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SPR UNDER CONFLICTING PRESSURES: The Department of Energy is soliciting bids to carry out another drawdown of crude oil from the Strategic Petroleum Reserve, this one at the direction of Congress.
The department finds itself having to drain the reserve at a time when it wants to be filling it back up — something it sought to avoid in asking Congress to cancel mandatory sales.
The details: DOE’s solicitation announced yesterday provides for the sale of 26 million barrels under directions from two laws Congress passed in 2015 requiring the volume to be drawn down and sold by the end of fiscal 2023.
The SPR currently stands at around 372 million barrels. Drawdown of another 26 million would leave the SPR at a level 46% below when President Joe Biden took office due to his emergency war in Ukraine-related drawdowns and other sales and exchanges.
DOE has been seeking to cancel the sale as it did with mandated sales through fiscal year 2027 on the grounds that it can’t be drawing down oil while it’s trying to replenish the reserve.
The cancellation request has been partially honored: Congress canceled mandatory fiscal year 2024-2027 sales covering 140 million barrels.
What DOE’s facing: The department must complete all deliveries for the mandatory sale by July in order for the payments to be processed on time by the end of the fiscal year, leaving little time to devote to lobbying for the sale’s cancellation.
Moreover, the administration’s refill efforts haven’t gone smoothly. Its first attempt to begin the acquisition process failed earlier this year because the prices and crude specifications offered weren’t what DOE was looking for.
The “fair price” it sees for acquisitions is in the low $70s per barrel, and while recession risk remains, the Russians just announced that they’re going to take product off the market and some analysts, including Goldman Sachs’ team, see a chance for $100 oil in 2023.
Bullishness could lead producers to see DOE’s repurchase range as lowballing, as it seems to already have done with the department’s first effort to begin refilling the reserve.
And the politics: Biden, who notably hasn’t ruled out a reelection campaign, celebrated his use of the SPR as a success after gas prices fell. Republican presidential contenders are popping up, meanwhile, and the party continues to badger Biden about how low the reserve is while seeking to put new constraints on his ability to use it.
The reserve is also inching toward the threshold at which Biden’s drawdown authorities are limited, even in the event of a supply shortage. The administration said last year after Biden’s emergency drawdowns that it could turn back to the reserve if warranted, but current law prohibits drawdowns below about 252.4 million barrels.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email jbeaman@washingtonexaminer.com or bdeppisch@washingtonexaminer.com for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
MICHIGAN SCORES FORD BATTERY PLANT AFTER YOUNGKIN SNUB: Ford announced Michigan as the site of the $3.5 billion battery plant it plans to build and operate with Chinese battery giant CATL.
The news comes after Virginia Gov. Glenn Youngkin said he wouldn’t extend a subsidy package to lure the plant to his state because of CATL and its relationship with the Chinese Communist Party.
Ford said its plant, which will be located in Marshall, west of Detroit, will serve its push to “lead the EV revolution.” Initial production of lithium iron phosphate batteries is scheduled for 2026 and is to be supported by 2,500 employees.
Under the arrangement, Ford’s wholly owned subsidiary would manufacture the battery cells using “battery cell knowledge and services” provided by CATL, according to the company’s announcement.
Democratic Gov. Gretchen Whitmer celebrated Ford’s announcement, while some of Virginia’s Democratic legislators criticized Youngkin for pushing Ford back.
“Congratulations @GovernorVA for creating jobs…. in Michigan!” tweeted Del. Don Scott.
How we got here: Some reporting from late last year revealed Ford was shopping its planned plant around to states and that Virginia and Michigan were top contenders, but Ford otherwise had been light on details of its plant.
After Youngkin’s public rejection of the plant, Ford said it had not finalized a site and remained tight-lipped about its plans until yesterday. Executives did not mention its plans in its Q4 earnings call earlier this month.
But they did shed light on some of the complexities of being a global electric vehicle manufacturer that 1) needs to compete with Chinese counterparts whose vehicles are top sellers globally but 2) also can put a successful Chinese technology in CATL’s battery designs to great use.
“I don't think you can be globally successful in the EV business if you don't compete with the Chinese,” said president and CEO Jim Farley.
BOEM ADVANCES SOUTHCOAST WIND OFFSHORE MASSACHUSETTS: The Bureau of Ocean Energy Management announced completion of initial environmental analysis for the SouthCoast Wind energy project yesterday, advancing one of several proposed offshore wind projects developers want to set up off the Massachusetts coast.
Developers of the project, a joint venture between multinational energy giant Shell and Ocean Winds (which is itself a joint venture between EDP Renewables and ENGIE), want to construct up to 147 wind turbines and two export cable corridors across more than 127,000 acres in the Atlantic Ocean.
SouthCoast Wind, formerly dubbed Mayflower Wind, could add 2.4 gigawatts of generating capacity to the New England grid and power some 800,000 homes. It would be located 26 nautical miles south of Martha’s Vineyard.
BOEM's analysis for SouthCoast Wind comes at a volatile time for offshore wind. Turbine manufacturers and developers just got a major boost from expanded subsidies in the Inflation Reduction Act but are seeing higher material costs that are making projects less economical than when they were drawn up.
There’s also the whales. At least two more whales have washed up dead on Atlantic shores in recent days, one in New Jersey and one in Virginia.
BOEM and NOAA have said there’s no hard evidence linking the “unusual mortality event” directly to offshore wind development activities like exploration or construction, but some environmental groups and east coast mayors want a moratorium placed on such activities until further analysis can be done.
The SouthCoast Wind draft EIS does make note of research showing links between general maritime activities and marine mammal deaths from events like vessel strikes.
The project developers’ construction and operations plan provides that any of its vessels would stay more than 500 feet away from any North Atlantic right whale sighted, fixing shorter distances for other mammal species, and would closely control their speeds.
TREASURY ISSUES GUIDANCE FOR COAL COUNTRY SUBSIDIES: The Treasury Department is beginning to roll out the $10 billion Qualifying Advanced Energy Project Credit program funded by the Inflation Reduction Act, much of which is earmarked specifically for projects located where a coal mine or coal-fired power plant was shuttered.
Treasury released initial guidance yesterday for the program, which was originally set up by the post-crash American Recovery and Reinvestment Act of 2009 and just renewed by the IRA. It provides investment tax credits of up to 30% for clean energy property manufacturing and recycling, industrial decarbonization, and critical materials processing, refining, and recycling.
Examples of projects that would be eligible for the credits include manufacturing of fuel cells and equipment for carbon capture and critical minerals processing facilities, according to the notice. The initial funding round includes $4 billion of the total $10 billion, and $1.6 billion is for coal communities.
EPA RELEASES DETAILS OF NEW GREENHOUSE GAS REDUCTION FUND: EPA announced details of the new Greenhouse Gas Reduction Fund Congress created with the Inflation Reduction Act, which established $27 billion competitive grant programs that fund renewable energy and other projects to reduce emissions.
$20 billion of the funding will go to a General and Low-Income Assistance fund that nonprofits can be eligible for, while the other $7 billion is marked for a Zero-Emissions Technology Fund that states, tribes and municipalities can compete for.
The technology fund will be exclusively awarded to project applicants who want to deploy residential rooftop solar, community solar, and associated storage and upgrades.
EPA said it intends to channel the money to “low-income and disadvantaged communities that have had unequal access to private capital for far too long.”
The GHG reduction fund is one program House Republicans on Energy and Commerce are currently targeting from the Inflation Reduction Act. A bill currently in the committee would repeal the fund altogether.
OIL AND GAS INDUSTRY EARNED $4 TRILLION IN 2022: Last year’s profits from the oil and gas industry reached roughly $4 trillion last year, compared to a recent annual average of $1.5 trillion, according to the head of the International Energy Agency, Fatih Birol, who warned that countries should still be prepared to cut their long-term petroleum reliance as demand is slated to fall over the long-term.
"Especially the countries in the Middle East have to diversify…their economies. In my view, the COP28 [climate summit] could be an excellent milestone to change the destiny of the Middle East countries," Birol said today at a conference in Oslo. His remarks come just one day before the IEA publishes its February 2023 Oil Market Report, which estimates global demand as the world moves to transition away from fossil fuels by 2050.
"You cannot anymore run a country whose economy is 90% reliant on oil and gas revenues because oil demand will go down," Birol said.
The Rundown
E&E News A blue state asks: Is carbon capture part of climate agenda?
Bloomberg Germany pushes energy security with second Belgium power link
Financial Times EU drives though truck emissions targets with new 2040 goal
Calendar
WEDNESDAY | FEBRUARY 15
10 am. 406 Dirksen. The Senate Environment and Public Works Committee will convene for a hearing to examine the future of low carbon transportation fuels in the U.S. and considerations for a nationwide clean fuels program.
THURSDAY | FEBRUARY 16
10 am. 366 Dirksen. The Senate Energy and Natural Resources Committee will hold a hearing to examine the impact Russia’s war in Ukraine has had on global energy security nearly one year after its invasion. Learn more here.