Feb 7, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Happy Friday! Today's Smart Brevity count: 1,242 words, 4.7 minutes.

And 30 years ago this week, Depeche Mode released a classic that takes us into today's edition...

1 big thing: The coronavirus infects everything

Illustration: Aïda Amer/Axios

It's hard to get my head around all the ways that coronavirus is affecting oil markets, energy-related industries and even carbon emissions.

Why it matters: The tragic outbreak underscores that when it comes to energy, China is the straw the stirs the drink as the world's largest oil-and-gas importer, largest auto market and largest carbon emitter.

Driving the news: Here are a few ways that coronavirus, which is centered in China but has now spread to over two-dozen countries, is shaking things up...

When it comes to oil, it has pushed prices down to their lowest level in a year, stemming largely from reduced travel and economic activity in China.

  • That's a problem for OPEC and its alliance with Russia — the OPEC+ group has struggled to reach a deal this week on deepening joint production cuts to tighten markets. Russia, while agreeing in principle, has yet to sign off, per multiple reports.
  • "Brent is likely to hover around $55 [per barrel] as long as uncertainty on the impact of coronavirus persists and until OPEC+ ministers meet and agree to a cut," S&P Global Platts analysts said in a note.

It's impacting the liquefied natural gas market, which was already weak due to excess supplies.

  • Per Reuters and others, the Chinese energy giant CNOOC this week said it will temporarily stop honoring some import contracts.
  • "China’s near-term gas consumption is in question given the coronavirus quarantines and shutdown of factories, which consume the bulk of the country’s imported gas," the Wall Street Journal reports.

China is the world's largest solar equipment manufacturer, and a note from the consultancy Wood Mackenzie says work at several module plants is unlikely to resume until late February or later.

Tesla was forced to temporarily close its Chinese factory and delay vehicle deliveries, per multiple reports.

  • CNBC reports that a Tesla executive's comments about delays helped to push its share price back down Wednesday after its meteoric rise in preceding days.
  • It's hammering the auto industry, which is already struggling with soft sales, more broadly as automakers are forced to keep plants idled. CNN has more.

There's even a climate change dimension, per Bloomberg, which reports: "If there’s a silver lining to the deadly coronavirus outbreak in China, it’s that the world’s biggest polluter is spewing less carbon, at least for now."

  • The piece points out that emissions will drop temporarily due to halted plane and auto travel, closed steel mills and coal mines, and other effects.
  • It's unclear, Bloomberg reports, whether this will lead to a year-over-year drop in CO2 emissions.
  • Here's a wild stat, via S&P Global Platts: "Even a 1% drop in China’s annual CO2 emissions from energy consumption would amount to 96 million [metric tons], equivalent to France’s annual regulated CO2 emissions"
2. Elon Musk's bull ride

Photo Illustration: Sarah Grillo/Axios. Photo: Jörg Carstensen/picture alliance via Getty Images

Axios chief financial correspondent Felix Salmon explores the huge rise and wild swings of Tesla's stock price, which is currently trading around $728-per-share after breaking $900 earlier this week.

Take it away...

The big picture: Given its bonkers gyrations, it's now easy to see why CEO Elon Musk might feel that he was right all along in wanting to take Tesla private at $420 back in August of 2018 when it was trading in the mid-$300s.

"As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone." — Musk, "Taking Tesla Private" blog post, August 2018

How it works: Tesla's rising share price this year has been good for Musk's pay package and his wealth, but it has also turned the stock into an arena for short-term, high-stakes gamblers.

  • In the first three days of this week, $157 billion of Tesla stock changed hands. For gamblers, it was more popular than Bitcoin, which saw $96 billion of volume in those three days. Tesla even approached the $198 billion of volume in SPY, the benchmark S&P 500 ETF that's the most popular playground for day traders.
  • Compare Apple, with its awesome $1.4 trillion valuation: It had $107 billion in volume over three days, much less than Tesla, which is worth roughly a tenth as much.

The stock market is failing at its primary role of price discovery, the determination of how much securities and companies are worth. There's no rational reason Tesla's value should have fluctuated by more than $20 billion per day.

  • This wasn't a short squeeze like the famous VW run-up in October 2008, when the German carmaker briefly became the world's most valuable company.
  • Other possible explanations like delta-hedging call-option volume (don't ask) similarly can't come close to explaining the magnitude of the price swings and high volume that Tesla stock is seeing.

Go deeper in the Axios stream.

3. The U.S. is not energy independent
Expand chart
Reproduced from EIA; Chart: Axios Visuals

A short new Energy Information Administration report provides a breakdown that's useful in light of all the discussion these days about the U.S. energy posture.

Driving the news: The report shows that while late last year the U.S. became a consistent net exporter of petroleum (that is, crude oil and refined products combined), regions outside the Gulf Coast remain importers.

Why it matters: This isn't discussed in the EIA analysis, but President Trump boasted in this week's State of the Union speech that the U.S. is "now energy independent."

  • But, but, but: The EIA data shows why, despite the country's net exporter status, most regions are still reliant on imports.
  • Also, while crude oil exports are rising, the U.S. nonetheless still imports millions of barrels per day.

By the numbers: In November, which is the most recent full-month data available, the U.S. imported 5.8 million barrels per day of crude oil and exported 3 million, per EIA.

  • "The United States is a net exporter of petroleum products (such as distillate fuel, motor gasoline, and jet fuel). In November 2019, the United States exported 5.8 million b/d of petroleum products and imported 2.2 million b/d of petroleum products," it adds.
4. The Senate's ad-hoc climate group expands

A recently formed bipartisan Senate group that's working on climate change is adding new members.

Driving the news: The Climate Solutions Caucus said yesterday that Republicans Marco Rubio and Susan Collins are joining, and so are Democrats Debbie Stabenow and Tammy Baldwin.

The Washington Examiner reports that Ohio Republican Rob Portman plans to join, too.

Catch up fast: Delaware Democrat Chris Coons and Indiana Republican Mike Braun formed the group late last year. Other members are Democrats Jeanne Shaheen and Michael Bennet, Republicans Mitt Romney and Lindsey Graham, and Maine's Angus King, an independent who caucuses with Democrats.

Why it matters: It's the latest sign of more Republicans becoming interested in climate at some level.

Reality check: Informal caucuses don't typically have much influence on Capitol Hill, and it remains to be seen whether this one can help move legislation going forward.

* * *

Over in the House, high-profile progressive Democrat Alexandria Ocasio-Cortez and Michigan Democrat Andy Levin are floating legislation aimed at creating a large nationwide network of electric vehicle chargers in five years.

Why it matters: Ocasio-Cortez is a very popular figure on the left, which could help the bill gain traction if Democrats win the White House and the Senate in the 2020 elections.

The bill has backing from unions including the UAW and several green groups. Reuters has more.

5. Catch up fast: Pipelines, nuclear waste, climate

Oil and gas: "Energy Capital Partners LLC is pausing new pipeline deals, according to people familiar with the matter, as the accelerating downturn in shale prompts investors to seek returns elsewhere." (Bloomberg)

Nuclear policy: "President Donald Trump on Thursday appeared to reverse his position on a proposal to create a national nuclear waste dump at Yucca Mountain in Nevada after his administration tried for several years to revive the mothballed project." (Associated Press)

Climate change: "Bumblebee populations in North America and Europe have plummeted as a result of extreme temperatures, according to a study published Thursday in the journal Science." (Washington Post)

Ben GemanAmy Harder