Daniel B. Markind, Esq.
Weir and Partners, LLP
Whether it’s California, Venezuela or the Congress, putting too much trust in government is always fraught with risk and the lessons are all around us.
Pennsylvania Governor Tom Wolf unveiled his proposed FY 2019 budget yesterday. The Governor proposed increasing spending from $32 Billion to $33 Billion. In an effort to dampen the partisan rancor heading into the November election, Governor Wolf limited his tax proposals to only one new one – the mineral extraction tax. I’ve said enough about that over the last year, so let’s see how it plays out. If it passes, I wonder if the industry is united enough to get something for it.
Next door in Ohio, the energy industry and environmental community have found a way to work together. There are more than 700 old oil and gas wells that were never properly plugged years ago, resulting in safety risks for children and environmental risks to ground water. Now the Ohio Oil and Gas Association and the Ohio Environmental Council both backed House Bill 225 which passed the Ohio House of Representatives 92-0. The bill would require 45 percent of a state fund used for oil and gas programs to be dedicated to capping idle and abandoned wells. This is an increase from the current 14 percent.
Ohio is the state where John D. Rockefeller got his start. Thanks to shale revenue the fund grew from $3.1 million in 2008 to $54 million is 2017. Imagine that, people on both sides working to generate more energy while simultaneously improving the environment.
This is the one year anniversary of the near collapse of the Oroville Dam north of Sacramento. I have used this story to illustrate the danger of putting too much trust in government. According to the Sacramento Bee, which along with some other newspapers has done marvelous reporting on this story, the State of California now faces a “cascade” of litigation following the damning (pun definitely intended) report about gross negligence at the California Department of Water Resources. The repair costs have now jumped from $500 million to $874 million. By the time this is over those costs likely will exceed $1 billion. All that money comes from California taxpayers.
Internationally, there are two stories that won’t play out immediately but will have a huge energy impact. The first comes from Venezuela, the country with the world’s largest oil reserves. Recent reports describe starving soldiers foraging for food, and yesterday another large blackout hit the capital, Caracas. No matter how quiescent the population is, if the government can’t keep the lights on in that resource-rich country it’s in big trouble. If the soldiers on whom it relies to put down the people can’t eat, the government is in bigger trouble. Even should the Maduro government fall, the opposition is so fractious and inept it will be a while before things sort out. Therefore, the Venezuelan oil industry probably is years away from recovering.
The second story comes from Iran. While the press has reported little about it, anti-government protests continue, apparently leaderless. Most of the recent stories show Iranian women burning their hijabs, sick of being humiliated in that highly educated and industrious country. The mullahs know they are in trouble, but don’t know what to do. Earlier this week, President Hasaan Rouhani released a poll showing that 49% of Iranians opposed women being forced to wear veils.
That Rouhani, who only is in office because the mullahs approved his candidacy, would enter this controversy means he realizes its significance, and wants to place himself on what he believes will be the winning side. The more conservative clerics will not go quietly, so it could get quite nasty in Iran.
Meanwhile, the people most affected immediately are the Iranian surrogates like the Houti Rebels in Yemen and the Hezbollah terrorist organization in Lebanon. Their guaranteed support and funding likely is gone. The Sunni Arab States certainly realize this, and they likely will be even more confrontational to Iran. Israeli and Lebanese newspapers are filled with stories of impending war, with Iran knowing that should it support Hezbollah fully its public support at home will erode further. Given all of this uncertainty, the impact of Iran’s huge source of oil on the world market remains a question.
Back locally, Philadelphia Energy Solutions filed for bankruptcy protection two weeks ago. PES helped revolutionize the area’s energy potential when it took over the Girard Point and Point Breeze refineries and brought in oil from the Bakken.
PES claimed that one of the biggest reasons for its bankruptcy was the costs associated with the requirement that it blend biofuels into the nation’s fuel supply. Since 2012, PES claimed that is has spent over $800 million on credits to comply with the law, which grew out of the Energy Policy Act of 2007. PES says those credits are its second largest expense after crude purchases.
As the EPA controls what fuels qualify under the program as “renewable” and what the pathways are toward meeting the goals, refineries in Philadelphia and the Southwest have complained they are severely disadvantaged because they must buy large amounts of ethanol from the Midwest. Critics counter that PES is trying to excuse its missteps.
Instead of just talking about this, we decided to test PES’s claim. We found:
- A list of all US refineries;
- A list of all US ethanol plants and their annual ethanol capacity; and
- A database with all of their latitude and longitude data.
We then calculated:
- The distance between every refinery and every ethanol plant; and
- The cumulative capacity for each refinery as a function of distance.
Finally, we plotted them out (copyright, all rights reserved). PES is shown in red:
The West Coast refineries are on the right, and the Alaska and Hawaii refineries are off the chart on the right. PES’s costs are similar to those of refineries in Texas. The bottom line is that while the costs of biofuels might not be the whole story behind PES’s issues, they certainly don’t help. The program appears quite unfair to all refineries outside of the Midwest.
Finally, our beloved “Iggles” actually are Super Bowl champions. For the NFL, that means NFL money will not be going to subsidize Russian influence. As the difference between the winning share for each of the 53 Philadelphia players was $56,000 greater than the losing share of each of the New England players, $2,968,000 of the NFL’s money won’t be used to help Boston import Russian gas. In such ways is the NFL providing a public service and assisting in the security of our nation.