Aug 12, 2019

Axios Generate

Good morning, did you miss us? 

We are back in action, and my latest Harder Line column seeks to answer a question I get a lot: How do I choose what to cover? I'll share a glimpse of that, and then Ben Geman will get you up to speed on other news.

Smart Brevity count: 1,146 words, ~ 4 minutes.

1 big thing: Covering the energy and climate puzzle

Illustration: Rebecca Zisser/Axios

People often ask me how I decide what to cover in this noisy and disparate energy and climate change beat. My answer: I stay focused on the puzzle.

The big picture: I look at the various factors that go into reducing greenhouse gases in a world that depends upon the energy resources that emit them. That's a simple deduction of what is a complex dynamic. Like puzzle pieces, these numerous forces work in tandem, not in isolation.

Tangible climate change: As the impacts of a warmer world become more tangible to people through extreme weather and more convincing science, awareness of the issue grows.

Social movement: As I wrote in a recent column, over the past year a concrete social movement has formed that’s far more global, persistent and sweeping than any other like-minded efforts in the past.

Media coverage: Companies in both TV and print are covering this issue far more than in the past — including myself.

Technology costs: Wind and solar costs have plummeted in the last decade, and the same thing is happening now in battery technologies that will enable those variable energy resources to last longer whenever the wind stops blowing and the sun stops shining.

Corporate and investor concerns: Investors are increasingly investing in energy resources that aren’t the current dominant ones — oil, natural gas and coal. Meanwhile, they’re putting pressure on those companies to do more to ready themselves for a warmer world that is drastically reducing emissions.

Lobbying shifts: Corporate America is calling on Congress to pass ambitious climate policy in the most aggressive and united way since 2009.

Republican positioning: After a decade of ignoring or outright dismissing climate change as a problem, a small contingent of congressional Republicans are acknowledging it as an issue and discussing policies to address it.

Washington compromise: Many experts believe that ultimately environmentalists must be willing, for example, to trade at least some environmental regulations for a legislative solution like a carbon price. That policy, meanwhile, marks the beginning of the end for fossil fuel companies as we know them today.

Go deeper: Read how the pieces fit together in the puzzle by clicking here.

2. A glimpse at Saudi Aramco's future

Saudi Aramco, the kingdom's state oil giant, will hold its first-ever earnings call later this morning.

Why it matters: Everyone will be looking for info about long-delayed plans for a massive IPO, which would raise money for country's economic diversification efforts.

  • Saudi officials have said they may list a portion of the company as soon as next year, but any schedule should be taken with many, many grains of salt at this point.
  • Bloomberg oil strategist Julian Lee notes it will "tell us about how the company would communicate with analysts and future investors (if an IPO is to happen)."
  • "Will it follow the 'Old Exxon' model of sharing very little, or the more open approach of 'New Exxon' and European oil companies?" Lee writes.

Where it stands: Aramco this morning said lower oil prices led to a drop in earnings. The company reported $46.9 billion in earnings for the first half of 2019, down from $53 billion during the same period last year.

Separately, Monday brought news that Aramco has signed a "letter of intent" to buy a 20% stake in the refining arm of the giant Indian conglomerate Reliance Industries.

  • The deal is valued at $75 billion, Reliance said in a statement, calling it "one of the largest foreign investments ever made in India."
  • The Saudis, as part of the deal, plan to provide 500,000 barrels per day to India's Jamnagar refinery, Reliance said.

The big picture: “It appears totally consistent with Saudi Aramco’s strategy to balance its upstream with a substantial diversification and expansion of its downstream business,” Société Générale's Irene Himona tells the Wall Street Journal ($).

3. Catch up fast: offshore wind, flaring, Elon Musk

Renewables: Per AP, "Federal regulators are holding off on issuing a key environmental impact statement for Vineyard Wind, a proposed major wind farm planned off the Massachusetts coast — a move the company called a 'surprise and disappointment.'"

  • Why it matters: The project would be the first large-scale offshore wind farm in the U.S., and the holdup comes amid wider efforts by large energy companies to develop major Atlantic Coast projects.
  • One big question: "Whether the delay proves to be a speedbump for an individual project or a broader problem for the industry remains to be seen, but it raises several concerns for a market that has gained momentum rapidly over the past few years," Greentech Media reports.
  • Go deeper: New York inks largest offshore wind agreement in the U.S.

Climate: A Wall Street Journal analysis ($) shows that "[i]n the U.S. alone, the methane that leaks or is released from oil and gas operations annually is equivalent to the greenhouse gas emissions from more than 69 million cars."

Coal: The power company FirstEnergy Solutions said Friday that it's closing a Pennsylvania coal-fired power plant nearly 2 years earlier than expected due to "lack of economic viability in current market conditions."

  • "The company has said it can’t compete in regional wholesale markets as coal and nuclear lose out to cheaper energy sources such as natural gas and renewables," AP reports on the planned November deactivation.

Politics: Tesla CEO Elon Musk said via Twitter over the weekend that he supports Democratic presidential hopeful Andrew Yang.

4. Oil demand growth is slowing ...

ICYMI, the International Energy Agency said Friday that global oil demand growth from January through May was the slowest for that period since 2008, and the "situation is becoming even more uncertain" as the U.S.-China trade fight worsens.

Why it matters: Its monthly report provides fresh evidence of how the global economic slowdown is weighing on oil markets.

  • Prices are at their lowest levels since January, despite tensions in the Middle East that typically put upward pressure on the market.
  • "Economic woes hold sway over geopolitics," IEA said.

The important numbers: The IEA again trimmed its overall demand growth forecasts for 2019 and 2020. It now sees demand growing by 1.1 million barrels per day this year and 1.3 million barrels per day next year.

  • The increase of 520,000 barrels per day in the January through May stretch was the weakest in 11 years.
5. ... but here's a big reason for its long-term persistence
Expand chart

Data: Goldman Sachs Global Investment Research, IEA; Chart: Harry Stevens/Axios

Data in a recent Goldman Sachs note nicely showed the steady rise in oil demand for petrochemicals used in plastics and whole bunch of other materials.

Why it matters: Long-term petrochemical growth is among the big reasons why some analysts are very skeptical that global oil consumption will peak before at least 2040, despite improving efficiency of cars and the rise of electric vehicles.

What's next: IEA last fall estimated that petrochemicals will account for a third of oil demand growth over the next decade and half of all growth through 2050.

One big question: Whether attempts to stem single-use plastics will become stringent enough to significantly change this trajectory.

  • A recent Barclays' analysis estimated that a global ban on single-use plastics would cut their 2050 oil demand forecast by 6 million barrels per day.
6. ICYMI: The climate peril of land degradation

Illustration: Aïda Amer/Axios

A big climate story broke during Generate's break...

Scientists convened by the UN released a major report exploring how influence on lands is a major contributor to climate change — and climate change, in turn, is harming ecosystems and threatening food security.

Why it matters: While cutting fossil fuel emissions is vital, Thursday's report shows how the uphill battle to meet the Paris agreement's temperature goals requires focus on land use, too.

Go deeper: