Subscribe today to the Washington Examiner magazine and get Washington Briefing: politics and policy stories that will keep you up to date with what’s going on in Washington. SUBSCRIBE NOW: Just $1.00 an issue!
THANK YOU VERY MUCH…SAUDIS DEEPEN PRODUCTION CUT: Saudi Arabia announced Monday it is voluntarily cutting another 1 million barrels per day of oil production in June, on top of the output curbs it is leading as part of the OPEC+ agreement.
If Saudi Arabia fulfills its pledge to pump just under 7.5 million barrels a day in June, it would be its lowest oil production level since 2002, according to data compiled by Bloomberg.
Other Gulf countries Kuwait and United Arab Emirates also announced smaller additional production cuts beyond their targets in the OPEC+ agreement, which called for a collective reduction of nearly 10 million barrels per day. UAE is reducing its output an additional 100,000 barrels per day for June. Kuwait is cutting an extra 80,000 barrels per day.
Thought bubble: Saudi Arabia could be trying to generate goodwill to compensate for 30 to 40 million barrels of oil from the Kingdom that is expected to arrive this month on U.S. shores, remnants of its previous strategy to flood the market with low-priced crude.
Its announcement of an additional production cut comes after President Trump spoke with Saudi King Salman on Friday, when the two leaders “agreed on the importance of stability in global energy markets,” according to a White House readout.
Paola Rodriquez Masiu, an oil market analyst at the research group Rystad Energy, said the new cuts would help avoid global storage reaching its capacity this summer.
“An extra 1.2 million bpd cut will not re-balance the market, but will surely remove strain from the storage infrastructure and buy time to wait for the demand rebound,” Rodriquez Masiu said.
Before the cuts, Rystad estimated storage would approach maximum operating levels in July.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
THE COMING OIL PRICE BOOM: If history is a guide, an oil price boom is coming after the pandemic-generated crash.
While the near-term demand picture is highly uncertain, as people reconsider their travel and work habits, this latest bust, the worst of them all, is unlikely to hasten the demise of oil, Josh reports in a story posted this weekend.
“The only way to get away from the boom-bust cycle is to get off of oil,” said Bob McNally, president of Rapidan Energy Group and the author of a book on the topic called Crude Volatility. “That’s really tough because there are no scalable substitutes. As a result, we expect a thirstier world will collide into insufficient supply, and crude prices will have to rise sharply to balance the market.”
The reason: Oil supply will take longer to return than demand as drillers shut-in a record amount of production, companies cut spending on new investments, and the U.S. shale revolution slows.
“As demand rises and it becomes clear that producers over-cut, a roaring oil market will develop,” said Dan Eberhart, CEO of the drilling services company Canary and Trump donor.
How high: Few are expecting $100 per barrel oil, a level that was commonly reached during previous economic recoveries but hasn’t been met since summer 2014.
Joe McMonigle, president of the Abraham Group, an international strategic consulting firm, said he expects oil prices to reach around $45 per barrel as early as the third quarter of this year as economies are freed from stay-at-home orders.
He noted oil prices approached $80 per barrel as recently as last year.
“I hesitate to talk about $100 oil,” said McMonigle, a former Energy Department chief of staff in the George W. Bush administration. “But when the economy comes back, you will eventually get to that bust to boom cycle.”
HAROLD HAMM’S DRILLING COMPANY TO CUT PRODUCTION 70%: Shale producer Continental Resources, whose executive chairman Harlod Hamm is an ally of Trump, is cutting its oil production 70% in May in response to low prices.
The company updated its production plans as part of its first quarter financial report.
Continental, one of the largest independent drillers in the country, previously announced it will suspend its quarterly dividend to shareholders.
The company, the largest producer in North Dakota’s Bakken Shale oil field, posted a net loss of $185.7 million in the first quarter of 2020.
SHALE PIONEER CHESAPEAKE ENERGY WEIGHS BANKRUPTCY: The Oklahoma City-based company, whose famed co-founder the late Aubrey McClendon helped launch the fracking boom, said Monday it is exploring filing for bankruptcy.
The company struggled under a heavy debt burden even before the pandemic and might not be able to stay in business after the pandemic-fueled price crash has exacerbated its problems.
“There can be no assurances that the company will be able to successfully restructure its indebtedness, improve its financial position or complete any strategic transactions,” Chesapeake said in a filing to the Securities and Exchange Commission. “As a result of these uncertainties and the likelihood of a restructuring or reorganization, management has concluded that there is substantial doubt about the company’s ability to continue.”
CORONAVIRUS LOCKDOWNS CUT AIR POLLUTION DEATHS BY A QUARTER: Declines in travel and electricity generation are associated with more than 360 fewer premature deaths per month from air pollution exposure, according to a working paper circulated Monday by the National Bureau of Economic Research.
The working paper also estimates carbon emissions from the transportation and power sectors fell 19% over a month of social distancing.
The bulk of the avoided premature deaths came from reductions in car travel, particularly from declines in emissions of nitrogen oxides, the economists found. Large cities saw the biggest reductions, with Los Angeles seeing the greatest effect, with 75 fewer deaths per month due to reduced travel.
More in Abby’s story posted this morning.
REPUBLICANS ATTACK ‘DISCRIMINATORY’ BANK POLICIES TOWARD FOSSIL FUELS: Congressional Republicans are pressing Trump to do something to stop Wall Street from “discriminating” against fossil fuel companies by limiting lending to oil, gas, and coal companies.
Big-name Republicans like Lisa Murkowski, chairman of the Energy and Natural Resources Committee and John Barrasso, chairman of the Environment and Public Works Committee, accused U.S. financial institutions of “unfairly pick[ing] energy winners and losers in order to placate the environmental fringe.”
In a recent letter to Trump, they expressed concern that fossil fuel companies suffering from the oil price crash won’t get a fair shake from banks distributing funding allocated by Congress in the CARES Act.
They say big banks should not be able to participate in loan programs such as the Paycheck Protection Program or Federal Reserve lending facilities if they won’t fund fossil fuel projects.
The Republicans single out BlackRock, the world’s largest investment management firm, over its recent decision to stop investing in some coal projects and to incorporate climate risk in its investment choices.
“Considering BlackRock’s central role as a Federal Reserve fiduciary for the distribution of CARES Act credit facilities, its hostility towards the American energy sector is unacceptable and should be closely scrutinized,” the Republicans wrote.
Their letter comes as major U.S. banks have ruled out funding coal or drilling in the Arctic in recent months, including Morgan Stanley, Goldman Sachs, JPMorgan Chase, Wells Fargo, and Citigroup.
FYI…COAL IS STRUGGLING UNDER ITS OWN WEIGHT: U.S. electricity from coal fell to a 42-year low last year, the Energy Information Administration reported Monday, primarily because of increased generation from cheaper natural gas and renewables.
The fall of coal generation last year was the largest percentage decline in history (16%). Generation from natural gas and wind reached all-time records, up 8% and 10% from 2018, respectively.
CARBON CAPTURE BACKERS RESPOND TO 45Q CONFLICT: The Carbon Capture Coalition, which includes fossil fuel companies, environmental groups, and labor unions, says prior abuse of federal tax credits reported recently by the Treasury Department’s watchdog underscores the need for IRS to issue the remaining guidance for implementing the the updated 45Q program.
The Treasury Department’s inspector general, in a report last month, said nearly $900 million in carbon capture tax credits were inappropriately claimed by a handful of companies that weren’t complying with federal requirements to monitor and report the stored carbon dioxide. Some Democratic lawmakers and environmentalists said the prior abuse calls into question the tax credit program, particularly as it relates to enhanced oil recovery projects, by which CO2 is injected and stored underground in a process that produces more oil.
The Carbon Capture Coalition, though, said the watchdog report proves the tax credit program is working, citing efforts by the IRS to disallow more than $531 million in tax credits. In a letter Monday to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig, the coalition said “it is critical that thorough auditing and enforcement be sustained,” and it reiterated a request that the IRS establish a new equivalent monitoring and verification program option, based on a global industry standard, in pending guidance on 45Q implementation.
The coalition is also pushing back on calls to suspend the 45Q credit for enhanced oil recovery projects. “This would penalize those companies that followed the rules in the past, as well as those currently developing new projects under the revamped 45Q program,” the coalition wrote in a separate letter to New Jersey Democratic Sen. Bob Menendez, who requested the probe from the Treasury Department’s watchdog.
NRDC SUES EPA OVER WALKBACK OF COOLANT MANAGEMENT RULES: The Natural Resources Defense Council on Monday challenged the EPA’s withdrawal of Obama-era leak prevention and repair guidelines for hydrofluorocarbons, or HFCs, refrigerant chemicals that are potent greenhouse gases. “The EPA would rather allow these easily prevented HFC emissions equal to carbon pollution from 625,000 cars hit the atmosphere every year, than require technicians take reasonable steps to find and fix leaks,” said David Doniger, senior strategic director for climate and clean energy, in a statement.
HOUSE DEMOCRAT SEEKS TO BLOCK TRUMP WATER RULE: House Transportation Committee Chairman Peter DeFazio introduced legislation Friday to overturn the Trump administration’s replacement of the Obama-era Waters of the U.S., or WOTUS, rule.
DeFazio’s bill says the Trump administration’s rule would “radically narrow decades-old regulations established by President Ronald Reagan,” and it would direct the EPA and the Army Corps to issue a new, more encompassing regulation within two years. The legislation is backed by several environmental groups, including the Natural Resources Defense Council, Sierra Club, and National Wildlife Federation.
EPA WATCHDOG TO PROBE AGENCY’S PANDEMIC RESPONSE: The EPA Office of Inspector General said last week it plans to examine the coronavirus’ effects on the agency’s operations and review what actions the EPA has taken in response. “We will also assess how, in the face of these impacts, the EPA has conducted and is conducting its oversight and programmatic responsibilities to protect public health and the environment,” wrote Charles Sheehan, deputy inspector general, in a letter to Doug Benevento, associate deputy administrator.
Worth noting: The EPA has taken a lot of heat over the pandemic enforcement discretion policy it instituted back in March. The watchdog’s letter doesn’t mention any specific policy to probe, but the enforcement memo could easily fall into the topics the inspector general’s office outlines.
The Rundown
Bloomberg The car is staging a comeback, spurring oil’s recovery
Wall Street Journal The former Goldman quant taking on climate change
Washington Post Rockefeller heirs to Big Oil find dumping fossil fuels improved bottom line
Wall Street Journal Inside the refueling of a nuclear power plant as coronavirus hit
Calendar
MONDAY | MAY 11
The Senate is in session. The House hopes to return soon
