Category Archives: Oil industry subsidies

Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

Repost from DeSmogBlog

Welfare Kings? Study Finds Half of New Oil Production Unprofitable Without Government Handouts

By Justin Mikulka • Tuesday, October 3, 2017 – 13:03

Oil derrick with 'welfare' spelled on Scrabble tiles.
Oil derrick with ‘welfare’ spelled on Scrabble tiles. [Main image is a derivative of “Creative Commons Oil Rig” by SMelindo, used under CC BY 2.0]
new study published in the peer-reviewed journal Nature Energy found that 50 percent of new oil production in America would be unprofitable if not for government subsidies. The study, performed by researchers at the Stockholm Environment Institute and Earth Track, Inc., found that, at prices of $50 per barrel, light oil produced by hydraulic fracturing (“fracking”) was heavily dependent on subsidies.

In fact, forty percent of the Permian basin in Texas would be economically unviable without subsidies, and for the home of Bakken crude production, Williston Basin, that number jumps to 59 percent, according to the researchers.

In addition, the study highlights what this additional fossil fuel production means for impacts to the climate:

…continued subsidies for oil investment could produce oil (and associated gas) that, once burned, will yield CO2 emissions equivalent to nearly 1 percent of the remaining global carbon budget for all sectors of all economies.”

At current oil prices, perhaps the most effective “keep it in the ground” strategy might be to stop subsidizing oil production.

But what happens with these subsidies when the price of oil is over $100 per barrel, as it was several years ago? The authors of the study report that, under such a scenario, government subsidies are simply “transfer payments” to oil investors. The oil would be profitable without the subsidies, which become, at that point, simply free cash for investors.

While this study provides valuable insight into how subsidies affect oil production and the climate, it notes that its conclusions are not unique. The authors point out: “As others have found regardless of the oil price, the majority of taxpayer resources provided to the industry end up as company profits.”

US Taxpayers Subsidizing Oil Exports to China

Since the U.S. crude oil export ban was lifted in 2016, exports have risen much faster than most purported experts predicted, with volumes recently topping 1.5 million barrels per day. Much of these exports are the heavily subsidized light sweet oils produced by fracking in the oil fields of Texas and North Dakota.

And while major oil producers such as Harold Hamm, CEO of Continental Resources and major Trump donortestified in Congress that it was unlikely U.S. oil would be exported to China, that has quickly proven to be false.

Bloomberg recently reported that Wang Pei, an executive for Chinese oil and gas company Sinopec, said, “Our refining system really likes U.S. crude.”

That appetite for oil in China and other nations like India isn’t shrinking, spurring the U.S. oil and gas industry to ramp up production to export far greater amounts.

Why are U.S. oil producers so keen to export their oil to other countries? Terry Morrison of Occidental Petroleum recently made the answer clear, saying, “It’s an alternative outlet for your production, i.e. better prices.” Better prices. At this point, American taxpayers are now subsidizing oil production so that oil companies can sell it to other countries like China for higher prices.

As the Midland Reporter-Telegram notes, “analysts are forecasting Permian Basin crude production will increase between 400,000 and 700,000 barrels per day in the coming years,” with the majority likely for export. However, as the Nature Energy study pointed out, 40 percent of that production is dependent on subsidies making it economically viable in the first place.

Taxpayer-funded subsidies don’t just incentivize oil production for export. As previously noted on DeSmog, taxpayers are also subsidizing the expansion of ports in Texas to provide access for loading oil onto the largest oil tankers, also destined for foreign shores.

India just received its first shipment of American oil and as DNA India reported, “Officials here said the U.S. crude supply will help India to keep oil prices low and stable to benefit consumers.” Then, U.S. taxpayers are ponying up money for oil production to benefit foreign consumers. This seems like a bad deal for U.S. taxpayers and a horrible deal for the climate — but another big win for the oil industry.

Subsidies Impact Everything

The oil industry, led by its lobbying group the American Petroleum Institute, has long denied that it receives anything akin to a “subsidy.” In January former ExxonMobil CEO and now Secretary of State Rex Tillerson repeated this industry talking point during a Senate confirmation hearing. In response to a question from Sen. Jeanne Shaheen (D-NH), Tillerson said, “I’m not aware of anything the fossil fuel industry gets that I would characterize as a subsidy.”

Yet this new study notes that subsidies aren’t simply cash being handed to oil companies. Subsidies often come in the form of tax breaks, which is just one of the many ways oil companies receive government handouts.

Another subsidy of sorts noted in the report relates to the fact that the oil industry isn’t required to have nearly enough insurance to cover accidents like the deadly crude oil train explosion and fire in Lac-Megantic, Quebec. The study notes that “the July 2013 crude oil train explosion in Lac-Megantic, Quebec involved a Class II railroad with only $25 million in liability insurance. Costs of $2 billion or more will likely be shifted to the public.”

However, some of the main impacts of this ongoing support of the oil industry are the ongoing impacts to the climate, the environment, and public health. Should America be subsidizing oil for India and China, two countries that have crippling air pollution issues? What additional costs will be incurred due to climate change thanks to these subsidies?

Increased oil and gas production in the U.S. also means increased water consumption, increased contaminated fracking wasteincreased spills, increased oil trains, increased earthquakes, and increased flaring.

newly released poll from the University of Chicago and The Associated Press-NORC Center for Public Affairs Research found that 61 percent of Americans “think climate change is a problem that the government needs to address.” This latest study points to one major way the government could do that: by making the oil and gas industry pay the true costs of production instead of relying on U.S. taxpayers to insure its profits.

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Paris Conference: Broad consensus on phasing out of fossil fuel subsidies

Repost from Government Offices of Sweden

Broad consensus on phasing out of fossil fuel subsidies

01 December 2015

Global fossil fuel subsidies totalled USD 548 billion in 2013. At the COP21 climate conference, which is under way in Paris, Prime Minister Stefan Löfven presented a communiqué to the Executive Secretary of the United Nations Framework Convention on Climate Change, Christiana Figueres. The communiqué outlines important messages on how the world can phase out fossil fuels. A large number of countries and organisations are backing the messages, which were produced by the Friends of Fossil Fuel Subsidy Reform group.

Photo: Hanna Björnfors

Sweden, alongside likeminded countries, advocates for the phasing out of subsidies to fossil energy through the Friends of Fossil Fuel Subsidy Reform group. The group’s aim is to promote such a phase-out globally. The communiqué that was presented at the climate conference calls on the international community to mitigate climate change by accelerating action to eliminate fossil fuel subsidies. The communiqué is a politically non-binding pledge on the importance of phasing out fossil fuel subsidies.

“It is impressive that so many countries and organisations are now coming together to phase out fossil fuel subsidies. This is a key issue that the international community must resolve to enable sustainable development,” said Mr Löfven.

Sweden has played an active role in the efforts to gather as many countries and organisations as possible behind the communiqué. Some 39 countries from around the world and 100 international organisations and companies now back the communiqué and its messages. At national level, Sweden is demonstrating its commitment and contributions through the Fossil-free Sweden initiative.

The communiqué was presented on 30 November at the COP21 Leaders Event on the first day of the conference in Paris. Mr Löfven was a moderator at the meeting, which was also attended by heads of state from Norway, New Zealand and the Netherlands, ministers from the Marshall Islands, Morocco and Peru, and representatives of the Organisation for Economic Cooperation and Development (OECD), the International Energy Agency (IEA) and the business sector.

Fact box: Friends of Fossil Fuel Subsidy Reform

Alongside some thirty other countries, Sweden is a member of the Friends of Fossil Fuel Subsidy Reform (FFFSR) group. The group was formed in 2010 to encourage G20 and APEC leaders to deliver on their commitment to phase out ineffective fossil fuel subsidies from 2009 onwards.

Fossil fuel subsidies totalled an estimated USD 548 billion in 2013, which is around five times higher than support to renewable energy. Various studies have shown that if subsidies are eliminated, global emissions would decrease significantly. Phasing out subsidies is an important and cost-effective measure and, moreover, the subsidies primarily benefit middle- and high-income earners.

The FFFSR countries jointly courted the G20 countries between 2011 and 2014 to push for fossil fuel subsidy reform in those countries. The group has also held seminars and workshops at UN climate conferences, the World Bank Spring Meeting and in connection with OECD meetings.

 

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Jeb Bush Calls For End to Energy Industry Subsidies – Including Oil and Gas Industry

Repost from National Journal

Jeb Bush Calls For End to Fossil-Fuel Subsidies

The 2016 contender says tax credits for the oil and gas sector should be eliminated.
By Clare Foran, July 23, 2015
Jeb Bush.(Andy Jacobsohn/Getty Images)

Jeb Bush wants to get rid of tax credits for the oil and gas industry.

“I think we should phase out, through tax reform, the tax credits for wind, for solar, for the oil and gas sector, for all that stuff,” the 2016 Republican candidate said in New Hampshire on Wednesday, according to a video recorded by grassroots environmental group 350 Action.

“I don’t think we should pick winners and losers,” Bush added, saying: “I think tax reform ought to be to lower the rate as far as you can and eliminate as many of these subsidies, all of the things that impede the ability for a dynamic way to get to where we need to get, which is low-cost energy that is respectful of the environment.”

Bush’s comments arrived in response to questions from a 350 Action activist after the 2016 Republican contender appeared at an event hosted by the conservative advocacy group Americans for Prosperity in Manchester, New Hampshire.

When pressed by the activist on whether he would get rid of all fossil-fuel subsidies, Bush replied: “All of them. Wind, solar, all renewables, and oil and gas.”

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