Oil companies see ‘net positive’ in climate bill

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Oil and gas executives find a lot to like about the Senate climate and energy bill, though they still oppose certain provisions.

The “Reduction of Inflation Act”, negotiated by Democratic Senators Chuck Schumer of New York and Joe Manchin of West Virginia, aims to reduce greenhouse gas emissions in the United States by promoting forms of cleaner energy.

At Manchin’s urging, however, it would force the government to offer oil and gas leases on federal lands and in the Gulf of Mexico, but at a higher royalty rate. It also provides tax incentives for projects that capture carbon dioxide and new forms of energy like hydrogen.

The downside for the oil industry is a required minimum tax rate and a new tax on emissions of methane, a potent climate-warming gas that is a major source of pollution in the oilfield (thread of energyJuly 29).

While some trade groups say the bill would eliminate jobs in the industry, several oil companies said they would be shielded from tax increases and the methane levy and could benefit from some of the incentives. They also expressed excitement about a related proposal to reform the National Environmental Policy Act (NEPA), which controls federal permits for pipelines and other infrastructure.

Cheniere Energy Inc., which operates liquefied natural gas terminals, expects to apply for federal permits to expand operations in Louisiana and Texas, Chief Executive Jack Fusco said on a conference call with analysts yesterday.

“I think the licensing reform that we’re talking about in DC right now is a very positive development,” he said. “This should reinforce the regulatory tailwinds for well-developed, commercially sound brownfield projects like ours and what we are about to propose.”

The American Exploration and Production Council, which represents independent oil and gas producers, said the bill’s tax provisions would hurt the industry. Oil and gas companies have for decades benefited from favorable tax laws that allow them to recoup the cost of drilling and depleting the oil field (thread of energyFebruary 5, 2018).

But many companies, including ConocoPhillips and Occidental Petroleum Corp., said their tax bills were already higher than the minimum levy under the bill. Asked about the bill, Conoco CEO Ryan Lance echoed comments from several other oil executives who spoke to analysts this week.

“I don’t know if now is the right time to raise taxes and increase government spending just as general economic policy,” Lance said. “At least the deal recognizes that natural gas and oil are an important part of the energy transition and will be around for decades. So it’s positive. »

Occidental Petroleum could benefit from the expanded tax credit for carbon capture projects, chief executive Vicki Hollub said. Oxy planned the nation’s first plant to capture heat-trapping gas directly from the air.

Like Conoco, Oxy plans to reduce its methane emissions, so it expects to be shielded from the charges the bill would impose. And the company will benefit from leases in the Gulf of Mexico, Hollub said.

“It turns into a positive net bill for us, if passed,” Hollub said.

Exxon Mobil Corp., America’s largest oil company, has been encouraged by the bill’s incentives for new forms of energy. Exxon said it would not invest in wind or solar power, but it is exploring ways to produce hydrogen and low-emission biofuels to replace conventional fossil fuels.

“It’s encouraging to see the recognition and the desire to try to catalyze investment in this space because, as we’ve said, we believe it will be absolutely essential for society,” the CEO said last week. of Exxon, Darren Woods.

Some of Europe’s oil and gas producers, such as London-based BP Plc, have already started investing in wind and solar power and electric vehicle charging. BP is still analyzing the bill, but CEO Bernard Looney said Tuesday the bill could help the company’s conventional oil production in the short term and its clean energy business in the long term.

“I think he’s trying to strike a balance, which I think is quite sensible and pragmatic,” he said.

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