Senate bill's carbon collection point for gas may create big problems

A global climate change bill which is expected to reach the Senate floor in June is already generating some heat of its own. The measure, S. 2191, which Sens. Joseph I. Lieberman (I-Conn.) and John W. Warner (R-Va.) introduced last year, would generate $1.21 trillion in federal taxes from 2009 through 2018, the Congressional Budget Office said on April 10.

It also would impose private sector mandates under its cap-and-trade program participation requirements that would exceed the Unfunded Mandates Reform Act's ceiling ($136 million in 2008, adjusted annually for inflation), reaching more than $90 billion annually from 2012 through 2016, CBO said in its analysis.

Critics of the Lieberman-Warner bill warn that its provisions also could lead to some serious problems because it was pushed quickly through the Environment and Public Works Committee. "It was not written until late October and was then rushed through the legislative process, when the oil and gas industry was included. The majority did not provide a summary of changes. Each time a new hearing was held, you had to read all 300 pages of the bill to find out what words had been changed," one insider told me.

Industry groups have been concerned about potential impacts under the bill's carbon cap-and-trade program for some time. Some are especially worried now that a provision involving natural gas carbon collection points could potentially reduce domestic production significantly by driving costs substantially higher in the near term.

"This has eclipsed all our other issues. If Congress makes the wrong choice for climate change and natural gas, the impacts could be devastating not only for our sector but for the general economy," said William F. Whitsitt, president of the American Exploration & Production Council.

Moved upstream

"The issue is where the point of regulation is for the natural gas industry. Originally, it was at the larger industrial facility or electricity generator," explained Paul Wilkinson, vice president for policy analysis at the American Gas Association. Then Sen. Frank R. Lautenberg (D-N.J.) introduced an amendment which was designed to add more entities by moving the collection point upstream. Putting it at the wellhead was considered too complicated so lawmakers placed it at the gas processing level, Wilkinson said.

Producers would need to spend billions of dollars already to buy carbon allowances, Whitsitt said. The amount could jump by a factor of 30 if processors build their additional cap-and-trade costs into their processing rates, which would bite into producers' budgets and force many of them to cut back sharply, he told me.

"The people who wrote the legislation believe that it really doesn't matter. They assume that the cost of the allowances will be added to the cost of the gas and the ultimate consumer will see that. Upstream entities believe they would not be able to pass on the entire costs, which could reduce money their exploration and production budgets," said Wilkinson.

Since most of its members are local distribution companies, AGA's main concern about the provision is that it will increase costs for commercial and residential customers when they have made major progress in using gas more efficiently already, he continued. "We believe that with this bill or any other significant climate change legislation, there will be increased demand for gas, particularly to generate electricity and particularly for the next 10-15 years when nuclear, solar, wind, carbon capture for coal and other technologies won't be as readily available. Including commercial and residential customers means they will be subjected not only to higher gas prices, but also the cost of allowances," he said.

Back to original point

AGA has proposed that the carbon allowance collections be moved back to the industrial and power generation point and not involve residential and commercial customers before 2020, according to Wilkinson. At that time, the Environmental Protection Agency would analyze availability of technologies other than gas and further efficiency gains by residential and commercial customers, he said. "This also would solve upstream entities' problems with the point of regulation," he noted.

"Increasingly, the senators and staff people we explain this problem to say we may be right and this situation wasn't their intent," said Whitsitt. "So the question is whether they have the political will to do a 90-degree, if not 180-degree, turn now that this bill is so far down the road in the Senate. They'll need to, since what they approve will heavily influence the House."

It's critical that they do so, maintained Paul N. Cicio, president of the Industrial Energy Consumers of America. "All costs, including allowances, will be passed on to us. They're incredibly high in this bill and it could move more manufacturing out of the United States. Natural gas is the low-carbon fossil fuel alternative. We should be encouraging, not discouraging, its production," he told me.

Contact Nick Snow at nicks@pennwell.com

Related Articles

Work stoppages commence at largest US refinery, three other facilities

02/23/2015 The United Steelworkers union (USW) has launched additional work stoppages at the largest refinery in the US and three other facilities as part of ...

API: US oil product demand reached highest January level since 2008

02/23/2015 US oil product demand rose 1.5% year-to-year to an average 19.2 million b/d in January, its highest level for the month since 2008, the American Pe...

Expansion work progresses at Lukoil’s Volgograd refinery

02/20/2015 Contruction activities related to the expansion of OAO Lukoil’s 11 million-tonne/year Volgograd refinery in southern Russia are proceeding as plann...

Tesoro advances projects at Anacortes refinery

02/20/2015 Tesoro Corp. plans to move forward with two complementary projects to enhance production of cleaner products at its 120,000-b/d Anacortes, Wash., r...

Yara-BASF JV to build Texas ammonia plant

02/20/2015 A joint venture of Yara International ASA and BASF Group has agreed to build a world-scale ammonia plant in Freeport, Tex., that will require expan...

SIBUR advances grassroots petrochemicals complex

02/20/2015 ZapSibNeftekhim LLC, a subsidiary of Russian petrochemical manufacturer OAO SIBUR Holding, Moscow, has started construction on its long-planned int...

India’s IOC to invest in processing-related upgrades, expansions

02/19/2015 Indian Oil Corp. Ltd. (IOC) has approved a series of expansions and upgrades designed to improve fuel quality and production at several of its refi...

PwC: Chemicals industry M&A activity in 2014 reached 10-year high

02/19/2015 Mergers and acquisitions (M&A) activity in the US chemicals business ramped up substantially in 2014, recording the highest volume in a decade ...

ExxonMobil investigating explosion at Torrance refinery

02/19/2015 An investigation is under way into the cause of an explosion and ensuing fire that took place at ExxonMobil Corp.’s 149,500-b/d Torrance, Calif., r...
White Papers

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected