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Rocky Mountain high: U.S. looks to Colorado for methane emissions policy

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October 24, 2021

By Valerie Volcovici and Nichola Groom

WASHINGTON (Reuters) – U.S. environmental regulators are expected to base new rules for controlling methane emissions from oil and gas operations on the nation-leading policies of a state that has been tamping down on the potent greenhouse gas for seven years – Colorado.

The U.S. Environmental Protection Agency is likely to unveil the rules, which will have major repercussions for oil and gas drillers, this week, according to sources familiar with early versions of the proposed regulations.

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The proposal, which will be rolled out just days before the start of the United Nations conference on global warming https://www.reuters.com/business/environment/cop26-glasgow-who-is-going-who-is-not-2021-10-15 in Glasgow, is a key pillar of the Biden administration’s broader crackdown on climate change.

While drillers from major producing states like Texas and North Dakota are bracing for a raft of new requirements, for companies in Colorado, stiffer government rules around methane emissions are business as usual.

The state has both strong environmental ambitions and a large oil and gas industry. It first put state-level methane regulations into place in 2014, and has gradually expanded those requirements in efforts to cut methane emissions from the drilling sector by more than half of 2005 levels by 2030.

“Colorado regulations are the toughest on the planet,” Dan Haley, president of the Colorado Oil and Gas Association, said, adding that the rules were crafted with industry input.

Methane https://www.reuters.com/business/environment/save-planet-focus-cutting-methane-un-climate-report-2021-08-09, a gas that leaks from oil and gas infrastructure, livestock farming and landfills, is the second-biggest cause of climate change after carbon dioxide. It has a higher heat-trapping potential than CO2 but it breaks down in the atmosphere faster, so rapid reductions of methane emissions https://www.reuters.com/business/environment/save-planet-focus-cutting-methane-un-climate-report-2021-08-09 can quickly have a large impact on slashing greenhouse gases.

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The U.S. and European Union last month kicked off an effort https://www.reuters.com/business/environment/us-eu-line-up-over-20-more-countries-global-methane-pact-2021-10-11 by two dozen nations to slash methane emissions 30% over the next decade.

Current federal rules limit methane emissions from new sources, leaving existing operations unregulated in states that do not have their own standards.

Colorado’s rules require oil and gas companies to find and fix methane leaks and install technologies to limit or prevent emissions at existing operations. Since 2019, it has required semiannual leak detection, tank controls and performance standards for transmission. The rules, which also apply to low-production, or so-called marginal wells, also ban routine flaring of methane and require the installation of valves that reduce emissions.

SOARING PRODUCTION

Oil production in Colorado surged 57% between 2015 and 2019 due to the rise of horizontal drilling techniques that underpinned the U.S. shale gas boom before slipping in 2020 at the outset of the coronavirus pandemic, according to U.S. Energy Information Administration data.

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Methane emissions growth lagged the production increases, climbing 9% in the 2015 to 2019 period, according to the state. In the Permian Basin, meanwhile, the nation’s largest and most productive oil field which covers portions of Texas and New Mexico, methane emissions from oil production soared by more than a quarter during that time at large facilities that report to the EPA, federal data shows.

“It’s noteworthy that Colorado emissions have remained fairly stable despite an increase in oil and natural gas production,” Colorado Department of Public Health and Environment spokesperson Andrew Bare said in an emailed statement. He added the 2019 figures do not reflect expected emissions reductions from additional policies the state has crafted since.

“Since 2014 it feels like we’ve been engaged in almost continuous rulemaking,” said Garry Kaufman, director of the CDPHE’s air pollution control division.

The state has been deploying overflights and ground-based measurements to try to refine its measurement of methane emissions.

The EPA examined a number of state programs and spoke with state regulators, including Colorado’s, as it evaluated new methane rules, according to EPA spokesperson Nick Conger.

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THE CLEANER GAS ADVANTAGE

    Some Colorado drillers have embraced the opportunity to market what they bill as lower-emitting natural gas to customers eager to tout their environmental credentials.

“Being a Colorado operator has really given us a tremendous advantage relative to the rest of the United States in terms of the environmental quality of our operations,” Brian Cain, vice president of government affairs for Denver-based Extraction Oil and Gas Inc, said in an interview.

His company, which produced an average of 88,907 barrels of oil equivalent per day last year, is merging with two others to form Civitas Resources Inc and focus on lower-emission drilling in Colorado’s Denver-Julesburg Basin.

Jon Goldstein of green group Environmental Defense Fund says the state’s production increases since 2014 “show the fallacy in the oil and gas industry myth about strong, comprehensive methane rules putting industry out of business.”

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Others say the new rules have made doing business in the state untenable, particularly for smaller, less well-capitalized producers. Some have started to look elsewhere for future operations, said Trisha Fanning, who leads the Colorado Small Operator Society, representing 60 oil and gas companies.

“Some operators are no longer able to economically operate within the state,” she said. This does not bode well for small operators nationwide, Fanning added, since “we expect the federal methane rule to possibly take several aspects from Colorado.”

Industry players voiced concern that the EPA may follow Colorado’s lead and apply methane rules to small production or “marginal” wells, which environmental groups say are a significant source of methane emissions, according to sources who saw earlier versions of the proposal.

Research by EDF this year found there are 565,000 actively producing marginal U.S. well sites, which represent 5.8% of combined oil and gas production but an outsized share of emissions. For example, in the Appalachian Basin, gas wells that account for 0.2% to 0.4% of production account for 11% of federal methane emissions, according to EDF.

Kathleen Sgamma, president of the Western Energy Alliance, said federal marginal well regulations would affect 20% of current oil and gas production. “A lot of those wells would have to be shut in,” she said.

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(Reporting by Valerie Volcovici in Washington and Nichola Groom in Los Angeles; Additional reporting by David Gaffen; Editing by David Gaffen and Matthew Lewis)

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Oil up on OPEC+ plan to meet ahead of schedule if Omicron dents demand

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December 3, 2021

By Sonali Paul

MELBOURNE (Reuters) – Oil prices climbed on Friday, extending gains after OPEC+ said it would review supply additions ahead of its next scheduled meeting if the Omicron variant hits demand, but prices were still on course for a sixth week of declines.

U.S. West Texas Intermediate (WTI) crude futures rose 27 cents, or 0.4%, to $66.77 a barrel at 0122 GMT, adding to a 1.4% gain on Thursday.

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Brent crude futures rose 12 cents, or 0.2%, to $69.79 a barrel, after climbing 1.2% in the previous session.

The Organization of the Petroleum Exporting Countries, Russia and allies, together called OPEC+, surprised the market on Thursday when it stuck to plans to add 400,000 barrels per day (bpd) supply in January.

However the producers left the door open to changing policy swiftly if demand suffered from measures to contain the spread of the Omicron coronavirus variant. They said they could meet again before their next scheduled meeting on Jan. 4, if needed.

That boosted prices with “traders reluctant to bet against the group eventually pausing its production increases,” ANZ Research analysts said in a note.

Wood Mackenzie analyst Ann-Louise Hittle said it made sense for OPEC+ to stick with their policy for now, given it was still unclear whether Omicron could resist existing vaccines.

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“The group’s members are in regular contact and are monitoring the market situation closely,” Hittle said in emailed comments.

“As a result, they can react swiftly when we start to get a better sense of the scale of the impact the Omicron variant of COVID-19 could have on the global economy and demand.”

The market has been roiled all week by the emergence of Omicron and speculation that it could spark new lockdowns, dent fuel demand and spur OPEC+ to put its output increases on hold.

Brent was poised to end the week down about 4%, while WTI was on track for a 2% drop on the week, both down for a sixth straight week.

(Reporting by Sonali Paul; editing by Richard Pullin)

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Didi Global to start work on delisting from New York, to pursue listing in Hong Kong

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December 3, 2021

(Corrects last paragraph to say Reuters reported last month on Didi preparing for relaunch of its apps, not this month)

SHANGHAI (Reuters) -Chinese ride-hailing giant Didi Global will delist from the New York stock exchange and pursue a listing in Hong Kong, it said on Friday, after it ran afoul of Chinese regulators by pushing ahead with its $4.4 billion U.S. IPO in July.

The company made the announcement first on its Twitter-like Weibo account.

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“Following careful research, the company will immediately start delisting on the New York stock exchange and start preparations for listing in Hong Kong,” it said.

It later said in a separate English language statement that its board had approved the move.

“The company will organize a shareholders meeting to vote on the above matter at an appropriate time in the future, following necessary procedures,” it said.

Reuters reported last week citing sources that Chinese regulators had pressed Didi’s top executives to devise a plan to delist from the New York Stock Exchange due to concerns about data security.

The company pressed ahead with its New York listing despite a regulator urging it to put it on hold while a cybersecurity review of its data practices was conducted, sources have told Reuters.

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Didi is also preparing to relaunch its apps in the country by the end of the year in anticipation that Beijing’s cybersecurity investigation into the company would be wrapped up by then, Reuters reported last month.

(Reporting by Brenda Goh; Editing by Himani Sarkar and Edwina Gibbs)

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Exclusive-Toyota turns to Chinese tech to reach its electric holy grail

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December 3, 2021

By Norihiko Shirouzu

BEIJING (Reuters) – Toyota Motor Corp will launch an all-electric small sedan in China late next year, having turned to local partner BYD for key technology to finally make an affordable yet roomy runaround, four sources told Reuters.

Two of the four people with knowledge of the matter described the car as an electric holy grail for Toyota which has struggled for years to come up with a small EV that is both competitive on cost in China and doesn’t compromise on comfort.

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The sources said the breakthrough was chiefly down to BYD’s less bulky lithium-iron-phosphate (LFP) Blade batteries and its lower-cost engineering know-how – a turning of the tables for a Chinese company whose popular F3 saloon was inspired by Toyota’s Corolla back in 2005.

Little known outside China at the time, BYD, or “Build Your Dreams”, hit the headlines in 2008 when Warren Buffett bought a 10% stake and it has since become one of the biggest manufacturers of so-called new energy vehicles in the world.

Toyota’s new EV will be slightly bigger than its compact Corolla, the world’s best-selling car of all time. One source said think of it as “a Corolla with bigger back-seat section”.

It will be unveiled as a concept car at the Beijing auto show in April and will then most likely be launched as the second model in Toyota’s new bZ series of all-electric cars, even though it will only be on sale in China for now.

“The car was enabled by BYD battery technology,” one of the sources told Reuters. “It has more or less helped us resolve challenges we had faced in coming up with an affordable small electric sedan with a roomy interior.”

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It will be pitched below premium EVs such as Tesla’s Model Y or the Nio ES6 but above the ultra-cheap Hong Guang Mini EV, which starts at just $4,500 and is now China’s best-selling electric vehicle.

Two of the four sources, all of whom declined to be named because they are not authorised to speak to the media, said the new Toyota would be priced competitively.

One said it would likely sell for under 200,000 yuan ($30,000), aiming for a segment of the Chinese market Tesla is expected to target with a small car within the next two years.

“We don’t comment on future products,” a Toyota spokesperson said. “Toyota considers battery electric vehicles as one path to help us get to carbon neutrality and is engaged in the development of all types of electrified vehicle solutions.”

A BYD spokesperson declined to comment.

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‘ALL KINDA FLOORED’

The fact Toyota has been compelled to turn to BYD to solve its low-cost EV conundrum shows how far the competitive balance of the global auto industry has tipped in the past decade.

When the quality of Chinese vehicles was considered below par, global automakers were not too concerned that they couldn’t compete on price and left Chinese companies to control the domestic market for cheap, no-frills cars.

But times have changed.

Toyota executives started to worry back in 2015 when BYD launched its Tang plug-in hybrid, with significant improvements in styling, quality and performance. Most worrying was that fact it was still about 30% cheaper than comparable Toyota models.

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There was a critical turn of events in 2017 when Toyota’s top engineering leaders, including then-executive vice president Shigeki Terashi, drove several BYD cars such as the Tang at its proving ground in Toyota City near its headquarters in Japan.

Terashi subsequently visited BYD’s headquarters in Shenzhen and drove a prototype of its Han electric car.

“Their long-term quality is still a question mark, but the design and quality of these cars showed levels of maturity, yet they were much cheaper than comparable Toyota models,” said one of the four sources, who participated in the test drives.

“We were all kinda floored by that.”

Two of the sources said the BYD evaluations pushed Toyota to create its research and development (R&D) joint venture with BYD last year. Toyota now has two dozen engineers in Shenzhen working side-by-side with about 100 BYD counterparts.

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BLADE WINNER

Toyota’s new EV comes at a time it is under fire from environmental groups that maintain it is not committed to zero emissions. They say Toyota is more interested in prolonging the commercial usefulness of its successful hybrid technology.

Toyota executives say they’re not against battery electric vehicles (BEVs) but argue that until renewable energy becomes more widely available, they won’t be a silver bullet for slashing carbon emissions.

Nevertheless, Toyota has set up division in Japan dedicated to zero-emissions cars called ZEV Factory and it is developing safer and lower-cost battery technologies, including solid-state lithium-ion cells which would significantly boost an EV’s range.

While Toyota has long advocated a runaround that doesn’t compromise on comfort as the best way to popularise BEVs, it has struggled to produce such a car.

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One problem stems from need to stack bulky, heavy batteries under the floor, as they eat up the interior unless the roof is raised too – which is why many smaller EVs are SUVs.

In 2018, Toyota briefly explored the idea of a battery venture with BYD. That and subsequent interactions led Toyota’s engineers to come across BYD’s LFP Blade battery. They described it as a game-changer as it was both cheaper and freed up space.

“It’s a ‘scales fell from my eyes’ kind of technology we initially dismissed because its design is so radically simple,” one of the four sources said.

BYD officially launched its Blade battery in 2020.

LFP batteries have a lower energy density than most other lithium-ion cells but are cheaper, have a longer shelf-life, are less prone to overheating and don’t use cobalt or nickel. Tesla already uses LFP batteries in its Model 3 and Model Y in China.

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One of the sources said a typical Blade pack is about 10 cm (3.9 inches) thick when the modules are laid flat on the floor, roughly 5 cm to 10 cm thinner than other lithium-ion packs.

A BYD spokesperson said that was possible, depending on how an automaker packages the Blade pack in a car.

CUTTING CORNERS?

While Toyota has not fully solved the puzzle as to how BYD keeps coming in low on costs, two of the sources said one factor may be its abbreviated and flexible design and quality assurance process – which some Toyota engineers see as cutting corners.

Toyota’s planning process is much more rigid and thorough, the sources said. Once it has decided on the technologies, components and systems at the outset of a car’s three-to-four-year development process, it rarely changes designs.

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During the process, Toyota typically does three design prototypes and three manufacturing prototypes. Some are driven about 150,000 km (93,000 miles) to bullet-proof quality and reliability when testing for emissions or bad-road durability.

At BYD, engineers do far less prototyping – there are typically just two – and designs can be changed as late as two years into the process, which is a definite no-no at Toyota, one source said. A BYD spokesperson declined to comment.

But as a result of those last-minute changes, the technology in a BYD car is much more up to date than in a Toyota when it hits the market, and is often cheaper.

The four sources believe that further advances in simulation and virtual engineering know-how, as well as the fact that BYD produces a wide array of its own components, have helped it close potential gaps in quality and reliability that could stem from such last-minute design changes.

“Our challenge at Toyota is whether we dismiss BYD’s way of engineering as being loosey-goosey and too risky, or whether we can learn from it,” one of the sources said.

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($1 = 6.3703 Chinese yuan renminbi)

(Editing by David Clarke)

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