Tag Archives: Oil Industry

Game Over for the Oil Industry, What Will Benicia Do?

Emergency flaring at Valero Benicia Refinery, May 5, 2017. (Chris Riley/Times-Herald)
By Grant Cooke, Benicia resident and President, AgTech Blends, September 14, 2020
Grant Cooke

During the 2016 resistance to Valero’s horrendous attempt to bring crude oil by rail into Benicia, I urged the city council to rethink its dependence on Valero for the bulk of its tax support. I suggested then that we move away from being a “company town” to one that embraced a more knowledge-based economic model with a diversified tax base.

I pointed out that as the world’s industrial nations shift from carbon-driven economies that threatened severe climate disruption and environmental catastrophe to a clean energy driven model, those mega-trend shifts would have significant impact on our little town.

I noted that the era of the Bay Area’s refineries was drawing to a close and that most—including Valero—would be closed before mid-century.

It was not a popular observation, even though at the time there was a rumor that all five Bay Area refineries were for sale, but title couldn’t change hands because the environmental cleanup was prohibitive. Besides, the oil industry’s business model of ever-increasing demand was suspect.

Well, then the nation’s leadership banked a hard right, the Environmental Protection Agency was gutted, the heavy oil interests broke free, and the carbon boys rode tall as the U.S. became a net exporter and one of the world’s major oil producers.

2019 saw the highpoint. Production was up 11 percent to new historic U.S. highs of over 12 million barrels per day. In 2018 Brent Crude’s price was over $70 per barrel. It slipped to $65 per barrel in 2019, but production was at a fever pitch.

And then it all collapsed. The Saudis and the Russians did a circular firing squad, OPEC stumbled, supply burgeoned, the novel coronavirus hit, and the U.S. economy tanked. At this spring’s lows, Brent Crude dropped to about $34 per barrel.

Now that the Saudis and Russians have given up their battle, Brent has budged a bit to $44 per barrel.

With the economic collapse so too has the demand for gasoline. Storage is full, demand is way down, supply is way up.

Valero as a refiner makes money when oil prices slide. As long as supply increases and oil prices drop but demand for gas is constant, money is made, profits are up, bonuses and dividends are paid.

Back in June 2018, Valero was in its glory, and the stock price was a couple of cents under $127 per share. The fall was ugly. By April 2020, it broke down to around $31. It has since rebounded a bit—what the financial folks colorfully describe as a Dead Cat bounce—to the mid-$50s. Most likely, it will turn down again and the dividend will be reduced.

What’s equally as devastating to Valero and the oil industry, is that Covid-19 and the subsequent economic collapse has pushed clean energy forward into the nation’s recovery plans. A huge national infrastructure plan is on the horizon, much of it encompassing renewable energy.

This is the TESLA tsunami with its market cap of $144 billion, and the growing consumer recognition that e-vehicles are better, faster, and cleaner than gas-powered cars. E-vehicles and hybrids are the growing segment of the auto market.

About 13 percent of California’s vehicles are e-vehicles or hybrids, and the percentage is growing with the state’s goal of 5 million zero emission vehicles on the road by 2030.

Pickups and commercial vehicles like trucks and forklifts are turning to electric motors for their increased power and torque. Even in the mining industry, electric, autonomous vehicles are being phased in to reduce costs and improve efficiency.

Eventually, there won’t be any more diesel trucks idling in Oakland’s port, and the incidence of asthma will drop significantly in nearby neighborhoods.

The oil industry needs to look no further for discouraging news than the recent announcement by General Motors, the largest U.S. automaker, that it is converting most of its fleet to electric power. Led by Cadillac, GM intends to have 20 electric nameplates by 2023, including an electric Hummer and a rumored Corvette that will hit 200 mph to compete with the 2021 Ford Mustang Mach-E.

Further, Southern California’s Hyperion just introduced the XP-1, a mind-blowing mega car powered by hydrogen with a top speed over 220 mph and a range of 1,000 miles on a tank of hydrogen. Europe already has hydrogen-powered buses, and hydrogen fuel cell technology will only hasten the development of carbon-free vehicles.

Finally, and what really should worry Valero and Benicia, is that Phillips 66 just announced that they are converting the Rodeo facility from refining crude oil to a renewable fuels plant using cooking oil and food wastes to produce motor fuels. The conversion should be finished in 2024.

The oil industry is not known for its vision and if Phillips sees that the carbon era is over, most likely it is.

As the world transitions away from carbon energy, the remaining crude-based Bay Area refineries will suffer, and some will lock their gates. The money isn’t there for the environmental cleanup, so the cities—Benicia, Martinez, Pinole, Richmond—will be left without tax revenue and worse, holding the bag for the hazardous waste.

The November election is critical for our nation, and equally important for our town. Some city council candidates are being funded by the oil industry, in a last-ditch effort to cement political power and influence, preserve profits, and probably re-introduce a Crude-by-Rail agenda.

The oil industry and union Political Action Committee, or PAC, has in fact set aside $250,000 this year to steer the 2020 election to their chosen candidates. It would be tragic for Benicia’s if they succeed.

The future for Benicia is not in clinging to the century-long carbon industry that is in decline. Benicia’s future is, or at least should be, in the knowledge-based economy. Science, technology and innovation are the drivers that create wealth and municipal security in the Bay Area. That is where the future is, not in the gas pumps.

Benicia is facing a severe challenge. The carbon-based tax structure that supported its amiable lifestyle with a full range of municipal services is ending.

Allowing a last gasp effort by the oil industry to control the city’s future is a terrible idea. That game is, and should be, over.

I’m voting for and supporting Steve Young for mayor. (And no, Steve has not approved this message.)


Grant Cooke is a Benicia resident and co-author of two books:
By Woodrow Clark II and Grant Cooke, published by Elsevier and available at Amazon:
Grant Cooke
President, AgTech Blends
https://agtechblends.com

Emissions are way down. No, that’s not all good news for the environment.

Chaos in the oil sector could actually intensify climate change.

Mother Jones, by Rebecca Leber, April 21, 2020
Getty

As the coronavirus cripples world economies, greenhouse gas emissions are plummeting: This year, they could drop by as much as 5.5 percent—the largest decrease ever recorded. On Monday, the price of oil went negative, meaning storing oil now costs more than the oil itself. Since we’re burning less gas and fuel, air pollution has dropped 30 percent in northeastern cities, and Los Angeles’ notorious smoggy skyline has cleared.

You might be thinking all this is great news for the environment. It’s a nice idea—but the real story is more complicated. “You don’t want companies collapsing like this,” says Andrew Logan, oil and gas director of Ceres, a think tank focused on sustainable investment. “Even the most ardent climate advocate shouldn’t wish for a chaotic transition in this sector. A chaotic transition brings all sort of pain to workers and also the environment.”

It helps to think of COVID-19 as a test run—a very painful one—of what an industry in decline will look like. “We’re seeing, as is case the now, what the cliff looks like if everyone shuts down at the same time,” Logan says.

With a glut of supply, North America producers Exxon, Shell, Devon Energy, and Cenovus Energy have already collectively announced spending cuts this year totaling $50 billion, according to the Wall Street Journal. In North Dakota, Trump donor Harold Hamm’s Continental Resources drilling company has cut output by 30 percent the next two months. In Canada, the famously destructive tar sands are too expensive to mine and refine on oil prices this cheap. Even the Southwest’s Permian Basin, the most productive region for oil and gas in the United States, is expected to see dramatic closures.

Environmentalists are worried about what comes next, because of the many unintended consequences of market chaos. For starters, when gas prices tank, Americans will likely start buying more cars and taking more road trips, driving up demand all over again.

Other environmental problems aren’t quite so obvious. Lorne Stockman, a senior research analyst with the climate advocacy group Oil Change International, worries that the coming bankruptcies this year “are an environmental nightmare in the making,” with “wells left to rot as bankruptcy proceedings are going through.”

As the industry contracts, some drilling operations will simply leave their wells, and many don’t have the funding set aside to take proper precautions to make sure greenhouse gases and other pollutants don’t leak out. Environmental advocates are especially worried about leaks of methane, a particularly potent greenhouse gas.

Abandoned wells are already a big problem. Even in relatively good times, oil and gas wells still dry up. When they do, they might be sold to smaller, sometimes less scrupulous operators to tap what’s left in the well. Then those operators eventually abandon the well or go bankrupt. They can’t afford to clean up the site, which involves plugging the well with cement to avoid leaks into groundwater.

We don’t know for sure how many of these wells exist around the country, though the EPA estimates there are more than 1.5 million of them that have accumulated over a century. Wyoming has had thousands it’s in the process of plugging, and Pennsylvania has 8,000. Taxpayers will eventually pay for both cleanup and environmental damages.

Drilling operations that don’t shutter will have to find ways to cut costs. In boom times, methane is valuable to drillers because it can be captured and reused for fuel. But when oil and natural gas prices have crashed in the past, drillers have sought to get rid of excess methane in the cheapest way possible—by burning it (a process known as “flaring”) or simply letting it leak into the atmosphere (called “venting”). Both processes can contribute to climate change and contaminate surrounding communities. Flaring and venting worry many environmental advocates. The International Energy Agency notes that “low natural gas prices may lead to increases in flaring or venting, and regulatory oversight of oil and gas operations could be scaled back.”

Methane emissions hit a 20-year high last year, according to the National Oceanic and Atmospheric Administration. Although scientists don’t fully understand why, they believe that fracking operations may dramatically underestimate the methane they release. According to the Environmental Defense Fund, operations typically lose 15 times the rate that producers report because of malfunctions and intentional venting. The COVID-19 crisis could lead to more leaks, because companies won’t have any incentive to capture methane to use for fuel.

Amid the turbulence in the oil sector, the Trump administration has continued to roll back environmental regulations, and it has already undone Obama-era rules targeting methane emissions from oil and gas operations.

Nathalie Eddy, a field advocate for the environmental watchdog Earthworks, is worried that environmental contamination will be made worse as the administration weakens rules. “When the market falls like this one of the first things that will go is the limited capacity for inspection,” she says. The EPA, Department of the Interior, and Department of Transportation have already announced they will suspend some routine inspections and monitoring, including pipeline reporting and field inspections, and waive civil penalties if violators say COVID-19 was a factor.

Climate advocates have urged the EPA and Department of the Interior to require companies to monitor methane leaks and set aside money for their cleanup. To help the sector recoup the lost revenue, they propose a job stimulus program aimed at reclaiming these sites for the double-duty benefit of a clean environment and keeping workers employed.

But so far, those pleas are going unanswered. The Trump administration has floated several schemes for helping the oil sector: During the first round of stimulus, congressional Democrats managed to shoot down the oil industry’s bailout request. Now, the administration is considering paying producers to leave crude in the ground until the global glut shrinks. Meanwhile, the major banks want some collateral for the $200 billion they are owed from oil companies: According to Reuters, JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup could even seize the industry’s assets, which could pose an enormous conflict of interest for a financial sector that just months ago was signaling a move away from the oil sector.

So far, it looks like the short-term emissions drop won’t result in any lasting policy improvements, Stockman says. “We have seen the wrong kind of stimulus that isn’t aimed at changing our relationship to fossil fuels.”

Oil prices dip below zero as producers forced to pay to dispose of excess

US crude has negative value for first time in history as stockpiles overwhelm storage facilities

The Guardian, by Jillian Ambrose and Martin Farrer, April 20, 2020
A record 160m barrels of oil are currently being stored in oil tankers outside the world’s shipping ports. Photograph: US Department of Energy/EPA

US oil prices turned negative for the first time on record on Monday as North America’s oil producers run out of space to store an unprecedented oversupply of crude left by the coronavirus crisis.

The price of US crude oil collapsed from $18 a barrel to -$38 in a matter of hours, forcing oil producers to pay buyers to take the glut of crude which they cannot store, as rising stockpiles of crude threaten to overwhelm oil storage facilities.

“The problem of the global supply-demand imbalance has started to really manifest itself in prices,” said Bjornar Tonhaugen, head of oil at research firm Rystad Energy. “As production continues relatively unscathed, storages are filling up by the day. The world is using less and less oil and producers now feel how this translates.”

The Guardian reported over the weekend that a record 160m barrels of oil was being stored in “supergiant” oil tankers outside the world’s largest shipping ports, including the US Gulf, following the deepest fall in oil demand in 25 years because of the coronavirus pandemic.

The last time floating storage reached levels close to this was in the depths of the financial crisis in 2009, when traders stored more than 100m barrels at sea before offloading stocks when the economy began to recover.

The price collapse in US oil market – known in the industry as the West Texas Intermediate price – accelerated because it is the last day oil producers can trade barrels that are scheduled for delivery next month, when oil storage is expected to reach capacity.

The US price for oil delivered in June, which will become the default oil price from tomorrow, is also falling due to the economic gloom caused by the coronavirus, but has managed to remain above $20 a barrel. On Monday the price for brent crude, the most widely used benchmark, fell 8% to $25.79.

Concerns over the economy, which directly affect oil demand, have been heightened by the growing standoff between the US president and state governors over whether the US can begin to lift restrictions on movement and businesses.

Global oil prices are expected to begin recovering over the second half of the year as tight restrictions on travel to help curb the spread of the virus are lifted, raising demand for fuels and oil.

The world’s largest oil-producing nations have agreed a deal to hold back between 10m to 20m barrels of oil a day from the global market from May, and many oil companies are likely to shut their wells as financial pressures mount.

Cailin Birch, global economist at the Economist Intelligence Unit, said: “US crude oil production has begun to fall in the last two weeks, and will continue to fall in the coming months as already heavily indebted shale firms scale back activity or are forced into bankruptcy or consolidation.”

Despite the historic production cuts, most analysts believe that oil prices will fail to reach the same price levels recorded at the beginning of the year before the outbreak. The global oil price, under the brent crude measure, reached highs of almost $69 a barrel in January before plummeting to less than $23 a barrel at the end of March.

Bay Area gas prices: great for consumers, a threat to independent frackers

Haven’t filled up lately? Here’s how cheap Bay Area gas is

Vallejo Times-Herald, April 13, 2020

The price of gasoline continues to tumble because of the lack of demand worldwide, bringing Bay Area prices below $2.30 a gallon.

The average price nationwide is now $1.87 a gallon, according to AAA. That’s down from $2.30 a month ago and almost a dollar below the year-ago level of $2.82.

A handful of stations in Oklahoma and Wisconsin were charging below 80 cents a gallon last week.

In the Bay Area, the cheapest prices are in the East Bay: $2.29 at some Costcos and independent stations in Concord, Oakland and Union City, according to GasBuddy. The South Bay’s lows are around $2.35, and the Peninsula’s about 5 cents more.

Farther afield, $2.19 has been seen in Sacramento and Modesto, and prices below $2 were noted near Oroville and Folsom. Across the line in Reno, you can find $1.85.

In Hawaii, which has the nation’s most expensive gas, $2.35 is available in Honolulu but Kauai stations are still charging $3.60.

Of course, few drivers can take advantage of cheap gas because of the shelter-in-place orders. Cheap crude will continue to pose a serious threat to U.S. oil companies, especially independent frackers that piled on too much debt. Rystad Energy recently estimated that 140 US oil producers could file for bankruptcy this year if oil stays at $20 a barrel, followed by another 400 in 2021.