Energy and Power

CO2 emissions to increase at a slower pace

The EIA, in its recent short term outlook, has projected a 5.9% decline in fossil-fuel based CO2 emissions in 2009, higher than the 3.2% fall in 2008, driven by changes in the energy consumption pattern in the industrial sector, as a result of weak economy and changes in sources of electricity generation.

However, over the long term, energy-related CO2 emissions are expected to grow by a modest 0.3% per year from 2007 to 2030, significantly down from a 0.8% annual growth recorded over 1980-2007. By 2030, the U.S. economy is expected to become less carbon-intensive, with CO2 emissions per dollar of GDP and per capita declining by 39% and 14%, respectively.

OPEC – Cartel Continues its ‘Power Play’

Reviewing current market conditions and future prospects, OPEC decided Sept. 9 to keep its current production steady at 24.845 million barrels per day (bpd), as expected. The cartel had to resort to this decision to rein in excess supply in the wake of weaker market demand. OPEC also admitted that compliance with its target by its 11 member countries is only 68% to 70%. It further stated that while there were signs of recovery in the global economy, the magnitude and pace of recovery remains uncertain. OPEC members expressed concerns over the continuing volatility in oil prices, despite the over-supplied market conditions, particularly in the industrialized OECD (Organization for Economic Co-operation and Development) countries. With OECD crude oil stockpiles at about 10% above the five-year average and rising levels of downstream distillate stockpiles, OPEC’s decision was consistent with market expectations. How the winter heating season plays out will have a bearing on the future actions of OPEC. Crude oil supply cuts from OPEC, compared to the previous year, have supported prices in the crude market, but weak distillate demand in the coming winter season could be a drag on oil prices, according to a recent monthly report on world oil demand by International Energy Agency (IEA). Crude oil supply from OPEC in August stood at 28.8 million bpd, an increase of 55,000 bpd over the previous month. In the light of unprecedented jump in oil imports, the U.S. trade deficit registered its biggest increase in over 10 years in July, with the deficit in international trade of goods and services widening by 16.3%.

Climate Bill could pose a severe blow to U.S. refining industry

The U.S. House of Representatives passed legislation (American Clean Energy and Security Act of 2009 (ACES), also known as Waxman-Markey (Climate bill) in June, which puts domestic utilities, oil refineries and other players in the field on a path toward reducing emissions of carbon dioxide and other pollutants responsible for global warming. The proposed House bill calls for a 17% reduction (from 2005 levels) in greenhouse levels by 2020 and an 80% cut by 2050.

The American Petroleum Institute (API) expects the U.S. refining production to fall by more than a quarter by 2030, if the climate-change legislation approved by the House becomes law. As a result, the U.S. would have to resort to fuel imports for meeting its requirements. API further points that the refiners would be discouraged from running plants at full capacity due to costs associated with the program.

In analyzing the impact of Waxman-Markey on the U.S. refiners, a new study by a global consulting firm, EnSys Energy, suggests that the industry refining capacity could plummet on soaring costs of doing business. The study further points that the U.S. would need to increase imports of its petroleum fuels in response to meet as much as nearly one-fifth of U.S. refined product demand in 2030. The legislation, if enacted, would leave refiners at a major disadvantage; only about 2% of emission allowances are allocated for refineries, while they are held responsible for about 40% of carbon emissions.

The profitability of refining industry players has been hit hard since 2008 due to production cuts and project delays in the wake of economic downturn. Recently, Valero Energy, the largest refiner in North America, announced plans to shut its Delaware refinery and slash 250 jobs to improve its profitability amid a challenging environment.

For encouraging industry players to make responsible investment decisions and support sustainable growth, it is essential that U.S. energy policies provide appropriate investment incentives. This would ensure that stimulus spending helps in developing clean energy future and, at the same time, addresses current short-term issues. It is of paramount importance that such policies are aligned to maintain investment momentum, which is much needed for long-term clean and affordable energy development. Besides, energy being a critical element in these efforts, maintaining and augmenting the flow of energy in international markets is absolutely essential. As the World Energy Council (WEC) aptly remarks, “barriers and impediments to energy goods, services and personnel, as well as to capital flows for energy investments, will inhibit rather than help global revitalization efforts currently underway”.

Production at U.S. refineries would drop while production at refineries in countries that do not limit their own greenhouse gas emissions would rise. The impact on global refinery greenhouse gas emissions would be minor as reductions in U.S. emissions mostly would be offset by increases in emissions in other countries.

"If we look at the history of Kyoto where many countries did sign on and many of the countries have not met their goals, one has to look at how to really get there."

U.S. Energy Secretary - Steven Chu