Dec 21, 2018

Axios Generate

Happy Friday, happy holidays and a sincere thanks to all the readers of this newsletter. Generate is taking a break but we'll return on Jan. 2.

I'll get back to rock trivia and anniversaries next year too. But for now let's start 2018's final edition with this beautiful song...

1 big thing: why energy independence is elusive
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Data: EIA; Chart: Andrew Witherspoon/Axios

Axios Expert Voices contributor Daniel Raimi offers some perspective on the U.S. role in global oil markets...

The U.S. Energy Information Administration recently released preliminary data showing that, during the week of Nov. 30, the U.S. exported more oil and oil products than it imported for the first time in decades.

But, but, but: The net exporter status lasted only one week, and doesn’t represent annual averages. While many celebrate the America's new status as a net oil exporter, the reality is that the U.S. will never be energy independent as long as it is tied into global markets.

The big picture: The export growth owes primarily to the “shale revolution,” the combination of technologies including hydraulic fracturing and horizontal drilling that has led U.S. oil production to more than double in the past 10 years.

  • As a result, domestic thirst for foreign oil has waned, while companies have increasingly shipped U.S.–produced oil overseas.
  • At the same time, refineries along the Gulf Coast and elsewhere are buying crude from domestic and foreign sources, then churning out products like gasoline and diesel to increasingly sell abroad.

Reality check: This doesn't mean the U.S. has gained control of the global oil market.

  • In recent weeks, President Trump has taken to Twitter to encourage OPEC and Saudi Arabia to keep production high and oil prices low. If the U.S. were independent of these oil producers, why ask for help?
  • Market watchers also had their eyes fixed on the most recent “OPEC+” meeting, when ministers converged to decide how they would respond to the latest slump in global oil prices.
  • Although exports have increased and imports have fallen, the U.S. is still the world's largest oil consumer, at about 20 million barrels per day — far more than it produces. And while more efficient engines and, to a lesser extent, electric vehicles have helped moderate domestic demand, consumption has actually grown each year since 2012.

The bottom line: Even if the country produced more than it consumed on a long-term basis, global oil prices — which drive pump prices, the main thing drivers care about — would still be affected by OPEC's decisions, not to mention the health of the Chinese economy, political unrest in Venezuela, and myriad other factors that shape global supply and demand.

Raimi is a senior research associate at Resources for the Future and author of "The Fracking Debate."

2. Oil slides into the end of a wild autumn

Oil prices lost more ground Friday morning, the latest declines in a remarkable 10-week slide that's greased by concerns about softening demand and, thus far, largely resistant to OPEC's pledge to tighten the market.

The latest, Per Reuters: "Oil prices fell to their lowest since the third quarter of 2017 on Friday, heading for losses of more than 10 percent in a week, as global oversupply kept buyers away from the market ahead of the long festive break."

Brent crude is trading at $53 around the time went this newsletter, while the U.S. benchmark WTI is in the mid-$45 range.

Threat level: The Houston Chronicle has a good look at the stakes for companies and workers in Texas, where shale production is surging, if WTI stays below $50 per barrel for an extended period.

  • The bottom line: "At $50 a barrel, growth flattens, energy economists said, and below $50, companies begin to scale back spending and hiring. If prices fall below $40, then another prolonged downturn could take hold."

What's next: Via MarketWatch, a price rebound could be in the offing.

"Oil's on track to suffer its worst quarterly loss in four years, but analysts expect prices for the commodity to give way to higher prices in 2019 as investment in the market and crude production slows," writes Myra Saefong.

The intrigue: The steep slide in prices since early October, back when Brent reached $86 per barrel, means that what seemed impossible just weeks ago now looks very possible.

My Axios colleague Steve LeVine could win the "oil price bet" among energy journalists and analysts.

  • It works like this: at the beginning of the year, everyone entered their estimate for where Brent crude prices would settle Dec. 31. Whoever is closest wins.
  • Steve estimated $50.01 per barrel, so if the bet ended right now, he'd win.

At stake: drinks on the tab of the other entrants. We'll know the winner when this newsletter publishes again Jan. 2.

Go deeper:

  • See the oil price bet competitors and their entries here.
  • Read about the history of the bet here.
3. EV batteries that could aid the grid and AVs

Illustration: Sarah Grillo/Axios

Axios Expert Voices contributor Sudha Jamthe takes stock of collaboration between automakers and utilities to develop bi-directional battery capability in electric vehicles, which enables EVs to receive and return power to the grid.

The big picture: Many AVs will likely be electric, and if they can operate as off-grid batteries, they could let owners make better use of the energy they buy from utilities and even be used as backup energy sources in blackouts.

Where it stands:

But, but, but: Research has shown that bi-directional batteries will see high wear and tear if they are constantly charging and sharing electricity. J.B. Straubel, the CTO of Tesla, has criticized the technology for this "degradation cost." Meanwhile, the current price of standard EV batteries keeps the vehicles outside an affordable range for most consumers.

What to watch: If a business model develops around bi-directional charging, the cost of battery wear and tear could be factored into companies' bottom lines.

But if consumers are expected to bear the expense, they may need to be incentivized to participate in V2G systems through tax credits or lower utility rates, in addition to earning back money when their vehicles give power to the grid.

Jamthe is CEO of IoTDisruptions and teaches AV Business at Stanford Continuing Studies.

4. When Mattis reality-checked Trump on Iraqi oil

Defense Secretary James Mattis' resignation reminded me of the remarkable White House vignette about President Trump pushing to take Iraq's oil as payment for U.S. military costs — and Mattis pushing back.

Flashback: Axios' Jonathan Swan and Alayna Treene recently wrote about the response when Trump raised it multiple times last year (though he's since abandoned the idea). Here's some of their reporting...

Two sources described being in the Situation Room in 2017 with Trump, Defense Secretary Mattis and national security officials discussing Iraq. Both said Trump brought up the prospect of seizing Iraq's oil, and Mattis pushed back.

  • "Trump was like, 'We're idiots,'" recalled one of the sources who was in the Situation Room for the conversation. "[Trump] was like, 'What are we doing there, what do we get out of this, why don't we take the oil?'... And then Mattis spoke up. Made the same point that [former national security adviser] H.R. [McMaster] made. There's no physical way to do it. It would be a violation of international law, it would be demoralizing for allies in the region, it would give our enemies propaganda — they'd be able to accuse us of theft."

Why it matters: It reveals a great deal about Trump's approach to the Middle East. Trump remains hellbent on extracting payments from Middle Eastern countries, in the form of natural resources, for the trillions of dollars America has spent since the early 2000s.

Go deeper: Trump to Iraqi PM: How about that oil?

5. A new phase in the Arctic drilling battle


The Interior Department took a step toward allowing oil-and-gas exploration in Alaska's Arctic National Wildlife Refuge (ANWR) Thursday by releasing a draft environmental analysis.

Why it matters: The study from Interior's Bureau of Land Management is a precursor to auctioning drilling leases as soon as 2019 in the ecologically sensitive area that's believed to hold billions of barrels of recoverable oil.

The big picture: Drilling advocates gained the upper hand in the decades-long battle over ANWR when Republicans enacted legislation last year to allow development.

But, but, but: Any actual oil exploration and production would happen well into the future, and the intensity of industry interest is not certain.

  • A Barclays research note last year predicted that after the first lease sale, it would be 2–6 years before the first well is drilled.
  • That's enough time for Democratic drilling opponents to try and put up hurdles if they regain power in Washington.
  • A New York Times piece yesterday said potential drilling could actually be a decade or more away.

What's next: A 45-day public comment period on the study will open late this month and, per the NYT, the selection of a final leasing and environmental restriction proposal by early next summer.

  • "If the process survives expected court challenges by environmental and conservation groups, as well as efforts by the incoming Democratic majority in the House of Representatives to slow it down, lease sales for rights to drill for oil and gas could be held before the end of 2019," the paper reports.

What they're saying: "An energy-dominant America starts with an energy-dominant Alaska," outgoing Interior Secretary Ryan Zinke said in a statement.

He called opening ANWR's coastal plain a step "toward bolstering America's economic strength and security."

Green groups attacked the move. “The process laid out in the plan is rushed and reckless, defying good science and meaningful dialogue with stakeholders," said Wilderness Society president Jamie Williams.

Go deeper: The next battles over ANWR

6. House Dems tap climate panel leader

E&E News and the Tampa Bay Times report that House Democratic leaders have tentatively selected Rep. Kathy Castor (D-Fla.) to head the select committee on climate change they're reviving next year.

Why it matters: It's a tangible sign of the committee's makeup and direction. Castor represents a state and a region on the front lines of the effects of climate change, which is causing sea-level rise and more intense storms.

House Democratic Leader Nancy Pelosi's office declined comment.

"We need to raise the profile of the climate crisis. People are demanding action and don't understand why we're not leading the world on climate change innovation."
— Rep. Kathy Castor in the Tampa Bay Times

The intrigue: Castor, first elected in 2006, has a 93% rating from the League of Conservation Voters.

But her remarks to E&E News rankled activists pushing Democrats to adopt Rep.-elect Alexandria Ocasio-Cortez's plan for a Select Committee on a Green New Deal. They envision the panel writing a sweeping climate, energy and economic legislative proposal that's ready for launch in 2020.

  • Castor told E&E News that Green New Deal advocates have some "terrific ideas," but added, "that's not going to be our sole focus."
  • Castor also signaled that she did not believe members who have taken money from fossil fuel interests should be barred from the committee, a goal of activists.
  • However, she later told HuffPost, "Maybe that’s a discussion we need to have in the caucus."

What they're saying: "Without a mandate to create a plan and a requirement that its members don’t take fossil fuel money, we are deeply concerned that this committee will be just another of the many committees we’ve seen failing our generation our entire lives," said Varshini Prakash, co-founder of the Sunrise Movement that's pushing Ocasio-Cortez's plan.