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Even fantasy-filled American Petroleum Institute study finds no significant impact of climate bill on US refining

By Joe Romm  

"Even fantasy-filled American Petroleum Institute study finds no significant impact of climate bill on US refining"

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In addition to funding phony astroturf “Energy Citizen” campaigns against the climate bill, the American Petroleum Institute has just released a study purporting to show how devastating the House climate and clean energy bill would be to the refining industry.

But if you ignore the fantastical elements, and focus on the real analysis, it’s clear that the bill would have a minimal impact on petroleum refining through 2030, which is precisely what you would expect from a bill focused on achieving the maximum amount of emissions reduction at the lowest possible cost.  And the API completely ignores peak oil, which will hit U.S. refineries so hard that the climate bill will almost certainly have no impact whatsoever on U.S. refineries.

You can find the API’s study here.  If you want to understand what the real “worst-case” scenario is for petroleum refineries, focus on the “Basic Case” of the Energy Information Administration (EIA) that the API models.  As previously discussed, the EIA projects an allowance price of $32 per metric ton of CO2 equivalent in 2020 “” about double what EPA and I project and 50% higher than CBO’s projection (see “Despite its many flaws, EIA analysis of climate bill finds 23 cents a day cost to families, massive retirement of dirty coal plants and 119 GW of new renewables by 2030 “” plus a million barrels a day oil savings“).

Because the EIA is poor/dreadful at modeling natural gas, energy efficiency, and renewables, it’s basic analysis is a worst-case for the petroleum industry because it overestimates the allowance cost over the next two decades while underestimating the amount of low-cost reductions possible in the utility sector.  Here, then, is the worst-case for U.S. refining under a climate bill:

API1

Note that even in the EIA’s Basic Case, with a CO2 price in 2020 of $32 per metric ton, the refinery industry would be supplying more product than it does today — for all the stats on U.S. refinery production, go here.  Heck, API projects that US domestic refined product will increase steadily under the climate bill, while imports drop steadily.

Of course, even this chart shows what a fantasy world API lives in.  Because of peak oil, the baseline is not steadily rising U.S. refining for two decades (see World’s top energy economist warns peak oil threatens recovery, urges immediate action: “We have to leave oil before oil leaves us”).

Let’s bring a little reality about global oil production to this discussion.  As Dr. Fatih Birol, the chief economist at the International Energy Agency (IEA) recently explained:

Dr. Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

The IEA’s work makes clear that for oil to stay significantly below $200 a barrel (and U.S. gasoline to be significantly below $5 a gallon) by 2020 would take a miracle “” or rather 6 miracles see “Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!“  See also “Merrill: Non-OPEC production has likely peaked, oil output could fall by 30 million bpd by 2015,” which noted,

Steep falls in oil production means the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years, Merrill Lynch said in a research report.

Now the good news for the refining industry is that their profit margins and total profits typically soar when oil prices soar.  The bad news for them is that when total US consumption of refined product drops significantly below current levels, then their total profits may start to decline.

The key fact to remember is that: “$50 per tonne of carbon ($14/tonne of CO2) corresponds to 12.5 cents per gallon of gasoline. So the EIA’s $32/tonne price for CO2 is a whopping 18 cents a gallon in 2020.  Even the EIA’s absurd price of $65/tonne in 2030 is only 36 cents a gallon.  It is just hard to see how those prices are going to make a very big dent in oil consumption — even the EIA only projects a 5% reduction by 2030 in its Basic Case (and the EIA also live in the fantasy world of no peak oil).

That’s why the API’s hired analytical gun included a scary case that has no basis in reality, the more extreme EIA scenario, called No International/Limited Case [NILC]:

No International/Limited Case combines the treatment of offsets in the ACESA No International Case ["the use of international offsets is severely limited"] with an assumption that deployment of key technologies, including nuclear, fossil with CCS, and dedicated biomass, cannot expand beyond their Reference Case levels through 2030.

Seriously.

The EIA, whose modeling of key technologies even in the base case is absurdly lame, felt obliged to include an even more pessimistic scenario just so the fossil fuel industry types like API could cite it to scare people.  That is just more analytical malpractice from EIA.

In the out-of-this-world worst-case NILC analysis, the CO2 price is a whopping $190 a metric ton in 2030.   Here’s what’s really amazing about even this absurd NILC case. As you can see from the rest of the slide on page 25 of the API “analysis” (which I cut off in the figure above), the domestic refining industry still supplies 15 million barrels a day of product in 2030, roughly what they are providing today (a point API cleverly obscures by only presenting the baseline numbers starting in 2015).

The CO2 price in the fantasy NILC case would raise gasoline prices some $1.75 a gallon in 2030.  And while there is no chance whatsoever that the actual climate bill would do that, I would say there is a very good chance that peak oil will raise gasoline prices that much higher in 2020.  If so, then the climate bill will add maybe 10% to that price hike and essentially be lost in the noise.

The bottom line is that Obama and Congress have chosen to focus on the transportation sector through other policies than the climate bill — including Obama’s big fuel economy announcement earlier this year and the 2005 and 2007 energy bills, which push biofuels into the marketplace.  The climate bill will have only a small impact on the US refining industry, perhaps an order of magnitude smaller than the impact peak oil will have.

Finally, yet one more reason for adopting my ‘price collar plus’ proposal is that while I’m sure it will have no significant impact on actual emissions reductions through 2030, it will make it much harder for the right wing and fossil fuel industry to put out their absurd analytical models that use wildly overinflated CO2 prices to scare people.

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4 Responses to Even fantasy-filled American Petroleum Institute study finds no significant impact of climate bill on US refining

  1. Jeff Huggins says:

    Just So You Know (and this is in the DVD)

    ExxonMobil employs roughly 80,000 people, worldwide.

    Meanwhile, General Electric employs several hundred thousand, GM employs several hundred thousand, WalMart employs well over 2 million, and there are well over 6 million teachers in the U.S. (just to list a few numbers)

    Indeed, the top 15 U.S.-headquartered publicly-traded oil and refining companies TAKEN TOGETHER employ fewer people than some other SINGLE companies.

    AND — in recent years, as ExxonMobil sales and profits have soared, they have actually reduced — habitually — the number of people they employ. Yes, sales way up. Profits way up. PEOPLE DOWN! Who are they to complain??

    So, the idea that employment in the oil and gas industry should be the main consideration against addressing the global climate problem and so forth is silly. Just plain silly. It’s another excuse or deception.

    I’m not suggesting that people aren’t important, of course. But the growth in jobs associated with converting to more healthy sources of energy will FAR OUTWEIGH the loss of jobs in the hydrocarbon-based industries. And, many of those people can (and should) shift from the old to the new. (Society should help them do so, in my view.)

    ExxonMobil’s employment stats are available, for all to see, in their financial and operating reports. And, the total employment of all 15 U.S.-headquartered oil and refining companies can be gained from basic corporate statements and lists such as those by Fortune.

    (That said, all of this is in the DVD that I’ve sent to a number of people in the media.)

    The oil and gas industry is a VERY small employer, relative to its sales and profits, and relative to other companies that will benefit as we change from “dirty old” to “clean new”.

    The PROBLEM is that the media don’t cover these things. The public is flying blind.

    Sigh.

    Cheers,

    Jeff

  2. Jeff Huggins says:

    Some Employment Figures (for context, including one correction)

    Following from my earlier comment . . .

    Here are some employment figures from the most recent sources I could find:

    ExxonMobil – roughly 80,000 people, worldwide

    (By the way, the large majority of ExxonMobil’s capital employed and production are NOT in the U.S.)

    Top 3 U.S.-headquartered oil companies (ExxonMobil plus Chevron plus Conoco Phillips) – a total of roughly 175,000 people, worldwide

    Top 15 U.S.-headquartered public oil and refining companies – a total of roughly 280,000 people, worldwide

    General Electric alone – 323,000 people, worldwide

    General Motors alone – roughly 240,000 people, although this is probably down recently

    (Note that many of GM’s troubles result from the fact that they stuck with oil/gasoline even after the problems in the 1970s.)

    WalMart – 2.1 million people

    Teachers in U.S. – Over 6 million

    Public school teachers in California alone – Over 300,000

    Bottom line: Employment in the oil, refining, and gas industries does NOT justify ignoring the climate problem, blocking climate legislation, or being shy about the price of carbon necessary to reduce CO2 emissions according to what science says is wise.

    Cheers,

    Jeff

  3. Bob Wright says:

    What is the effect of the auto industry getting serious and competitive about fuel economy? What happens if our family cars are getting 50 mpg plus, commuter hybrids and diesels 70-80 mpg, electrics at 100 mpg plus eqivalent? VW, Ford, Toyota, Honda, Nissan, and even GM and BMW are doing some good stuff. Add to that 95% furnace efficiencies and improved insulation. Basic supply and demand stuff with a nudge from the climate bill may result in some refineries shutting down and little need for the tar sands. My fantasy?

  4. Jeff Huggins says:

    Some Basics

    In “oil economics”, the money — your money — goes mainly to people (mostly overseas governments, and wealthy private individuals) who own the oil, the majority of whom are outside the U.S., and to a handful of huge companies that employ a very small number of people, relatively speaking.

    Some of the money also goes to the shareholders of those companies, but those same shareholders could just as easily own shares of many other companies that can grow in ways that are actually consistent with preserving the climate.

    In “clean energy economics”, on the other hand, you don’t have to pay money to the sun itself, or to the wind, or to the ocean, or to geothermal structures. Yes, some money will go to the people or state governments that own the land on which the sun shines, the wind blows, and so forth, but those chunks of land are at least in the U.S. and are more widely dispersed. Also, more of the money will go to a larger number of people employed in the new energy fields and in building the new energy infrastructure, developing the new energy technologies, and so forth. That money goes back to you and your surroundings — it stays in the economy — because those new energy sources, and those people, are much more local, i.e., in the U.S. That is, if we show some leadership, develop those technologies, build those plants, and get moving.

    And, there are huge long-term economic differences between renewable sources of energy and non-renewable sources. In one case, the supply is assured in perpetuity, for the most part. In the other case, we can be sure that the supply will become less and less over time, with huge (and costly) implications.

    Economics FAVOR shifting to new energy sources. Indeed, it’s up to us (people) to adopt policies that align economic motivations and jobs with the health of the climate and planet. Anything less than that is “not smart” — to put it mildly.

    I’m shocked that more economists aren’t speaking out about all this.

    Cheers,

    Jeff