts infrastructure success, tells Legislature she’s fighting Biden admin daily for resource development
Liz Ruskin, Alaska Public Media, February 22, 2022
U.S. Sen. Lisa Murkowski, a Republican condemned by her party, returned to the Alaska Legislature Tuesday for an annual address marked by her moderate brand of politics.
She spoke at length about the benefits for Alaska in the federal infrastructure bill that President Joe Biden signed into law in November.
“This infrastructure law is one of the most consequential measures that I have ever worked on. And I thank Sen. [Dan] Sullivan, Congressman [Don]Young for their support for it. But I really want to commend Congressman Young,” she said. “He put aside the partisan pressure to oppose the bill in the House and really worked to round up the votes there on the House side.”
Murkowski, of course, faced that partisan pressure, too. While infrastructure is popular across the political spectrum, many Republicans didn’t want to give Biden the win.
Murkowski, though, cited the late U.S. Sen. Ted Stevens, whose catchphrase was, “To hell with politics. Let’s do what’s right for Alaska.” The infrastructure law is already delivering results, Murkowski said, with $608 million in projects announced so far.
“We will grow our economy. We will improve Alaskan’s quality of life and will leave a healthier, more resilient, better developed, and yet still beautiful state for our children,” she said.
Her remarks drew applause from much of the Legislature. But not from everyone. Rep. Christopher Kurka, a right-wing candidate for governor, quietly reached for his water glass at one point while his colleagues were clapping for the senator. Next to him, Rep. David Eastman swiveled silently in his chair. Both are Republicans from the Mat-Su, one of the most conservative areas of the state.
Murkowski is reviled by conservative Republicans who view her as too liberal and too adversarial to former President Donald Trump. The Alaska Republican Party has not forgotten that she voted to convict Trump at his second impeachment trial. The party censured her last year. Now Murkowski is running for reelection and the party has endorsed a Republican challenger, Kelly Tshibaka, who went to Mar-a-Lago this month for a fundraiser that Trump hosted.
In a Q-and-A after Murkowski’s address, Rep. Kevin McCabe, another Mat-Su Republican, said his conservative constituents wonder if she regrets voting to confirm Biden’s Interior secretary, Deb Haaland.
“My folks want to know, would you change your stance now, if you could?” McCabe asked.
“I’d like to change her mind on the decisions that she has made that have negatively impacted the state of Alaska,” Murkowski replied.
If Biden chose a different Interior secretary, the administration’s opposition to many Alaska resource development projects would be the same, she said. She described daily battles with the Biden administration about resource policy and permits, but she said she thinks the Willow oil project in the National Petroleum Reserve-Alaska will be approved this year.
“Anytime I have a conversation with anybody in the White House, the subject of Willow comes up,” Murkowski said. “I actually found out that the president has a new cat that he named Willow. This is a true story. So, think about that. That name had to be in his head for some reason.”
At a press conference after the address, Murkowski said she is concerned that the U.S. Supreme Court will overturn the Roe vs. Wade decision, or otherwise undermine abortion rights.
She voted to confirm two of Trump’s high court nominees who are now part of the conservative bloc on the bench.