California approves setbacks for oil, gas wells

Market: Crude oil, Emissions, Natural gas
01/09/22

Oil and gas companies in California will soon have to comply with stringent restrictions on drilling wells near homes, parks and many businesses, under a bill that won final passage.

California's Senate voted 25-10 this week in support of final passage of SB-1137 despite opposition from the state's oil and gas sector. It will now head to governor Gavin Newsom (D) to sign the bill, which will create first-time statewide setbacks for oil and gas operations that will become the most stringent in the US.

Newsom endorsed the drilling setbacks just weeks ago, as part of an effort to pass climate and environmental laws before California's legislature adjourns for the year. The state's legislature this week also voted to approve new clean electricity targets and a goal for the state to become carbon-neutral by 2045.

The setback bill will largely prohibit California regulators from approving applications to drill new wells and rework existing wells within 3,200 feet (1km) of "sensitive" areas such as schools, parks and homes starting on 1 January 2023. The buffer zone will be larger than a 2,000-foot setback that Colorado regulators approved nearly two years ago.

California oil industry groups fought the measure, which they said would cost jobs and further raise state gasoline prices that hit a record $6.27/USG for regular grade in June, according to the US Energy Information Administration. Oil industry groups say they have supported local setbacks based on science and data, but said SB-1137 went too far.

"A one-size-fits-all political mandate for the entire state does little to protect health and safety," the Western States Petroleum Association said.

California crude production averaged 369,000 b/d last year, down more than 30pc from a decade earlier. California refineries last year received 56pc of their crude supply from foreign sources, up from 29pc in 2001, according to the California Energy Commission.

The setbacks bill includes some exceptions. Oil and gas operators can drill within the 3,200-foot zone if a court finds being unable to do so would be an unconstitutional "taking" of property, but operators will have to post a bond to cover decommissioning costs. There is also an exception for plugging and cleaning up existing wells.

Oil and gas wells already inside the 3,200 buffer zone will have to follow new limits on sound, light, air emissions and leak detection starting on 1 January 2025. Operators of existing wells will also have to disclose new data on their facilities to state regulators starting on 1 January 2027.

Environmental groups said the setbacks will protect children and other vulnerable groups from hazardous air emissions and other risks posed by oil and gas facilities. The bill will also go further than a recent draft rule from California regulators that would create a 3,200-foot setback for new wells. That rule would not have applied to the "huge fraction of drilling permits" that go to reworking existing wells, whereas SB-1137 applies to new and existing wells, Natural Resources Defense Council senior attorney Ann Alexander said last week.

The bill will also go further than a recent draft rule from California regulators that would have created a 3,200-foot setback for new wells but not apply to the "huge fraction of drilling permits" that go to reworking existing wells, Natural Resources Defense Council senior attorney Ann Alexander said last week.

By Chris Knight

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03/01/25

Viewpoint: US sour values poised to maintain support

Houston, 3 January (Argus) — US sour crude prices are poised to maintain recent highs if increased US Gulf coast refinery runs continue to meet market expectations of a tight market. US Gulf medium sour Mars is averaging a near 30¢/bl premium to the Nymex-quality WTI benchmark for the February US trade month to date, and held a roughly 65¢/bl premium during the January trade month, the highest level since July. January Mars averaged around $2.40/bl below March Ice Brent, marking its narrowest average discount to Ice Brent two months forward since the August trade month. US Gulf sours reached multi-year highs on 18 December supported by tight supply and high demand. Refinery runs have increased with improving margins, tightening the supply of sour crude in the US and further boosting differentials. Refinery runs nationwide rose last week by 39,000 b/d to 17mn b/d but were 89,000 b/d lower than the same week in 2023, according to the Energy Information Administration (EIA). Companies were also heard short-covering US sours in an already tight market, likely exacerbated by end-of-year inventory drawdowns for tax purposes. Recent higher prices follow much lower relative values for Mars starting in the fall when refinery runs fell because of unfavorable margins, maintenance and US Gulf coast hurricane-related outages combined with lower export demand. Mars exports have been limited by competitive Middle Eastern term pricing for shipments to Asia-Pacific and European destinations, despite the continuation of Opec+ production cuts tightening supply. Also, blending has emerged in China for TMX-sourced Canadian heavy crude with light Murban as a Mars replacement . Offshore pipeline maintenance in October also pushed typically Texas-delivered volumes over to the Louisiana Gulf coast, adding pressure to the medium sour crude market in the region. But increased US Gulf refinery demand is leading to higher heavy Canadian crude prices at the US Gulf coast, alongside support from Trans Mountain Expansion (TMX) pipeline exports and higher US midcontinent refinery demand tightening supply. Western Canadian Select (WCS) Houston averaged around a CMA Nymex -$4.00 for January trade. The January WCS Houston discount to Mars averaged about $4.60/bl but was inside $4/bl for November and December volumes. The higher Canadian crude prices are making it less economical for US refiners to blend heavy low-TAN imports with Permian WTI as a cheaper alternative substitute for Mars or other medium sours. Tax-related end-of-year inventory draw downs had tightened the market heading into the new year, but this was exacerbated by the US Strategic Petroleum Reserve (SPR) being slated to receive 2.5mn bl of domestic sour crude deliveries in the first three months of 2025 . However, LyondellBasell's plan to begin shutting down its 264,000 b/d Houston, Texas, refinery starting in January and stop refining crude completely by the end of the first quarter will reduce Gulf coast sour demand. Between May and September, the facility imported just under 200,000 b/d on average, with roughly 80pc being Canadian and Colombian sour crudes. Offshore US Gulf production is also expected to increase, which could ease a tight market and weigh on differentials. Chevron brought production from its 75,000 b/d Anchor platform into the Mars system in 2024, while Southern Louisiana Intermediate (SLI) and Texas-delivered SGC and HOOPS flows will receive crude from new facilities in the coming year. But EIA forecasts show total US Gulf production essentially flat from 2023 as new output is offset by natural declines. Other price-influencing factors in the coming year are less certain. Concerns surrounding the potential impact of US president-elect Donald Trump's plan to impose a 25pc tariffs on all imports from Canada and Mexico have bolstered sour crude prices in the US over recent weeks. Additionally, US medium sour crudes have been supported by Opec production cuts, with the recent decision to delay unwinding those cuts yet again, adding to the January value boost. The next Opec and Opec+ meetings are scheduled for 28 May. By Mykah Briscoe and Amanda Smith Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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Viewpoint: Med may take more Mideast crude in 2025

03/01/25

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03/01/25

Viewpoint: Med may take more Mideast crude in 2025

London, 3 January (Argus) — The Mediterranean region's capacity to absorb returning sour crude output in 2025 will hinge on nimble pricing strategies by Saudi Arabia and Iraq. The Mediterranean imported around 4.67mn b/d of crude in 2024, down from 4.92mn b/d in 2023, Vortexa data show. The drop follows heavy spring refinery maintenance, unplanned refinery outages and weak product margins that prompted some refiners in the region to cut crude runs. But competitive pricing by Mideast Gulf crude producers could help entice Mediterranean buyers during the seasonal uptick in demand for transport fuels this summer, and the scheduled completion of repairs at Motor Oil Hellas' 180,000 b/d Corinth refinery in Greece in the third quarter could help absorb a planned production increase from Opec+. Eight Opec+ members ꟷ Saudi Arabia, Iraq, Russia, Kuwait, the UAE, Kazakhstan, Algeria and Oman ꟷ agreed last month to postpone the return of 2.2mn b/d of production cuts for a third time to April 2025. They now intend to return this over an 18-month period rather than the previously planned 12-month period. Saudi Arabia has accounted for 1mn b/d of this 'voluntary' production cut since July 2023, but Saudi crude deliveries to the Mediterranean still edged up to 241,000 b/d in 2024, from 238,000 b/d in 2023. State-controlled Aramco's consistent cuts to its formula prices in recent months left its December 2024 prices for Mediterranean customers on average $2.13/bl cheaper than its January 2024 prices. Comparatively, Aramco's Mediterranean formula prices rose on average by nearly $5/bl across 2023 when sour crude was in short supply but demand was higher. This adaptive pricing strategy has helped Aramco retain market share in the Mediterranean at a time of overall weaker demand. Deliveries of Iraq's Basrah crude to the Mediterranean region declined by 27pc on the year to average 409,000 b/d in 2024, largely due to longer journey times around South Africa to avoid Yemen-based Houthi attacks on shipping in the Red Sea. But Mediterranean interest in 2025 could increase should Basrah be forced out of Asia-Pacific, where Canada's Trans Mountain Expansion has enabled increased Chinese purchases of Canadian heavy sour Cold Lake and Access Western Blend, which require lighter crudes for blending. The EU embargo on seaborne imports of Russian crude has cut off Europe's access to medium sour Urals, with the exception of non-EU member Turkey. Northwest European buyers can turn to Norway's Johan Sverdrup grade but Mediterranean buyers have been left without a local medium sour crude since Kirkuk exports, from Turkey's Ceyhan port, were halted in March 2023 by a dispute between Iraq and the Kurdistan Regional Government. Even if Kirkuk exports resume in the coming months, it is unclear if these will return to previous levels of around 500,000 b/d, given upstream challenges in Iraqi Kurdistan and Iraq's Opec+ commitments. In the absence of local rivals, Saudi Arabia and Iraq are well poised to direct more supply into the Mediterranean, with competitive pricing. Aramco's ability to ship from Egypt's Mediterranean Sidi Kerir port has increased its appeal as it delivers supplies within days. Rebuilding confidence in Libya Libya's recent two-month blockade, sparked by a leadership crisis at the central bank, again shone a light on the country's fragile politics. Although output has recovered since force majeure ended on 3 October, confidence in Libya's ability to reliably supply crude has waned, diminishing its appeal in an oversupplied market. Spot assessments for Libya's largest grade, Es Sider, averaged a $1.46/bl discount to the North Sea Dated benchmark in November, and state-owned NOC set the grade's November formula price at a $2.25/bl discount for term customers. Both were the lowest since December 2022, as sellers aimed to entice buyers and allay reliability concerns. But Libyan production has proven resilient over the past decade, quickly rebounding after armed conflict and several politically-motivated disruptions. NOC reported crude and condensate output at a near 12-year high of 1.4mn b/d in early December. By the end of last month, the company said it had increased to 1.47mn b/d. And foreign producers are still keen on the country, with Italy's Eni, BP, Austria's OMV and Spain's Repsol resuming exploration campaigns , the first since 2014. By Melissa Gurusinghe Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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Q&A: EU biomethane internal market challenged

02/01/25

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02/01/25

Q&A: EU biomethane internal market challenged

London, 2 January (Argus) — The European Commission needs to provide clearer guidance on implementing existing rules for the cross-border trade of biomethane to foster a cohesive internal market as some EU member states are diverging from these standards, Vitol's Davide Rubini and Arthur Romano told Argus. Edited excerpts follow. What are the big changes happening in the regulation space of the European biomethane market that people need to watch out for? While no major new EU legislation is anticipated, the focus remains on the consistent implementation of existing rules, as some countries diverge from these standards. Key challenges include ensuring mass-balanced transport of biomethane within the grid, accurately accounting for cross-border emissions and integrating subsidised biomethane into compliance markets. The European Commission is urged to provide clearer guidance on these issues to foster a cohesive internal market, which is essential for advancing the EU's energy transition and sustainability objectives. Biomethane is a fairly mature energy carrier, yet it faces significant hurdles when it comes to cross-border trade within the EU. Currently, only a small fraction — 2-5pc — of biomethane is consumed outside of its country of production, highlighting the need for better regulatory alignment across member states. Would you be interested in seeing a longer-term target from the EU? The longer the visibility on targets and ambitions, the better it is for planning and investment. As the EU legislative cycle restarts with the new commission, the initial focus might be on the climate law and setting a new target for 2040. However, a review of the Renewable Energy Directive (RED) is unlikely for the next 3-4 years. With current targets set for 2030, just five years away, there's insufficient support for long-term investments. The EU's legislative cycle is fixed, so expectations for changes are low. Therefore, it's crucial that member states take initiative and extend their targets beyond 2030, potentially up to 2035, even if not mandated by the EU. Some member states might do so, recognising the need for longer-term targets to encourage the necessary capital expenditure for the energy transition. Do you see different interpretations in mass balancing, GHG accounting and subsidies? Interpretations of the rules around ‘mass-balancing', greenhouse gas (GHG) emissions accounting and the usability of subsidised biomethane [for different fuel blending mandates] vary across EU member states, leading to challenges in creating a cohesive internal market. When it comes to mass-balancing, the challenges arise in trying to apply mass balance rules for liquids, which often have a physically traceable flow, to gas molecules in the interconnected European grid. Once biomethane is injected, physical verification becomes impossible, necessitating different rules than those for liquids moving around in segregated batches. The EU mandates that sustainability verification of biomethane occurs at the production point and requires mechanisms to prevent double counting and verification of biomethane transactions. However, some member states resist adapting these rules for gases, insisting on physical traceability similar to that of liquids. This resistance may stem from protectionist motives or political agendas, but ultimately it results in non-adherence to EU rules and breaches of European legislation. The issue with GHG accounting often stems from member states' differing interpretations of the IPCC Guidelines for National Greenhouse Gas Inventories. Some states, like the Netherlands, argue that mass balance is an administrative method, which the guidelines supposedly exclude. Mass balancing involves rigorous verification by auditors and certifying bodies, ensuring a robust accounting system that is distinct from book and claim methods. This distinction is crucial because mass balance is based on verifying that traded molecules of biomethane are always accompanied by proofs of sustainability that are not a separately tradeable object. In fact, mass balancing provides a verifiable and accountable method that is perfectly aligned with UN guidelines and ensuring accurate GHG accounting. The issue related to the use of subsidised volumes of biomethane is highly political. Member states often argue that if they provide financial support — directly through subsidies or indirectly through suppliers' quotas — they should remain in control of the entire value chain. For example, if a member state gives feed-in tariffs to biomethane production, it may want to block exports of these volumes. Conversely, if a member state imposes a quota to gas suppliers, it may require this to be fulfilled with domestic biomethane production. No other commodity — not even football players — is subject to similar restrictions to export and/or imports only because subsidies are involved. This protectionist approach creates barriers to internal trade within the EU, hindering the development of a unified biomethane market and limiting the potential for growth and decarbonisation across the region. The Netherlands next year will implement two significant pieces of legislation — a green supply obligation for gas suppliers and a RED III transposition. The Dutch approach combines GHG accounting arguments with a rejection of EU mass-balance rules, essentially prohibiting biomethane imports unless physically segregated as bio-LNG or bio-CNG. This requirement contradicts EU law, as highlighted by the EU Commission's recent detailed opinion to the Netherlands . France's upcoming blending and green gas obligation, effective in 2026, mandates satisfaction through French production only. Similarly, the Czech Republic recently enacted a law prohibiting the export of some subsidised biomethane . Italy's transport system, while effective nationally, disregards EU mass balance rules. These cases indicate a deeper political disconnect and highlight the need for better alignment and communication within the EU. We know you've been getting a lot of questions around whether subsidised bio-LNG is eligible under FuelEU. What have your findings been? The eligibility of subsidised bio-LNG under FuelEU has been a topic of considerable enquiry. We've sought clarity from the European Commission, as this issue intersects multiple regulatory and legal frameworks. Initially, we interpreted EU law principles, which discourage double support, to mean that FuelEU, being a quota system, would qualify as a support scheme under Article 2's definition, equating quota systems with subsidies. However, a commission representative has publicly stated that FuelEU does not constitute a support scheme and thus is not subject to this interpretation. On this basis, FuelEU would not differentiate between subsidised and unsubsidised bio-LNG. A similar rationale applies to the Emissions Trading System, which, while not a quota obligation, has been deemed to not be a support scheme. Despite these clarifications, the use of subsidised biomethane across Europe remains an area requiring further elucidation from European institutions. It is not without risks, and stakeholders require more definitive guidance to navigate the regulatory landscape effectively. By Emma Tribe and Madeleine Jenkins Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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Viewpoint: Trump, macro issues ahead for US renewables

02/01/25

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02/01/25

Viewpoint: Trump, macro issues ahead for US renewables

Houston, 2 January (Argus) — A combination of substantial policy shifts under president-elect Donald Trump and macroeconomic issues puts the US renewable power sector on uncertain footing to begin 2025. Analysts expect the federal tax credits that have bolstered new renewable generation during its substantial growth over the past decade will survive in some fashion, although Trump campaigned on repealing the Inflation Reduction Act (IRA). He also has promised 60pc tariffs on goods imported from China, a major player in the solar and battery storage supply chains. The ultimate effects may vary by project type and what the new administration is able to accomplish. Chinese solar products already face 50pc tariffs , which could temper any effects on the industry from Trump's protectionist trade policies, said Tom Harper, a partner at consultant Baringa specializing in power and renewables. But the new administration could make it more difficult to claim IRA incentives and could roll back federal power plant emissions rules , creating an environment that could slow the adoption of renewables. Utilities may become more cautious in using renewables because of higher costs, while others, such as companies with sustainability goals, might be able to weather the change, according to Harper. "There might be some very price insensitive corporate [power purchase agreement] buyers out there who are looking at a $45/MWh solar [contract] and now it's going to be $50/MWh after the tariff, and they'll be fine," he said. In addition, the US renewables industry is still weathering headwinds from supply chain constraints, increased borrowing rates and inflation, which have hampered new projects. For example, the PJM Interconnection — which spans 13 mostly Mid-Atlantic states and the District of Columbia — had approved more than 37,000MW of generation at the end of third quarter 2024, with only 2,400MW of that partially in service. Developers have blamed the delays on financing challenges, long lead times for obtaining equipment and local opposition to projects. Global problems, local solutions Changes to state procurement strategies could help. Maryland state delegate Lorig Charkoudian (D) next year will propose new state-run solar, wind and hydropower solicitations that would first target projects that have already cleared PJM's reviews. Her approach would echo programs in New Jersey and Illinois, and ultimately reduce utilities' reliance on renewable energy certificates (REC) procured elsewhere. "The idea is to give a path for these projects, so presumably they can be built within a few years," Charkoudian said. Utilities would use the new procurements for the bulk of their RECs, covering remaining demand by buying legacy Maryland solar credits and other PJM RECs on the secondary market. But a quick fix for Maryland's broader renewable energy objectives is unlikely after utilities used the alternative compliance payment (ACP) for two-thirds of their 2023 REC requirements. The fee for each megawatt-hour by which utilities miss their compliance targets serves as a de facto ceiling on REC prices. Maryland's ACP is low compared to neighboring states, where the qualifying REC pool overlaps, meaning that credits eligible in the state can fetch a higher price elsewhere. While lawmakers could raise the ACP to mitigate those issues, those costs would ultimately fall on utility customers. "As best as I can tell, the options are raise the ACP or adjust how we do it," Charkoudian said. "We're really concerned about ratepayer impacts, and so I don't think there's a real appetite to raise the ACP." In other states, the policy landscape is less certain. Pennsylvania governor Josh Shapiro (D) has no clear path for his proposed hike to the state's alternative energy mandate, should he choose to revisit it, after Republicans retained their state Senate majority in November. New Jersey state senator Bob Smith (D) has been working for two years to enshrine in law governor Phil Murphy's (D) goal of 100pc clean electricity, but the proposal failed to escape committee in 2024 after dying in 2023 over opposition to its support for offshore wind . Is the answer blowing in the wind? Offshore wind is a slightly different matter. Trump has been critical of the industry and federal regulators control much of the project permitting in the US. Moreover, as a burgeoning sector with higher costs, it could be more sensitive to the loss of the investment tax credit (ITC). Based on current expenses, Baringa's analysis suggests that losing the ITC could increase project costs by "at least" $30/MWh and push offshore wind REC prices in some cases near $150/MWh. That would be a "difficult cost for states to swallow", according to Harper. "We've seen a few offshore wind developers already say, 'Hey, we're not going to spend a dime more until we know what's going on,'" Harper said. Despite the challenging landscape, Charkoudian expects Maryland will move forward in areas it can control, such as expanding the onshore transmission, that will make offshore wind viable, whether it's now or "eight years from now". By Patrick Zemanek Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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US crude output at record 13.46mn b/d in Oct: EIA

31/12/24

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31/12/24

US crude output at record 13.46mn b/d in Oct: EIA

Calgary, 31 December (Argus) — US crude production in October rose to a record high 13.46mn b/d on sustained strength in Texas and New Mexico, the Energy Information Administration (EIA) said today in its Petroleum Supply Monthly report. Output rose from 13.2mn b/d in September and from 13.15mn b/d in October 2023. The prior record of 13.36mn b/d was set in August. Texas, home to 44pc of the country's crude production, pumped out a record 5.86mn b/d in October, up from 5.8mn b/d in September and up from 5.57mn b/d in October 2023. New Mexico, which shares the prolific Permian basin with Texas, produced 2.08mn b/d in October, ticking down by 5,000 b/d from record highs set in August and September but up from 1.8mn b/d in October 2023. US offshore crude output in the Gulf of Mexico rebounded to 1.85mn b/d in October after hurricane activity in September cut production to 1.57mn b/d. Still, US Gulf of Mexico output was down from 1.94mn b/d in October 2023. Monthly production changes inland were mixed, with North Dakota falling to 1.16mn b/d in October from 1.21mn b/d in the month prior. Bakken shale basin producers had to contend with wildfires during the month and effects are still lingering for some, state officials said earlier this month. Colorado output rose in October to the highest in more than four years at 499,000 b/d. This was up from 476,000 b/d in September and the highest level for the state since March 2020. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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