Aug 3, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Before we get to energy, two bits of Axios news! 

  • Join Caitlin Owens, Axios health care reporter, Tuesday at 12:30pm ET for a conversation on hospitals' response to the pandemic. Register here.
  • On tonight’s can't-miss "Axios on HBO”: An exclusive interview with President Trump, where he makes news on alleged Russian bounties (see clip) and more. Tune in at 11pm ET/PT on all HBO platforms. 

Back to energy: I'll share a glimpse of my latest column, which has a scoop on a major gas project, and then Ben Geman will get you up to speed on other news.

  • Today's Smart Brevity count: 1,312 words, 5 minutes.
1 big thing: Natural gas export woes

Illustration: Annelise Capossela/Axios

The Trump administration recently touted its approval of America’s first terminal on the West Coast to export liquefied natural gas. There’s just one problem: It probably won’t be built.

Why it matters: The project in southern Oregon faces political and business hurdles serious enough that those who are following it say it will be shelved. Its problems embody the struggles facing a once-promising sector that's now struggling under the weight of the pandemic and more.

What they’re saying: “It’s not going to be built,” Sen. Jeff Merkley (D-Ore.) told Axios in a recent interview. “I’ve talked to a whole number of folks — several people who have been deeply involved in international finance of energy projects — and they don’t believe that the company can lock down the sales needed to justify the $6 billion investment.”

  • He declined to share who he has spoken with, but independent analysts agree with that general assessment.
  • “The circumstances around Jordan Cove have materially changed and the advancement of this project seems unlikely,” says Rob Rains, senior energy analyst at Washington Analysis.

For the record: The company behind Jordan Cove, Canada-based Pembina Pipeline Corporation, declined to comment. It will provide an update on the project during its second-quarter earnings call with investors this Friday.

Catch up fast: In early July, Energy Secretary Dan Brouillette announced a key federal approval of the project.

  • At that time, Brouillette said it “encapsulates what the Trump administration has been working hard on for the past three years — providing reliable, affordable, and cleaner-burning natural gas to our allies around the world.”

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 ship natural gas all over the world.

  • Several have begun operating in recent years, leading to a boom in LNG exports. But more than a dozen projects are still either awaiting government approval or not yet complete, according to government data.
  • Trump’s ongoing trade war with China (a huge market for the fuel) — together with the pandemic, which is sapping global energy demand — is creating a one-two punch that has deflated a sector that was promising just a couple years ago.

Read the full column

2. Big this week: Oil finances under pressure

A bunch of large oil-and-gas companies will report Q2 results this week, results that follow huge losses reported by Chevron and ExxonMobil Friday.

What's next: BP will report early tomorrow morning. Large independents Pioneer Natural Resources and Devon Energy both report later Tuesday.

  • More large shale players — including EOG Resources and Marathon Oil — come later in the week.

Why it matters: Q2 results show the full brunt of the pandemic-fueled collapse in prices and demand.

  • They also provide a look at how companies are positioning themselves for what remains a rough environment.

What we're watching: Whether BP cuts its dividend, a step Shell took in Q1.

  • This matters because Big Oil's payouts have been a boon to shareholders even as their stocks' overall performance has lagged compared to broader market indexes.
  • Bloomberg reports BP is "widely expected" to cut the dividend and notes it would free up cash for BP's effort to reorient its business over decades around low-carbon fuels.
Bonus chart: Shale's future
Data: Baker Hughes; Chart: Axios Visuals

The collapse in the number of U.S. drilling rigs deployed, which is one marker of future production, has leveled off recently, but don't expect a return to boom times.

What they're saying: "[Exploration and production companies] are prioritizing debt reduction, and commentary from earnings calls supports producers focusing more on maintenance mode with a conservative path to growth through at least 1H21," Goldman Sachs analysts said in a note Monday.

3. Global coal-fired power just shrunk

The global amount of coal-fired power generating capacity fell slightly in the first half of 2020 as plant closures outpaced additions, per new data Monday from the group Global Energy Monitor.

Why it matters: It's the first half-year decline on record, Christine Shearer, the group's coal program director, writes in Carbon Brief. Coal-fired power plants are a huge source of global CO2 emissions.

The latest: The net amount of global capacity fell by 2.9 gigawatts to 2,047 GW, the group reports.

  • "The fall — including a decline in India — was due to a combination of slowed commissioning due to the Covid-19 pandemic and record retirements in the EU from strengthened pollution regulations."
  • New plant additions were concentrated largely in China, the world's biggest CO2 emitter.
  • The net decline is a stark contrast from the average of 25GW of growth each half year for the past two decades.

Yes, but: A combined hundreds of gigawatts are under construction or in the planning stages, according to the group.

  • "Despite the decline in the global coal fleet, meeting global climate goals requires a much more rapid reduction in coal power use, with generation falling by at least half this decade in pathways that limit warming to well-below 2C, and up to three-fourths for 1.5C," Shearer writes.
4. New Speedway Boogie: Marathon unloads gas stations

Refining giant Marathon Petroleum announced late Sunday that it's selling its Speedway retail gasoline stations and convenience stores to 7-Eleven in a $21 billion cash deal.

What's new: Marathon said the estimated $16.5 billion in after-tax proceeds will be used to "strengthen balance sheet and return capital to shareholders."

  • 7-Eleven said the deal would add about 3,900 Speedway stores located in 35 states, allowing the company to diversify its U.S. footprint, especially in the Midwest and East Coast.
  • Under the deal, Marathon will supply 7-Eleven with 7.7 billion gallons of fuel annually for 15 years.

Why it matters: It's the year's biggest energy deal thus far, WSJ notes.

  • The deal comes as energy companies are under intense financial pressure due to the COVID-19 pandemic. Marathon reported an adjusted Q2 loss of $868 million this morning.
  • However, the seeds of the deal were planted before the crisis. "Marathon, under pressure from activist investor Elliott Management, said last year it would launch sweeping restructuring, including spinning off Speedway," Reuters notes.
5. EV startup Lordstown going public via SPAC deal
Source: Giphy

Lordstown Motors is about to become the latest electric vehicle startup to go public via purchase by a special purpose acquisition company (SPAC), the transaction structure that's fast becoming an alternative to IPOs.

Driving the news: Lordstown, which plans to build a pickup truck at a former GM plant in Ohio, on Monday announced a merger agreement with DiamondPeak Holdings.

  • The deal will provide $675 million in proceeds to help fund production of the Endurance, a model Lordstown hopes to launch in 2021 that's aimed largely at the commercial fleet market.

The big picture: Lordstown is one of several EV companies to use a SPAC to raise money and go public.

  • Fisker announced a deal with Spartan Energy Acquisition last month as it seeks to bring an electric SUV to market in 2022.
  • And Nikola Motor, which plans to build electric and hydrogen-powered pickups and semi-trucks, began trading publicly in June.

Go deeper: SPACs are the new IPOs

6. Here comes Cadillac's first EV

Charging port of the upcoming Cadillac Lyriq. Courtesy of Cadillac.

On Thursday night, General Motors' luxury Cadillac unit will unveil the Lyriq, a crossover that marks Cadillac's first foray into all-electric models.

Why it matters: The stakes are high because GM is putting Cadillac at the forefront of its expanding push into EVs.

  • Cadillac was once the top of the food chain the luxury market, but now lags after losing market share to Mercedes, BMW and others for decades.
  • The Lyriq, which GM teased with a few images last week like the one above, will also be GM's first EV that uses the automaker's new Ultium battery system.

What they're saying: Edmunds analyst Jessica Caldwell, in comments circulated to reporters, says it will be a "challenging launch for Cadillac" — a brand she said has been trying for years to boost its image.

  • "Although other aspirational luxury brands have already taken a pass at the EV space with electric SUV variants, no other automaker besides Tesla has tasted the joy of success in terms of sales and demand," she said.
  • "If Cadillac does it right and can get consumers to view the Lyriq as competitive with Tesla and other European luxury brands, this could help give the brand a push in the right direction." 

* * *

ICYMI: GM and EVgo plan to add more than 2,700 new public fast-charging stations in the next five years as a way to help accelerate widespread electric vehicle adoption, Axios' Joann Muller reports.

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Ben GemanAmy Harder