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FOSSIL FUELS HIT HARDEST BY PANDEMIC: Fossil fuels are the hardest hit from the historic drop in energy demand, while renewables could emerge relatively unscathed.
That’s the most interesting takeaway from a report by the International Energy Agency on Thursday that underlined the severity of the demand hit.
The report projects that worldwide energy demand will fall 6% in 2020 — seven times the decline after the 2008 global financial crisis — a fall that is the equivalent of losing the entire energy demand of India. The demand hit is worse in the U.S., projected to dive 9% this year.
The world’s use of coal is set to fall 8% in 2020, the largest decline since World War II.
The combined share of gas and coal in the global power mix will drop by 3 percentage points in 2020 to the lowest level since 2001.
And we all know about the shellacking that oil is taking, with demand expected to fall as much as 30 million barrels per day.
How wind and solar are surviving: “Only renewables are holding up during the previously unheard-of slump in electricity use,” said Fatih Birol, the IEA executive director. “It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before.”
The main reason renewables are faring better is that countries that shut down their economies are using less electricity to power large facilities more dependent on fossil fuels like office buildings, restaurants, and some manufacturing facilities. Wind turbines and solar panels, by contrast, get priority access to grids due to their low operating costs with their ease of availability when the sun is shining and wind is blowing.
Despite supply chain disruptions, solar PV and wind are on track to help lift renewable electricity generation by 5% in 2020, the IEA said, the only energy source that will grow this year (although it’s a lower growth rate than previous years).
Less fossil fuel use means record low emissions: The end result of these trends, mainly the decline in coal and oil use, is that global energy-related carbon emissions are set to fall by almost 8% in 2020, the largest annual decrease ever recorded, reaching their lowest level since 2010.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
TRUMP LIFELINE FOR OIL COMPANIES IMMINENT: The Trump administration is planning soon to introduce a program to provide emergency loans to oil companies, likely on the condition that the government receives financial stake in the companies.
Three sources familiar with the plan confirmed to Josh last night that at least some form of the lending program, designed by Energy Secretary Dan Brouillette and Treasury Secretary Steven Mnuchin, would involve the government receiving equity, similar to the bailouts of automobile companies.
Brouillette and Mnuchin, along with President Trump, are hinting at imminent action, designed to help small- and medium-sized shale oil producers that are less able to access private lending.
“There are some in the industry who are more in need of these types of resources than others,” Brouillette said in a call to the North Dakota Petroleum Council Tuesday, a recording of which was posted on the group’s website. “That’s a polite way to say that there’s a bunch of big players that don’t need access to government capital, because they have access to other resources.”
Trump told reporters at the White House Wednesday that an announcement on a financial aid program would be coming “shortly.” Mnuchin described it as a matter of national security.
“This is not going to be a bailout of shareholders, but this is going to be supporting the national security issue,” Mnuchin said at a roundtable event with business executives hosted by Trump.
Industry groups split from Trump: Oil lobbying groups representing larger companies, along with conservatives, have pushed back on the possibility that the lending program could involve the government taking stakes in companies.
The American Petroleum Institute, the largest U.S. oil lobby, opposes the idea, preferring the industry have access to broad-based lending facilities set up in the CARES Act passed by Congress, rather than being treated as special.
The American Exploration & Production Council, a group representing independent shale oil producers, also opposes the idea.
“We have concerns with a lending program that gives the government a stake in independent oil and gas companies or moves our industry toward nationalization,” CEO Anne Bradbury told Josh.
Another option: The Trump administration, however, is aware of potential public backlash to such a program and is also considering “identifying oil companies that would be eligible for the Fed’s Main Street program without being forced to establish a new industry-focused initiative,” Bloomberg reported.
The Fed announced Thursday that it is expanding the Main Street program to help “midsize” businesses with up to 15,000 employees — from the previous guidelines of 500 to 10,000 employees— and $5 billion in revenue, double the earlier amount.
STORAGE PLAN COMES INTO FOCUS: Mnuchin also touted the administration’s effort to allow oil companies to store excess crude in the nation’s emergency Strategic Petroleum Reserve, and suggested it is looking at other possibilities for storage.
“We’re also exploring potentially having the ability to store another several hundred million barrels,” Mnuchin said at the White House roundtable.
The Energy Department, meanwhile, identified the companies it is allowing to rent storage space in the SPR.
They are: Atlantic Trading, Alon USA, Chevron, Energy Transfer, Equinor, ExxonMobil, Mercuria, MVP Holdings, and Vitol.
The awards for companies to rent storage space is for a total of 23 million barrels of crude oil to be distributed into all four SPR sites.
CHAIRMAN OPPOSES TEXAS PRODUCTION CUT MANDATE: The conservative chairman of the Texas Railroad Commission, Wayne Christian, said Wednesday he would oppose forcing oil companies in the nation’s largest producing state to cut their output.
Christian’s opposition suggests the commission is likely to reject a proposal to impose a temporary 1 million barrel per day production cut — 20% of Texas’ output. The commission holds a formal vote on the matter on May 5.
“I will vote against curtailing Texas oil production and stick to free market principles,” Christian said in an op-ed in the Houston Chronicle. He said oil and gas producers can decide for themselves the level of production that is economical, and noted many companies already shutting-in their production voluntarily due to low prices and little demand.
While commissioner Ryan Sitton has said he plans to vote in favor of pro-rationing, arguing the all-Republican body of oil regulators could not afford to wait for voluntary cuts to materialize, the deciding vote will be made by Christi Craddick. Craddick has expressed concerns about the legal viability of such a move.
“If we have to do something right now that isn’t legal, it shouldn’t be done,” Craddick said at an April 21 hearing on the matter.
RELATED…THE OIL CUTS KEEP COMING: Outside the U.S., Norway — Western Europe’s largest oil producer — said it will cut its production by 250,000 barrels per day in June, and another 134,000 barrels per day in the second half of 2020.
Norway’s Oil Minister Tina Bru also said in a statement that the country will delay the start of production of several fields until next year.
This is the first time Norway has mandated production cuts since 2002.
Bjornar Tonhaugen, head of oil markets at research group Rystad Energy, said the move is a “good example for other producers outside OPEC+” and an indication that countries outside the group are realizing “the gravity of the supply-demand imbalance.”
Saudi-led OPEC and Russia start a pact next month to cut oil production by a combined 9.7 million barrels per day. G-20 countries outside OPEC+, such as the U.S., Canada, Brazil, and Norway, are also expected to cut a further 5 million barrels per day, which was expected up until now to include only voluntary measures.
CONOCOPHILLIPS TO CUT PRODUCTION: The U.S. oil giant also announced plans Thursday to cut production by a net 420,000 barrels per day of oil-equivalent in June, larger than its 230,000 barrels per day output reduction in May.
ConocoPhillips, in its quarterly financial report, disclosed a first-quarter 2020 loss of $1.7 billion.
The company, however, is not cutting its dividend, as some of its multinational peers are…
SHELL CUTS DIVIDEND FOR FIRST TIME SINCE WORLD WAR II: Shell is cutting its dividend payment to shareholders this quarter for the first time since World War II as the company responds to the “unprecedented” deterioration in the “macroeconomic and [oil] price outlook.” It is reducing its first quarter dividend to 16 cents per share, a 66% reduction, the first time Shell is cutting its payout to shareholders since 1945. Shell reported a net profit of $2.9 billion for the first quarter of 2020, compared to $5.3 billion in the first quarter of 2019, a year-on-year fall of 46%.
“Shareholder returns are a fundamental part of Shell’s financial framework. However, given the risk of a prolonged period of economic uncertainty, weaker commodity prices, higher volatility and uncertain demand outlook, the Board believes that maintaining the current level of shareholder distributions is not prudent,” said Shell chairman Chad Holliday.
Exxon freezes its dividend: Shell’s move follows a decision by Exxon to freeze its dividend payment this first quarter. Last week, Equinor became the first oil major to cut its dividend payment after the big companies had been cutting capital spending and suspending sharebacks. But that is proving insufficient for companies to stay financially stable.
DESPITE BIG HITS, SHELL AND BP REMAIN STEADFAST ON CLIMATE GOALS: If anything, the current coronavirus crisis — and the hits to the oil market — underscore why the companies see a need to transform their energy businesses to be net-zero by 2050, representatives from the oil majors said Wednesday on a webinar hosted by the Center for Climate and Energy Solutions.
“The biggest long-term question is the one raised by climate change. Abandoning that focus in the face of urgent short-term needs” will only make addressing the climate challenge more difficult, said Sue-Ern Tan, a group carbon relations manager for Shell.
Tan said Shell’s goal includes not just achieving net-zero in its own operations, but working with customers to reduce the emissions created when the company’s products are burned. Shell wants to work with other sectors, such as transportation, to find roadmaps for those businesses to reach net-zero, which would in turn help Shell meet its goal, she added.
“Becoming a net-zero emissions energy business by 2050 means our business plans need to change in line with the expectations of society and our customers,” Tan added.
Tan couldn’t talk about Shell’s earnings yet, but BP wasn’t as restricted: Even with “what was obviously a brutal quarter,” BP’s climate goals have never been more important, said Bob Stout, vice president and head of U.S. policy for BP America.
“There will continue to be a substantial need for oil long into the future, but there are also a lot of changes going on, some of which may be temporary and some of which may be longer term,” Stout said. He added BP has to take steps like cutting capital expenditures to “remain a strong and viable business,” but the oil major also doesn’t plan to stop investing in low-carbon technology.
Stout said BP’s net-zero ambitions inform everything the company does. For example, BP announced Wednesday it would supply 3 million gallons of jet fuel for FedEx charter flights and Alaska Airlines, to help them deliver personal protective equipment. That announcement was coupled with a commitment that BP would offset the emissions from those donated fuel deliveries, Stout said.
FIRST LAWSUIT ATTACKS TRUMP’S FUEL ECONOMY RULES FOR BEING TOO STRICT: The free market think tank Competitive Enterprise Institute said Thursday it is suing the Trump administration for not going far enough to peel back Obama-era fuel economy targets for passenger cars.
The EPA and the National Highway Traffic Safety Administration “failed to adequately consider the adverse traffic safety impacts of their chosen fuel economy standards,” CEI said in its filing. Sam Kazman, the group’s general counsel, said in a statement the agencies should have cut the targets further or frozen them altogether.
As a reminder: The Trump administration did initially propose to freeze the standards at 2020 levels, but it backed off in the final rule, instead requiring a 1.5% increase in fuel economy year-over-year. That’s compared to the Obama administration’s rule, which would have required a nearly 5% increase year-over-year by 2025.
More lawsuits are sure to come in the next few weeks (the Natural Resources Defense Council has already promised one), though expect those to argue the Trump administration’s standards are far too weak and undermine public health and safety.
CALIFORNIA LOOKS TO INCREASE TARGETS FOR ELECTRIC TRUCKS: California air regulators are proposing much stronger targets for the sale of all-electric trucks, including delivery vans and tractor-trailers, that environmentalists say if adopted would likely be the most significant electric truck policy in the world.
The updated targets, released this week, would take effect in 2024 and scale up quickly. For example, in 2024, at least 9% of class 4 through 8 trucks (ranging from package delivery vans to larger delivery trucks) would have to be electric or zero-emission. That requirement increases to 75% by 2035, according to the updated draft.
Those targets are nearly double what California regulators had initially proposed, said Jimmy O’Dea, a senior vehicles analyst at the Union of Concerned Scientists, in a statement. In total, the proposal could put an estimated 300,000 zero-emission trucks on California’s roads by 2035, environmentalists say.
California regulators say in the new proposal, the changes “would increase ZEV sales in all vehicle size categories and would provide a clear path towards achieving carbon neutrality by 2045.” The California Air Resources Board is slated to vote on the proposal in June, after a 30-day comment period.
WARREN CALLS ON SEC TO MANDATE CLIMATE DISCLOSURE: “[W]ithout meaningful requirements for companies to disclose their exposure to climate change risk, I am concerned that the proposed rule would not give investors and the public the information needed to make well-informed investment decisions,” Senator Elizabeth Warren wrote in a recent letter to Securities and Exchange Commission Chairman Jay Clayton.
The SEC has proposed amendments to disclosure and reporting requirements for publicly traded companies. Warren argued, though, that the proposal won’t benefit investors or markets unless it includes requirements that companies report their climate risks. Warren has introduced legislation that would require “rigorous disclosure” from public companies of their climate risks.
CARBON CAPTURE ADVOCATES SEEK ‘TARGETED’ RELIEF: The Carbon Capture Coalition is re-upping its request that Congress provide a “direct pay” option for the 45Q federal tax credits and extend the deadline by which projects must begin construction to qualify.
Such measures, which the coalition says already have bipartisan support, would “provide immediate support for current carbon capture projects at risk of delay or cancellation” due to the coronavirus, wrote Brad Crabtree, director of the coalition, on behalf of the group’s 75 members, which include fossil fuel companies, labor unions, and environmental groups. Abby recently took a look at some of the challenges the technology is facing from the pandemic for our magazine.
The coalition is also offering lawmakers a few suggestions of policies that they say would boost carbon capture and help spur economic recovery in the near and medium-term, including adjusting a tax credit for coal plant retrofits so carbon capture can qualify, ensuring carbon capture projects are eligible for financing with private activity bonds, and increasing funding for Energy Department and EPA programs related to the technology.
The Rundown
Wall Street Journal Small oil drillers are turning off taps more quickly than anticipated
Washington Post In fast-warming Minnesota, scientists are trying to plant the forests of the future
Bloomberg The humbling of Exxon
Reuters Chesapeake Energy preparing bankruptcy filing
CNBC Coronavirus halts climate research and raises fears of long-term hit to science budgets
Calendar
THURSDAY | APRIL 30
The Senate will return May 4. The House hopes to return soon.
