From: Douglas Grandt answerthecall@me.

com
Subject:S.1460 must be updated for this new prediction of refinery closures (font edits)
Date:November 6, 2017 at 12:44 PM
To:Brian Hughes (Sen ENR Ctee) Brian_Hughes@energy.senate.gov, Angela Becker-Dippmann (Senate ENR Ctee)
Angela_Becker-Dippmann@energy.senate.gov
Cc: Michaeleen Crowell (Sen. Sanders) Michaeleen_Crowell@sanders.senate.gov, Katie Thomas Katie_Thomas@sanders.senate.gov

Dear Chairman Murkowski and Ranking Member Cantwell,

FINALLY! Somebody woke up at Carbon Tracker!
The following article published Friday (Bit.ly/CT2Nov17) delves into its title Demand drop
could shut quarter of global refining capacity in 2°C world to expose the bottom line I have
been alerting you to as a failure of S.1460.
But, the premise is severely understated as is the conclusion—for a number of reasons:
• The IEA forecast is based on 2°C.
• COP21 "1.5°C aspiration" is faster.
• Science says NOT GOOD ENOUGH
• 300 ppm requires a faster decline.
These are a valid basis for you to retract S.1460 - Energy and Natural Resources Act of 2017.
I still contend—not unlike Carbon Tracker—that refineries and oil & gas extraction will go belly
up quickly, unexpectedly and unabashedly with complete disregard for the Public and National
Interest as Boards of Directors exercise their fiduciary duty in the face of debt default,
insolvency and bankruptcy, irrespective of pressures from declining demand (as Carbon Tracker
suggests) or sustained low prices resulting from global gluts (as I have suggested in dozens of
emailed to you).
You will be remiss if you don't consider, evaluate and prepare for a range of scenarios—
covering the downside impacts with appropriate response provision in a revised, if not
completely rewritten version of S.1460.
Do this post haste!
Sincerely yours
Doug Grandt
.

Demand drop could shut quarter of global
refining capacity in 2°C world
First study of downstream sector’s exposure to climate risk finds
refinery values and earnings could halve by 2035

A quarter of global refining capacity could become unviable and be forced to close by 2035 as a
swelling tide of climate regulations and rapid advances in clean technologies cut oil demand,
finds a report launched today by Carbon Tracker highlighting sector risks for investors.
finds a report launched today by Carbon Tracker highlighting sector risks for investors.
Falling oil demand in a carbon-constrained world would squeeze margins across the industry,
and drive the least profitable refineries out of business. Processing less oil at lower margins
means that refinery earnings and hence values could halve by 2035, finds Margin Call: Refining
Capacity in a 2°C World. Earnings from the global industry totalled around $147 billion in 2015.
Andrew Grant, senior analyst at Carbon Tracker who co-authored the report, said:
“A 2°C pathway sees oil demand peaking followed by major rationalisation in the global
refining industry. Many players will exit the market rather than haemorrhage cash.
Investors should beware that the risk of wasting capital extends to all new investments,
including expansions or upgrades to existing facilities.”
The think-tank analysed 492 refineries representing 94% of global capacity in what is believed
to be the first analysis of how the industry would fare in meeting a transition pathway aligned
with international objectives to limit climate change to 2°C based on clean and revolutionary
technology. It is based on the International Energy Agency’s 450 scenario[1], which sees oil
demand peak in 2020 and then decline by 23% over the next 15 years. The report was
produced with support from Wood Mackenzie, who provided the source data and helped
develop the methodology.
Alan Gelder, Wood Mackenzie Vice President Research, said:
“The consequences of achieving a 2 ̊C world are far more detrimental to the refining
sector than the upstream sector, as it results in structural over-capacity and associated
poor refining margin environment, which can only be addressed by sustained capacity
rationalisation.”
The industry expects oil demand to grow steadily up to 2035, in contrast to the 2 ̊C scenario
analysed. Transport fuels (diesel, gasoline and jet) account for 70% of refinery profitability, and
represent the portion of the barrel most vulnerable to demand destruction. Previous Carbon
Tracker research[2] has found that oil companies may be seriously underestimating the impact
of, for instance, the rapid growth in electric vehicles, which could make up a third of the road
transport market by 2035.
Refineries can account for a quarter of assets on oil majors’ balance sheets, worth tens of
billions of dollars, and generate key profits. The 2 ̊C scenario modelling found Total and Eni are
the most exposed, risking a 70%-80% fall in earnings from their refineries by 2035 as demand
stalls. Shell and Chevron risk a 60%-70% fall and ExxonMobil and BP a 40%-50% fall. Saudi
Aramco, which is due to be part-listed, may see earnings swing to a loss.

The Taskforce on Climate-related Financial Disclosures set up by the G20’s Financial Stability
Board has called on companies to disclose their exposure to climate risk, taking into account
2°C scenarios in line with the Paris Agreement on climate change. Its recommendations have
so far been supported by more than 100 companies with $11 trillion of assets under
management.
The report says the oil crash of the 1980s offers an insight into the consequences of a
sustained fall in demand. A price spike in 1979 triggered a 17% fall in demand in OECD
countries and a painful rationalisation in which 18 % of refining capacity closed. Worldwide a
10% fall in demand saw an 8% cut in refining capacity.
It finds that there is already enough capacity to meet future demand in the 2 ̊C scenario and
importantly for investors that no new refinery capacity needs to be added globally, although
there may still be some investment driven by regional demand trends or strategic interests.
Margin Call: Refining Capacity in a 2°C World has been produced in collaboration with Danish
Margin Call: Refining Capacity in a 2°C World has been produced in collaboration with Danish
pension fund PKA and Swedish pension fund AP7. The report follows on from 2 Degrees of
Separationpublished in June, which focused on the upstream activities of the oil and gas sector.
Pelle Pedersen, head of responsible investment at PKA, said:
“Long-term institutional investors worth $22 trillion support the Paris Agreement and 2 ̊C
scenarios are powerful tools to help them identify whether companies are aligned.
Carbon Tracker’s research finds that many companies in the refining industry need to
reconsider their business strategy in the light of policy and technological changes
reducing demand for oil, and should lead investors to price in these financial risks.”

Carbon Tracker used Wood Mackenzie’s Refinery Evaluation Model and its associated net cash
margin data as inputs to identify those refineries most vulnerable to falling prices in a weak
market and the companies with the greatest exposure. Based on historical precedent, the study
assumed closures to follow once global refinery utilisation drops to 75%.
The study models margins as falling by $3.50 a barrel across the industry by 2035, driving a
reduction in global capacity equivalent to 25% of the current refining industry. Global composite
margins were estimated to be $5 a barrel in 2016.
It notes that 21% of existing refineries are already unprofitable, and warns that loss-making
refineries which are kept open for strategic reasons will exacerbate margin declines and put
pressure on low-margin refineries elsewhere.
[1] The scenario is the IEA’s carbon-constrained scenario. It is based on delivering on
atmospheric CO2 content of 450ppm est. to result in 2 ̊C of warming above pre-industrial times
based on 50% probability.
[2] Expect the Unexpected: The Disruptive Power of Low-carbon Technology, February
2017, Carbon Tracker and The Grantham Institute, Imperial College, London

carbontracker.org/demand-drop-shut-quarter-global-refining-capacity-
2%E2%81%B0c-world