Jun 22, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Two Axios updates! 

🎧 The first episode of the "Axios Today" podcast, with host Niala Boodhoo, is out! Subscribe to start your day with the top stories that matter.

📺 The last episode of the season for “Axios on HBO” is tonight at 11pm ET/PT on all HBO platforms. Watch interviews with Stacey Abrams on police reform, Larry Kudlow on wealth inequality, Delta Air Lines CEO Ed Bastian on masks, and more.

Back to energy: I’ll shared a glimpse of my latest column that checks in on the pipeline battles reaching the Supreme Court, and then Ben Geman will get you up to speed on other news. Today’s Smart Brevity count: 1,280 words, < 5 minutes.

1 big thing: High court on pipelines and natural gas

Illustration: Eniola Odetunde/Axios

A decade of battles against pipelines proposed to crisscross the country are arriving at the Supreme Court.

Driving the news: The court ruled last week on the first such high-profile case. Two other actions, also on pipelines, are pending before the justices for decisions that could have far-reaching impacts.

The big picture: These court battles represent the culmination of fights over fossil fuel infrastructure of all kinds — beginning with the Keystone XL pipeline — as a proxy for a larger debate about climate change and energy.

  • Over this same period, oil and natural gas production has boomed in the United States. Natural gas has become the dominant electricity source, driving a buildout of pipelines and power plants.
  • Environmentalists, together with local government officials and other advocates, have been fighting these projects through courts and permitting processes in the absence of the federal government taking action on climate policy.
“The game for environment groups is fairly simple. Use every tool to drag the project into the courts, raise the cost as much as you can, hope for an economic downturn and hope the developer throws in the towel.”
— Rob Rains, senior energy analyst, Washington Analysis

Where it stands: The three actions at issue turn on the fine print of different legal details, but they all deal with the same underlying debate about to what degree oil and natural gas pipelines should be constructed.

Quick take: Here’s my attempt to break down thousands of pages of legal arguments into fewer than 200 words...

  • The Supreme Court ruled last week in favor of a 600-mile natural gas pipeline proposed to go under the Appalachian Trail in rural Virginia (many pipelines already do). That decision also removed a hurdle for another 300-mile pipeline and could prompt development on other ecologically important lands, environmentalists say.
  • The Supreme Court will consider on Thursday whether it will grant or deny review, or seek the input of the Justice Department, on another pipeline case involving eminent domain and states’ constitutional rights. If the justices take it and reaffirm a lower court’s ruling, that could, in effect, give states veto power to block natural gas pipelines.
  • The Supreme Court is also expected to decide in the coming weeks whether to grant the Trump administration’s request last week to stay a lower court’s ruling on the still-unresolved Keystone project, which also resulted in permitting delays of numerous other pipelines.

But, but, but: “What the industry is struggling with at this point is whether all of these projects are even needed anymore,” said Gary Kruse, managing director of research at LawIQ.

  • Other than seasonal shortages in the Northeast, “most of the rest of the country is probably properly supplied with pipeline capacity right now,” Kruse said.
Bonus chart: Pipeline review timelines balloon
Reproduced from LawIQ; Chart: Axios Visuals

The time it takes to develop pipelines has been increasing over the last decade largely in response to more opposition, which in turn increases projects’ costs, according to an analysis by energy analytics firm LawIQ.

By the numbers:

  • Before 2013, it took a little under 2.5 years from application filing to construction completion.
  • Since 2013, that average has increased to nearly three years.
  • However, for the two pipeline projects at issue in last week’s Supreme Court case — the Atlantic Coast Pipeline and Mountain Valley Pipeline — both are already taking longer than four years and still have outstanding permits despite the court action. (The Keystone review has been going on for 12 years!)
  • This data is only for pipelines that haven't been canceled. If a permit is denied, a project tends to be shelved eventually, Washington Analysis' Rains said.

Read the full column

2. Shale's difficult future

The shale sector is entering a "great compression" that could bring a "deep consolidation" as companies collectively face hundreds of billions of dollars worth of write-downs on their assets, a new Deloitte analysis finds.

Why it matters: The report shows how depressed oil prices stemming from the COVID-19 pandemic are slated to take a big toll on the sector, which was already struggling with debt and weak cash flow even before the crisis.

By the numbers: "Challenging oil market conditions could prompt the shale industry to impair or write-down the value of their assets by as much as $300 billion — with significant impairments expected in Q2 2020," the report finds.

  • 31% of shale operators are "technically insolvent" when U.S. oil prices are at $35 per barrel, while another 20% are "stressed." Prices are currently in the $39-per-barrel range.
  • Deloitte says roughly 27% of shale oil-and-gas companies are good acquisition targets for oil majors and large independent producers, while many others would be "superfluous," or too risky for buyers.

What's they're saying: Deloitte analyst Scott Sanderson said in a statement alongside the report that "selective" consolidation can help better position the distressed industry,

  • "Especially as the energy transition moves forward, investment in big data, advanced digitalization and sustainability measures can be of paramount importance to long-term survival and success," he said.

Go deeper: U.S. shale companies face $300 billion in write-downs in Q2 (FT)

3. Chart of the day: China's energy rise
Data: BP; Chart: Axios Visuals

BP's big annual energy data compendium provides a window onto the remarkable growth of China's footprint in global energy markets.

The big picture: "China was by far the biggest individual driver of primary energy growth [in 2019], accounting for more than three quarters of net global growth," the report last week notes.

Driving the news: There's all kinds of metrics of China's footprint, like its oil demand growing by 680,000 bpd last year and renewables growth far outpacing everyone else.

  • One that caught my eye (and seen above) is China's emergence and remarkable growth as an LNG importer over the last 15 years.
  • China is now the world's second-largest LNG importer behind Japan and largest overall gas importer.
4. Geoengineering and game theory

Illustration: Eniola Odetunde/Axios

The possibility of employing geoengineering could help break the political deadlock on a global climate change deal, according to a new paper unpacked by Axios Future editor Bryan Walsh.

Why it matters: Deliberately trying to engineer the climate to offset warming is risky and as yet untested. But with the effects of climate change compounding and further international agreements stalled, there may be no choice but to try — or at least threaten to do so.

As climate change worsens and climate politics remain polarized, the door opens for solar geoengineering, which would involve injecting aerosols into the atmosphere to reduce the amount of sunlight reaching the Earth and directly slow warming.

  • Solar geoengineering would be much cheaper than drastically cutting carbon emissions, but it carries with it as yet unknown risks of side effects. That's why many environmentalists remain opposed to even experimenting with geoengineering.

Yes, but: A new paper in the journal Humanities & Social Sciences Communications suggests that the possibility of geoengineering could reframe the climate debate.

  • Using game theory, Gernot Wagner and Adrien Fabre make the case that countries most vulnerable to climate change and most willing to engage in deep emissions cuts might prefer trying geoengineering, even with all its risks, rather than accept insufficient climate action.
  • At the same time, those countries less worried about climate change might be more willing to compromise on deeper emission cuts if they fear that the other side would choose geoengineering over a weaker climate deal.

Read more

5. Three more climate notes

Policy: "Danish lawmakers have struck a climate agreement to ensure their country can live up to a goal of cutting carbon emissions by 70% from 1990 levels over the coming decade." (Bloomberg)

Arctic: "Alarming heat scorched Siberia on Saturday as the small town of Verkhoyansk (67.5°N latitude) reached 100.4 degrees Fahrenheit, 32 degrees above the normal high temperature. If verified, this is likely the hottest temperature ever recorded in Siberia and also the hottest temperature ever recorded north of the Arctic Circle, which begins at 66.5°N." (CBS News)

Advocacy: "Investors managing £1.8 trillion ($2.2 trillion) in assets are widening a campaign pressing oil majors to better reflect climate risks in their accounting, and will soon target other businesses with heavy fossil fuel exposure, the group said on Monday." (Reuters)

Ben GemanAmy Harder