Apr 8, 2020

Axios Generate

Good morning. Today's Smart Brevity count: 1,306 words, a 5-minute read.

Situational awareness: The Restaurant Workers' Community Foundation is raising money to help workers facing dire economic distress.

And, RIP to singer and songwriter John Prine, who died yesterday from complications of COVID-19. He'll play us into the edition...

1 big thing: U.S. oil boom is thrown into reverse...
Data: EIA; Chart: Naema Ahmed/Axios

Pain in the U.S. oil patch from COVID-19 is no longer on the horizon. It's here, and several new reports and data points show how quickly it's happening.

Driving the news: The Energy Information Administration yesterday released a sharp downward revision to its U.S. crude oil production forecast.

  • Declines are now projected to be deeper and begin faster than the prior forecast issued less than a month ago, as the chart above shows.
  • EIA now sees U.S. crude oil production falling to an average of 11.76 million barrels per day this year and just over 11 million in 2021.
  • And via Politico, "EIA's forecast may still be too rosy, since many industry analysts are expecting U.S. production to decline by 3 million barrels per day or more this year as companies tighten spending and idle drilling rigs."

The big picture: EIA's closely watched outlook was not the only sign yesterday of how the twin effects of collapsing demand and low prices are taking hold, prompting layoffs and pushing some firms closer to bankruptcy.

What they're saying: A new report from the Kansas City Fed, which surveyed energy companies, finds that activity "decreased at a steep pace in the first quarter of 2020."

  • Why it matters: The Kansas City Fed region covers oil and natural gas producing states of Colorado, Wyoming, and Oklahoma.
  • What they found: The survey showed that expectations around future profits, employment, spending and revenues all fell.
  • What's next: The survey asked what prices for WTI the firms need for drilling to be profitable in fields where they're active. The average is $47-per-barrel. Prices are currently in the $24 range.
  • Threat level: Participants in the survey expect, on average, that 61% of firms will stay solvent in the next year if prices were at $30, and that only moves to 64% at $40.

Meanwhile, the law firm Haynes and Boone, which carefully tracks industry finances, yesterday issued its latest report on bankruptcies and what's ahead.

  • They tallied eight bankruptcies in the oilfield services sector in Q1, a slight uptick over Q4 of 2019 but below Q3 2019 levels.
  • Seven oil-and-gas companies filed for bankruptcy, which is below the prior three quarters.
  • However, their analysis finds that as Q2 begins, "extreme financial pressure is being felt at all levels of the energy industry."
  • Among oilfield services companies, "many smaller or highly leveraged companies may not be able to hold on."
... as coronavirus takes its toll on energy

Here are a few more top-line findings from the latest EIA report, which show the effects of the U.S. lockdowns and vastly reduced economic activity stemming from the pandemic.

  • These are all annualized effects, so bear in mind that the near-term impacts are more significant.

By the numbers: EIA sees a 9% annual decline in gasoline consumption this year compared to 2019 (and the current decline is far steeper).

  • Retail electricity sales to the commercial sector are expected to decline by 4.7% year-over-year due to business closures, while factory cutbacks mean sales to the industrial sector fall by 4.2%.
  • Total annual electric power generation is projected to decline by 3%, while generation from coal, which has already been losing market share for years, falls by 20%.
  • Energy-related carbon dioxide emissions (which are the lion's share) are projected to fall by 7.5% in 2020, but then rise 3.6% next year.
  • They expect the U.S. to revert back to being a net importer of crude oil and petroleum products combined in Q3 and remain that way for a while.

But, but, but: There are all kinds of known unknowns, which EIA acknowledges in the latest 2020–2021 outlook.

  • The monthly report is "subject to heightened levels of uncertainty" because COVID-19's effect on energy markets is "still evolving."
2. Electric vehicles sales slated for big drop

Illustration: Rebecca Zisser/Axios

Global sales of electric vehicles are projected to drop by 43% this year as the technology faces a series of overlapping problems, the consultancy Wood Mackenzie finds in a new analysis.

Driving the news: "The coronavirus outbreak, potential delays to fleet purchasing due to lower oil price and a wait-and-see approach to buying new models have all contributed to this decrease in projected sales," they write.

  • They see worldwide sales of battery electric and plug-in hybrids at 1.3 million vehicles this year, compared to 2.2 million last year.

Why it matters: EVs remain a niche market, and the Wood Mackenzie report shows why COVID-19 means even more speed bumps on the path to the technology becoming mainstream — and for multiple reasons.

  • "The automakers’ response to the pandemic — suspending car manufacturing to focus on making medical equipment — is only going to delay model launches further," Wood Mackenzie analyst Ram Chandrasekaran notes in the report.

But, but, but: Chandrasekaran also says that pent-up demand is expected to help a bounce back in sales later in the year, and the long-term trend is slated to remain upward.

  • He points out that automakers have become more interested in climate-friendly product lines due to government policies and investor attitudes.
  • "The shift towards sustainability is the driving force behind the electrification of transport. Uncertainty caused by the oil price war and global catastrophes will only serve to strengthen that resolve, not deter it."
3. The Russia-U.S. divide in oil negotiations

Russia is balking at the idea that market-driven declines in U.S. oil output could represent a significant contribution to a new global production-cutting deal, Bloomberg and Reuters reported this morning.

Why it matters: The Russian posture comes ahead of OPEC+ talks tomorrow and a meeting of G20 energy ministers Friday.

  • It signals the hurdles in front of efforts to craft a meaningful new agreement to try and stabilize markets as the coronavirus crushes demand.

What they're saying: Kremlin spokesperson Dmitry Peskov told reporters that U.S. cuts occurring over time in response to low prices should not be viewed the same way as top-down restrictions.

  • "These are absolutely different reductions. You are comparing overall decline in demand with cuts aimed at stabilizing global markets," he said, per Reuters.

The other side: The Trump administration has not offered mandatory curbs — which would be highly unusual — unlike major players including Russia and Saudi Arabia.

  • The Energy Department yesterday forecast a steep decline in U.S. production this year that's maintained through 2021.
  • "With regards to media reports that OPEC+ will require the United States to make cuts in order to come to an agreement: The EIA report [yesterday] demonstrates that there are already projected cuts of 2 [million barrels per day], without any intervention from the federal government," per a DOE statement accompanying the forecast.

What we don't know: How Russia's posture will affect the outcome of the OPEC+ talks. "Peskov declined to say what Russia’s position would be in the upcoming meeting," Reuters notes.

4. Study: Air pollution may worsen COVID-19 fatalities

Coronavirus patients in the more polluted parts of the U.S. are more likely to die from the illness than those in cleaner areas, according to a new Harvard University analysis of 3,080 counties across the country, Axios' Fadel Allassan writes.

Why it matters: The study indicates a correlation between long-term exposure to air pollution and heightened death rates associated with the virus.

  • Its findings could impact how medical resources necessary to respond to the virus are being distributed throughout the U.S., per the New York Times.

The big picture: The new analysis demonstrated that even slight increases in the level of fine particulate pollution — much of which comes from fuel combustion, as well as indoor sources — had negative impacts associated with COVID-19.

What they found:

  • Someone who has lived for decades in a county with dangerous levels of pollution, called PM 2.5, is 15% more likely to die from the coronavirus than an individual in an area with one fewer unit of pollution from the particulate matter.
  • Lowering the average particulate matter in Manhattan by a single unit over the last 20 years could have resulted in 248 fewer COVID-19 deaths to date, the study suggests.

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