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Meghan Gordon



Articles by Meghan Gordon

Insight from Washington: US refiners remain pragmatic amid tariff disputes

20 days ago

Like many ways the Trump administration has reshaped US policy norms, the use of tariffs and tariff threats to address non-trade policy issues with other countries is here to stay, and companies like US Gulf Coast refiners are learning to adapt.
That reality has set in for the energy sector not only because of the ongoing trade conflict with China, but also since President Donald Trump’s threat to impose a 5% tariff on all Mexican imports.

Although the threat was called off at the 11th hour, it was a huge shock to the US refining sector, which depends on Mexico as one of its top sources for heavy crude imports and the most valuable customer for its refined product exports.
Refiners turn $14 billion worth of annual Mexican crude imports into $30 billion worth of gasoline, diesel and other

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Existing North American oil pipelines boost capacity as new projects drag on

August 14, 2019

Canada’s three major options for new oil pipeline capacity continue to face delays and court challenges, but existing North American pipelines are finding ways to move more barrels to refiners and export docks on the US Gulf Coast.
Midstream companies’ second-quarter earnings cycle revealed a wave of compressor-based pipeline expansions across the US Rockies and Midwest to increase throughputs at low costs and without major regulatory and construction risks.

TC Energy and Enbridge are also using chemicals called dragreduction agents to move more heavy crude in the same amount of pipeline space. That will allow TC Energy’s Keystone pipeline to move 50,000 b/d more by next year, and boost Enbridge’s Mainline capacity by 85,000 b/d.
“It’s quite a different thing to try to permit a complete

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Insight from Washington: US refiners worry about White House wild card as IMO 2020 nears

March 11, 2019

A strict sulfur limit for marine fuels starting in 2020 and its potential to boost US gasoline and diesel prices may have caught the White House off guard last year, but it’s not taking refiners or members of the shipping industry by surprise.

US refiners say they have been preparing for the International Maritime Organization’s 0.5% sulfur cap for a dozen years by making billions of dollars of investments to their plants. They also think US oil producers are well positioned to meet new global demand for lower-sulfur fuels.

Despite the
industry’s confidence, Gulf Coast refiners are nevertheless skittish about one
major wild card.

The January 1, 2020
implementation date comes right in the middle of President Donald Trump’s re-election
campaign, and this White House has

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No relief at pump when US becomes net oil exporter in 2020

February 7, 2019

The US will become a net oil exporter sometime next year. That is, total exports of both crude oil and refined petroleum products will exceed total imports.
It’s a remarkable milestone, even if it doesn’t mean that the US is self-sufficient in oil production or insulated from the global market. It reflects the staggering growth in US production in recent years. At the same time, it exposes the importance of crude quality – because the US produces type of oil that most of its refiners were not configured to process.
President Donald Trump praised the milestone in his State of the Union speech to Congress Tuesday, albeit before it actually happens. “The United States is now the number one producer of oil and natural gas anywhere in the world. And now, for the first time in 65 years, we are a

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Insight from Washington: US energy conservation gets lost in the drive for oil abundance

November 12, 2018

US energy abundance underpinned the Trump administration’s case for rolling back federal vehicle fuel economy standards, a policy the government aims to adopt by March.
The US is producing enough oil “to satisfy nearly all of its energy needs and is projected to continue to do so,” the administration argued in the proposal that would freeze fuel efficiency for cars and light trucks at the 2020 target of 43.7 miles per gallon. Booming domestic output has “added new stable supply to the global oil market and reduced the urgency of the US to conserve energy,” it said.
However, this newly abundant supply has not shielded US drivers from global price risks, as recent volatility has shown. And the US has not become less exposed to global market forces as it pumps more crude and exports it around

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Keystone XL saga enters second decade: Fuel for Thought

September 24, 2018

Last week marked a decade since TransCanada first applied to build the Keystone XL heavy oil pipeline from Alberta to the Texas Gulf Coast, and the project’s fate is not much clearer today.
The failure of Keystone XL and other pipeline proposals to overcome regulatory and court challenges continue to pressure Alberta oil prices, with Western Canada Select trading at more than a $30/b discount to WTI this month.
In the 10 years Canadian oil sands producers have waited for Keystone XL and other pipelines to add critical new takeaway capacity, the energy landscape south of the Canada/US border has changed dramatically: surging US light sweet output heading to export markets like Asia, and collapsing Venezuelan production, a chief competitor to Canadian oil sands in supplying US Gulf Coast

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Insight: Is the US risking overuse of sanctions?

August 30, 2018

As the US government increasingly turns to energy-sector sanctions — or the threat of them — as a foreign policy tool, some have started to question whether the strategy carries long-term risks.
Iran and Russia, the chief targets of US sanctions at the moment, would like the world to believe that the US is addicted to sanctions.
Iranian Foreign Minister Javad Zarif tweeted this month that the US needs to “rehabilitate its addiction to sanctions.” A few days later, Russian Foreign Minister Sergey Lavrov said that US over-reliance on sanctions would eventually undermine the dollar as the global settlement currency.
The statements are obviously self-serving, as both countries are staring down major new US sanctions. But as the US reaches over and over again for this foreign policy tool — and

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Venezuela’s PDVSA fails to use US sanctions to own advantage in Delaware court

August 17, 2018

Venezuela’s beleaguered oil company PDVSA tried to use US sanctions to its own advantage recently — a bold move that ultimately failed.
This played out in a US legal dispute over a Canadian gold miner seeking to recoup assets seized by the Venezuelan government.
A US district court judge in Delaware ruled August 9 that PDVSA is essentially an “alter ego” of the Venezuelan government, allowing Canadian miner Crystallex to go after the oil company’s shares in profitable US refiner Citgo, even though PDVSA had nothing to do with nationalizing the gold mine.
The victory allows Crystallex to collect on a $1.2 billion judgment against Venezuela that it secured in an earlier US court case — although whether the miner will ever get anything from Citgo given the droves of other companies demanding

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US oil pipelines might rethink affiliate discounts: Fuel for Thought

December 5, 2017

US oil pipeline companies were calling their lawyers in Washington last week after regulators said a practice that has apparently become commonplace in the industry violates federal law.
The order by the Federal Energy Regulatory Commission involves marketing affiliates of pipelines that buy space on the parent company’s system and then resell it — sometimes at a lower rate than the published tariff.
FERC said it was fine for pipelines to create marketing affiliates and for them to resell line space at the same rate as the tariff or higher. But it becomes a problem when the affiliate resells the space at a lower rate than the tariff.
That represents an illegal rebate that violated the Interstate Commerce Act, FERC said.
“Buy/sell transactions by affiliates have been a very common practice

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Dakota Access Pipeline races to start moving Bakken crude

March 16, 2017

Oil will likely flow through the Dakota Access Pipeline under Lake Oahe in North Dakota early next week.
Barring any more twists or turns — and there have been plenty in the last seven months of this project — the contentious 470,000 b/d crude oil pipeline will start commercial service very soon thereafter. It will open up a major new route for Bakken and Three Forks production to flow to Illinois and onto the Texas Gulf Coast.

Judge James Boasberg. Photo from US District Court for the District of Columbia.
A March 7 ruling by Judge James Boasberg of the US District Court for the District of Columbia cleared the way for the startup, when he turned down two North Dakota tribes’ request for a preliminary injunction to prevent oil from flowing under Lake Oahe. On Tuesday, he ruled against the tribes again in denying an injunction pending appeal by the US Court of Appeals for the District of Columbia Circuit.
The lawsuit will go on, but Boasberg’s role in the Dakota Access saga will likely fade to the background.
Boasberg has presided over the lawsuit with a level head that you’d expect of any judge named to one of the top US courts. He often acted as a mediator during hearings, trying to get the parties to the lawsuit — the North Dakota tribes, the US Army Corps of Engineers and Dakota Access — to reach an agreement without protracted filings about scheduling or moot issues.

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Oklahoma’s earthquake rate slows, but Cushing oil hub remains in danger zone

March 3, 2017

The good news for Oklahoma is that the number of earthquakes stronger than magnitude 2.7 that hit the state last year fell by more than a third to 2,500, compared with 4,000 in 2015.
The bad news is the 2016 total is still astronomical compared to the two earthquakes the state experienced annually between 1980 and 2000.
A key question for Oklahoma regulators and for oil and gas drillers there is what caused last year’s decline: Was it mainly the result of state efforts to restrict drillers’ wastewater injections, which the US Geological Survey has linked to the increase in seismicity? Was it the slowdown in drilling activity from low oil prices? Or was it a combination of the two?
That answer could become clearer as drilling picks back up as expected this year.

One positive sign for oil and gas drillers in Oklahoma is that the promising SCOOP and STACK plays generate much less produced water than the Mississippi Lime, leaving producers with less wastewater to dispose underground.
But even if the Oklahoma Corporation Commission’s action to restrict wastewater injections by as much as 40% is the main factor behind the lower earthquake rate, USGS geophysicist Rob Williams still sees a reason for caution ahead.
He said the vast amounts of wastewater already pumped into the deep Arbuckle formation could still affect underground pressure and trigger damaging earthquakes.

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Tax reform is on the minds of US oil producers, refiners

February 1, 2017

The wave of fourth-quarter 2016 earnings calls is just getting started, but tax reform already seems to be the topic du jour for oil and gas companies.
Analysts have been asking executives how they’re preparing for a potentially drastic overhaul in the US corporate tax code.
To recap, House Republicans want to cut the corporate tax rate to 20% from 35% and pay for those cuts with a border adjustment that would tax imports but not exports. The plan could raise consumer prices and upend energy and commodity trade flows.
Economists are still debating how much a stronger dollar would offset those effects. President Donald Trump has sent mixed signals about his preference for tax reform. Talks are expected to last much of the year in Congress, but companies are already lobbying for exemptions and alternative plans.
Some of the early thoughts so far from major oil and gas companies:
ExxonMobil Vice President Jeff Woodbury: “We will continue to advocate for free market principles. … We believe the tax code should be globally competitive, it should be predictable, stable, providing investment certainty and not picking winners and losers.”
Valero CEO Joe Gorder said the refiner already has flexibility in its system to adapt to a potential border adjustment. He said the company has swung from running 600,000 b/d of light sweet crude to over 1 million b/d.

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GOP tax reform and what’s at stake for the oil industry

January 19, 2017

This blog post was written in collaboration with John Kingston, the Director of Global Market Insights for S&P Global.
The U.S. still imports a lot of crude oil. It also now exports crude oil. It’s also the world’s biggest exporter of petroleum products.
So any change in the country’s corporate tax system that has an enormous shift in the tax treatment of imports and exports is going to have the potential to impact oil flows, and by extension, oil markets.
It’s a realization that is starting to spread through the nation’s oil industry as the inauguration of Donald Trump draws closer and the possibility of DBCFT becomes more possible. DBCFT is the abbreviation for Destination Based Cash Flow Tax, and it’s the general term for the type of tax that is at the heart of the Republicans’ corporate tax proposal, spearheaded primarily by Speaker Paul Ryan (R-WI) and Ways and Means chairman Kevin Brady (R-CA).
The analyses of the tax plans are coming out fast and furious in the last few weeks. The short version of what you need to know is this:

• The intellectual basis for the plan actually comes from the left side of the political divide: Alan Auerbach, a professor at the University of California-Berkeley, who released a paper in 2010 under the auspices of the Center for American Progress, which in the Obama years has been the most prominent left-leaning think tank.

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The effectiveness and future of Western sanctions on Russia: Fuel for Thought

December 12, 2016

Western sanctions against Moscow have hurt the Russian economy and restricted some energy projects, but they have failed their main objective of persuading President Vladimir Putin to change his policy in Ukraine. It will continue to have a limited impact unless they are made tougher, the Atlantic Council argued in study released last week.
Sergey Aleksashenko, former deputy chairman of the Russian Central Bank and former chairman of Merrill Lynch Russia, said in the report that tighter restrictions could include imposing an embargo on the purchase of crude from Russian state-owned companies, banning Western companies from buying or trading Russian LNG, and making it harder for Russian state-owned companies to use Western technology.
“Even if Russia is able to sell its oil elsewhere, it will cost it more to do so, correspondingly reducing the financial resources of Putin’s regime,” Aleksashenko wrote.
The EU is expected to vote this month on renewing sanctions that expire January 31. US president-elect Donald Trump will then be able to decide whether to sign executive orders extending sanctions in March and again next summer.
But uncertainty is building on both sides of the Atlantic. Trump repeatedly praised Putin during the US elections and urged closer cooperation on geopolitical issues like ISIS.

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The difficulty of oil pipeline routing, whether in North Dakota or Azerbaijan

September 13, 2016

Richard Kauzlarich was among the Washington energy policy watchers surprised by the Obama administration’s 11th-hour halt to the Dakota Access oil pipeline, September 9. The contentious pipeline project reminded him of another energy era in a very different part of the world.
As US ambassador to Azerbaijan in 1994-97 under President Bill Clinton, part of Kauzlarich’s job was to facilitate discussions between the government and US oil companies eager to develop oil resources in the Caspian Sea region. A chief barrier was getting the supply to market.
“A major part of the effort there was to make a decision on should this pipeline go by pipeline or should it go by a combination of rail and tanker,” he said. “As we looked at this issue from an environmental and cost point of view, putting that oil on rail cars and shipping it across Azerbaijan and Georgia to a Black Sea port made the environmental risks very, very high.”
So the country decided to go with a pipeline — just the start of a multi-year negotiating process.
“You were building it across three countries, going under rivers, through national parks and areas that were culturally and historically significant. At the end of the day, it was possible to negotiate all of the issues. The stakeholders all saw it in their interest to make this pipeline a success.

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Venezuela’s light crude habit soaks up US exports

August 18, 2016

Venezuela’s thirst for light crude imports could play an interesting role in crimping as much as 300,000 b/d of its own crude exports. That would amount to a whopping 14% of Venezuela’s 2.12 million b/d production as of July.
The two are tied because of Venezuela’s rising dependence on imported light crudes and condensates for blending with its increasingly heavy domestic oil — a result of the government’s bet on heavy oil production and sharp declines in conventional output, according to Luisa Palacios, senior managing director at Medley Global Advisors and head of Latin America energy research at Columbia University’s Center on Global Energy Policy.
Palacios wrote in a report released Tuesday that Venezuela’s net crude exports could drop by 200,000-300,000 b/d if credit concerns prevent state-owned PDVSA from keeping those light crude imports flowing.
“As PDVSA evolves from a pure oil exporter to a significant light oil and products importer, the company faces increasingly problematic logistical bottlenecks,” Palacios wrote in the study. “The country’s oil infrastructure simply cannot handle that amount of oil imports.”
A US Energy Information Administration report out Tuesday showed those imports are going strong for the time being.

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