Nov 30, 2018

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Happy Friday!

Onto music. Axios' Eileen Drage O'Reilly — an editor and writer who makes Generate happen each day — brings us today's music trivia. She says...Yesterday was the anniversary of George Harrison's death, so let's listen to the late Prince and other stars as they honor him in my hometown of Cleveland with "While My Guitar Gently Weeps."

1 big thing: Trump's shaky bromance with drillers

President Trump's pressure campaign on OPEC to keep supply robust, and hence prices relatively low, could bring some tricky domestic political and economic tradeoffs.

The big picture: The Eurasia Group's Robert Johnston, writing for Axios this morning, points out that Trump has broken with his GOP White House predecessor, even though they're both in the drill-baby-drill camp:

"Trump’s ongoing campaign against higher oil prices marks a shift from Republican oil policy in the Bush era, which generally relied more on markets to respond to high prices. Despite the presence of oil-friendly cabinet members such as Rick Perry and Ryan Zinke, Trump has aimed to keep prices low."

The intrigue: As Johnston and others have been pointing out recently, there are ultimately diverging interests among U.S. oil producers and U.S. drivers.

  • Trump's attempts at market pressure side with the latter, even as he's paring back regulations and making other industry-friendly moves.
  • "Trump’s energy policy is consumer first. Neither the Saudis nor the markets should assume he is going to support or even tolerate higher prices to help U.S. shale," Johnston writes.

What they're saying: One sign of the times came this week in Scotland. Via S&P Global Platts...

  • "US President Donald Trump has provided 'vital' support to business in that country by removing regulatory hurdles and speeding up decisions, BP chief executive Bob Dudley said Wednesday, rejecting the idea Trump's calls for lower oil prices might harm oil companies."

But it's noteworthy that this discussion is happening under a president who campaigned on a very pro-industry platform.

  • And as my colleague Amy Harder wrote earlier this year, some other moves by Trump — notably his trade policy decisions — have rankled the industry.

Between the lines: Over at the New York Times, Clifford Krauss has a good distillation of where things stand with Trump's market goals, noting that the president is "playing a tricky game" because a price collapse would hit workers hard in oil-producing states including Texas, Oklahoma and North Dakota.

  • For the moment, Krauss writes, U.S. oil prices in the $50-per-barrel range are "close to an economic sweet spot" that neither burdens consumers and businesses nor bankrupts energy producers.
  • But nonetheless, the recent price drops mean that U.S. shale producers are already making plans to trim their planned 2019 spending, Bloomberg reports.

What's next: All eyes will be on the Dec. 6–7 OPEC meeting.

  • The cartel plus mega-producer Russia will decide whether to jointly trim output in order to tighten up the market amid expanding U.S. supply and signs of softening demand growth.
2. Coal exec losing faith in lifeline from Trump

Axios' Amy Harder reports that Bob Murray, a coal executive who has pushed Trump to financially support economically ailing coal plants, is not so sure it’s going to happen after more than a year of inaction.

Why it matters: One of the cornerstones of Trump’s presidential campaign was to revive American coal, which has declined significantly in the last decade due to competing electricity sources of natural gas and renewables along with tougher environmental rules by then-President Obama.

Driving the news: Last year Trump ordered Energy Secretary Rick Perry to find policies that can financially boost economically struggling coal and nuclear power plants, although no official strategy has emerged.

  • Murray, who is close to the administration, has pushed for Trump to help plants that use his company’s coal.
  • But, talking to Axios Thursday, Murray said he was disappointed in the lack of action.
"I don’t know if it’s going to happen. I don’t know. It’s the government. They are still studying that.”
— Bob Murray, CEO, Murray Energy

For the record: An Energy Department spokeswoman declined to comment Thursday evening.

One level deeper: No matter what steps the administration might take, it’s unlikely to substantively and permanently reverse the trends underway in the U.S. coal industry.

  • One bright spot for the coal sector under Trump is an increase in exports. That is due more to increased international demand with a growing global economy and little to do with Trump’s actions.
  • Murray said his exports were 6% of his production last year, and this year they’re 30%.
  • “That’s the only thing that’s saved a lot of us in the coal industry,” Murray said.

Go deeper: Trump’s electricity solution in search of a problem

3. The origin of a hyped climate statistic
Illustration: Aïda Amer/Axios

Axios' Andrew Freedman reports that in the blitz of media coverage following the Trump administration's Black Friday release of the Fourth National Climate Assessment (NCA4), one statistic kept popping up:

By the end of the century, global warming could cost the U.S. 10% of its gross domestic product.

Why it matters: This figure has been used to indicate that global warming will inflict massive economic costs on the U.S. if dramatic actions to adapt to climate change and curtail emissions are not taken in the next decade.

  • Critics, including the White House, have seized upon the statistic to paint the report as "radical" and "extreme."
  • The White House and EPA are attacking the figure and say billionaire activists and research funders Tom Steyer and Michael Bloomberg are behind it.

Andrew spent part of this week tracking down the origins of that frightening statistic. What he found...

The stat can be traced to a 2017 study, published in the journal Science, that quantified the economic costs to the U.S. for various amounts of climate change.

  • Amir Jina, an economist at the University of Chicago and a co-author of that study, told Axios he was not surprised the 10% statistic was used in the NCA4, but he has been "a little disappointed" at how the media focused on it.
  • "I still obviously stand by the work that we did, and that number does come from this paper, but I think it needs more nuance in the way that it’s presented,” Jina told Axios.

Go deeper: Read Andrew's full story.

4. Why Bitcoin's fall gives the planet a breather

An interesting piece in Greentech Media explains why the price decline of Bitcoin and other cryptocurrencies "could have a silver lining in terms of global energy consumption," at least temporarily.

Why it matters: Digital Bitcoin "mining" and transactions mean the cryptocurrency has an energy problem, even if fears that it will cook the planet are overblown.

  • The Greentech story notes that as the price of the currency rises, so does the incentive to invest in more energy-hungry equipment to mine it.
  • “I’m not entirely sure what will happen to energy consumption net-net, but it will be very interesting to see how many miners drop out of the market in this downturn,” Jesse Morris of the Energy Web Foundation says in the story.

What's next: Companies are looking at ways to make cryptocurrencies more environmentally sustainable.

"On Tuesday, the U.S. Patent and Trademark Office awarded the company a patent outlining a processor which claims to be able to conduct 'energy-efficient high performance bitcoin mining,' specifically naming the SHA-256 algorithm used by the world’s largest cryptocurrency by market cap," Coindesk reports.

Go deeper:

5. EV notes, part 1: Cobalt and lithium

Two developments caught my eye about critical metals needed for electric vehicle batteries . . .

Cobalt: BMW, Samsung and the chemical company BASF are launching a pilot project in the Democratic Republic of the Congo designed to "improve artisanal mining working conditions, as well as living conditions for surrounding communities," they said in a joint announcement.

  • They're working with the German sustainable development agency Deutsche Gesellschaft für Internationale Zusammenarbeit on the project that will initially focus on one mine.
  • Why it matters: Cobalt is a key material for EV batteries and the DRC is the world's largest supplier, but the mining is associated with human rights abuses and dangerous conditions.
  • "If proven effective, these measures could then be scaled up to other legal artisanal mine sites and enhance systemic challenges in the longer run," the companies said Thursday.

Lithium: Moody's Investor's Service, in a note, said they see an oversupplied market for the material arriving by the early 2020s, despite growing demand for EVs.

  • But, but, but: "Nickel and copper availability is likely to constrain the ability to produce electric batteries. This will dampen lithium demand growth until ample nickel and copper is available — which may take a while," the report states.
6. EV notes, part 2: Near-term and long-term futures

What's next, part 1: U.S. News & World Report has a nice slideshow of what's on display at the LA Auto Show, ranging from cars slated to go into production in the next couple years to concept models.

What's next, part 2: The consultancy Wood Mackenzie is out with some modeling of what would happen to oil demand under an aggressive EV sales growth forecast in a "carbon-constrained" world where zero-carbon energy overall accelerates faster than their base projections.

  • "Under the carbon-constrained scenario, WoodMac predicts by 2040, the US, EU and China will see electric vehicles account for 100% of new vehicle sales, collectively displacing 11 million barrels per day (b/d) of oil and helping accelerate peak oil to 2031, five years  ahead of its base case," they said in a summary.
  • Reality check: Maybe I'm burying the lead a little here, but WoodMac cautions that even in their more aggressive outlook for clean energy, they don't see long-term global temperature rise staying below 2 degrees celsius absent a more aggressive worldwide political push.
  • Go deeper: The Houston Chronicle unpacks their new analysis here.
Ben GemanAmy Harder