Feb 19, 2019

Axios Generate

Hi and welcome back! My column today is the latest in an ad hoc series I've been pursuing that scrutinizes big oil companies' shift on clean energy and climate change (I've profiled Exxon, BP and Equinor, formerly Statoil, too). 

I'll share a glimpse of that and then Ben Geman will you get up to speed on the rest. 

1 big thing: Shell's clean energy & climate tests

Illustration: Sarah Grillo/Axios

Royal Dutch Shell, one of the most aggressive global oil and gas producers on clean-energy and climate change, faces big tests on how serious it is with its pursuit.

Why it matters: The burning of fossil fuels sold by Shell and other producers is a big reason Earth’s temperature is rising, yet their products are also foundations of the global economy. Whether you love or hate them, the role these companies play is inherent to addressing climate change, particularly in the absence of U.S. presidential leadership on the issue.

Driving the news: Shell is set to complete a review of its membership in trade associations in April to determine if they contradict the company’s positions supporting action on climate change.

  • Major trade groups, such as the American Petroleum Institute, have fought climate policies in the past but more recently have sought to be more agnostic on the matter.

The big picture: Shell, the world’s second-largest publicly traded oil company after ExxonMobil, has over the past year ramped up enough investments and commitments in this area to surpass any other producer similar in size.

In response to investor pressure, the Netherlands-based company announced plans in December to set short-term targets linked to executive pay to reduce greenhouse gas emissions from the products it sells, not just from its operations.

  • BP recently resisted calls from its investors to take a similar step. This move may seem like a subtle distinction, but its potential repercussions are huge.
“Shell is the only company in the industry that has been willing to cross that philosophical divide and actually set a goal for reducing emissions that it doesn't directly control. Product emissions are typically eight to 10 times the size of operational emissions at an integrated oil and gas company.”
— Andrew Logan, oil and gas program director, Ceres

Reality check: The company’s shift has not been matched by lobbying dollars in Washington, D.C. , raising doubts about how serious the company is about its clean-energy pursuits.

  • Shell has not yet decided whether it will fund an advocacy campaign for carbon tax policy on Capitol Hill, according to spokesperson Curtis Smith. This puts the company behind American producers ExxonMobil and ConocoPhillips, which have.
  • This positioning is also at odds with what Shell has indicated it wants to do, which is profit off of the world’s energy transition while remaining a good investment for shareholders in the meantime.
“If you don’t have government policies that are enabling the transition to happen it’s probably very hard to deliver on the world-class investment case.”
— Mark Gainsborough, executive vice president, Shell

Go deeper: Read the whole column here.

2. 2020 Dems take GND seriously, not literally

Senate Democrats running for president are touting their support for the Green New Deal in early primary states, but are casting it as more of a call-to-arms than a policy platform.

Why it matters: Recent appearances suggest that the announced candidates are seeking to simultaneously...

  • Signal aggressive postures on global warming and cast it as an urgent threat and present danger.
  • Prevent themselves from getting politically tethered to specific aspects of the sweeping climate and jobs resolution.

Sen. Amy Klobuchar said at a CNN town hall in New Hampshire last night, “The Green New Deal is so important right now for our country. We may not have agreements on exactly how it will work and when we can get it done.”

  • She cited data showing last year was the 4th-warmest on record, pointed to extreme weather events, and talked up jobs in low-carbon industries.

Sen. Kamala Harris said at a weekend New Hampshire event that climate change is an "existential threat."

  • “We have to have goals. It’s a resolution that requires us to have goals and think about what we can achieve and put metrics on it,” she said, via C-SPAN.
  • “Some of them we will achieve and some of them we won’t,” Harris added. “But if we don’t aspire, this is going to be a bad ending.”

Sen. Cory Booker, in a recent interview with an Iowa NBC affiliate, compared the climate challenge to the moonshot.

  • “Now is the time we do need bold, visionary leaders,” Booker said, but added: “I am a former mayor. There is no more of a pragmatist than me about solving problems, and when you get everybody around a table to negotiate, you don’t get everything that you want all the time.”

The big picture: Republicans see a political opening in the plan — which is co-sponsored by nearly a half-dozen candidates — and its troubled rollout earlier this month.

  • Senate Majority Leader Mitch McConnell is planning to bring up the resolution for a floor vote, although the timing isn't clear.
3. The oil-and-gas stakes of trade wars
Reproduced from BP Energy Outlook, 2019; Chart: Axios Visuals

Escalating trade wars could limit the United States' rise as an oil and natural gas exporter while further boosting renewable energy use in some countries, BP's latest long-term energy outlook finds.

Why it matters: Surging shale production — combined with growing LNG and crude export infrastructure — is making the U.S. a player in global export markets. The Energy Department sees the U.S. becoming a net exporter in 2020.

But, but, but: BP's report, which is part of its annual, wide-angle look at the global energy system over the next 3 decades, models a scenario in which global trade disputes persist and worsen.

  • That would slow global GDP and energy demand growth, with the effect "concentrated in countries and regions most exposed to foreign trade."
  • "The risk premia on imported energy means the fall in energy consumed is concentrated in traded fuels (oil, gas and coal), with renewable energy increasing slightly."

What they did: BP's report contrasts this "less globalization" scenario with their "evolving transitions" (ET) case, which sees national policies, tech development and other forces continuing in a way that's consistent with the recent past.

What they found: Russia's exports are crimped, but the effect on the U.S. is even greater. "By 2040, US oil and gas exports in the ‘Less globalization’ scenario are around two-thirds lower than in the ET scenario."

The intrigue: Greater protectionism would slow down U.S. demand growth for renewables compared to the ET scenario as the country uses more of its domestically produced fossil fuels.

  • However, that's more than offset by greater EU and Chinese renewables demand growth relative to the ET case.

Go deeper:

4. Business notes: Amazon, Honda, Equinor

Amazon: The company announced an initiative called "Shipment Zero" yesterday that aims to make half its shipments with "net zero" carbon emissions by 2030.

  • "To reach that goal, the online retail giant says it will use more renewable energy like solar power; have more packages delivered in electric vans; and push suppliers to remake their packaging," the Associated Press reports.

Honda: The automaker, citing the shift toward EVs, announced plans Tuesday to close a U.K. manufacturing plant that employs 3,500 and will also cease manufacturing Honda Civic sedans at a Turkish plant that's remaining open.

  • "This restructure comes as Honda accelerates its commitment to electrified cars, in response to the unprecedented changes in the global automotive industry," the company said.
  • Go deeper: Bloomberg has more here.

Equinor: Per Reuters, "Norway’s Equinor SA on Tuesday said it plans to explore for oil in deep waters off the coast of South Australia in late 2020 and released a draft environmental assessment for the project to head off community protests."

5. OPEC's leverage and U.S. vulnerability

Kern River Oil Field in Bakersfield, Calif. Photo: Mark Ralston/AFP via Getty Images

Axios Expert Voices contributor Amy Myers Jaffe sizes up Saudi Arabia's recent announcement that it's cutting oil production by 500,000 barrels per day.

It comes just weeks after Treasury Secretary Steven Mnuchin said “U.S. friends in the Middle East” would compensate for the drastic decline in Venezuelan oil production driven by U.S. sanctions.

Why it matters: Although U.S. production continues to rise, it still accounts for only 11% of global consumption, compared to OPEC’s 32%. The recent supply cuts illustrate that sudden disruptions and U.S. sanctions that take oil out of the market can put OPEC, and Saudi Arabia specifically, back in charge of global oil prices.

Background: The U.S. economy is 60% less oil-intensive than it was in the 1970s, with virtually no oil used in electricity generation and limited quantities in manufacturing.

Yes, but: The transportation sector — with 350 million liquid-fuel cars on the road — has made little progress reducing its overwhelming dependence on oil-based fuels. That means Americans remain susceptible to the effects of an oil-price shock.

Go deeper: Read the full post.

Myers Jaffe is director of the program on energy security and climate change at the Council on Foreign Relations.