August 04, 2020
Good morning readers! Today's Smart Brevity count: 1,345 words, 5 minutes.
🚨 ICYMI: Catch Jonathan Swan's full "Axios on HBO" interview with President Trump for free here.
🎵 And this week in 1973, the Isley Brothers released the album "3 + 3," so one of those virtuoso cuts is today's intro tune...
1 big thing: BP's pandemic pivot
If 2020 wasn't weird enough already, consider this: Green activists are saying fairly nice things about one of the world's largest and most powerful fossil fuel companies.
Driving the news: This morning BP unveiled accelerated steps to transition its portfolio toward low-carbon sources — including its intent to cut oil-and-gas production by 40% over the next decade.
- The move came alongside announcement of $6.7 billion second-quarter loss and BP's decision to slash its dividend in half.
Why it matters: BP offers new details and medium-term goals to its February vow to become a "net-zero" emissions company by mid-century. And, according to Wood Mackenzie analyst Luke Parker, BP has provided the "clearest and most detailed roadmap" yet of any oil major on plans to transform their business over time.
- It also signals how one of the world's most powerful fossil fuel companies is navigating a landscape upended by the COVID-19 pandemic.
- The crisis has put immense financial pressure on even the largest players like BP, which in June announced plans to shed 10,000 jobs.
- BP essentially sped up plans to fill in big blanks about its repositioning that had been slated for September, though it still plans to provide more details next month.
What they're saying: Greenpeace UK's Mel Evans calls BP's moves a "necessary and encouraging start" on climate but adds that the company "must go further."
- "BP has woken up to the immediate need to cut carbon emissions this decade," Evans says of BP's plans to slash oil-and-gas output.
- “BP is the first oil major that walks the walk instead of just offering ambitions for 2050, like its peers,” says Mark van Baal of the climate-focused shareholder advocacy group Follow This, which also advocates for more aggressive steps.
- Andrew Grant of the Carbon Tracker Initiative says BP has "radically changed the game" with its production-cutting plan.
How it works: BP intends to cut production from 2.6 million barrels per day of oil-equivalent to around 1.5 million — and says it's planning no exploration in new countries.
- BP plans to increase its low-carbon energy investments to $5 billion annually by 2030 — a tenfold increase but nonetheless still much smaller than current spending on its core businesses.
- BP, as part of that plan, hopes to develop 50 gigawatts of renewable generation capacity, which is 20 times last year's levels.
- Other goals include expansion of its hydrogen efforts and plans for a roughly tenfold increase in EV charging points to 70,000 by 2030.
Yes, but: Plans are just that, and even medium-term targets represent a multiyear horizon, so how the actual implementation unfolds remains uncertain
Bonus: Big Oil's dividend drama
Today's announcement marks BP's first dividend cut since the 2010 Deepwater Horizon disaster in the Gulf of Mexico, and comes three months after rival Shell slashed its investor payouts.
- BP said the cut to 5.25 cents per share is part of the wider repositioning. It plans to keep the dividend at the lower level, but said shareholders will benefit because BP plans to return at least 60% of surplus cash to investors once its net debt falls to $35 billion.
- U.S.-based giants ExxonMobil and Chevron have declined to cut dividends despite the price and demand decline that sent them both to second-quarter losses.
The big picture: BP said the dividend cut "takes into account the current uncertainty regarding the economic consequences of the COVID pandemic, supports BP’s balance sheet and also provides the flexibility required to invest into the energy transition at scale."
- Spokesperson Geoff Morrell said via Twitter that in 2030, around 40% of BP's capital spending would be on "transitional activity," of which a "significant majority" is low carbon.
Meanwhile, the company's stock is up roughly 6% this morning.
2. Energy insecurity during COVID-19
A substantial number of low-income households are having difficulty paying their energy bills during the COVID-19 pandemic — with families of color and those with young children especially hard hit, according to recent Indiana University research.
The big picture: YouGov conducted a survey of 2,381 respondents from low-income households in May (overall margin of error is about 2%) and found...
- 13% overall had been unable to pay an energy bill during the prior month.
- 9% had received an electricity shutoff notice.
- 4% had their service disconnected.
Why it matters: While many states have temporarily banned utility disconnections during the crisis, a lot of people are nonetheless losing access, according to IU professors Sanya Carley and David Konisky, who describe their research in a new(ish) post at The Conversation.
- "[E]xtrapolating our findings to the national level suggests that approximately 800,000 low-income households may have recently had their electricity disconnected."
- They argue Congress should impose a national moratorium on utility shut-offs and boost assistance to help families pay energy bills.
Where it stands: The pandemic response package enacted in March provided another $900 million for the federal Low Income Home Energy Assistance Program, but Carley and Konisky write this just "scratches the surface" of what's needed.
- The latest economic package before the Senate includes another $1.5 billion for LIHEAP.
3. Pondering 2020 election winners and losers
A new(ish) RBC Capital Markets report that crossed my screen names names when it comes to energy companies with a lot at stake in November's election.
Why it matters: It's not hard to think about which overall sectors would benefit from a Donald Trump or Joe Biden win, but within industry segments, policy decisions affect companies unevenly.
Case in point: Here are a couple stocks that RBC analysts think would have a leg up if Biden wins and Democrats control Congress...
- Oilfield services giant Schlumberger, as its "New Energy organization includes early ventures for investing in businesses with the potential for new energy technology development."
- Independent oil-and-gas producer EQT, as the "US E&P industry is concentrated on carbon producing fuels. However, we think the Biden plan could cause a disproportionate reduction in oil demand and that likely favors producers with large natural gas assets."
The other side: Here are a couple of "preferred" energy stocks with a comparative advantage under a Trump win...
- Energy Transfer, a big player in pipelines and terminals, since "ET has vast footprint of assets across geographies and the hydrocarbon value chain. In addition, under a Trump presidency, we believe headwinds around the [Dakota Access] pipeline would subside."
- Oil-and-gas producer Concho Resources, as it "has among the most productive and economic assets in the Permian Basin. This coupled with a strong balance sheet and operational superiority provide the ability to generate above average economic returns" and free cash flow.
4. Biden's 100% hurdle (one of them anyway)
Speaking of Biden, a new post from UC Berkeley's Energy Institute at Haas looks broadly at his revised climate plan, including the goal of achieving 100% carbon-free U.S. power by 2035.
The intrigue: Flashback for a moment to a June study co-authored by Berkeley analysts that found a cost-effective case for achieving 90% power sector decarbonization by 2035. But, what about the remaining 10%?
The bottom line: That final 10% is much tougher and marks where the price tag soars, per an updated analysis shared by economist Meredith Fowlie in the blog. Here's why...
- "To completely decarbonize the electricity grid, you either need to invest in CCS or shut off all fossil fuels and rely on some relatively expensive alternatives (e.g. more storage, hydrogen fuel cells)."
- "[D]riving power sector GHG emissions to zero more than doubles the marginal cost per ton of carbon pollution avoided, pushing into the $100–$125 range."
- "And higher costs mean higher electricity prices which could make it harder to cut GHGs in sectors we are hoping to electrify like transportation and buildings."
5. Elon Musk's Cybertruck escape hatch
Tesla CEO Elon Musk appears to be open to the idea that the blocky, sci-fi looking Cybertruck might not light the pickup truck market on fire.
Driving the news: Musk, in an interview with Automotive News, said building a more conventional-looking pickup is a "fallback strategy" if things don't work out for the Cybertruck that's slated to begin production next year.
Details: Here's some of the interview via Business Insider (the Automotive News piece is paywalled)...
"Musk said he realized the Cybertruck could be 'a complete failure,' but the company has a back-up plan."
"But I wasn't super worried about that because if it turns out nobody wants to buy a weird-looking truck, we'll build a normal truck, no problem."
What we're watching: Musk said there are at least 200,000 reservations for the truck. However, it's hard to say how many of those refundable $100 reservations will translate to actual sales.