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GRANHOLM NOT BETTING ON SPR REFILL BEGINNING THIS YEAR: Oil has been trading right in the sweet spot of the Biden administration’s SPR refill range for going on two weeks, but the Department of Energy’s buyback effort nonetheless faces multiple hurdles and will more than likely enjoy little if any progress this year.
Energy Secretary Jennifer Granholm, in remarks before the House Appropriations Committee yesterday, was not optimistic that the department would be able to manage refilling the reserve right now due to its mandatory sale obligations and storage site maintenance.
Granholm said the department wants to get the reserve “back to where it would have been were it not for those [emergency] sales” President Joe Biden relied on last year to bring down fuel prices.
Stocks in the reserve today stand shy of 372 million barrels following completion of the drawdowns, down from 638 million when Biden entered office (The majority of those barrels were drawn down and sold on an emergency basis after the war in Ukraine started, but the rest were released on exchange or under mandatory sale directions from Congress).
WTI is trading below $69 as of this writing and closed below $72 per barrel each day since March 14. It didn’t take but a few days of trading in that range in December for DOE to jump and issue a solicitation.
But Granholm said the 26 million barrel FY 2023 mandated sale that Congress left on the books, coupled with two storage sites being down for maintenance, mean it “will be difficult for us to take advantage of this low price.”
“But we will continue to look for that low price into the — into the future because we intend to be able to save the taxpayer dollars,” she said. The department sold high over the course of last year at an average $94 per barrel.
The other challenge: There was little commercial interest in participating in the “pilot” of the administration’s new buyback plan on its own terms. DOE, with its solicitation in December, sought to try out its new fixed-price contract option, but all responses were rejected for offering the wrong crude specification or seeking too high a price, the administration said.
Proponents assert the buyback strategy offers certainty to producers and should encourage them to invest in production, but some big names in the sector, including Chevron chief Mike Wirth and Mike Sommers of the American Petroleum Institute have dismissed it as a weak incentive.
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DENMARK INVITES GAZPROM TO HELP SALVAGE UNIDENTIFIED OBJECT IN BALTIC: Denmark said it has invited Russian-owned gas giant Gazprom to help salvage an unidentified foreign object found near the site of one of the twin Nord Stream gas pipelines linking Russia to Germany.
The Danish Energy Agency said this month that it had discovered an unidentified tubular object during an inspection of the sole remaining intact pipeline.
“With a view to further clarifying the nature of the object, Danish authorities have decided to salvage the object with assistance from the Danish Defence,” it said yesterday. Authorities have said the object poses no immediate safety risk to the area.
Gazprom voiced repeated public complaints about the lack of information shared during the investigation process, and Vladimir Putin said this month that it had also identified an “antenna-like” object some 19 miles away from an explosion site. It is unclear whether the two countries were referring to the same object.
Both Nord Stream 1 and 2 gas pipelines were exploded last September in the Baltic Sea, a coordinated attack that leaders have described as an act of “sabotage.” Authorities in Germany, Denmark, and Sweden are each conducting separate investigations into the explosions.
As of early today, Denmark said it had not yet received a response from Gazprom on whether it plans to participate.
SPAIN TELLS BUYERS TO MOVE AWAY FROM RUSSIAN LNG: Spain is asking its LNG importers not to sign new contracts with Russia, a push that, if successful, would mark a major shift in the country’s energy mix and its heightened reliance on Russia for the fuel.
The request from the Spanish government is not compulsory, but it does make a general plea to “intensify the diversification of supply of liquefied natural gas and do without those from Russia,” according to Bloomberg.
Spain has emerged as the largest single importer of Russian LNG in the EU since the war, and its shipments have nearly doubled in the last year, even as EU leaders warned against reliance on Russian supplies. Russian LNG now makes up 14% of its total supply, a 6.2% jump from the 2021-2022 period.
CASTEN LEADS BILL TO REPEAL OIL AND GAS TAX BREAKS: House Democrats introduced legislation yesterday that would repeal federal tax breaks to the oil and gas sector and establish a “gas prices rebate” to be paid to taxpayers for 2022.
Rep. Sean Casten said his People Over Petroleum Act would stop Big Oil from taking advantage of subsidies to further pad their high earnings.
Democrats have sought frequently to repeal tax provisions that advantage oil and gas, such as the marginal well credit and the enhanced oil recovery credit. Casten’s bill would repeal 11 total provisions.
The White House’s FY 2024 budget proposes also to eliminate the fossil fuel tax preferences targeted in Casten’s bill, in addition to a few others.
HAS NORFOLK SOUTHERN STOCK DROPPED TOO FAR POST-DERAILMENT? Stocks for rail company Norfolk Southern have dropped 21% since last month’s train derailment in East Palestine, even as analysts noted that its total cleanup costs and fines from the disaster are likely to be smaller than some had expected.
Insurance will help it cover the hefty remediation costs, which are estimated to run somewhere between $150 million and $250 million in costs and payouts to residents whose lives were disrupted by the derailment.
Still, Norfolk Southern’s shares have lost one-fifth of their value in the weeks since—which one analyst described as a “complete overreaction.” Others noted Norfolk will struggle with earnings growth for “pretty much the rest of the year.”
“In the long run, Norfolk and the other rails are expected to see strong growth,” analyst Jason Seidl told Bloomberg. “So, if you are a long-term investor, this is a buying opportunity.”
NEWSOM PRICE-GOUGING BILL CLEARS STATE SENATE: The California Senate passed Gov. Gavin Newsom’s legislative proposal enabling state authorities to punish oil refiners for high gasoline prices.
The bill would establish a new watchdog agency within the California Energy Commission designed to keep an eye on oil and fuel markets. It also enables the commission to impose civil penalties on refiners charging above a “maximum allowable margin” for the price of gasoline, although they would have to be implemented via public rulemaking.
The bill also includes new reporting requirements for refiners and gives the watchdog subpoena power over data and records, and it enables the agency to refer violations of law to the attorney general.
Newsom said yesterday the proposal would end “the era of oil’s outsized influence” and hold the sector accountable.
The governor became preoccupied with refiners’ earnings last year as high gas prices drove up their profit margins. Refiners blamed high taxes and a strict regulatory environment for making fuel manufacturing more costly compared to other states.
What passed yesterday is a lighter-touch version of what Newsom and Sen. Nancy Skinner proposed in December, but it contains the same motif of effectively establishing an acceptable profit margin.
DOE FINALIZES NEW EFFICIENCY STANDARDS FOR AC UNITS: The Department of Energy finalized new efficiency standards yesterday for new room air conditioners, the first appliance efficiency standards the Biden administration has developed and finalized from start to finish.
DOE first proposed the new standards for room ACs, or window units, last March. The final rule estimates it would cut utility bills by $1.5 billion per year, while costs to industry associated with compliance were estimated to be $24.8 million.
The standards, which require units to achieve more cooling per unit of energy than current standards require, apply to units imported or manufactured beginning in 2026.
LG TO SPEND $5.5 BILLION ON ARIZONA BATTERY COMPLEX: Korean battery giant LG Energy Solution plans to invest $5.5 billion to build a battery manufacturing complex in Queen Creek, Arizona.
The company announced today that it is planning two separate facilities, one for manufacturing EV batteries and the other for building batteries for energy storage systems, and said its investment is the largest ever in North America for a stand-alone battery manufacturing facility.
Product from the facility will be directed primarily to EV makers in North America, LGES said. It said it landed on North America in order to serve growing EV demand and “ to satisfy the Inflation Reduction Act (IRA)’s EV tax credits.”
Treasury is planning to issue guidance for the law’s component sourcing provisions by the end of the month.
MINNESOTA NUCLEAR PLANT SHUT DOWN OVER LEAK: Xcel Energy said it will temporarily shut down its Monticello nuclear power plant for repairs after it detected radioactive tritium was being leaked into groundwater nearby for the second time in two years.
Xcel said that leakage began earlier this week, and spilled an estimated “hundreds of gallons” of contaminated water at the Minnesota plant, caused by temporary repairs made to a defective section of the pipe.
“Upon investigation, operators discovered the temporary solution was, over the past two days, no longer capturing 100% of the leaking water,” the utility said.
Officials stressed that some 32% of the contaminated water has been captured so far, and insisted there is no risk to the public or the environment.
The tritiated water did not make it into the drinking water supply, and had not yet reached the Mississippi River, which runs alongside the plant.
Still, it is the second time Xcel was forced to take its plant offline in the last two years due to a defective section of a pipe at the nuclear plant.
In November, the pipe leaked 400,000 gallons of tritium-contaminated water into the grounds of the facility – news that was revealed to the public for the first time last week. The first leak forced Xcel to make short-term repairs to solve the issue while it awaited a new, permanent pipe, scheduled for installation in April.
But the repair efforts may have fallen short, since the new leak appears to be the result of the temporary fix. It is unclear when the power plant will come back online for operations.
The Rundown
Bloomberg Faulty credits tarnish billion-dollar carbon offset seller
Reuters U.S. and China wage war beneath the waves – over internet cables
Washington Examiner TVA joins Canadian and Polish power companies to fund new next-gen reactor design
Calendar
WEDNESDAY | MARCH 29
9:30 a.m. The Senate Appropriations Committee’s Subcommittee on Interior, Environment, and Related Agencies will hold a hearing on the president’s FY 2024 budget request with testimony from Secretary Deb Haaland.
