Jun 4, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Welcome back, readers. Today's Smart Brevity count: 1,302 words, 5 minutes.

Worthy of your time: Axios will host a conversation on the impact of the Black Lives Matter movement on policymaking. Join Axios editors on Friday, June 5 at 12:30pm ET for conversations with Rep. Bobby Rush (D-Ill.), St. Paul, Minnesota Mayor Melvin Carter and NAACP President Derrick Johnson.

Situational awareness: "President Vladimir Putin has declared a state of emergency in a region within the Arctic Circle in far northern Russia after 20,000 tons of oil leaked into a river from a power plant." (CNBC)

And on this date in 1984, Bruce Springsteen and the E Street Band released "Born in the U.S.A," so my favorite track from the album is today's intro tune...

1 big thing: Oil's tough road back from coronavirus

Illustration: Aïda Amer/Axios

Oil companies in the battered shale patch are starting to bring back some production as prices climb, but a new report underscores how the pandemic is taking a heavy financial toll despite signs of revival.

Driving the news: Fourteen North American producers have filed for bankruptcy thus far during the second quarter, per a tally from the law firm Haynes and Boone, which closely tracks the sector's finances.

  • That's up from five in the first quarter, and there's more to come, the firm projects in the report, which also notes numerous bankruptcies in prior years in the sector where many companies have precarious finances.
  • "It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months," the firm finds.
  • Contractors are also getting battered by industry spending cuts, with many small or highly indebted oilfield serviced companies at risk.

The big picture: The report comes as some companies begin bringing some wells shut down during the worst of the price and demand crisis back into production.

  • Shale producers EOG Resources and Parsley Energy this week announced plans to restore output cuts, Reuters reports.
  • U.S. oil prices, which went into negative territory in April, have rebounded to roughly $36-per-barrel. CFRA Research analyst Stewart Glickman tells Bloomberg that prices in the mid-$30s mean that "you’re closer to some break-even point. That’s enough to relax the shut-ins.”
  • But break-even prices vary by producer, and they're still likely too low to keep some companies above water, especially given the heavy debt load many companies were carrying even before the crisis.

What's next: While some of the shut-in wells are returning, there's been an extremely steep drop off in new drilling activity as prices are too low to make new wells profitable.

And existing shale wells decline quickly, so the shut-ins combined with the collapse of new drilling means U.S. production is heading sharply lower and industry investment is dropping off a lot.

  • U.S. production has already fallen sharply from nearly 13 million barrels per day early in the year.
  • The federal Energy Information Administration sees output falling well below 11 million barrels per day later in 2020 and staying there in 2021, while some analysts see ever deeper declines.
2. Another window onto shale's downturn
Reproduced from Energy Policy Institute at the University of Chicago; Chart: Axios Visuals

The downturn in the Permian Basin, the heart of the U.S. oil patch, was large enough to cause a big drop in electricity use there, analysis from a University of Chicago energy think tank shows.

What they did: Their analysis looks at daily declines and fluctuation compared to a pre-COVID baseline (captured above), as well as the average drop-off since mid-March, which is 24%.

How it works: Oil production sites often use electric-powered pumps, so the shut-in of thousands of wells meant a big decline in power demand.

What's next: Prices are up since the period they looked at.

"But will this higher price lead to a quick U.S. oil production recovery? Keep your eye on electricity use data, which may be our best leading indicator of whether U.S. oil production will recover anytime soon," it states.

3. Democrats make their move on transit

House Democrats unveiled a five-year, roughly $500 billion transportation proposal yesterday aimed at bolstering mass transit and creating carbon-cutting initiatives.

The big picture: "Roads would continue to see the lion’s share of the money — some $300 billion. But the bill also provides $165 billion in support for buses, subways and rail, significantly more than the last transportation package passed in 2015," the Washington Post reports.

Roll Call, in a detailed piece, notes that the measure also "emphasizes fixing before building" when it comes to roads and highways.

Why it matters: The bill arrives as mass transit agencies are struggling with the collapse in ridership, and facing a tough future as social distancing will require reduced capacity and virus-wary riders may stay away in favor of cars.

The intrigue: The package also aims to help transportation planners transform streetscapes to be more accommodating of pedestrians, bikers, public transit and more.

  • There's a segment devoted to spurring "complete and context sensitive street design."
  • That's interesting in light of efforts in many cities to at least temporarily make urban streetscapes friendly to socially distant access and restrict car travel.
  • As we wrote about here, there's a movement bubbling up to make some of those changes permanent.
Bonus: Charting mobility's uneven return
Expand chart
Data: Apple; Chart: Axios Visuals

A quick reminder that the push to help mass transit agencies comes as they continue to see greatly diminished ridership, while driving is showing a quicker rebound from the lockdowns.

The chart above provides some rough proxy data, showing changes in requests for directions to Apple Maps.

4. Energy groups denounce racism

Energy trade associations are denouncing systemic racism that perpetuated the killing of George Floyd by police officers and other similar acts of racial discrimination in recent years, Axios' Amy Harder reports.

Why it matters: The comments show how transcendent this topic is becoming as protestors take to the streets around the country calling for an end to police violence, which has disproportionately impacted black people.

Driving the news: American Petroleum Institute CEO Mike Sommers posted about the topic Tuesday on LinkedIn, while the Solar Energy Industries Association issued a statement Monday, and its CEO, Abigail Ross Hopper, made another statement Wednesday.

What they're saying:

  • "SEIA recommits itself and our industry to ensuring that racial justice and opportunity for all remain core values of our work," Hopper wrote Wednesday, referring to her group's efforts to tackle the problem since at least May 2019.
  • "We strongly oppose prejudice that confronts so many because of the color of their skin, where they were born, how they worship, or who they love," Sommers wrote.

Where it stands: Companies across a variety of industries have come out in recent days to issue critical statements on racism — a move that has become commonplace. The energy industry itself employs fewer African Americans than the broader American workforce.

By the numbers: These figures come from an annual report on energy jobs put out by the Energy Futures Initiative, a think tank led by former Energy Secretary Ernest Moniz.

  • The oil, natural gas and coal sector is around 7% black, compared to the broad American workforce, which is 12% black.
  • The solar and wind workforces are more diverse than the overall workforce, but not when it comes specifically to African Americans, who comprise between 7%-8%.

What’s next: The share of new oil and gas jobs through 2040 that are projected to be filled by women and people of color is 54%, according to a forthcoming study from the American Petroleum Institute. That’s compared to about 44% the group tallied in a 2016 report.

5. Germany rolls out new electric car stimulus

"Germany is doubling incentives offered to buyers of battery-powered cars as part of a 130 billion-euros ($146 billion) economic recovery package for the period through the end of next year — but the government refused pleas for the program to include internal-combustion cars," Automotive News reports.

Why it matters: It fills in some of the blanks in the wider — and very open — question of how much governments will seek to use stimulus packages to bolster low-carbon technology as they support domestic industries.

By the numbers: Per its story and others, buying EVs with a price of up to roughly $45,000 will be eligible for government and manufacturer incentives totaling about $10,000.

The intrigue: Via Reuters, the price structure means that "premium carmakers like BMW, Mercedes, and even Tesla are not eligible for the full amount," while it will benefit makers of less expensive models like the VW ID3 and the Kia e-Niro.

6. An oil giant's push into offshore wind

The huge multinational oil-and-gas company Total plans to acquire a 51% stake in a very large offshore wind project slated for construction off the Scottish coast called Seagreen 1.

The project 1.14-gigawatt project is slated to begin operation at the end of 2022 and will produce enough energy for roughly 1 million homes, Total said.

Why it matters: The French giant's deal with SSE Renewables, which includes an initial $88 million payment, is the latest sign of how European-headquartered oil-and-gas majors are increasingly investing outside their core business.

Per Bloomberg, it's Total's "first significant foray into offshore wind" as the company expands its overall green energy investments.

But, but, but: While the European majors are more active on climate and low-carbon energy than U.S.-based rivals Exxon and Chevron, the moves beyond fossil fuel still represent a very small part of their overall spending.

Ben GemanAmy Harder