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NEWSOM VERSUS REFINERS: California Gov. Gavin Newsom is escalating the state’s fight against oil refiners, announcing yesterday a legislative proposal to penalize the industry for high profit margins.
Newsom’s announcement, which accused refiners of attempting to “gaslight” people into believing their profit margins are above-board, reflects the uncompromising conflict between the oil industry and many Democrats nationally about the causes of, and solutions to, persistently high energy prices.
What’s on the table: The proposal, announced in conjunction with the beginning of the special legislative session Newsom ordered to deal with refiners’ large windfall profits, would give the state Energy Commission new oversight authority in fuel markets and, most notably, would make it illegal for petroleum refiners to earn above a yet-to-be quantified “maximum gross gasoline refining margin,” calculated on a per-gallon basis.
It would also authorize the Energy Commission to ask a court to enjoin refiners from taking in earnings above that margin.
Refiners are “entitled to a reasonable return but are not entitled to reap exorbitant profits at the expense of Californians,” the proposal says.
Compared to federal efforts: National Democrats pushing for penalties on energy companies’ high earnings in the last year, including President Joe Biden, have advocated a tax on “windfall profits,” a phrase the California bill doesn’t use.
A bill introduced by Democratic Sen. Sheldon Whitehouse shortly after the war in Ukraine began would tax profits earned on crude oil above a certain threshold rather than targeting refined products as the California bill would.
Whitehouse’s bill and the California proposal, introduced by Democratic state Sen. Nancy Skinner, are similar, however, in that they would rebate funds collected to consumers.
The larger fight: The oil industry and Democrats nationally have been in a tug-of-war most of the year over the causes of high retail fuel prices.
The situation in California, where drivers consistently pay more on average to fill up than those in other states, is somewhat untethered from what the rest of the country has seen due to its relative isolation from other state-level markets caused by pipeline infrastructure limits and state-specific fuel blending requirements.
Refiners have blamed those factors for driving up costs, as well as federal actions favoring decarbonization and renewable fuels, which have contributed to companies’ decisions to close or convert refineries.
Marathon Petroleum is working to convert its 161,000 bpd petroleum refining facility in Martinez to produce renewable fuels, and Phillips 66 is set to close two of its refineries next near, one of which will be converted to produce renewable fuels.
“It will remain, for the foreseeable future because of the refinery closures, short [on] indigenous fuel manufacturing supply, and it keeps killing its own crude supply, which is going to raise crude costs for refiners,” one industry source told Jeremy of California. “Challenges aren’t really going away.”
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WESTERN TRADE GROUPS LEVEL NEW SUIT AGAINST INTERIOR: Oil and gas trade groups sued the Biden administration yesterday, arguing it violated the Mineral Leasing Act by not scheduling and holding any oil and gas lease sales in the third quarter.
“The failure to hold lease sales according to the Mineral Leasing Act’s mandate unnecessarily delays – and can completely halt – development of federal, state, tribal, and private minerals,” the Western Energy Alliance and Petroleum Association of Wyoming said in their complaint.
The argument focuses on language in the MLA providing that lease sales “shall be held for each state where eligible lands are available at least quarterly and more frequently.”
Other lawsuits challenging the Biden team’s administration of oil and gas leasing have relied heavily on the same clause.
Environmental groups supportive of restrictions on leasing, however, have focused on the condition of availability of “eligible lands” and argued the department has discretion over what lands are eligible to advocate limits.
BOEM HOLDING PACIFIC’S FIRST WIND LEASE SALE TODAY: The Bureau of Ocean Energy Management will initiate a new stage in offshore wind development today by holding the department’s first-ever West Coast offshore wind lease sale.
BOEM scheduled the sale in October and said the roughly 373,268 acres, which cover two separate wind energy areas off California’s coast, have potential to produce more than 4.5 gigawatts of offshore wind energy and power more than 1.5 million homes.
The Biden administration intends for half of the 30 gigawatts of total offshore wind capacity it wants to stand up by 2030 to use floating technologies in deepwater, and deepwater is what the West Coast has to offer.
More details: Passage of the Inflation Reduction Act has major implications, not just for the immense tax benefits prospective lessees will be able to access to make the most of their projects.
The law put constraints on wind leasing such that Interior may not issue an offshore wind lease in the Outer Continental Shelf unless it carries out an offshore oil and gas lease sale covering at least 60 million acres during the prior year.
The bureau’s final sale notice for today’s wind lease sale set clear expectations about when awardees could expect the leases to be issued: “Conducting Lease Sale 259 is needed for BOEM to satisfy the requirements in section 50265(b)(2) of the IRA and issue the leases resulting from this lease sale.”
Lease Sale 259 is one of the three offshore oil and gas lease sales ordered by name in the IRA. BOEM scheduled 259 for March 2023.
Gauging interest: The wind lease sale offshore California has nearly twice as many eligible entities bidding on blocks as the New York Bight sale carried out earlier in the year.
NORTH CAROLINA GRID SHOOTERS ‘KNEW EXACTLY WHAT THEY WERE DOING,’ OFFICIALS SAY: The orchestrators behind the gunfire attacks on two North Carolina power substations this weekend knew “exactly what they were doing to cause the damage” and disable the stations, Moore County Sheriff Ronnie Fields said.
The outages caused 45,000 people to lose power, many of whom are not expected to regain electricity until later this week due to the scope of the damage. Schools in the county remained closed for a second day.
Meanwhile, North Carolina Gov. Roy Cooper warned of a “new level of threat” to the state’s critical infrastructure and called for the hardening of protections around its power grid. “Protecting critical infrastructure like our power system must be a top priority,” Cooper said.
Asked if authorities are investigating the attack as domestic terrorism, Cooper said only that “investigators are leaving no stone unturned.”
White House officials said Biden has been briefed on the incident, which is currently being investigated by state and local officials, as well as the FBI, DOE, and other federal agencies.
“Early evidence suggests that it was deliberate and the investigation is under way,” DHS Secretary Alejandro Mayorkas said.
LOS ANGELES VOTES TO BAN OIL AND GAS DRILLING WITHIN CITY LIMITS: The Los Angeles City Council voted unanimously to pass an ordinance that will ban drilling and phase out all existing operations within the next two decades—passing one of the strongest environmental policies enacted in the state of California, and one that could pave the way for U.S. cities to follow suit.
The ordinance comes after years of resident complaints about pollution caused by nearby drilling, and will affect the city’s 26 oil and gas fields and its more than 5,000 active and idle wells.
Hector Barajas, a spokesman for the California Independent Petroleum Association, told CNBC that the 2.5 million barrels of oil produced by L.A. last year would have to be replaced by imports from countries such as Saudi Arabia, Ecuador, and Iraq.
“Our in-state oil is the only California climate-compliant oil in the world, given that oil producers must adhere to the state’s greenhouse gas reduction program and account for all emissions,” Barajas said. “Foreign oil imports are totally exempt from those requirements.”
GAS PRICES FALL TO LOWEST POINT SINCE FEBRUARY: U.S. gas prices fell to a national average of $3.38 per gallon on Tuesday for the first time since before Russia’s invasion of Ukraine in February, reversing hikes seen this summer and giving relief to consumers ahead of the holiday season.
Prices at the pump have dropped 42 cents since last month, and $1.63 since the all-time high of more than $5 per gallon seen in mid-June. Since then, prices have steadily dropped each month, according to AAA.
The Biden administration has sought to take credit for the recent drop in prices, which are due in large part to lower-than-expected global demand, as well as an increase in supply from refineries that had previously been shut down for maintenance.
“Because of our policies, gasoline prices are coming down,” Biden said at a White House event last week. “And what’s most exciting about it: People are starting to feel a sense of optimism and the impact of these legislative achievements in their own lives.” (Biden in March ordered the sale of 180 million barrels of oil from the U.S. emergency petroleum stockpile, the largest single drawdown from the reserve since its creation in the 1970s.)
SOLAR ENERGY TO SURPASS COAL GENERATION IN 5 YEARS, IEA SAYS: Renewable energy is poised to be the largest source of global power generation by early 2025, according to a new IEA forecast, due in large part to the war in Ukraine and resulting energy crisis that has accelerated the push for renewables.
The solar industry boom is also expected to grow in the next two years, led largely by the U.S. and India. Solar investments from the two countries are expected to rise to nearly $25 billion between 2022-2027, a sevenfold increase from the previous five-year period. (Solar can be developed more quickly than other renewable energy sources, allowing projects to come online sooner.)
Europe will also play a role in the expansion. Iberdrola, a leading European renewable power company, is planning to “more than double our global solar capacity to 10.6 gigawatts by the end of 2025,” director of sustainable energy Xabier Viteri Solaun told the Financial Times.
The investments will help diversify the solar manufacturing supply chain and reduce China’s dominance in the industry, IEA said.
The Rundown
E&E News EPA has a new climate fund. Who should control the money?
Financial Times EU to propose sanctions on Russia’s mining industry
Calendar
THURSDAY | DECEMBER 8
9:00 a.m. The Nuclear Regulatory Commission will hold a meeting on the overview of advanced reactor fuel activities.
