Mar 16, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning. Much like the novel coronavirus itself, news seems to be changing at an exponential rate.

My latest column is a little different, putting into broader perspective the issues I cover. I share some news from me that's just one small example of the uncertainty from this crisis: I had put plans in motion in January to move next month to Seattle to broaden my Axios coverage and be closer to my family. 

  • Please click here to read the whole thing, and a glimpse of it is included below. 
  • Ben Geman will then get you up to speed on other news.

Today's Smart Brevity count: 1,300 words, 5 minutes.

1 big thing: Time, coronavirus and climate change

Illustration: Aïda Amer/Axios

Time is what keeps everything from happening at once, someone wisely said.

Yes, but: In once-in-a-lifetime moments when everything does seem to be happening at once, like what’s unfolding with the cascading coronavirus crisis, time is a ruthless prioritizer.

  • Acting on the decades-long problem of climate change falls to the bottom when people are faced with a more immediate perilous situation posed by a pandemic that's killed more than 6,500 people globally so far.

Between the lines: Peter Atwater, a behavioral economist and an adjunct lecturer at William & Mary, has a framework, called the “Horizon Preference,” for how we perceive the world based on our level of confidence. When confidence is high, we have a “us-everywhere-forever” mindset. When it’s low, it’s “me-here-now.”

  • The former is where much of the world was as recent as a month ago. The economy was doing great, consumer confidence was high, and the stock market was (still) going up.
  • This mindset fosters an eagerness to take on big global challenges. Although President Trump shuns acting on climate change, most other world leaders have been underscoring the urgency of the problem.
  • The latter complex — “me-here-now” — is where we all suddenly find ourselves now: grappling with an imminent crisis touching nearly all of us in a myriad of personal, direct and ways.
“Our fixation on climate change, our eagerness to attack it, was a reflection of extraordinary confidence. I think our attention on climate change is going to move immediately from strategically preventing it to how we deal with its adverse consequences.”
— Peter Atwater

Where it stands: Climate change and pandemics are both long-term systemic risks society often ignores, but they have vastly different time frames.

  • “Our time horizons are minutes and hours,” Atwater says. “Eventually they’re going to restore to weeks and months.”
  • Climate change unfolds over decades, increasing the risk of more extreme weather and inflicting mostly gradual, yet profound and negative, consequences on most of the world.
  • In roughly a week’s time, the coronavirus compelled cancellation of virtually every major sports and cultural event in America, closed schools, and tanked oil markets and stocks to historic low levels. Much of Europe is shutting down too.

The bottom line: “The kind of broad strategic, generational, really forward, futuristic thinking only occurs at extreme peaks in confidence,” Atwater said. “It could be 20, 30, 50 years before we’re back to that sort of intensity on things like climate change.”

Read more

Bonus: IEA says response should include clean energy

The International Energy Agency is urging governments to weave policies that support climate-friendly energy into their economic responses to the novel coronavirus.

"These stimulus packages offer an excellent opportunity to ensure that the essential task of building a secure and sustainable energy future doesn’t get lost amid the flurry of immediate priorities."
— Fatih Birol, executive director, IEA

Why it matters: Birol's LinkedIn post Saturday morning warns that COVID-19 and the associated market tumult will "distract the attention of policy makers, business leaders and investors away from clean energy transitions."

Read more

2. Where it stands: coronavirus and energy markets

Attempts to grasp how the unfolding tragedy of the coronavirus is affecting oil markets tend to get quickly overtaken by events. But here's a quick stab.

Driving the news: Oil prices are dropping sharply again this morning, with the U.S. benchmark WTI falling into the $29-per-barrel range.

  • The market is absorbing both the COVID-19 impact and the collapse of OPEC-Russia's production-limiting deal.
  • Reuters notes that yesterday's Federal Reserve rate cut "failed to soothe global financial markets panicked by the rapid spread of the coronavirus while a price war rages on between top producers."

The big picture: Analysts are racing to update their understanding of the magnitude of the collapse in oil demand as COVID-19 paralyzes travel and sharply cuts economic activity. Via Bloomberg...

"The growing fear among many traders is that oil demand, which averaged just over 100 million barrels a day in 2019, may contract by the most ever this year, easily outstripping the loss of almost 1 million barrels a day during the great recession in 2009 and even surpassing the 2.65 million barrels registered in 1980, when the world economy crashed after the second oil crisis."

What they're saying: IHS Markit says U.S. crude oil production could drop by 2 million to 4 million barrels per day over the next 18 months, depending on how things play out.

  • The market faces the "most extreme global oil supply surplus ever recorded," the consultancy said in a new analysis Monday.

Why it matters: Their analysis sees potential for a much steeper drop in U.S. production than the Energy Department's most recent projection all of five days ago.

  • They game out several possible scenarios around both the future of the OPEC-Russia supply pact, which is currently frayed, and the rate of recovery from COVID-19.

Threat level: If there's a "prolonged demand decline," global oil demand could be 5 million barrels per day lower in 2020 than 2019 on a year-over-year basis, they estimate.

3. Clearing up the Biden-Bernie fracking tussle

Photo Illustration: Sarah Grillo/Axios. Getty Images photos: Ethan Miller and Brian Blanco

There was a lot of confusion last night about whether Joe Biden made a big change in his energy platform during his debate with Bernie Sanders. He didn't.

Driving the news: At one point during his exchange on climate policy with Bernie Sanders, Biden said "no new fracking."

  • That raised antennae (including mine) about whether he was going beyond his existing vow to end new oil-and-gas permitting on federal lands and waters.
  • But his campaign later clarified that Biden was re-stating his existing platform about policy on federal lands, not endorsing Sanders' call for a nationwide ban.

The big picture: Biden's overall plan would go much further than Obama-era policies, but it's also less aggressive in scope and cost than Sanders' $16 trillion Green New Deal proposal.

  • Last night Biden defended his plan as ambitious and at one point talked up his ability to bolster international climate diplomacy.
  • Sanders, however, called Biden's plan "nowhere near enough" in light of the problem's size.

Go deeper: The energy stakes of Bernie vs. Biden

4. The hurdles facing Trump's oil plan

The first White House coronavirus policy response aimed specifically at the reeling U.S. oil sector may not be a sure thing to occur as President Trump envisions.

Driving the news: Late Friday afternoon Trump said the U.S. would purchase enough crude oil to fill the Strategic Petroleum Reserve "right up to the top."

  • That suggests plans to purchase 78 million barrels, given that the reserve has a capacity of 713.5 million barrels and currently holds around 635 million.
  • That would come out to roughly $2.6 billion if oil remained at Friday's prices.

Where it stands: The Energy Department said Friday it would "immediately initiate an expedited process" to begin purchasing oil.

But, but, but: The research firm ClearView Energy Partners notes that "funding remains unclear" and sees "political headwinds" in Congress to appropriating new money.

  • However, their weekend note added that the administration could gain congressional permission to reallocate existing funds for some of the purchases. S&P Global Platts has more on that here.

What they're saying: Oil analyst Bob McNally, president of Rapidan Energy Group, tells The Washington Post that buying oil at low prices for the stockpile is a good idea.

  • McNally, a former energy official in the President George W. Bush era, notes that "our economy remains vulnerable to supply disruptions anywhere in the world."

Go deeper: Trump to buy oil for nation’s strategic reserves

5. ICYMI: Aramco's fallout

Saudi Aramco plans to cut 2020 spending by billions of dollars below last year's levels as the spread of the coronavirus craters global oil consumption and pushes down prices.

Why it matters: Aramco is the world's largest oil-producing company. Sunday's announcement underscores how COVID-19 and the oil market's upheaval is affecting producers worldwide, even as it takes an especially tough toll on U.S. shale producers.

The big picture: The company said capital spending this year would range from $25 billion to $30 billion. That's down from almost $33 billion last year and far below the $35 billion to $40 billion previously envisioned for 2020.

  • “The recent COVID-19 outbreak and its rapid spread illustrate the importance of agility and adaptability in an ever-changing global landscape," president and CEO Amin Nasser said in a statement alongside Aramco's 2019 financial results.
  • But, but, but: An Aramco official, on their earnings call today, said the $25 billion–$30 billion figure does not include the money used to help eventually boost their production capacity to 13 million barrels per day, per the FT's Anjli Raval.

Read more

Ben GemanAmy Harder