September 11, 2019
Good morning and welcome back! Today's Smart Brevity: 1,208 words, < 5 minutes.
Situational awareness: Aramco has selected Bank of America, Goldman Sachs and JPMorgan Chase for top roles in its upcoming IPO, Bloomberg reports from anonymous sources.
And, at this moment in 1988, Guns N' Roses had reached the top of the Billboard charts with today's classic intro tune...
1 big thing: A chaotic moment for crude oil
Crude oil prices are up last night and this morning after a wild day, and now get ready for new bursts of market-moving news today and later this week, as closely watched data will be announced.
The big picture: It's hardly a surge and the market is grappling with fresh estimates of softening demand growth.
Driving the news: Yesterday prices instantly plunged by over $1 per barrel at midday when news broke that national security adviser John Bolton was out.
- Departure of the hawkish Bolton raises the prospect of easing U.S.-Iran relations.
- RBC Capital Markets analyst Helima Croft said it "could be a catalyst for a material de-escalation in the Iran standoff” and bring more Iranian crude back into the market, per Bloomberg.
The Bolton news tapped the brakes on prices that had been buoyed by signs that Saudi Arabia is committed to continuing OPEC's oil production-limiting agreement with Russia.
It's not the only thing creating headwinds for oil prices. Shortly after Bolton was gone, The U.S. Energy Information Administration again trimmed its global oil demand growth forecast.
- "EIA expects the rate of consumption growth for global liquid fuels to fall below 1 million barrels per day in 2019 for the first time since 2011," the agency said.
- What's new: Today OPEC also trimmed its estimate for demand growth this year, S&P Global Platts reports.
But, but, but: Prices got a lift late yesterday afternoon when the American Petroleum Institute reported a 7.2 million barrel decline in U.S. crude stockpiles last week, according to Reuters.
- Where it stands: Brent crude was trading around $63 this morning.
What's next: EIA will issue its report on U.S. crude stockpiles later this morning. And tomorrow the International Energy Agency will release its monthly analysis of global crude demand, which comes the same day that OPEC and Russian officials will gather in Abu Dhabi.
One big question: It's unclear to what extent Bolton's exit may lead to any changes in U.S. posture.
- In a note Tuesday, ClearView Energy Partners points out that the Bolton era included U.S. withdrawal from the Iran nuclear deal, public criticism of Russia, and sanctions against Venezuela.
- However, "we would caution against the a priori conclusion that a post-Bolton administration might materially pivot from those positions," the research firm writes, because it's unclear who will replace him and other hawkish Trump officials remain in place.
2. CO2 tax group adds members and policy details
Axios' Amy Harder reports ... The Climate Leadership Council, a pro-carbon tax coalition whose members include oil giants and environmental groups, is making some new moves.
Driving the news: Today they're announcing...
- A new goal: Cutting U.S. CO2 emissions in half by 2035 through their proposed $40-per-ton tax plan, which now also calls for 5% annual increases above inflation.
- New members: Mining giant BHP and the big power company Calpine.
- New policy details: The group's support for preempting federal climate regulations now applies only to stationary facilities like power plants — not cars and trucks.
- More new policy details: The proposal would no longer shield companies from lawsuits alleging responsibility for damages from historical emissions.
Why it matters: The 2-year-old group is seeking traction at a time when very few Capitol Hill Republicans embrace carbon pricing, and it has lost some cachet on the left too.
Quick take: The push to preempt only stationary source rules looks like an effort at compromise ahead of any future legislative debate.
- Similarly, cutting the liability section is important because many see legal protection as a must-have for Big Oil, though a similar proposal could be added if the plan is ever brought up in Congress.
The big picture: The group was launched in early 2017 by GOP elder statesmen including former secretaries of state James Baker and George Shultz.
- Members range from Shell and BP executives to economists to a few green groups, including The Nature Conservancy and Conservation International.
- Their proposal calls for returning tax revenue to the public.
What’s next: CEO Ted Halstead said the coming weeks will bring more new members and new financial commitments to its lobbying arm. Bipartisan legislation reflecting the groups' plan will arrive this year, he adds.
3. Investors' EV money is looking for a home
Electric vehicle startup Rivian yesterday announced a $350 million equity investment from Cox Automotive, a big industry data and information company.
Why it matters: It's a fresh sign of intense interest in Michigan-based Rivian from deep-pocketed players, Axios' Joann Muller and I reported.
- This year, Ford invested $500 million in Rivian, and the companies are working together to develop a Ford EV of some sort.
- Amazon led a $700 million investment round in Rivian in February.
But, but, but: This is a bigger story than Rivian. Their fundraising underscores how the future of EVs is wide open amid increasing activity from startups and legacy automakers alike.
There's lots of money available in the EV space as investors look where to place their bets.
- Consider that Rivian hasn't even built any vehicles for commercial production yet.
- Nor has Lucid Motors, yet last year Saudi Arabia's sovereign wealth fund announced a $1 billion-plus investment in the company.
- On a related note, Forbes' Alan Ohnsman writes that Nikola Motor is raising lots of cash for plans to produce electric and hydrogen fuel cell semi-trucks.
Where it stands: Rivian is building a battery-powered pickup and SUV, with plans to launch them in the U.S. late next year.
- But a big draw for investors, including Ford, is also the "skateboard" platform underpinning them, which is engineered to accommodate a range of vehicle designs.
What's next: Beyond the investment, Cox and Rivian will "explore partnership opportunities in service operations, logistics, and digital retailing," according to the announcement. Someone from Cox will also join Rivian's board.
4. From the tanks: The emerging global gas order
Nikos Tsafos of the Center for Strategic and International Studies has an engaging look at the future of global gas markets.
What's next: The next decade separates the U.S., Russia and Qatar into the exporters that "tower" over the landscape while China's huge import thirst grows too.
The big picture: "The gas world will ... be pulled in three directions: more integration and competition, more efforts to exercise market power, and more geopolitics complementing and complicating market forces," he writes.
Why you'll hear about this again: On the geopolitical front, Tsafos explores U.S. promotion of LNG as an energy security boon to buyers or to "lessen U.S. displeasure on other fronts, like trade imbalances."
- The U.S. penchant for "politicizing" LNG could "backfire" thanks to trade spats — and that's already happening with China.
- So far, the U.S. hasn't paid a price because project development is robust.
- Yet U.S. gas could get entangled in future trade tussles, for instance if the U.S. puts tariffs on European cars.
The intrigue: The whole forward-looking analysis is worthy of your time, but I was also just marveling at China's rise...
- LNG imports only began in 2006 and pipeline imports in 2010. Not ancient history!
- Last year China surpassed Japan as the largest combined importer of LNG and piped gas.
- "[W]ithin 10 years, China’s pipeline imports are likely to double."
5. Catch up fast: solar, storage, climate
Solar: "Los Angeles' municipal utility unanimously approved the contract for the cheapest solar and energy storage project in the U.S. on Tuesday," according to Greentech Media.
Storage: "Rising customer interest and incentives in more states contributed to a 41% quarter-over-quarter increase in the U.S. residential storage market during the second quarter of 2019, according to the latest U.S. Energy Storage Monitor," per Utility Dive.
Climate: "A group of leaders from business, politics and science have called for a massive investment in adapting to climate change over the next decade, arguing it would reap significant returns as countries avoid catastrophic losses and boost their economies," AP reports.