Sep 16, 2019

Axios Generate

By Ben Geman
Ben GemanAmy Harder

We've got plenty on the attacks against Saudi oil facilities, but first ... my latest Harder Line column dissects a common dynamic when we talk about climate and energy.

  • I also ask to hear from folks about what they do (or don't) to reduce their own carbon footprint. Please respond if you have any thoughts to share! 

After this, Ben Geman will get you up to speed on the Saudi news and more. Today's Smart Brevity count: 1,392 words, ~ 5 minutes.

1 big thing: Our collective climate hypocrisy

Illustration: Aïda Amer/Axios

Thousands of environmental activists and politicians are descending on New York City in the coming days for rallies and a major summit. Almost certainly, they will use oil, natural gas and/or coal to get there.

The big picture: That's the classic hypocrisy charge — you're a hypocrite for advocating on climate change while using fossil fuels. Such arguments are increasing, so it's worth exploring the concrete steps people can actually take in a warming world.

Driving the news: "Flight shaming” is near the top of the list. Jet-fueled airplanes account for just 2% of global carbon dioxide emissions, but on a per-ton basis, it’s one of the most carbon-intensive activities individuals can choose.

Between the lines: Since we all somehow use fossil fuels and carbon-free replacements are still the exception (for now), charges of hypocrisy would have to apply to pretty much all of us, thus diluting the whole point.

But, but, but: This concept is increasingly part of our debate, so it’s got me thinking about tangents that are more actionable...

  • To what degree are people willing to take concrete steps to lower their lifestyle’s impact on climate change — and why some people are not.
  • How much do we passively depend on fossil fuels and the products that come from them, namely plastic.

What’s next: I’ll be occasionally writing columns tackling these topics going forward.

What I’m hearing: A big reason I’m pursuing these angles is because I regularly hear from readers asking what they can do to address climate change. Or sometimes they ask me about my carbon footprint.

So, what do you do to reduce the climate impact of your lifestyle? Or conversely, why don’t you take such steps? There are no right or wrong answers, just your insights. Email me at amy@axios.com.

2. Catch up fast: The Saudi oil crisis

This satellite image shows damage to Saudi Aramco's Abqaiq oil processing plant. Photo: U.S. government/Digital Globe

We're currently dealing with one of the biggest oil shocks in a long time, triggered by attacks on Saudi oil infrastructure on Saturday that took 5.7 million barrels-per-day of production offline — roughly 5% of global daily output.

Markets: Crude prices have come back a lot after surging when markets opened last night, but they're still elevated compared to pre-attack levels.

  • Brent crude initially jumped nearly 20% to almost $72-per-barrel — per Reuters, that's the biggest intra-day jump since the 1991 Gulf War.
  • But this morning they've softened to more than 10% higher than Friday, with Brent trading around $66.66 and WTI at $60.44.
  • President Trump tweeted Sunday evening that the U.S. would release supplies from the Strategic Petroleum Reserve "if needed."

Geopolitics: Trump also tweeted Sunday evening that "there is reason to believe that we know the culprit, [we] are locked and loaded depending on verification."

  • Between the lines: Trump's statement was an implicit threat to Iran, which Secretary of State Mike Pompeo over the weekend blamed directly for the attacks.
  • But, but, but: The price fallback after the initial surge signals that "oil markets don’t seem to believe ... Trump will actually follow through on his suggestion of US military intervention," the Atlantic Council's Randolph Bell tells Axios via email.
  • Go deeper: Saudi oil attacks: U.S. builds case against Iran

Where it stands: Saudi officials hope to restore one-third of the disrupted production today, per the Wall Street Journal.

Threat level: The attacks "provide stark evidence of the vulnerability of global crude supply in an age of disruptive technologies," Bloomberg reports.

3. 2020 political stakes of the Saudi attacks

One place we'll be looking for political fallout from the Saudi turmoil is how it affects Democratic 2020 candidates pushing plans to transition the U.S. away from fossil fuels.

Why it matters: Energy market shocks invariably hit politics — that was certainly the case in 2008 when oil prices reached historic highs.

The intrigue: Journalists have an unblemished record when it comes to political predictions, so with that throat clearing, we're looking for...

  • Whether Republicans seize on the crisis and bash Democratic plans to restrict domestic oil development, which has been surging for years and has sharply driven down U.S. imports.
  • Whether Democrats use the attacks to make the case for aggressive movement away from fossil fuels.

What they're saying: The research firm ClearView Energy Partners, in a note yesterday, explored the latter possibility.

  • "[W]e expect advocates of a transition away from fossil energy (along with those who back alternative fuels and technologies for non-climate reasons) to seize upon any price spike that results from yesterday’s attacks to argue for everything from diversification to divestment from fossil fuels," they write.

What's next: ClearView is looking ahead to next month's Democratic debate in Ohio, where they "anticipate that candidates could pair climate activism with spike-derived economic advocacy for transition."

4. The new oil market landscape

Illustration: Sarah Grillo/Axios

Analysts and traders are looking at the immediate supply effect of the Saudi attacks and what they portend for the long-term security of the world's largest crude oil exporter.

Why it matters: Prices had been middling for months thanks to the sluggish global economy, U.S. production growth, and trade fights.

  • But the attacks could keep prices in a higher band for a while, even though there's enough crude sloshing around to prevent shortfalls for now and the wider economic landscape remains bearish.

What they're saying: Barclays, in a note this morning, points out that Saudi exports "will likely not be impacted significantly" thanks to their large stockpiles. That includes 4 main Aramco export terminals that hold roughly 2 weeks' worth of shipments.

But, but, but: Lower inventories and spare production capacity put upward pressure on prices, and more broadly, "market expectations of supply-side tail risks will likely reset," Barclays writes.

  • "[T]he attack on critical Saudi oil infrastructure calls into question the reliability of supplies from not just one of the largest net exporters of crude oil and petroleum products but also the country that holds most of the world's spare production capacity."
  • "This, coupled with a heightened geopolitical risk premium as investors assess the probability of a re-negotiated Iran nuclear deal, will likely provide a more lasting boost to oil prices in our view."

Plus, S&P Global Platts analyst Chris Midgley points out in a note:

  • "While in the short term the direct physical impact on the market might be limited, this should move the market away from its bearish macroeconomic cycle and raise the risk premium in the market as funds reduce their short positions."
5. Fresh headwinds for the Aramco IPO

Another thing to watch is what the attacks portend for revived plans for the IPO of state oil giant Aramco — and the WSJ reports this morning they are considering a delay.

Why it matters: The Saudis hope to raise tens of billions of dollars by offering a slice of the company and plan to use the cash to help fund efforts to diversify their crude-dominated economy.

The big question: Will the attacks affect the valuation of the company? Saudi officials are reportedly planning a two-phase process, with placement on the country's domestic exchange, followed later by listing on a major international exchange.

Threat level: The Eurasia Group said the strike creates new problems, but Saudi leadership is nonetheless "unlikely" to change its plans.

  • "[W]e have consistently argued that current valuation estimates of the company and its assets might not fully accounting for geopolitical risks," they wrote in a weekend note.
  • "The latest attack on Aramco facilities will have only a limited impact on interest in Aramco shares as the first stage of the IPO will be local. The international component of the sale would be more sensitive to geopolitical risks."

Meanwhile, the Atlantic Council's Randolph Bell tells Axios...

  • Even if the oil output interruption is short and the Saudis benefit from higher prices — which under other circumstances would raise the IPO valuation — the strike is still a problem, he says.
  • "[T]he attacks are still far more likely to remind investors of the geopolitical risk the company faces and ultimately hurt the IPO," he adds.
6. EV news: buses, sales, state battles

Number of the day: 1 million. That's the number of electric buses that will be on the roads in China by 2023, rising to 1.3 million by 2025, according to a new Wood Mackenzie projection Monday.

  • It cites strong policy support and falling battery costs. China utterly dominates global deployment of electric buses, with 98% of the market through 2018, but there's growth — albeit far more slowly — in Europe and the U.S. too.

California: Quartz checks in on EV sales in the biggest U.S. market by far.

  • "Despite car sales declining in the Golden State since 2016, the number of electric and hybrid cars sold continues to rise. In the first half of 2019, sales hit 51,750 and 48,861, respectively. That’s a 40% increase for both over last year," they report.
  • Nonetheless, the wider U.S. sales picture is "anemic" and "worrisome for automakers banking on explosive EV growth to justify their billions of dollars in new investments."

Lobbying: "Groups backed by industry giants like Exxon Mobil and the Koch empire are waging a state-by-state, multimillion-dollar battle to squelch utility companies’ plans to build charging stations across the country," per Politico.

Ben GemanAmy Harder