Week in Oil & Gas: Peak Oil, a Climate-Bill Interlude and Devon's Big Sale

Climate-change legislation took a backseat to the congressional debate over a health care bill last week. Meaning, chances of passing legisation aimed at reducing greenhouse gas emissions through a cap-and-trade system this year have disappeared.

But is it all that bad? Or unexpected?  Senate Democratic leaders said last week wrangling over climate-change legislation will have to wait until spring, a delay that many saw as inevitable. Senate Majority Leader Harry Reid of Nevada told the WSJ, legislation on health care, overhauling financial markets and job creation would come before the Senate takes up a climate-change bill.

Meanwhile, several nations — Brazil, South Korea and Russia — promised emissions cuts in the past week despite a delay of an international treaty at December’s Copenhagen climate change summit. There appears to be some level of urgency among world leaders to get negotiations finished by early next year, BNET Energy blogger Chris Morrison noted in his weekly roundup of news in the renewables industry.

Whether Congress can tackle health care, the U.S. financial markets and job creation by spring is the big question. The time window will only get tighter and the political will to tackle climate-change legislation will likely weaken after spring as folks turn their attention to mid-term elections.

Climate-change legislation is certainly an important issue for the oil and gas industry. But speculation on the bill’s future wasn’t the only major industry news this past week. If anything, it was overshadowed by Devon Energy’s announcement that it plans to offload its international and offshore assets in the Gulf of Mexico.

The Oklahoma City-based company is turning all of its attention to its high-return U.S. and Canadian onshore portfolio and to retire debt. Devon has long been a player in natural gas and has a leading position in the Barnett Shale. The company’s solo focus on unconventional natural gas and oil speaks volumes about its confidence in future returns in shale gas. And it’s not a bad move, as FT’s Energy Source noted, because the readily available supply of natural gas in the U.S. makes it an almost certain go-to fuel to meeting the country’s goals of energy security and carbon emissions reduction.

And Devon is not wasting any time. The company plans to begin selling its offshore and international assets in the first quarter of 2010. The sale is expected to generate after-tax proceeds of $4.5 billion to $7.5 billion.

The top-notch assets in the Gulf of Mexico and offshore Brazil left folks within the oil and gas industry mulling which company will go after them first. Exxon and Royal Dutch Shell have been floated as possibilities. In a post last week, I tossed Chevron out as potential buyer, a company that is no stranger to offshore operations or major acquisitions. And then there’s China, which has spent the better part of the year snapping up energy resources.

Valero Energy, the largest U.S. refiner, also announced a retooling of sorts, although the news wasn’t viewed nearly as positively. Refiners’ profits have been slashed due to weakened demand for gas and shringing margins for the past year. As a result, companies have had to temporarily idle operations or in Valero’s case, shut them down permanently.

Valero announced late last week it will permanently close its Delaware City refinery. About 550 employees will lose their jobs when the plant closes. Valero specializes in refining heavy, sour crude, a business model that has been lucrative in past for the San Antonio-based company.

Some don’t see the glory days of refining — which tend to be brief, anyway — returning any time soon. BP CEO Tony Hayward said last week demand of gasoline in the U.S. will never return to 2007’s peak.

Speaking of peaks. Who could forget last week’s controversial report on peak oil by the IHS Cambridge Energy Research Associates. In short, the report said that peak oil — that much debated moment when the world can no longer produce the oil and gas it needs and wants — is decades away. And supply won’t reach a point and then drop off rapidly, CERA says. Instead, it will reach an inflection point, where it will plateau for two decades before a long, slow decline sets in.

The peak oilers disagree as well as the folks within the International Energy Agency. The IEA’s 2009 World Energy Outlook takes a more urgent view and stresses that while global energy resources are adequate to meet projected demand increase through 2030, sustained investment is needed to combat the decline in output in existing fields. The IEA’s unusually strong recommendations came on the same week the Guardian reported internal whistleblowers accused the Paris-based agency of inflating oil reserves estimates.