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The new paradox in the energy market

Two things to start:

  1. European gas prices are on the up again as Russia shows no sign of increasing its exports to the region.

  2. The SEC charged the United States Oil Fund, the exchange traded product at the centre of last year’s sub-zero oil market meltdown, and its partner United States Commodity Funds, for “misleading statements” made during the crisis. The funds agreed to pay $2.5m to settle the case.

Welcome back to Energy Source. It’s another busy week.

The COP26 climate summit in Glasgow is entering its final stretch.

Last week saw great fanfare over a flurry of big multilateral pacts on deforestation, climate finance, methane and coal. But those hoping for a watershed moment have so far been disappointed.

The first announcement lacked enforcement details. The second remains shy of its $100bn target. The third omitted the biggest culprits. And the failure of the US to sign up to the fourth was a big blow to its credibility.

Another deal in the works to end global vehicle emissions by 2040 has faced pushback from the world’s biggest carmakers.

Still, US climate envoy John Kerry remained upbeat, insisting over the weekend that “genuine progress” was being made.

“I have never in the first few days of any of the COPs I’ve been to counted as many initiatives and as much real money being put on the table,” he said.

Meanwhile, back in Washington, Congress has finally passed the president’s $1.2bn bipartisan infrastructure bill. On the energy and climate front it includes big infusions of cash for the grid, electric vehicles, well-plugging and R&D in areas such as carbon capture and hydrogen.

But the reconciliation bill still being bashed out in Congress will be a much bigger deal for climate — even if it has been significantly diluted from its original iteration. Passage is expected this week — but we are not holding our breath.

We’re also braced for a potential release of oil from the US strategic petroleum reserve this week as the Biden administration scrambles to respond to Americans’ ire over high petrol prices — having been rebuffed in its outreach to Opec.

In our first item today, Derek Brower writes about the new paradox in global energy markets, where the countries that are pledging to burn less of the fossil fuels causing climate change are now doing their utmost to secure new supplies of those same fossil fuels.

Amanda Chu looks at the growing impatience among activists and young people at COP26.

And in a double-bill Data Drill we look at the disparity between rich and poor when it comes to global emissions and break out the latest numbers on soaring EV sales.

Thanks for reading.

This article is an on-site version of our Energy Source newsletter. Sign up here to get the newsletter sent straight to your inbox every Tuesday and Thursday

The challenge of increasing oil supply while cutting emissions

What do Boris Johnson’s deal to line up Qatari liquefied natural gas supplies and Joe Biden’s possible release of oil from the US’s strategic petroleum stockpile have in common?

They are signs of profound oil and gas producer power.

“Of course, every president is frustrated because they can’t control the price of gasoline — because it’s a global market,” said Jennifer Granholm, the US energy secretary, in a television interview on Sunday, trying to explain the soaring gasoline prices for which Biden is being blamed.

“You can call upon increased supply — which he has done — and Opec is unfortunately controlling the agenda with respect to oil prices. Opec is a cartel, and it controls over 50 per cent of the supply of gasoline,” she said.

This is a far cry from the “American energy dominance” promised by Donald Trump.

That was always an illusion: even under Trump, the US was a big importer of petroleum. And shale oil’s vulnerabilities were brutally exposed last year when Saudi Arabia hiked supplies and slashed its selling prices, pouring cheap crude into a pandemic-stricken market, crushing prices and ravaging the American oil industry.

And it was Trump who then begged Saudi Arabia and Russia to raise prices to save US oil producers. Now it is Biden who begs Saudi Arabia and Russia to lower them to help US oil consumers.

Meanwhile, despite $80-a-barrel oil price, Wall Street is still telling US shale companies to produce more profits, not more oil — especially with an energy transition to come.

“It seems like everybody is aligned and saying ‘don’t grow’,” said Arjun Murti, a former analyst who is now on ConocoPhillips’ board, referring to the shale patch. “Either because the historic profitability wasn’t good enough, or we want to focus on energy transition, which inherently means less oil. That is keeping oil off the market today.”

Others say the shale patch can no longer yield — or move oil markets — as much as in the past.

“Even if America wanted to move the needle, I’m not sure it could because of the maturity of the shales,” said Wil VanLoh, head of private equity group Quantum Energy Partners.

So Granholm is only spelling out the new weakness, say energy executives.

“Anybody who doesn’t think Opec is in control of prices has got their head in the sand,” VanLoh said.

Across the Atlantic, meanwhile, traders have found little evidence that Russia has upped its supplies to the continent as Vladimir Putin had promised. Maybe Russia is still waiting for Germany to approve the Nord Stream 2 pipeline. Maybe Gazprom is filling storage first.

Either way, Europe is discovering all over again just how much it depends on foreign natural gas. So concerned is the British government that consumers won’t have enough to heat their homes this winter, it has asked Qatar to guarantee the UK’s security of supply.

The pleas for more fossil fuels from Russia, Saudi Arabia and Qatar come as world leaders — minus those from many of these producer countries — pledge new ways to curb the carbon emissions caused by the burning of those same hydrocarbons.

It amounts to a new paradox in the energy market.

The big oil and gas exporters that want consumers to keep burning their fossil fuels are withholding supply and driving up the price. But the big oil and gas consumers that want to pivot to cleaner energy are begging for more fossil fuels and trying to drive down the price. The energy transition is getting messy. (Derek Brower)

COP26 round-up

As COP26 enters its final days activists’ impatience with world leaders is mounting.

Last weekend, 100,000 demonstrators gathered in Glasgow to protest against the lack of climate action at the summit. Sweden’s Greta Thunberg was among the many young protesters marching and called the COP26 “a two-week-long celebration of business as usual and blah, blah, blah”. 

Poland’s 20-year-old Dominika Lasota told our Moral Money colleagues, “there’s so much detachment from reality” among world leaders gathered in Glasgow. (Sign up here for our sustainable finance newsletter, publishing every weekday during COP26.)

The protests highlighted the role of youth activism in the climate debate. According to a recent Pew Research study of advanced economies, young adults are more concerned than their older counterparts that climate change will harm them. The widest age gap is in Sweden, where 65 per cent of 18- to 29-year-olds are at least somewhat concerned about climate change’s effects, compared with just a quarter of those aged 65 and older.

“The most important energy in this movement is coming from young people,” said former US president Barack Obama in his speech at Glasgow yesterday, as he urged young people to pressure governments with their vote. (Amanda Chu)

Data Drill

1. Emissions: Rich vs Poor

The wealthy are overwhelmingly responsible for the bulk of the world’s emissions.

By 2030, the carbon footprint of the world’s richest 1 per cent is expected to exceed 1.5C levels by a factor of 30, according to a new report by Oxfam, the Institute for European Environmental Policy, and the Stockholm Environment Institute. Meanwhile, the poorest half of the global population will emit at levels well below those necessary to reach 1.5C. 

“The global emissions gap to keep the 1.5C Paris goal alive is not the result of the consumption of most of the world’s people,” said the report’s author Tim Gore. “It reflects instead the excessive emissions of just the richest citizens on the planet.”

Bar chart of To contain warming, per capita CO2 emissions should not exceed 2.3 tonnes showing Emissions from the rich set to exceed 1.5C limits by 30x by 2030

The report’s findings highlight divides not only between countries but within them. In the US, the richest 1 per cent is expected to emit 127 tonnes of CO2 per capita in 2030, while the bottom 50 per cent emits 4 tonnes per capita.

“To close the emissions gap by 2030, it is necessary for governments to target measures at their richest, highest emitters,” said Gore. “The climate and inequality crises should be tackled together.” (Amanda Chu)

Bar chart of Tonnes of CO2 per capita showing Even within countries, the rich emit far more than the poor

2. Electric vehicle sales are soaring

Global electric vehicle sales are set to rocket this year, more doubling from 2020 levels to reach more than 7m units.

Roughly one in every 10 new cars purchased this year will be an EV (either battery electric or plug-in hybrid), according to research by Rystad Energy. That will give the sector a market share of 10.3 per cent, up from 5.3 per cent last year.

China continues to drive the boom, with 340,000 units sold there in September alone, about half of total global sales. (Myles McCormick)

Column chart of EV units sold (thousands) showing Global electric vehicle sales set to double to more than 7m in 2021

Power Points

  • Indonesia’s transition to renewables is at an impasse.

  • The world’s largest miner divested more than $1bn in coal mines as part of its retreat from fossil fuel.

  • A Russian tycoon warns a fast switch from gas to renewables would be “dangerous and irresponsible.”

  • Guyana was a champion of climate action until Exxon discovered oil. (NPR)

  • Opinion: There is still work to be done cracking down on methane and other superpollutants (Bledsoe et al, NYT)

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.

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