Big Oil Overreaches on COVID-19 Bailout

May 07, 2020

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by Jim Talent (The Gazette) ... Oil companies have requested special access to a $600 billion lending facility at the Federal Reserve, and the administration seems keen to deliver. The president just announced that the Secretary of Energy and Secretary of the Treasury would make funds available, and the Department of Energy is also floating a $7 billion plan to pay drillers to leave oil in the ground.

Unfortunately, at least one faction of the industry — a group of refiners that traditionally profit when crude feedstocks are cheap — is angling for much more than a financial bailout. They are using the pandemic as cover to cannibalize markets vital to U.S. biofuel producers and farmers.

Their plan, outlined in letter from several oil-patch governors, would require the Environmental Protection Agency (EPA) to halt enforcement of the Renewable Fuel Standard (RFS). It would allow refiners to stop offering biofuel blends at the fuel pump, eliminating the market for U.S. ethanol and biodiesel and decimating demand for billions of bushels of corn and soybeans used to make renewable motor fuel.

With half the nation’s 200-plus biofuel plants already offline, thousands of rural workers facing layoffs, and millions of U.S. farmers on financial life support, the destruction of the RFS would be an economic death knell for rural America.

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Even former EPA Administrator Scott Pruitt, who scorned American farmers, rejected a similar plan back in 2017.

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Aside from the sheer audacity, the refinery-backed plan also suffers from a major flaw — it wouldn’t change the economic situation of a single refinery. They claim that lifting the RFS would eliminate the costs associated with biofuel credits known as RINs, which are used to demonstrate compliance with the nation’s biofuel targets. Refiners that refuse to produce biofuel blends can purchase RINs from those that blend more ethanol or biodiesel into the fuel mix. In turn, when they sell a gallon of fuel, that RIN price is reflected in their returns. The oil industry’s own reports show that “there is no economic harm to RIN purchasers, even if RIN prices are high, because those costs are recouped in the gasoline blend stock and diesel.”

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Clearly, a 0.006 percent savings isn’t going to protect any refinery jobs, but refineries are betting that DC policymakers don’t know the difference between RINs values and compliance costs. They open one side of a ledger and hope that no one asks to see the next page.

Meanwhile, the nation’s biggest oil lobby, American Petroleum Institute, is calling on the EPA to simply cut 770 million gallons of biofuel out of the 2020 targets.

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Keep in mind, collapsing demand for motor fuel is just as hard on the nation’s biofuel producers. RFS targets enforced by the EPA are based on a percentage of each gallon sold — so if refiners make less fuel, their obligations under the law shrink at an equal rate. Meanwhile, biofuel producers across the heartland are closing their doors, as even their modest 10 percent share of the market has been cut in half.

Biofuel advocates are focused on their own survival. Iowa Sen. Chuck Grassley summed it up, saying “[T]here ought to be parity for all liquid fuels. So I look forward to working with (Agriculture) Secretary (Sonny) Perdue to make sure that our biofuels industry gets through this crisis so that we can continue to use America’s (home) grown energy in our gas tanks.”

Parity makes sense, but refinery lobbyists want more.

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Former Missouri Sen. Jim Talent spearheaded the Renewable Fuel Standard in 2005. He currently serves as co-chair of Americans for Energy Security and Innovation. READ MORE

WARREN CALLS ON MNUCHIN TO STOP OIL BAILOUT: (Politico's Morning Energy)

Elizabeth Warren Blasts 'Bailout' for Oil Companies as Trump Eyes Aid (NewsMax/Bloomberg)

Scoop: Trump’s energy chief signals more help for oil companies unlikely (Axios)

‘Stealth Bailout’ Shovels Millions of Dollars to Oil Companies (Bloomberg/Washington Post)

Oil and Gas Companies Continue to Lead on Getting Government Handouts (Our Daily Planet)

U.S. Cuts Royalty Payments for Drillers on Utah Federal Land (2) (Bloomberg Law)

Some energy firms that already were struggling got a lifeline in paycheck loans. But it’s temporary. (Washington Post)

INTERIOR CUTS ROYALTY PAYMENTS: (Politico's Morning Energy)

SCALISE, LOUISIANA COLLEAGUES URGE DOI TO EXPEDITE ROYALTY RELIEF PROCESS (Office of Congressman Steve Scalise (R-LA))

Oil exec: It would be a mistake for the US government to bail us out (CNN)

BAIL OUT CLEAN ENERGY BEFORE OIL, MOST AMERICANS SAY (E&E News/Minnesota Bio-Fuels Association)

GRAVES: PRODUCERS NEED MORE: (Politico's Morning Energy)

Excerpt from Politico's Morning Energy: WARREN CALLS ON MNUCHIN TO STOP OIL BAILOUT: Massachusetts Sen. Elizabeth Warren called on Mnuchin to stop any plans to bail out the oil and gas industry, whether in the form of a separate lending facility or the modification of one of the Fed's existing facilities, in a letter released Thursday. Oil and gas companies, she writes, already receive billions of dollars in taxpayer subsidies annually and "do not deserve special access to taxpayer-financed bailout funds at a time when millions of Americans are struggling to make ends meet." READ MORE

Excerpt from Washington Post/Bloomberg: As it headed toward bankruptcy, Diamond Offshore Drilling Inc. took advantage of a little-noticed provision in the stimulus bill Congress passed in March to get a $9.7 million tax refund. Then, it asked a bankruptcy judge to authorize the same amount as bonuses to nine executives.

The rig operator is one of dozens of oil companies and contractors now claiming hundreds of millions of dollars in tax rebates. They are employing a provision of the $2.2 trillion stimulus law, called the CARES act, that gives them more latitude to deduct recent losses.

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The change wasn’t aimed only at the oil industry. However, its structure uniquely benefits energy companies that were raking in record profits in 2018 as crude prices reached $76.41 per barrel, only to see their fortunes flip a year later.

More than $1.9 billion in CARES Act tax benefits are being claimed by at least 37 oil companies, service firms and contractors, according to a Bloomberg News review of recent filings with the Securities and Exchange Commission. Besides Diamond Offshore, which declined to comment, recipients include oil producer Occidental Petroleum Corp. and refiner Marathon Petroleum Corp. READ MORE

Excerpt from Bloomberg Law: The Bureau of Land Management approved all 76 petitions it received for leases in Utah since May 1, according to an online government database. The approvals temporarily lower royalty rates so that oil companies can pay the federal government as little as 2.5% the value of oil and natural gas extracted from the tracts, instead of the usual 12.5% rate.

Data on royalty relief applications from other states were not available in the database as of early Wednesday, even though applications have been filed for leases outside of Utah.

BLM’s move is designed to aid oil companies fighting to survive after the coronavirus pandemic quashed fuel demand and a price war broke out between Russia and Saudi Arabia. Prices have recovered somewhat from epic lows in April as global producers curb output and U.S. oil companies halt production at some wells.

Yet conservationists said the Trump administration’s decision would encourage more oil production at a time when storage tanks are filling up and the industry still needs to curtail output.

“They’re neck deep in oil and we’re throwing them an anchor,” said David Jenkins, president of Conservatives for Responsible Stewardship. “Not only does this boneheaded move shortchange American taxpayers and Western states at the worst possible time, it incentivizes oil production during the worst oil glut in history,” Jenkins said. READ MORE

Excerpt from Our Daily Planet: Why This Matters: The giveaways to oil and gas companies in the name of saving jobs just keep coming.

But these companies are taking public money that could be better spent on jobs that will last into the future in the renewable energy sector, which truly has been deeply harmed by the pandemic.

The renewable energy industry is angry and beginning to criticize the Democrats for not helping them despite repeated requests. READ MORE

Excerpt from E&E News: Oil allies responded to the poll by urging flexibility. Industry aid doesn't have to look like a bailout, they said.

"This is further evidence that tax cuts for energy extracted on federal lands might be more favorably viewed than direct spending/bailouts," Paul Blair, director of strategic initiatives at Americans for Tax Reform, wrote on Twitter.

"Cut the royalty rate!" he said.

The oil industry suffered historic blows in the time between the two polls. Amid a price war between Russia and Saudi Arabia, President Trump helped negotiate an agreement for oil-producing nations to cut output. But it wasn't enough to counteract a sharp decline made worse by the coronavirus pandemic.

Storage tanks are filled near capacity, and one benchmark showed negative prices for the first time ever.

The Federal Reserve last week expanded a loan program to include struggling oil and gas firms. Environmentalists blasted that move as a quiet bailout, but industry officials said it wasn't that simple.

Steve Everley, a managing director at FTI Consulting who works with the oil and gas sector, responded to the Morning Consult poll by pointing to one of its other findings: More Americans say low oil prices hurt the economy (52%) than say it's helped their personal finances (42%).

Everley added that he would be curious what voters consider to be a bailout.

Extending tax credits and offering Treasury loans with interest aren't the same as direct cash payments, he said.

"Many of these are not bailouts, or at least should not be considered bailouts. But do voters see the nuance?" he wrote on Twitter. READ MORE

Excerpt from Politico's Morning Energy: GRAVES: PRODUCERS NEED MORE:Rep. Garret Graves told ME more is needed from the Trump administration to help the ravaged oil and gas sector. "Things are coming back up, but look, reality is the damage was done," he said. "There's still some additional moves that are needed to help to sustain that [recovery]." He spoke with Energy Secretary Dan Brouillette on Wednesday and plans to speak with Interior Secretary David Bernhardt as well.

Graves suggested "temporary royalty reductions that would be based on price thresholds to where you're certainly not giving away the farm" and royalty-in-kind transfers to fill the Strategic Petroleum Reserve, in particular. "I think things along those lines would be some of the things that could be done and I think should have been done, in some cases," he said. "I think some of the royalty reductions have been going too slow and just too much too much bureaucracy built in there." BLM has slashed some royalty payments on public lands to as low as 0.5 percent but Interior has not provided similar relief for offshore producers, despite the pleas of many Republican lawmakers. Oil briefly rose above $40 per barrel on Wednesday before falling again. READ MORE