Daily on Energy: Refiners fear ‘perfect storm’ between Iran, oil saboteurs, and trade war

A combination of supply disruptions could turn into a “perfect storm” for the U.S. refinery complex, which is still very dependent on oil imports despite the U.S. becoming a top global oil producer, refinery and oil industry advisers tell John.

The U.S. refinery complex faces a complicated situation of an oil mismatch, which makes it vulnerable to supply disruptions despite the U.S. being the world’s top oil and natural gas producer.

Most of the U.S.’ refineries are built to run heavier stocks of crude oil. But most of what is coming out of the U.S. shale regions is lighter crude oil. U.S.-produced oil is best for exporting to foreign markets, not necessarily for making into diesel, gasoline and jet fuel.

Maxed out on our own supplies: The refinery industry has nearly maxed out what it can use from the lighter shale oil, while also facing dwindling supplies of heavier oil that it likes due to sanctions on Venezuela, supply cuts by OPEC and Canada, instability in Libya, and, now, growing concerns about a confrontation with Iran, says a refinery industry source.

Saudi oil tankers bound for the U.S. were the first targets of attacks Sunday night near the Straits of Hormuz, according to the Saudi government. The attackers, or saboteurs, have not been identified, and Iran has tried to distance itself from the incident.

A second attack: The Saudis said a drone attack on Tuesday targeted a major pipeline linking the shipping channel to the oil producing province of Yanbu.

Saudi Energy Minister Khalid Al-Falih said the attack occurred in the early morning hours, condemning it as an act of terrorism. The attack caused a fire to erupt and damaged pumping stations along the pipeline. The Saudi oil company Aramco said the situation has been brought under control with minimal damage.

The Trump administration’s response: The Trump administration tried to quell the ensuing calamity on Monday by ensuring that energy supplies were adequate to prevent a major disruption.

The Department of Energy “is monitoring the oil markets, and is confident they remain well-supplied,” said spokeswoman Shaylyn Hynes.

Experts in Washington are scratching their heads to understand what Iran could possibly get out of disrupting the supply chain at this point. Many believe it is most likely Iranian-backed militias that Tehran loosely controls.

Meanwhile, Energy Secretary Rick Perry appeared to be making friends in places where oil supplies are stable. Perry signed an energy memorandum with Colombia on Monday for greater cooperation. Colombia has become a relatively new source of heavier crude oil that U.S. refineries can use when faced with declining supplies from Venezuela, an industry official told John.

Although industry officials say the U.S. has adequate reserves, global supply risks continue to create an air of uncertainty and tension.

In addition, tariff concerns and the trade war with China are further complicating the situation.

China’s imposition of steep tariffs on liquefied natural gas on Monday is not a good sign, one industry adviser said. There is also uncertainty over the U.S.-Mexico trade deal, which still needs to be ratified by the Senate. The deal would help expand the market for refined oil products between the countries.

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ENERGY SECURITY GROUP CEO RENEWS CALL TO SEVER TIES WITH MIDEAST OIL: The only true response to the oil tanker attacks in the Gulf is to severe ties to Mideast oil, says Robbie Diamond, president and CEO of the energy security group Securing America’s Future Energy.

“Despite record domestic production, we are only one occurrence away in the Middle East from much higher global oil prices,” Diamond told John in a statement. He said that the U.S. should electrify its transportation system to disconnect the price of fuel from the global oil supply chain.

“This event reminds us that we are hostage to one fuel source priced in a global market based on events the U.S. cannot control,” Diamond added. “Therefore, true energy dominance must not only include domestic supply but the fast deployment of technology that diversifies transportation to a choice of fuel for consumers and business, like electric vehicles.”

SAFE is a group of former military commanders and business CEOs that advocate for a more independent U.S. energy system that is removed from the OPEC oil cartel’s influence.

NATURAL GAS INDUSTRY RAISES ALARM OVER TRUMP’S TRADE WAR WITH CHINA: The U.S. oil and gas industry was jarred Monday by Trump’s escalated trade war with China.

China is planning to hike tariffs on U.S. LNG from 10% to 25% beginning June to retaliate against Trump’s higher tariffs.

“We are deeply troubled by the ratcheting up of China’s tariff and would like to see the two countries reach a resolution quickly, which is in the best interest of all parties,” said Charlie Riedl, the executive director of the Center for Liquefied Natural Gas.

The hostilities demonstrate Trump’s split-screen policy approach: Riedl was traveling to Hackberry, La., on Monday, in advance of Trump’s visit Tuesday afternoon to an LNG facility to celebrate U.S. energy exports, when he was forced to draft a statement opposing the president’s trade agenda.

Industry officials say Trump’s trade war with China is threatening to hinder the progress of the U.S.’ emerging LNG export industry that is a key plank of the administration’s “energy dominance agenda.”

“China’s increase of retaliatory tariffs poses a threat to U.S. investment in LNG by limiting our share in the world’s fastest-growing LNG market,” said Stephen Comstock of the American Petroleum Institute.

Tariffs are already damping U.S.-China LNG trade: Only four cargoes of American LNG have been delivered to China from the U.S. since Beijing applied 10% tariffs in September. That compares to 35 cargoes in the prior September through April period, according to the research group Wood Mackenzie.

“These trade negotiations have likely hurt Chinese confidence in working with the U.S. under the Trump administration,” Jane Nakano, senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies, told Josh.

INSIDE SHELDON WHITEHOUSE’S LONG GAME STRATEGY ON CLIMATE CHANGE: Sen. Sheldon Whitehouse, D-R.I., says the oil and gas industry, spooked by shareholder advocacy, public pressure, and litigation, is nearing a breaking point that could lead to Congress passing major climate change policy.

“They are scared to death, and they see the day of reckoning happening a lot quicker than most people think,” Whitehouse told Josh.

Whitehouse sees overcoming the oil and gas industry as the key to passing a comprehensive policy because the industry has the Republican Party “pretty much by the throat.”

But Whitehouse, who has achieved small bipartisan victories on carbon emissions reduction bills, is realistic about the challenge ahead seeking a bigger legislative breakthrough.

While most big oil and gas companies are moving to cleaner energy and rhetorically support some form of carbon pricing, industry trade groups such as the U.S. Chamber of Commerce and API oppose taxes.

“The real machinery of influence is completely unchanged in what its intentions are,” Whitehouse said. “There is a real prospect of that shifting as it becomes more apparent to the American people what a racket the fossil fuel industry is running, saying one thing and doing another.”

Read more of Josh’s story in this week’s Washington Examiner magazine.

AOC, BERNIE SANDERS RALLY AGAINST ‘MIDDLE GROUND’ ON GREEN NEW DEAL: Rep. Alexandria Ocasio-Cortez, D-N.Y., and Sen. Bernie Sanders, I-Vt., rallied Monday night against “middle ground” policies in combating climate change.

Ocasio-Cortez and Sanders headlined a rally for the liberal Green New Deal in Washington, D.C., hosted by the Sunrise Movement, a group of young climate change activists.

“No middle ground is right,” Ocasio-Cortez said, echoing shouts from a crowd of about 1,500 activists at Howard University, the last venue of a nationwide series of 250 town halls hosted by the group.

The “middle ground” reference is a not-so-subtle dig at former Vice President Joe Biden, who was reported to be seeking a climate change agenda more moderate than the Green New Deal in a bid for the support of skeptical groups such as unions.

“I will be damned if the same politicians who refused to act then are going to come back today and say we need a ‘middle-of-the-road’ approach to save our lives,” Ocasio-Cortez said. “That is too much for me.”

What’s next for Sunrise: Varshini Prakash, executive director of Sunrise Movement, said Monday night the group would lead a major demonstration at the second Democratic presidential debate in Detroit in July to make climate change a central topic. She said the group hopes for a congressional vote on major climate change legislation by 2021, after the 2020 election.

BIDEN DEFENDS CLIMATE CHANGE RECORD, PROMISES TO INTRODUCE A PLAN: Biden was forced to defend his record on climate change during his first public 2020 campaign event in New Hampshire Monday.

Biden noted he had a pro-environmental record in Congress, authoring one of the first climate change bills in 1987 that required the government to plan for global warming. He also helped implement President Barack Obama’s 2009 stimulus package that dedicated $90 billion to clean energy programs.
“Look what we did when Barack and I got in, the fundamental change we made,” he said.

Biden said that he would lay out “a major speech in detail by the end of the month” on the specifics of his environmental policy positions.

“We need an environmental revolution,” he said. “I said back in 1987 … when they passed one of my bills on this, I said we have an existential threat. We are in a situation where if we don’t act quickly, we’re going to basically lose almost everything we have.”

MURKOWSKI SEEKS TO RESOLVE ‘ACHILLES HEEL’ OF MINERAL DEPENDENCE: Sen. Lisa Murkowski, R-Alaska, chair of the Energy and Natural Resources Committee, expressed optimism Tuesday that Congress will finally address the U.S.’ “Achilles heel” of relying on other countries for critical minerals.

“We are going to get it done,” Murkowski said at a hearing hosted by her committee. “This is our Achilles heel for competitive, manufacturing, and geopolitics.”

The hearing focused on a bill introduced this month by Murkowski and Sen. Joe Manchin of West Virginia, the committee’s top Democrat, that would streamline the federal permitting process for developing mines for lithium, graphite, and other minerals critical to developing batteries that power electric vehicles. The bill would also require a nationwide accounting of all minerals available in the U.S. to make EVs.

Murkowski noted the U.S. last year imported at least 50% of 48 different types of minerals, and 100% of 18 of them, according to data provided by the U.S. Geological Survey.

China, the leading market for EVs and a manufacturing powerhouse, is the primary supplier of 26 of the 48 minerals where the U.S. has an importing dependence. Manchin said he hopes to break China’s “stronghold” on the minerals market, but “I don’t know if we ‘ll ever be price competitive with China,” given their head start.

MCSALLY PRODS BERNHARDT TO INSTALL NEW GRAND CANYON CHIEF: Arizona Republican Sen. Martha McSally is leaning on Interior Secretary David Bernhardt not to go another day without putting someone in charge of the Grand Canyon.

“A leadership vacuum threatens to undermine long-term operations at the park as well as the ability to provide much-needed oversight of critical personnel issues,” McSally wrote.

The Grand Canyon has been struggling to emerge from a dark cloud of sexual harassment and a recent spate of deaths at the summer tourism hub.

Grand Canyon Superintendent Christine Lehnertz resigned on March 14 after taking the job in the wake of a 2016 sexual harassment case that forced the previous superintendent to resign. She was sent there with the mission of restoring the park’s reputation.

Lehnertz soon faced a National Park Service probe investigating whether she created a hostile work environment for senior members of park staff. She was cleared of the allegations, but was advised by her counsel not to return to work because of an incident involving the exposure of tourists to radiation inside the park’s museum.

In addition, a record number of people are dying at the park in fatal falls, McSally said.

The Rundown

Reuters US faces hurdles in push to build EV supply chain

Bloomberg Senators draft bill to sanction work on Nord Stream 2 Pipeline

Greentech Media Gas plant rejection brings the energy transition home to Indiana

New York Times The fusion reactor next store: a long shot bet against climate change

Calendar

TUESDAY | May 14

2:30 p.m., 366 Dirksen. The Senate Energy and Natural Resources Committee’s panel on forest management holds a hearing to consider eight pieces of legislation, including one to ban oil and gas drilling in national forests.

WEDNESDAY | May 15

10 a.m., 1100 Longworth. House Ways and Means Committee holds its first climate change hearing.

THURSDAY | May 16

10 a.m., 366 Dirksen. The Senate Energy and Natural Resources Committee holds a hearing on the Department of Energy’s carbon capture, utilization, and storage (CCUS) programs and to receive testimony on the Enhancing Fossil Fuel Energy Carbon Technology Act of 2019.