The US government announced a requirement for refiners, blenders, and importers to increasingly use renewable fuels from 2007 through 2012. Officials portrayed the renewable fuels standard (RFS), which was authorized under the 2005 Energy Policy Act (EPACT), as an important step toward meeting US President George W. Bush's goal of reducing domestic gasoline use by 20% within 10 years.

US Environmental Protection Agency Administrator Stephen L. Johnson, US Department of Energy Sec. Samuel W. Bodman, and National Highway Traffic Safety Administration Chief Nicole R. Nason told reporters that the RFS would help domestic renewable and alternative transportation fuel use climb to 35 billion gal/year by 2017.

For 2007, the RFS establishes a renewable fuel share of 4.02%, or roughly 4.7 billion gal, of the total motor fuel consumed in the US. By 2012, the equivalent of at least 7.5 billion gal will be required as part of the US motor fuel mix.

Officials said that the program will promote the use of ethanol, biodiesel, and other petroleum alternatives as it establishes special incentives to produce and use motor fuels produced from switch grass, wood chips, and other cellulosic biomass. It also will use a trading system to give fuel producers flexibility in using the most economical alternatives, they added.

An RFS standard is only the first step, according to Nason. "We must also continue to improve the efficiency of our passenger cars and light trucks. As a part of the president's '20-in-10' energy security plan, we need Congress to give the secretary of transportation authority to reform the current passenger car fuel economy standard," she said.

Charles T. Drevna, vice-president of the National Petrochemical & Refiners Association, said EPA has issued a reasonable framework to implement EPACT's renewable fuel provisions. "NPRA believes that the RFS credit program—the core of the program—must be understandable, allow unambiguous enforcement, and promote adequate flexibility for refiners and gasoline importers," he said.

The US Federal Trade Commission said it will oppose Western Refining Inc.'s planned $1.4 billion acquisition of Giant Industries Inc. because it would significantly reduce competition in northern New Mexico's light products market.

The commission unanimously approved a complaint challenging the transaction on Apr. 10 and cleared the way for its staff to seek a temporary restraining order and preliminary injunction in federal district court to halt the deal while an administrative trial is held.

Western Refining and Giant Industries immediately issued a statement saying that the federal agency's decision is without basis in law and would be vigorously challenged in court. A hearing schedule on the matter will be determined in the next few days, they said.

The two independent refiner-marketers compete as bulk suppliers of gasoline, diesel fuel, and other light petroleum products in Albuquerque, Santa Fe, and elsewhere in northern New Mexico, according to Jeffrey Schmidt, director of FTC's Bureau of Competition. "Western's acquisition of Giant would eliminate this competition, leading to higher prices of these important energy products," he said.

The federal agency noted that Giant owns and operates two refineries and adjacent terminals in northern New Mexico at Bloomfield and Ciniza from which it supplies bulk gasoline and diesel to New Mexico, Arizona, Utah, and Colorado. The Scottsdale, Ariz., company also supplies light products to northern New Mexico from its Albuquerque terminal, FTC said.

FTC said Western operates a single refinery in El Paso that supplies gasoline, diesel, jet fuel, and other light products to Albuquerque, El Paso, Phoenix, Tucson, and Juarez, Mexico. The company also is one of two refiners using the Plains Pipeline to ship light products from El Paso to northern New Mexico, it added.

Already concentrated
FTC contends that if Giant is not acquired by Western, it would soon increase the supply of gasoline to northern New Mexico by bringing up to capacity production at its two area refineries and that the merger would prevent this. The combination would substantially increase concentration in an already concentrated market and substantially reduce competition in the bulk supply of gasoline to northern New Mexico, it added.

It also contends that Western "has both the incentive and the means" to limit gasoline supplies to northern New Mexico once the acquisition is complete by diverting some of Giant's planned additional supplies for Albuquerque and Santa Fe to other markets. Western also could reduce supplies into the area by shifting some of its current bulk supply on the Plains Pipeline, FTC said.

Officials of the two companies expressed surprise at the agency's action. "This merger will result in more product being provided to the combined companies' customers and is, therefore, procompetitive. The FTC's decision demonstrates a fundamental and troubling lack of understanding about the areas in which Western Refining and Giant operate, the competitors in those areas and the competitive nature of those areas," said Paul L. Foster, Western's president and chief executive officer.

Fred L. Hollinger, Giant's chairman and chief executive officer, noted that the two companies represent less than 1.5% of the nation's total refining capacity, and that FTC has approved mergers and acquisitions in the past several years that have created much larger refining companies. "The employees of both companies have spent countless hours preparing documents in response to the FTC's information requests, and we and our advisors haven't seen anything that we believe would serve as a basis for the FTC to oppose this merger," he said.

The companies said FTC has never suggested the need for divestitures or other potential remedies, and that numerous state and trade association officials submitted letters supporting the merger and noting that the companies are small, independent refiners; that the areas in which they operate are highly competitive and have numerous fuel supply options; that Western has one of the industry's best operates and its expertise would help ensure more reliable gasoline and diesel supplies by improving utilization rates and reducing the risk of unplanned refinery shutdowns; and that the combination would create a more stable organization.

Society of Petroleum Engineers (SPE) board members approved a new Petroleum Resources Management System, ending 2 years of collaboration by SPE, the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG), and the Society of Petroleum Evaluation Engineers (SPEE).

The boards of the other societies also approved the system following industry review and comment. Coordinated by the SPE Oil and Gas Reserves Committee (OGRC), the new system consolidates and replaces guidance contained in the 1997 SPE-WPC Petroleum Reserves Definitions, the 2000 SPE-WPC-AAPG Petroleum Resources Classification and Definitions publications, and the 2001 SPE-WPC-SPEE Guidelines for the Evaluation of Petroleum Reserves and Resources. The new system also includes the 2005 SPE-WPC-AAPG Glossary.

ORGC Chairman John Ritter, who is reserves manager for Chevron North American Operating Co., said previous guidelines were "not sufficiently rigorous or encompassing to meet the requirements of industry stakeholders due to advancements in technology, the international expansion of the industry, and the increasing role of unconventional resources." The 2007 system builds on industry efforts to achieve consistency in estimating reserves (OGJ, Oct. 23, 2006, Newsletter).


The old and new resource classification remains basically the same. The new system explains the classification in 30 pages, plus a glossary, compared with a 4-page explanation for the 2000 classification. The new explanation emphasizes project-based resources and makes recommendations on various topics, including aggregating methods and economic criteria.

The primary updates are:

-- Categorization is based on quantities recovered by applying a defined project to a reservoir base case that uses evaluator's forecast of future conditions (including prices and costs, technology available, environmental standards, fiscal terms, and regulatory constraints) but permits option to use constant conditions.

-- Recognition of the growing importance of unconventional resources (including bitumen, oil shale, coalbed methane, and gas hydrates).

-- A way to enable low, middle, and high categories of contingent resources.

-- An introduction of classification modifiers.

Royal Dutch Shell PLC agreed to pay $352.6 million, plus administrative costs, to investors outside the US in a settlement related to a series of reserves writedowns. Shell admitted no wrongdoing in the settlement. Investors had said the oil and gas major was involved in improper accounting for oil and gas reserves during 1997-2003.

The company reclassified reserves five times in a little over a year (OGJ Online, Feb. 4, 2005).

In an Apr. 11 news release, Shell said it agreed to settle with a group of European and other investors outside the US. Parties to the settlement involve institutional investors including Dutch pension funds led by Stichting Pensioenfonds ABP. Others are organizations representing individual shareholders in The Netherlands and the Shell Reserves Compensation Foundation, a settlement foundation.

The agreement depends on the Amsterdam Court of Appeals declaring the settlement binding for all of the shareholders that it covers and is subject to agreed opt-out provisions. Regarding US investors, Shell intends to offer a same proportional settlement to them, pending approval from the US court overseeing the case. A legal director for Shell told reporters at a news conference in London that the firm plans to offer US investors an $80 million settlement.

In addition, Shell is asking the US Securities and Exchange Commission to distribute to shareholders the $120 million that Shell paid in 2004 under a consent agreement resolving the SEC's investigation into Shell's reserves recategorization.

Grant & Eisenhofer PA attorney Jay Eisenhofer said it was an unprecedented settlement of a large-scale European shareholder dispute. His law firm represented the investor group and the special purpose foundation. Grant & Eisenhofer is based in Wilmington, Del., and New York

"The scale of recovery and the sheer collective unity of the investor group are both unique in a European context," Eisenhofer said, noting that the shareholder class involved a broad swath of public pension funds.

Just a day after the biggest price drop in 3 months, a rally in gasoline and heating oil boosted crude futures prices Apr. 10 for the first time in five sessions on the New York market.

The front-month crude contract's $2.77 fall to $61.51/bbl on Apr. 9 "was due to heavy trading and not to light holiday action," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland. Trading volume for US crude on the New York Mercantile Exchange was "the highest in the last 7 days and the second highest in the last 19 days," he said.

"Due to outages, refiners are struggling to produce enough fuel, of the right quantity and type, in advance of the summer driving season," said analysts in the Houston office of Raymond James & Associates Inc. "Refinery shutdowns have led to a build-up in crude oil reserves and depressed prices compared to Brent Sea crude prices on the London Stock Exchange. Iran remains a catalyst for high oil prices, however. The country asserts it is enriching uranium on an industrial scale in defiance of global sanctions."

US inventories
On Apr. 11, the Energy Information Administration reported commercial US crude inventories increased by 700,000 bbl to 333.4 million bbl during the week ended Apr. 6, well below the jump that some analysts had expected in the face of recent refining outages.

Moreover, with the summer driving season fast approaching, gasoline stocks fell 5.5 million barrels to a below-average level of 333.4 million bbl. Distillate fuel inventories inched up just 100,000 bbl to 118.1 million bbl, with a modest gain in diesel offsetting a drop in heating oil. Propane and propylene inventories rose 700,000 bbl to 25.8 million bbl in the same week.

Imports of crude into the US fell by 441,000 b/d to 9.8 million b/d during that period. However, the input of crude into US refineries increased by 231,000 b/d to 15.1 million b/d, with units operating at 88.4% of capacity. Gasoline production declined to 8.5 million b/d while distillate fuel production increased to 4.2 million b/d.

Energy prices
The May contract for benchmark US light, sweet crudes gained 38¢ to $61.89/bbl Apr. 10 on NYMEX. The June contract escalated by 57¢ to $64.88/bbl. On the US spot market, West Texas Intermediate was up 38¢ to $61.90/bbl. Heating oil for May delivery surged by 4.04¢ to $1.86/gal on NYMEX. The May contract for reformulated blend stock for oxygenate blending (RBOB) increased 2.84¢ to $2.12/gal.

The May natural gas contract jumped by 32.3¢ to $7.87/MMbtu on NYMEX. On the US spot market, gas at Henry Hub, La., gained 7¢ to $7.73/MMbtu. Colder-than-normal weather over the Easter weekend and in forecasts for the Northeast and Rockies helped propel gas prices. "Activity was up as traders covered short positions and pushed the price of gas up to close almost 4% higher," said Raymond James analysts

In London, the May IPE contract for North Sea Brent crude climbed 83¢ to $67.42/bbl. However, gas oil for April lost $5.75 to $582.25/tonne.