GREEN CAPITALISM
After Building SunEdison, Jigar Shah Eyes $1 Trillion Opportunities

Agents of Impact  |  February 12, 2015 

A trillion here, a trillion there, and pretty soon you’re talking about real solutions to climate change.

“Impact to me means $1 trillion,” says Jigar Shah, president and co-founder of Generate Capital, a new specialty finance company that works with project developers and technology manufacturers to finance what he calls “the resource revolution.”

Shah knows of what he speaks. As the founder of solar giant SunEdison, Shah cracked the code and laid the foundation for the explosive growth of not only SunEdison, now worth more than $5.5 billion, but also Elon Musk’s SolarCity and others. His no-money-down, pay-as-you-save business model unlocked the hundreds of billions in secondary financing that has driven the quadrupling of installed US solar capacity in the past five years. Last year, solar and wind together accounted for more than half of new U.S. electrical generating capacity. “Impact means people follow you,” Shah adds.

Since he left SunEdison five years ago, Shah has worked through outfits such as Richard Branson’s Carbon War Room, where he was the founding CEO, to build the business case for scaling up other clean-tech industries.

At the Carbon War Room, Shah became known as a champion of the “gigaton throwdown,” a 2009 challenge to reduce annual carbon emissions by 17 gigatons (from 36 gigatons today), in order to avoid a catastrophic rise in global temperatures. Shah focused on the 10 or so “wedges” that each have potential for one-gigaton carbon reductions, including energy, water, waste, transportation, and agriculture.

The required changes are massive. Each wedge represents an investment opportunity of $1 trillion or more, according to multiple estimates, in order to bring sustainable infrastructure to billions of people around the world. A one-gigaton reduction in transportation, for example, would require swapping out a billion cars that get 20 miles per gallon for ones that get 40 mpg.

This is what Shah calls “creating climate wealth,” the title of his 2013 book in which he lays out the roadmap for approaches that can more than pay for themselves, but require massive infusions of upfront capital. Though renewables such as solar cost less over time, consumers had a hard time justifying, if even affording, the upfront costs of the equipment and installation.

At SunEdison, Shah helped introduce the 20-year power purchase agreements that bring together customers, investors, clean-tech manufacturers, and government regulators with terms they all can understand. SunEdison would install and service the equipment, ensure it performed as expected and deliver reliable, long-term dividends to investors.

Generate Capital, launched last year by Shah and co-founders Scott Jacobs and Matan Friedman, aims to demonstrate the investment opportunities in other proven approaches in renewable energy, energy storage, and energy efficiency. The firm already has north of $100 million to begin underwriting clean-tech projects. Though some impact-driven family offices are on board, Shah is seeking mainstream investor capital.

In a statement, Generate Capital says, “The goal here is to bring project finance to the hundreds of technologies that cost more upfront but save money over time that are either too confusing or too small for the traditional players to invest in.”

Unlike many investors, Shah is not looking for technology breakthroughs. The key to large-scale deployment, he says, is the availability of proven, battle-tested technologies such as photovoltaic solar panels, developed in the 1950s by Bell Labs.

“We believe that the biggest impacts in sustainability will be found in scaling the adoption of existing technology,” says Greg Neichin, an investor in Generate Capital as director of Ceniarth, LLC a single family office. “While significant capital has flowed to inventing new venture-backed technologies, we believe that the best risk-adjusted returns are available in financing the deployment of proven products and services.”

Shah and his team have already identified nearly a billion dollars worth of project-finance opportunities in the U.S. alone, an amount, the firm says, that is growing every day. Generate targets projects of between $2 million and $20 million, offering short-term asset-based financing, equipment leasing and other forms of project finance.

“Everything we have on the planet is old right now. It all has to get rebuilt. We can either rebuild it the right way or the wrong way,” Shah says. “It’s the largest wealth-creation opportunity of our lifetime.”

Government Agency Warns Global Oil Industry Is on the Brink of a Meltdown

We are not running out of oil, but it's becoming uneconomical to exploit it—another reason we need to move to renewables as quickly as possible.
By Nafeez Ahmed Feb 4 2020

IMAGE: CARINA JOHANSEN/BLOOMBERG VIA GETTY IMAGES

A government research report produced by Finland warns that the increasingly unsustainable economics of the oil industry could derail the global financial system within the next few years.

The new report is published by the Geological Survey of Finland (GTK), which operates under the government’s Ministry of Economic Affairs. GTK is currently the European Commission’s lead coordinator of the EU’s ProMine project, its flagship mineral resources database and modeling system.

The report was produced as an internal research exercise for the Finnish government, which until 2019 held the Presidency of the Council of the European Union.

Signed off by GTK’s director of scientific research Dr Saku Vuori, the report is written by GTK senior scientist Dr Simon Michaux of the Ore Geology and Mineral Economics Unit. It conducts a comprehensive global assessment of scientific research into the state of the global oil industry with goal of determining how the risks of a global supply gap could impact mining and mineral production.

The peer-reviewed report calls for the European Commission to consider oil as the world’s most important "critical raw material." Despite offering a scathing critique of conventional peak oil theory, the report arrives at the shock conclusion that the economic viability of the entire global oil market could come undone within the next few years.
Oil, oil everywhere, too costly to drill

The plateauing of conventional crude oil production in January 2005 was one of the triggers of events leading to the 2008 global financial crash, according to the report. As debt built-up in the subprime mortgage sector, the crude oil plateau drove up the underlying energy costs for the entire economy making that debt more difficult to repay—and eventually resulting in catastrophic defaults. The report warns that “unresolved” dynamics in the global energy system were only temporarily relieved due to "Quantitative Easing"—the creation of new money by central banks. A correction is now overdue, it warns.

The report says we are not running out of oil—vast reserves exist—but says that it is becoming uneconomical to exploit it. The plateauing of crude oil production was “a decisive turning point for the industrial ecosystem,” with demand shortfall being made up from liquid fuels which are far more expensive and difficult to extract—namely, unconventional oil sources like crude oil from deep offshore sources, oil sands, and especially shale oil (also known as "tight oil," extracted by fracking).

These sources require far more elaborate and expensive methods of extraction, refining and processing than conventional crude mined onshore, which has driven up costs of production and operations.

Yet the shift to more expensive sources of oil to sustain the global economy, the report finds, is not only already undermining economic growth, but likely to become unsustainable on its own terms. In short, we have entered a new era of expensive energy that is likely to trigger a long-term economic contraction.
The coming crash

‘Quantitative Easing’ or QE as it’s often known in shorthand, consists of massive programs of money creation through central banks purchasing government debt. But the report warns that the scale of QE could pave the way for another financial crash as oil markets become unstable, most likely within half a decade.

The role of QE in propping up the oil industry and wider global economy was not anticipated in traditional peak oil theory, which failed to predict the low oil prices endangering profitability. The report concludes that: “The era of cheap and abundant energy is long gone… Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset.”

Although the world therefore needs to urgently transition away from fossil fuels, it may well be too late to do so in a way that avoids an economic crisis. And doing so will require industrial civilization as we know it to be fundamentally transformed:

“To phase out petroleum products (and fossil fuels in general), the entire global industrial ecosystem will need to be reengineered, retooled and fundamentally rebuilt," the report notes. "This will be perhaps the greatest industrial challenge the world has ever faced historically.”

Professor Nate Hagens, a former Vice President at investment firms Salomon Brothers and Lehman Brothers who now teaches ecological economics at the University of Minnesota, said he "finds the report quite plausible."

"But our institutions and policies and expectations are ‘energy blind’,” he told me. He believes that the report’s warning of a coming economic crisis is very likely.

“We optimize around growth, which requires energy which requires carbon energy,” he said. “We have created approaching 300 trillion dollars in financial claims, on a finite amount of high quality resources... All in all, we’ve created too many claims for future energy and resources to support.”
From Saudi peak to shale bubble

The report offers the first independent public government assessment concluding that Saudi Arabia, once the world’s largest oil producer, is now probably approaching (and may already have passed) a production peak.

The study cites accelerating rig counts amid disproportionately low oil output as mounting evidence of the Saudi oil sector’s declining productivity. It also cites data from the recent IPO held by the Saudi national oil firm, Aramco, indicating that production levels from the country’s largest field, Ghawar, is 1.2 million barrels lower than previously claimed, suggesting the field is nearing maturity.

Meanwhile, as Saudi Arabia has been unable to keep up with demand, US shale has stepped in, contributing to the vast bulk of new global oil supply since 2005—71.4 percent of it to be exact

The rest of the international oil market is dominated by Russia and Iraq, with other members of the OPEC (Organization of the Petroleum Exporting Countries) consortium of Middle East oil producers overall contributing just 22 percent of total supply, barely enough to cover losses from countries whose production has been declining.
A bubble ready to burst

The report warns that global production growth may therefore soon stall due to the dodgy debt-driven economics of the US shale industry. While Saudi Arabia will no longer be able to ramp up production much, the US shale oil sector could be on the brink of unravelling due to massive unrepayable debts, declining production rates, and poor well quality.

While the productivity of shale oil wells has increased at first glance, the report says this has come at the expense of “observable decreases in real productivity.” Increasing production “has come at a cost of increased lateral drilling per hole and the increase of water, chemical, and proppant.”

So while average production from fracked US shale wells increased between 2010 and 2018 by 28 percent, in the same period water injection, chemical and proppant use increased by 118 percent. The report says this indicates the huge spike in extraction costs.

Meanwhile, the report warns that most shale oil companies experience negative cash flow due to mounting unrepayable debt levels. As a result, we are fast approaching a point where investors are losing faith in the industry, which is now running out of money to sustain continued operations amidst declining profitability.

The exact date of a peak in US shale oil production is difficult to estimate, but the report concludes that production “is likely to be in terminal decline within the next 5 to 10 years, with the possibility that it has already peaked due to contraction of upstream capital investment.”

If that happens, it would mean we can no longer rely on the principal source of oil behind global production growth.

According to World Oil, two major oil industry service providers, Halliburton and Schlumberger, already believe that despite production reaching record highs, US shale oil fracking has already peaked and is in a period of sustained contraction.
A global peak?

The report is heavily critical of conventional peak oil theory, which predicted that global oil production would peak and decline shortly after 2000 due to ‘below-ground’ geological depletion, leading to permanently spiralling oil prices. The approach is described as “too simplistic” for overlooking “the complex and dynamic interactions of a number of issues around the oil industry (most notably geopolitical actions and the effect on Quantitative Easing).”

But the report also dismisses the now fashionable rejection of the entire relevance of peak oil. Although there is “plenty of oil left,” it is “increasingly expensive to access”.

The current economic system cannot sustain oil prices above $100 a barrel and keep growing, while producers for most new fields cannot sustain profits at prices as low as $45 a barrel without more borrowing.


According to Dr. Michaux, the global economy is therefore caught between a rock and a hard place. “Oil prices will be held low for a time,” he explained. “The problem is all consumers at all scales in all sectors are saturated with debt. Costs are going up, while the ability to generate wealth is contracting.”

This means that although the oil industry can’t cope with the lower prices, the global economy can’t cope with high prices. “I now see peak oil as being defined by a contracting window between an oil price high enough to keep producers in business and a price low enough for consumers to access oil derived goods and services,” said Michaux.

As a result of this combination of geological challenges and above-ground market constraints, Michaux’s government study warns that a global peak in total oil production is either “imminent” over the next few years, or may already have happened, possibly in November 2018. But we will only be able to fully confirm the peak around five years after the fact.

More than half the world’s oil producing countries are now in decline, the report claims, with the bulk of new production concentrated among just six main producers. When looking specifically at crude oil operations, the report says, about 81 percent of the world’s oil fields are now in decline, with the rate of discoveries of new oil fields declining to record lows.

By 2040, this means the world would need to replace over four times the current crude oil output of Saudi Arabia, just to keep output consistently flat.

Rather than global oil supply being constrained simply by the volume of oil deposits in the ground, as conventional peak oil theory assumes, the report says that it is instead constrained “by the number of economically viable projects available to be developed at a low enough production cost.”

Currently, the bulk of continued expansion in global supply is dependent on the United States. With the US shale sector on the verge of breakdown, the report warns that the “window of oil market viability is closing, which suggests the resumption of the 2008 correction will be soon.”

According to Dr. Hagens, this new analysis confirms that “‘peak oil’ is now really about ‘peak credit.’ If we can somehow continue to keep growing our financial claims to allow us access to future energy today, we’ll continue to be able to extract the next most costly tranche of hydrocarbons.”

But as debt levels are becoming dangerously unstable, this can only continue for so long; and only pushes the problem forward, making future oil decline rates steeper. Eventually the situation will become unworkable. He argues that it’s the “global credit orgy of the last 50 years,” but especially since 2008, that has kept the growth engine growing.

I asked Hagens whether he agrees with the report’s verdict that an overall peak could therefore be imminent. “I find it extremely plausible,” he said.
Global reset and the need for a new industrial paradigm

Because we are “using finance to paper over this biophysical gap”, he added, this will eventually “lead to a deflationary pulse in global economies.”

Levels of global debt are now thoroughly out of control, the report says—finding that US government debt creation has been approximately twice the rate of economic growth over the last 40 years. By increasing the volume of debt, countries were able to maintain growth as costs of energy went up. As a result, most national economies now have debt to GDP ratio exceeding 90 percent, which means that they need to go further into debt just to keep their economies functioning while maintaining debt repayments.

Growth in GDP therefore amounts to a “debt fueled mirage,” according to the report. As we have not properly planned for the possible phasing out of fossil fuel energy, it is entirely possible that as energy systems, oil in particular, come to contract, we could witness “the peak of industrial output per capita sometime in the next few years.”

As oil markets become unreliable, the report urges, the world needs to develop “an entirely new energy system based around an entirely different paradigm.” The report calls on technical professionals and policymakers to focus on how “to create a high technology society” based on a smaller clean energy footprint that isn’t reliant on endless material growth. “If this is not achieved, the alternative is the degradation (and fragmentation) of the current industrial ecosystem.”

In short, this means we need an extremely rapid shift to renewables, along with a total reorganization of how our societies function for the coming post-fossil fuels world.

All major industrial nations need to “work together in how to transition away from oil and fossil fuels in general,” the report concludes, warning: “The alternative is conflict.” Industrial civilization will need to “evolve” into “a lower energy consumption profile with less complexity,” based on a “complete restructure of the demand side of energy requirements.”

Right now, though, “no one is preparing for this,” said Hagens. “Not only are we speeding, but we are wearing energy blind-folds at the same time. But the momentum of our current system forces us to have conversations about a bigger system not a smaller one—so the correct and valid plans and blueprints are not discussed… It is a perfect storm—and when the waters recede we are going to have smaller, simpler and more local, regional economies.”

This article originally appeared on VICE US.

New material created to clean up fossil fuel industry

by University of Sydney

Credit: Pixabay

Researchers at the University of Sydney have created a new material that has the potential to reduce CO2 emissions released during the refinement process of crude oil by up to 28 percent.

Silica-alumina materials are among the most common solid acids that have been widely commercialised as efficient and environmentally-friendly catalysts in the petrochemical and bio-refinery industries.

In a world first, a team of researchers at the University of Sydney led by Associate Professor Jun Huang, have produced a new amorphous silica-alumina catalyst with stronger acidity than any other silica-alumina material created before.

"This new catalyst can significantly reduce the amount of CO2 emitted by oil refineries, which has the potential to make the fossil fuel industry much greener and cleaner," Associate Professor Huang from the Faculty of Engineering and Sydney Nano Institute said.

A significant amount of carbon is emitted during the refinement of crude oil to produce products like petroleum, gasoline and diesel. Estimates suggest 20 to 30 percent of crude oil is transferred to waste and further burnt in the chemical process, making oil refineries the second largest source of greenhouse gases behind power plants.

Credit: University of Sydney

Silica-aluminas with strong Brønsted acidity—a substance that gives up or donates hydrogen ions (protons) in a chemical reaction—are becoming increasingly important to various sustainability processes, including the fields of biomass conversion, CO2 capture and conversion, air-pollution remediation, and water purification.

"Renewable energy is important to achieving a more sustainable energy supply, but the reality is that we will still be reliant on fossil fuels in the foreseeable future. Therefore, we should do all we can to make this industry more efficient and reduce its carbon footprint while we transition to renewable energy sources

"This new catalyst offers some exciting prospects, if it were to be adopted by the entire oil refinery industry, we could potentially see a reduction of over 20 percent in CO2 emissions during the oil refinement process. That's the equivalent of double Australia's crude oil consumption, over 2 million barrels of oil per day."

"The new catalyst also has the potential to develop the biomass industry. We can now look to biomass material like algae to be part of sustainable energy solutions."

The next steps for the researchers are to work on manufacturing the new catalyst at a large, industrial scale.

A greener, simpler way to create syngas

---

More information: Zichun Wang et al. Acidity enhancement through synergy of penta- and tetra-coordinated aluminum species in amorphous silica networks, Nature Communications (2020). DOI: 10.1038/s41467-019-13907-7

Resurrecting A World War II Fuel To Fight Flight Shaming

By Julianne Geiger - Feb 06, 2020

A “green” jet fuel based on a chemical process created by the Germans for the Luftwaffe air force during World War II may have just found a new purpose in the burgeoning era of flight shaming; but is it commercially viable?

German scientists think so.

Today, German scientists are working together to revive an old kerosene project that could make a commercially viable synthetic jet fuel in a move that will hopefully save airlines from the latest air travel trend - flight shaming.  

Of course, the 1925 kerosene creation wasn’t the green version - it relied on coal and other fossil fuels to create the kerosene. But today’s version of the kerosene project would see this kerosene derived from water.

What’s more, this green version actually pulls carbon dioxide out of the air during the creation process.

If successful, the process could not only put an end to the rising emissions from air travel, but it could also strip away demand for crude oil should the current fossil-fuel based jet fuel be replaced.

How it Works

The process for making this power-based fuel is a methanol synthesis process that produces synthetic methanol. It is derived from water, which is then fractured into oxygen and hydrogen, and then combined with carbon.

This synthetic methanol is then refined into a product such as kerosene.

Compared to another synthetic-producing process called Fischer-Tropsch synthesis, this synthetic methanol process allows the manufacturer to better tailor the end product and reduce any unwanted by-products, according to Heide.

Still, the process will take a huge amount of electricity. In order to be carbon neutral, this electricity would need to come from renewable sources. This is a big ask, but one that scientists say is doable, even on a commercial scale.

German scientists are working on the latest iteration of this process, working under the direction of Bremen University in a project called KEROSyN100. Related: Are Oil Markets Overreacting To The Coronavirus?

While there are other synthetic aviation fuel projects currently underway, Heide believes it is the only one using a methanol synthesis process.

Decades ago, US Navy scientists made headway in a similar project, creating jet fuel from seawater. However, they have failed to reach any large scale - yet.

The Navy’s project involved a cell that pulled pure and concentrated carbon dioxide from the seawater - a superior source than the carbon dioxide from flue or stack gases produced from burning fossil fuels. The process also simultaneously produces hydrogen, which helps to recover the CO2. The two gases are slammed together to create fuel. This is the same basic principle as the Heide project.  

This unit the Navy was using was able to capture 92% of carbon dioxide from the seawater, where it is 140 times more concentrated than in the air. The energy supplied to the cell went 100% towards making hydrogen - not the extracting process. Then, the gases are converted into olefins using an iron catalyst. 

In 2013, the Navy produced one liter of fuel a day this way. Small potatoes, but a success nonetheless. The Naval Research Laboratory hoped the seawater fuel would reach commercial viability in 10 to 15 years. That puts the target between 2023 and 2028.

American Money

This newest iteration of “green” jet fuel is being made at Klesch Group’s Heide oil refinery - a refinery that American billionaire Gary Klesch purchased from Royal Dutch Shell in 2010 at a time when oil companies were looking to shed European downstream assets as refining margins shrunk.

At the time of Klesch’s purchase, Heide, a landlocked refinery in Heide Germany near the North Sea, was capable of processing 93,000 barrels of crude oil per day. Banking on downstream’s long-term prospects, Klesch snapped up or built multiple refineries around the world, including a 300,000 bpd refinery in Libya. The group’s latest move was a deal in December to take over operations from PDVSA for Venezuela’s Isla refinery in Curacao.

Lufthansa has signed an agreement with the Heide refinery to produce and use this environmentally friendly kerosene, which will be made from surplus wind energy. The kerosene is still in the R&D phase now a Heide spokesperson told Oilprice.com, but it has plans to deliver first synthetic kerosene by 2023, and to supply 5% of Hamburg airport’s jet fuel supply with synthetic kerosene by 2024.

The HangUps

In its 2009 project, the US Navy ran into some snags. First, while concentrations of carbon dioxide in water are many times greater than those in the air, it’s still a small amount, at just 100 milligrams per liter. To put this into perspective, you would have to process nine million cubic meters (almost 2.4 billion gallons) of water to make just 100,000 gallons of fuel. 

Second, the water needs to be pumped into the cell - ostensibly using some form of energy. And if the vessel uses fuel to make that electricity, well, the whole process would be a wash and have no value. Related: Energy Stocks Retreat On Poor Earnings

The third hangup was that the process produced methane. Most of the gas was converted, but some was not.

The fourth hangup is that when the fuel is burned, it does release carbon. The Navy mentioned that this would be a constant state of equilibrium; with carbon released into the air before being recycled from the sea again.

The latest project hopes to resolve some of the hangups by using wind energy to power the process.

If the current project to use renewable energy as a means of creating this greener jet fuel is successful on a large scale, mass adoption is a near certainty. While the transportation sector is busy converting ICE vehicles into electric ones to combat climate change, no current alternative to fossil fuel-powered air travel is viable. And never has it been more imperative for the transportation sector to figure out how to duck the climate change blow.  

By Julianne Geiger for Oilprice.com

JANUARY 7, 2020

A greener, simpler way to create syngas

by Matthew Chin, University of California, Los Angeles

Schematic showing the atomic structure of the copper-ruthenium nanoparticle catalyst. Credit: John Mark Martirez/UCLA

Researchers from UCLA Samueli School of Engineering, Rice University and UC Santa Barbara have developed an easier and greener way to create syngas.

A study detailing their work is published today in Nature Energy.

Syngas (the term is short for "synthesis gas") is a mixture of carbon monoxide and hydrogen gases. It is used to make ammonia, methanol, other industrial chemicals and fuels. The most common process for creating syngas is coal gasification, which uses steam and oxygen (from air) at high temperatures, a process that produces large amounts of carbon dioxide.

One more environmentally friendly way to create syngas, called methane dry reforming, involves getting two potent greenhouse gases to react—methane (for example, from natural gas) and carbon dioxide. But that process is not widely used at industrial scales, partly because it requires temperatures of at least 1,300 degrees Fahrenheit (700 degrees Celsius) to initiate the chemical reaction.

Over the past decade, researchers have tried to improve the process for creating syngas using various metal alloys that could catalyze the required chemical reaction at lower temperatures. But the tests were either inefficient or resulted in the metal catalysts being covered in coke, a residue of mostly carbon that builds up during the process.

In the new research, engineers found a more suitable catalyst: copper with a few atoms of the precious metal ruthenium exposed to visible light. Shaped like a tiny bump about 5 nanometers in diameter (a nanometer is one-billionth of a meter) and lying on top of a metal-oxide support, the new catalyst enables a chemical reaction that selectively produces syngas from the two greenhouse gases using visible light to drive the reaction, without requiring any additional thermal energy input.

In addition, in principle, the process requires only concentrated sunlight, which also prevents the buildup of coke that plagued earlier methods.

"Syngas is used ubiquitously in the chemical industry to create many chemicals and materials that enable our daily life," said Emily Carter, a UCLA distinguished professor of chemical and biomolecular engineering, and a corresponding author of the paper. "What's exciting about this new process is that it offers the opportunity to react captured greenhouse gases—reducing carbon emissions to the atmosphere—while creating this critical chemical feedstock using an inexpensive catalyst and renewable energy in the form of sunlight instead of using fossil fuels."

The Ticking Time Bomb That Could Crush Oil Markets

By Nick Cunningham - Feb 11, 2020Libya’s oil production is down to less than 200,000 bpd, and the uncertainty surrounding the outage create complications for OPEC+ as it looks to cut deeper

Libya’s civil war entered a dangerous new phase a few weeks ago when the Libyan National Army (LNA) and associated militias blockaded oil export terminals as a way of applying pressure on the Government of National Accord (GNA) in Tripoli. The standoff continues, and Libya’s output has plunged to around 180,000 bpd, according to estimates from late last week.

On Sunday, Libya’s Azzawiya Oil Refining Company said that it was ceasing refining operations for the time being because it does not have enough crude oil.

The National Oil Company warned in January that production would ultimately fall to zero because storage would fill up and oil fields would need to be idled.

The outage is significant, totaling between 800,000 bpd and 1 million barrels per day (mb/d). Brent crude has collapsed below $55 per barrel because of the coronavirus, and the oil market appears largely indifferent to the disruption in Libya. The fear is over destroyed demand in China, and broader economic damage from the mass quarantine. Against that backdrop, it’s hard to imagine where Brent would be trading had the outage in Libya never occurred.

“What is more, Libyan oil production could recover again soon if agreement is reached next week in Geneva following the meeting now of the conflicting parties in Cairo,” Commerzbank wrote in a note on Monday. “Over 1 million barrels of additional oil per day from Libya could possibly push the Brent price towards the $50 per barrel mark in the short term.”

Now, OPEC+ is negotiating another round of cuts in order to keep the market from collapsing further. OPEC’s Joint Technical Committee (JTC) proposed 600,000 bpd in deeper reductions, and extending the cuts through the end of 2020.Related: Oil Sinks To Prices Not Seen Since 2018

If OPEC+ proceeds as expected, the additional 600,000-bpd cut will take the total cuts from 2.1 to 2.4 mb/d. Add in another 300,000 bpd of unilateral reductions from Saudi Arabia and the total becomes 2.7 mb/d.

But how does Libya figure into this?

Libya could stay offline or come back online at any moment. “In our view, the oil market might get confused about the role of Libya in relation to the proposed OPEC+ deal,” Standard Chartered wrote in a report on Tuesday. “We understand that the forecast market balances used to calibrate the proposed cut assume that Libya’s output returns immediately at its previous 1.1mb/d.”

The OPEC+ accounting assumes Libya bounces back, and the reason for that is “to remove Libyan exports as a potential bearish factor,” Standard Chartered added. “[I]f they were to return quickly it would require no fine-tuning of the agreement and any slower return would represent an additional market tightening.”

The investment bank said that it’s possible that “the market might not fully appreciate this Libyan aspect in the short run; it could incorrectly see the 0.6mb/d cut as purely determined by the coronavirus and think that extra Libyan exports would require further cuts from OPEC+ to balance the market.”

So, OPEC+ is assuming Libya bounces back so that there is no bearish surprise. But the civil war could just as easily drag on indefinitely. If that occurs, that would tighten up the market relative to what OPEC+ is assuming. Recent negotiations in Geneva did not lead to a ceasefire and the war continues. Another round of talks is scheduled for later this month. 

“This means the blockade is likely to remain in place at least a few more weeks,” JBC Energy wrote in a note. However, the firm said that uncertainty will persist, and there is a formidable challenge for OPEC+ in terms of timing. “Libya’s return could easily come sooner than the [OPEC+] cuts, whilst it would in any case most likely outpace them in terms of size,” JBC added.

By Nick Cunningham of Oilprice.com

A Third Of Fossil Fuel Assets May Soon Be Stranded

By Alex Kimani - Feb 12, 2020

Fossil fuel companies hold vast oil, gas and coal riches that they frequently tout to the investing universe to help elevate their market values. However, not a single energy company has ever told investors about the potential effects on the environment if all their hydrocarbon reserves were burned.
And certainly few, if any, have ever told investors that a large chunk of these assets could be doomed to forever remain buried in the ground - and essentially worth nothing - should environmental regulations tighten.

Yet, the specter that these assets might one day end up stranded and theoretically worthless as the clamor for clean energy heats up looms large.

According to estimates in the Financial Times’ Lex column, nearly $900 billion worth of reserves - or about one-third of the value of big oil and gas companies - is at risk of one day becoming worthless as market and policy forces continue to undercut hydrocarbon economics due to the threat of climate change.

In effect, these companies could see a third of their value evaporate if governments aggressively attempt to restrict the rise in temperatures to 1.5C above pre-industrial levels for the rest of this century and avert catastrophic climate change as per Intergovernmental Panel on Climate Change (IPCC) estimates.

Consequently, investors are likely to increasingly price in the risk of asset writedowns by the world’s leading oil and gas companies unless a solution to the ongoing climate change is found within the next decade.

High Risk Investments

The effects of such a huge scale in writing off frozen assets - gradually at first and then at an accelerated rate - is likely to be keenly felt across the business world.

We could argue that notoriously secretive national oil companies (NOCs) and not independent oil companies (IOCs) are the biggest financial risk since they control ~$3 trillion in oil and gas assets and an estimated 90 percent of all known reserves. Nevertheless, considering that publicly traded energy companies have collectively lost $400 billion in their fundamental value over the past five years, losing anything in that ballpark over the next five could be disastrous for the sector.Related: Oil Traders Could Lose Big On Coronavirus Panic

A good case in point is Chevron Corp. (NYSE:CVX), which recently reported a large $10.4B shale asset writedown. ExxonMobil (NYSE:XOM) also recently found itself in the hot-seat over its failure to make disclosure about climate risk even as shareholder pressure for risk disclosure mounts. It was later absolved.

Here’s a rundown of the financial risk burden that fossil fuel companies carry:
Stranded Assets - the assets currently contributing to the market value of many fossil fuel companies that cannot actually be developed and sold will lower their overall valuations
Loss of market capitalization - downward pressure on energy stocks from divestiture efforts especially by institutional investors could hurt your mutual funds and stocks
Cost of capital - in December, we reported that Goldman Sachs had ruled out financing drilling in the Arctic as well as new thermal coal mines anywhere in the world and that other large banks were likely to follow suit. Fewer banks willing to finance fossil fuel projects will make it progressively more expensive to bring these buried assets to market
Scarcity of insurance - by the same token, fewer insurance companies will be willing to back such projects, thus increasing both the cost and time to get the necessary insurance to build them
Insufficient renewables investment - faced with this critical disruption in the well-established fossil fuel model, it would be smart to develop substantial lines of business that do not carry these risks. Yet, current investment in low carbon energy sources by fossil fuel companies is less than 1 percent, way too little to move the revenue needle for the vast majority
Market risk - there might be seismic changes in how the market begins to value fossil fuel reserves

The Dirtier, The Riskier

Although the Lex report sounds decidedly bearish, let’s not forget that even a more benign case where governments target a 2C rise in temperature - which is what they targeted at the 2015 Paris Agreement on climate change meeting - energy companies would still have to write off more than 50 percent of their reserves as stranded assets.

Meeting the 1.5C threshold would mean leaving over 80 per cent of hydrocarbon assets worthless.

In a recent piece on climate change, we reported that global energy emissions are showing serious signs of slowing down due to a more aggressive clean energy push.

Global CO2 emissions climbed just 0.6 percent in 2019 compared to 3.4 percent in 2018 thanks to China’s green energy push. Better still, the IEA sees CO2 levels in 2050 clocking in at 4 percent below 2019 levels despite an otherwise healthy economy, thanks in large part due to coal power retirements while natural gas consumption - with a lower carbon footprint - is expected to increase quite dramatically.

Ultimately, we could be at the cusp of one of the biggest ever shifts in the allocation of capital in the energy sector. Investors need to be wary of the risks that could come with this shift.

Peak Shale Could Spark An Offshore Drilling Boom

By Kurt Cobb - Feb 10, 2020

John Hess, CEO of Hess Corporation, a large U.S.-based independent oil producer, recently told a Houston audience where he's putting the company's money these days: Offshore drilling.

That should strike those who know of Hess Corporation's heavy involvement in the Bakken shale play (in North Dakota) as a bit strange. Hess says the company will "use cash flow from the Bakken to invest in longer-term offshore investments."

Hess told his audience that "key U.S. shale fields are starting to plateau, calling shale 'important but not the next Saudi Arabia.'" Setting aside whether Hess is actually getting investable cash from the Bakken, the constant refrain from the U.S. oil industry has been precisely that shale plays ARE the next Saudi Arabia.

Someone should send a note to the U.S. Energy Information Administration (EIA) that maybe it's not all going to work out. If Hess is right about a peak in U.S. shale oil production soon, that peak will come about a decade earlier than the peak forecast by the EIA.

None of this will come as a surprise to geologist David Hughes whose most recent update on U.S. shale oil and natural gas production suggests that not only will Hess be proven generally correct, but that production will fall much farther than the EIA believes in the coming decades. Hughes continues to rate EIA estimates of ultimate recovery from America's shale oil and natural gas fields as "extremely optimistic, and highly unlikely to be realized."Related: Are Oil Markets Overreacting To The Coronavirus?

U.S. shale oil production has been a major driver in the growth of world oil supplies. Last year the United States accounted for 98 percent of global growth in oil production. Since 2008 the number is 73 percent. It's not hard to imagine that a slowdown in U.S. oil production growth or worse yet a decline in overall U.S. production would mean trouble for the entire world.

With 81 percent of global oil production now in decline, even a plateau in U.S. production would likely result in a worldwide decline. The world is simply not prepared for such an event—in part, because agencies such as the EIA are either unable or unwilling to grasp the plain facts and present them to policymakers and the public.

When the real trouble arrives in the oil markets, the EIA and other forecasters will likely just shift their analysis and cite some "impossible to predict" factors that will have led to the stunning reversal of fortune. But those factors are in evidence right now, if only the EIA and others have eyes to see them.

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After a decade out in the cold, 2020 is shaping up to be the year of the pipeline
Legal wins and investor interest breathing new life into projects that have been on hold for years

AFTER ALL THAT WHINING BIG OIL HITS IT BIG AGAIN 

Demonstrators rally in 2018 in favour of the Trans Mountain pipeline expansion outside the Alberta Legislature, in Edmonton.David Bloom/Postmedia


February 10, 2020

CALGARY – A year ago, Enbridge Inc.’s $9-billion Line 3 and TC Energy Corp.’s US$8-billion Keystone XL pipeline projects, as well as, of course, the $12.6-bilion Trans Mountain expansion had been mired in regulatory or legal delays for so long that there were questions about whether they would ever be built.

Indeed, the past decade was largely one to forget for Canadian pipeline companies trying to build major new export projects.

Pro-pipeline supporter demonstrates on Parliament Hill in Ottawa as part of a convoy from Alberta in 2019. Errol McGihon/Postmedia

All the delays, Saskatchewan Premier Scott Moe told an audience at the Canada Institute in Washington on Friday, resulted in negative economic impacts that extend beyond the energy sector.

For instance, about 10 per cent of Saskatchewan’s energy products are currently moving on rail cars, he said, which creates challenges for other sectors looking to move their products.

“We’re cramping our rail capacity, capacity that we actually need if we’re going to continue producing things that should be on rail, like our agrifood products, like our timber products,” Moe said, speaking alongside Alberta Premier Jason Kenney.

But there are signs that the pipeline industry is finally turning around. Major court wins in the first six weeks of 2020 have cleared the way for construction to begin on the Line 3 and Keystone XL pipelines in the U.S. and to continue on Trans Mountain.


What a difference a new decade makes. We’re kind of into a new world
Canadian Energy Pipelines Association chief executive Chris Bloomer

“What a difference a new decade makes,” said Canadian Energy Pipelines Association chief executive Chris Bloomer, referring to a massive change in sentiment in the Canadian oil and gas pipeline industry following the string of legal wins. “We’re kind of into a new world.”

On Monday, the Minnesota Public Utilities Commission voted to re-approve the Line 3 pipeline across the state, removing the last obstacle there for Enbridge. On Tuesday, the Federal Court of Appeal dismissed the last remaining legal challenge to Trans Mountain.Alberta Energy Minister Sonya Savage speaks to several thousand pro pipeline protesters rallying at Stampede Park during the Global Petroleum Show in Calgary in June, 2019. Gavin Young/Postmedia

“We can’t handle any further delays,” Alberta Energy Minister Sonya Savage said of the three major oil pipeline projects.

Savage said Alberta is currently in a “perilous situation” because of the failure in recent years of other pipeline projects, such as Northern Gateway (which she worked on while at Enbridge until 2015) and Energy East. The result was that a glut of oil built up in the province as total oil production surpassed export pipeline capacities.
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Over the past four weeks, following favourable decisions on Keystone XL, Line 3 and Trans Mountain, she said “it feels like the type of day when the clouds are lifting” and is confident the projects will move quickly now.

Others are similarly optimistic.

“We have more certainty about the Trans Mountain project than at any time in the past,” Trans Mountain Corp. chief executive Ian Anderson said during a news conference on Friday. “There isn’t anyone who could have pictured the journey we’ve been on the for the last number of years.”

It wasn’t all good news. The updated cost estimate for building the 590,000-barrels-per-day pipeline expansion to the West Coast have jumped 73 per cent to $12.6 billion from $7.3 billion in 2018.Trans Mountain construction underway in Alberta. Trans Mountain

About half of those higher costs, Anderson said, resulted from changes such as having more thick-walled pipeline sections after the federal government bought the pipeline system from Houston-based Kinder Morgan Inc. in 2018 for $4.5 billion.

Other additional costs were because of market changes. At the time construction first started on Trans Mountain in 2018, Anderson said there weren’t any other pipelines being built.

But since construction was delayed by a Federal Court of Appeal ruling, TC Energy is in the process of building the $6.6-billion Coastal GasLink project through northern British Columbia and gearing up to build Keystone XL, while Enbridge is also readying to build the U.S. portion of Line 3.

One result of the improved outlook for both oil and natural gas pipelines is that analysts believe generalist investors might be interested in jumping back into Canadian oil and gas stocks. Investors have generally shied away from the industry, but some strategic countercyclical investors stayed behind and bought up assets worth billions of dollars.

“There has been an uptick in venture capital and private equity looking at the midstream sector in Canada,” said Alan Ross, regional managing partner at Borden Ladner Gervais LLP in Calgary.

Ross said Canadian pipeline and midstream assets, such as natural gas gathering and processing facilities, have been undervalued in recent years because of regulatory and court delays to major export pipeline projects.Miles of unused pipe, prepared for the proposed Keystone XL pipeline, sit in a lot in 2014 outside Gascoyne, North Dakota. Major court wins in the first six weeks of 2020 have cleared the way for construction to begin on the Line 3 and Keystone XL pipelines in the U.S. and to continue on Trans Mountain. Andrew Burton/Getty Images files

“Given some of the market access issues, some of the midstream assets have been overlooked over the last number of years,” he said, adding that sentiment has been improving with legal and regulatory wins by major pipeline companies. “A rising tide floats all boats.”

Eight private-equity firms and the private-equity arms of major Canadian pension funds have sponsored new companies such as SemCAMS Midstream ULC, North River Midstream Inc., Steel Reef Corp. and others in countercyclical investments that cut against much of the pessimism in the sector.

In addition to launching new midstream companies, major institutional investors have said they believe Canadian pipeline assets are undervalued and some, like New York-based KKR & Co. Inc. and Alberta Investment Management Corp. (AIMCo), have been buying into pipelines such as the Coastal GasLink project.

AIMCo also bought an 85-per-cent stake in TC Energy’s Northern Courier oilsands pipeline last year for an undisclosed sum.

“One thing that I think a lot of people investing on the private-equity side have picked up on — and some of those are pure private-equity interests and some are more infrastructure investors — is there’s an awareness that there’s a bit of a disconnect between public and private valuations in this space,” said Ben Hawkins, senior vice-president, infrastructure and timber, at AIMCo, which manages $108.2 billion of Alberta’s public-pension assets.

“I do think the current environment is still favourable,” he said, adding that AIMCo is still “keen to look for opportunities.”

Others see value in Canadian midstream assets, too.

For example, Brookfield Infrastructure Partners LP struck one of the largest Canadian energy-sector deals in the past two years when it spent $4.3 billion to buy natural gas infrastructure assets from Enbridge and then launched North River Midstream Inc.

“As we were looking for ways to deploy capital, we turned to Canada because one of the things about the Canadian basin is we actually thought the contractual profile tends to be better (than the U.S.) for a lot of these assets,” said Brian Baker, managing partner at Brookfield Asset Management’s infrastructure group, noting that Canadian midstream assets are usually underpinned by longer contracts than those in the U.S.

He said there have also been more institutional and private-equity investors looking to invest in U.S. midstream infrastructure, raising valuations to the point where his team saw more compelling value in Canada.

“We were trying to look in areas where there’s a little bit less competition (for deals), just given that there’s a lot of negativity around Canada,” Baker said, adding that regulatory overhauls and reviews in Canada have driven away many would-be investors, leading to more enticing valuations for long-term private investors.Supporters hold signs during a United We Roll Convoy For Canada pro-pipeline rally in front of Parliament Hill in Ottawa in 2019. David Kawai/Bloomberg

But analysts are sensing opportunities in the public markets, too.

“We see a potential $20-billion oil pipeline expansion opportunity for the Canadian pipeline industry related to exports to the U.S. and global markets,” BMO Capital Markets analyst Ben Pham said in a research note this week.

He rated Enbridge, TC Energy and Gibson Energy Inc. as outperformers and suggested smart investors would be accumulating shares.

“In the past three years, every single proposed pipeline export project has faced timing delays and created rifts between Western Canadian provinces and Indigenous communities,” Pham said. “But in the next three years, it is possible that several pipelines could actually get built, providing the Western Canadian energy industry more than adequate pipeline capacity to spur additional oilsands development.”

Recent years have been “long, hard, challenging,” CEPA’s Bloomer said, adding that pipeline companies have had to adapt to the challenges presented by the legal and regulatory delays.

“Everybody on all sides of this issue has learned a lot,” he said.

Bloomer said he hopes the Supreme Court of Appeals Court decisions in recent weeks have created some precedence for how pipelines are proposed, permitted and approved in the future.

“From all sides, we’re a lot smarter than we were,” he said.

With files from Naomi Powell
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