Three things to start. First, shale bosses are still paying themselves a lot of money, says private-equity agitator Kimmeridge.
Second, Michael Regan, head of the US Environmental Protection Agency, told the FT that President Joe Biden would not back down in the face of opposition from his own party to elements of his climate agenda.
And oil prices fell hard yesterday. Opec’s decision on Sunday to pump more crude from August and renewed worries about the coronavirus have put the skids under crude prices. Oil and gas share prices fell sharply too, alongside a wider sell-off in equity markets. After a bullish few months, some analysts are talking about too much oil again. Let us know what you think.
In today’s Energy Source, we dive into a new report from Ceres showing a persistent slide in emissions from America’s power sector — but there is a long way still to go if the country is to achieve carbon-free power in the president’s ambitious timeframe.
We also examine US LNG and its methane problem. The European Commission kept energy out of the initial phase of its carbon border tax plan, unveiled last week. But only because tighter rules on methane pollution are coming that will have implications in the US.
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US power emissions slide, but more is needed
Emissions from the US power sector fell sharply again last year, tumbling 10 per cent as a shift from fossil fuel generation to renewables continued apace. But there remains a long road ahead to achieve President Joe Biden’s ambitious climate goals.
Power generated from renewables (excluding hydro) jumped 20 per cent in 2020, while coal-fired generation decreased 17 per cent, according to a new report from sustainability non-profit organisation Ceres. That extended a trend that has seen carbon dioxide emissions slide 40 per cent since 2007.
But the president’s plan to decarbonise the grid altogether by 2035 will require a far greater overhaul of the way America creates electricity.
“We do still need to increase the pace of reductions,” Dan Bakal, senior director for electric power at Ceres, told ES.
“So while this report does show that it’s possible to achieve some substantial reductions and still grow the economy, we still need to accelerate the rate of decarbonisation.”
Electricity generation in the US accounts for around a quarter of the country’s greenhouse gas emissions. Analysts reckon it is the simplest sector to tackle in the near term to slash America’s emissions — especially as electrification of sectors like transport and heating cause it to expand rapidly.
Biden wants to introduce a clean energy standard (CES) to mandate CO2 reductions by power producers, forcing them to produce 80 per cent of electricity from clean sources by the end of the decade and 100 per cent by 2035. But pushback from Republicans and elements of his own party mean he faces an uphill struggle to get this on the statute books.
The volume of carbon dioxide spewed into the atmosphere by power plants in 2020 was 20 per cent lower than in 1990, according to Ceres, and 40 per cent below its peak in 2007.
While the effects of the pandemic contributed in part to last year’s reductions, the longer term decline has been largely fuelled by the collapse of coal-fired generation over the past decade in favour of cleaner-burning natural gas (production of which has boomed in the wake of the shale revolution). More recently, a ramp-up in renewables has accelerated the trend, while improved energy efficiency has also played a key role.
Voluntary commitments by utilities will not be enough to achieve the rapid pace of decarbonisation envisaged by the president, however. Policy tools such as the CES, renewable tax incentives and programmes to drive further efficiency gains will be “critical” to going the distance, said Bakal.
“It’s ambitious and it’s possible [but] it will require additional focus by policymakers. Business as usual will not get us there.”
A new EU methane regime will force change on US LNG
Policy and energy analysts agree: oil and gas’ exclusion from the European Commission’s proposed carbon border adjustment mechanism (CBAM) is not the relief they might think. First, it could be expanded to cover other goods, including energy, after the initial phase ends in 2025. Second, the Commission’s rules on methane emissions — due in a separate package of proposals later this year — could be just as significant for US liquefied natural gas exporters.
“The EU has made it clear, at least privately, that they intend to project economic force using the heft of their market and regulating methane at home,” said Kevin Book, a managing director at Washington-based advisory firm ClearView Energy Partners. “They fully intend to externalise that regulation on the imports.”
How? We await details. But the principle will be the same as that underpinning the CBAM: if production of the imported good involved more methane than the EU would allow within the bloc, the importer would need to buy a credit — effectively, a tax on the dirtier import. The CBAM aims to stop “carbon leakage”; the methane rules would presumably seek to stop leakage of methane, an even more potent greenhouse gas.
Almost half of US LNG exports went to Europe last year. And the US upstream — the feedstock source for that LNG — is much more methane intensive than some other big suppliers to the EU. It may even be more pollutive than some Russian piped gas.
So the forthcoming methane rules matter. Engie’s scrapping of a US LNG purchase deal last year was a harbinger. “The first shot in the carbon trade war was fired over methane,” said Book. A fusillade is coming.
In September, the Biden administration is due to announce its methane rules too.
The potent GHG is becoming an existential problem for the gas business, said Georges Tijbosch, senior adviser to MiQ, a joint venture not-for-profit that has developed a mechanism to certify natural gas based on its methane intensity.
“A lot of people in the gas world think, rightly or wrongly, that gas is going to be around for a while — as a bridge fuel (to clean energy). This whole theory goes wrong if it is not clean from a methane emissions perspective,” he said.
The premise of MiQ and other platforms, such as Project Canary, is that producers will see a competitive advantage in selling (certified) “cleaner” gas. Eventually, each buyer of gas along the supply chain — from an Appalachian well to a Spanish power plant — might know exactly how much methane pollution was involved in extracting and shipping the fuel.
“The train has left the station,” said Jonathan Stern, head of the gas research programme at the Oxford Institute for Energy Studies. Policy is now moving inexorably against methane and companies should act quickly, he argues.
“It’s not hard. This is not driverless cars, it’s not new technology. This is about making sure you know what your emissions are, you’ve measured them, you’ve got an external third party to technically sample them so that we can see that you really know what you’re doing. And none of this is actually big money.”
Oil prices fell hard on Monday in the wake of the Opec+ deal to increase supplies. Concerns about the Delta variant of the coronavirus are also looming over markets. In the US, the world’s biggest market, fuel demand and prices may also have peaked. Petrol consumption is expected to dip as the months cool, and prices could soften by 10 per cent by the end of the year, according to the US Energy Information Administration.
Despite controversy and fierce opposition toward the use of bioresources, a joint venture between Shell and Cosan to turn sugarcane into ethanol may rank among Brazil’s top-10 IPOs on record.
Norway’s prime minister says Oslo remains committed to oil and gas.
Scottish carbon capture project attracts Big Oil.
The Editorial Board argues for a tax on European flights.
China’s emissions trading scheme starts off lax and limited.
Merkel says Germany must get better at tackling climate change after the devastating flood. (Reuters)
The International Energy Agency, the US Energy Information Administration, and Opec all released their monthly oil-market reports last week. Here is our round-up of what matters and what changed in the July numbers: