US House starts work on permitting package

Market: Crude oil, Emissions, Natural gas
28/02/23

Republicans in the US House of Representatives today began debate on nearly two-dozen energy and permitting bills that could serve as their opening bid for a bipartisan deal later this year.

Republicans today are holding five hearings at three different House committees on bills that seek to fast-track permitting, expand federal oil and gas leasing and remove most climate-related analysis from federal environmental reviews. The flurry of committee work aligns with a goal by Republicans to bring a combined bill to the House floor in the coming months.

"We cannot achieve the full benefits of an American energy expansion without reforms like these," House Energy and Commerce Committee chair Cathy McMorris Rodgers (R-Washington) said at the start of a hearing on nine bills. "This is a solid start to our energy agenda."

The sweeping changes sought by Republicans have little chance of becoming law, given the likely opposition from President Joe Biden and Democrats who hold the US Senate. But Republicans believe passing legislation can strengthen their hand on permitting ahead of potential negotiations with Democrats, who are looking for ways to speed the use of $369bn in climate-related spending from last year's Inflation Reduction Act.

Faster permitting "is something that both sides of the aisle want," US representative Mariannette Miller-Meeks (R-Iowa) said at an event held by the nonprofit Center for Climate and Energy Solutions.

Republicans are seeking to use legislation to reverse Biden's restrictions on fossil fuel production, seeking a mandate to hold quarterly oil and gas lease sales in nine states and twice-a-year lease sales in the Gulf of Mexico. They want to relax environmental reviews for drilling on federal land and make it harder to challenge that development in court. Republicans also want to ease the regulatory thresholds to approve US LNG export facilities and allow cross-border energy projects like the canceled 830,000 b/d Keystone XL pipeline.

Democrats say the legislation reads like an industry "wish list" that would undermine efforts to address climate change and make it harder for marginalized groups to have a say in nearby development. They are also alarmed at deep changes proposed to the National Environmental Policy Act, including a push to eliminate the federal analysis of the climate-related effects of burning fossil fuels.

"These bills seek to gut these processes, just so dirty energy projects can start producing profits a lot faster," House Natural Resources Committee ranking member Raul Grijalva (D-Arizona) said.

Oil industry groups back much of the legislation drafted by Republicans. A bill under consideration in the House Committee on Natural Resources would give certainty to industry and "ultimately lead to a more streamlined process" for federal oil and gas development, Independent Petroleum Association of America chief operating officer Dan Naatz said at the hearing.

Democrats made some progress on permitting legislation last year, with US senator Joe Manchin (D-West Virginia) getting bipartisan support for a bill to expedite permitting, speed electric transmission approval and approve the $6.6bn Mountain Valley natural gas pipeline. Manchin is likely to play a role on potential permitting negotiations again this year as head of the Senate Energy and Natural Resources Committee.

By Chris Knight

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30/12/24

Viewpoint: Permian waiting on new gas lines

Houston, 30 December (Argus) — Natural gas prices in the Permian basin of west Texas and southeast New Mexico fell to historic lows in 2024, with increased takeaway out of the region likely not picking up before 2026. Gas in the Permian basin is fundamentally tied to crude economics, with associated gas being a byproduct of crude-directed drilling. US benchmark WTI values continued to boost crude output in 2024, with month-ahead Nymex WTI futures for delivery in 2024 averaging $76.20/bl, down from $78/bl in 2023, but still much higher than in previous years since 2014. As of the week ended 20 December, the Permian basin rig count stood at 304 rigs, down by only five rigs from the same time a year prior , according to oilfield service provider Baker Hughes. The vast majority of those rigs were crude-directed. Strong associated gas output has frequently pushed spot prices at the Waha hub in west Texas into negative territory since 2019. Waha prices held positive through 2021, helped in part by increased takeaway capacity, before turning negative in four trading sessions in 2022 and seven sessions in 2023. Negative Waha prices were a much more regular feature in 2024, with sellers needing to pay buyers to take Permian gas for about 47pc of the trading sessions throughout January-November. The Waha index fell to -$7.085/mmBtu on 29 August, a historic low. But prices averaged above $2/mmBtu from the middle of November into the first half of December , buoyed by seasonally stronger demand and the end of planned and unplanned maintenance on several Permian pipelines. Spot prices at the Waha hub returned below $1/mmBtu in the final full week of December, as unseasonably mild weather crimped demand. The January-March block for Waha was $2.235/mmBtu as of 27 December, according to Argus forward curves. Spot prices often have been negative despite growing export demand from the LNG sector and for pipeline flows to Mexico. Even excluding potential flows through the most recently commissioned 1.7 Bcf/d (17.6bn m³/yr) ADCC pipeline in south Texas, aggregate feedgas flows to US liquefaction facilities edged higher to 12.9 Bcf/d in January-November from 12.75 Bcf/d a year earlier. Pipeline exports to Mexico rose to 6.06 Bcf/d in January-September from 5.7 Bcf/d a year earlier, US Energy Information Administration (EIA) data show. Pipelines out of the Permian have typically taken little time to reach capacity, as was the case when US firm Kinder Morgan's Gulf Coast Express and Permian Highway pipelines opened in 2019 and 2020, respectively, and more recently in 2021 with the Whistler pipeline. Similarly, flows on the 2.5 Bcf/d Matterhorn Express Pipeline quickly ramped up in October after the line began taking on gas in September. Takeaway capacity out of the Permian is not planned to rise much further before 2026. Several large new pipelines remain under construction or in the planning stage, including the 2 Bcf/d Apex and 2.5 Bcf/d Blackcomb pipelines, both due to enter service in 2026. Oneok's 2.8 Bcf/d Saguaro Connector pipeline is not expected before 2027. Targa's proposed Apex Pipeline, which would link the Permian to the Port Arthur LNG project, remains under consideration. Oversupply led to output cuts in more gas-directed fields in the US in 2024, but Permian gas production has been immune to the low price environment. Low or negative prices at Waha may eventually spur output cuts in the oil-oriented Permian, but that would require WTI prices falling closer to breakeven. Permian producers need WTI to be at a minimum of $62/bl to profitably drill a new well, while the breakeven price for an existing well was $38/bl, according to an April survey by consumer data platform Statista. Producers such as Chevron do plan to curb spending in the region by as much as 10pc in 2025. Chief executive Mike Wirth noted in the company's third quarter 2024 earnings call that Permian "growth will become less the driver and free cash flow will become more of the driver". Yet Permian gas, which accounts for roughly a fifth of US output, is still set to rise to 26.1 Bcf/d in 2025 from a projected 24.8 Bcf/d in 2024, according to the US EIA's December Short-Term Energy Outlook . By David Haydon Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Bearish year ahead for NOx markets

30/12/24

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30/12/24

Viewpoint: Bearish year ahead for NOx markets

Houston, 30 December (Argus) — The Cross-State Air Pollution Rule (CSAPR) NOx allowance markets will likely face a bearish year in 2025, as the incoming administration of president-elect Donald Trump creates uncertainty over the fate of the latest federal regulation to curb emissions. The US Supreme Court halted implementation of the US Environmental Protection Agency's (EPA) "good neighbor" plan in June with a nationwide stay. This left an already stunted regulation to cut NOx emissions, a precursor to harmful ground-level ozone, obsolete for the foreseeable future. EPA finalized a plan in March 2023 to help downwind states meet the 2015 national air quality standards by setting tighter ozone season NOx caps on power plants covered by CSPAR as well as new limits for industrial facilities in more than 20 upwind states. But by the time the justices issued the stay, the number of covered states had already shrunk by more than half because of lower-court orders pausing implementation in 12 states. Prices for seasonal NOx allowances have flatlined and the market has been illiquid over much of 2024 because of uncertainty over how numerous legal challenges against the good neighbor plan would play out. Argus has assessed Group 2 allowances at $775/short ton (st) and Group 3 allowances at a record low $1,250/st since January. This could change, albeit at a slow pace, because EPA finalized an interim rule in November to comply with the nationwide stay. Power plants that had been covered by the good neighbor plan are now under less-stringent NOx budgets tied to older air quality standards, and the 10 states that had been participating in the Group 3 market prior to the stay are now reshuffled into Group 2 and a separate 12-state "expanded" Group 2 market. All that remains is… uncertainty In the new year, the market will wait to see how the Trump administration will deal with the good neighbor plan and the associated legal challenges in the US Court of Appeals for the DC Circuit and the US Supreme Court. Because of the stay, there is no hurry for the new administration to address the legal woes, and it is unlikely the DC Circuit will soon rule on the legality of EPA's rejection of state ozone reduction plans. The Trump EPA, following precedent of prior administrations, will likely ask the court to pause litigation until it decides whether to continue defending the plan, according to Jeff Holmstead, assistant administrator at the agency under former president George W Bush. The agency will likely revoke the plan at some point and replace it with a rule that is more "modest" and would not significantly affect allowance prices, he said. The EPA under Trump could ultimately decide that upwind states do not significantly contribute to interstate pollution, reversing a determination that has underpinned the good neighbor plan. That could lead to downwind states asking the agency to address specific sources that contribute to their air quality problems, said Carrie Jenks, executive director of Harvard Law School's Environmental and Energy Law Program. The Supreme Court is also hearing a case to decide the proper court venue for Clean Air Act disputes, which involves the good neighbor plan. The Trump administration likely will agree with various states and industry groups that say EPA's rejections of individual state plans are not a "nationally applicable" action and must be litigated in the regional circuit courts, but the Supreme Court is likely to continue the venue case, Jenks said. Oral arguments will likely be held early next year. It is also unclear how Lee Zeldin, Trump's pick to lead EPA will affect the regulation. Zeldin is a moderate, given his history, and will likely "not want to impose significant new burdens on fossil fuel power plants", Holmstead said. Trump's plans to downsize the federal bureaucracy could also affect future rulemakings, according to Jenks. "Nobody really knows what's going to happen," she said. As a result, market activity is likely to remain limited in the coming months as participants await legal and regulatory clarity. In addition, markets are likely to be oversupplied now that power plants are under lighter NOx caps. Most states in the seasonal NOx markets were well below their limits for the 2024 ozone season, despite a 9.2pc increase in cumulative emissions in the expanded Group 2. EPA will also allow some power plants to convert vintage 2021-23 Group 3 allowances to Group 2 or expanded Group 2 allowances, adding to supply. With low demand and a potential oversupply, seasonal NOx allowances could see prices fall . By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Trump tariffs may shift crude flows to USWC

30/12/24

News

30/12/24

Viewpoint: Trump tariffs may shift crude flows to USWC

Houston, 30 December (Argus) — President-elect Donald Trump's proposed 25pc tariff on Canadian and Mexican imports could redirect key imported oil grades from the US west coast, opening avenues for displaced Latin American crudes to reappear. The tariffs, which Trump announced on 25 November, could displace about 9pc of the crude US west coast refiners import. Canadian crude flows from the newly expanded 890,000 b/d Trans Mountain pipeline system, which recently have drawn purchases in the US west coast, would force barrels to Asia-Pacific . Mexican crude sellers would divert crude to other outlets as well, like Europe or Asia-Pacific. Refiners on the US west coast increased purchases of Canadian grades after the May startup of the Trans Mountain Expansion (TMX). Cheaper prices and closer proximity to Vancouver, British Columbia, where TMX crude loads, allowed the heavy sour crudes to find favor along the US west coast. But the proposed tariffs could raise landed TMX prices, no longer making it the cheapest heavy sour option. US west coast buyers would pay a 25pc import tariff to US Customs and Border Protection on TMX crude once it has entered port. US west coast refiners received around 169,000 b/d of crude from the Vancouver area since the pipeline came on line in May, up from less than 40,000 b/d a year earlier, data analytics firm Vortexa shows. Around 60pc of Mexico's crude exports in 2024 went to the US, mostly to the US Gulf coast, according to Vortexa data. Tariffs could lead to a drop in prices to adjust to a tariffed American market or for Mexican crude going more often to other destinations such as Europe or Asia-Pacific. Spain, South Korea and India, were the second, third and fourth most common destinations for Mexican crude exports in 2024, respectively. Mexico's crude production and export infrastructure is concentrated on the country's east coast, making exports to Asia-Pacific difficult. Mexico would need to invest in building exporting infrastructure from the west coast to improve trade routes to Asia, market participants say. But Mexico's state-owned oil company Pemex plans to continue cost-cutting measures, led by recently elected President Claudia Sheinbaum, so infrastructure expansion is unlikely. Other Latin crudes could also experience a rise after being displaced by the commencement of TMX in May. Since then, heavier crudes from countries such as Colombia, Ecuador and Argentina have found more frequent routes to the US Gulf coast and Asia-Pacific. Market participants believe lighter Brazilian grades could find routes to the US west coast as TMX supply increases in China. China imported 683,000 b/d of Brazilian crudes in 2024, c ompared with 180,000 b/d of imports to the US west coast from Brazil, according to Vortexa. Sources say the tariffs are a bargaining chip by the incoming administration, and participants are skeptical they will be implemented by the Trump administration. Instead, the tariffs could exclude crude and other commodities. More than $3.3bn of goods and services cross the US-Canada border each day, according to Canada's Fall Economic Statement (FES), which notes Canada is the largest market for 36 US states. Market participants are vocally against the proposed tariffs. Tariffs on crude and refined products "will not help our industry compete, nor will they support US energy dominance and affordability for consumers," the American Fuel and Petrochemical Manufactures said on 27 November . Cenovus is also trying to explain to policy makers in the incoming Trump administration how tariffs on Canada could impact the energy system in North America. But the incoming administration shows no sign of backing off the tariffs for 2025. By Rachel McGuire and João Scheller Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Carbon offsets face bumpy road

30/12/24

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30/12/24

Viewpoint: Carbon offsets face bumpy road

Houston, 30 December (Argus) — Carbon offset credits from California's cap-and-trade program will meet reduced compliance demand next year, while program updates promise to upend market dynamics. Each carbon offset under the joint California-Quebec carbon market, known as the Western Climate Initiative (WCI) equals 1 metric tonne of greenhouse gas (GHG) emissions from sources not covered by either cap-and-trade program. California and Quebec allow covered entities to use offsets from either program to meet their annual GHG emissions obligations. But market regulators are eyeing changes for carbon offsets in Quebec that may have wider impacts. Quebec is considering phasing out carbon offsets by 2030 as part of an ongoing rulemaking for a more-stringent program. While the province has not shared its final approach, regulators have floated in workshops either limiting offset use to 4pc of overall obligations for 2027-29 or putting offsets under the program's emissions cap. Quebec's Environment Ministry allows for covered entities to utilize carbon offsets for up to 8pc of outstanding emissions, including from California. Meanwhile, the California Air Resources Board (CARB) allows for covered entities to use CCOs for 4pc of obligations through 2025 and for 6pc starting in 2026, though at least half must come from projects that provide direct environmental benefits to the state (DEBs). After 2031, Quebec is mulling transitioning to a government carbon offset purchase-and-retire system, but it remains unclear how that might function — and what it means for the longevity of carbon offset projects in Quebec, said Joey Hoekstra, a policy associate with International Emissions Trading Association (IETA). "That mechanism and how that is going to look like and what that will be, there has not been a lot of details," he said. Quebec plans to finalize its program changes early in 2025 , with implementation in the spring. The move away from carbon offsets has implications for California's program, ClimeCo chief operating officer Derek Six said. "Quebec is an outlet for the non-DEBs credits in California," Six said. The province issues very few carbon offsets under its own protocols, just under 1.8mn since 2014, according to provincial data published in November. California, which allows for projects to generate credits in and outside the state, issued nearly 13.8mn CCOs in 2023 alone, with just under 9.6mn from non-DEBs projects. The CCOs without DEBs are an oversupplied market, said Six, compared with the limited number of projects that generate the more expensive DEBs credits in California. Argus last assessed California Carbon Offsets (CCOs) seller-guaranteed offsets at $14.60/t, CCOs with a three-year invalidation at $14/t and CCOs with an eight-year invalidation at $13.90/t on 20 December. CCOs with direct environmental benefits to the state (DEBS) currently trade at an $15.50/t premium to non-DEBs CCOs. In issuances over the past five years, non-DEBs have formed the bulk of credits distributed by CARB, with DEBS-eligible credits only going as high as 42.3pc of total issuances this year. Covered emitters in Quebec used 13.2mn non-DEBs CCOs to meet their 2021-2023 compliance obligations, along with roughly 75,000 CCOs with DEBS. Provincial entities used just under 366,400 carbon offsets generated in Quebec for compliance. California emitters utilized 13.2mn non-DEBs CCOs and nearly 13mn DEBs CCOs for their 2021-2023 compliance. Washington, which hopes to link its cap-and-trade program with the WCI as early as 2026, is unlikely to stopgap the shortfall in demand for non-DEBs credits once it allows outside credits, instead feeding further demand for DEBS CCOs. The state allows participants to use carbon offsets for 5pc of its emissions and a further 3pc from projects on federally recognized tribal lands over 2024-2026, reduced to 4pc and 2pc, respectively, for 2027-2049. The state's ongoing linkage rulemaking would allow the participants to use offsets from within a linked jurisdiction, which will include CCOs with DEBs and Quebec offsets. Washington's cap-and-invest, which started in 2023, has generated few offsets of its own so far — just over 310,000t, all from ODS projects. But that may change in the short term, Six said. Project developers have likely been holding off over this year until voters rejected an effort to repeal the state's program in November. "I would not be surprised if you all of a sudden see a bit of a flood of project listings from people who had Washington ODS material," he said. Washington is also conducting a rulemaking to increase the variety of projects resulting in carbon offsets credits. Ecology plans to implement these changes in summer 2025. But carbon offsets remain unlikely to be much of a cost-saving measure for compliance in Washington, Six said. Washington, unlike California or Quebec, puts them under its annual emissions cap and removes allowances in line with offset use. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: California-Quebec carbon faces murky 2025

27/12/24

News

27/12/24

Viewpoint: California-Quebec carbon faces murky 2025

Houston, 27 December (Argus) — The joint California-Quebec climate market, known as the Western Climate Initiative (WCI), is on tenterhooks going into 2025, stymied by rulemaking delays but on the cusp of a more mature phase. Both California and Quebec are eyeing more-stringent future programs and have floated a series of changes over the past year and a half designed to achieve those goals. The California Air Resources Board (CARB) is considering moving its program's mandate from the present 2030 target of a 40pc reduction in greenhouse gas (GHG) emissions, compared with 1990 levels, to a 48pc reduction to keep the state on target to meet its 2045 goal of net-zero emissions. In line with this increased ambition, CARB will need to remove at least 180mn metric tonnes (t) of allowances from the 2026-2030 auction and allocation annual budgets to start with, and up to 265mn t in total from the program budgets from 2026-2045. CARB has floated other changes , including toughening corporate relationship disclosure requirements, increasing the program's cost-containment allowance price tiers and updating a portion of the program's carbon offset protocols. Quebec has considered removing 17.5mn t of allowances, which correspond to carbon offset uses for compliance in the province over 2013-2020. The Quebec Environmental Ministry proposed to address this by removing these allowances from the province's 2025-2030 auction budgets in a November 2023 workshop. Quebec is also mulling changing the current three-year compliance period to align with statutory 2030 and 2050 GHG targets. But this a move that California, which had discussed similar compliance period changes in April , has not revisited since. Quebec is considering tapering the limit for carbon offset use for compliance in the province by 2030 and transitioning over to a provincial reduction purchase mechanism in 2031, although regulators have not gone in-depth on how a replacement system would function. The WCI rulemakings have been marked by a series of delays over this year, pushing past projections from the end of last year that it would finalize program changes by the second half of 2024. Quebec, which was set to deliver a draft of program amendments in September, rescheduled to early 2025, with implementation expected in spring 2025. While the regulation was nearly complete in late September, the Quebec Environmental Ministry chose to postpone, since it cannot publish before California, said Jean-Yves Benoit, the agency's director general of carbon regulation and emissions data. CARB has signaled it intends to publish its package of rulemaking amendments in early 2025. The agency on 19 December confirmed it expects to "complete and release the regulatory package for a 45-day public comment period" in early 2025 but did not explain the delay. The agency may be waiting for a formal extension of the cap-and-trade program when the legislature resumes on 6 January. California lawmakers have given CARB explicit authority to utilize a cap-and-trade system to reduce GHG emissions out to 2030. CARB maintains it has authority to operate a cap-and-trade program past 2030, but program participants have stressed the need for formal certainty around the program to aid future planning. CARB will begin invoking the post-2030 budgets starting in 2028 for the program's advance auctions. The various delays have compressed the timelines California and Quebec must achieve their statutory target ambitions, making 2025 a potentially pivotal year. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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