In the Pipeline: 5/23/11

Now let’s see if we can use the tax code to remove Secretary Salazar’s tax deductions and revoke his license to drive The Hill (5/23/11) reports: “Every day, Interior’s policies are costing more Gulf energy workers their jobs. But the Interior secretary needs a raise? That’s ridiculous – it’s offensive,” Mr. Vitter said in a statement to The Washington Times. “I’ll do everything I can to block his raise until Gulf energy workers are at least where they were in terms of work and job security pre-BP. I really want to see new deepwater exploratory permits being issued at pre-BP levels over a three-month period.”… hanks to a constitutional quirk, Interior Secretary Kenneth L. Salazar makes less than most of his colleagues in President Obama’s Cabinet, and a Republican senator says he’ll keep it that way, blocking a nearly $20,000 raise for the high-level appointee until the administration approves more deep-water oil drilling…Mr. Salazar’s salary is set at $180,100, which is $19,600 less than most other Cabinet secretaries. The Constitution prohibits legislators from taking positions in the executive branch for which they voted to raise the salaries, and since Mr. Salazar approved secretaries’ pay levels when he was in the Senate, he would have been barred from taking the Interior job unless the salary was reduced to its earlier level…His Senate term would have expired in January, though which means he’s once again eligible for the higher pay rate…Senate Majority Leader Harry Reid, Nevada Democrat, tried to get consent this week to pass the change in the Senate but was blocked by Sen. David Vitter, a Louisiana Republican who said he won’t yield until Mr. Salazar approves more oil and gas exploration in the Gulf of Mexico.

You know your state has problems when a San Francisco judge is the voice of economic reason Bloomberg (5/23/11) reports: A California judge’s ruling is unlikely to mean a long delay in starting the state’s cap-and- trade program for greenhouse gases next year, according to Bloomberg New Energy Finance…The decision will require California’s Air Resources Board to resubmit its analysis of alternative policies, which will take “a couple of months,” Tom Marcello, an analyst for New Energy Finance in New York, said yesterday by e-mail. Another ruling might have slowed the launch of what is forecast to be the largest U.S. carbon market by six months, he said…Superior Court Judge Ernest Goldsmith in San Francisco ordered the board on May 20 to stop making rules for cap and trade until the state reviews other ways to limit greenhouse gases, such as a carbon tax. While President Barack Obama failed to win Congressional approval for a national emissions trading program, California is pressing ahead with plans to issue pollution allowances that may be valued at $19 billion by 2020, according to New Energy Finance…The board in California will appeal the ruling today, said Stanley Young, a spokesman for the agency.

The NYT editorial board doesn’t understand economics or history. Oil prices fell $9 as President Bush announced the end of the moratorium on the OCS New York Times (5/20/11) reports: The closer one looks at what passes for serious debate in Washington over energy, the more depressing it gets. The Republicans have nothing to offer but drill, baby, drill. The Democrats are rightly trying to end industry’s cushy tax breaks, but that’s not an energy strategy… And everyone, including President Obama, seems more interested in scoring political points over rising gas prices than in confronting complex matters like energy security and climate change…In the Senate, the two parties spent this week beating each other up without advancing the discussion. The Republicans and three oil-state Democrats blocked a worthy Democratic attempt to strip the five biggest oil companies of $2 billion in tax breaks they do not need. The Democrats then crushed an effort by Mitch McConnell, the Republican leader, to match two outrageous measures passed by the House that would expedite lease sales in protected coastal waters while undermining safety reforms adopted after the oil spill in the Gulf of Mexico…Mr. McConnell said his bill would bring relief at the pump by raising domestic output. That is fiction. Production will take years to come online and even then would have a tiny impact on prices set on the world market.

The next time someone says that central banking and inflation do not impact the price of crude oil, send them this article Reuters (5/23/11) reports: North Sea Brent crude futures led the oil complex lower, trading down $2.91 at $109.48 a barrel by 1029 GMT, having dropped by $3.26 earlier…U.S. crude was trading $2.63 lower at $97.46…”The ratings cut for Italy and concern over Greek restructuring and the subsequent euro weakness appear to have prompted the price fall in crude this morning,” Mark Thomas, head of energy Europe with brokerage Marex Financial, said…The dollar rose against the euro as a block of bad news about the euro zone crisis hit the single currency…Fitch Ratings cut Greece’s debt rating by three notches on Friday, pushing the country’s debt deeper into junk status, and rival Standard & Poor’s cut its outlook for Italy to “negative” from “stable” on Saturday….The euro fell below $1.40 briefly, the level which had been seen as an important support…Olivier Jakob with Petromatrix said the euro would remain the key focus for global investors…”Crude oil has not been able to find any follow-through buying over the last ten days and without new fundamental developments it is likely to be harder to find strong fresh buying into crude oil if the Euro weakens further,” Jakob said.

And next time President Obama tells you that increasing supply does not affect prices, send him this article Wall Street Journal (5/23/11) reports: The natural-gas industry touts its fuel as an attractive alternative to coal and oil, saying it’s comparably clean, domestically abundant and cheap…But that final selling point might not last if the industry succeeds in stirring demand even as it cuts back on drilling…In the past few years, a glut of natural gas has driven down the price to half the 2008 average—a level where it costs a U.S. consumer $2.75 a day to meet a home’s natural-gas needs, according to the American Gas Association. That’s good news for consumers, but a recent study by consultancy Wood Mackenzie found that 40% of U.S. natural gas produced last year didn’t meet break-even prices for producers…Natural gas now costs roughly the same as its energy equivalent in coal and a quarter of its energy equivalent in oil. The gas industry is making some headway in capitalizing on its relative cheapness: President Barack Obama has endorsed incentives for trucks powered by natural gas, and power companies are considering replacing coal-fired plants with gas-burning ones…Those steps would increase natural-gas consumption just as production growth is likely to slow. That’s because companies now can make more money drilling for oil, whose price has soared last year and in recent months on unrest in Northern Africa and the Middle East.

Too little too late Senator Hutchison, but I guess I do appreciate the tough talk as you head for the exit The Hill (5/23/11) reports: A week after President Obama laid out a plan designed to show his administration is serious about expanding domestic drilling, a top Senate Republican said the administration is not doing enough to encourage production…“It is not enough for the president to talk about producing energy in America,” Sen. Kay Bailey Hutchison (Texas) said in the Republican weekly address. “We call on him to put policies in place that cut the bureaucratic red tape and put Americans to work doing it.”…Hutchison’s comments underscore the bitter partisan divides between Democrats and Republicans on drilling and the major hurdles policymakers face in coming to a compromise on the issue.

We will remind people that, as Hunter Thompson once wrote, only the doomed argue with Chris Tucker E&E News (5/20/11) reports: “If the story here is that EPA didn’t like that decision, that it wasn’t supportive of Congress clearly delineating where its authority ended and the states’ authority began, then here’s another story for you: The sun rose today,” said Chris Tucker, spokesman for Energy in Depth, which was created by the Independent Petroleum…Association of America to fend off federal regulation of fracturing. The U.S. EPA official who oversaw the George W. Bush administration’s 2004 study of hydraulic fracturing says its conclusions about safety have been exaggerated for years….The study found that in certain circumstances, fracturing presented “little or no threat” to drinking water. But Ben Grumbles, who ran EPA’s Office of Water, says the study didn’t deem all “fracking” to be safe, and it didn’t justify exempting all forms of it from drinking water protections….”EPA, however never intended for the report to be interpreted as a perpetual clean bill of health for fracking or to justify a broad statutory exemption from any future regulation under the Safe Drinking Water Act,” Grumbles wrote in an article this week for the nonprofit he now runs, the Clean Water America Alliance…The former assistant EPA administrator also says that after five years and a nationwide surge in drilling, it might be time to take another look at the exemption, which was included in a 2005 energy bill…”A lot has happened since 2005 and, in my view, it makes sense to review the Safe Drinking Water Act landscape as well as the relevance of Clean Water Act programs,” he said