Nov 16, 2018

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Happy Friday!

At this moment in 1980, Bruce Springsteen was atop the Billboard album charts with "The River."

So one those tracks, with A+ stuff from the late Clarence Clemons, takes us into the weekend...

1 big thing: Why oil's loss is a corporate win

Illustration: Sarah Grillo/Axios

Falling oil prices are bad news for the oil industry — but they're great news for corporations that could use the relief from other expenses, Axios' Courtenay Brown reports.

Why it matters: With a tight labor market that's forcing companies to pay more to attract workers, plus the costs of tariffs from President Trump's trade war, oil is one less expense that will cut into companies' profits.

  • "The oil price decline offsets other cost pressures that businesses have," Conrad DeQuadros, an economist at RDQ Economics, tells Axios.
  • The one exception: the energy sector, which banks on higher oil prices.

Driving the news: U.S. crude oil is recovering slightly in recent days after a record 12 days of consecutive price declines, driven by fears of an oversupply.

  • U.S. crude prices fell as low as $55, while Brent crude, the global benchmark, dropped to $65 per barrel. In October, they'd been as high as $77 and $87 per barrel, respectively.
  • Analysts at Bank of America dialed back expectations on Wednesday that prices could climb to $95 per barrel "after the most sizable oil price corrections in recent memory," according to a research note.

Background: Companies are already being hit with a triple whammy — higher commodity costs (including oil), a trade war that's making materials more expensive, and rising interest rates.

  • Now add one more: Labor costs have jumped, thanks to wages rising at the fastest rate in nearly 10 years.

Executives haven't been quiet about rising costs and the pressure they're putting on profit margins.

  • Take Walmart, whose CFO Brett Biggs told analysts in October that the high fuel prices at the time — which played a role in pushing up transportation costs — were a "challenge" for the company this year.
  • "I think fuel prices are about $2.90 a gallon compared to $2.50 a year ago. The tariff issue is there. Interest rates tick up, you've got mortgage pressure on customers that you didn't have six months ago," Walmart CEO Doug McMillon added. (Walmart has warned that it may pass along tariff-related costs to consumers.)

Gasoline prices at the pump have plummeted alongside oil prices in recent weeks. That means companies can count on cheaper gas to push an already strong consumer to spend more.

Yes, but: There's no indication that falling oil prices now are a signal that they'll stay low for a long time — or that there will be a significant downturn like we saw between 2014 and 2015.

  • Jeff Currie, a commodities analyst at Goldman Sachs, told CNBC the oil market sell-off was overblown. He said prices will rebound when OPEC, a group of key oil-producing countries, and allied producers including Russia, talk about a supply cut at a meeting next month.

The bottom line: Lower oil prices have arrived at the right time for companies dealing with a potentially escalating trade war and the tightest labor market we've seen in decades.

Go deeper: Read Courtenay's full piece here.

2. The power industry's fiery future in California
Expand chart
Data: CAL FIRE and US Forest Service, NOAA; Note: Lines of best fit created using LOESS smoothing; Chart: Harry Stevens/Axios

California's deadly and tragic wildfires this month are creating big financial problems and bringing new scrutiny to the state's power companies.

The latest: Via the Wall Street Journal late last night, "A California regulator said ... it was expanding a probe of PG&E Corp.’s safety practices to explore the way the company is managed and run, including whether it should be broken up."

Threat level: In a special wildfire edition of the Axios Science newsletter, Andrew Freedman reports on reasons there's likely more to come in California and more broadly in the West after the latest in a 13-month string of the deadliest and most destructive blazes the state has ever seen.

The big picture: These fires have parameters in common — unusually warm and dry preceding conditions, strong winds that caused the fires to spread rapidly, extreme fire behavior and populated areas that are difficult to evacuate on short notice.

No single factor — not climate change, forest management or building practices — is responsible for the deadly blazes the state is now seeing, experts tell Axios. Instead, it's their combination that's making an already dicey situation far worse. And the outlook in coming years, as climate change continues, is foreboding.

  • The state's fire season now stretches later into the fall and starts earlier in the spring.
  • “Fire season in California doesn’t have a well-defined boundary anymore, that’s been true for some time," said Brenda Belongie, a U.S. Forest Service meteorologist.

What's happening: Longer-term climate change and population growth are combining to increase wildfire risk in California and more broadly across the American West.

  • One of the starkest changes firefighters are contending with is an uptick in instances of extreme fire behavior, such as the massive EF-3 fire tornado that accompanied the Carr Fire in July.
  • The biggest climate change-related impact is manifested in the increased dryness of vegetation.

Go deeper: Read the full newsletter and subscribe here.

3. Latest in policy: FERC, Arctic, Congress

FERC: Via Utility Dive, the nominee for an open Federal Energy Regulatory Commission seat is distancing himself from his work on a controversial — and unsuccessful — DOE proposal to prop up coal-fired and nuclear power plants. From their piece on Bernard McNamee's testimony before the Senate Energy and Natural Resources Committee...

  • "McNamee pledged to be an 'independent arbiter' on FERC and to separate his decisions as a regulator from his previous role at the Department of Energy, where he worked on the bailout plan. He declined, however, to say if he would recuse himself from similar issues at FERC."

Arctic drilling: S&P Global Platts looks at Interior Department preparations to lease massive offshore tracts in ecologically sensitive Arctic waters off Alaska's coast.

  • The intrigue: There may not be much industry interest in pursuing leases there.
  • "[S&P Global Platts Analytics' Rene] Santos said that harsh Arctic conditions that will increase drilling costs, coupled with opposition from environmental groups, will likely deter much commercial interest in the Arctic," they report.
  • Uncertainty around federal regulations, especially if Trump is not re-elected, is another variable, the story notes.

Congress: The Washington Examiner chatted with lawmakers who see opportunities for targeted bipartisan cooperation on energy legislation next year.

  • An infrastructure package could provide openings in areas such as efficiency in publicly funded projects, grid modernization and EV charging, they report.
4. What the U.S. pays for power
Expand chart
Data: U.S. Energy Information Administration; Chart: Naema Ahmed and Harry Stevens/Axios

Electricity is the thing we all need but don’t think about — unless it’s gone or extremely expensive, writes Axios' Amy Harder.

Why it matters: While the type of fuel powering America’s electricity has shifted rapidly in the last decade, what matters most to many people is what they pay for their electricity.

  • Unlike the gasoline prices on constant big display, our electricity bills are usually buried in the mail or our email inboxes — or simply set to auto-pay.

Driving the news: What we pay can vary wildly based on where we live, the weather, government involvement in electricity markets, and, of course, how much electricity we use.

Go deeper: Tale of 4 states: America’s changing electricity mix

5. Quote of the day
"With the direct air capture technologies, 10 years ago you would have said that’s just like a fairy tale."

Who said it: Princeton University's Stephen Pacala in this new interview with Yale Environment 360. He led a recent National Academies report on development and deployment of negative emissions technologies.

What he said next, per the interview:

"But because of diligent activity by a small number of technical people, there’s been very rapid progress, so much so that knowledgeable people who are not starry-eyed, but just hard-headed, believe that there is a very high probability that a research effort within 10 years would produce direct air capture at less than a dollar a gallon of gasoline."

Go deeper:

Ben GemanAmy Harder