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Biden offshore drilling proposal would allow up to 11 sales

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NEW ORLEANS (AP) — President Joe Biden’s administration on Friday proposed up to 10 oil and gas lease sales in the Gulf of Mexico and one off the Alaska coast over the next five years — going against the Democrat’s climate promises but scaling back a Trump-era plan that called for dozens of offshore drilling opportunities including in undeveloped areas.

Interior Secretary Deb Haaland said fewer than 11 lease sales — or even no lease sales at all — could occur, with a final decision not due for months. New drilling off the Atlantic and Pacific coasts would be blocked, after being considered under Trump.

“President Biden and I have made clear our commitment to transition to a clean energy economy. Today, we put forward an opportunity for the American people to … provide input on the future of offshore oil and gas leasing,″ said Haaland, whose agency oversees drilling on federal lands and waters.

The proposal brought immediate backlash from both environmentalists — who accused Biden of betraying the climate cause — and oil industry officials and allies, who said it would do little to help counter high energy prices. Gasoline prices averaged $4.84 a gallon on Friday, a strain on commuters and a political albatross for Biden’s fellow Democrats going into the midterm elections. That has left the White House scrambling for solutions, including Biden’s call last week for suspension of the 18.4 cents a gallon federal gas tax.

The Interior Department had suspended lease sales in late January because of climate concerns but was forced to resume them by a U.S. district judge in Louisiana.

The Biden administration cited conflicting court rulings about that decision when it canceled the last scheduled lease sales in the Gulf and Alaska during the previous offshore leasing cycle. That prior five-year cycle, a program adopted under former President Barack Obama, expired on Thursday.

There will be a months-long gap before a new plan can be put in place. The oil industry and its allies say the delay could cause problems in planning new drilling and potentially lead to decreased oil production.

There’s unlikely to be an offshore lease sale until well into next year, said Frank Macchiarola, senior vice president of the American Petroleum Institute, the industry’s top lobbying group.

And, he said, administration officials “went out of their way to say” there might not be any lease sales at all.

“It’s very important for the administration to send a signal to the global oil markets that the United States is serious about increasing supply … for the long term,” he said, repeating a longtime claim by industry officials and Republicans that ties uncertainty over oil supply to high prices.

Biden in recent weeks has criticized oil producers and refiners for maximizing profits and making “more money than God,” rather than increasing production in response to higher prices as the economy recovers from the pandemic and feels the effects of Russia’s invasion of Ukraine.

The leasing announcement was a bitter disappointment to environmentalists and some Democrats who rallied around then-candidate Biden when he promised to end new drilling in federal lands and waters.

The proposal comes a day after the administration held its first onshore lease sales, drawing $22 million in an auction that gives energy companies drilling rights on about 110 square miles (285 square kilometers) in seven western states. The sales came despite the administration’s own findings that burning oil and gas from the parcels could cause billions of dollars in potential future climate damages.

“Our public lands and waters are already responsible for nearly a quarter of the country’s carbon pollution each year. Adding any new lease sales to that equation while the climate crisis is unfolding all around us is nonsensical,” said House Natural Resources Committee Chairman Raul Grijalva, D-Arizona.

Cynthia Sartou, executive director of the environmental nonprofit Healthy Gulf, called the lease-sale plan “a huge loss for Gulf residents, American energy policy and the global climate.”

Moderate Democrat Joe Manchin, who chairs the Senate energy committee, welcomed the proposal as a chance “to get our leasing program back on track.”

“While Americans everywhere are suffering from record high gas prices and disruptions in the global oil market caused by (Russian leader Vladimir) Putin’s senseless war in Ukraine, the Department of the Interior hasn’t held any successful offshore lease sales since November 2020,” the West Virginia lawmaker said.

Under the Trump administration, Interior officials had proposed 47 sales, including 12 in the Gulf of Mexico, 19 in Alaska and nine off the Atlantic coast that were later withdrawn. Trump lost the 2020 election before the proposal was finalized.

The current format of holding Gulf-wide sales was put in place under Obama because of dwindling interest in offshore leases. Prior to that there had been decades of regional sales.

Friday’s announcement opens a 90-day public comment period, then a final plan must be submitted 60 days before it goes into effect.

The government held an offshore lease auction in the Gulf of Mexico in November that brought $192 million in bids. A court canceled that sale before the leases were issued.

Haaland has said previously that the industry is “set” with the amount of drilling permits stockpiled and at its disposal. She testified during a House hearing in April that the industry has about 9,000 permits that have been approved but are not being used.

Oil production has increased as the economy recovers from the coronavirus slowdown, but it’s still below pre-pandemic levels. Energy companies have been reluctant to ramp up production further, citing a shortage of workers and restraints from investors wary that today’s high prices won’t last.

Major oil companies reported surging profits in the first quarter and sent tens of billions of dollars in dividends to shareholders.

Athan Manuel of the Sierra Club said delaying offshore sales until next year “is an important step toward protecting communities and climate, and we urge the administration to finalize a plan that commits to no new offshore drilling leases, period.”

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Brown reported from Billings, Mont. Associated Press writer Matthew Daly in Washington contributed to this story.

Janet Mcconnaughey And Matthew Brown, The Associated Press

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Energy

Green Canadian hydrogen not an immediate solution to Germany’s energy worries

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OTTAWA — Some energy experts warn a deal to sell Canadian hydrogen to Germany will serve as only a small, far-off and expensive part of the solution to Europe’s energy crisis.

German Chancellor Olaf Scholz and Prime Minister Justin Trudeau are set to sign a hydrogen agreement in Stephenville, N.L. next week, during Scholz’s official visit to Canada.

A government official speaking on the condition they not be identified confirmed there will be a hydrogen accord signed that is the culmination of months of talks between the two countries.

Stephenville, a port town an hour south of Corner Brook on Newfoundland’s west shore, is the planned home for a zero-emission energy plant where wind power will be used to produce hydrogen and ammonia for export.

The deal between Canada and Germany is expected to make fuel-hungry Germany the first big customer for a first-of-its-kind project in Canada.

Germany was already looking to hydrogen as an energy solution in its climate plan before Russia invaded Ukraine last February. But since that invasion, as Russia attempts to push back against punishing economic sanctions, it has repeatedly threatened Germany’s energy supply.

Germany typically gets about half of its natural gas from Russia and is looking for both short and long-term solutions to wean itself from Russian exports.

Proponents say the hydrogen deal comes at a pivotal time for Canada’s green hydrogen industry, which is still in its infancy.

But some experts also say the fledgling product carries a big price tag and won’t be able to help Germany in the near term. Canada doesn’t yet have the infrastructure to produce large quantities of green hydrogen, or export it great distances.

“The key is you need a lot of associated infrastructure to be built before we can do a large scale export of hydrogen into other countries,” said Amit Kumar, the industrial research chair of the Natural Sciences and Engineering Research Council.

In order to be shipped, the hydrogen would likely need to be cooled into a liquid, loaded into a specially adapted pipeline or tanker, and warmed again when it reached its destination.

The process and infrastructure is expensive, and so is production.

Most hydrogen production globally comes from converting natural gas to hydrogen and carbon dioxide. If the latter is emitted into the atmosphere, the hydrogen is referred to as “grey.” In Canada, the goal is to capture those emissions with carbon capture and storage, which would make the hydrogen “blue.”

Canada has to date been talking up plans to help Germany with new natural gas projects in Atlantic Canada that could one day be converted to blue hydrogen facilities.

But Germany is looking mainly for “green hydrogen,” which is made through splitting water molecules using renewable energy like wind or solar power. That comes at a much higher price.

“You’re looking at anywhere between three to four fold increase in costs,” said Kumar, a faculty of engineering professor at University of Alberta, who was consulted on the drafting of Alberta’s hydrogen strategy.

He said the technology needs to improve and more investment needs to be made before the cost is even relatively comparable with it’s natural-gas derived alternative.

The company behind the Newfoundland project, World Energy GH2, said the first phase of its Newfoundland project should see up to 164 onshore wind turbines built to power a hydrogen production facility. Long-term plans call for tripling the size of the project.

In its proposal, World Energy GH2 said it is on the cutting edge of a new, green industry.

Construction on the first wind farm is supposed to begin next year. That means hydrogen production is still far off, said Paul Martin, chemical engineer and co-founder of the Hydrogen Science Coalition.

“It’ll take years and years and years,” he said. “And then you’ve got the infrastructure problem.”

Martin says the infrastructure costs of producing and transporting green hydrogen don’t add up.

“Honestly looking at it the green hydrogen pitch in Canada for export, it’s disingenuous,” he said.

That’s partially why Canada’s hydrogen strategy involves moving toward “blue hydrogen” before eventually converting to green, Kumar said.

Germany’s strategy, however, clearly favours green hydrogen while the role of blue hydrogen is uncertain, an analysis by Centre for Strategic and International Studies fellow Isabelle Huber shows.

Trudeau and Scholz, who became Germany’s chancellor in December, first discussed hydrogen and Canadian energy exports when Trudeau visited Berlin in March.

At the G7 leaders’ summit in the Bavarian Alps in June, Trudeau spoke at length with other world leaders about how Canada could offer alternatives to nations dependent on Russian oil and gas.

At a press conference at the conclusion of the summit, Trudeau suggested infrastructure used to carry liquefied natural gas could be adapted to carry hydrogen, as one example of how Canada could help.

“We’re also looking medium term at expanding some infrastructure,” Trudeau said, “but in a way that hits that medium-term and long-term goal of accelerating transition — not just off Russian oil and gas — but off of our own dependence on fossil fuels.”

Canadian hydrogen might be just one piece of Germany’s plan to transition off of German gas in a very difficult situation, said Sara Hastings-Simon, who directs the masters of science in sustainable energy development at the University of Calgary.

“It’s not the be all end all, it’s neither going to fix it completely or be the single answer,” she said in an interview.

This report by The Canadian Press was first published Aug. 16, 2022.

— With files from Mia Rabson

Laura Osman, The Canadian Press

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Alberta

Cenovus Energy to buy remaining stake in Toledo refinery from BP for $300 million

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CALGARY — Cenovus Energy Inc. has reached a deal with British energy giant BP to buy the remaining 50 per cent stake in the BP-Husky Toledo Refinery for $300 million.

The Calgary-based oil producer has owned the other 50 per cent of the Ohio-based refinery since its combination with Husky Energy in 2021.

Cenovus says its U.S. operating business will take over operations when the transaction closes, expected before the end of the year.

The company says the Toledo refinery recently completed a major, once in five years turnaround to improve operational reliability.

It says the transaction will give Cenovus an additional 80,000 barrels per day of downstream throughput capacity, including 45,000 barrels per day of heavy oil refining capacity.

The deal brings Cenovus’ total refining capacity to 740,000 barrels per day.

Alex Pourbaix, Cenovus president and CEO, says fully owning the Toledo refinery provides an opportunity to further integrate the company’s heavy oil production and refining capabilities, including with the nearby Lima Refinery.

“This transaction solidifies our refining footprint in the U.S. Midwest and increases our ability to capture margin throughout the value chain,” he said in a statement.

This report by The Canadian Press was first published Aug. 8, 2022.

Companies in this story: (TSX:CVE)

The Canadian Press

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