Sunday, November 4, 2012

Chevron: "The opportunity to spend further capital to mitigate stack emissions of CO2 are -- they're just about tapped out."

I read on down in the Chevron 3rd Quarter Earnings Call transcripts for the pertinent parts about CA.  If you think you had it bad a few weeks ago, think again.  They use the term CARBOB which is the special CA reformulated gasoline. You can just read the bolded parts.  That'll pretty much let you know what you're in for.
Our next question comes from Jason Gammel with Macquarie. 
Jason Gammel - Macquarie Research At the risk of exasperating Mike on the California issues, Mike, have you done any -- or do you have any estimates on what the potential incremental cost is going to be from complying with the greenhouse emissions? And, I guess, I'm thinking both in terms of any environmental CapEx that you have to put into the business and any uplift in the operating expense, although recognizing you might be able to pass that on to the consumer. And then I guess really what I'm leading to, do you get to a situation where you may be better off sourcing CARBOB outside of California and then just shipping it to your refineries?

Michael K. Wirth - Executive Vice President of Global Refining Marketing Lubricants Supply and Trading

Well, there's a wide range of potential incremental costs, Jason. And the reality is, our refineries are amongst the most energy-efficient refineries in the world. And our stationary source emissions are very, very low. The opportunity to spend further capital to mitigate stack emissions of CO2 are -- they're just about tapped out. And so your choices are go into the market to buy credits, and that could be something that we'll see where the market price goes on that.

But we really don't have a lot of opportunity, other than cutting runs and restricting supply. And there are some who believe that is the ultimate way that we'll see people comply, is just reducing their coupons, which tightens up the market, which runs the price risk.

When you get -- if you get fuels under the cap and trade, which is anticipated out towards the middle of this decade, the costs explode. And that's where you go from costs in the hundreds of millions of dollars a year to costs in the billions of dollars a year. And frankly, all of this stuff has got to go through to the market. We cannot absorb it, and I don't intend to absorb it.

And so the expectation is that as we see hundreds of millions or billions of dollars of increased costs, that translates through into the price of the product and that was the basis for my comment earlier that California's consumers will continue to pay a higher premium than the rest of the country. And that is the policy path that we are on.

The issue of CARBOB imports is one that we're very sensitive to because if those imports are not subject to some of the same obligations that manufacturers are, then you've got a competitive disadvantage. And that's a subject of discussion with the regulators. And if in fact it were more economic to import than to manufacture, and that's very well what we could do, that's got real implications for jobs and investment. So it's still an evolving and uncertain environment and frankly, we're trying to help people understand that the implications of these things, if it stays on the track that it's on right now, the implications are all bad.

Jason Gammel - Macquarie Research As a former California resident, you've got my sympathies.

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