May 26, 2020

Axios Generate

Ben Geman

Welcome back. I hope everyone had a nice long weekend (under the circumstances).

Today's Smart Brevity count: 1,181 words, 4.5 minutes.

🎵 And yesterday marked the 1987 release date of The Cure's "Kiss Me, Kiss Me, Kiss Me," which provides today's intro tune...

1 big thing: The oil stakes of Trump vs. Biden
Reproduced from Rapidan Energy Group; Chart: Axios Visuals

U.S. oil production is in a steep decline, but one question is how much November's elections will affect how much it does — or doesn't — bounce back.

Why it matters: The powerful price and demand headwinds from COVID-19 are creating a financial crisis in the oil patch.

  • The fallout will be continuing come November, which will bring a choice between candidates with hugely different energy and climate policy plans.
  • Joe Biden is vowing new steps to stem heat-trapping emissions and accelerate the transition to cleaner fuels and power sources, while President Trump opposes climate regulations and curbs on fossil fuel development.

Driving the news: An interesting Rapidan Energy Group analysis games out the medium-term future of U.S. production under Trump vs. Biden.

What they found: Under their base case, the "near-term macroeconomic risk remains skewed firmly toward longer, deeper economic weakness," but recovery awaits.

  • U.S. production is a million barrels per day lower by 2023 under Biden than Trump.

Yes, but: Under a weaker price and demand recovery forecast, the effect of Trump's policies compared to Biden's is much smaller.

  • "U.S. shale’s outlook under a weak macro environment differs negligibly under a Trump or Biden presidency," they note, citing the financial strain on the sector and problems accessing capital.
  • "Trump policies would do little to resurrect the sector while Biden policies would do little additional harm."

One level deeper: Rapidan analyzed market scenarios through 2023, and then grafted the policy overlay onto that outlook.

  • The base-case scenario sees Brent crude prices rebounding to the low-$50s in 2023 and a 10 million barrel per day recovery in demand.
  • But the weaker-recovery scenario sees prices only in the low-$40s in 2023 and a demand revival that's about 25% smaller than in the base case.

The intrigue: Under the base case, various Biden policies that act as a check on the amount of shale production levels include requiring stronger emissions controls, thwarting fossil fuel infrastructure, and allowing more Iranian barrels onto the market.

2. Where it stands: Oil's present and future

Crude oil prices are rising Tuesday, with Reuters citing market confidence that producers worldwide are following through on vows to cut supply "while fuel demand picks up with more cars back on the road as coronavirus lockdowns ease."

  • This morning, Brent crude was trading around $36.40 and WTI at $34.35.

Driving the news: The market remains oversupplied, but Russia sees things coming into balance over the summer, per Bloomberg.

  • "Around the world, producers have lowered global oil supply by 14-15 million barrels a day so far, Energy Minister Alexander Novak said in a statement Monday," they report.

By the numbers: In the U.S., Energy Secretary Dan Brouillette told a DOE advisory board late last week that more than 2.2 million barrels per day of U.S. production has been taken offline, S&P Global Platts reports.

  • Meanwhile, on Friday the oilfield services firm Baker Hughes reported yet another decline in the number of active oil rigs deployed nationwide, bringing it down to 237 compared to 797 a year ago.
  • The drilling rig count helps gauge future production, especially because output from shale wells declines fast, so lots of drilling and fracking is needed to maintain or boost output.

The big picture: "American shale drillers helped turn the U.S. into the world’s top oil producer, topping 13 million barrels a day earlier this year. It likely will be years — if ever — before they reach such heights again," the Wall Street Journal reports in an in-depth look at the sector's woes.

3. More signs of the oil demand revival
Data: TSA; Chart: Naema Ahmed/Axios

Transportation Security Administration data shows that people are returning to airports at a significant rate, Axios' Dion Rabouin reports.

By the numbers: While still down from its early March level when more than 2 million people were screened at airports each day, TSA screened nearly 350,000 people on Friday.

  • That is more than triple the number of people who went through screening checkpoints as recently as April 28, Dion reports.

Why it matters: It's one of several pieces of evidence in the U.S. and worldwide that travel by car and now by plane — two key sources of oil demand — is recovering.

What they're saying: The consultancy Wood Mackenzie said in a new analysis that gasoline demand in China, the world's second-largest oil consumer, will likely return to last year's levels by June.

  • "China’s demand for gasoline and diesel are expected to increase [year over year] from Q3 2020 onwards," they estimate.
  • However, they see jet fuel demand continuing to fall in China for the rest of the year.
  • "Air traffic remains weak due to restrictions on international flights and precautions taken by passengers to avoid crowded places," they said.
4. EV startups scramble to avoid power loss

Illustration: Aïda Amer/Axios

At least a dozen electric vehicle startups with dreams of becoming the next Tesla are suddenly in limbo, hoping they can outlast the pandemic for a chance to deliver on their long-shot ambitions, Axios' Joann Muller reports.

The big picture: Building a car company from scratch is extraordinarily difficult, requiring billions of dollars in capital. Tesla made it, but not without a few perilous ups and downs.

  • Add the economic uncertainty of a global pandemic and the stunning collapse in oil prices, and the odds of success are even lower.

History is littered with the failures of automobile impresarios like Preston Tucker, John DeLorean and Malcolm Bricklin.

  • Elon Musk's breakthrough success at Tesla shows it can be done, inspiring a new crop of innovators, each with their own change-the-world gambit.

What's happening: Some new players are focused on electric trucks or commercial vehicles like Rivian, Nikola, Bollinger, Lordstown Motors, Workhorse and Arrival.

  • Lucid Motors, Byton, Faraday Future, Karma, NIO and Czinger are targeting high-end buyers with plug-in luxury cars.
  • Most had plans to launch this year, or next, with money provided by traditional venture capital, or rich backers in China and the Middle East.

Then the pandemic hit, changing everything.

  • The cancellation of the world's biggest auto shows dashed some companies' plans for splashy unveilings that would have brought lots of media attention.
  • Virtual events and social media lack the same magic, making it that much harder to get noticed and build brand recognition online.

Go deeper

5. Catch up fast: hydrogen, climate, nuclear

Hydrogen: "Six of Denmark’s biggest companies are teaming up to launch one of the world’s largest green hydrogen projects as they look to create emission-free fuels suitable for ships, trucks, aircraft and heavy industry." (Financial Times)

Research: "Rates of climate change in the world’s ocean depths could be seven times higher than current levels by the second half of this century even if emissions of greenhouse gases were cut dramatically, according to new research." (The Guardian)

Fusion: "U.S. clean-energy startup, Commonwealth Fusion Systems, raised an additional $84 million from major investors in Europe and Asia, underscoring that the appetite remains to back new technologies which could mitigate climate change. (Bloomberg)

6. Quote of the day
"My gut feeling is that we may all be exaggerating the impact of behavioral changes."

Who said it: International Energy Agency executive director Fatih Birol, during a wider interview with E&E News.

Why it matters: One big pandemic-related question is how much telework, virtual conferences and other remote behaviors become a new normal that eats into oil use.

The big picture: Birol tells E&E that behavioral changes "will have an impact on emissions and also on oil demand or energy demand in general."

  • But he cautions it's minor compared to the impact of policy (Birol's pushing countries to craft green recovery plans) and economic growth.

The bottom line: Birol, in new comments to Bloomberg, says oil demand will exceed pre-pandemic levels "in the absence of strong government policies."

Ben Geman