Three things to start: First, eight people have died in protests in Iraqi Kurdistan, where this year’s oil-price collapse has exacerbated economic misery. Second, don’t miss David Sheppard's piece on Saudi Aramco and its treatment of workers. Third, hedge fund DE Shaw has launched an activist campaign at ExxonMobil — the second investor to do so in a week.
Our main item today is an interview with Sean Casten, a Democratic congressman with strong views on the US energy policy blob.
Also in today’s ES: shale spending plunged in the third quarter; the world might not need as much liquefied natural gas as thought; and Adair Turner, head of the Energy Transitions Commission, on the state of the energy transition as the world marks the fifth anniversary of the Paris Agreement.
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Joe Biden, in an unprecedented move, is promoting climate change to a whole-of-government issue — making it the responsibility of key members of his administration who will transcend departments and agencies. The same should be done for energy policy, which has for decades been the remit of a ramshackle, patchwork quilt of government bodies with little-to-no centralisation.
That is the view of Sean Casten, a Democratic congressman for Illinois and former clean energy executive.
“We still don't co-ordinate energy policy,” Rep Casten, a Democratic moderate, who sits between the party’s pro- and anti-fossil fuel extremes, told ES. “Where is energy policy done in the United States? Is it the Department of Energy, is it the EPA, is it the Department of Transportation? No one knows.”
The appointment of John Kerry as climate envoy, with cabinet rank and a seat on the National Security Council, puts global warming at the heart of US foreign policy. Mr Biden is expected to appoint a domestic counterpart as well.
But what of energy? Mr Kerry and his colleague will have some remit in this area but it will not be their focus. As it stands, energy is the responsibility of everyone and no one.
The Department of Energy (which you might reasonably think holds this role) is mainly involved with handling the nuclear arsenal and waste, as well as energy R&D. Underlining the current administration’s view of its significance, Donald Trump’s first pick for energy secretary was Rick Perry, a man who in 2011 said he wanted to scrap the department and then forgot its name.
The Environmental Protection Agency is often considered closer to energy in the traditional sense — tasked with things like regulating the emissions the sector pumps out. But the regulation of transmission? That falls to the Federal Energy Regulatory Commission. Rules on transporting fuels? Look to the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration. Meanwhile, onshore oil and gas leases are handed out by the Bureau of Land Management and offshore by the Bureau of Ocean Energy Management (both part of the Department of Interior). What of financial disclosures by energy providers? For that, see the Securities and Exchange Commission.
“With no desk where the buck stops, the buck just keeps moving,” said Mr Casten, who has raised the matter with the Biden transition team.
So what is the solution? Either carve out a new senior role for a member of the administration to manage energy policy, or make the domestic climate tsar a domestic energy tsar, said Mr Casten. Either way energy should not be just a side project, but the core focus.
“Climate would be part of the mandate, but you really have to tie a lot of these things together,” he said. It needs to be someone with real power if it is to be effective.
While political realities have shifted climate up the agenda, detangling the bureaucracy of US energy policy remains distinctly unsexy. Is an energy tsar a realistic prospect? “A boy can dream,” said Mr Casten. (Myles McCormick)
Once seen as a promising transitional fuel, natural gas’s best days increasingly seem to be behind it.
The resource’s prospects in the low-carbon energy transition are under threat, especially as cleaner hydrogen emerges to muscle the fuel out of the market, according to new research from Wood Mackenzie.
The fuel’s dimming outlook could force companies to shelve prospective liquefied natural gas export projects and leave existing gas reserves stranded, the consultancy said.
WoodMac said 77 per cent of new supply from LNG projects was at risk under a scenario where emissions are reduced enough to keep global temperatures from rising beyond 2 degrees.
“With weaker global gas demand, the space for new developments will be limited. This is a significant challenge for companies considering final investment decisions on new projects,” said Kateryna Filippenko, a principal analyst at the firm.
Global oil majors once saw LNG as a relatively safe long-term investment with a robust demand outlook, even as countries looked to cut emissions, and ploughed tens of billions of dollars into mega projects over the past decade to find and export gas around the world. But that outlook has increasingly come under question.
In WoodMac’s 2-degrees scenario, only the fittest and lowest-cost producers will prevail in the shrinking market. Qatar and Russia, already moving ahead with the development of large and relatively cheap resources, are seen by WoodMac as the most likely survivors. Low-price US natural gas is likely to help new American export projects remain competitive as well. But more marginal expansion plans in places such as Canada and Mozambique would face the axe. (Justin Jacobs)
American shale companies spent less on capital expenditures in the third quarter this year than in any other quarter over the past decade as the oil price crash put the sector’s finances in a vice, according to data compiled by the Institute for Energy Economics and Financial Analysis.
The group of 33 fracking-focused companies included in the analysis spent just $5.8bn in the quarter, down nearly 60 per cent from the same period in 2019. The all-time high was more than $16bn in the third quarter of 2018, when US oil production was growing at a record pace.
The historically low spending levels came in response to April’s historic price crash, which prompted companies to slash their budgets, curtail drilling plans and lay off workers.
Sharply lower capital spending in the quarter, combined with a price-per-barrel recovery into the $40s, meant the companies generated significant free cash flow, a reversal for a sector that has historically spent more than it brought in. It was the strongest free cash flow performance in a quarter over the past decade, according to the IEEFA.
After a decade of poor returns, shale companies are under intense shareholder pressure to strike a new balance between spending on production growth and delivering free cash back to shareholders while also paying heavy debt loads.
This week marks the fifth anniversary of the Paris climate deal — and thus far this marriage has been a rocky one. Ever since the Trump administration pulled the US out of the deal in 2017, the sense of urgency for climate action around the world has waxed and waned, especially with the onset of the coronavirus pandemic.
But with the Biden administration preparing to take the US helm, a slew of increasingly ambitious net-zero target announcements from major economies, and efforts to use the post-pandemic recovery to spur new green investment there is fresh momentum afoot.
In a live panel discussion earlier this week Adair Turner, head of the Energy Transitions Commission, took stock. He contrasted the speed of technological developments set to slash carbon in the long-term with the reluctance of governments to act as needed in the short-term.
He is looking to the next round of climate talks, COP26, scheduled for November 2021 in Glasgow, to spur governments into action. “Above all, what one wants from COP26 is to focus countries on the action needed in the next 10 years . . . The crucial issue is what happens in the 2020s.”