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Schork Oil Outlook: Will Schwarzenegger be 'Welcomed Back' to the RNC?

Tuesday, 27 Jul 2010 | 11:48 AM ET

This month the EIA released its report on the American Power Act of 2010 (APA) which was proposed by Senators Kerry and Lieberman on May 12, 2010. Though conceived before the Deepwater Horizon spill, the APA’s provisions seem strangely prescient in their move away from off-shore drilling.

For instance, Subtitle B of Title I of the APA allows for “the revenue earned through offshore drilling in areas that, as of 1/1/2000, had no oil or natural gas production and are not a Gulf producing State, to be shared with the adjacent Coastal State.” As well as allowing for States to prohibit drilling within 75 miles of their coastline.

Given the fallout in Louisiana, we would not be surprised if populist opinion forced states to adopt the latter clause regardless of the former’s ability to generate revenue for cash strapped budgets (we’re looking at you, California).

Meanwhile, subtitle A of the APA expands the loan guarantee program for nuclear power from $18.5bn to $54bn, while subtitle C aims to establish a council to oversee the commercialization of carbon capture and storage. Subtitles D and E deal with renewable energy/energy efficiency and clean transportation respectively. Title II looks to create a cap-and-trade program for greenhouse gases i.e. collateralized carbon emission trading.

The bottom line of the APA is to reduce emissions from their 2005 level by 17% in 2020, 42% in 2030 and 83% in 2050. Unsurprisingly, the EIA’s forecasts suggest these targets will not be met, but it is surprising how close we may come.

In total, the EIA projects total carbon dioxide emissions (tons carbon dioxide equivalent per person) to decline by 36.67% between 2007 and 2035. Of this, emissions from electric power generation will see a 37.93% decline due in large part to a shift away from coal and towards natural gas – emissions from coal for electric power generation should decline 48.49% over the same timestep.

From transportation, analyst Hamza Khan at The Schork Report, points out that the EIA is apparently not drinking the Elon Musk (of Tesla fame) Kool-Aid, carbon emissions from the petroleum fuelled transportation will only decline 4.02% between 2007 and 2035.

Since California won’t be collecting revenue from all those electric cars, it may want to look at off-shore drilling after all.

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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.

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