Daily Archives: June 13, 2012

Oil Refiners Launch Counter Offensive on Obama’s ‘War on Fossil Fuels’

By Felicity Carus
Published: June 12, 2012

America’s oil refiners are preparing to intensify efforts to press the federal government to drop mandates to encourage the development of advanced biofuels and counter the Obama administration’s “war on fossil fuels.”

The Renewable Portfolio Standard requires that 36 billion gallons of renewable fuel be blended with petroleum-based products by 2022 under the Bush-era Energy Independence and Security Act of 2007.

Five years can be a very long time in US energy politics, said Charles Drevna, president of the American Fuel & Petrochemical Manufacturers, whose members include oil supermajors such as Shell, BP and Chevron.

“RFS2 was really conceived at a different time in the nation’s history even though it was only a few years ago. There was a thought permeating through Congress that we were eventually going to run out of natural resources.

Policy Tools not keeping Pace with Shifting Market Dynamics

“Since then, as a nation we fully understand we’re not an energy poor nation, we’re an energy rich nation with the advent of fracking and horizontal drilling.

“We’ve had this 4-5 year experiment going on which we believe has proved to be a failure.”

The RFS2 demonstrates how quickly the dynamics of the energy industry can outgrow policy, said Drevna, in an exclusive interview with AOL Energy.

“Policymakers haven’t kept pace [with change in the energy industry] and that’s always a problem when you have new technology and entrepreneurship being developed but when you’re forced to apply mandates and uneconomic solutions once they’re passed they’re very difficult to get amended.

“One of our major goals at AFPM is to have Congress and whatever administration it is to take a long hard look at the RFS and come to the epiphany that if we want to limit our reliance on foreign sources of crude oil the best way to do it is to develop our own resources and forget this totally anti-consumer anti-environment anti-common sense approach to national security which is mandating biofuels and renewables.”

At the end of May, Drevna warned the House Committee on Oversight and Government Reform: “The policies of the administration and EPA continue to support a war on fossil fuels that ultimately harms consumers, workers, the economy and our country’s national security.”

AFPM is a 110-year-old trade association which represents 98% of US oil refiners that process 18 million barrels of oil a day with a combined annual revenue of $725 billion.

In April, the US Energy Information Agency forecast that US gasoline demand this summer – usually a peak period – is expected to be the lowest in 11 years, partly due to rising gasoline prices at the pump and more fuel efficient vehicles.

Next month, Sunoco‘s Philadelphia refinery will become the latest in a number of refinery closures which have resulted in a 4% decline in refining capacity in the US since last year.
Overall, gasoline demand in the US declined since the 2008 spike at $147 a barrel and flattened since the subsequent global economic recession, said Drevna.

Biofuels Seen as a Small but Growing Threat

Although advanced biofuels are at de minimis levels of production this year, Raymond James equity research analysts forecast 800 million gallons of production by the end of 2013.

Meanwhile, the 133.93 billion gallons of gasoline consumed in the US last year contained about 12.87 billion gallons of ethanol, accounting for 9% of each gallon pumped into tanks.

Advanced biofuel and ethanol production are unlikely to make too much of a dent in the US liquid fuel market which is expected to sell 186 billion gallons of gasoline and diesel this year.
But AFPM sees mandates on alternative sources of liquid fuels for transportation and chemicals as a direct threat to the industry – and the American economy.

“We don’t think [biofuels] should be mandated whether it’s corn ethanol, biofuels or biodiesel until such time as those products are as efficient, reliable and abundant as gasoline and diesel produced from petroleum,” said Drevna. “Until they are able to compete head to head then let the free market decide, let the consumer decide.

…E15 goes way beyond what makes sense.” – Drevna

“The RFS was based on ideology and political science rather than reality and real science. We believe it needs to be significantly modified to prevent harm to American consumers and the economy.”

But the RFS2 has not been without its problems. Earlier this year, the EPA had to revise down its quota for cellulosic ethanol from 500 million gallons to 10.5 million gallons as advanced biofuels are still at zero commercial production. But refiners were still fined $6.8 million by the EPA – part of what Drevna said was a “hidden tax” for the consumer as costs were transferred to the consumer.

US ethanol producers last year reached saturation point of production for its domestic market as a 10% blendstock in gasoline. EPA’s decision to raise the maximum percentage blend to 15% is potentially dangerous, said Drevna.

A recent Coordinating Research Council (CRC) study found that there are at least 5 million vehicles on American roads which are at risk of failure with 15% ethanol blended fuel.

“We don’t think the EPA has the authority to bifurcate the fuel system. How much corn are we going to use to blend when we have enough oil under our own feet and off our own shores? We’re not anti-ethanol but E15 goes way beyond what makes sense.”

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Israel: Pinnacles Delivers First Gas

Israel’s  Delek Group has been informed by the operator, Noble Energy Mediterranean Ltd., that on June 12, 2012, development of Pinnacles #1 was completed and gas began to flow from it.

Pinnacles offshore well was recently linked by a subsea pipeline to the nearby Mari B production platform. Helix ESG’s reeled pipelay vessel, Express, which in April arrived at the port city of Haifa, Israel, completed the SURF (Subsea Umbilicals, Risers and Flowlines) work.

According to the Israel-based financial newspaper The Globes, Pinnacles well will produce 150 million cubic feet of gas per day.

Noble Energy Mediterranean Vice President Lawson Freeman told The Globes that the company was excited to bring the Pinnacles well on stream. He also added that the company was pushing hard to accelerate the Noa development in the same way.

Development of the Noa field is geared to allow for additional supplies of natural gas to the Israeli market, until the start of natural gas supplies from the Tamar project in early 2013.

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Carbon Corruption

Iran, North Korea, Sudan rack up millions by trading U.N. carbon credits

BY: Zach Noble – June 13, 2012 5:00 am

The U.N. is funneling millions of dollars worth of tradable carbon credits to corrupt nations worldwide, including Iran, North Korea, Sudan, and Uzbekistan in an attempt to encourage clean energy projects in the developing world.

The U.N. Clean Development Mechanism (CDM) is defined in Article 12 of the Kyoto Protocol. Western European countries fund energy projects in the developing world in order to obtain Certified Emission Reduction credits (CERs), tradable credits that enable Europeans to count foreign emission reductions towards their own domestic emission reduction targets.

“The CDM started from a page and a half in the Kyoto Protocol,” said David Abbass, a spokesperson for the U.N. Framework Convention on Climate Change. “In the beginning they thought there would be maybe 600 projects, but now there are over 4,000 projects.”

Iran, Uzbekistan, Sudan, and North Korea are among the more than 70 countries currently hosting CDM projects.

Iran, with 16 separate CDM projects, brings in around 4.8 million CERs, worth about $26 million, every year, despite numerous U.N. sanctions against the Islamic Republic.

Uzbekistan, dominated for the last two decades by the autocratic Islam Karimov, hosts 20 different CDM projects, with a combined annual value of over 7.5 million CERs, or roughly $40 million.

Sudan, whose president Omar Hassan al-Bashir came to power via military coup over 20 years ago and is wanted by the International Criminal Court on charges of genocide, crimes against humanity, and war crimes in Darfur, is on the receiving end of two different CDM projects, with a combined annual value of over 180,000 CERs, or almost $1 million.

North Korea is hosting seven hydroelectric dams, which may generate over $1 million in CERs annually.

North Korea, Sudan, and Uzbekistan are among the 10 most corrupt nations worldwide, according to Transparency International’s 2011 Corruption Perceptions Index.

It is unsurprising that North Korea is using U.N. money to develop its own infrastructure, said Claudia Rosett, journalist-in-residence at the Foundation for Defense of Democracies.

“One of the first questions with any U.N. program is, ‘Who is overseeing this?’” said Rosett. “Very often no one is.”

The worldwide expansion of the CDM has been accompanied by “troubling stories in various countries,” said Abbass. “When you have over 4,000 projects, you’ll have some projects in areas in dispute.”

“We learn by doing,” he said. “We’re fixing as we go.”

CDM support is open to any country with the appropriate bureaucratic machinery in place. Abbass maintained that the CDM is not concerned with human rights issues and that the Kyoto Protocol merely set up the system—individual projects “come from interest in the private sector.”

The program was born of European self-righteousness, said Chris Horner, a senior fellow at the Competitive Enterprise Institute. European governments have staked their reputations on environmental issues, but cannot meet emission reduction targets on their own, he said.

Europeans therefore “buy phony reductions” through the CDM, said Horner.

“Europeans basically say to the developing world, ‘I’ll pay you not to treat this byproduct as a waste product,’” said Horner, referring to numerous CDM projects that focus on reducing perceived waste in the developing world, from natural gas flaring to the release of methane from farm animals.

More than 83 percent of CDM projects are based in Asia, while Africa and the Caribbean account for a tiny fraction of CDM projects, according to U.N.F.C.C.C. data.

CDM projects are concentrated in Asia due to the disastrous environmental effects of communism and the bureaucratic savvy of China, experts say.

“Communism created the most intensely wasteful society the world has ever seen,” said Horner, explaining why former Soviet states in Central Asia such as Uzbekistan and Turkmenistan receive substantial support from the CDM.

The Chinese government, an aggressive host for CDM projects, has manipulated the system, going so far as to re-open defunct factories in order to get Europeans to pay them to close them again.

The Chinese are adept at twisting the “mandated inefficiency” of CDM projects to their own benefit, said Horner.

Haiti has set up the bureaucratic mechanisms required to host CDM projects, but is currently sponsoring zero projects.

Dorine Jean-Paul, an energy specialist at Haiti’s Ministry of Environment, decried a lack of support from the U.N.

“I believe the U.N. is not helping the countries that need it the most,” said Jean-Paul.  “Besides some training sessions that are organized with the U.N. support in the [Latin American and Caribbean] region, we don’t get assistance or funds for a specific and national identified need.”

Abbass acknowledged that CDM projects are concentrated in Asia, and said the under-representation of Africa and the Caribbean might be addressed at the upcoming Rio +20 conference.

But he also noted that any substantial changes to the CDM could be a long time coming.

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Why the Private Sector Isn’t Doing Fine

Obama’s emphasis on saving government workers hurts American business

By Michael Tanner

By now, just about everyone has had an opportunity to pick apart President Obama’s fatuous remarks about how the private sector is “doing fine,” while public employees are suffering. The president’s comments, of course, were not even within viewing distance of reality. After all, despite some recent hiring, the private sector is still 4.5 million jobs below its 2008 employment peak. And while public employment is also down from 2008, that ignores a boom in state and local government hiring from 2006 to 2008. The current decline still leaves state and local employment about where it was in 2006. Meanwhile, federal employment is up 88,000 jobs.

But a much bigger question is: Why is the private sector doing so poorly? Perhaps because most businessmen are not that dumb.

If one includes the unfunded liabilities of Social Security and Medicare, this country’s real total indebtedness could run as high as $129 trillion (in current present value). Even under the most optimistic scenarios, our real debt exceeds $92 trillion. Measured as a percentage of GDP, our total debt exceeds the total debt of Greece or Spain. By comparison, the total book value of all U.S. companies is roughly $23 trillion. It’s not a perfect comparison (future taxes will be paid out of future wealth), but it does put things in perspective. Any business owner looking down the road, and seeing debt four to five times the size of his or her company, is likely to decide that this is not a great time to expand or hire new workers.

That is why the president’s preferred solution of offsetting private-sector losses with increased public-sector hiring is so mistaken. Those new public-sector jobs must be paid for with more debt and taxes borne by the private sector. As Frédéric Bastiat wrote in 1848, public employment “gives jobs to certain workers. That is what is seen. But it deprives certain other laborers of employment. That is what is not seen.” Bastiat concluded that trying to increase employment through government was “a ruinous hoax, an impossibility, a contradiction.”

For example, a study done for the European Commission by economists at the University of Paris looked at public employment in 17 countries between 1960 and 2000. It found that for every public-sector job created, 1.5 private-sector jobs were destroyed. Thus, hiring more government workers actually increases the level of unemployment.

And, perhaps more directly relevant, a study of President Obama’s stimulus bill by Timothy Conley of the University of Western Ontario and Bill Dupor of Ohio State concluded that, while the stimulus created or saved some 450,000 government jobs, it destroyed or prevented the creation of more than twice as many private-sector jobs.

Of course, in general, we know that an increase in the size of government slows economic growth. As Harvard’s Robert Barro points out, there is a “significantly negative relation between the growth of real GDP and the growth of the government share of GDP.” Under President Obama the federal government consumes 24 percent of GDP, a one-third increase over the historic post–World War II average of 19.8 percent. Throw in state and local government spending, and government spending now amounts to 36 percent of GDP.

President Obama is correct that much of this spending binge began under President Bush, but Obama’s policies have taken the Bush spending (including one-time spending hikes such as TARP) and turned them into the new baseline for future spending. And the president would have spent even more if he could have gotten away with. The purpose of last week’s press conference, after all, was to renew his call for more spending.

The president says “more spending,” and businesses correctly hear “more debt” and “higher taxes.”

This long-term burden on American business comes on top of short-term uncertainty. In January 2013, the Bush tax cuts will expire, leading to the largest tax hike in U.S. history unless Congress can reach an agreement. If reelected, President Obama seems determined to use this potential “fiscal cliff” to push for higher taxes on the wealthy, businesses, and investors. The president’s insistence, in particular, on raising capital-gains taxes will discourage business investment and expansion, while the hike in federal income taxes will fall especially hard on small businesses and Subchapter S corporations, which often file taxes as individuals.

Also ahead, pending a decision from the Supreme Court, is the potential implementation of Obamacare. Most of the law’s tax hikes, $569 billion over the first ten years, fall on businesses. Next year, for example, there would be new taxes on medical devices and investment income, among others.

And in 2014, the law will impose a mandate on employers with 50 or more workers to provide their workers with health insurance, at a cost of $4,450 on average, or else pay a $2,000-per-employee fine. As former Labor Department economist Diana Furchtgott-Roth explains:

The $2,000 per worker penalty raises significantly the cost of employing full-time workers, especially low-skill workers, because the penalty is a higher proportion of their compensation than for high-skill workers, and employers cannot take the penalty out of employee compensation packages. Suppose that a firm with 49 employees does not provide health benefits. Hiring one more worker will trigger a penalty of $2,000 per worker multiplied by the entire workforce, after subtracting the statutory exemption for the first 30 workers. In this case the tax would be $40,000, or $2,000 times 20 (50 minus 30).

If you were that small-business owner with 49 employees, how fast would you run out to hire that 50th worker? In fact, a Gallup survey of small businesses found that nearly half (48 percent) cited Obamacare as a reason why they are not hiring. It’s worth noting that in France, another country where numerous government regulations kick in at 50 workers, there are 1,500 companies with 48 employees and 1,600 with 49 employees, but just 660 with 50 and only 500 with 51.

And, if Obamacare is not enough of a burden on business, 2013 will also see the onset of many of the new Dodd-Frank regulations on banking, lending, and finance.

President Obama seems wedded to an old-fashioned Keynesian philosophy of trying to revive the economy by using government hiring and spending to increase consumer demand. By now we should have learned that no amount of pump-priming is going to help, as long as businesses are worried about the crushing burden of debt, taxes, and regulation in their future.

That’s the real truth behind President Obama’s gaffe: He’s not just out of touch; he’s wrong.

Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

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BP Starts Galapagos Development in U.S. GoM

Yesterday BP announced that on June 3, 2012 it began the initial start-up of the Galapagos development in the deepwater U.S. Gulf of Mexico, one of a series of new major upstream projects that the company expects to bring into production this year.

“The start-up of this project in the Gulf of Mexico is one of BP’s key operational milestones for 2012, one of six high-margin projects we expect to come on stream this year,” said Bob Dudley, BP group chief executive. “I expect that the operational progress we are now making will deliver increasing financial momentum for BP as we move into 2013 and 2014.”

The Galapagos development includes three deepwater fields and increases the capability of a key offshore production hub for BP. The fields – Isabela, Santiago and Santa Cruz – are being produced using subsea equipment on the floor of the Gulf. A new production flowline loop has been added to carry output to the nearby Na Kika host facility, a BP-operated platform located roughly 140 miles southeast of New Orleans in 6,500 feet of water.

The Na Kika facility, with a production capacity of 130,000 barrels of oil equivalent per day, has been modified to handle output from the three fields. Full ramp-up of the project is expected around the end of June.

“The Galapagos development marks another significant step forward for BP in the Gulf of Mexico, and reflects the potential we continue to see in this world-class basin, now and in the future,” said James Dupree, Regional President of BP’s U.S. Gulf of Mexico business.

BP’s overall interest in the three-block area that includes the fields comprising the Galapagos project is about 56 per cent. Noble Energy, Inc., Red Willow Offshore, LLC, and Houston Energy, L.P., are co-owners. BP is the operator of the Isabela field, while Noble Energy operates the Santiago and Santa Cruz fields.

The Galapagos development required the installation of new subsea infrastructure, production risers, topsides as well as other modifications.

BP expects to invest at least $4 billion a year on oil and gas development in the Gulf of Mexico over the next 10 years, following its strategy of focusing investment and future growth around the company’s strengths, including deepwater exploration and development.

“BP’s continuing investment in the Gulf of Mexico is yet another example of our commitment to the U.S. economy and energy security,” Dudley added. “This investment, along with our ongoing commitment to the Gulf Coast region, demonstrates the importance of the U.S. to BP’s long term strategy.”

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