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Will anyone help me write a discussion board 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 1/8 A flare burns natural gas at an oil well in Watford City, North Dakota © AP Derek Brower, Myles McCormick, David Sheppard, Amanda Chu, and Justin Jacobs SEPTEMBER 9 2021 Two things to start: Royal Dutch Shell is considering Covid-19 vaccine mandates for some of its workers — and could fire those that don’t comply. And the US Department of Energy thinks solar power could meet 40 per cent of the country’s electricity needs within the next 15 years, at no extra cost to consumers but with a big impact on reducing carbon emissions. The claim comes in a new study showing the scenarios that would see the Biden administration come good on its ambition to decarbonise the country’s power sector by 2035. But the caveats, as the DoE notes, are plain: policy support (hint, hint, Congress) and “continued technological advances that lower the cost of solar energy are also necessary to enable widespread solar deployment”. Energy Source Shale Oil & Gas There’s not enough natural gas Plus, the oil and gas industry braces for a methane fee and what we learned from the US Hydrogen Shot Summit https://www.ft.com/derek-brower https://www.ft.com/myles-mccormick https://www.ft.com/david-sheppard https://www.ft.com/stream/75875d5a-86d1-405e-91f6-8db6dfbf425b https://www.ft.com/content/a4edfefb-4fba-46d9-bef3-2cfdba57bdb3 https://www.ft.com/content/8ad1a9e4-b0f7-4f33-9e69-d2a8fccc550f https://www.energy.gov/articles/doe-releases-solar-futures-study-providing-blueprint-zero-carbon-grid https://www.ft.com/content/35409788-f5f3-466e-9095-ab0a55ff98b2 https://www.ft.com/energy-source https://www.ft.com/stream/bcac258f-ac9d-4e41-a121-000846df8ff0 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 2/8 Welcome back to another Energy Source. In our first note today, David Sheppard explains why the world’s natural gas prices are on a tear. Our second note is on a proposal to tax American methane pollution — and why even oil and gas producers that support cracking down on emissions of the potent greenhouse gas are up in arms over it. 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 Gas prices to the moon Back in July we wrote that natural gas prices, already on the up, were headed higher. Now, prices are soaring around the world. In the UK and continental Europe prices have hit new all-time highs, driving up household bills and sparking warnings that some industries may need to ration gas use if there is a very cold winter. In Asia, importers are paying some of the highest-ever prices for liquefied natural (LNG) gas cargoes. In the US, the benchmark price — still far lower than elsewhere thanks to ample shale supply — rallied yesterday to $5 per MMBTU for the first time since 2014. Why are prices skyrocketing? The simple answer to why gas — after years of relatively low prices — is suddenly pricing at a premium to oil, is because there isn’t enough of it. A long cold winter in Asia and Europe drained storage levels. Then high levels of maintenance, much of it delayed by the pandemic from 2020, hit supply this year, thwarting efforts to refill storage over the northern hemisphere summer — when gas is still widely used by industry and for electricity generation, but heating demand drops off. In the UK, for example, natural gas production is down almost 28 per cent year-to- date, according to consultancy Wood Mackenzie. Supplies from Norway and Algeria have also disappointed. https://ep.ft.com/newsletters/subscribe?newsletterIds=5655d099e4b01077e911d60f https://www.ft.com/content/e0853c63-9bc0-4ded-9638-ea4a73b4d2e1 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 3/8 Russia, one of the world’s largest gas producers and a major supplier to both Europe and Asia, has also been exporting less gas than some might hope. The reasons — hotly debated in the market — range from the need to refill its own storage and possible production problems, to suspicions it is trying to make a point of not sending too much gas to Europe before the start up of the controversial Nord Stream 2 pipeline. The growing LNG market has also helped to connect different regions and introduced heightened competition for supplies. Asia and Europe are both bidding for cargoes, with the majority sailing to Asia, where customers tend to be willing to pay marginally more. But Brazil has emerged as another big buyer in 2021, as droughts cut power supply from its hydroelectric facilities.  In the US, supply has been hit by the fall out from Hurricane Ida, with production still offline in the Gulf of Mexico and exporters rushing to send LNG to higher priced markets. Shale producers, meanwhile, remain under shareholder pressure not to increase spending, despite the rising commodity price. The other side, as ever, is demand. Rising carbon prices in Europe have generally made coal less attractive for electricity generation this year — to gas’s benefit. However, coal is still profitable — even with carbon priced above 60 euros a tonne. https://www.ft.com/stream/030deb5e-5bbe-4579-a364-6e82a9a7a6b7 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 4/8 Wind power, which makes up a growing chunk of supply to European grids, has also disappointed over weeks of predominantly warm and still weather. Grids have turned to more traditional power sources, again boosting gas demand. What does this mean for this winter? The first thing to note is that gas demand is seasonal and influenced by the weather. If it’s relatively mild in the northern hemisphere then prices may ease off (though few are yet betting on an outright collapse). But major industry players are worrying about what will ensue if a lengthy period of cold temperatures arrives. The head of Centrica’s trading arm last week warned that gas prices, in a pinch, can essentially become unanchored in Europe as traders will need to lure LNG cargoes away from Asia to meet demand. The loser will resort to burning more coal for power generation. Consumer power and gas bills are also likely to climb — electricity prices are nearing new highs in Europe. While little is guaranteed in the gas market, there are reasons to worry about the months ahead. (David Sheppard) Oil and gas industry braces for ‘punitive’ methane fee As Democrats thrash out their $3.5bn budget plan, one element is causing particular anxiety in the oil and gas industry: a fee on methane emissions. The idea of the fee — effectively a pollution tax — is to create a financial reason for companies to clamp down on the roughly 13m tonnes of leaked gas that enters the atmosphere each year from across their supply chains. But the industry is up in arms. The policy, it says, would raise production costs that would ultimately wind up on consumers’ bills — and risks unfairly hitting companies that have taken strides to cut emissions. In a letter this week, a group led by the American Petroleum Institute described it as “unreasonable”, “punitive”, and “unnecessary”. The budget reconciliation bill, which Senate majority leader Chuck Schumer dubbed “the most significant climate action in our country’s history”, is set to overhaul the US energy landscape. Unprecedented tax incentives would drive a buildout of renewables and battery storage and transmission lines, while a proposed “Clean Electricity Payment Programme” (which we analysed last week) would nudge utilities into going green. Industry backlash https://www.ft.com/content/bf84f4a9-4720-4655-801f-a40d57b634e6 https://www.ft.com/content/f422e490-da5c-41ad-9c46-afdc6c136ecc https://www.api.org/~/media/Files/News/2021/09/API-Methane-Fee-Opposition-Letter.pdf https://www.ft.com/content/75c173c7-adf9-4855-80a9-67363f8c49fc 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 5/8 But for the oil and gas industry, it is the proposed tax on methane that raised the hackles — something that has been illustrated by a flurry of correspondence over the course of the past week: The API said it took particular issue with how charges on emissions could be calculated. Under a bill introduced in the Senate earlier this year, each company’s payment would be based on the overall emissions of a given basin and weighted by the volume of oil and gas they produce or handle. That could, in theory, let smaller highly polluting players off the hook and hurt bigger players that are making efforts. (That bill also proposed an “opt out” system if companies could calculate their own emissions). The American Gas Association wrote on Tuesday: Anne Bradbury, chief executive of the American Exploration and Production Council said last week the fee “amounts to a production tax on the industry” that will be passed on to consumers. “It could perversely disincentivise facilities with higher emissions intensities relative to the basin average from reducing their emissions [and] unfairly punish high production operators with lower emission intensities.” “The methane fee framework currently being considered would introduce a regressive tax on low-income and fixed-income Americans, ignore existing and anticipated federal regulations on methane emissions, and lessen available capital for our companies’ ongoing investments in further reducing methane emissions.” “As American families fill their cars with gas, pay their monthly electric bill, book a family vacation, or purchase groceries, the increased costs caused by punitive tax policies will be impossible to ignore.” https://www.api.org/~/media/Files/News/2021/09/API-Methane-Fee-Opposition-Letter.pdf https://www.whitehouse.senate.gov/news/release/whitehouse-booker-schatz-unveil-methane-fee-to-clamp-down-on-potent-driver-of-climate-change https://www.whitehouse.senate.gov/news/release/whitehouse-booker-schatz-unveil-methane-fee-to-clamp-down-on-potent-driver-of-climate-change https://www.ipaa.org/wp-content/uploads/2021/09/Letter-to-Congress-on-Methane-Fees-9.7.21.pdf https://www.axpc.org/2021/09/01/a-methane-fee-puts-americas-progress-in-jeopardy/ 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 6/8 Case for a fee Methane accounted for about 10 per cent of man-made US greenhouse gas emissions in 2019. But over a 20-year period, it has 84 times the warming power of carbon dioxide, making it a key component of the administration’s ambitions to tackle climate change. In fact, some climate campaigners argue that cracking down on methane is the priority of priorities in the face of the climate crisis. Schumer has suggested the fee would account for almost 10 per cent of the emission reductions in the budget and infrastructure bills that are making their way through Congress. Congress has already reinstated rules abandoned by the Trump administration that clamp down on methane pollution by oil and gas producers. And the Environmental Protection Agency is set to announce plans this month to tighten these further. Major industry players, hit by an increasingly dirty image of US gas abroad, have largely welcomed the reinstatement of regulations. But advocates argue hitting the industry in the pocket is the most effective way to bring it fully on board. “Right now, emitters do not have sufficient financial incentive to reduce methane emissions because the market value of the lost methane is much smaller than the environmental costs,” said Brian Prest, a fellow at Resources for the Future, an environmental group. In a new paper released today, Prest argues a fee would have only small effects on natural gas prices. A fee of $500/tonne would increase wholesale natural gas prices by $0.07- 0.10/MMBTU and could nearly cut the leak rate in half, he found, while a $2,000/tonne fee would increase wholesale natural gas prices by $0.18-$0.26/MMBTU and cut leaks by as much as 70 per cent. (Myles McCormick) “There’s a back and forth over finding the sweet spot,” Prest told ES. “The methane fee that would have smaller impacts on the prices of gas while also achieving acceptable levels of reductions in methane emissions.” https://www.ft.com/content/37b3c7c2-216f-4cfc-bf16-42ea39dcf87b 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 7/8 Data Drill With $500bn in global investments expected over the next decade, hydrogen developers think it is the fuel of the future. The US Department of Energy concluded its Hydrogen Shot Summit last week, as part of its initiative to drastically reduce the cost of renewable or “green” hydrogen by 80 per cent in 10 years. Green hydrogen currently costs $5 per kilogramme and is inefficient to produce.  Other countries are making similar efforts to scale up production and reduce costs. According to a report by the Hydrogen Council and McKinsey, more than 30 countries have announced hydrogen strategies as part of their path to net zero emissions. But green hydrogen faces several challenges before it can be adopted for large-scale use. At last week’s summit, rating agency representatives outlined the difficulty of evaluating green hydrogen projects, according to S&P. And even if the DoE achieves its goal price of $1 per kilogramme in the next 10 years, hydrogen would still be three times more expensive than US natural gas. (Amanda Chu) Power Points https://www.ft.com/content/b0674f5c-c3dd-4814-a4be-1dce5f4309f8 https://hydrogencouncil.com/wp-content/uploads/2021/02/Hydrogen-Insights-2021-Report.pdf https://www.ft.com/content/c3526a2e-cdc5-444f-940c-0b3376f38069 9/13/21, 12:16 AM There’s not enough natural gas | Financial Times https://www.ft.com/content/c921e399-b6a6-402b-97d6-9de33205d82a 8/8 Copyright The Financial Times Limited 2021. All rights reserved. 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. Recommended newsletters for you Moral Money — Our unmissable newsletter on socially responsible business, sustainable finance and more. Sign up here Trade Secrets — A must-read on the changing face of international trade and globalisation. 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