The oil business is feeling more pain. yesterday shell said it would cut thousands of people from its global workforce. marathon petroleum is sacking workers too, according to reuters. oasis petroleum, meanwhile, became the us shale sectors latest bankruptcy.
Our first piece is on californias move to ban gasoline-fuelled cars a big deal. our second is on mexican president andrs manuel lpez obradors efforts to stifle private investment in his countrys energy business.
Dont miss endnotes prcis of a punchy debate on the energy transition during this weeks ft commodities global summit.
Ps, did you watch the chaos that was the us presidential debate? ft us managing editor peter spiegel noted that the energy discussion seem[ed] to be the first time where we have returned to a normal, average, run-of-the mill presidential debate. it's a good issue for biden, but it appears that trump is trying to take the heat out of it by not engaging.
Thanks for reading. contact us at please sign up for the newsletter here. derek
The old clich is that as goes california, so goes the nation. thats felt less so in the past decade, as culture wars rage in the us. but for automakers it might still ring true.
Californias decision last week to ban the sale of new conventional fossil fuel-powered cars within 15 years will have ramifications far beyond the golden states borders.
Critics of the plan have jumped on the idea to argue that motorists will simply buy petrol-powered cars out of state, or rely on second-hand vehicles, neither of which are subject to the ban though these will still be hurdles for some buyers.
California is not just the uss biggest economy, but also home to the largest number of new car sales, roughly 2m annually. vehicle registrations, including used cars, are almost double the next nearest states of texas and florida.
Us automakers are not going to readily give that market up, so they are going to have to find a way to make cars and other light vehicles most likely evs, though possibly hydrogen-powered too that can meet californias requirements in 2035.
But given the nature of auto manufacturing, where profits generally boil down to efficiency, the potential knock-on effects go beyond just catering to the californian market.
It is not viable long-term for car companies to run two separate assembly lines of conventional and ev engines unless they want to see profit margins evaporate.
The trump administrations long-running fight with california over the states right to set its own fuel efficiency standards stems from the same place: the understanding that california essentially has the market power to bend the auto industry to its will.
So californias move on evs isnt just about consumer choice, but ultimately state choice (or the lack thereof).
The us auto industry is already pushing back against the ban. but increasingly it looks like its trying to push water up a hill. while us consumers may overwhelmingly still prefer petrol (ok gas, dear american readers) guzzling suvs to the growing fleet of ev alternatives, californias move could accelerate tough decisions for manufacturers over how to compete in the long-term.
For the oil industry, it also poses a conundrum. california accounts for just under 10 per cent of us oil demand, according to the us energy information administration the majority of that driven by transportation.
If a large chunk of that vanishes after 2035, the us demand outlook will be irredeemably altered, before even starting to calculate the effects in the rest of the nation. (david sheppard)
Mexicos populist president andrs manuel lpez obrador has never hidden his antipathy to the landmark 2013 energy reform, which ended state oil company pemexs monopoly and set up a market in electricity but he has so far refrained from striking down the law.
He has, however, found a backdoor way to keep private investment at bay.
In a meeting with (supposedly autonomous) energy sector regulators last week, mr lpez obrador issued a series of instructions, to which they agreed. they included a ban on issuing new permits in the sector which means anything from generation to petrol stations and giving priority to pemex and state utility cfe under a nationally-focused energy policy.
(the leaked document can be seen here in spanish).
The thrust of that message has already been made clear by the energy nationalist administration, which has pumped money into pemex and halted the award of new contracts since taking office nearly two years ago.
What is new is the impact on electricity companies in the renewables sector, where the governments repeated attempts to change the rules and give preference to cfe this year have since been put on hold by courts after injunctions brought by international companies.
For example, take the impact on one major company. it built a renewables plant and completed necessary preliminary tests. but the planned date to start operations was disrupted due to covid-19. it has applied for a new date but fears the government will now use the ban on permits to give it the runaround.
Instead of denying the permit overtly, itll just be this endless loop of requiring new applications and information, said one manager at the company, which asked not to be named.
Under current rules, wind and solar projects are dispatched first because they are cheapest. one of mr lpez obradors instructions was to change that, dispatching hydropower generated by cfe first, and then other cfe electricity. only after that would private companies get their turn even though cfe documents show that electricity from its hydroplants can cost twice as much as that from private companies renewables.
Mr lpez obrador defended his strategy last week and made clear his end game is to roll back the 2013 reform.
But with the economy in its worst recession since 1932 and midterm elections due in june 2021, they want to wear [private companies] down by closing all the taps to private participation, as weve seen, before making any legal changes, said emily medina, an energy analyst and fellow at the energy policy research foundation.
One former energy official was outraged, calling the new tactics illegal, costly and impossible [to achieve the presidents objectives]. theyre destroying investment. (jude webber)
The oil majors insist they are taking climate change seriously. but a new report by oil change international suggests that most are still on track to significantly ramp up oil and gas production between now and 2030.
Based on the assets companies hold and are planning to sanction, almost all look set to increase output with exxonmobil on track for a jump of more than 50 per cent.
A high-octane debate at this weeks ft commodities global summit saw a clash between glencore chairman tony hayward and kingsmill bond, energy strategist at the carbon tracker initiative, over the road ahead for fossil fuel producers.
The panel was asked: do todays fossil fuel companies have a future in a paris-compliant world? here are some lightly edited highlights of the exchange:
Th: unambiguously, yes...i think there are clearly good examples of companies that are going to participate in this and go through a transition ...i also believe that theliquidation approach is a very valid approach. and i think well see some companies do that. theyll become super cash-generative businesses... i wouldnt be surprised if many of the us supermajors go down that route.
Kb: obviously, they have no future in a paris-compliant world, and thats almost axiomatic for two reasons:
Dont listen to the siren voices of the incumbents telling you they have a future. they have no future.
Th: i think kingsmill has a very poor appreciation of the ability of companies to innovate and recreate themselves even very large companies. and there are some very good examples of it in many different sectors...glencore in 2005 was a coal company with an oil trading arm. today, its a mining company and 75 per cent of our business is absolutely essential for the next 20 or 30 years...[orsted] was an oil and gas company; its now a wind company. so to say that big companies cant innovate and transform themselves is inaccurate.
Kb: the observation that major companies dont survive radical technology shifts is absolutely axiomatic in all sectors. theres a reason why gm doesnt lead the electric car revolution; theres a reason why we dont use yellow pages for our search functions; theres a reason why we buy our stuff from amazon...its just hilarious to hear the kind of arguments that have been made by these incumbents, that they can suddenly dance and turn.