Energy Source: An industry divide over methane

With just 81 days until the US election, the differences are widening. Joe Biden wants discussion of energy to be about climate and green jobs. Donald Trump wants it to be about American oil and gas and his support for the industry.

The Trump administration’s latest move is a proposed relaxation of rules to limit methane emissions: an act of environmental vandalism or an overdue boost for the oil sector, depending on your view. It’s the topic of our first item. Our second is on Kamala Harris and what her addition to the Democratic ticket means for US energy policy.

Energy Source will be taking a short break. We’ll be back in early September.

Thanks for reading. Let us know your thoughts and ideas at [email protected] If this has been forwarded to you, please sign up for the newsletter here. — Derek

The big EPA methane rollback

Andrew Wheeler, head of the Environmental Protection Agency, may announce as early as today the reversal of rules that curb emissions of methane — an especially potent greenhouse gas — from oil and gas infrastructure in the US.

For background, see our piece from almost two years ago, when the Trump administration first floated a similar idea; then from 12 months ago, when the proposal received another airing. We also wrote about whether Mr Wheeler, a former coal lobbyist, considers climate change a priority for his agency (he does not).

ES spoke on and off the record to several key players to garner opinion about the proposed rollback. Here are our takeaways:

Big Oil and environmentalists are united in opposing this one . . . 

The Environmental Defense Fund says the EPA changes would lead to an extra 5m tonnes of methane emissions each year and vigorously opposes the move. But major oil producers aren’t keen either. “ExxonMobil supports methane regulations,” said a spokesperson for the US’s biggest oil company. “Chevron supports reasonable regulations,” said its spokesperson. BP ardently opposes the rollback.

. . . but Big Oil’s representatives in DC support the change . . . 

The American Petroleum Institute, one of Washington’s most powerful lobby groups, has made clear its backing for the overhaul, saying that under the “modified rules, operators will still be required to control emissions, and the industry continues to make progress in reducing methane emissions through new technologies”.

. . . so do smaller oil industry groups — vociferously

Dick Schremmer, chairman of the National Stripper Wells Association, said the EPA’s existing rules, introduced by the Obama administration, were too onerous:

“There’s just no cash flow to upgrade our wells, to be able to fall in and comply with all the regulations . . . We’d just have to plug all our wells.”

The American Exploration and Production Council, which represents many shale producers, said the current methane rules were unnecessary. The Clean Air Act (a separate piece of legislation) already “effectively regulates emissions from our industry, and allows for the responsible production of oil and gas”, said Anne Bradbury, the group’s chief executive.

Will the rollback make any difference?

Possibly not, for a few reasons:

1. Some people wonder if the rules will actually be changed — or if the Trump administration is trying to garner the credit for proposing to scrap it, without taking the final step to do so. (We should see very soon.)

2. There is some debate about how quickly a Biden administration — should he win — could repeal or reverse the changes, either using the Congressional Review Act or other legislation. “Ultimately, even if the methane rules are eliminated now, they will likely be reinstated if there is an administration change,” said Megan Houdeshel, a partner at Dorsey & Whitney, a law firm.

3. Some companies — not least the biggest producers — say they will continue to reduce emissions anyway. “This rollback will not change EOG’s continued efforts to minimise our methane emissions,” said one of the shale patch’s biggest producers.

What to make of it all?

Our private conversations with operators have been telling. Big Oil executives say smaller producers are carrying out an act of wilful environmental vandalism because they don’t believe in climate change and have a visceral hatred of any Obama-era rules.

They add, too, that the rollback is bad for business. It could put US natural gas exports at risk, for example, should the EU — a destination for American liquefied natural gas — rule against methane. The rule changes will also damage the reputation of a sector that hardly needs more bad press.

That’s all hokum, especially the climate change accusation, say representatives of smaller producers — Big Oil just wants to keep rules in place that make life more difficult and expensive for small operators.

In short, a rule change that might make it easier for oil producers to let more methane into the atmosphere is also exposing new faultlines in the American oil business — and how it treats climate. (Derek Brower)

What does Kamala Harris mean for US energy?

From policing to prisons, the record of the Democratic party’s US vice-presidential pick Kamala Harris has come under significant scrutiny.

But what does her selection mean for energy? Two areas stand out:

1. Environmental justice: In the Senate, Ms Harris tied green issues to questions of social and economic justice. The California senator’s Climate Equity Act, reintroduced last week in conjunction with New York congresswoman Alexandria Ocasio-Cortez, seeks to ensure vulnerable communities are at the centre of any efforts to tackle climate change — including holding energy companies to account for pollution from refineries and power plants located in poorer neighbourhoods.

2. Tough line against Big Oil: As attorney-general in California Ms Harris took a hard line against oil producers including Chevron and BP over their environmental record. During the primary campaign, when she ran for the Democratic presidential nomination, she said the federal government should prosecute fossil fuel companies for misleading the public on climate change.

“I think it’s good news for the climate, that’s for sure,” Leah Stokes, a political scientist at the University of California, Santa Barbara, told ES. “And I think it’s good news for black Americans who live in neighbourhoods with fossil fuel infrastructure in their backyard.”

Donald Trump, meanwhile, has already seized on her comments in the primaries that there was “no question” she would ban fracking.

This was one of the four areas the US president cited as he sought to paint her as a left-leaning pick (higher taxes, cutting military funding and “socialised” healthcare were the others).

This week Mr Trump said about Ms Harris:

“She is against fracking. She is against petroleum products. I mean, how do you do that and go into Pennsylvania or Ohio or Oklahoma or the great state of Texas? She’s against fracking. Fracking is a big deal.”

Expect Mr Trump to keep mentioning swing states with big shale operations, such as Pennsylvania, throughout the campaign. 

That may force Ms Harris, like Joe Biden, to temper her opposition to fracking. The former vice-president also called for a fracking ban during the primaries. Now he says the practice is not “on the chopping block”. (Though he has tried to avoid touching the divisive subject insofar as possible). 

Ms Harris could make her biggest difference simply by bringing out more voters at the polls this November — and thereby helping the Democrats win the Senate. Congressional control would make it much easier for the party to enact an aggressive climate policy.

“To get more Democrats elected to the Senate, there has to be good turnout, people have to actually go and vote,” said Ms Stokes. “And Kamala Harris being a black woman will increase excitement on the ticket.”

That said, Ms Harris joins a Democratic ticket that has already pledged the most transformative energy policy of any US administration ever, including spending $2tn on clean energy in four years.

“As a California progressive, Senator Harris represents the state that leads not just the US, but the world, in clean energy technology and innovative climate policy, while also maintaining strong economic growth,” said Paul Bledsoe, a former Clinton White House climate adviser who is on the executive council of Clean Energy for Biden, a group supporting his candidacy. “Picking Harris is another clear sign that Biden intends a massive clean energy investment-led economic recovery.” 

The “bottom line”, said Kevin Book of ClearView Energy Partners, is that the election “continues to present stark, binary implications for the renewable and fossil energy subsectors”. (Myles McCormick)

Data drill

Texan oil groups have struggled lately. Other producers in the Lone Star State, not as much. Despite the pandemic, Texas is set to add more wind power capacity in 2020 — 11.1GW — than any previous year. Rising corporate demand, growing investor interest and strong bipartisan political support are driving the trend, according to the Institute for Energy Economics and Financial Analysis. 

Power points

• Saudi Aramco plans further capital spending cuts to help pay its $75bn dividend, Anjli Raval reports.

• The price of polysilicon, a raw material used in solar panels, soared after explosions in a key Chinese plant, pushing up costs for governments looking to drive a green recovery, writes Henry Sanderson.

• Earnings at renewable energy groups have not been immune to the pandemic. Orsted, the world’s largest wind farm developer, was hit by low power prices in the UK, while turbine maker Vestas raised concerns about border restrictions, Leslie Hook reports.

• Energy minister Seamus O’Regan told Derek Brower that Canada’s controversial oil sands would be crucial in an energy transition.

• Despite global gas flaring hitting a decade high, a drop-off in the US provides some cause for optimism, according to academics Morgan Bazilian, Jamie Webster and Jordy Lee.

Endnote

The International Energy Agency, the US Energy Information Administration and Opec released their latest monthly oil-market assessments this week. Here is what matters and what changed:

(Figures in million barrels a day)
*Includes Opec natural gas liquids