US oil sector sees chance to overhaul permitting

Spanish Market: Crude oil, Emissions, Natural gas, Oil products
11/01/23

The split control of the US Congress offers a pathway to pass legislation that would fast-track permitting of pipelines and other energy projects, the US oil and gas sector's top lobbyist said today.

Oil and gas companies have spent years pushing for legislation to revise permitting laws they say are delaying needed energy infrastructure, without success. But pent up bipartisan demand for faster permitting and the makeup of Congress have given top industry officials optimism for legislative action on permitting in 2023.

"It won't be easy, but divided government gives us a real chance to build consensus around meaningful reform," American Petroleum Institute president Mike Sommers said today at his group's annual State of American Energy event.

Pipelines, energy projects on public land, LNG export facilities, electric transmission lines and other energy projects often have to navigate a labyrinth of time-consuming permitting requirements. For larger projects, permitting can take years, particularly if there are challenges from residents and environmentalists.

Democrats led by US senator Joe Manchin (D-West Virginia) last year made some progress on permitting through a bill that focused on electric transmission lines for renewables and approving the delayed $6.6bn Mountain Valley natural gas pipeline. Although the bill was thwarted by a lack of Republican support, oil industry officials see the support by Democrats — including President Joe Biden — as a promising sign for permitting advancing this year.

Republicans intend to advance their own permitting bill out of the House Energy and Commerce Committee, which is chaired by Cathy McMorris Rogers (D-Washington). Rogers said although she had concerns with Manchin's bill, including its handling of local input on electric transmission, she applauded the recognition by Democrats of the need for permitting legislation.

"There is a bipartisan recognition and now we'll go to work on the details to actually get permitting reform done," Rogers said at the industry event.

But there is reason for skepticism that permitting legislation can pass through this Congress. Although both parties generally agree permitting should go faster, House Republicans have pushed for major changes to environmental laws that have little chance of adoption in the Democratic-controlled Senate.

Oil industry officials say they want to see negotiations on permitting to be bipartisan, and for legislation to pass by this year before Congress' focus switches to the 2024 presidential elections.

"We want it to move this year," Sommers said. "I think once you get out of 2023, it becomes another political issue."

In addition to permitting, the American Petroleum Institute said this year it would be pushing for expanded federal oil and gas leasing, progress on an offshore leasing plan for 2023-28, expedited approval of LNG export facilities and changes to pending climate disclosure requirements for publicly traded companies.

By Chris Knight

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23/12/24

Viewpoint: US east coast diesel oversupply to linger

Houston, 23 December (Argus) — The US Atlantic coast distillate market grappled with higher inventories and flat demand throughout most of 2024, dynamics that are likely to continue in the coming year. In the US Gulf coast, the main supplier of distillates to the Atlantic coast, refinery production has outpaced US domestic distillate demand, saturating the region with product shipped via the Colonial and Plantation pipelines. The US Gulf coast supplies roughly 70pc of all diesel consumed in the US Atlantic coast, with the majority shipped via pipeline. The four-week average for production of ultra-low sulphur distillates — including diesel (ULSD) and heating oil (ULSH) — in the US Gulf coast for the week ended 13 December was 7pc higher than levels from a year earlier. But overall US diesel demand was down by 2.1pc year-over-year and down by 1.9pc on the US Atlantic coast. In addition to soft demand, ultra-low sulphur distillate stocks in PADD 1B — which includes New York, New Jersey, Pennsylvania, Maryland and Delaware — in the week ended 13 December were nearly 36pc above levels a year earlier and 33pc higher than average levels recorded since the beginning of the Russia-Ukraine war in February 2022. Even with demand flat and inventories oversupplied, US refineries have not cut production. Heightened export opportunities, primarily to Europe, have created active trade flows between US Gulf coast diesel refiners and overseas end-user markets. Total distillate exports loading from the US Gulf coast year-to-date 2024 are 10pc higher than in the same period in 2023, with a 1.12mn b/d export average in 2024, compared to 1.02mn b/d loading in 2023. But not all of the additional supply is making it out of the Gulf coast. A 4.9pc increase in production in the Gulf coast means an extra 130,000 b/d of supply, while an increase of 10pc in diesel exports means an extra 100,000 b/d in outflows. Fluctuations in vessel availability and refinery production often prevent all distillate output allocated for export from being shipped from the US Gulf coast. As a result, incremental overproduction of distillates is redirected to the US Atlantic coast, with one market participant describing the Colonial pipeline as a "dumping ground" for excess product. Although economic growth in Europe remains flat, changes in the global supply chain following Russia's invasion of Ukraine are expected to sustain arbitrage opportunities for US producers to ship diesel to Europe. Shipping EN-590 gasoil — the European diesel fuel standard with a 10 ppm sulphur limit rather than the 15 ppm ULSD equivalent used in North America — from the US Gulf coast to Europe is easier than from the US Atlantic coast because of the US Gulf coast's larger refining capacity and export infrastructure, despite the US Atlantic coast's closer proximity to Europe. Although EN-590 and ULSD have similar low-sulfur requirements, EN-590 requires specific blending to meet European standards, a process better supported by US Gulf coast refineries. It does not appear that significant relief is on the horizon in the form of increased domestic demand. Diesel demand traditionally closely traces gross domestic product (GDP). But that correlation has been decoupling in recent years as the US economy has increasingly relied on non-manufacturing services to provide economic growth. Year-over-year GDP in the US grew by 2.8pc at the end of the third quarter of 2024, while diesel demand fell by 2.1pc during the same period, according to US Bureau of Economic Analysis data. While some economists are projecting US GDP to grow around 2.5pc in 2025, this is unlikely to lead to a spike in diesel demand. Continued demographic shifts and population migrations away from the US Northeast to the Sun Belt states also do not support increased demand forecasts. With narrowing refining margins, dwindling demand and sustained higher production, market participants could expect to face challenging economic conditions in 2025. By Cooper Sukaly Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US LPG cargo premiums poised to fall

23/12/24

Viewpoint: US LPG cargo premiums poised to fall

Houston, 23 December (Argus) — The booming US LPG export market has fueled record spot fees this year for terminal operators that send those cargoes abroad, but those fees are poised to fall next year as additional export capacity comes online. US propane exports surged over the past two years, hitting an all-time high of 1.85mn b/d in the first quarter of this year, according to data from the US Energy Information Administration (EIA). Terminal fees for spot propane cargoes out of the US Gulf coast hit an all-time high of Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook for domestic consumption is fairly steady, at 820,000 b/d next year — meaning even more propane will be pushed into the waterborne market. But that is dependent on US infrastructure keeping up with the pace of production. US export terminals in Houston, Nederland and Freeport, Texas, have run at or above capacity for the last two years given the thirst for cheaper US feedstock, largely from propane dehydrogenation (PDH) plant operators in China. This demand has created bottlenecks at US docks, and midstream operators like Enterprise, Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and additional refrigeration to stay ahead of the wave of additional production. US gas output spurs LPG exports As upstream producers have ramped up natural gas production ahead of new LNG projects, most producers are counting on LPG demand from international outlets in Asia to offload the ethane and propane the US cannot consume. For the past four years, Asian buyers have been more than happy to oblige. US propane exports to China rose from zero in 2019, when China imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per month in January-November 2024, according to data from analytics firm Kpler, making China the largest offtaker of US shipments. US exports to Japan averaged 480,000t per month throughout most of 2024, and exports to Korea averaged 460,000t per month in the first 11 months of 2024. China, Korea, and Japan received 52pc of US propane exports in 2024, up from 49pc in 2020, according to data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high enough to sustain an open arbitrage between the US and the Argus Far East Index (AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have remained well below delivered propane on the AFEI. In 2020, Mont Belvieu Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread that has only widened as additional PDH units in Asia have come online. During the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty $219/t, leaving plenty of room for wider netbacks in the form of higher terminal fees for US sellers, especially as a wave of new VLGCs entering the global market has left shipowners with less leverage to take advantage of the wider arbitrage. The resulting wider arbitrage to Asia has kept US export terminals running full for the last two years. So when a series of weather-related events and maintenance in May-September limited the number of spot cargoes operators could sell and delayed scheduled shipments, term buyers willing to resell any of their loadings could effectively name their price. This spurred the record-high premiums for spot propane cargoes in September. New projects may narrow premium An increase in US midstream firm investments in additional dock capacity and added refrigeration in the years ahead could narrow those terminal fees, however. Announced projects from Enterprise and Energy Transfer, in particular, will add a combined 550,000 b/d of LPG export capacity out of Houston and Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal project near Beaumont, Texas, will add another 360,000 b/d of either ethane or propane export capacity in the same timeframe. These additions are poised to limit premiums for spot cargoes by the end of 2025. Already, it appears the spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024. Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of November. The lower premiums come not only as terminals resume a more normal loading schedule, but at the same time a surplus of tons into Asia ahead of winter heating demand has narrowed the arbitrage. The spread between in-well EPC propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A backwardated market for AFEI paper into the second quarter of 2025 means US prices are poised to fall more in order to keep the spread from narrowing further. By Amy Strahan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Low-carbon fuel battles tumble into 2025

23/12/24

Viewpoint: Low-carbon fuel battles tumble into 2025

Houston, 23 December (Argus) — Fights over North America's largest low-carbon fuel mandates will tumble into 2025, long after a contentious year spent updating the program. California's minority Republican lawmakers have seized upon fears that new, tougher targets approved in November to the state's Low Carbon Fuel Standard (LCFS) could hike today's pump prices by 15pc. Environmental opponents have sued the California Air Resource's Board (CARB) alleging regulators ignored shortcomings to push through those amendments. And fuel suppliers, meanwhile, continue to grapple with new demands on feedstock selection, certification and other decisions that will begin to tighten by the end of this decade. LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels including petroleum diesel and gasoline incur deficits for exceeding annual targets. Suppliers must offset these deficits with credits generated from distributing approved, lower-carbon alternatives to the state. California operates the oldest and largest among five operating programs on the continent. The program helped drive a surge in US renewable diesel production capacity that earlier this year cut petroleum's share to less than a quarter of the liquid diesel used in the state. Credit trade representing each metric tonne (t) of carbon reduction drives the incentives for renewable diesel, captured dairy methane or electric vehicle charging capacity used in California transportation. Credits peaked at $219/t in February 2020, equivalent to roughly $267.10/t in today's dollars. But spot credits have languished below $100/t since late 2022. Prices buckled under the growing weight of more than 30mn t of extra credits available for future compliance — enough to satisfy all the deficits generated in 2023 a second time, with another 30pc leftover. CARB staff estimated that the targets board members approved in November would reduce that reserve by more than 8mn t, or less than a third. Fuel producers warned that carbon reduction could stagnate under the smothering imbalance of new credits. Staff dismissed outside estimates of 65¢/USG increases to gasoline prices attributed to the tough new program targets, but declined to offer a competing cost estimate. Spot credit prices would need to more than triple to $250/t next year to hit gasoline prices that hard at the pump, based on Argus analysis. Pump prices make good politics Governor Gavin Newsom (D) has for two years sought and received state tools to scrutinize oil company profits on California fuel sales. Now a California state senate Republican bill would repeal the new targets and other newly adopted changes intended to restore incentives under the program. A state assembly bill would require any CARB new rulemaking or standard to undergo a cost analysis by the state's Legislative Analyst Office, a nonpartisan office that performs such reviews of legislative proposals. These Republican measures face a likely impossible climb through Democratic supermajorities in both chambers. But lawmakers noted the potency of fuel price complaints. A legislative session — framed in defiance of a new federal administration hostile to their climate efforts — opened with leaders acknowledging the need to balance costs. "California has always led the way on climate change and we will continue to lead on climate," speaker Robert Rivas (D) said on 2 December. "But not on the backs of poor and working people. Not with taxes or fees for programs that don't work." Similar battles have already spilled out of the state. British Columbia voters in October narrowly denied conservatives a majority on a platform that included ending the province's aggressive LCFS. National conservatives targeted Canada's carbon taxes in a campaign against Premier Justin Trudeau's wobbling government ahead of elections next year. As regulators update programs to drive ambitious transportation changes, voters will become more aware of where the changes are heading. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US tax fight next year crucial for 45Z

23/12/24

Viewpoint: US tax fight next year crucial for 45Z

New York, 23 December (Argus) — A Republican-controlled Congress will decide the fate next year of a federal incentive for low-carbon fuels, setting the stage for a lobbying battle that could make or break existing investment plans. The 45Z tax credit, which offers greater subsidies to fuels that produce fewer emissions, is poised to kick off in January. Biofuel output has boomed during President Joe Biden's term, driven in large part by west coast refiners retrofitting facilities to process lower-carbon fats and oils into renewable diesel. The 45Z tax credit, created by the 2022 Inflation Reduction Act (IRA), was designed to extend that growth. But Republicans will soon control Washington. President-elect Donald Trump has dismissed the IRA as the "Green New Scam", and Republicans on Capitol Hill, who had no role in passing Biden's signature climate legislation, are keen to cut climate spending to offset the steep cost of extending tax cuts from Trump's first term. Biofuels support is a less likely target for repeal than other climate policies, energy lobbyists say. But Republicans have already requested input on 45Z, signaling openness to changes. Republicans plan to use the reconciliation process, which enables them to avoid a Democratic filibuster in the Senate, to extend tax breaks that are scheduled to expire in 2025. "I want to place our industry in a place to make sure that the biofuels tax credit is part of reconciliation," said Kailee Tkacz Buller, president of the National Oilseed Processors Association. But lawmakers "could punt the biofuels discussion if stakeholders aren't aligned." A decade ago, biofuel policy was a simple tug-of-war between the oil and agriculture industries. Now many refiners formerly critical of the Renewable Fuel Standard produce ethanol and advanced biofuels themselves. And the increasingly diverse biofuels industry could complicate efforts to present a united front to Congress. Farm groups worry about carbon intensity scoring hurting crop demand and have lobbied to curtail record-high feedstock imports, to the chagrin of some biorefineries. Those producers are no monolith either: Biodiesel plants often rely more on local vegetable oils, while ethanol producers insist on keeping incentives that do not discriminate by fuel type and some oil majors would back subsidizing fuels co-processed with petroleum. Add airlines into the picture, which want greater incentives for aviation fuels, and marketers frustrated by 45Z shifting subsidies away from blenders — and the threat of fractious negotiations next year becomes clear. There are options for potential compromise, according to an Argus analysis of comments submitted privately to Republicans in the House of Representatives, as well as interviews with energy lobbyists and tax experts. The industry, frustrated by the Biden administration's delays in clarifying 45Z's rules, might welcome legislative changes that limit regulatory discretion regardless of what agency guidance eventually says. And lobbyists have floated various ways to appease agriculture groups without kneecapping biorefineries reliant on imports, including adding domestic content bonuses, imposing stricter requirements for Chinese-origin used cooking oil, and giving preference to close trading partners. Granted, unanimity among lobbyists is hardly a priority for Republican tax-writers. Reaching any consensus in the restive caucus, with just a handful of votes to spare in the House, will be difficult enough. "These types of bills always come to down to what's the most you can do before you start losing enough votes to pass it," said Jeff Navin, cofounder of the clean energy advocacy firm Boundary Stone Partners and a former House and Senate staffer. "Because they can only lose a couple of votes, there's not much more beyond that." And the caucus's goal of cutting spending makes an industry-wide goal — extending the 45Z credit into the 2030s — even more challenging. "It is a hard sell to get the extension right away," said Paul Winters, director of public affairs at Clean Fuels Alliance America. Climate costs Cost concerns also make less likely a simple return to the long-running blenders credit, which offered $1/USG across the board to biomass-based diesel. The US Joint Committee on Taxation in 2022 scored the two-year blenders extension at $5.5bn, while pegging three years of 45Z at less than $3bn. An inconvenient reality for Republicans skeptical of climate change is that 45Z's throttling of subsidies based on carbon intensity makes it more budget-friendly. Lawmakers have other reasons to not ignore emissions. Policies elsewhere, including California's low-carbon fuel standard and Europe's alternative jet fuel mandates, increasingly prioritize sustainability. The US deviating from that focus federally could leave producers with contradictory incentives, making it harder to turn a profit. And companies that have already sunk funds into reducing emissions — such as ethanol producers with heavy investments in carbon capture — want their reward. Incentives with bipartisan buy-in are likely more durable over the long run too. Next time Democrats control Washington, liberals may be more willing to scrap a credit they see as padding the profits of agribusiness — but less so if they see it as helping the US decarbonize. By Cole Martin Tax credit changes 40A Blenders Tax Credit 45Z Producers Tax Credit $1/USG Up to $1/USG for road fuels and up to $1.75/USG for aviation fuels depending on carbon intensity For domestic fuel blenders For domestic fuel producers Imported fuel eligible Imported fuel not eligible Exclusively for biomass-based diesel Fuels that produce no more than 50kg CO2e/mmBTU are eligible Feedstock-agnostic Carbon intensity scoring incentivizes waste over crop feedstocks Co-processed fuels ineligible Co-processed fuels ineligible Administratively simple Requires federal guidance on how to calculate carbon intensities for different feedstocks and fuel pathways Expiring after 2024 Lasts from 2025 through 2027 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German heating oil demand dips, diesel stocks reduced

23/12/24

German heating oil demand dips, diesel stocks reduced

Hamburg, 23 December (Argus) — Heating oil consumers in Germany are refraining from purchasing because of high inventories, while importers are lowering their diesel stocks to maintain low bio-blended reserves. Reported volumes of heating oil traded to Argus fell by nearly 35pc last week. Consumers see little need to increase their stocks that, although they have steadily declined, remain higher than the same period in 2023 at 59.6pc, Argus MDX data show. Heating oil traded at about €1.50/100l higher than the previous week, further deterring consumers from last-minute purchases ahead of the Christmas holiday. Importers are striving to keep their diesel stocks minimal until the year's end. Obligated parties will be unable to use any surplus greenhouse gas (GHG) certificates from previous years in 2025 and 2026, so importers that have already met their obligations this year are eager to avoid generating more certificates until January. As a result, demand is low for diesel imports into Germany's northern ports and to storage facilities along the Rhine river. Northern Germany experienced a significant drop in imports in December to the lowest since September, Vortexa data show. But importers and barge operators are preparing for increased import activity in early 2025 to replenish their biodiesel inventories as quickly as possible. Suppliers at the Bayernoil consortium's 215,000 b/d Vohburg-Neustadt refinery in Bavaria are experiencing low stocks, primarily as a result of heightened demand in early December when buyers were active before an increased CO2 levy and the GHG quota take effect on 1 January. By Natalie Müller Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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