How the US is trying to bend Opec to its will

Three things to start:

1. While Joe Biden and other politicians in Glasgow continue efforts to fight climate change, Opec ministers meet today under pressure from the US to pump more oil, one of the fossil fuels that causes climate change. My FT Big Read on the topic, published this morning, gives some of the background.

2. A Republican won the governor’s race in Virginia and another may be about to do the same in New Jersey (the race was still too close to call as we went to press). We will be doing some reporting in the coming days on what the results mean for the Biden clean energy agenda — both on the local level, given plans for wind turbines offshore from Virginia (and New Jersey), and the national level, as Democrats suffer an ominous political blow just as they try to push new climate legislation through Congress. Meanwhile in Maine, voters rejected a $1bn electricity transmission project that would have brought low-carbon hydropower into the state.

3. The conversation at COP26 has turned to the other kind of green — cash. Mark Carney, the former governor of the Bank of England, stole the headlines with a claim that $130tn in financing was “committed to net zero”. That’s right trillion. Our colleagues over at Lex argue the claim strains credibility and sets the financial industry up for overpromising and underdelivering. Read on for more on the fight at COP26 over who should footing the bill for climate change.

Welcome back to another Energy Source. First is a note on today’s Opec meeting: is the group about to defy the US president yet again? Our second rounds up some of the COP26 news. Data drill is on the solar sector — another victim of the global supply chain snafu.

We know there’s a lot of energy news around right now. Thanks for reading ours.

Will Opec bend to US pressure?

Opec meets again today under mounting pressure from the Biden administration and other leading consumers such as India and China to increase the pace of its already planned oil supply additions. The president wants Saudi Arabia, the UAE, and their non-Opec partners led by Russia to help drive down oil prices. He hopes that this would, in turn, bring down US petrol prices — which are now averaging $3.40 a gallon, up 60 per cent in a year.

“If you take a look at gas prices, and you take a look at oil prices — that is a consequence of, thus far, the refusal of Russia or the Opec nations to pump more oil.”

Those were Biden’s words from a podium at the UN climate summit in Glasgow, where politicians are trying to counter the harm caused by burning fossil fuels like oil.

Antony Blinken, Biden’s secretary of state, has since then added to the pressure, calling on the UAE, another huge Opec producer, also to increase energy production.

Reminder: it was President Donald Trump who led a global consumer-country campaign to press Saudi Arabia, Russia and the other producers in the Opec+ group to cut supply last year in a bid to prop up oil prices. They did and have since then roughly stuck to their plan to restore production gradually.

Furthermore, Saudi output is now close to its pre-pandemic average. The big producer that has not been able to raise oil output effectively since last year’s price crash is the US, where the Energy Information Administration put September’s hurricane-hit output at just 10.5m barrels a day, 2.5m b/d lower than the pre-Covid peak.

Yesterday, oil prices fell as the cumulative impact of all the political pressure weighed on the market. New hopes for an Iran deal, after the US state department said talks would resume on November 29, were also bearish.

But word on the street is that the group — or “cartel”, as energy secretary Jennifer Granholm described it this week, in a choice of word that may hint at a revival of legal threats — will stick with its plan to increase output by 400,000 b/d each month and ignore the US pressure to speed up the additions.

“If the Saudis were going to bend, MBS would have turned up in Glasgow,” said Bill Farren-Price, a veteran Opec watcher at consultancy Enverus, referring to Saudi Arabia’s Crown Prince Mohammed bin Salman.

Bob McNally, another Opec expert who advised former president George W Bush and now heads consultancy Rapidan Energy Group, agreed that the group was unlikely to change its stance. The question is what, if Opec doesn’t add more supply, the US will do next.

Strategic stock releases, as first revealed by the Financial Times earlier this month, are on the table.

“But the sleeper risk — as indicated by Granholm’s pointed description of Opec+ as a “cartel” — is antitrust action, such as asking Congress for Nopec, a bill that would remove sovereign exemption from the Sherman Antitrust Act. While Nopec has gone nowhere in Congress so far this year, were the president to call for it, it would likely pass quickly. Republicans won’t die on Nopec hill,” said McNally.

The caveats? Since the Opec meeting of December 2019, Saudi energy minister Abdulaziz bin Salman has shown his willingness to spring surprises on the market — including the unexpected price war he launched in the spring of 2020. Betting against Opec policy reversals can be an expensive game. (Derek Brower)

COP26 round-up

Amid the progress on deforestation and methane at COP26, some deep fissures are emerging between countries about who should be paying for global decarbonisation.

Bhutan’s Sonam Phuntsho Wangdi, chair of the Least Developed Countries group, demanded more money from rich countries to mitigate the impact of climate change. The group represents 46 nations — but account for only 1 per cent of global emissions.

“Our lives depend on the commitments countries make here and the policies people get into here. The progress made here is disappointing and in a way also frightening,” Wangdi said.

India’s prime minister Narendra Modi made similar remarks. In his net-zero pledge on Monday, Modi demanded $1tn for developing countries. “The world’s ambitions with respect to climate finance cannot [stay] at the same level,” he said.

Several countries including the UK and Italy increased their climate funding ahead of the climate summit. Although developed countries promise to deliver the delayed $100bn annual payment to developing countries by 2023, Ethiopian delegate Gebru Endalew pointed out that this money is mixed up with private loans and existing aid commitments.

And the pressure on public companies, compared to private companies, to reach net-zero is creating the opportunity for arbitrage, according to BlackRock chief Larry Fink.

“We are seeing more hydrocarbons moving away from public entities to private entities,” Fink said. “If we’re serious about this we have to ask all of society to move forward.” 

US Treasury secretary Janet Yellen also called on private companies to step up. According to UN special envoy Mark Carney, 40 per cent of the global financial system has signed up to his private-sector climate initiative, pledging a sum worth $130tn in assets.

Today, world leaders will look at how to accelerate the clean energy transition. (amanda.chu)

Data Drill

The US solar industry’s supply crunch is deepening. New research from S&P Global firm Panjiva shows US solar imports fell 27 per cent in the third quarter, the largest quarterly drop since 2018. Imports are down 11 per cent from the same time last year.

A “perfect storm” of events has made it difficult for US companies to procure solar panels. Skyrocketing polysilicon and shipping costs have driven up the cost of modules. Rystad Energy predicts this cost inflation will threaten 56 per cent of global solar projects for 2022.

“The current bottlenecks are not expected to be relieved within the next 12 months, meaning developers and offtakers will have to decide whether to reduce their margins, delay projects or increase offtake prices to get projects to financial close,” said Rystad analyst David Dixon. Manufacturing and shipping now make up the majority of solar project costs.

An anonymous petition to extend tariffs on solar materials from China to south-east Asia has also put pressure on the industry. Yesterday, the Solar Energy Industries Association testified before the US International Trade Commission against these tariff measures, arguing they do little to promote domestic production and slow progress on climate.

“The solar industry is already facing major supply chain constraints. Extending the Section 201 tariffs will only exacerbate these problems, prevent President Biden from reaching his clean energy goals, and worsen the global climate crisis,” said SEIA president Abigail Ross Hopper in a press release.

Power Points