Jun 25, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Today's Smart Brevity count: 1,370 words, 5 minutes.

And at this moment in 1977, The Emotions had just reached the top of Billboard's R&B charts (and would later hit #1 in the Hot 100) with today's irresistible intro tune...

1 big thing: Coronavirus hinders the LNG export boom
Expand chart
Reproduced from EIA; Chart: Axios Visuals

Axios' Amy Harder reports...After the U.S. exported a record amount of liquefied natural gas in late March, the coronavirus pandemic — paired with warm weather — cut that amount by more than half in June, according to IHS Markit data.

Why it matters: Politically, it's a blow to President Trump’s energy agenda. Economically, it's contributing to job losses and project delays in the oil-and-gas industry, which is now a significant part of the economy.

By the numbers:

  • Daily deliveries of natural gas to U.S. facilities that liquefy and then export natural gas hit a record 9.8 billion cubic feet a day in late March.
  • By June, that number fell to 4 billion.

Where it stands: The pandemic isn’t hitting natural gas quite as hard as oil because gas is used in electricity and heating — things we still use in lockdowns.

  • Nonetheless, it’s set to decline after big growth in recent years. Global production is projected to decline by 2.6% this year, consultancy Rystad Energy said this week.

The big picture: With America becoming the world’s biggest producer of oil and natural gas, companies have raced to build massive, multibillion-dollar facilities to liquefy and then ship natural gas all over the world.

Threat level: The pandemic is just the latest headwind for the industry, according to Erin Blanton, who leads the natural-gas program at Columbia University's Center on Global Energy Policy.

  • Trump's ongoing trade war with China has cut off the largest growth market for U.S. natural gas, while persistently warmer weather thanks largely to climate change and an abundant supply of the fuel all over the world — a problem also facing oil — does not bode well for projects not yet operating, Blanton says.
  • "It will be very challenging for additional U.S. projects to make final investment decisions for the foreseeable future after the experience of this year," she told Axios by email.
  • It’s common to have more projects proposed than will actually be built, writes Matthew Shruhan, a senior analyst at IHS Markit.

What we’re watching: It will be telling to what degree this downturn compels some oil-and-gas companies, like Shell and other European firms, that are looking to evolve into broader energy producers to lessen their investment in natural gas in favor of renewable energy.

2. Research corner: The financial case for EVs
Giphy

The long-term costs of owning an electric car in the U.S. are thousands of dollars lower than gasoline-powered models, a detailed new study by Energy Department researchers finds.

Why it matters: The peer-reviewed paper in Joule adds to the literature on costs by providing a granular, state-level look at power rates (including hourly variations), charging infrastructure types, regional gasoline price differences and other variables.

The bottom line: The paper finds "total projected fuel cost savings between $3,000 and $10,500 compared with gasoline vehicles" over a 15-year time horizon. But the savings could be even higher.

"Regional heterogeneities and uncertainty on lifetime vehicle use and future fuel prices produce even greater variations," notes the analysis from researchers with the National Renewable Energy Laboratory and Idaho National Laboratory.

My thought bubble: While lifetime fuel costs may influence some buyers, it's the vehicle price that looms larger.

So reaching cost-parity and finding affordable models will likely do more to spur adoption than evidence of lower fuel expenses on a long-term basis.

The big picture: It comes as EVs, which typically have higher up-front costs, remain a niche market in the U.S.

  • But new models are coming to market and a victory by Joe Biden, who has pledged to promote EVs via tougher emissions rules and building our charging infrastructure, could quicken adoption.
  • Advocates are also pushing for expansion of tax credits for buying EVs, which are now capped at 2o0,000 vehicles per manufacturer for the full $7,500 credit.
3. Shale's long and uncertain road back
Reproduced from Federal Reserve Bank of Dallas; Chart: Axios Visuals

A new Dallas Fed survey of energy executives and the upswing in COVID-19 cases together signal the near- and long-term problems facing domestic oil producers.

Why it matters: It's another window onto something we wrote about earlier this week: The once-booming shale patch may never achieve its former output, and if it does, it'll be a reshaped industry as some financially weaker players face insolvency and potential acquisition.

Driving the news: The Dallas Fed's quarterly look at the oil-and-gas sector in its region has a revealing look at how the industry sees the future...

  • The chart above shows that many industry executives surveyed don't see drilling operations returning to former levels for at least a year.
  • 39% of the executives say it will be at least 2022, while another 16% say it won't ever happen.
  • Output from shale wells declines very fast, so the absence of lots of new drilling shows why regaining the previous nationwide production peak of almost 13 million barrels per day is such a heavy lift.

Yes, but: The survey of executives from oil-and-gas producers also has some promising signs for the industry. It notes that most producers expect to revive output from idled existing wells in the next few months (with substantial amounts brought back this month).

What they're saying: A Bloomberg feature yesterday explores how analysts see the sector's future.

Their survey of projections by the International Energy Agency and four consulting and data firms shows that on average, they see production 18 months down 16% from its pre-COVID peak.

But that average mixes bullish and bearish outlooks — two of the firms project that output in early December of 2022 will be under 10 million barrels per day.

Where it stands: The crude oil price recovery has gone into reverse over the last week amid sobering news on the spread of COVID-19.

Prices this morning for the U.S. benchmark WTI are $37.24, a retreat from the $40-per-barrel range earlier in the month that has marked the first return to $40 since early March.

4. The new climate lawsuit against Big Oil

Illustration: Sarah Grillo/Axios

Minnesota is the latest in a growing number of states and local governments filing thus-far unsuccessful lawsuits against powerful oil companies seeking compensation over the effects of global warming.

Driving the news: Attorney General Keith Ellison yesterday filed suit in state court against Exxon, the American Petroleum Institute and Koch Industries.

  • It alleges violations of statutes on consumer fraud, deceptive trade practices and false advertising.
  • The suit accuses the defendants of "deliberately undermining the science of climate change" and their products' role in it, among other allegations.
  • The complaint lays out harm to Minnesotans from global warming, ranging from public health woes to infrastructure damage from extreme precipitation.

The other side: Via The Wall Street Journal, Exxon spokesman Casey Norton called the lawsuit "part of a coordinated, politically motivated campaign against energy companies."

“The claims are baseless and without merit. We look forward to defending the company in court," Norton said.

5. Catch up fast: Tesla, Biden, renewables

Electric vehicles: "As part of its 2020 Initial Quality Study, [J.D. Power] found Tesla owners reported more problems in their first 90 days of ownership than the other 31 U.S. auto brands included in the study." (CNBC)

Election 2020: "Joe Biden is signaling he would make it difficult for developers to obtain federal permits to build fossil fuel infrastructure such as pipelines and liquefied natural gas export facilities, delivering on a key priority of environmental groups." (Washington Examiner)

Renewables: "President Donald Trump’s Interior Department has approved about half as many wind and solar energy projects on federal lands as the Obama administration had at the same point in its first term, according to a report published on Thursday." (Reuters)

6. Number of the day: 250 gigawatts

That's the amount of new coal-fired power capacity under development in China, per a new report from the groups Global Energy Monitor and the Centre for Research on Energy and Clean Air.

The big picture: The amount is larger than the entire existing coal fleets in the U.S. and India, the report notes.

  • But it's unclear if all of it will get built. Roughly 98 gigawatts of the Chinese total is under construction while rest is in the planning stages, the groups said.
  • Still, plans for new coal are accelerating, with the Chinese power industry proposing almost 41 gigawatts so far this year, the report states.

Why it matters: A recent increase in proposed coal plants in China is a "sign that pressure to stimulate the economy is undermining a transition towards cleaner energy sources," the Financial Times reports.

Ben GemanAmy Harder