Axios Generate

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December 21, 2017

Good morning and welcome back!

I recommend keeping an eye on the Axios stream for coverage of Mike Allen's interviews this morning with Senate Majority Leader Mitch McConnell and Democratic Sen. Mark Warner.

Ok, let's dive in . . .

Large domestic oil producer issues first climate analysis

Here's the latest from my colleague Amy Harder's ongoing look at the oil-and-gas industry's climate posture...

Pioneer Natural Resources, one of the largest U.S. oil producers, released this week its first-ever sustainability report that analyzes how the company would fare in a carbon-constrained world.

Why it matters: Pioneer is a dominant producer in Texas' prolific Permian oil basin, so their move to publish such a report suggests it's not just the biggest global oil and gas companies that are starting to consider climate change as a material business risk. It also shows the impact of investor pressure, as the report was required by a shareholder resolution vote.

The big picture: Oil and gas companies based in the U.S. with mostly domestic operations, like Pioneer, are responding to growing concerns about climate change and sustainability by cutting costs to become hyper-lean oil producers.

The world is going to need a lot of oil for a very long time, even in a lower-carbon world, and relatively smaller companies with less capital to put in riskier investments hope to be among the companies providing the oil.

Read the full story here.

Trump super-sizes ANWR despite known unknowns

On the record: Here's part of what President Trump said during yesterday's public victory lap over the tax package, which includes provisions opening the coastal plain of the Arctic National Wildlife Refuge to oil exploration (emphasis added by your Generate host):

"It will be one of our biggest — one of our biggest oil reserves. It's one of the biggest in the world. Puts us at a level that we're not even at now, and we're doing very well in terms of, as you know, energy. But ANWR by itself would be a big bill."

To be sure: Estimates thus far suggest that enormous hydrocarbon deposits could sit beneath the coastal plain of the refuge, called the 1002 area.

  • But nobody really knows for sure, especially absent modern seismic testing and actual exploratory drilling that opening the area will enable. Results from the only well ever drilled there, in the mid-1980s, have never been made public.

Reality check: As for the "one biggest in the world" comment, well, that's unlikely — the largest single oilfields worldwide contain resources that match or in some cases vastly exceed the existing estimates for the entire 1002 area.

Go deeper: The existing U.S. Geological Survey analysis of the 1002 area is based on decades-old seismic testing that oil companies conducted in the 1980s.

  • Their estimate for the entire 1.5 million acre area — which includes some state and Native regions — is 5.7 billion and 16 billion barrels of technically recoverable oil, with a mean estimate of 10.4 billion, while the federal portion specifically is estimated to have somewhat less.

Expert: the climate blind spot in Trump's natsec strategy

The latest entry in the Axios' Expert Voices section looks at Trump's security outlook. Here's more from David Livingston, deputy director of the Global Energy Center at the Atlantic Council ...

Not there: According to Trump's National Security Strategy, climate policies will "continue to shape the global energy system" but climate change doesn't pose an explicit national security threat.

This omission is hard to square with the Defense Department's recognition of climate as a "threat multiplier" that will exacerbate global droughts, flooding and migration and will lead to calls on the U.S. military to accompany these destabilizing events.

Why it matters: Dollars should continue to flow to reinforce military bases facing coastal erosion, anticipate climate-driven threats and invest in technologies to liberate soldiers from vulnerable fossil fuel supply chains. If that funding stops, there will be more to worry about than a few words missing from a strategy document.

Click here for a slightly extended version in the Axios stream.

Big in oil: Aramco and shale are frenemies

Driving the news: The Wall Street Journal reports that Saudi Arabia's state oil giant Aramco has been quietly scoping out investments in the U.S. oil patch.

Key point, per WSJ:

  • "Saudi Arabian Oil Co., known as Aramco, has had initial conversations about taking a stake in Tellurian Inc., a liquefied-natural-gas developer based in Houston, or agreeing to buy some of its fuel in the future, people familiar with the matter said. Separately, it has inquired about acquiring assets in two giant U.S. oil-and-gas basins, the Permian and Eagle Ford, the people said."

Why it matters: The Saudi's seeming interest in securing a piece of the prolific Texas shale play, and the expanding U.S. LNG sector, highlight how fully the U.S. has reemerged as a global petroleum powerhouse in recent years — one that has forced the world's biggest petro-states to rethink their strategies.

The WSJ piece cautions that talks have been preliminary, but adds that an effort to acquire U.S. assets would mark a "watershed" moment for the kingdom, noting:

  • "It has been the world's top exporter of crude oil for decades, but booming U.S. production has shaken the kingdom, depressing prices and compelling the government to rethink its dependence on revenue from its massive petroleum reserves."

IPO link: The story says that producing and exporting U.S. gas could be the kind of diversification that would make Aramco more attractive to investors ahead of plans for its massive IPO of a small percentage of the company later this year.

Hunt for gas: Bloomberg also looks at Saudi Arabia's search for investments abroad, noting Aramco is "looking for natural gas assets from Russia to East Africa and the U.S. as the kingdom's state-owned energy giant hunts for ways to meet soaring domestic demand."

More oil-and-gas notes

Record low: The consultancy Rystad Energy said Thursday that discoveries of conventional oil-and-gas resources worldwide in 2017 were at a record low, with less than 7 billion barrels of oil equivalent located.

  • Quick take: It's another data point to support what some analysts fear could be a very tight supply picture a few years down the road, despite the current glut of crude oil.
  • "While there have been some notable successes this year, we have to face the fact that the low discovered volumes on global level represent a serious threat to the supply levels some ten years down the road," said Rystad senior analyst Sonia Mladá Passos in the company's announcement of the data.

One possible future: Longtime oil analyst Michael Lynch has a lengthy new piece in Forbes explaining the forces that could lead to prices that defy expectations and collapse next year.

  • The bottom line, per Lynch: "A price collapse could occur in response to a bearish U.S. stock market, especially presaging a recession; cheating by Iraq or Russia; or U.S. oil shale production appearing so robust as to threaten OPEC's long-term market share."

The view from BP: The company's CEO Bob Dudley chatted with the Financial Times about topics including his somewhat skeptical long-term views on shale.

Latest in Congress: extenders and ethanol

Extenders: Republicans on the Senate Finance Committee released plans last night to extend a series of lapsed or soon-to-expire energy-related tax credits, covering energy efficient homes and buildings, biodiesel, geothermal energy and more.

  • It also extends the availability of a tax credit for new nuclear power projects, which could be key for Southern Company's efforts to complete a troubled reactor project in Georgia.
  • Another provision boosts credits for carbon capture and storage initiatives.
  • Read the bill here.

Biofuels: Via Reuters, "Senator John Cornyn, the No. 2 Senate Republican, is trying to win support from the Midwest corn lobby for a broad legislative overhaul of the nation's biofuels policy, according to sources familiar with the matter."

What we're watching today: A critical decision on utility giant Southern Company's troubled nuclear power project in Georgia by the Georgia Public Service Commission. The Augusta Chronicle gives a preview here.

Thanks for reading and we'll see you back here tomorrow.