Mar 31, 2020

Axios Generate

By Ben Geman
Ben GemanAmy Harder

Good morning! A quick note that the Restaurant Workers Community Foundation is raising money to help workers facing dire economic distress.

Today's Smart Brevity count: 1,387 words, 5 minutes.

🎵Let's wish happy birthday to guitarist Angus Young of AC/DC, who opens today's edition...

1 big thing: No easy answers for a Texas-sized problem

Illustration: Sarah Grillo/Axios

President Trump and two Texas oil producers are launching new efforts to temper the stunning supply-demand imbalance and price collapse that's inflicting deep financial wounds in the U.S. industry, Axios' Amy Harder and I report.

Driving the news: Amy reports that shale producers Pioneer Natural Resources and Parsley Energy have formally asked Texas regulators to take the extraordinary step of imposing mandatory production curbs to help steady the ship.

  • A hearing is expected soon on their request, but the industry is divided over the concept (more on that below).

Separately, Trump talked about oil markets yesterday with Russian President Vladimir Putin, whose country is battling Saudi Arabia for market share after their supply management pact collapsed weeks ago.

  • The White House said they "agreed on the importance of stability in global energy markets."
  • The latest moves come days after the White House and State Department signaled that they're trying to put more pressure on the Saudis too.

But, but, but: Prices regained some ground on word of the Trump-Putin talks, Reuters notes. But don't expect a magic fix.

  • It's hard to see changes that could substantially boost prices getting hammered by COVID-19, or quickly ease logistical problems as storage fills up.
  • Restrictions from the pandemic are causing an unprecedented demand decline that analysts see reaching 20 million barrels per day or more in the near term.

What they're saying: Despite the flurry of activity, the prospects for diplomatic or U.S. policy changes that significantly staunch the financial bleeding are quite limited, especially as the Saudis press ahead with supply increases.

Plus, even relatively modest policy options face hurdles. One example is the new U.S. stabilization package, which cut proposed funding to buy 77 million barrels of oil for the Strategic Petroleum Reserve.

  • "It’s really just such a demand shock that very little that can be done on the supply side is going to be able to have an impact," Sarah Ladislaw of the Center for Strategic and International Studies said on a new episode of the Platts Capitol Crude podcast.
  • And when it comes to Russia, a note from ClearView Energy Partners says getting Russia to back off in its fight with the Saudis is no easy thing.
  • "This pro-stability, bilateral engagement may seem more auspicious than apparent silence from Saudi Arabia, but ministerial-level discussion and presidential-level decisions are very different things," they note.

The big picture: Via International Oil Daily, Chris Weafer, CEO of Moscow-based Macro-Advisory, said that Trump's call to Putin "shows how badly the price crash is hitting U.S. shale producers."

  • But Weafer added there are some prospects for cooperation.
  • "Whatever the public bravado, all three countries need a higher oil price. Now that the US has indicated it is willing to take part, there is at least a better chance for a solution to emerge, although not too quickly," he told IOD.
Bonus: Pondering extraordinary moves

Amy reports that a member of the powerful Texas Railroad Commission, Ryan Sitton, and Pioneer CEO Scott Sheffield tell her that a (digital) hearing is likely next month on the renewed push for production limits.

Where it stands: Sheffield said his company and others received requests late last week from pipeline companies to shut in production, and more broadly says that "I’m worried about the industry being totally decimated."

The big picture: Sheffield and Sitton have been floating the idea that Texas, by far the largest U.S. producing state, should consider production quotas as part of wider collaboration with Russia and Saudi Arabia.

  • "We absolutely need to do something to bring some stability to energy markets," Sitton said.

But, but, but: The odds of quotas happening appear long. Commission chairman Wayne Christian has expressed deep skepticism about the idea without rejecting it outright. And the powerful American Petroleum Institute is opposed too.

Read more

* * *

Whether via policy or market chaos, something has to give.

What's new: A note from IHS Markit estimates that 10 million barrels per day of global production "will be cut or shut-in from April to June 2020 as oil storage fills up and output from financially strapped companies begins to fall."

  • "If there is no international agreement to curtail oil production then brutal unadulterated market forces will bring the oil market into balance," IHS' Jim Burkhard said.
  • Their note also says the U.S. is squeezed, pointing out that "Saudi Arabia and Russia are better positioned in a low-price environment to maintain or even increase production over the next two years compared to the United States."
  • Bloomberg has more.
2. Breaking: Keystone XL pipeline moves forward

TC Energy this morning said it's proceeding with construction of the Keystone XL pipeline that will bring oil from Alberta's oil sands to U.S. markets, where it's ultimately bound for Gulf Coast refineries.

  • Why it matters: The project has been the subject of decade-long political and legal battles over climate change.
  • What's next: TC Energy, formerly TransCanada, said it plans to have the pipeline, which has capacity to carry up to 830,000 barrels per day, placed in service in 2023. The company said the government of Alberta has agreed to invest $1.1 billion in the project.
  • Go deeper: The Financial Post has much more.
3. The end of the beginning of the fuel economy fight
Reproduced from EPA; Chart: Axios Visuals

The Transportation Department and the EPA are scheduled to unveil final rules this morning that set vehicle mileage and carbon emissions requirements through model year 2026 — but the battle over these regs is not over.

Why it matters: Transportation overtook electric power as the largest source of U.S. greenhouse gas emissions a few years ago, but the new rules are slated to be far weaker than the Obama-era requirements they're replacing.

The big picture: Via AP...

  • "The Trump administration says the looser mileage standards will allow consumers to keep buying the less fuel-efficient SUVs that U.S. drivers have favored for years."
  • "Opponents say it will kill several hundred more Americans a year through dirtier air, compared to the Obama standards."

The intrigue: Today's unveiling is just the end of one phase in the fight over vehicle standards, and there's lots of uncertainty ahead.

  • The rules will be the subject of a lengthy court battle as environmentalists and California officials push back.
  • If Joe Biden wins in November's presidential election, his administration would seek to impose tougher requirements.
  • The industry is split, with four automakers — Ford, VW, Honda and BMW — reaching a preliminary deal with California last year to meet tougher standards than the White House is contemplating.
4. Chart of the day: What Americans drive
Reproduced from EPA; Chart: Axios Visuals

Speaking of driving, one reason the fuel economy debate is complicated is that consumers' appetite for large vehicles has grown over the years.

  • Check out the chart above, which shows the rise of SUVs and the popularity of pickups in the fleet mix.

What they're saying: The Washington Post's preview of today's final rules quotes John Bozzella, head of the industry trade group Alliance of Automotive Innovation.

  • He argued that Obama-era mandates created a decade ago "are no longer appropriate in light of shifting market conditions and consumer preferences."
5. Your lockdown Netflix binge won't cook the planet

Illustration: Sarah Grillo/Axios

An International Energy Agency analysis finds that carbon emissions linked to streaming video aren't a big deal in the grand scheme of things, but are nonetheless important to track as use grows, Axios' Orion Rummler and I report.

Why it matters: Streaming video is one of the few entertainment options for those living under COVID-19 lockdowns. Even before the crisis, services like Netflix and Hulu had ballooned in use.

Catch up quick: "[C]ontrary to a slew of recent misleading media coverage, the climate impacts of streaming video remain relatively modest, particularly compared to other activities and sectors," writes IEA analyst George Kamiya.

What they did: Kamiya unpacks a widely circulated study by the Shift Project, which claimed that streaming video created about 300 million tonnes of CO2 in 2018 — an amount Kamiya notes amounts to emissions from all of France.

  • The size of your carbon footprint created by watching a half hour of Netflix is equal to driving roughly 200 meters in a standard car, Kamiya found — and even that figure can drop, depending on if your region uses more low-carbon energy.
  • What's more, rising internet traffic has not increased data centers' energy consumption.

Yes, but: Although laptops, phones and TVs are becoming more efficient — as well as data centers and networks — it's increasingly likely that tech will be unable to offset growing data demands from 5G and machine learning.

The big picture: Americans almost doubled their streaming consumption from 2018 to 2019, and are poised to continue that pace as movies are released directly to streaming services to entertain those staying at home.

Ben GemanAmy Harder