Energy & Mining

The U.S. Environmental Protection Agency could soon issue a final ruling that aims to force oil companies to replace E10, gasoline mixed with 10 percent ethanol, with E15.

This move could come just as widespread support for ethanol, which is made from corn, appears to be eroding.

Mike Mitchell was once a true believer in ethanol as a homegrown solution to foreign oil imports. He owns gas stations, and he went further than most, installing expensive blender pumps that let customers choose E15, E20 and all the way up to E85.

The result was a variation on the old adage, “You can lead a horse to water, but you can’t make it drink.”

“We’re environmental people and we kind of jumped on the bandwagon early, and it bit us,” Mitchell says.

Many car companies, especially the Detroit Three, have been making vehicles that can use the higher blends of ethanol for more than a decade. They’re called “flex-fuel” vehicles.

Most people who own those cars still use the lowest ethanol blend they can find, because ethanol negatively affects gas mileage.

Philip Verleger, an economist who tracks the oil industry, says when Congress approved the Renewable Fuel Standard in 2007, foreign oil imports were rising.

Then came tar sands and new ways to drill for oil.

“The oil crisis is going away,” Verleger says. “We have plenty of oil. We have too much oil.”

Verleger says the switch to E10 was driven by the Clean Air Act to reduce smog, and it worked pretty well.

The switch to E15, however, is being driven by the renewable fuel mandate, which directs the EPA to require a greater volume of ethanol in gasoline every year, pretty much, no matter what.

Even some environmental groups don’t like that mandate, because corn ethanol requires so much energy and water to produce.

“The need for the ethanol program is gone,” Verleger says, “but the thing is … once you get something it’s very hard to undo it.”

Oil companies say they’re absolutely not going to put E15 into the marketplace, and if they’re forced, they’ll take their product elsewhere.

“It’s my opinion that refiners have very limited choices in order to comply,” says Andy Lipow, an oil industry consultant, “and one way to comply is to export ever-increasing amounts of gasoline and diesel fuel, or otherwise just simply shut down the refineries.”

That’s a bluff, according to the Renewable Fuels Association, a trade group for the corn ethanol industry. Its president, Bob Dinneen, says the EPA should call that bluff.

Dineen says this is the way Congress envisioned the mandate working: more and more ethanol over time in a gallon of fuel, and less and less petroleum.

“This is about market share,” Dinneen says. “This is about their profitability; it’s not any more complicated than that.”

The problem is that the mandate applies only to the oil companies, not the people who blend the ethanol into the gas, and not the gas stations that buy the blended product.

There’s that “horse to water” problem again. Because half of all gas stations are completely independent of the oil companies, they could just keep ordering lower-ethanol gas, and they probably will.

Even though the EPA says E15 is safe for any car built after 2001, car companies insist that it isn’t.

“There is no guarantee that fuel will work properly in your vehicle,” says Brent Bailey. Bailey heads a research group that has done 20 studies on the effects of higher-ethanol blends on nonflex-fuel cars. He says while most cars will probably be fine, it’s “a little bit like Russian roulette.”

“You may have plenty of blanks out there, but then there might be some damage in certain cases,” Bailey says.

While that might make for an interesting experiment, oil companies, car companies and gas stations are worried about class-action lawsuits.

The petroleum industry is doing everything it can to postpone a showdown. If the EPA approves the increase, and if the refineries comply, E15 may show up in local gas stations sometime next year.

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EPA’s Push For More Ethanol Could Be Too Little, Too Late

The major oil companies in Alaska testified Tuesday to the state House Resources Committee about the latest version of Governor Sean Parnell’s oil tax reform legislation. The bill passed the Senate last week. It represents a major tax break for the oil companies. The state estimates it will cost Alaska $6 billion in tax revenue over the next five years.

“To us, this single step represents significant improvement. And this change alone, if you did nothing else to ACES, that change alone would significantly improve Alaska’s global competitiveness,” Seckers said.

But Seckers went on to say the base tax rate under the new tax plan – 35 percent – is too high. Damian Bilboa, head of finance for BP Alaska, agreed the tax breaks under the new plan don’t go far enough.

“While it is a step forward in making Alaska more attractive to investment. Alaska’s geographic, technical and cost challenges are such that Alaska may not want to be satisfied with settling on the upper end of average on the competitive scale,” Bilboa said.

Democrats who fought the new tax plan in the Senate say it gives away billions of dollars to the oil companies, with no guarantee they will invest more in oil production in Alaska to make up for the loss.

Committee co-chair Eric Feige hopes to advance the bill sometime next week. It would then go to the House Finance Committee.

See Original Story

Oil companies testify on tax reform legislation

The executive in charge of Shell’s troubled Arctic drilling program is stepping down.

Monday is the deadline for comments on Alaska Electric Light and Power’s federal application to investigate the feasibility of a Sheep Creek hydroelectric project.

AEL&P submitted its application to the Federal Energy Regulatory Commission in January, and the agency set the 60-day public comment period to end on March 25^th.

If FERC grants the permit, the Juneau utility would be given three years to study the impact of a diversion dam on Sheep Creek. The environmental and engineering studies would have to include the impact on wildlife, fish and cultural resources of the Sheep Creek valley.

The project calls for a 10-foot high, 75-foot long diversion dam at about 620 feet above sea level.  According to the company, it would create a small pond, deep enough to get the water into a surface pipeline and to a power plant below.

The Treadwell Mine operated a small dam on Sheep Creek south of Juneau from 1910 to 1943.  Most of the area already belongs to AJT Mining Properties, a sister company to AEL&P.

Brief comments can be submitted online, using FERC’s eComment system. 

The House gets its first stab at the Senate’s oil tax package Friday.

The bill, which gets rid of a mechanism that raises the tax rate on oil as the price per barrel goes up, will be taken up in the resources committee. Co-chair Eric Feige, a Chickaloon Republican, says their goal with the bill is to bring Alaska’s oil tax rate down without undercutting states like Texas and North Dakota.

“I think our objective will be to place Alaska pretty close to the center of the competition, probably a little bit above the middle, if you will.”

The bill was first introduced by Gov. Sean Parnell, and the current version puts the base tax on oil at 35 percent while offsetting that with a $5 per barrel credit. But the governor’s original bill established a 25 percent flat tax. The difference between them comes to about $300 million in state revenue every year at forecast levels of production.

Feige offered support for the governor’s draft early in the session, calling it a “great starting point.” But he says that his committee is unlikely to bring the tax rate down to that level.

“Is it going to go all the way back to 25 percent? Probably not,” says Feige. “I don’t think there’s the support in the legislature to bring the base rate back down there. In the end, we’ve got to get get 21 votes in the House, keep 11 votes in the Senate. So we’ll proceed accordingly.”

The bill that moved out of the Senate on Wednesday got the minimum votes needed to pass, and key supporters have said that they don’t want the House to implement deeper cuts.

As the bill progresses through the House, one item that municipalities are expected to pay attention to is the treatment of the state’s community revenue sharing fund. That money is used to supplement city and borough operating budgets, and it comes as piece of the progressive tax feature the bill plans to wipe out.

The new bill doesn’t tie any percentage of oil tax revenue to the fund. It just allows the legislature to appropriate money to the fund at their discretion. Feige says he doesn’t have a problem with that policy, and he describes it as an accounting changes that shouldn’t affect the program.

“But do we need to specifically say that the source of that revenue sharing money is coming from a particular place in our revenue stream? No, it’s just going to come out of general fund,” says Feige. “So, I don’t see anything untoward with the way SB21 has addressed that.”

An amendment that would have applied more specific guidelines for replenishing the community revenue sharing fund failed narrowly in the Senate on Wednesday night.

The resources committee has hearings scheduled through all of next week. The plan is to take testimony from the major oil producers on Tuesday, followed by smaller companies on Wednesday, and then offer changes to the bill later in the week.

Under Senator Murkowski’s plan, coastal states would receive 27.5 percent of revenue generated from offshore energy.

In Alaska, a quarter of that sum would go to coastal boroughs with the rest going into state coffers.

Senator Murkowski said coastal states deserve money brought in from federal waters.

“We willingly want to access these resources; they provide good jobs and benefits most certainly,” she said at Wednesday morning press conference. “But there is impact. There is undeniably impact.”

“Impacts” like new infrastructure and traffic to oil spills, something neither she nor Senator Mary Landrieu mentioned when they unveiled their bill. Landrieu, a Democrat, represents oil-rich Louisiana.

The plan creates revenue sharing of 50 percent for onshore renewable energy projects. Senator Murkowski said that puts renewables and fossil fuels on the same plane, because states now take home half of federal revenues for onshore oil, gas and coal development.

And the new bill would also allow states to pocket an extra 10% of the federal offshore revenue, if they opt to use it to create conservation funds, or invest in renewable energy.

Senator Murkowski said that could raise a state’s total stake to 37.5%.

“We want to do more to encourage the development, the research and development, the build out of our clean energy sources,” she said. “What better way to do that, to help pay for that, than from some of our offshore energy opportunities?”

Just last week President Barack Obama proposed his plan to use money from offshore lease sales to encourage investment in alternative fuel cars and trucks.

Including the money for conservation and renewable energy may win over some skeptical Democrats, but not all.

Eight Democratic senators are circulating a letter opposing revenue sharing; saying any money generated from lease sales should go to paying down the debt, and oil spilled off the coast of one state could harm neighboring ones.

Senator Landrieu said Gulf Coast States have contributed $211 billion to the treasury in oil and gas revenues, and that helps the entire country.

“There are only four states producing that money. It’s not Illinois. It’s not New Jersey. It’s Texas, Mississippi, Louisiana and Alabama,” she said at the same press conference.

That’s a dig at Senators Dick Durbin, Bob Menendez and Frank Lautenberg. They represent Illinois and New Jersey and signed the letter of opposition.

Durbin is the number two Democrat in the Senate.

The bill does not call for any increased production, so overall, the federal government would earn less money if the bill became law. Congress will need to find cuts elsewhere to offset the loss of federal revenue.

Both Senators Murkowski and Landrieu deferred any talk of cost to the Finance Committee, a committee neither serves on.

Senator Mark Begich introduced his own revenue sharing bill earlier this year, one that looks quite different from Senator Murkowski’s.

He said his plan would put more money into the local economies and Native Corporations but less into the state.

“The key for me is making sure the local communities, including the tribes are part of the equation,” he said before a Senate vote.

He said the two plans can be reconciled.

Either would have to pass the Senate Energy Committee before it can be considered by the whole Senate.

There’s no planned committee action yet.