Nov 30, 2017

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning and welcome back! Today marks the 35th anniversary (!) of the release of Michael Jackson's "Thriller," so a cut from that album is today's intro music . . .

OPEC and Russia set to extend production deal

Barring last-second hiccups, reports from the OPEC meeting in Vienna signal that OPEC and Russia will agree to extend the production-limiting agreement by nine months through the end of 2018.

  • Earlier this morning, Bloomberg reported: "Even though an extension through the whole of 2018 is all but certain, the cartel plans to hold a regular ministerial meeting next June, giving it the flexibility to alter the policy mid-game. For some oil investors, that potential review is a cause for concern. For others, it's just the natural course of the cycle of twice-yearly OPEC meetings." Read their updated piece here.
  • As the AP points out, it's basically a decision to "continue pumping less oil for more dollars."

Why it matters: The cooperation between Saudi Arabia and Russia curbing the global supply glut is in part a signal of how the U.S. supply surge has forced a new era in oil geopolitics.

Prime Minister May battles Trump for Aramco IPO listing

British Prime Minister Theresa May yesterday pitched London's stock exchange as the best location for the massive IPO of state oil giant Saudi Aramco next year, a move that comes two weeks after President Trump publicly urged the kingdom to select the U.S. for the offering slated for 2018.

Making her case: "I think London is extremely well placed, not only from its importance as an international financial centre, also technically well placed in relation to Aramco," she told reporters just ahead of her visit with top Saudi officials in Riyadh, according to the Mirror.

Why it matters: The international venue selected for the listing will bring huge fees to the exchange that wins the IPO of 5% of the company, which Saudi officials hope will raise tens of billions of dollars to help fund the kingdom's economic diversification and modernization efforts.

  • The outcome of the very public courtships — not to mention behind-the-scenes appeals — also carry geopolitical ramifications, forcing the Saudi rulers to make a choice between the U.S. and the U.K. (or perhaps another venue like Hong Kong) at a time of tensions between Trump and May.

Separately: Yesterday May rebuked Trump for retweeting anti-Muslim hate videos from British far-right leader Jayda Fransen.

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Speaking of the Aramco IPO: In a note yesterday, Hedgeye Research analyst Joe McMonigle said the emerging nine-month extension of the OPEC-Russia production limiting agreement is important.

  • "For the Saudis, the 9-month extension is critical because the Aramco IPO is planned for the 2H of 2018, and they want the production cut agreement to still be in effect during the IPO," he writes.
  • McMonigle, in an email exchange with Axios this morning, explains that keeping the deal in place to support oil prices is important to the IPOs valuation, noting that prices are likely to fall of the production-limiting agreement ends.
More oil-and-gas news and notes

The U.S. boom: The consultancy Rystad Energy said yesterday that U.S. oil production could surpass 9.9 million barrels per day in December as shale production keeps climbing, which is higher than estimates by the U.S. Energy Information Administration.

  • EIA has forecast that rising U.S. production will average 9.9 million barrels per day in 2018, which would be an annual record average. The agency said yesterday that production for the week ending Nov. 24 was 9.68 mbd.
  • Why Rystad's more bullish estimate matters: "Strong United States oil output in early 2018 would require more concessions by OPEC to protect oil markets from a new dip," the consultancy notes.

ANWR: Yesterday's Senate vote to advance the tax code overhaul brings Congress closer to opening the Arctic National Wildlife Refuge to oil drilling. Via Alaska Public Media: "Sen. Maria Cantwell, D-Wash., did not sound optimistic after today's vote that she and fellow Democrats will be able to block drilling in the Arctic Refuge."

  • Quick take: If the tax package ultimately becomes law, the decades-long fight over ANWR will move into a new and more splintered phase in the years ahead, with opposition going from a focus on Congress to litigation over leasing development plans and PR battles over companies' plans.

Pipeline politics: The U.S. opposition to Gazprom's proposed Nord Stream 2 gas pipeline to Germany took on a more public flavor in the last two days. Via Radio Free Europe, State deputy assistant secretary John McCarrick yesterday predicted that the project would never be built, and Reuters has a brief summary of his criticisms here.

  • The comments come a day after Secretary of State Rex Tillerson said in a Washington, D.C., speech, "We continue to view the development of pipelines like the Nord Stream 2 and the multiline TurkStream as unwise, as they only increase market dominance from a single supplier to Europe."
  • Why it matters: The comments highlight energy tensions with Russia at a time when U.S. officials are pitching U.S. LNG as a way to ease Europe's reliance on Russian gas.

More on Shell's carbon pledge: A note from HSBC takes stock of the company's new climate change goals, which we wrote about yesterday. ICYMI, Shell is pledging to "net carbon footprint of its energy products by around half by 2050," with an interim reduction goal of 20% by 2035.

  • "Relative to the peer group, this is the clearest, most progressive guidance on climate so far, and we think this could well make Shell more investible for investors with a strong climate overlay to their investment process," HSBC writes.
DOE secretary heads for Middle East

Last night my Axios colleague Amy Harder broke some some Energy Department news. Here's what she wrote in the Axios stream...

Energy secretary Rick Perry leaves Thursday for a three-country trip to the Middle East, including Saudi Arabia, Qatar and United Arab Emirates, according to a department official.

Why it matters: This is Perry's first trip to the region as secretary, where he will meet his energy counterparts. The visit could highlight the geopolitical tension present with the U.S. shale oil surge competing with Saudi Arabia and other OPEC producers for market share. The Middle East is ground zero for a lot of issues in the energy space – especially oil and natural gas but also less high-profile areas like advanced nuclear power and technologies that capture carbon emissions from fossil fuels.

What we're watching: To what degree Perry talks about the initial public offering planned by Saudi Aramco, the state-owned oil company of Saudi Arabia. As mentioned in a story above, Trump tweeted in early November he wants the company to post the IPO on the New York Stock Exchange. Separately, Perry is expected to speak at a conference on carbon technology in the United Arab Emirates.

One interesting (and interactive) power chart

This is cool: Your Generate host is just discovering the website called Our World In Data and came across the interactive chart shown above.

It tracks per-capita power use worldwide since 1960, and that's just one version of it — the site also lets you add countries and see changes global power use in map format over time.

It's part of a broader post that went up just before Thanksgiving that also has a helpful primer that provides apples-to-apples comparison of the scale of different energy sources.

What’s happening with electric vehicles

Honda's plans: Futurism, via NBC's tech site Mach, reports that Honda is a late arrival to the EV game but hopes to make up ground with vehicles that can charge up very quickly.

Trucks and oil: Platts has a nice overview of a topic we've also been covering: Why the potential for widespread electrification of trucking would be a game changer for global oil demand.

Supply chain ethics: Via Reuters, a group of major automakers including VW, Toyota and Ford yesterday pledged to "uphold ethical and socially responsible standards in their purchases of minerals for an expected boom in electric vehicle production."

  • One reason it matters: "More than half of the world's cobalt comes from the Democratic Republic of Congo, a country racked by political instability and legal opacity, and where child labor is used in mines," the story notes.

VW's latest: CNBC has this dispatch from the L.A. Auto Show, where Volkswagen showed off plans for the I.D. Crozz, an SUV concept. "While its hexagonal steering wheel and abundance of exterior lights indicate the flash of a show model over a production car, CEO Hinrich Woebcken said the I.D. Crozz will arrive on the market by 2020," they report.

ICYMI: Oil's "Decade of Disorder"

Roll tape: On Tuesday night I moderated a panel hosted by Securing America's Future Energy (SAFE) about (among other things) the prospect that oil markets are facing a "decade of disorder" in the 2020s.

That's the term coined by veteran analyst Adam Sieminski, one of the panelists, to warn of supply risks and volatility absent more upstream investment in new projects now.

You can watch the event on YouTube here.

What they said: SAFE has a write-up of the action here, including this summary:

  • Jonathan Chanis, SAFE's Senior VP of Policy, highlighted challenges the industry has faced over the decades in trying to moderate the investment cycle. It has had to contend with periods of excess of supply followed by periods of underinvestment and then shortages.
  • He argued that if a limited number of large projects, such as those in the offshore areas of Brazil and Norway, and in the U.S. Gulf of Mexico, are not sanctioned in the next 12-24 months, oil prices will again approach $100 per barrel. The world needs approximately 5 million barrels per day (mbd) of new supply every year just to compensate for the natural decline of existing fields and "stay in the same place."
Ben GemanAmy Harder

Thanks for reading! Your tips and feedback are always welcome at ben@axios.com.