Tag: Energy and utilities regulation

California lawmakers to meet, eye big oil’s high gas prices

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SACRAMENTO, Calif. — Furious about oil companies’ supersized profits after a summer of record-high gas prices, California Gov. Gavin Newsom on Monday will formally start his campaign to punish big producers by asking the Legislature to fine them and give the money back to drivers.

State lawmakers will briefly return to the state Capitol on Monday to swear in new members and elect leaders for the 2023 legislative session. But this year, Newsom also has called lawmakers into a special session for the purpose of approving a penalty for oil companies when their profits pass a certain threshold.

It’s bound to be a popular proposal with voters, who have been paying more than $6 per gallon of gasoline for much of the year. But the big question is how the measure will be received by California lawmakers, especially since the oil industry is one of the state’s top lobbyists and campaign donors.

Adding to the uncertainty is an unusually high number of new members who will take seats in the Legislature for the first time. More than a quarter of the Legislature’s 120 members could be new, depending on the outcome of a few close races where county officials are still counting votes.

“It’s kind of like the first day of school and you get this big ethics test about a job that you’ve never had,” said Jamie Court, president of Consumer Watchdog, an advocacy group that has partnered with the Newsom administration to back the gas proposal.

Among the state Senate’s new members is Angelique Ashby, a Democrat who narrowly won her seat following an intense campaign. The oil industry spent hundreds of thousands of dollars on radio and TV ads supporting Ashby’s campaign, a trend noticed by critics who tried to use it against her.

In an interview, Ashby said she hasn’t been approached lobbyists or others from the oil industry asking how she would vote on a potential penalty for oil companies. She noted the oil industry spent the money as “independent expenditures,” meaning she had no control over that spending during the campaign.

“Campaigns are not legislation, and the campaign slogans and strategies of my opponent are a thing of the past,” said Ashby, whose district includes Sacramento. “I’m fixated on the people of Senate District 8 and I will make my decision based on what is in their best interest.”

As of Sunday night, Newsom had not yet revealed his legislation and legislative leaders said they likely won’t begin deliberations on any proposal until January.

But the battle has already begun. Last week, the California Energy Commission held a public hearing about why the state’s gas prices are so high. California prices spiked over the summer, but so did the rest of the country — mostly in response to a crude oil price surge after Russia’s invasion of Ukraine.

California’s prices spiked again in October, even while the price of crude oil dropped. In the first week of October, the average price of a gallon of gas in California was $2.61 higher than the national average — the biggest gap ever. Since then, oil companies reported billions of dollars in profits.

Regulators had hoped to question the state’s five big oil refineries: Marathon, Valero, Phillips 66, PBF Energy and Chevron. But no company officials attended the hearing, with most saying that sharing information could violate anti-trust laws.

Newsom sought to shame those companies publicly, posting a video to his Twitter account of their empty seats during Thursday’s hearing.

“Big oil is ripping Californians off, and the deafening silence from the industry (at the public hearing) is the latest proof that a price gouging penalty is needed to hold them accountable for profiteering at the expense of California families,” Newsom said in a news release announcing the special session.

Catherine Reheis-Boyd, president of the Western States Petroleum Association, said the oil industry is volatile, pointing to billions of dollars in losses during the pandemic when demand for gasoline dropped sharply as many people worked from home and canceled travel plans.

During Thursday’s hearing, she blamed the state’s taxes and regulations for driving up gas prices.

“The governor and the Legislature should focus efforts on removing policy hurdles being imposed on the energy industry so we can focus on providing affordable, reliable and lower carbon energy to all Californians,” Reheis-Boyd said.

Severin Borenstein, a University of California-Berkeley professor, said the problem isn’t at the oil refinery level, but at the retail level where gasoline is sold to drivers.

California’s gasoline market is dominated by name-brand gasoline, which is more expensive, and the state’s gas prices have been consistently higher than the rest of the country since 2015, Borenstein said.

“We just don’t have the competition and discipline from those off-brand stations,” he said.

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December 4, 2022
Los Angeles City Council votes to ban oil and gas drilling

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The Los Angeles City Council voted unanimously on Friday to ban drilling of new oil and gas wells and phase out existing ones over the next 20 years.

The vote comes after more than a decade of complaints from city residents that pollution drifting from wells was affecting their health.

“Hundreds of thousands of Angelenos have had to raise their kids, go to work, prepare their meals (and) go to neighborhood parks in the shadows of oil and gas production,” said Los Angeles City Council president Paul Krekorian, one of the councilmembers who introduced this measure. “The time has come …. when we end oil and gas production in the city of Los Angeles.”

Two engineers with Yorke Engineering, a California-based company that does air quality and environmental compliance review, spoke in opposition to the ordinance. They said a ban and phase out will have a negative effect because oil and gas operators will abandon wells. They said this is being underestimated by the city. If they walk away, that will mean increased air pollution and greenhouse gas emissions, they said.

But Los Angeles City Attorney Mike Feuer said these claims are “not credible,” citing a review by Impact Sciences, another California-based firm that performed an environmental analysis of the ordinance for the city.

Los Angeles was once a booming oil town. Many of its oilfields are now played out but it still has several productive ones.

According to the city controller’s office there were 780 active and 287 idle wells within city boundaries in 2018. An idle well is one that is not operating, but neither has it been permanently sealed, so it could be brought back into production.

Near Long Beach there’s the very prolific Wilmington oil field, which yielded more than 10 million barrels of crude oil in 2019, according to state records.

Hundreds of the still active wells in that field are concentrated in Wilmington, a predominantly Latino part of Los Angeles. Several clusters of the active wells, located near homes, ballfields and childcare facilities, are operated by companies like E&B Natural Resources Management Corporation and Warren Resources.

Warren Resources CEO and president James A. Watt said in a statement to The Associated Press that the company has invested $400 million in its oil and gas operations. “We intend to use all available legal resources to protect our major investment from this unlawful taking,” he said.

Many more wells lie just outside Los Angeles city limits, in Carson, Inglewood and Long Beach.

Some studies look at the possible effects of pollution emanating from the city’s existing oil and gas wells.

Researchers from the University of Southern California in a study in 2021 found that people living near wells in two Los Angeles neighborhoods — University Park and Jefferson Park — reported significantly higher rates of wheezing, eye and nose irritation, sore throat and dizziness than neighbors living farther away. Both of those communities are predominantly non-white with large Black and Latino communities, according to the U.S. Census.

The push to ban drilling in the City of Los Angeles is part of a region-wide effort to shut down oil and gas extraction throughout the county of Los Angeles, with similar measures covering Culver City and unincorporated parts of Los Angeles County passed in 2021.

“In Los Angeles, we sit on the largest urban oil deposit in the world,” said councilmember Marqueece Harris-Dawson ahead of the vote. “So if Los Angeles can do it, cities around the world can do it.”

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This story has been edited to correct the amount Warren Resources CEO and president James A. Watt said his company has invested in its oil and gas operations. It is $400 million, not $44 million.

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Follow Drew Costley on Twitter: @drewcostley.

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The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group. The AP is solely responsible for all content.

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December 3, 2022
G-7 joins EU on $60-per-barrel price cap on Russian oil

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WASHINGTON — The Group of Seven nations and Australia joined the European Union on Friday in adopting a $60-per-barrel price cap on Russian oil, a key step as Western sanctions aim to reorder the global oil market to prevent price spikes and starve President Vladimir Putin of funding for his war in Ukraine.

Europe needed to set the discounted price that other nations will pay by Monday, when an EU embargo on Russian oil shipped by sea and a ban on insurance for those supplies take effect. The price cap, which was led by the G-7 wealthy democracies, aims to prevent a sudden loss of Russian oil to the world that could lead to a new surge in energy prices and further fuel inflation.

U.S. Treasury Secretary Janet Yellen said in a statement that the agreement will help restrict Putin’s “primary source of revenue for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies.”

The agreement comes after a last-minute flurry of negotiations. Poland long held up an EU agreement, seeking to set the cap as low as possible. Following more than 24 hours of deliberations, when other EU nations had signaled they would back the deal, Warsaw finally relented late Friday.

A joint G-7 coalition statement released Friday states that the group is “prepared to review and adjust the maximum price as appropriate,” taking into account market developments and potential impacts on coalition members and low and middle-income countries.

“Crippling Russia’s energy revenues is at the core of stopping Russia’s war machine,” Estonian Prime Minister Kaja Kallas said, adding that she was happy the cap was pushed down a few extra dollars from earlier proposals. She said every dollar the cap was reduced amounted to $2 billion less for Russia’s war chest.

“It is no secret that we wanted the price to be lower,” Kallas added, highlighting the differences within the EU. “A price between 30-40 dollars is what would substantially hurt Russia. However, this is the best compromise we could get.”

The $60 figure sets the cap near the current price of Russia’s crude, which recently fell below $60 a barrel. Some criticize that as not low enough to cut into one of Russia’s main sources of income. It is still a big discount to international benchmark Brent, which slid to $85.48 a barrel Friday, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

There is a big risk to the global oil market of losing large amounts of crude from the world’s No. 2 producer. It could drive up gasoline prices for drivers worldwide, which has stirred political turmoil for U.S. President Joe Biden and leaders in other nations. Europe is already mired in an energy crisis, with governments facing protests over the soaring cost of living, while developing nations are even more vulnerable to shifts in energy costs.

But the West has faced increasing pressure to target one of Russia’s main moneymakers — oil — to slash the funds flowing into Putin’s war chest and hurt Russia’s economy as the war in Ukraine drags into a ninth month. The costs of oil and natural gas spiked after demand rebounded from the pandemic and then the invasion of Ukraine unsettled energy markets, feeding Russia’s coffers.

U.S. National Security Council spokesman John Kirby told reporters Friday that “the cap itself will have the desired effect on limiting Mr. Putin’s ability to profit off of oil sales and limit his ability to continue to use that money to fund his war machine.”

More uncertainty is ahead, however. COVID-19 restrictions in China and a slowing global economy could mean less thirst for oil. That is what OPEC and allied oil-producing countries, including Russia, pointed to in cutting back supplies to the world in October. The OPEC+ alliance is scheduled to meet again Sunday.

That competes with the EU embargo that could take more oil supplies off the market, raising fears of a supply squeeze and higher prices. Russia exports roughly 5 million barrels of oil a day.

Putin has said he would not sell oil under a price cap and would retaliate against nations that implement the measure. However, Russia has already rerouted much of its supply to India, China and other Asian countries at discounted prices because Western customers have avoided it even before the EU embargo.

Most insurers are located in the EU or the United Kingdom and could be required to participate in the price cap.

Russia also could sell oil off the books by using “dark fleet” tankers with obscure ownership. Oil could be transferred from one ship to another and mixed with oil of similar quality to disguise its origin.

Even under those circumstances, the cap would make it “more costly, time-consuming and cumbersome” for Russia to sell oil around the restrictions, said Maria Shagina, a sanctions expert at the International Institute for Strategic Studies in Berlin.

Robin Brooks, chief economist at the Institute of International Finance in Washington, said the price cap should have been implemented when oil was hovering around $120 per barrel this summer.

“Since then, obviously oil prices have fallen and global recession is a real thing,” he said. “The reality is that it is unlikely to be binding given where oil prices are now.”

European leaders touted their work on the price cap, a brainchild of Yellen.

“The EU agreement on an oil price cap, coordinated with G7 and others, will reduce Russia’s revenues significantly,” said Ursula von der Leyen, president of the European Commission, the EU’s executive arm. “It will help us stabilize global energy prices, benefiting emerging economies around the world.”

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Casert reported from Brussels and McHugh from Frankfurt, Germany. AP reporter Aamer Madhani contributed from Washington.

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December 2, 2022
Los Angeles City Council votes to ban oil and gas drilling

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The Los Angeles City Council voted unanimously on Friday to ban drilling of new oil and gas wells and phase out existing ones over the next 20 years.

The vote comes after more than a decade of complaints from city residents that pollution drifting from wells was affecting their health. Los Angeles was once a booming oil town, but many of its oilfields are now played out.

“Hundreds of thousands of Angelenos have had to raise their kids, go to work, prepare their meals (and) go to neighborhood parks in the shadows of oil and gas production,” said Los Angeles City Council president Paul Krekorian, one of the councilmembers who introduced this measure. “The time has come …. when we end oil and gas production in the city of Los Angeles.”

Two engineers with Yorke Engineering, a California-based company that does air quality and environmental compliance review, spoke in opposition to the ordinance. They said a ban and phase out will have a negative effect because oil and gas operators will abandon wells. They said this is being underestimated by the city. If they walk away, that will mean increased air pollution and greenhouse gas emissions, they said.

But Los Angeles City Attorney Mike Feuer said these claims are “not credible,” citing a review by Impact Sciences, another California-based firm that performed an environmental analysis of the ordinance for the city.

A document prepared by the Los Angeles city controller’s office in 2018 said there were 780 active and 287 idle wells within city boundaries. An idle well is one that is not operating, but neither has it been permanently sealed, so it could be brought back into production.

Many more well lie just outside the city limits, in Carson, Inglewood and Long Beach. Long Beach is the home of a good part of the extremely prolific Wilmington oil field, which yielded more than 10 million barrels of crude oil in 2019, according to state records.

There is research on the possible effect of pollution emanating from some of the city’s existing oil and gas wells.

Researchers from the University of Southern California found in a study in 2021 that people living near wells in two Los Angeles neighborhoods — University Park and Jefferson Park — reported significantly higher rates of wheezing, eye and nose irritation, sore throat and dizziness than neighbors living farther away. Both of those communities are predominantly non-white with large Black and Latino communities, according to the U.S. Census.

The push to ban drilling in the City of Los Angeles is part of a region-wide effort to shut down oil and gas extraction through the County of Los Angeles, with similar measures covering Culver City and unincorporated parts of Los Angeles County passed in 2021.

“In Los Angeles, we sit on the largest urban oil deposit in the world,” said councilmember Marqueece Harris-Dawson ahead of the vote. “So if Los Angeles can do it, cities around the world can do it.”

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Follow Drew Costley on Twitter: @drewcostley.

———

The Associated Press Health and Science Department receives support from the Howard Hughes Medical Institute’s Science and Educational Media Group. The AP is solely responsible for all content.

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December 2, 2022
EU edges closer to $60-per-barrel Russian oil price cap

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BRUSSELS — The European Union was edging closer to setting a $60-per-barrel price cap on Russian oil — a highly anticipated and complex political and economic maneuver designed to keep Russia’s supplies flowing into global markets while clamping down on President Vladimir Putin’s ability to fund his war in Ukraine.

EU nations sought to push the cap across the finish line after Poland held out to get as low a figure as possible, diplomats said Thursday. “Still waiting for white smoke from Warsaw,” said an EU diplomat, who spoke on condition of anonymity because the talks were still ongoing.

The latest offer, confirmed by 3 EU diplomats, comes ahead of a deadline to set the price for discounted oil by Monday, when a European embargo on seaborne Russian crude and a ban on shipping insurance for those supplies take effect. The diplomats also spoke on condition of anonymity because the legal process was still not completed.

The $60 figure would mean a cap near the current price of Russia’s crude, which fell this week below $60 per barrel, and is meant to prevent a sudden loss of Russian oil to the world following the new Western sanctions. It is a big discount to international benchmark Brent, which traded at about $88 per barrel Thursday, but could be high enough for Moscow to keep selling even while rejecting the idea of a cap.

When the final number is in place, a new buyer’s cartel — which is expected to be made up of formal and informal members — will be born. Western allies in the Group of Seven industrial powers led the price cap effort and still need to approve the figure.

Oil is the Kremlin’s main pillar of financial revenue and has kept the Russian economy afloat so far despite export bans, sanctions and the freezing of central bank assets that began with the February invasion. Russia exports roughly 5 million barrels of oil per day.

The risks of the price cap’s failure are immense to the global oil supply. If it fails or Russia retaliates by stopping the export of oil, energy prices worldwide could skyrocket. Putin has said he would not sell oil under a price cap and would retaliate against nations that implement the measure.

U.S. and European consumers could feel the ramifications in more spikes to gasoline prices, and people in developing countries could face greater levels of food insecurity.

With the EU and U.K. banning insurance for Russian oil shipments, the price ceiling allows companies to keep insuring tankers headed for non-EU countries as long as the oil is priced at or under the cap. That would avoid a price spike from the loss of supplies from the world’s No. 2 oil producer and put a ceiling on Russia’s oil income near current levels.

The Treasury Department has released guidance meant to help firms and maritime insurers understand how to abide by the price ceiling, saying the price cap could fluctuate depending on market conditions.

Robin Brooks, chief economist at the Institute of International Finance in Washington, said the cap should have been implemented earlier this year, when oil was hovering around $120 per barrel.

“Since then, obviously oil prices have fallen and global recession is a real thing,” he said. “The reality is that it is unlikely to be binding given where oil prices are now.”

Critics of the price cap measure, including former Treasury Secretary Steve Mnuchin, have called the plan “ridiculous.”

Mnuchin told CNBC during a panel in November at the Milken Institute’s Middle East and Africa Summit that the price cap was “not only not feasible, I think it’s the most ridiculous idea I’ve ever heard.”

Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said that while a worst-case scenario envisions Russia cutting off the global supply of its oil, “the Saudis and Emiratis would boost production.”

“Russia has made is clear the countries that abide by the cap won’t receive their oil and that could result in cuts to natural gas exports as well,” she said. “This will be an interesting few weeks and few months.”

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Hussein reported from Washington. AP Business Writer David McHugh contributed from Frankfurt, Germany.

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December 1, 2022
EXPLAINER: What’s the effect of Russian oil price cap, ban?

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FRANKFURT, Germany — Western governments are aiming to cap the price of Russia’s oil exports in an attempt to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine.

The cap is set to take effect on Dec. 5, the same day the European Union will impose a boycott on most Russian oil — its crude that is shipped by sea. The EU was still negotiating what the price ceiling should be.

The twin measures could have an uncertain effect on the price of oil as worries over lost supply through the boycott compete with fears about lower demand from a slowing global economy.

Here are basic facts about the price cap, the EU embargo and what they could mean for consumers and the global economy:

WHAT IS THE PRICE CAP AND HOW WOULD IT WORK?

U.S. Treasury Secretary Janet Yellen has proposed the cap with other Group of 7 allies as a way to limit Russia’s earnings while keeping Russian oil flowing to the global economy. The aim is to hurt Moscow’s finances while avoiding a sharp oil price spike if Russia’s oil is suddenly taken off the global market.

Insurance companies and other firms needed to ship oil would only be able to deal with Russian crude if the oil is priced at or below the cap. Most of the insurers are located in the EU or the United Kingdom and could be required to participate in the cap. Without insurance, tanker owners may be reluctant to take on Russian oil and face obstacles in delivering it.

HOW WOULD OIL KEEP FLOWING TO THE GLOBAL ECONOMY?

Universal enforcement of the insurance ban, imposed by the EU and U.K. in earlier rounds of sanctions, could take so much Russian crude off the market that oil prices would spike, Western economies would suffer, and Russia would see increased earnings from whatever oil it can ship in defiance of the embargo.

Russia, the world’s No. 2 oil producer, has already rerouted much of its supply to India, China and other Asian countries at discounted prices after Western customers shunned it even before the EU ban.

One purpose of the cap is to provide a legal framework “to allow the flow of Russian oil to continue and to reduce the windfall revenue for Russia at the same time,” said Claudio Galimberti, a senior vice president of analysis at Rystad Energy.

“It is essential for the global crude markets that Russian oil still finds markets to be sold, after the EU ban is operative,” he added. “In the absence of that, global oil prices would skyrocket.”

WHAT EFFECT WOULD DIFFERENT CAP LEVELS HAVE?

A cap of between $65 and $70 per barrel could let Russia keep selling oil and while keeping its earnings to current levels. Russian oil is trading at around $63 per barrel, a considerable discount to international benchmark Brent.

A lower cap — at around $50 per barrel — would make it difficult for Russia to balance its state budget, with Moscow believed to require around $60 to $70 per barrel to do that, its so-called “fiscal break-even.”

However, that $50 cap would be still be above Russia’s cost of production of between $30 and $40 per barrel, giving Moscow an incentive to keep selling oil simply to avoid having to cap wells that can be hard to restart.

WHAT IF RUSSIA AND OTHER COUNTRIES WON’T GO ALONG?

Russian has said it will not observe a cap and will halt deliveries to countries that do. A lower cap of around $50 could be more likely to provoke that response, or Russia could halt the last of its remaining natural gas supplies to Europe.

China and India might not go along with the cap, while China could form its own insurance companies to replace those barred by U.S., U.K. and Europe.

Galimberti says China and India are already enjoying discounted oil and may not want to alienate Russia.

“China and India get Russia’s crude at a huge discount to Brent, therefore, they don’t necessarily need a price cap to continue to enjoy a discount,” he said. “By complying with the cap set by the G-7, they risk alienating Russia. As a result, we do believe that the compliance with the price cap would not be high.”

Russia could also turn to schemes such as transferring oil from ship to ship to disguise its origins and mixing its oil with other types to skirt the ban.

So it remains to be seen what effect the cap would have.

WHAT ABOUT THE EU EMBARGO?

The biggest impact from the EU embargo may come not on Dec. 5, as Europe finds new suppliers and Russian barrels are rerouted, but on Feb. 5, when Europe’s additional ban on refinery products made from oil — such as diesel fuel — come into effect.

Europe will have to turn to alternative supplies from the U.S., Middle East and India. “There is going to be a shortfall, and this will result in very high prices,” Galimberti said.

Europe still has many cars that run on diesel. The fuel also is used for truck transport to get a huge range of goods to consumers and to run agricultural machinery — so those higher costs will be spread throughout the economy.

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November 24, 2022
EXPLAINER: What’s the effect of Russian oil price cap, ban?

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FRANKFURT, Germany — Western governments are aiming to cap the price of Russia’s oil exports in an attempt to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine.

The cap is set to take effect on Dec. 5, the same day the European Union will impose a boycott on most Russian oil — its crude that is shipped by sea. The EU was still negotiating what the price ceiling should be.

The twin measures could have an uncertain effect on the price of oil as worries over lost supply through the boycott compete with fears about lower demand from a slowing global economy.

Here are basic facts about the price cap, the EU embargo and what they could mean for consumers and the global economy:

WHAT IS THE PRICE CAP AND HOW WOULD IT WORK?

U.S. Treasury Secretary Janet Yellen has proposed the cap with other Group of 7 allies as a way to limit Russia’s earnings while keeping Russian oil flowing to the global economy. The aim is to hurt Moscow’s finances while avoiding a sharp oil price spike if Russia’s oil is suddenly taken off the global market.

Insurance companies and other firms needed to ship oil would only be able to deal with Russian crude if the oil is priced at or below the cap. Most of the insurers are located in the EU or the United Kingdom and could be required to participate in the cap. Without insurance, tanker owners may be reluctant to take on Russian oil and face obstacles in delivering it.

HOW WOULD OIL KEEP FLOWING TO THE GLOBAL ECONOMY?

Universal enforcement of the insurance ban, imposed by the EU and U.K. in earlier rounds of sanctions, could take so much Russian crude off the market that oil prices would spike, Western economies would suffer, and Russia would see increased earnings from whatever oil it can ship in defiance of the embargo.

Russia, the world’s No. 2 oil producer, has already rerouted much of its supply to India, China and other Asian countries at discounted prices after Western customers shunned it even before the EU ban.

One purpose of the cap is to provide a legal framework “to allow the flow of Russian oil to continue and to reduce the windfall revenue for Russia at the same time,” said Claudio Galimberti, a senior vice president of analysis at Rystad Energy.

“It is essential for the global crude markets that Russian oil still finds markets to be sold, after the EU ban is operative,” he added. “In the absence of that, global oil prices would skyrocket.”

WHAT EFFECT WOULD DIFFERENT CAP LEVELS HAVE?

A cap of between $65 and $70 per barrel could let Russia keep selling oil and while keeping its earnings to current levels. Russian oil is trading at around $63 per barrel, a considerable discount to international benchmark Brent.

A lower cap — at around $50 per barrel — would make it difficult for Russia to balance its state budget, with Moscow believed to require around $60 to $70 per barrel to do that, its so-called “fiscal break-even.”

However, that $50 cap would be still be above Russia’s cost of production of between $30 and $40 per barrel, giving Moscow an incentive to keep selling oil simply to avoid having to cap wells that can be hard to restart.

WHAT IF RUSSIA AND OTHER COUNTRIES WON’T GO ALONG?

Russian has said it will not observe a cap and will halt deliveries to countries that do. A lower cap of around $50 could be more likely to provoke that response, or Russia could halt the last of its remaining natural gas supplies to Europe.

China and India might not go along with the cap, while China could form its own insurance companies to replace those barred by U.S., U.K. and Europe.

Galimberti says China and India are already enjoying discounted oil and may not want to alienate Russia.

“China and India get Russia’s crude at a huge discount to Brent, therefore, they don’t necessarily need a price cap to continue to enjoy a discount,” he said. “By complying with the cap set by the G-7, they risk alienating Russia. As a result, we do believe that the compliance with the price cap would not be high.”

Russia could also turn to schemes such as transferring oil from ship to ship to disguise its origins and mixing its oil with other types to skirt the ban.

So it remains to be seen what effect the cap would have.

WHAT ABOUT THE EU EMBARGO?

The biggest impact from the EU embargo may come not on Dec. 5, as Europe finds new suppliers and Russian barrels are rerouted, but on Feb. 5, when Europe’s additional ban on refinery products made from oil — such as diesel fuel — come into effect.

Europe will have to turn to alternative supplies from the U.S., Middle East and India. “There is going to be a shortfall, and this will result in very high prices,” Galimberti said.

Europe still has many cars that run on diesel. The fuel also is used for truck transport to get a huge range of goods to consumers and to run agricultural machinery — so those higher costs will be spread throughout the economy.

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November 24, 2022
EU approves ban on new combustion-engine cars from 2035

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BRUSSELS — The European Parliament and EU member countries have reached a deal to ban the sale of new gasoline and diesel cars and vans by 2035.

EU negotiators sealed on Thursday night the first agreement of the bloc’s “Fit for 55″ package set up by the Commission to achieve the EU’s climate goals of cutting emissions of the gases that cause global warming by 55% over this decade.

The EU Parliament said the deal is a “clear signal ahead of the UN COP27 Climate Change Conference that the EU is serious about adopting concrete laws to reach the more ambitious targets set out in the EU Climate Law.”

According to the bloc’s data, transport is the only sector where greenhouse gas emissions have increased in the past three decades, rising 33.5% between 1990 and 2019. Passenger cars are a major polluter, accounting for 61% of total CO2 emissions from EU road transport.

The EU wants to drastically reduce gas emission from transportation by 2050 and promote electric cars, but a report from the bloc’s external auditor showed last year that the region is lacking the appropriate charging stations.

“This is a historic decision as it sets for the first time a clear decarbonization pathway — with targets in 2025, 2030 and 2035 and aligned with our goal of climate neutrality by 2050,” boasted Pascal Canfin, the chair of the environment committee of the European Parliament. “This sector, which accounts for 16% of European emissions at the moment, will be carbon neutral by 2050.“

World leaders agreed in Paris in 2015 to work to keep global temperatures from increasing more than 2 degrees Celsius (3.6 degrees Fahrenheit), and ideally no more than 1.5 degrees C (2.7 F) by the end of the century. Scientists even the less ambitious goal will be missed by a wide margin unless drastic steps are taken to reduce emissions.

Greenpeace said the 2035 deadline is too late to limit global warming to below 1.5 degrees Celsius (2.7 degrees Fahrenheit).

“The EU is taking the scenic route, and that route ends in disaster,” said Greenpeace EU transport campaigner Lorelei Limousin. “A European 2035 phase-out of fossil fuel-burning cars is not quick enough: New cars with internal combustion engines should be banned by 2028 at the latest. The announcement is a perfect example of where politicians can bask in a feel-good headline that masks the reality of their repeated failures to act on climate.”

The EU Parliament and member states will now have to formally approve the agreement before it comes into force.

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October 27, 2022
EXPLAINER: How will OPEC+ cuts affect gas prices, inflation?

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FRANKFURT, Germany — Major oil-producing countries led by Saudi Arabia and Russia have decided to slash the amount of oil they deliver to the global economy.

And the law of supply and demand suggests that can only mean one thing: higher prices are on the way for crude, and for the diesel fuel, gasoline and heating oil that are produced from oil.

The decision by the OPEC+ alliance to cut 2 million barrels a day starting next month comes as the Western allies are trying to cap the oil money flowing into Moscow’s war chest after it invaded Ukraine.

Here is what to know about the OPEC+ decision and what it could mean for the economy and the oil price cap:

WHY IS OPEC+ CUTTING PRODUCTION?

Saudi Arabia’s Energy Minister Abdulaziz bin Salman says that the alliance is being proactive in adjusting supply ahead of a possible downturn in demand because a slowing global economy needs less fuel for travel and industry.

“We are going through a period of diverse uncertainties which could come our way, it’s a brewing cloud,” he said, and OPEC+ sought to remain “ahead of the curve.” He described the group’s role as “a moderating force, to bring about stability.”

Oil prices had fallen after a summer of highs. Now, after the OPEC+ decision, they are heading for their biggest weekly gain since March. Benchmark U.S. crude rose 3.2% on Friday, to $91.31 per barrel. Brent crude, the international standard, rose 2.8% to $97.09, though it’s still down 20% from mid-June, when it traded at over $123 per barrel.

One big reason for the slide is fears that large parts of the global economy are slipping into recession as high energy prices — for oil, natural gas and electricity — drive inflation and rob consumers of spending power.

Another reason: The summer highs came about because of fears that much of Russia’s oil production would be lost to the market over the war in Ukraine.

As Western traders shunned Russian oil even without sanctions, customers in India and China bought those barrels at a steep discount, so the hit to supply wasn’t as bad as expected.

Oil producers are wary of a sudden collapse in prices if the global economy goes downhill faster than expected. That’s what happened during the COVID-19 pandemic in 2020 and during the global financial crisis in 2008-2009.

HOW IS THE WEST TARGETING RUSSIAN OIL?

The U.S. and Britain imposed bans that were mostly symbolic because neither country imported much Russia oil. The White House held off pressing the European Union for an import ban because EU countries got a quarter of their oil from Russia.

In the end, the 27-nation bloc decided to cut off Russian oil that comes by ship on Dec. 5, while keeping a small amount of pipeline supplies that some Eastern European countries rely on.

Beyond that, the U.S. and other Group of Seven major democracies are working out the details on a price cap on Russian oil. It would target insurers and other service providers that facilitate oil shipments from Russia to other countries. The EU approved a measure along those lines this week.

Many of those providers are based in Europe and would be barred from dealing with Russian oil if the price is above the cap.

HOW WILL OIL CUTS, PRICE CAPS AND EMBARGOES CLASH?

The idea behind the price cap is to keep Russian oil flowing to the global market, just at lower prices. Russia, however, has threatened to simply stop deliveries to a country or companies that observe the cap. That could take more Russian oil off the market and push prices higher.

That could push costs at the pump higher, too.

U.S. gasoline prices that soared to record highs of $5.02 a gallon in mid-June had been falling recently, but they have been on the rise again, posing political problems for President Joe Biden a month before midterm elections.

Biden, facing inflation at near 40-year highs, had touted the falling pump prices. Over the past week, the national average price for a gallon rose 9 cents, to $3.87. That’s 65 cents more than Americans were paying a year ago.

“It’s a disappointment, and we’re looking at what alternatives we may have,” he told reporters about the OPEC+ decision.

WILL THE OPEC PRODUCTION CUT MAKE INFLATION WORSE?

Likely yes. Brent crude should reach $100 per barrel by December, says Jorge Leon, senior vice president at Rystad Energy. That is up from an earlier prediction of $89.

Part of the 2 million-barrel-per-day cut is only on paper as some OPEC+ countries aren’t able to produce their quota. So the group can deliver only about 1.2 million barrels a day in actual cuts.

That’s still going to have a “significant” effect on prices, Leon said.

“Higher oil prices will inevitably add to the inflation headache that global central banks are fighting, and higher oil prices will factor into the calculus of further increasing interest rates to cool down the economy,” he wrote in a note.

That would exacerbate an energy crisis in Europe largely tied to Russian cutbacks of natural gas supplies used for heating, electricity and in factories and would send gasoline prices up worldwide. As that fuels inflation, people have less money to spend on other things like food and rent.

Other factors also could affect oil prices, including the depth of any possible recession in the U.S. or Europe and the duration of China’s COVID-19 restrictions, which have sapped demand for fuel.

WHAT WILL THIS MEAN FOR RUSSIA?

Analysts say that Russia, the biggest producer among the non-OPEC members in the alliance, would benefit from higher oil prices ahead of a price cap. If Russia has to sell oil at a discount, at least the reduction starts at a higher price level.

High oil prices earlier this year offset much of Russia’s sales lost from Western buyers avoiding its supply. The country also has managed to reroute some two-thirds of its typical Western sales to customers in places like India.

But then Moscow saw its take from oil slip from $21 billion in June to $19 billion in July to $17.7 billion in August as prices and sales volumes fell, according to the International Energy Agency. A third of Russia’s state budget comes from oil and gas revenue, so the price caps would further erode a key source of revenue.

Meanwhile, the rest of Russia’s economy is shrinking due to sanctions and the withdrawal of foreign businesses and investors.

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October 7, 2022