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WHAT’S BEHIND OIL PRICE JUMP: Companies in the U.S. and Canada have shut-in more oil production than they’ve publicly disclosed, and OPEC+ producers are largely complying with their historic output cutting agreement. These cuts, more than anything, have helped oil prices surpass $30 per barrel for the first time in two months.
“The big jump in oil prices was a function of reality on the supply side more than the demand side,” Ed Morse, global head of commodities research at Citigroup, told Josh in an interview.
The International Energy Agency has also credited faster-than-expected production cuts by companies and countries as the main factor explaining the beginnings of the rebalancing of the oil market. But Morse said the IEA and the U.S. government’s Energy Information Administration are understating the actual amount of production curtailment.
Most projections, based on announcements by producers, have pegged production reductions in the U.S. of 1 million to 1.5 million barrels per day. Pipeline companies that purchase crude, however, are reporting higher shut-in numbers, Morse said.
For example, Plains All American Pipeline, in an earnings call flagged by Bloomberg’s Javier Blas, said shut-ins in North America have peaked as high as 4 million barrels per day.
In addition, Morse said, OPEC+ countries are proving to be “credibly compliant” with their obligations under their agreement that started this month to cut production by a collective 9.7 million barrels per day. That includes Russia, which Morse said “no one” would have expected considering Moscow has flouted its production target in previous OPEC+ agreements. Iraq and Kazakhstan are also complying, Morse said.
Three members of the oil cartel — Saudi Arabia, Kuwait, and the United Arab Emirates — have said they will enact extra deeper cuts for June.
Morse said he does not expect U.S. companies to reverse their retreat. Most companies won’t restore production from shut-in wells unless oil prices stayed above $35 per barrel for more than a month, he said.
Companies would need “a lot more than that” to commit to drilling new wells, Morse added.
“There is a difference between turning on production that’s been shut in and getting new drilling going again,” he said.
OPEC+ plus countries are even less likely to return to previous production levels anytime soon.
“The countries that shut-in production as part of OPEC+ won’t rush back to bring back production because they have uncertainties about the global economy, their own economies, and they share more of a common sense of vulnerability than they used to given what they have gone through,” Morse said.
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HOPE FOR OIL PRODUCERS: The oil price crash got so bad that Jim Wilkes, president of a small private Texas shale producer, felt relieved Monday as prices surpassed $30 per barrel for the first time since mid-March.
“I am feeling a little better now that the price is up over $30 per barrel. That’s pretty nice compared to where we had been,” Wilkes told Josh, remembering when the U.S. benchmark oil price briefly dropped below zero last month after trading at around $60 per barrel at the start of 2020.
Wilkes’ company, Texland Petroleum shut down operations May 1, but will begin restoring two-thirds of its production June 1 because most of his wells can break-even at $25 per barrel.
“I don’t know how it’s going to go,” Wilkes said. “I don’t think anybody knows. I don’t expect this to be a smooth, steady recovery.”
Expectations should be kept in check. The oil and gas industry lost more than 40,000 jobs in April alone, most in fieldwork. “$30 oil gives oilfield service companies the opportunity to drown in 20 feet of water instead of 40 feet of water,” said Dan Eberhart, CEO of the oilfield services firm Canary and a donor to President Trump. “It will help some companies stave off bankruptcy, but we really need to see $45 oil to stabilize the industry.”
Ron Ness, president of the North Dakota Petroleum Council, said most producers in the Bakken can’t break-even at $30 oil either, although he called the recent price increase “a step in the right direction.”
“$30 per barrel oil doesn’t cut it,” Ness said. “This oil is worth a lot more than that. It’s world-class quality oil.”
Read more of Josh’s story posted this morning.
GLOBAL EMISSIONS DECLINES REACHED 17% AT PEAK OF PANDEMIC: Global greenhouse gas emissions declined 17% on a daily basis during the peak of confinement measures related to the coronavirus, while U.S. emissions fell even more — 32% — researchers projected Tuesday.
The biggest emissions reductions globally came on April 7, when emissions dropped 17%, according to a paper in the journal Nature. Most of the reductions were from surface transportation, responsible for 43% of the drop, followed by industry (25%), power (19%), and airlines (12%).
The researchers expect an annual decrease in emissions by the end of the year of 4-7% globally.
However, the researchers warned the reductions are temporary and do not “reflect structural changes in the economic, transport or energy systems.”
The change in emissions for the rest of the year will depend on the duration and extent of the confinement, the time it will take to resume normal activities, and the degree to which life comes back to how it was.
ZOOMING IN ON US EMISSIONS: Rhodium Group estimates that between April 15 and May 15, U.S. greenhouse gas emissions were 20% lower year-on-year, with more than half of that decline (52%) the result of dramatically lower emissions from the transportation sector.
Declines in industrial emissions were responsible for 28% of the overall cut, and lower electricity emissions accounted for 13%, the firm said in a research note sent to clients Monday.
Rhodium also noted that renewable energy generation in the U.S. has fared relatively well amid the pandemic, growing in market share over that month. For 13 days during that period, wind and solar power exceeded coal-fired generation for the first time ever, the research said.
PANDEMIC DOESN’T SHAKE CONCERN ABOUT CLIMATE CHANGE: Americans’ positions on climate change have not changed much during the pandemic.
A survey published Tuesday by researchers at Yale University and George Mason University found a record-tying 73% of Americans think climate change is happening.
Two in three Americans (66%) say they are at least “somewhat worried” about global warming. One in four (26%) are “very worried” about it.
More than four in ten Americans think people in the U.S. are being harmed by global warming “right now” (45%).
Researchers conducted the survey from April 7 – 17, when most of the U.S. was under lockdown.
ELECTRIC CAR SALES TO DIP 18% THIS YEAR: The coronavirus pandemic will interrupt a 10-year streak of electric vehicle growth, but it won’t change the long-term outlook, according to new research from BloombergNEF. The research tracks with reporting from Abby last month digging into electric cars’ fate amid the pandemic.
BNEF analysts project electric vehicles will account for 58% of all new passenger car sales in 2040 and will be nearly a third of the entire global car fleet. They expect big growth in other classes of vehicles, too, projecting 67% of all buses in 2040 to be electric. In total, the additional EVs on the road will increase global electricity demand 5.2% and decrease global oil demand by 17.6 million barrels per day by 2040, the analysis says.
According to BNEF, sales of internal combustion engine vehicles likely peaked in 2017. The analysis also suggests a massive buildout of electric vehicle charging would be needed to support growth in sales, requiring investment of $500 billion to ensure 290 million charging points are available by 2040.
STATES SEEK PAUSE OF TRUMP WATER RULE: “Today, we are asking the court to make sure that our waters aren’t polluted while we make our case against the Trump Administration’s latest unlawful assault on the Clean Water Act,” California Attorney General Xavier Becerra said in a statement.
Becerra and New York Attorney General Letitia James are leading a coalition of attorneys general from 17 states, D.C., and New York City in challenging the Trump administration’s waters rule, which replaces the Obama-era Waters of the U.S., or WOTUS, rule with narrower protections. In a filing Tuesday, the attorneys general asked a federal district court to put the Trump administration’s rule on ice until the lawsuits against it are resolved.
One thing to keep in mind: The states’ challenge is just one of several, each pending in a different court around the country. The same situation played out in litigation over the WOTUS rule, and ultimately, the regulation was paused in roughly half of the states in the country. It’s too early to tell, but it’s possible a similar patchwork could arise as lawsuits over the Trump rule advance.
SUPREME COURT WON’T HEAR RFS POINT OF OBLIGATION DISPUTE: The Supreme Court on Monday denied a request from refiners to require the EPA to consider changing the point of obligation under the Renewable Fuel Standard. Small refiners, including Valero and backed by the American Fuel and Petrochemical Manufacturers, have long argued the EPA must review where the compliance burden lies for the biofuels requirements, though the agency has repeatedly rejected those requests.
Small refiners said Tuesday they were disappointed with the Supreme Court’s decision. “The beneficiaries of the Court’s decision are the major fuel retailers who maintain the ability to blend, or not, based on their best economic interest and without regard to biofuels mandates,” said LeAnn Johnson Koch, a partner at Perkins Coie who represents the Small Refiners Coalition. “The losers are the biofuels producers who, defying all logic, fought to preserve the loophole.”
DEMOCRATS ASK FERC TO CONSIDER CARBON PRICING: Democratic senators Monday backed a call by power providers for FERC to examine the implications of imposing carbon pricing in wholesale electricity markets.
“The Commission has a rare opportunity to heed the call from a diverse set of energy stakeholders who want to develop long-term certainty in the energy market with policies that could deploy and incentivize reliable, low cost, and emissions free energy,” wrote the senators, led by Sheldon Whitehouse, in a letter to FERC Chairman Neil Chatterjee.
Last months, groups including Advanced Energy Economy, Electric Power Supply Association, Natural Gas Supply Association, American Council on Renewable Energy, and R Street Institute, wrote in their own letter to FERC that a carbon pricing program in wholesale power markets could help unify differing policies in states that participate in organized markets, some of which are considering carbon pricing and others that already have clean electricity mandates.
For example, the New York Independent System Operator, ISO New England, PJM Interconnection, and California Independent System Operator Corporation have all taken steps or made statements supporting carbon pricing.
WEST VIRGINIA REPUBLICAN CHAMPIONS COAL WHILE CRAFTING CLIMATE POLICY: Rep. David McKinley, chairman of the Congressional Coal Caucus, is one of the loudest supporters of fossil fuels, and especially coal, in Congress.
Coal is essential to secure the U.S. electricity grid from blackouts, but federal policies still don’t reflect the grid resilience value of the resource, he told Abby in a recent interview. Coal power is declining sharply in the U.S., reaching its lowest levels in more than four decades in 2019, according to the Energy Information Administration.
Nonetheless, McKinley is also crafting a climate policy with a Democratic colleague, Oregon Rep. Kurt Schrader. The congressmen are working on the “fundamentals of a discussion draft” now, though their plan to introduce the bill has been pushed back a bit by the pandemic.
Read the full interview in Abby’s piece for this week’s Washington Examiner magazine.
The Rundown
Politico Biden White House would yank Keystone XL permit
Reuters Coronavirus creates repair headache for oil and gas industry
Washington Post The strongest, most dangerous hurricanes are now far more likely because of climate change, study shows
Bloomberg Battle over world’s biggest wind turbine is heating up
Wall Street Journal To avoid coronavirus risks, these people live where they work
Calendar
TUESDAY | MAY 19
3 p.m. 106 Dirksen. The Senate Environment and Public Works Committee’s Subcommittee on Clean Air and Nuclear Safety holds a hearing on the nominations of Beth Harwell and Brian Noland to be members of the board of directors, and Katherine Crytzer to be inspector general of the Tennessee Valley Authority.
WEDNESDAY | MAY 20
10 a.m. 106 Dirksen. The Senate Environment and Public Works Committee holds an oversight hearing with EPA Administrator Andrew Wheeler.
2 p.m. The Business Council for Sustainable Energy hosts a webinar on long-term trends in clean energy and the effects of COVID-19.
2:30 p.m. 106 Dirksen. The Senate Energy and Natural Resources Committee holds a hearing to consider the nomination of Mark Menezes to be deputy secretary of the Energy Department.
