Jan 28, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning! Today's Smart Brevity count: 1,234 words, < 5 minutes.

And we're not far past the 1988 moment when The Pogues released their 3rd album, "If I Should Fall From Grace With God," which opens today's edition...

1 big thing: Questioning the oil market's viral freakout

Two pedestrians in Jiangtan Park on Jan. 27 during the lockdown in Wuhan, China. Photo: Getty Images

Some analysts are beginning to wonder if oil markets are overly spooked by the potential for the coronavirus to dent energy demand as travel and economic activity are crimped.

What they're saying: "Several questions remain unanswered about the potential fallout from the coronavirus, but if the experience from the 2003 SARS outbreak is any indication, demand worries are likely overdone," Barclays said in a note (emphasis added).

  • RBC Capital Markets said in a report: "We believe coronavirus is a Chinese jet fuel demand story for now and not yet a global demand story."
  • Their report, while noting the outbreak is still unfolding, says that right now the price decline is "overextended" compared to supply and demand fundamentals.
  • What's next: Who knows. "[C]alling the bottom of a market with any degree of conviction during periods of epidemics is exceedingly difficult," they note, citing fear in the marketplace.

Where it stands: OPEC "wants to extend current oil output cuts until at least June, with the possibility of deeper reductions on the table if oil demand in China is significantly impacted by the spread of a new coronavirus," Reuters reports this morning.

  • Brent crude is hanging around in the $58 per barrel range this morning, with this week reporting the lowest in over three months despite conflict in Libya that's cutting output.

Why it matters: The human health toll is what matters most, with at least 107 people dead so far. But the coronavirus is also rattling markets, and is arriving when the oil market was already awash in supplies and demand growth was modest.

  • China, where the outbreak is centered, is the world's largest oil importer and flights in the region are a massive source of jet fuel consumption.

By the numbers: Barclays' note sees global crude oil demand loss related to the virus at around 600,000 to 800,000 barrels per day in Q1 and around 200,000 for the full year, which they note is less than 0.2% of global demand.

  • They also see OPEC and allied producers stepping in with more supply cuts if demand loss is more severe.
Bonus: Tracking the flight effects of coronavirus

RBC's oil analysts teamed up with their in-house data scientists to examine the outbreak's granular, real-time effects on flight traffic within China and major Asian airports.

  • They even analyzed foot traffic at Asian airports because if that declines, it's an indicator that flights could be dropped

What they found: Departures from the five largest Chinese airports fell by nearly 800 flights this past weekend compared to the prior one, and air traffic in the five airports closet to Wuhan has dropped by nearly half in recent days.

But, but, but: "We have not observed a change in consumer traffic in the busiest Asian airports outside of China."

2. Why India needs cheap batteries
Expand chart
Reproduced from IEA; Chart: Axios Visuals

A new International Energy Agency analysis highlights the importance of battery storage paired with renewables in helping to decarbonize power.

The big picture: "With ambitious plans to use renewables — particularly solar PV — to satisfy rapidly increasing electricity demand, India will be the country with the greatest need for additional flexibility in the coming decades," it states.

Why it matters: India, the focus of the analysis, is the world's third-largest greenhouse gas emitter (after China and the U.S.) and suffers from terrible air quality problems.

What they did: They looked at projected future coal-fired and renewable power capacity in India under two scenarios.

  1. Their "stated policies" case which models existing and announced plans.
  2. A "cheap batteries" case in which battery tech costs fall more quickly than recent declines.

What they found: The "cheap batteries" scenario enables much more renewables deployment, shows coal plateauing in roughly a decade, and projects India's power-related CO2 emissions start to decline just after 2030.

3. Exxon under the microscope in earnings season

MarketWatch looks ahead to a pair of major earnings reports coming Friday.

  • "Exxon Mobil Corp. and Chevron Corp. face Wall Street scrutiny this week amid heightened negative sentiment for the sector and plunging oil prices," they note.

Where it stands: Exxon is under especially close scrutiny. Bloomberg notes that yesterday their stock closed at a 10-year low. From their piece...

  • "Chief Executive Officer Darren Woods is running a counter-cyclical strategy by investing heavily in new oil and gas assets, at a time when many investors are demanding energy companies improve returns for shareholders."

Threat level: Via Reuters, "Another year of poor profit could require Exxon to re-evaluate its bold spending plans or weaken its ability to weather the next oil-price downturn, say oil analysts."

4. A CO2-sucking business deal to watch

Illustration: Rebecca Zisser/Axios

Two companies with different climate technologies — trapping emissions from industrial plants and removing CO2 already in the atmosphere — are teaming up.

Driving the news: The Canadian firm Svante and the Swiss company Climeworks AG have a new "joint development agreement" to pilot the combination of the former's industrial capture system alongside Climeworks direct air capture (DAC) tech.

Why it matters: As this recent post from Norway's Center for International Climate and Environmental Research points out, almost all modeled emissions scenarios consistent with meeting the Paris Agreement goals envision some level of carbon capturing and negative emissions technologies.

The big picture: "By working together, the two companies can accelerate the development and adoption of both technologies for customers across industries and applications," yesterday's announcement states.

  • Per Bloomberg, Climeworks' goal is to "cut costs for capturing CO2 from ambient air to about $100 a ton from around $600 now."
  • One potential benefit, they said, is that waste heat from Svante's industrial capture process, which is designed for industries like cement and steel, can be used to power Climeworks' DAC machines.

Where it stands: The DAC industry is in pretty early stages and only occurs at a very small scale. Climeworks opened a plant in Switzerland in 2017.

  • The Bloomberg piece notes that Svante "has a plant online that captures 30 tons of CO2 a day at a Husky Energy Inc. facility in Saskatchewan."
  • They're also working with cement giant LafargeHolcim, Total, and Occidental Petroleum to explore a potential project at a cement plant in Colorado.

What they're saying: Noah Deich, executive director of the group Carbon180, tells me there's a logic behind the pairing and called the effort "pretty novel."

  • "Atmospheric and point source capture are both essential for meeting climate goals, and there are a lot of ways that atmospheric and point-source projects can share costs (permitting, infrastructure, financing, etc.) by developing in tandem," he said via email.
5. Why climate litigants may have won by losing

UCLA law prof Ann Carlson has a hot take (sorry!) about the demise of climate litigation brought by young people who sought, on constitutional grounds, sweeping government steps to cut emissions.

The big picture: She argues that the ninth circuit's dismissal this month effectively had a silver lining for advocates by preventing the case from ever making it before the conservative-led Supreme Court.

Here's part of her new(ish) post on the school's Legal Planet blog...

"The only question about the outcome in the Supreme Court would be the grounds for dismissal of the case."
"A very real possibility  is that the Supreme Court could issue a decision that seriously limits standing doctrine for environmental plaintiffs more generally, or at least for any plaintiffs bringing a case alleging harm from the government’s failure to address climate change."

Go deeper: Appeals court tosses high-profile youth climate lawsuit

6. Catch up fast: Russia, climate, renewables, mobility

Geopolitics: "Russia has said it will complete construction of the controversial Nord Stream 2 gas pipeline under the Baltic Sea without the help of foreign companies, marking a victory for the US which imposed sanctions in an attempt to halt the project," FT reports.

States: Per The New York Times, "New Jersey will become the first state to require that builders take into account the impact of climate change, including rising sea levels, in order to win government approval for projects, Gov. Philip D. Murphy announced on Monday."

Renewables: Via Greentech Media, asset management giant BlackRock "has a new multibillion-dollar renewable energy fund in the works, and a good chunk of it may go to batteries."

Mobility: "Bird has acquired European scooter rental rival Circ, founded by Delivery Hero co-founder Lukasz Gadowski, and has raised an additional $75 million for its Series D round (for a total of $350 million)," Axios' Kia Kokalitcheva reports.

Ben GemanAmy Harder