By Nick Cunningham
A growing number of refineries around the world are either curtailing operations or shutting down entirely as the oil market collapses.
Oil prices have fallen precipitously to their lowest levels in nearly two decades. Typically, falling oil prices are a good thing for refiners because they buy crude oil on the cheap and process it into gasoline, jet fuel, and diesel, selling those products at higher prices. The end consumer also tends to consume more when fuel is less expensive. As a result, the profit margin for refiners tends to widen when crude oil becomes oversupplied.
But the world is in the midst of dual supply and demand shock — too much drilling has produced a substantial surplus, and the global coronavirus pandemic has led to a historic drop in consumption. Oil demand could fall by as much as 20 percent, according to the International Energy Agency, by far the largest decline in consumption ever recorded.
Consumption of jet fuel around the world has plunged by 75 percent. Average retail gasoline prices in the U.S. are dropping below $2 per gallon nationwide and have already fallen below $1 per gallon in some places. They will fall further still.
"If oil continues to sell at such a low price, some of those companies are going to have severe financial issues tr… https://t.co/hHNTRFJ7uc— KENS 5 (@KENS 5)1585594804.0
In fact, margins even fell into negative territory, meaning that the average refiner was losing money on every gallon of gasoline produced. Refiners now find themselves facing a painful financial squeeze.
"We're seeing gasoline cracks at negative margins. We're seeing jet cracks even worse," Brian Mandell, an executive with Phillips 66, said on a March 24 phone call with investors. "Cracks" refer to the difference between the cost of buying crude oil and selling the refined product, and it stands in as a reference point for a refiner's profit margin.
One of the main strategies that refiners use when a particular product is oversupplied is to alter their processing mix. Facing a glut of gasoline, refiners could switch their operations away from gasoline to a focus on diesel, where margins have not declined by nearly as much. "With strong price signals pushing refiners towards diesel production, they would have made immediate adjustments to tweak their refined product yields," RBN Energy, a consultancy, wrote in a report.
However, some refiners already switched over to diesel following tighter international sulfur regulations on maritime fuels that took effect at the start of this year, which placed a premium on low-sulfur diesel. Having already tapped that strategy, the ability to adjust away from gasoline production is "likely limited," RBN concluded.
Collapsing Demand Leads to Refinery Closures
There are around 3 billion people on some form of a lockdown around the world. In those circumstances, refiners have seen buyers vanish overnight.
"We're seeing even our Latin American customers asking us if they can back out of cargoes now, so we see that the demand destruction is starting to move toward Latin America," Brian Mandell, the Phillips 66 executive, told investors.
With no buyers, gasoline is set to pile up in storage. Refiners are looking at no other choice but to curtail or shut down operations.
Valero Energy, for instance, recently announced that it would limit output at six of its 12 U.S. refineries. ExxonMobil announced significant cuts to its refineries in Texas and Louisiana, citing the lack of sufficient storage capacity. Notably, Exxon said it would shut down its gasoline unit at its Baytown, Texas, complex, the company's largest such unit in the United States.
"The refiners are struggling mightily, due to the steep drop in demand," John Kilduff, a partner at Again Capital LLC, told Bloomberg. "The poor refining margins will push companies to reduce operating rates further."
The danger for some refineries is that they cannot simply throttle back and operate at really low levels. "In our experience, crude throughput in the 60 percent to 70 percent range is approaching the minimum rates that a refinery can operate without completely shutting down units," RBN said.
According to Phillips 66, even that threshold might be optimistic. "I don't think a good rule of thumb would be down in the 60 percent range for refiners. Most refineries can't turn down that far," Robert Herman, an executive with Phillips 66, said on an investor call. With refiners already lowering processing, "we're nearing kind of minimum crude rates in many of our refineries today," he added.
In other words, facing a mounting glut and no ability to lower output further, some refineries may simply need to shut down entirely.
We are now witnessing oil refiners not just cutting runs, but in some markets they are completely shutting down.… https://t.co/0ndZjNMUHE— Javier Blas (@Javier Blas)1585569542.0
In one particularly unusual move, India's Reliance Industries said it would simply sell the crude oil that it had in transit at sea, rather than allowing the cargo to arrive at its refineries. Reliance, which operates the world's largest refining complex, said it would instead cut processing rates. "As of now, the plan is to cut refining throughput in April because demand is not there," a source told Reuters.
In the U.S., refineries unable to switch away from gasoline are most at risk, as are those in the Midwest and the Rockies, where access to pipelines and storage capacity is a fraction of that on the Gulf Coast, according to RBN.
"It is not difficult to see run cuts of 10 mmb/d (million barrels per day) soon, perhaps peaking at 15-20 mmb/d at the height of the pandemic. This is likely to force some refineries to close down, while others will reduce rates severely," research firm FGE said in a report on March 30.
Running out of Storage, Oil Prices to Crash Further
The situation could unravel rather quickly. Consumers aren't consuming and refiners are lowering their operations. Ultimately, that means that oil drillers will have no place to sell their oil.
A number of pipeline companies have already asked oil drillers to cut back on their production because the pipeline system was becoming overwhelmed.
The estimated 20-million-barrel-per-day surplus will lead to storage filling up in the next two to three months. To avoid such an outcome, analysts widely see crude prices crashing even further.
"Demand for gasoline (no driving) and jet fuel (no flying) has now crashed and inventories for these products are already brimming. Refineries in many places are now losing money for every barrel they process, or they have no place to store their output of oil products," Bjarne Schieldrop, chief commodities analyst at SEB, a Swedish corporate bank, said in a statement. "For land-based or land-locked oil producers, this means only one thing: the local oil price or well-head price they receive very quickly goes to zero or even negative."
Reposted with permission from DeSmog.
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EcoWatch Daily Newsletter
Democrats in the House and Senate have introduced legislation to ban some of the most toxic pesticides currently in use in the U.S. D-Keine / E+ / Getty Images
By Jake Johnson
Democrats in the House and Senate on Tuesday introduced sweeping legislation that would ban some of the most toxic pesticides currently in use in the U.S. and institute stronger protections for farmworkers and communities that have been exposed to damaging chemicals by the agriculture industry.
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By Alex Thornton
The Australian government has announced a A$190 million (US$130 million) investment in the nation's first Recycling Modernization Fund, with the aim of transforming the country's waste and recycling industry. The hope is that as many as 10,000 jobs can be created in what is being called a "once in a generation" opportunity to remodel the way Australia deals with its waste.
Waste Mountain<p>The need for a dramatic increase in Australia's recycling capacity pre-dates the COVID-19 pandemic. <a href="https://www.abc.net.au/news/2019-12-27/where-does-all-australias-waste-go/11755424" target="_blank">Australians create approximately 67 million tons of waste a year</a>, and like in many wealthy countries, much of that was sent overseas. That all changed when China announced it was <a href="https://www.weforum.org/agenda/2017/10/china-has-banned-foreign-waste-so-whats-the-future-of-world-recycling" target="_blank">banning the import of a huge range of foreign waste</a> and recyclables. Soon <a href="https://www.weforum.org/agenda/2019/05/malaysia-flooded-with-plastic-waste-to-send-back-some-scrap-to-source" target="_blank">other countries followed suit</a>, and Australia was forced to look for alternative solutions.</p>
Biggest exporters of plastic. Statista
Waste Export Ban<p>Australia has adopted a strategy of taking responsibility for its own waste. Starting in January 2021, it is phasing in <a href="http://www.environment.gov.au/protection/waste-resource-recovery/waste-export-ban" target="_blank">bans on the export of different forms of waste</a>. By mid 2024, Australia's home-grown recycling industry will have to deal with an extra 650,000 tons of waste plastic, paper, glass and tires.</p><p>"As we cease shipping our waste overseas, the waste and recycling transformation will reshape our domestic waste industry, driving job creation and putting valuable materials back into the economy," federal environment minister Sussan Ley said in a <a href="https://uk.reuters.com/article/us-australia-waste/australia-to-set-up-132-million-fund-to-boost-recycling-following-export-curbs-idUKKBN247060" target="_blank">statement to Reuters</a>.</p>
Timeline for Australia's waste export ban. Australian Government
Trash Into Treasure<p>The benefits to the environment of boosting recycling rates are well known – less landfill, less plastic in our ocean, reduced need for virgin materials, and lower carbon emissions. The Recycling Modernization Fund initiative aims to divert more than 10 million tons of waste from landfill, part of an <a href="http://www.environment.gov.au/protection/waste-resource-recovery/publications/national-waste-policy-action-plan" target="_blank">overall strategy to reduce the total waste generated per person by 10%</a>, and push <a href="https://www.environment.gov.au/system/files/resources/7381c1de-31d0-429b-912c-91a6dbc83af7/files/national-waste-report-2018.pdf" target="_blank">Australia's total resource recovery rate from 58% in 2017</a> to 80% by 2030.</p><p>But like many countries, Australia is focusing on the economic benefits of better waste management as well.</p><p>"This will mean Australia converts more waste into higher valued resources ready for reuse locally by manufacturers and brands in their packaging and products," Rose Read, CEO of the National Waste and Recycling Industry Council, <a href="https://uk.reuters.com/article/us-australia-waste/australia-to-set-up-132-million-fund-to-boost-recycling-following-export-curbs-idUKKBN247060" target="_blank">told Reuters</a>.</p>
Green Jobs<p>The great potential of the circular economy to create green jobs is being recognized across the world.</p><p>In the UK, the Waste and Resources Action Program has launched a <a href="https://wrap.org.uk/buildbackbetter" target="_blank">six-point plan which it claims could add $90 billion to the economy, and create 500,000 new jobs</a>. Investment in the circular economy forms a significant part of the <a href="https://www.nytimes.com/2020/07/14/us/politics/biden-climate-plan.html" target="_blank">$2 trillion climate plan that Democratic candidate Joe Biden</a> is taking into November's US presidential election. And the <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940" target="_blank">European Union has put its Green New Deal at the heart of its plans for recovery</a> from the economic shock of COVID-19.</p><p>The World Economic Forum's <a href="http://www3.weforum.org/docs/WEF_The_Future_Of_Nature_And_Business_2020.pdf" target="_blank">Future of Nature and Business</a> report identifies 15 systemic transitions with annual business opportunities worth $10 billion a year that could create 395 million jobs by 2030.</p><p>As is the case with Australia's Recycling Modernization Fund, a combination of private enterprise and government investment can offer ways to get people back to work by building a more environmentally sustainable economy.</p>
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The Great American Outdoors Act is now the law of the land.
<div id="e0008" class="rm-shortcode" data-rm-shortcode-id="ffc07febbf5d2d585ad06d3f43e2be56"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1290667833999929344" data-partner="rebelmouse"><div style="margin:1em 0">🚨Breaking News: The President has just signed the bipartisan #GreatAmericanOutdoorsAct. It will help: 🏗️ Restore… https://t.co/RPefKPMn7S</div> — Fix Our Parks (@Fix Our Parks)<a href="https://twitter.com/FixOurParksUS/statuses/1290667833999929344">1596554165.0</a></blockquote></div>
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By Andrew J. Whelton and Caitlin R. Proctor
In recent years wildfires have entered urban areas, causing breathtaking destruction.
Survivors left everything to flee the Camp Fire's path. Andrew Whelton / Purdue University
Wildfires and Water<p>Both the Tubbs and Camp fires destroyed fire hydrants, water pipes and meter boxes. Water leaks and ruptured hydrants were common. The Camp Fire inferno spread at a speed of one football field per second, chasing everyone – including water system operators – out of town.</p><p>After the fires passed, testing ultimately revealed widespread hazardous drinking water contamination. Evidence suggests that the toxic chemicals originated from a combination of <a href="https://doi.org/10.1002/aws2.1183" target="_blank">burning vegetation, structures and plastic materials</a>.</p>
Pipes, water meters and meter covers after wildfires destroyed them. Caitlin Proctor, Amisha Shah, David Yu, and Andrew Whelton/Purdue University
Dangerous Contamination Levels<p>Benzene was found at concentrations of 40,000 parts per billion (ppb) in drinking water after the Tubbs Fire and at more than 2,217 ppb after the Camp Fire. According to the California Office of Environmental Health Hazard Assessment, children exposed to benzene for a single day can suffer <a href="https://engineering.purdue.edu/PlumbingSafety/resources/Benzene-Levels-in-Water.pdf" target="_blank">harm at levels as low as 26 ppb</a>.</p><p>The U.S. Environmental Protection Agency recommends limiting children's short-term acute exposure to <a href="https://www.epa.gov/sites/production/files/2018-03/documents/dwtable2018.pdf" target="_blank">200 ppb</a>, and long-term exposure to less than <a href="https://www.epa.gov/ground-water-and-drinking-water/national-primary-drinking-water-regulations" target="_blank">5 ppb</a>. The EPA regulatory level for what constitutes a hazardous waste is <a href="https://19january2017snapshot.epa.gov/sites/production/files/2015-06/documents/tclp.pdf" target="_blank">500 ppb</a>.</p><p>In early 2019, California conducted contaminated water testing on humans by taking contaminated water from the Paradise Irrigation District and asking persons to smell it. The state found that even when people smelled contaminated water that had less than 200 ppb benzene, <a href="https://engineering.purdue.edu/PlumbingSafety/resources/Dissipatiion-of-Burn-Related-VOC-From-Water.pdf" target="_blank">at least one person reported nausea and throat irritation</a>. The test also showed that water contained a variety of other benzene-like compounds that first responders had not sampled for.</p><p>The officials who carried out this small-scale test did not appear to realize the significance of what they had done, until we asked whether they had had their action approved in advance by an institutional review board. In response, they asserted that such a review was not needed.</p><p>In our view, this episode is telling for two reasons. First, one subject reported an adverse health effect after being exposed to water that contained benzene at a level below the EPA's recommended one-day limit for children. Second, doing this kind of test without proper oversight suggests that officials greatly underestimated the potential for serious contamination of local water supplies and public harm. After the Camp Fire, together with the EPA, we estimated that some plastic pipes needed <a href="https://engineering.purdue.edu/PlumbingSafety/opinions/Final-HDPE-Service-Line-Decontamination-2019-03-18.pdf" target="_blank">more than 280 days</a> of flushing to make them safe again.</p>
Plastic pipes can be damaged by heat and fire contact. Andrew Whelton / Purdue University
Building Codes Could Make Areas Disaster-Ready<p>Our research underscores that community building codes are inadequate to prevent wildfire-caused pollution of drinking water and homes.</p><p>Installing one-way valves, called backflow prevention devices, at each water meter can prevent contamination rushing out of the damaged building from flowing into the larger buried pipe network.</p><p>Adopting codes that required builders to install fire-resistant meter boxes and place them farther from vegetation would help prevent infrastructure from burning so readily in wildfires. Concrete meter boxes and water meters with minimal plastic components would be less likely to ignite. Some plastics may be practically impossible to make safe again, since all types are susceptible to fire and heat.</p><p>Water main shutoff valves and water sampling taps should exist at every water meter box. Sample taps can help responders quickly determine water safety.</p>
<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="9540d7e271306ed417112042a3efc9a4"><iframe lazy-loadable="true" src="https://www.youtube.com/embed/GnlrzI1wdAI?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
The Smell Test Doesn’t Work<p>Under no circumstance should people be told to <a href="https://www.waterboards.ca.gov/press_room/press_releases/2018/pr122418_voc.pdf" target="_blank">smell the water</a> to determine its safety, as was recommended for months after the Camp Fire. Many chemicals have no odor when they are harmful. Only testing can determine safety.</p><p>Ordering people to boil their water will not make it safe if it contains toxic chemicals that enter the air. Boiling just transmits those substances into the air faster. "Do not use" orders can keep people safe until agencies can test the water. Before such advisories are lifted or modified, regulators should be required to carry out a full chemical screen of the water systems. Yet, <a href="https://doi.org/10.1002/aws2.1183" target="_blank">disaster</a> after <a href="https://pubs.rsc.org/en/content/articlehtml/2017/ew/c5ew00294j" target="_blank">disaster</a>, government agencies have failed to take this step.</p><p>Buildings should be tested to find contamination. <a href="https://www.purdue.edu/newsroom/releases/2020/Q1/study-your-homes-water-quality-could-vary-by-the-room-and-the-season.html" target="_blank">Home drinking water quality can differ from room to room</a>, so reliable testing should sample both cold and hot water at many locations within each building.</p><p>While infrastructure is being repaired, survivors need a safe water supply. Water treatment devices sold for home use, such as refrigerator and faucet water filters, are not approved for extremely contaminated water, although product sales representatives and government officials may <a href="https://undark.org/2019/09/19/camp-fire-california-drinking-water-carcinogens/" target="_blank">mistakenly think</a> the devices can be used for that purpose.</p><p>To avoid this kind of confusion, external technical experts should be called in assist local public health departments, which can quickly become overwhelmed after disasters.</p>
<div id="71cf9" class="rm-shortcode" data-rm-shortcode-id="e059d199e8368d282a31601e372e4dda"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1204068265980547075" data-partner="rebelmouse"><div style="margin:1em 0">The Los Angeles City Council's Planning and Land Use Committee signed off on an effort to expand the city's fire-re… https://t.co/fP8Z8mUq7R</div> — IntlCodeCouncil (@IntlCodeCouncil)<a href="https://twitter.com/IntlCodeCouncil/statuses/1204068265980547075">1575907219.0</a></blockquote></div>
Preparing for Future Fires<p>The damage that the Tubbs and Camp fires caused to local water systems was preventable. We believe that urban and rural communities, as well as state legislatures, should establish codes and lists of authorized construction materials for high-risk areas. They also should establish rapid methods to assess health, prepare for water testing and decontamination, and set aside emergency water supplies.</p><p>Wildfires are coming to urban areas. Protecting drinking water systems, buried underground or in buildings, is one thing communities can do to prepare for that reality.</p>
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By Zulfikar Abbany
"We don't have a definition of life," says Kevin Peter Hand, one early California morning when we speak via video. "We don't actually know what life is."