Welcome back to Energy Source.
Swedish activist Greta Thunberg caused a stir this week after she laid into world leaders for decades of “blah blah blah” on climate action.
Joe Biden did not escape the roasting. Thunberg mocked his promises of “green jobs”, his “build back better” agenda and his “net zero” targets.
“This is all we hear from our so-called leaders: words. Words that sound great, but so far have led to no action,” she said.
Whether Biden’s climate agenda amounts to anything more than words is set to be decided in the coming days as the Democratic leadership tries to push through his two key pieces of legislation against a backdrop of intense party infighting.
This isn’t just a US matter. What happens on Capitol Hill will determine whether the president has any credibility as he heads to Glasgow in November looking to cajole other countries into upping their game on climate change.
Meanwhile, energy price inflation is still vexing politicians and consumers. Our first note shows how it’s hitting producers too, with companies struggling to find workers. Our second note covers how record high prices for some fossil fuels will impact the energy transition. We also invite you to weigh in on the matter in our poll. Please vote!
Thanks for reading.
The US labour shortage hits the shale patch
The recovery in America’s oil and gas sector is under way. But companies say hiring workers to support the uptick in demand is getting trickier — and more expensive.
That was the key takeaway from the Dallas Federal Reserve’s latest energy survey, which was released yesterday.
While the survey showed upstream activity continued to recover in the third quarter, more than half of the oilfield services executives who responded said they were having trouble finding employees.
“Business activity grew at a solid clip this quarter, and survey responses generally pointed to continued improvement in the sector,” said Michael Plante, senior research economist at the Dallas Fed. “However, cost pressures have been increasing, with many firms reporting rising input and labour costs.”
Oil and gas producers and (especially) service providers laid off employees en masse last year as the pandemic sent prices through the floor. But now — as with many other sectors across the US economy — they are having difficulty luring back skilled workers.
“We are seeing a slight improvement in business activity but are struggling to hire enough qualified drivers with a commercial driver’s licence,” one survey respondent said.
Of the oilfield services executives surveyed, 51 per cent said they had struggled to hire workers during the past three months. Of those, 70 per cent blamed a lack of qualified applicants. Thirty-nine per cent said workers were looking for too much money.
“Wages are up 20 per cent, and companies are poaching employees from competitors. We are finding it difficult to increase prices to match our increase in costs,” according to one response.
The shortage is contributing to a sharp rise in costs, with the index tracking inputs among services groups hitting a record high. Of 47 firms surveyed, just one said input costs had dropped.
Services costs have been depressed for years. Now it seems they are about to provide another source of inflation in oil prices. (Myles McCormick)
The fossil fuel bull run and the energy transition
This week’s soaring global fossil fuel prices arrived with impeccably awkward timing. The UN climate summit in Glasgow is just weeks away, and Joe Biden’s infrastructure and reconciliation bills are nearing D-Day in Congress.
Increasing fossil fuel prices — whether through methane fees, carbon taxes, or carbon-border adjustment mechanisms — was thought to be an essential policy tool to stop the world burning as much coal, oil, and natural gas.
But with prices already on the up independent of any policy changes, even politicians trying to accelerate an energy transition, such as Biden, are seeking to cheapen fossil fuels again. The White House on Tuesday said, for example, that it was talking to Opec about “setting prices and doing more to support the recovery”.
This sounds more like a typical White House view of gasoline prices than an energy transition policy.
Elsewhere, though, there are signs that the rising prices are causing demand destruction. Ammonia manufacturers in Europe are limiting production because of high natural gas prices, for example.
The problem is that in other regions, such as Asia, the spiking liquefied natural gas price is pushing up power producers’ demand for coal and oil — two much more carbon-intensive ways of making electricity. It will get worse if Europe, already undersupplied with natural gas, suffers a particularly cold winter.
“If LNG suppliers can’t meet the extra demand, there will be a dash for coal and oil,” said analysts at BloombergNEF.
Consultancy Rystad estimates that if the gap between LNG and crude prices remains wide, Asian oil demand could rise by 400,000 barrels per day over the next two quarters.
Even in the US, coal consumption — in long-term decline — is expected to grow by more than 20 per cent this year, as it eats into natural gas’s share of power generation.
Substituting one expensive fossil fuel for another fossil fuel that emits far more CO2 when combusted isn’t a great advert for an energy transition designed to reduce emissions.
I asked in the last newsletter if you thought the rise in fossil fuel prices globally would slow or speed an energy transition. We’ve now opened an anonymous poll where you can register your view. Please do! We’ll report back next week.
In the meantime, thanks to all of you who wrote in response to our last newsletter. You offered some punchy takes — and there was no consensus. Here are some of the views you shared (and apologies to those I didn’t include):
On the continued need for fossil fuels:
“The green dreamers will perhaps wake up when the lights go out and they cannot get to work.”
On the lengthy transition ahead:
“Lots of challenges on our decarbonisation path — and many are hesitant to accept that this is a transition rather than a watershed moment!”
“The hydrocarbon market has another couple of decades to go. The big players are getting out and the opportunity is now for agile little players to coin it.”
How the supply shortage should speed the energy transition:
“[We] should demonise oil producers, we should increasingly tax them for the pollution they produce, we should regulate against them and we should accelerate the change to renewables.”
“The fuel price surge should make it easier to pursue decarbonisation. High prices combined with queues at petrol stations will surely make even the keenest petrol head consider an electric car. The longer the current crisis goes on the more attractive an EV will look.”
. . . or slow it down:
“[The] oil shortage will lead to demands to ‘drill baby drill’! . . . and capitalism will figure out a way to make it happen — bank lending doesn’t matter that much these days.”
And conflicting priorities:
One reader wrote that in their personal capacity, “the push for net zero ‘come what may’ is dangerous”. But in their professional capacity, “I need to lean more towards being pro-ESG”. (Derek Brower)
As depleted inventories push natural gas prices to record highs in Europe, analysts believe the supply crunch may last a while — with knock on consequences for inflation.
Celsius Energy projections point to European gas inventories remaining below average into 2022, causing higher inflation and slower economic recovery. According to the financial services company Rabobank, the recent gas shock could increase inflation projections for 2022 from 1.8 to 2.05 per cent, a 14 per cent rise.
The skyrocketing prices will have an impact on other gas-dependent markets and could dampen Europe’s economic recovery. For example, if gas prices cause inflation to rise 1 per cent, Rabobank predicts that private investment will fall 3.5 per cent. Consumers are also expected to reduce their spending as they struggle to meet higher commodity costs. (Amanda Chu)
- Soaring pea prices are hurting plant-based meat.
- BHP shareholders could strike down its climate plan.
- Boris Johnson is under pressure to do more for climate ahead of COP26.
- Ford announced a multibillion-dollar move to manufacture electric vehicles. (NYT)
- Insurers rank climate change their top concern. (Bloomberg)