The decidedly non-sexy energy work Biden should be doing

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Three things to start with: First, eight people died in protests in Iraqi Kurdistan, where the collapse in oil prices this year has exacerbated economic misery. Second, don’t miss David Sheppard’s article on Saudi Aramco and its treatment of workers. Third, the DE Shaw hedge fund launched a activist campaign at ExxonMobil – the second investor to do so in a week.

Our main topic today is an interview with Sean Casten, a Democratic congressman with strong opinions on US energy policy.

Still in today’s ES: shale spending plunged in the third quarter; the world may not need as much liquefied natural gas as you think; and Adair Turner, head of the Energy Transitions Commission, on the state of the energy transition as the world marks the fifth anniversary of the Paris Agreement.

Thanks for reading. Please contact us at [email protected]. You can subscribe to the newsletter here. – Derek

The case of an American energy czar

Joe Biden, in an unprecedented move, is promoting climate change as a whole-of-government issue – making it the responsibility of key members of his administration who will transcend government departments and agencies. The same should be done for energy policy, which for decades has been the purview of a dilapidated patchwork of government agencies with little or no centralization.

That’s the point of view of Sean Casten, Democratic Congressman from Illinois and former clean energy leader.

“We still don’t coordinate energy policy,” Rep Casten, a moderate Democrat, who sits between the party’s pro and anti-fossil fuel extremes, told ES. “Where is energy policy in the United States? Is it the Department of Energy, is it the EPA, is it the Department of Transportation? Nobody knows.”

The appointment of John Kerry as climate envoy, with ministerial rank and a seat on the National Security Council, places global warming at the heart of US foreign policy. Mr Biden is also expected to appoint a national counterpart.

John Kerry served as Secretary of State under Barack Obama and brings considerable political weight to the role of climate envoy. © AFP / Getty Images

But what about energy? Mr. Kerry and his colleague will have responsibilities in this area, but it will not be their priority. As it is, energy is everyone’s responsibility.

The Department of Energy (which you might reasonably think occupies this role) is primarily involved in the management of nuclear arsenal and waste, as well as energy R&D. Highlighting the current administration’s view of its importance, Donald Trump’s first choice for energy secretary was Rick Perry, a man who in 2011 said he wanted to cut the department and then went forgot his name.

The Environmental Protection Agency is often seen as closer to energy in the traditional sense – tasked with things like regulating the emissions that the sector releases. But the regulation of transmission? It’s up to the Federal Energy Regulatory Commission. Rules on the transport of fuels? Consult the Department of Transportation’s Pipeline Safety and Hazardous Materials Administration. Meanwhile, onshore oil and gas leases are awarded by the Bureau of Land Management and offshore by the Bureau of Ocean Energy Management (both part of the Home Office). What about financial disclosures from energy suppliers? For this, consult the Securities and Exchange Commission.

“With no office where accountability ends, accountability just keeps shifting,” said Casten, who raised the issue with Biden’s transition team.

“I think it’s really important that if we’re going to treat climate policy as a whole-of-government issue, we also have to treat energy policy as a whole-of-government issue. And I would tell you that no administration has ever done that, ”Casten said.

So what is the solution? Either assign a new high-level role to a member of the administration to manage energy policy, or make the domestic climate czar a domestic energy czar, Casten said. In any case, energy should not be just a side project, but the main focus.

“The climate would be part of the mandate, but you really have to tie a lot of these things together,” he said. He has to be someone with real power to be effective.

“If he’s just a czar, but that person has to go get clearance slips from the Secretary of Energy and the Secretary of the Environment and the Secretary of Transportation, this is not a whole-of-government solution. , he’s just a coordinator.

While political realities have brought climate back to the table, unraveling the bureaucracy of US energy policy clearly remains unsexy. Is an energy czar a realistic prospect? “A boy can dream,” Mr. Casten said. (Myles McCormick)

A grim outlook for global LNG

Once seen as a promising transitional fuel, the best days of natural gas increasingly seem to be behind.

The resource’s prospects in the low-carbon energy transition are threatened, especially as cleaner hydrogen emerges to take fuel off the market, according to a new study by Wood Mackenzie.

The prospect of fuel mitigation could force companies to halt plans to export liquefied natural gas and leave existing gas reserves stranded, the consulting firm said.

WoodMac said 77% of new supplies from LNG projects are at risk in a scenario where emissions are reduced enough to prevent global temperatures from exceeding 2 degrees.

“With lower global gas demand, space for new developments will be limited. This is a significant challenge for companies considering making final investment decisions on new projects, ”said Kateryna Filippenko, senior analyst at the company.

Global oil majors once viewed LNG as a relatively safe long-term investment with solid demand prospects, even as countries sought to cut emissions and invested tens of billions of dollars in megaprojects over the past decade. to find and export gas around the world. . But this perspective is increasingly called into question.

In WoodMac’s 2 degree scenario, only the fittest and cheapest growers will win out in the shrinking market. Qatar and Russia, which are already making progress in developing large and relatively cheap resources, are considered by WoodMac to be the most likely survivors. Low-priced US natural gas should also help new US export projects remain competitive. But more marginal expansion plans in places like Canada and Mozambique would face the ax. (Justin Jacobs)

Data mining

According to data compiled by the Institute for Energy Economics and Financial Analysis, U.S. shale companies spent less on capital spending in the third quarter of this year than in any other quarter of the past decade, with falling prices. oil prices have put the finances of the sector in a vice.

The group of 33 fracking-focused companies included in the analysis spent just $ 5.8 billion in the quarter, down nearly 60% from the same period in 2019. The all-time high was over $ 16 billion in the third quarter of 2018, when U.S. oil production was growing at a record pace.

The historically low spending levels came in response to April’s historic price drop, which prompted companies to cut budgets, cut drilling plans and lay off workers.

Significantly lower capital spending during the quarter, combined with a rebound in the price of a barrel in the 1940s, allowed companies to generate significant free cash flow, a reversal for a sector that has historically spent more than he did not report any. quarterly free cash flow performance over the past decade, according to the IEFA.

After a decade of poor returns, shale companies are under intense pressure from shareholders to strike a new balance between spending on growing production and handing free cash to shareholders while paying off heavy debt .

Capital expenditure in billions of dollars by quarter column chart showing spending falls in shale after price collapse

Power points

  • Toyota has released a second-generation Mirai, its hydrogen fuel cell vehicle, in the hopes that the technology is now ready for mass adoption.

  • UK government climate advisers have recommended replacing home heating systems and that people eat less meat, among other consumer-related decarbonization measures.

  • Trafigura, one of the world’s largest commodity traders, used the oil crisis this year to post its best gross profits in its history.

  • Executives left Shell amid a contention over the company’s energy transition plans.

End of document

This week marks the fifth anniversary of the Paris climate agreement – and so far this marriage has been difficult. Since the Trump administration withdrew the United States from the deal in 2017, the sense of urgency for climate action around the world has increased and decreased, especially with the onset of the coronavirus pandemic.

But with the Biden administration preparing to take the helm of the United States, a series of increasingly ambitious net zero target announcements from major economies and efforts to use the post-pandemic recovery to stimulate new green investments, a new dynamic is underway.

In a live panel discussion earlier this week, Adair Turner, head of the Energy Transitions Commission, provided an update. He contrasted the speed of technological developments aimed at reducing carbon in the long term with the reluctance of governments to act on short-term needs.

“The world needs to bring the industrial and energy system to about zero carbon emissions by mid-century. We believe it is absolutely possible – that we can achieve a zero carbon economy. The fundamental reason we are so confident is the revolution that has taken place in the cost of various [zero-carbon] technologies, ”said Lord Turner.

He is considering the next round of climate negotiations, COP26, scheduled for November 2021 in Glasgow, to urge governments to act. “Above all, what is expected of COP26 is to focus countries on the necessary actions over the next 10 years. . . The crucial question is what happens in the 2020s. “

Energy Source is the Financial Times bi-weekly energy newsletter. Its editors are Derek Brower and Myles McCormick, with contributions from Justin Jacobs in Washington, Gregory Meyer in New York and David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London.

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