Sep 25, 2018

Axios Generate

Ben Geman

Welcome back!

Situational awareness: "The oil price shot to its highest in four years on Tuesday, catapulted by upcoming U.S. sanctions on Iranian crude exports and the apparent reluctance of OPEC and Russia to raise output to offset the potential hit to global supply," Reuters reports.

Onto music ... at this moment 30 years ago, Public Enemy had just ascended the top of Billboard's hip-hop album charts with "It Takes a Nation of Millions to Hold Us Back." So that pioneering act provides today's intro tune...

1 big thing: Nuclear power project on the brink
Giphy

A troubled, over-budget project to build two new nuclear reactors in Georgia is still alive after a high-stakes vote by co-owners yesterday — but maybe for not much longer.

What to watch: The parties have set a deadline of 5pm today to try and hash out a deal.

Why it matters: It's the only commercial reactor project currently under construction in the country, and as we noted yesterday, its demise would be a further blow to the industry that has seen its hopes for a U.S. renaissance fade.

Where it stands: Last night Oglethorpe Power announced a "conditional vote" to move forward with ongoing construction of the Southern Company-led expansion of the Vogtle site.

  • The company statement came hours after the Municipal Electric Authority of Georgia announced its continued support, joining previous moves by Southern subsidiary Georgia Power and Dalton Utilities (which has a small share).

Yes, but: Oglethorpe, which has a 30% stake in the project, is demanding steps to limit its exposure to future cost overruns, per their statement.

  • The budget for the project, which is years behind schedule, recently swelled by another $2.3 billion and now stands at roughly $27 billion.
  • One scenario, they said, is a "cap at the current project budget (inclusive of the $2.3 billion budget increase) but allows for an additional $800 million to be added to the contingency, raising it to $1.6 billion."

The intrigue: Oglethorpe CEO Mike Smith says in their statement, "Southern Company should be willing to bear further risk of [Southern Nuclear Corp.'s] missed budgets, not our members."

But close to midnight yesterday, Southern subsidiary Georgia Power, which has a nearly 46% share of the project, balked at Oglethorpe's demands. Oglethorpe has "demanded concessions to avoid obligations that it undertook when it became an owner of the project," the company said in a separate statement.

2. Big Oil's climate change tightrope

My colleague Amy Harder reports from New York ... CEOs of the world’s biggest oil and natural gas companies are pledging to cut their emissions of methane, a potent greenhouse gas (GHG), by one-fifth despite staying silent on the Trump administration’s regulatory rollback on the matter.

Why it matters: The announcement made Monday by the Oil and Gas Climate Initiative, a group of top oil companies that represent nearly a third of the world’s oil and gas production, is a significant move given methane's impact.

Yes, but: In interviews with Axios and during a conference in New York on Monday, several oil executives declined to comment one way or another about the Trump administration’s rollback of EPA and Interior Department methane rules.

Separately at the conference, Ken Alex, a senior adviser to California Gov. Jerry Brown, asked the CEOs if they would publicly oppose President Trump's moves to scuttle the regulations. They opted not to do so.

“We’re not going to go out and criticize any government around their role. That’s not productive.”
— Bob Dudley, CEO, BP
“We are not in politics. We are in business. I need to do the right things for business ... I’m not here to advocate for or against an administration or a particular political development.”
— Ben van Beurden, CEO, Shell

Between the lines: Corporate CEOs are notoriously cautious with political moves, and this case is no exception. But rhetoric aside, the disconnect between the Trump administration and the world’s biggest oil companies is growing on climate change.

3. Renewables news and notes

The big picture: Via the Financial Times, "This year, emerging markets will overtake developed nations in terms of the amount of renewable wind and solar power they have installed, according to Moody’s, the credit rating agency."

Big Oil's role: Greentech Media breaks down a new Wood Mackenzie report on how oil companies are approaching renewables, which provide relatively low risk but also low returns compared to their traditional business.

  • "According to WoodMac's analysis, the 22 percent return on equity investment for North American onshore projects dwarfs the 5 to 7 percent return on solar projects and the 7 to 9 percent return on wind projects with guaranteed revenue."
  • "But renewables can compete with returns on exploration, downstream projects and upstream merger and acquisition investments."

Wind: Per Reuters, "Iberdrola SA, the world’s biggest wind power producer, plans to expand its renewable capacity in the United States by about 50 percent over four years as part of the Spanish electric utility’s global plan to reduce carbon emissions, its chief executive told Reuters on Monday."

4. Chart of the day: a crude export milestone

Screenshot: EIA report on U.S. petroleum product exports

Crude oil has become the largest single U.S. petroleum product export, federal data shows.

Why it matters: The Energy Information Administration data is another sign of the growing role of U.S. crude oil global markets, thanks to the shale boom and the lifting of the export ban in late 2015.

The details: "Crude oil surpassed hydrocarbon gas liquids (HGL) to become the largest U.S. petroleum export, with 1.8 million barrels per day (b/d) of exports in the first half of 2018," EIA said in a short report.

5. European Union carbon prices rise ...

Luca Mastropasqua writes for Axios Expert Voices ... Over the past year, the European Union Emission Trading Scheme (EU ETS) has acted on the market to reduce the number of available CO2 allowances in its cap-and-trade system.

  • Initiated in 2005, it's the largest such system in the world designed for reducing GHG emissions, whereby businesses must purchase a permit at a set price in order to emit CO2.

What's new: The ETS' recent action, along with the increase in post-recession industrial productivity, has led to more than a 320% rise in CO2 allowance price, to around 22 euros per ton.

  • This is good news insofar as CO2 emissions will likely decrease, but might jeopardize the competitiveness of businesses worldwide.

The background: The recent steep price rise for CO2 emissions allowances comes after almost 5 years of oscillation between 4 and 8 euros per ton. These prices were well below the level required to cause the hoped-for reductions in CO2 emissions among big power plants and carbon-intensive industries.

The big picture: GHG emissions are a worldwide problem that cannot be addressed only by local policies. Today, the multiplicity of carbon pricing schemes creates market uncertainty and may undermine the competitiveness of industrial sectors subjected to different emissions caps.

  • Despite this, many industries are making large investments in CO2 emissions technologies, such as carbon capture and storage (CCS) (e.g., cement manufacturers in Italy) and hydrogen energy (e.g., steel plants in Sweden).

What's next: Some observers foresee a rise of up to 35–40 euros per ton of CO2 by 2023. Should this come to pass, many low-carbon technologies now available, including CCS, would become economically viable and could replace carbon-intensive processes in both the power and industrial sector.

Mastropasqua is a research fellow at the Group of Energy Conversion Systems at Politecnico di Milano.

6. ... but G20 costs aren't slashing emissions
Screenshot: IHS Markit report "G20 Carbon Price Signals Insufficient to Reach Paris Agreement Goals"

A new IHS Markit report makes starkly clear that carbon pricing in the world's largest economies won't curb emissions enough to prevent high levels of warming.

Why it matters: The consultancy's analysis comes on the heels of a OECD analysis of worldwide carbon pricing that essentially finds the same thing.

  • It's an obvious point but also an important one — pricing CO2 from fossil fuels doesn't matter that much in the abstract.

What they found: The IHS analysis says that while prices in the range of $40-$80 per ton of CO2 by 2020 are needed to put emissions on a path to eventually achieve the Paris goals, the average CO2 price in the G20 right now is just $16 per ton.

  • At that level, the study notes, "carbon pricing mechanisms alone are unlikely to trigger the needed changes in investment, production, and consumption patterns."

The bottom line: "Carbon pricing mechanisms are nonexistent or insufficient to reach the Paris Agreement targets in G20 governments, and the price signals that are in place or may be implemented in the future may be distorted by the persistence of fossil fuel subsidies in the G20."

7. Quote of the day
"For some reason concrete in New Jersey is not considered very sexy."
— Tom Schuler, president and CEO, Solidia

Amy reports from New York ... Schuler's comments came at an event Monday hosted by the group, the Oil and Gas Climate Initiative.

One level deeper: Solidia is working to make concrete out of captured CO2 emissions. The New Jersey-based company is one of the investments in a fund backed by OGCI, a consortium of large oil-and-gas companies.

  • Concrete manufacturing accounts for around 5%–7% of global carbon dioxide emissions, Schuler says.
Ben Geman