One thing to start with: Joe Biden wants to change America’s infrastructure.
Welcome back to Energy Source. Myles McCormick had some reaction to the US President’s grand announcement in Pittsburgh yesterday. In our second note, Benjamin Parkin from India reports on the prospects for hydropower in the Himalayas.
And elsewhere in the newsletter: Why Opec’s worries about global oil demand are good for crude oil prices and more data on how the low carbon shift is affecting the energy business.
It’s a bumper issue today as Energy Source is on hiatus next week. Happy Passover, Easter and Holiday to everyone.
Biden’s infrastructure plan has landed
Joe Biden kicked off his much-anticipated yesterday Infrastructure package, the $ 2tn American Jobs Plan. Spending on energy and climate was in the foreground and overshadowed everything the US has seen so far.
“The American employment plan will lead to transformative advances in our efforts to combat climate change,” said the Pittsburgh, Pennsylvania president. “Imagine giving your children and grandchildren a country that is the world leader in producing clean energy technology.”
The proposed legislation is not the Green New Deal that the progressive wing of the Democratic Party had hoped for. Many had bet on bigger spending and a stronger focus on green infrastructure, but the numbers are colossal nonetheless.
“It is still the largest government spending on infrastructure and clean energy in world history,” said Paul Bledsoe, Clinton White House climate adviser.
I’ll be delving into the importance of the package to America’s energy and climate ambitions this weekend (so keep an eye on ft.com). But for now, here’s what you need to know, and what people are saying:
A boon to clean energy. . .
Restart the grid: Biden’s plan cites the recent Texas drama as a symptom of the deterioration of the American power grid and provides for the use of an investment tax credit to help build power lines to create a more resilient transmission system. This generated a murmur of bilateral approval.
A revised grid is the foundation for any expansion of clean energy generation, said Robert Stavins, professor of energy and economics at Harvard:
“I think there is widespread recognition that this is important – also for the climate, as the grid has to be upgraded if the renewable energies are to be more penetrated.”
Advancing renewable energies: Biden would also like to extend (and expand) the investment and production tax credits for clean energy generation and storage by 10 years. This could cause spending on renewable energy – and investing in clean energy jobs – to skyrocket, according to policy makers.
“We will have a decade for the clean energy economy to have certainty, for us to get steel in the ground, invest and create jobs,” said Leah Stokes, professor of political science at the University of California at Santa Barbara.
Decarbonisation power: The plan also includes Biden’s election promise to set a federal “Clean Energy Standard” that should achieve carbon-free power generation by 2035. Details are missing, however, and scholars disagree on whether he could survive the Congress reconciliation process.
Winning the EV War: Biden also plans to pump $ 174 billion into electric vehicles to reclaim the market from China. He wants to boost domestic supply chains and vehicle construction and bring 500,000 chargers to market by 2030 through a program of grants and incentives.
. . . but what about oil?
While renewable energy advocates had a lot to celebrate, the oil sector had little to add to sentiment. The president pledged to remove any “special preferences” that fossil fuel manufacturers receive – including “billions of dollars” in subsidies, loopholes and special foreign tax credits. That upset lobbyists.
“Targeting certain industries with new taxes would only undermine the country’s economic recovery and put well-paying jobs, including union jobs, at risk,” said Frank Macchiarola, senior vice president at the American Petroleum Institute.
Biden also plans to spend $ 16 billion on plugging abandoned oil and gas wells – a process he believes will create “hundreds of thousands” of jobs. The only bright spot for the fossil fuel sector was a commitment to pump funds into demonstrations of carbon capture technology.
If the package passes Congress in its current form, the impact on American energy will be enormous.
All eyes are now on Capitol Hill. (Myles McCormick)
India weighs the value of hydropower
In 2011, Rakesh Mehra, an industrialist from the Indian city of Ludhiana, traveled high in the Himalayas to inspect a hydropower project he was building. In a shocking accident, a boulder fell on the construction site, killing him.
Almost a decade later, the same project at Rishi Ganga in Uttarakhand state was the scene of another tragedy.
In February, a rockfall triggered a flash flood of melted ice, mud, and stones that tore apart the project, one more downstream, and part of a nearby village. More than 200 people are believed to have died, many are still missing.
The unfortunate history of the project shows why the proliferation of hydropower in the Hindu Kush Himalayan region has proven extremely controversial.
India’s energy needs will grow faster than any other country over the next two decades. With large cities like New Delhi already suffocated by smog for much of the year, Prime Minister Narendra Modi wants to expand renewable capacities to 450 gigawatts over the next ten years. The International Energy Agency estimated it had 125 GW of water, sun and wind in 2019.
Supporters argue that the mountain rivers will be an invaluable alternative to fossil fuels when Himalayan states switch to renewable sources. However, critics say they are dangerous, prone to the effects of climate change, and could become redundant compared to fast-growing solar and wind projects.
The countries “have tremendous hydropower potential,” said David Molden, former director general of the International Center for Integrated Mountain Development, a regional intergovernmental body.
“The governments want to invest a lot of money in hydropower. However, what role hydropower will play in the future is not an easy question. “
The private sector sees the glass half empty. The high risks, costly delays, and the rapidly changing energy industry have put investors off. Many enthusiastic supporters of projects during the infrastructure boom in the early 2000s saw betting angry after the sector was hit by a wave of bankruptcies.
In fact, the Rishi Ganga project went bankrupt after Mehra’s death and only started operating last year after it was taken over by another company.
“Private sector actors in Indian infrastructure are generally wary of projects that take five or ten years to build. A lot can change in that time, ”said Harsh Shah, managing director of IndiGrid, a KKR-backed investment trust that owns transmission lines that carry electricity from Himalayan plants.
While hydropower used to be the cheapest source of renewable energy, falling solar prices have made the latter a preferred source. The IEA estimates that the share of hydropower in renewable electricity generation in India will fall from its current half to a quarter by 2030, with solar accounting for almost the majority.
Himanshu Thakkar, coordinator of the South Asian Dam, Rivers and People Network, said future projects will require more planning, including assessing their environmental impact and economic viability.
“If you don’t do all of this and just take the ideological stance that we need more hydropower, then you are creating big problems in these areas,” he said.
The FT Energy Source Live Event will take place from May 24th to 25th, 2021. Meet industry leaders, thought leaders, energy innovators, policymakers, investors and other key influencers to hear the latest thoughts and insights into the future of US energy leadership and its global context. Find out more here.
When bearish means bullish for oil
In perhaps the truest sign that we live in that turned upside downUS stock prices are now rising on bad economic news. The same is increasingly true of the oil market.
“Sometimes bad news can be good news because it can mean the Fed is keeping the money taps open,” said Martijn Rats, Morgan Stanley’s global oil strategist. “It’s a bit the same with Opec.”
Again, the bad but good news for the oil market is the virus. The major European economies tighten restrictions again as cases rise, which means the rapid recovery in demand that some analysts anticipated will be delayed.
Goldman Sachs, the noisiest oil bull on the street, has revised down its outlook for consumption growth between Q1 and Q3.
Opec has also grown grim in terms of oil demand growth. now expect an increase of 5.6 million b / d this year, down from 5.9 million.
Prices should drop sharply. But Brent stays within a modest rally of $ 65 a barrel. Why?
The demand concerns will make the broad Opec + cartel much more cautious when it comes to restoring the huge supply it took off the market last year. As such, the group is likely to agree today to again delay its planned production increases. According to analysts, the additional cuts in Saudi Arabia are likely to persist.
“In light of the latest demand concerns, Opec will by no means risk hard-won price gains. Another month of caution is the best medicine for this, ”said Bill Farren-Price, director and Opec observer at Enverus.
However, the surge in demand was delayed and not canceled. Forecasters predict that consumption will rise in the second half of the year as vaccines proliferate.
“On the demand side, it was two or three steps forward and one step back,” said Rats. “But the big picture is: we are leaving the coronavirus.”
Analysts point to Israel, where the world’s fastest introduction of vaccines resulted in a rapid recovery in mobility. In some parts of the world fuel consumption is even increasing again.
Opec can afford to be careful – withholding supply until it is certain that demand is back on track and knowing that competing producers are unable (yet) to increase performance.
In trying to protect an oil price of $ 65 and focus on current weak demand rather than future spikes in consumption, Standard Chartered analysts said, “We believe Opec + is driving up price risks.” (Derek Brower)
The recovery in US gasoline demand reached a milestone last week. For the first time since consumption fell last March, demand was higher than last year – a clear sign that Americans are getting back on the streets as vaccinations roll out and economic restrictions ease.
Alphaville on Space mania, Investor advice and a battery manufacturer.
Oil trader Gunvor wants also go green.
Mohammed bin Salman wants Saudi Aramco and other businesses to diversify his kingdom’s economy.
We saw some data points on our screens here at ES this week highlighting some of the ways the low-carbon transition is transforming the energy sector:
Batteries, batteries everywhere: Falling costs and decarbonization will cause the demand for batteries to rise inexorably, says consultancy Rystad Energy. By 2033, according to Rystad, more than half of all new cars sold will be electric and almost all new cars sold will be electric by 2050. Cheaper batteries will also play a significant role in global power grids, enabling the expansion of intermittent wind and solar. All of this will push the demand for batteries from less than 1 terawatt hour to around 20 TWh by the mid-2040s, says Rystad.
Carbon taxes threaten the value of oil and gas fields: If governments start imposing carbon taxes on oil and gas projects, large chunks of their value would be wiped out, argues a Wood Mackenzie report. A carbon tax of $ 40 per tonne – around the current European retail price – would leave most projects unaffected. But $ 200 a ton would be at least 50 percent of the value for a third of projects around the world, said Graham Kellas, senior vice president at WoodMac.
Fossil Fuel Investor Pain: Going green has paid off for investors over the past decade, emphasizes Carbon Tracker, a think tank, in a report. From 2012 to 2020, clean energy company investors raised $ 56 billion in equity, which grew in value by $ 77 billion, slightly outperforming broader markets. In contrast, the $ 640 billion equity that investors bought from fossil fuel companies during this period has lost $ 123 billion in value. (Justin Jacobs)
Energy Source is a bi-weekly energy newsletter from the Financial Times. It was written and edited by Derek Brower, Myles McCormick, Justin Jacobs, and Emily Goldberg.