[Note from BenIndy: Both the Biden administration and Big Oil have been touting carbon capture and sequestration (CCS), sometimes called carbon dumping, as a way to address the climate crisis. However, many climate scientists and activists are seriously concerned about CCS’s sudden surge to the forefront of the climate conversation. Why are oil giants like Valero teaming up with BlackRock-funded concerns to build pipelines across America? Could it have anything to do with the billions of dollars in tax breaks on the table? On Friday, November 3, at 12 pm, Scientists Speak Up (a Stanford student group working to combat science misinformation) are hosting a discussion about CCS, how it actually supports oil and gas production as well as the chilling impact Big Oil and the Biden administration’s fixation on CCS could have on exploring more innovative or aggressive tech and mitigation. Finally, the discussion will touch on Big Oil’s disturbing, ever-growing influence in academic research. Click here to learn more about how to attend this important conversation and we will include a link with an event flyer at the end of this post. (The BenIndy was not asked to promote this event and is not affiliated with Scientists Speak Up in any way. We just thought the event looked very interesting and timely given a looming proposal to install a CCS pipeline in Solano County.)]
Carbon capture pipeline nixed after widespread opposition
A sign against a proposed carbon dioxide pipeline outside a home in New Liberty, Iowa, US, on Sunday, June 4, 2023. The Biden administration is all-in on carbon capture and storage. But the pipelines needed to move the greenhouse gas around face stiff local opposition. | Miriam Alarcon Avila for Bloomberg via Getty Images.
Navigator CO₂ says regulatory hurdles are too much to overcome.
A company backed by BlackRock has abandoned plans to build a 1,300-mile pipeline across the US Midwest to collect and store carbon emissions from the corn ethanol industry following opposition from landowners and some environmental campaigners.
Navigator CO₂ on Friday said developing its carbon capture and storage (CCS) project called Heartland Greenway had been “challenging” because of the unpredictable nature of regulatory and government processes in South Dakota and Iowa.
Navigator’s decision to scrap its flagship $3.1 billion project—one of the biggest of its kind in the US—is a blow for a fledgling industry that is an important part of President Joe Biden’s climate strategy. CCS projects attempt to lock carbon underground for decades, preventing it from adding to heat-trapping gasses in the atmosphere.
It also represents a setback for the carbon-intensive corn ethanol refining industry, a pillar of the rural Midwestern economy which is targeting industry-scale CCS as a way to reduce emissions.
Navigator’s project would have laid pipelines across five US states—South Dakota, Nebraska, Minnesota, Iowa, and Illinois—to collect CO₂ from ethanol and fertilizer plants and pipe the gas to an underground storage site in Illinois.
It was backed by several deep-pocketed investors, including BlackRock, US oil refiner Valero Energy and Poet, a top US biofuel refiner. [Emph. added by BenIndy.]
Matt Vining, Navigator’s chief executive, said: “As good stewards of capital and responsible managers of people, we have made the difficult decision to cancel the Heartland Greenway project.”
Heartland Greenway is part of a wave of CCS projects aiming to tap into billions of dollars in tax breaks available under the Inflation Reduction Act, the landmark climate law signed by Biden last year. The incentives aim to help companies build carbon capture infrastructure, which has not yet proven it is commercially viable on a large scale.
Stimulus tax change helps translate losses into instant cash
Oil companies are uniquely poised to benefit, analysts say
As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.
The rig operator is one of dozens of oil companies and contractors now claiming hundreds of millions of dollars in tax rebates. They are employing a provision of the $2.2 trillion stimulus law, called the CARES act, that gives them more latitude to deduct recent losses.
“This is a stealth bailout for the oil and gas industry,” said Jesse Coleman, a senior researcher with Documented, a watchdog group tracking the tax claims. It’s geared to companies “that have been losing money over the last few years — and now they get that money back as a check from the taxpayers. That’s exactly what the oil industry has been doing.”
Electronic drilling with cyber chairs Source: Diamond Offshore Drilling Inc.
The change wasn’t aimed only at the oil industry. However, its structure uniquely benefits energy companies that were raking in record profits in 2018 as crude prices reached $76.41 per barrel, only to see their fortunes flip a year later.
More than $1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms and contractors, according to a Bloomberg News review of recent filings with the Securities and Exchange Commission. Besides Diamond Offshore, which declined to comment, recipients include oil producer Occidental Petroleum Corp. and refiner Marathon Petroleum Corp.
Other oil companies say they didn’t lobby Congress for the change, which is widely available across all industries. “We did not request any benefit, but we are obligated to follow the tax laws as passed by Congress, which apply to all corporate manufacturers nationwide,” said Jamal Kheiry, a spokesman for Marathon, which got a $411 million benefit.
Congress embedded the tax change governing losses in the stimulus measure early on, as lawmakers moved rapidly in March to steer trillions of dollars in aid to coronavirus-ravaged workers and companies. Alongside expanded unemployment payments and payroll loan programs, lawmakers saw an opportunity to harness the tax code to help get cash flowing to companies struggling to pay rent, workers and insurance.
It “was sold as help for the little guy — help for small business,” said Steve Rosenthal, a senior fellow with the Urban-Brookings Tax Policy Center. “In the name of ‘small business,’ we’re shoveling out billions of dollars to big corporations and rich guys.”
The provision loosened rules governing how businesses deduct net operating losses — incurred when deductible expenses exceed gross income. For years, companies were able to apply those net operating loss deductions to previous tax returns as well as going forward — but Congress ruled out retroactive relief as part of the 2017 tax cut law.
That new forward-focused approach works well when the economy is expanding, but the promise of using today’s losses as tomorrow’s deductions isn’t much help to coronavirus-battered companies with no guarantee they will survive long enough to claim them. So in the stimulus package, Congress gave businesses the chance to carry back all their losses — and claim immediate tax refunds — for five years from 2018, 2019 and 2020.
“The thought was temporarily we should bring them back so that firms that are seeing significant losses in the next year or over the past year or two can carry those back and get some short-term liquidity,” said Garrett Watson, a senior policy analyst at the Tax Foundation, a non-profit that supports pro-growth tax policies.
Traditionally, the ability to deduct net operating losses is meant to ensure companies get fair tax treatment even amid volatility, Watson said — a plus for the notoriously boom-and-bust oil industry. “You are going to see the biggest benefits for firms like oil and gas that are seeing volatile profits — and now, of course, extreme losses,” he said.
The combination of big losses now and the congressional tax changes mean it may be years before some oil companies have to pay corporate income taxes at all.
“We’re going to have some large losses this year,” ConocoPhillips Executive Vice President Don Wallette said in an April 30 earnings call. The company is in “a zero-tax-paying position in the U.S. and expect to remain there for quite some time,” Wallette said.
There’s no limit on how the new refunds can be used — and even bankrupt firms can get them.
Consider Diamond Offshore. Once one of the world’s largest drilling rig contractors, it filed for Chapter 11 bankruptcy protection on April 26 after crude prices plunged along with demand for its high-tech drillships.
In a first quarter filing, Diamond, which is majority owned by Loews Corp., said it had recognized a tax benefit of $9.7 million as a result of the carryback change. In an emergency motion filed with a federal bankruptcy court May 1, the company asked for the freedom to dole out $16.7 million in cash incentives to 85 of its 2,300 full-time employees, including as much as $9.7 million for nine senior executives.
The company said at the time that deteriorating market conditions and the collapse of Diamond’s stock had made its existing equity-based bonus program “largely worthless.” The tax filing did not specify how the $9.7 million would be used.
Dozens of other oil businesses have reported reaping the benefits, including $55 million for Denver-based Antero Midstream Corp., $41.2 million for supplier Oil States International Inc. and $96 million for Oklahoma-based producer Devon Energy Corp.
Occidental Petroleum, which enlisted its employees to ask Congress to “provide liquidity to the energy industry,” said it now anticipates a cash refund of about $195 million as a result of the carryback provision and a separate change in the stimulus bill that allows the immediate refund of unused alternative minimum tax credits. An Occidental spokesperson declined to comment.
Millions in Refunds
National Oilwell Varco Inc., a manufacturer of oil and gas equipment, expects a $123 million refund by carrying back its 2019 losses and applying them to its 2014 tax filing.
San Antonio-based refiner Valero Energy Corp. recognized an extra $110 million by carrying back losses to 2015 — when the corporate tax rate was 35% instead of the current 21%.
Valero spokeswoman Lillian Riojas said that is tied to tax losses generated in the first quarter, since the company did not generate a net operating loss for federal income tax purposes in 2018 or 2019. And she said the actual refund will be dependent “not only on the company’s performance for the remainder of the year, but also on the impact” of other tax provisions.
The benefits are “turbo-charged,” said Rosenthal, with the Urban-Brookings Tax Policy Center. That’s because businesses can carry back losses to offset income at a higher corporate tax rate of 35%, before the 2017 tax cut law lowered it 14 points. “Getting those losses at 35% is very, very favorable — especially in 2020 when the losses are going to be devastatingly large.”
The filings themselves reveal only part of the picture. Private companies are able to generate tax refunds too — without disclosing it to the SEC. And while some public companies said they benefited from the tax break, they didn’t reveal by how much.
For instance, refiner Phillips 66 boasted an effective income tax rate of just 2% for the first quarter — well below the federal statutory income tax rate of 21% — partly because of the carryback. But the company did not specify the amount of its expected refund.
Dennis Nuss, a spokesman for Phillips 66, declined to comment when reached by phone Thursday. Representatives for Oil States, National Oilwell Varco, Antero and Devon didn’t respond to messages seeking comment.
The importance of the provision hasn’t been lost on President Donald Trump’s administration. Energy Secretary Dan Brouillette recommended oil companies consider taking advantage of the expanded deduction in an April 21 interview with Bloomberg TV, calling it one of several “important liquidity tools that are going to help the industry.”
Congressional tax analysts initially estimated that the expanded loss carryback provision would cost $25 billion over 10 years — just when used by corporations. Now, some are questioning whether the final pricetag could be much higher, and Democrats are seeking to limit the value of the tax break after raising concerns it overwhelmingly helps corporations and the wealthy.
In a new stimulus bill advanced Tuesday, House Democrats proposed scaling back the provision so companies could only apply losses back to 2018. Their plan also would prevent companies with “excessive” executive compensation or stock buybacks from claiming the tax break — a change that would be retroactive back to March.
Rosenthal stressed that it was logical for Congress to help businesses that were profitable before the pandemic. “But the CARES Act goes too far, tilting its benefits overwhelmingly to the wealthiest Americans,” he said in an essay. “I think Congress did not know the extent of what it was doing.”
— With assistance by Ari Natter, Laura Davison, David Wethe, Kevin Crowley, Leslie Pappas, and Rachel Adams-Heard
Dangerous oil trains moving along Texas gulf coastline – 30,000 barrels per day
Crude Summit: Valero grows Mexico rail flows
By Sergio Meana & Elliot Blackburn, Argus Media, 04 February 2020
Valero increased the volume of refined products sent by rail to Mexico last year to roughly 30,000 b/d, up from about 2,000 b/d just two years ago, chief executive Joe Gorder said today.
The US independent refiner reached into the recently-opened Mexican market through a combination of joint ventures with local partners and building out its own storage infrastructure, Gorder said during the Argus Americas Crude Summit in Houston, Texas. Valero railed gasoline and diesel from its Texas refineries, including four along the coast and its landlocked 200,000 b/d McKee refinery in the Texas Panhandle.
The company has six fuel storage agreements that give the company 5.8mn bl of storage capacity in Mexico, but fuel pipeline capacity is still constrained in the country and mostly only used by state-owned Pemex.
“We invested in some terminal assets,” Gorder said. “We have got joint ventures around several, and we are actually railing a lot of barrels into Mexico rather than waiting for the pipeline infrastructure to be built.”
Franchisees opened the first Valero-branded retail fuel station in Mexico last week, Gorder said, with two more now opened since. Valero in Mexico said it plans to open 15 retail fuel stations in the next three months.
For Gorder the US Gulf coast is the most efficient refined product center as it has an able and affordable workforce, access to feedstocks and multiple transportation options.
“We have got all the advantages to be a supplier to the world,” Gorder said. “It is going to be some time before [Mexico] will be able to satisfy their own demands if ever. And so it is a logical, natural market for us.”
Valero exported 343,000 b/d of fuels in 2019 to all markets.
[Editor: I suppose this is almost good news – although in the manufacture and ultimate burning of these “renewable” fuels, large amounts of CO2 and other pollutants are produced, contributing to our climate emergency in the same way as fossil fuels. (Thanks for the clarification, AZ!) I wonder … could Valero’s Benicia Refinery be converted someday to production of RENEWABLE fuels? Also, I’m curious about San Francisco’s 2015 plan to convert its municipal fleet from petroleum to renewable diesel by the end of the year. Did it happen? – R.S.]Houston Chronicle, by Jordan Blum, September 9, 2019
The Valero refinery in Port Arthur. Photo: Jon Shapley, Staff Photographer / Staff Photographer
Valero Energy and Darling Ingredients said Monday they’re planning to build a massive renewable diesel refinery in Port Arthur.
The companies, which have a 50-50 joint venture called Diamond Green Diesel, would build the first-ever renewable diesel plant in Texas. They’re currently in the early engineering and cost review stages, so the project isn’t definitely going forward, but it’s clear they want to make the project happen.
Renewable diesel is a much cleaner product that doesn’t rely on fossil fuels, instead making diesel out of waste animal fats and waste vegetable oils, including used cooking oil and inedible corn oil.
Renewable diesel uses similar ingredients as biofuels, but it is more chemically similar to crude oil-based diesel and can more easily be used in conventional engines without as many blending ingredients.
Valero Chief Executive Joe Gorder said he expected more political mandates for low-carbon fuels across the globe to continue to drive demand growth for renewable diesel fuels.
Darling CEO Randall Stuewe added, “The demand for a low-carbon fuel solution continues to grow, as markets move to reduce their carbon intensity. Leveraging its proven technology, (Diamond Green Diesel) continues to adapt and expand production to address that need for the benefit of our environment, our customers and our shareholders.”
San Antonio-based Valero and Dallas’ Darling first teamed up to build a small renewable diesel plant outside of New Orleans, and now they’re dramatically expanding that refinery.
The project proposed for an undisclosed location in Port Arthur would churn out 400 million gallons of renewable diesel per year, or 1.1 million gallons daily.
The companies don’t expect to make a final decision and commence construction until 2021 and the refinery wouldn’t open until 2024.
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