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OPEC+ IGNORES WARNINGS: OPEC and its allies are ignoring warnings of looming price spikes from a tightening oil market by announcing this morning a plan to keep in place previously announced targets for producing more oil in July.
Ahead of a meeting of OPEC+, an alliance of the Saudi-led oil cartel with Russia, Fatih Birol, director of the International Energy Agency, warned oil prices would face “upward pressure” unless the group brought back more supply than planned, since demand is strongly recovering with the improvement of the pandemic.
“If OPEC+ stick to their current policies we may see a wider gap between supply and demand,” Birol told Bloomberg.
OPEC+ and its allies, as part of a historic production cut deal, spent more than a year trying to resuscitate prices from record lows during the pandemic, but they have started cautiously adding supply as demand has returned.
But now, the tide is shifting as oil prices have climbed nearly 48% since December. The Brent crude international benchmark topped $71 a barrel this morning, the highest since October 2018.
Big bet on Iran comeback: Despite worries the market could become even more tight, OPEC+ decided to keep the status quo, banking on the return of oil production from Iran, which has been subject to strict sanctions from the Trump administration after it abandoned the 2015 nuclear agreement.
The Biden administration and Iran want to restore the nuclear deal, likely enabling Tehran to bring back production and exports.
In opening remarks to the meeting, OPEC Secretary General Mohammed Barkindo suggested that the producer group anticipated “relative stability” in oil markets in light of the “expected return of Iranian production and exports.”
OPEC+ will press ahead with an increase of 841,000 barrels a day in July, following smaller increases in May and June. In addition to that, Saudi Arabia is easing separate unilateral cuts it made to help lift prices.
OPEC+ has time on its side: Bob McNally, president of Rapidan Energy Group and former oil official in the George W. Bush administration, told Josh that the potential return of output from Iran pending a new nuclear deal is the “big uncertainty everyone is talking about.”
He said OPEC+ could yet decide to bring back more supply when it meets again later this month, setting higher production targets for the next few months after July.
“Fundamentally, it doesn’t matter much if they wait until after this month and greenlight higher production in August or September. If they haven’t increased production by August, things will get pretty testy and hectic,” McNally said.
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.
MEANWHILE…US SELLS OFF IRANIAN OIL FROM SEIZED TANKER: The United States recently seized a ship and then sold off the Iranian oil it was carrying.
U.S. authorities in February seized the Liberian-flagged tanker Achilleas off the coast of the United Arab Emirates as it was transporting Iranian oil, the Associated Press reported yesterday.
The U.S. government brought the cargo to Houston, Texas, where it sold the oil.
The oil sold from the cargo showed up in data released this weekend by the Energy Information Administration, an arm of the Department of Energy, confirming the U.S. imported just over 1 million barrels of Iranian crude oil in March.
An EIA spokesman told Josh this is the second time in the past year the U.S. has seized petroleum exports originating from Iran that the U.S. deemed in violation of international sanctions.
In both cases, the cargoes were imported into the U.S. Last October, the EIA reported the U.S. imported 1.1 million barrels of Iranian crude and petroleum from a similar seizure.
Kevin Book, managing director of ClearView Energy, told Josh that the incidents represent an “intriguing statistical blip on crude sourcing” but don’t reflect a macro change in oil market flows.
HOW ENGINE NO. 1 BEAT EXXON: A tiny hedge fund that led a successful shareholder revolt against oil giant ExxonMobil last week won because it did not speak the language of climate change activists, Josh reported for a profile story this weekend of Engine No. 1.
Founded in December, San Francisco-based Engine No. 1 agitated Exxon to invest in clean energy and begin moving off fossil fuels for financial reasons, arguing its strategy of sticking with its core oil and gas business has not produced strong returns for shareholders.
“That’s the genius of Engine No. 1,” said Robert Eccles, professor of management practice at Said Business School at Oxford University. “They were not saying, ‘Your product emits a lot of carbon. You have to change.’ It’s, ‘Your financial performance absolutely sucks, the world has changed, and you haven’t.’”
A case of the right time and place: Exxon struggled during the pandemic, posting its first-ever loss last year, and has also produced weaker returns than many of its peers over the last decade.
Over the last few years, meanwhile, Exxon’s Big Oil competitors in Europe have pivoted more aggressively to clean energy. Banks that lend to Exxon have set decarbonization goals, while the auto and power companies that buy its products are moving to electric vehicles and renewables.
“We are at a point in time where Exxon looks out of step,” said Andrew Logan, senior director for oil and gas at Ceres, a nonprofit organization focused on sustainability. “Running this campaign at this moment ended up being a recipe for success.”
EXXON PROCEEDS ON NEW BIG OIL PROJECT: Exxon is teaming up with Norwegian-based Equinor and Petrogal Brasil on an $8 billion development of an oil field in Brazil, the companies announced in a joint statement today.
The Bacalhau oil field, slated to come online in 2024, will eventually produce 220,000 barrels per day.
The development comes after the International Energy Agency last month said that the world must immediately stop investing in new oil and gas exploration in order to reach net-zero emissions by 2050. The IEA, however, exempted projects that have already been approved for development from its calculations. The development plan for Bacalhau was approved in March.
…WHILE BP IS GOING SOLAR: British oil and gas giant BP is investing $220 million on U.S. solar projects, the company said this morning.
BP plans to purchase 9 gigawatts of solar development projects from 7X Energy.
The deal is a joint venture with Lightsource BP, a large solar developer.
It will increase BP’s renewables development pipeline from a total of 14 gigawatts to 23 gigawatts, as the company aims to grow its renewable business to a capacity of 50 gigawatts by 2030.
BP has also committed to reaching net-zero emissions by 2050.
REPUBLICANS WANT EIA ANALYSIS OF BIDEN NDC: Republican leaders asked the EIA this morning to analyze the Biden administration’s new Paris Agreement pledge to cut greenhouse gas emissions in half by 2030.
“The President’s plan is the most ambitious emissions reduction target ever proposed and if implemented, would have large impacts across the economy of the United States,” said Sen. John Barrasso of Wyoming and Rep. Cathy McMorris Rodgers of Washington, in a letter to EIA acting administrator Stephen Nalley.
Barrass and McMorris Rodgers are ranking members of the Senate Energy and Natural Resources Committee and House Energy and Commerce Committee, respectively.
The duo also asks EIA to forecast the implications of other Biden targets, including cutting power sector emissions 80% by 2030 and entirely by 2035, and reaching economy-wide net-zero emissions by 2050.
BIDEN PROPOSES BIG CLIMATE SPENDING IN BUDGET: Biden included massive spending increases across federal agencies to combat the effects of climate change and promote clean energy technologies — though he will have to win support from Congress for his plans to succeed.
The White House budget proposal for fiscal year 2022, released Friday, incorporates Biden’s $2.3 trillion infrastructure plan, which already includes significant funding to boost technologies such as renewable energy, electric vehicles, and nascent clean energy technologies such as carbon capture and storage.
On top of those investments, Biden is proposing additional climate spending of more than $36 billion across several agencies, which includes investments in clean energy research and deployment, funding to help regions adapt to the effects of warming, and money to help developing nations curb climate change.
To boost clean energy research alone, the budget proposal would spend more than $10 billion, a nearly 30% increase over the fiscal year 2021 spending.
For a rundown of the climate spending, see Abby’s story from Friday.
CLEAN ENERGY TAX OVERHAUL: Senate Democrats are proposing to overhaul the energy tax code in favor of a trio of incentives based on emissions reductions, a move that environmentalists are lauding but Republicans say would disadvantage fossil fuels.
The bill from Senate Finance Committee Chairman Ron Wyden replaces 44 energy tax breaks and incentives with three emissions-based incentives for clean power, clean fuels, and energy efficiency.
The Senate Finance Committee approved the legislation along party lines, an even 14-14 vote, last week, teeing up the measure or portions of it for possible inclusion in any infrastructure package.
Environmental groups and clean energy advocates say Wyden’s legislation would offer certainty to renewable energy and electric vehicle companies, which in recent years have faced diminishing tax credits and last-minute political haggling over whether to extend the incentives in budget bills.
Republicans and fossil fuel groups, however, say the legislation would deliberately disadvantage fossil fuels and raise energy prices for consumers.
More in Abby’s story from over the weekend.
The Rundown
New York Times Dispute over coal industry pits Poland against its neighbors
Reuters OPEC, Russia seen gaining more power with Shell Dutch ruling
Washington Post A ski company built a power plant fueled by methane. It’s a success, but can it be replicated?
Bloomberg Putin is betting coal still has a future
Calendar
TUESDAY | JUNE 8
1:05 p.m. Energy Secretary Jennifer Granholm delivers remarks on her vision for nuclear energy at the Nuclear Energy Institute’s Nuclear Energy Assembly.
WEDNESDAY | JUNE 9
10 a.m. 301 Russell. The Senate Environment and Public Works Committee will hold a hearing titled, “PFAS: the View from Affected Citizens and States.”
