Apr 29, 2019

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning, and welcome back to another Monday. My latest Harder Line column is my last dispatch from Australia, where I delve into the technology considered essential to really unlock wind and solar. 

I'll share a glimpse of that, and then Ben Geman will you get up to speed on the rest of today's news.

1 big thing: Aussie energy storage lessons

Illustration: Aïda Amer/Axios

SYDNEY, Australia — Technologies are proliferating here to enable renewables to provide energy long after the wind stopped blowing or the sun stopped shining.

Why it matters: Figuring out a way to store energy is essential to getting huge amounts of electricity from wind and solar — a goal of the backers of the Green New Deal and a critical piece of the broader puzzle for tackling climate change.

Driving the news: Australia’s current political leadership, whose positions are similar to American conservatives, earlier this year backed a project that would pump huge amounts of water up a hill to use as a backup energy option.

  • Called "pumped hydro," this decades-old technology is the most common way to store energy, though it's a far less high-profile way than batteries.

Meanwhile, Tesla is testing technologies here after building the world’s largest battery 2 years ago to address regional blackouts in South Australia. That feat was accomplished in less than 100 days at the tweet order of CEO Elon Musk.

“Australia presents opportunities to model out what the future is going to look like because it has high amounts of solar and gives us a chance to show what storage can do at those high levels of penetration.”
— Lara Olsen, Tesla executive on energy storage

The big pictureAbout two-thirds of the world’s electricity is from steady power from fossil fuels, led by natural gas and coal. That is changing as costs for wind and solar fall. In some places, like the U.S. and Australia, these resources are replacing fossil fuels.

Where it stands: Australia doesn’t have a lot of flexible natural gas electricity, like America does, but wind and solar are rapidly increasing here. That creates opportunities — and challenges — to integrate the variable resources into a power system dominated by coal.

  • Pumped hydro is by far the most common way energy is stored around the world today.
  • But battery technology is forecast to be the most popular way to store energy in the future as demand grows.
  • Storage technologies require government subsidies in most places, but that’s changing as costs drop and climate policies ramp up.

What they're saying: “The good thing about batteries is you can deploy them tactically in any location and at very small scale,” former Australian Prime Minister Malcolm Turnbull said in a recent interview.

  • “With pumped hydro, you’re limited by topography and environmental and planning restrictions.”
  • But, Turnbull added: “It’s the only way presently that you can store very large amounts of energy.”

Go deeper

2. Anadarko could leave Chevron at the altar
Illustration: Sarah Grillo/Axios

Anadarko Petroleum on Monday indicated that it may leave Chevron at the altar, and go with Occidental Petroleum's higher acquisition bid.

Why it matters: The multibillion dollar battle highlights how keen oil heavyweights are to bolster their position in booming Permian Basin, the lucrative shale region in Texas and New Mexico where all 3 companies are active.

Where it stands: Anadarko said in a statement Monday morning...

"Anadarko is resuming its earlier negotiations with Occidental because Anadarko's board of directors, following consultation with its financial and legal advisors, has unanimously determined that the Occidental Proposal could reasonably be expected to result in a 'Superior Proposal' as defined in the Chevron Merger Agreement."

But, but, but: The new twist doesn't necessarily mean that Anadarko is going with Occidental. In addition to dollars, companies consider such factors as likelihood of a deal to close.

The other side: Chevron said in a statement Monday morning: “We believe our signed agreement with Anadarko provides the best value and the most certainty to Anadarko’s shareholders.”

Flashback: On April 12, Chevron and Anadarko announced a $33 billion transaction at $65-per-share, mostly in stock. Occidental offered $76-per-share last week at an even stock/cash split.

  • There also have been reports that this is actually Occidental's second bid, having previously offered more than $70 per share in an offer quietly rejected by Anadarko's board of directors.
3. Big this week: Paris, earnings, infrastructure

Congress: The House will vote this week on Democratic legislation that would prevent the U.S. from abandoning the Paris climate agreement.

  • It also requires the president to submit a plan for meeting the current U.S. pledge made under former President Obama, which was to cut emissions by 26%–28% below 2005 levels by 2025.
  • Why it matters: It's a symbolic move because it has no chance of advancing in the GOP-controlled Senate or getting President Trump's support. But it's nonetheless a sign of how climate is moving closer to the forefront of national politics.
  • We'll be watching to see which amendments are debated when the bill comes up Wednesday. The list of submitted amendments is here, and the House Rules Committee gathers early this week to decide which ones will surface.

Business: BP reports Q1 earnings tomorrow and Royal Dutch Shell follows suit on Thursday.

  • Why it matters: Big Oil is having a tough quarter so far — both ExxonMobil and Chevron reported a drop in profits thanks to lower oil prices and weaker refining returns.

White House: Trump meets Tuesday with Democratic leaders Sen. Chuck Schumer and Rep. Nancy Pelosi to discuss infrastructure. Axios' Jonathan Swan has more on that here and here.

4. The climate risk facing oil companies
Expand chart

Adapted from BCG; Chart: Andrew Witherspoon/Axios

Oil companies risk over-investing in their traditional business lines as governments' emissions policies grow stricter and shareholders demand tougher steps on climate, a new Boston Consulting Group analysis finds.

Why it matters: It adds to a growing body of literature on the perils — and opportunities — facing the industry as fossil fuels remain dominant but there's growing pressure to accelerate the transition to low-carbon sources.

The big picture: The report recommends that companies adopt flexible and multi-pronged strategies to navigate uncertainty, including...

  • Better and more transparent reporting of their own emissions, potentially with third-party certification.
  • Talking up their products too by noting they will remain central to the energy mix for years even under aggressive transition scenarios.
  • Performing a "portfolio stress test" that considers a range of scenarios.
  • Having a "clearly defined" plan for boosting what are now relatively small investments in renewables, EV infrastructure and other business lines.

Threat level: One interesting part compares near-term production growth plans of 8 multinational oil giants to the International Energy Agency's core oil-and-gas demand growth forecast (check out the chart above).

  • It's part of a section that says companies risk spending money on assets that won't be competitive in decades ahead if demand is weaker than expected.
  • But at the same time, they risk under-investing "should peak-demand concerns prove overstated."
  • "At this point, it appears that the greater risk for oil and gas companies is placing too much emphasis on traditional products and markets."

If there's a glut, companies face the "dual risk" of weak prices and stronger odds that policymakers push for a faster transition to cleaner fuels.

  • "In this scenario, companies with the lowest costs and most flexible portfolios would be in the best position. In particular, oil and gas ­assets that require relatively little investment and offer short payback periods would be the most desirable," it states.
5. Catch up fast: The mystery of Trump's OPEC call
Giphy

A mysterious episode in petro-diplomacy occurred since our last edition.

Driving the news: Trump, while talking up the economy on Friday, told reporters (emphasis added)...

  • "The gasoline prices are coming down. I called up OPEC. I said, "You got to bring them down. You got to bring them down.' And gasoline is coming down."
  • Later in the day Trump tweeted, "Spoke to Saudi Arabia and others about increasing oil flow."

But, but, but: The Wall Street Journal reports that Trump hasn't spoken with OPEC's secretary general or the oil minister with Saudi Arabia, OPEC's most powerful producer.

  • And per Bloomberg, Trump "hasn’t spoken to anyone at OPEC’s headquarters to discuss oil production."

The intrigue: White House Press Secretary Sarah Sanders, said in a statement Saturday, "The White House is in regular contact with the world’s leading energy producing nations, including OPEC members." She added... 

"As recently as last week, White House officials met with a delegation from the Saudi Ministry of Energy, which included high-level representatives to OPEC, in Washington to discuss global oil markets and to ensure global demand is met after all Iranian oil is removed from the market."

Where it stands: Oil prices are heading downward on Monday after dropping by roughly 3% on Friday, a stark contrast to the price spike that followed last Monday's announcement of tighter sanctions against Iran.

  • “The U.S. president clearly on-boarded the Saudis before tightening the screws on Iran,” PVM Oil Associates' Stephen Brennock tells Bloomberg.

The big picture: Trump has often prodded OPEC via Twitter to argue for lower oil prices.

  • The latest comments arrive at a tricky time for the administration, which is seeking to choke off more of Iran's crude exports without seeing rises in consumer costs that create domestic political risks.
6. Richard Lugar's energy legacy

Sen. Richard Lugar in 2005. Photo: Alex Wong/Getty Images

Former Sen. Richard Lugar (R-Ind.), a foreign policy expert who was a prominent voice on energy, passed away at the age of 87 on Sunday.

Lugar advocated for energy policy to play a greater role in U.S. statecraft and highlighted geopolitical risks and opportunities, for instance focusing on projects designed to counter the influence of Russian gas in Europe.

  • "He elevated energy security & diplomacy as a key part of U.S. foreign policy," noted Columbia University's Jason Bordoff via Twitter.
  • He pushed for provisions in a wider 2007 energy law requiring that energy is woven into the "core mission" of the State Department, which helped to eventually lead to creation of State's Bureau of Energy Resources.

One key piece of his work, however, remains unfinished. Lugar co-authored the Dodd-Frank section requiring oil and mining companies to disclose their payments to foreign governments in filings with securities regulators.

  • The detailed disclosure mandate is aimed at stymieing the "resource curse" — the poverty, conflict, and corruption in many resource-rich nations in Africa and elsewhere.

But, but, but: Oil companies including Exxon and industry lobbying groups spent years battling the provision. In 2017, the GOP-led Congress passed and Trump signed a bill nullifying SEC regulations on the matter.

  • The commission is in theory required to write a new version, but there's little sign of action to date, leaving the measure in limbo.

Go deeper: Washington and Indiana mourn death of former Sen. Richard Lugar

Ben GemanAmy Harder