Aug 23, 2017

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning and welcome back to Generate! We'll get to the news in a moment, but first, happy birthday to the late Keith Moon. RIP. You sound pretty good here and here and here (just for instance). Ok let's dive in . . .

What's next for Chevron

Let's spend a little more time with yesterday's big news that Chevron CEO John Watson is headed for the exits (although the U.S.-based multinational oil giant isn't confirming it yet).

Perspective: My Axios colleague Steve LeVine has a bit more on what's facing Michael Wirth, the 56-year-old Chevron vice chairman who is considered the likely replacement...

  • If accurate, the report suggests that Wirth will be a transition figure while young blood is trained up for what could be the most challenging period for Big Oil since the Arab oil embargoes of the 1970s. It is perhaps bigger than even that, because this time the industry could be facing an existential threat — the rise of an increasingly electric car fleet and a steady loss of business, especially after the middle of the century [due to projections of a global oil demand peak].
  • Until now, almost all of Big Oil — save Shell — has denied that such a future is upon us, forecasting that present circumstances will hold true through 2050 and perhaps beyond. Watson's resignation suggests that Chevron may be reconsidering that outlook, and wants a CEO who is prepared to muscle the company up for a very different future.

Refined tastes: The Wall Street Journal (which broke the story) and others note that if Wirth is indeed tapped, most of the world's largest public oil-and-gas companies will be led by people with a background in the refining and marketing side of the business.

The days of huge returns from high and even triple-digit crude prices are in the rearview mirror for now.

  • "Chevron directors see Mr. Wirth's years of experience wringing costs out of big plants that process fuel and chemicals as a critical need in a new era for oil markets defined by $50-a-barrel crude," WSJ notes.

While reports suggest the planned departure is on good terms, it comes as oil majors are still focused on cutting costs despite some recovery in crude prices, and the Financial Times hints that the transition is related.

  • "Mr. Watson's record is overshadowed by cost overruns on large projects, in particular the liquefied natural gas developments Gorgon and Wheatstone in north-west Australia," the FT notes.

Climate change: Watson has not been as outspoken as some others in the industry about tackling global warming.

  • "New CEO should bring a new approach to climate change at CVX. Watson was the last climate skeptic among big oil CEOs," tweets Andrew Logan of the green investment advocacy group Ceres.
Amy’s notebook: Offensive climate swing at the courts

My colleague Amy Harder unpacks the significance of an interesting court ruling yesterday...

A federal appeals court ruled on Tuesday that the Federal Energy Regulatory Commission, an independent government agency tasked with reviewing and approving energy infrastructure, must try to consider the impact projects have on climate change.

Why it matters: The legal system has so far served as a defensive check to President Trump's broad attempt to roll back environmental regulations that his predecessor pursued. With Tuesday's ruling, that shifted to offense. It's the first explicit example of a court forcing the new administration to proactively consider climate change, as opposed to court rulings beating back, for example, EPA's attempts at delaying other climate rules.

Quoted: "We conclude that at a minimum, FERC should have estimated the amount of power-plant carbon emissions that the pipelines will make possible," states the three-judge ruling, which stemmed from the Sierra Club suing the agency over its approval of three natural gas pipelines.

Yes, but: How extensively FERC actually studies the impact of infrastructure projects' on climate change is a big open question; in theory it could choose to do a cursory review and deem it acceptable.

Our prediction: This court ruling will provide momentum for environmental groups to keep with their strategy of suing FERC over its role in the climate change debate.

Read

this Reuters piece

for more.

Oil market notes

Retreat: Australian mining and energy giant BHP Billiton is looking to dump its U.S. shale business in what the Houston Chronicle calls a "stunning retreat" from the sector.

  • Ouch: "BHP Chairman Jac Nasser, who retires this year, has conceded the $20 billion investment in shale six years ago was a mistake. Analysts have suggested the business could sell for about half that today," Reuters notes.
  • Context: Wood Mackenzie analyst Jon Weintraub took stock of the decision in comments circulated to journalists. He predicts that BHP's acreage in the Permian and other shale basins will attract lots of interest from private equity, independent companies, oil majors, and state-owned national oil companies.
  • Big picture: He also called it a further sign that industry conglomerates are rethinking their corporate models, noting shipping giant A.P. Moller-Maersk's sale of its oil business and mining company Freeport-McMoRan's sale of its Gulf of Mexico oil assets last year.
  • More fallout: BHP is also shaking up its board in the wake of the bruising oil investments, via MarketWatch.

Crude disruption: An interesting new note from Citi takes stock of how the U.S. shale boom has fundamentally changed the oil market and sapped the power of traditional petro-states.

  • Big takeaway: "Shale is winning the battle against OPEC and Russia."
  • "Facing off against shale, OPEC's attempts at oil production management only lead to either losing on price or losing on market share, and in both cases, losing on revenues versus a laissez-faire strategy."

Digital alliance: Microsoft and oil field services giant Halliburton have announced a "strategic alliance to drive digital transformation across the oil and gas industry."

  • Why it matters: Bloomberg's Liam Denning breaks it down here, arguing, "this union of Big Oil and Big Data is a big reason OPEC is doomed." He notes that oil producers have been relatively slow to adopt digital tech, so there's even more room for companies to drive down costs and boost production.
Tea leaves on Trump, coal, and grid study

Driving the news: In case you missed this piece in the Axios stream, the Trump administration rebuffed a coal industry bid for the sweeping use of federal power to impose a moratorium on closure of coal-fired power plants.

What's next: One thing to watch after yesterday's AP scoop is what the decision means for federal policy going forward. One place to look is the upcoming Energy Department report on the power grid, which renewables advocates fear will be used as a stalking horse for new actions to prop up coal.

Your Generate host touched base with renewable energy advocates yesterday, and their antennae are still up despite the White House decision not to invoke emergency powers under the Federal Power Act in response to a plea from the coal mining company Murray Energy.

Comments:

  • "While I'm encouraged by this individual decision, I am still concerned that DOE might consider similar market-distorting policies in their grid study. We will be watching closely," Arvin Ganesan, the VP for federal policy with the group Advanced Energy Economy, told Axios in an email.
  • "It was a favorable sign, but we are not at all letting down our guard," Jim Marston, a VP with the Environmental Defense Fund, tells Axios. "That story means for at least one individual decision, people who actually want to follow the law and follow the facts prevailed. I am not yet confident that [Energy secretary] Rick Perry will do that in this larger setting," he said of the as-yet-unreleased DOE report.

***

Trump on coal: He touted his efforts to "end the war" on coal at last night's rally in Arizona, and then claimed that in Pennsylvania, there's going to be a "brand new coal mine where they are going to take out clean coal, meaning they'll take it out — coal — they're going to clean it."

Reality check: The idea of "clean coal" is not about mining, but instead typically refers to technologies, which have faced big headwinds for commercial adoption, that enable coal-fired power generation with carbon capture and sequestration.

On my screen

Going mobile: The big electric vehicle news yesterday was that Ford is exploring a joint venture with China's Anhui Zotye Automobile Co. to build and market electric cars in China.

  • The announcement is here, and the Detroit News has a closer look here.
  • Why it matters: China is already the world's largest auto market, and Bloomberg New Energy Finance recently predicted that electric vehicles will account for over half of new car sales there by 2040.

Solar: A power industry coalition called the Electric Reliability Coordinating Council is urging the U.S. International Trade Commission to reject a petition from two struggling solar panel manufacturers for steep penalties on imported cells and modules.

  • Why it matters: The ERCC, which includes utilities with major coal-fired generation, is widely known for its role in battles over coal-related rules. Its work on the solar case is a sign of the breadth of business community opposition to the solar tariffs petition.
  • "Imposition of tariffs on imported solar components would significantly dampen the power industry's assessment of future solar generation potential...The economics are simple: tariffs would increase the price of key components in solar manufacturing, creating a ripple effect throughout the supply chain that will significantly raise costs and stymie the growth of the industry," according to their comments to the ITC.

Climate: Over at The Conversation, Penn State's David Titley has a nice look at the history and relevance of the widely used international target of limiting global warming to 2 degrees celsius above preindustrial levels.

  • "What the 2°C threshold lacks in nuance and depth, it more than makes up as a goal that is understandable, measurable and may still be achievable, although our actions will need to change quickly," he writes.
Ben GemanAmy Harder