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One thing to start with: American oil producers are previous a lot of money on their hedges.
Welcome to Energy Source – we sent out the newsletter a little later than usual today, so we can squeeze the news out of BP’s newly published annual statistical review which is fresh from an embargo. It’s our first note.
In our second, Houston correspondent Justin Jacobs looks at how the Joe Biden administration, which is committed to an energy transition and a rapid decarbonization plan, is approaching Opec – an organization created to protect the interests of some of the largest fossil fuel producers in the world.
Finally, I was engaged in a fascination discussion board with the International Energy Agency yesterday, talking a little bit about mine travels to American fossil fuel communities ask how they feel about the energy transition. Fatih Birol, executive director of the IEA, introduced the discussion by saying, “Work should be central to the energy transition.” It’s an intriguing new focus for an agency often seen only as a modeler and scenario builder.
Now on to the newsletter.
The impact of the pandemic on the energy industry, quantified
We know that the coronavirus crisis has shaken the energy world. But how bad was it? The latest edition of the BP Statistical Review reveals the sheer disruption caused by the pandemic.
“2020 has been a year like no other,” said Spencer Dale, BP’s chief economist, in prepared remarks that are due to be broadcast Thursday afternoon. “The global pandemic is the mother of all stress tests.”
Here are the highlights:
1. Primary energy consumption will fall by 4.5 percent by 2020 – the largest annual decline since 1945. This has been mainly driven by oil, which has contributed to three-quarters of the decline since governments imposed shutdowns and travel bans. The United States, India and Russia have experienced the largest declines in energy consumption.
2. Carbon emissions since energy use has fallen by more than 6 percent in 2020, to levels not seen since 2011. This has been the biggest drop since World War II. While it’s great news for the environment, the world would need to produce similar reductions in carbon emissions, annually, for the next 30 years to meet Paris ’climate goals – and that’s it. always not enough to reach the net emission targets that many companies and governments have set.
3. As prices decrease to multi-year lows, the part of natural gas in primary energy it continued to rise, reaching a record 24.7 percent.
4. Coal consumption has fallen by 4.2 percent, led by declines in the United States and India. OECD coal demand has fallen to its lowest level since at least 1965, when BP began collecting data. But its use in power generation is still relatively robust, falling only to 2015 levels.
“There is still a long way to go to express coal in the electricity sector,” Dale said.
5. Wind, solar generation is hydroelectric everything is growing despite the decline in general energy demand. Solar and wind capacity will be increased by a whopping 238GW by 2020 – a jump 50 percent greater than at any time in history.
6. Electricity consumption it is estimated to have experienced the smallest drop in the main components of energy demand, declining by only 0.9 per cent last year, which demand from industrial and office consumers was offset by those who work and spend more time at home.
Over 70 years, Dale said, “The Statistical Review has witnessed some of the most dramatic episodes in the history of the global energy system: the Suez Canal crisis in 1956; the oil embargo on 1973, immediately followed by the Iranian revolution in 1979, and more recently, the Fukushima disaster in 2011. All moments of great turbulence in global energy, but all pale compared to the events of last year “.
Biden balances petro-diplomacy and decarbonization
President Joe Biden may take his legacy to drive the world out of fossil fuels, but Opec + discord and fears of rising fuel prices have dragged him into the world of oil diplomacy.
After Opec speaks it flashed, White House press secretary Jen Psaki said this week the administration was “communicating directly with Opec parties to reach an agreement” that would add supply to the market.
“Ensuring that Americans do not carry a burden on the pump continues to be a primary priority for the administration,” Psaki said.
U.S. presidents have always kept a close eye on OPEC given the potential repercussions for the economy and consumers – and their own political fortunes.
For Biden, rising oil and gas prices (see our data drill chart below) when Americans are back on the road and in the sky, along with Opec’s efforts to keep barrels out of the market, fuel fears of inflation and give Republicans a political cudgel.
But don’t expect Biden’s petro-diplomacy to resemble that of his predecessor Donald Trump, who tried to micromanage oil markets and Opec decisions, often via Twitter.
When the price of gasoline went up to about $ 3 a gallon on July 4, 2018, Trump tweeted that the “Opec Monopoly” was driving higher prices higher, adding a threatening reminder to Saudi Arabia that states United “defended several of its members for very little $.” (Trump’s tweets are no longer available on Twitter after being banned from the platform, but his story of Opec’s jawboning may be found here.)
While Biden could send Riyadh a message that makes a similar point, it certainly doesn’t come in the form of a bombastic, market tweet.
Even more extraordinary was Trump’s intervention at the bottom of the pandemic last year to personally mediate an agreement for OPEC cut supplies in an attempt to raise prices by historic lows and save an American oil industry that was in free fall.
Although Biden intervened personally in Opec speeches, Psaki said she expects him to leave the task to other administration officials.
This is partly a return to form for US-Opec diplomacy, but for Biden it is also a reflection of the awkward policy of energy transition for a president who has blamed climate change as an existential threat.
Just a few months ago Biden brought together world leaders for a virtual summit to inject new impetus into market efforts to reduce the world’s carbon emissions and move away from oil and gas.
But ahead of the November COP26 climate summit, Biden is in a position to need to ask the world’s top oil producers to pump more coal crude to keep their economic recovery on track. (Justin Jacobs)
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