Activist investors face uphill battle at US majors

  • Market: Crude oil, Natural gas
  • 27/03/23

The US majors are on the front foot entering this year's shareholder proxy season, emboldened by record profits and a growing conviction that fossil fuel demand is not going away any time soon.

This may mean climate-minded shareholders who saw their 2021 proxy season successes — including the ouster of one-quarter of the ExxonMobil board — fade in 2022 will have an even harder time gaining ground. Support for environmental proposals waned last year as concerns around energy security trumped climate change following Russia's invasion of Ukraine, which sent oil prices spiralling and sparked a full-blown energy crisis in Europe.

This time around, the oil industry has regained its feel-good factor and is unashamedly investing in upstream production growth after highlighting the risks of an energy transition push that tries to abandon oil and gas before clean energy investments and policy ensure a corresponding shift in demand. The US majors will still be confronted with climate-related shareholder proposals at annual general meetings. Follow This, a Dutch activist group, is calling on ExxonMobil and Chevron to set medium-term reduction targets for Scope 3 end-use emissions — which account for the vast majority of their carbon footprint. Shareholder advocate As You Sow is pressing both to recalculate baselines to strip out emissions associated with divestments since 2016, to give a more accurate picture.

Climate activists counter that the crisis is only getting worse, as reflected in a UN IPCC climate report last week, and shareholder campaigns could see renewed support this year. "I don't think the energy security narrative is going to dampen that interest," think-tank Carbon Tracker's North American executive director Rob Schuwerk says. In any case, the "long-term trend in terms of energy security is to have localised supply and that's going to favour renewables".

But as a growing backlash against investing along environmental, social and governance guidelines in some Republican states gathers momentum, climate campaigners may have their work cut out. Larry Fink, chief executive of Blackrock, the world's biggest asset manager, wrote in his recent annual letter to shareholders that it is not the job of firms like his to be the "environmental police", in a shift in tone from recent years.

Transition balance

Both ExxonMobil and Chevron plan to ramp up spending on low-carbon initiatives in coming years, and have welcomed incentives provided by the Inflation Reduction Act, although they still lag their European rivals. Yet at industry gathering the S&P Global CERAWeek conference in Houston this month, executives talked about the need for more balance when it comes to the energy transition. "The issue of how we best move toward a lower-carbon energy system is one that is getting reframed as we get some real experience with the challenges of pushing some of these new technologies forward," Chevron chief executive Mike Wirth said. "The reality is that affordability and energy security actually do matter."

Although tracking Scope 3 emissions may make sense for measuring global progress on combating climate change, there are "significant downsides" to applying such targets at the company level, according to ExxonMobil's chief executive Darren Woods. "We are growing our LNG business," Woods said. "Every tonne of LNG we produce backs out coal somewhere in the world."

There is now a broad consensus that oil and gas will be required for decades to come, while lower-carbon sources take time to ramp up, bank HSBC Global Research analysts say. "This means oil majors cannot afford to step off the upstream oil and gas ‘treadmill' too soon," they wrote in a recent note.


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19/06/24

Investment funds’ long TTF gas position tops 121TWh

Investment funds’ long TTF gas position tops 121TWh

London, 19 June (Argus) — The net long position of investment funds at the Dutch TTF gas hub has reached its highest since January 2022 at more than 121TWh, according to the latest data released by the Intercontinental Exchange (Ice). Investment funds have traded much more heavily at the TTF over the past two months, with their net long position almost tripling to 121.7TWh on 7 June from 31.8TWh in early April, the most recent Ice commitment-of-traders report shows. This is the largest net long position that investment funds have held in the past two and a half years. Late 2020 was the last time that investment funds increased their net long position so quickly, jumping from roughly 75TWh on 27 November 2020 to a peak of nearly 256TWh on 12 February 2021 ( see investment fund graph ). Firms began to unwind this net long position from May, and there was a switch to a net short position in April 2022-August 2023. Continued TTF price volatility may have attracted more investment funds in recent months, particularly as the front-month contract earlier this month hit its highest since December, peaking at €35.88/MWh on 3 June. Russian pipeline gas used to provide the European market with a large degree of flexibility, but the loss of most of this gas, along with higher reliance on LNG, has reduced Europe's supply buffer and has exposed the TTF more to factors well outside Europe. Extended downtime at the Wheatstone LNG plant in Australia, a facility that provides no cargoes to Europe, caused the TTF front-month contract to jump to €36.12/MWh in intra-day trading last week . Similarly, news of shelling in the region of Sudzha , the location of the last still-functioning interconnection point between Ukraine and Russia, caused the TTF front-month contract on Ice to spike by more than €1/MWh in the space of two minutes before falling again. Such sudden jumps and falls have become increasingly common in recent months, with many traders noting the role of algorithmic trading in this phenomenon. A volatile trading environment is more attractive to investment funds than to other types of market participants, as they make most of their money from price volatility whereas utilities make most of their money from the margins on their sales to customers and associated services. The investment funds' move to a large net long position contrasts with a rapid move to a net short position by commercial undertakings, defined as companies with retail portfolios. These two trader categories each held net long positions of roughly 77TWh at the start of November. But investment funds had unwound this into a small net short position by March, while commercial undertakings continued to go longer, reaching a peak of 159TWh in mid-December. Mid-February appears to have been a turning point, with investment funds beginning to climb to a net long and commercial undertakings quickly unwinding to small net short. This was mostly driven by commercial undertakings' increasingly large net short position for "risk reduction contracts", topping 161TWh, as a hedge for similarly sized net long positions on the physical side in storage ( see commercial graph ). This is only the third time since 2018 that commercial undertakings' aggregate position has been net short, with the only other notable time being for a prolonged period in January-August 2021, as well as one brief week in June 2020. This likely reflects historically high EU stocks at the end of the 2023-24 winter, which have to be counterbalanced by risk-reduction hedging contracts. By Brendan A'Hearn and Matt Drinkwater ICE TTF net positions TWh ICE TTF commercial undertakings positions TWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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EU warns of 2030 climate ambition gap


19/06/24
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19/06/24

EU warns of 2030 climate ambition gap

Brussels, 19 June (Argus) — The European Commission has warned of an ambition gap on the way to member states achieving the bloc's 2030 renewables and energy efficiency goals, although it noted "some" progress. And European industry still faces comparatively high energy prices, the commission said in its twice-yearly report on countries' economies and finances. Increasing energy efficiency and switching to less costly renewable energy is "essential" to improve the competitiveness of European industry, but most EU states lack solid and sufficiently detailed investment estimations, as well as concrete measures to attract private clean energy finance, the commission said. And countries need to strengthen their carbon sinks from the land use, land-use change and forestry sectors. For Germany, the commission noted that the transport sector has failed to reach annual sector-specific emission targets, including in 2023 , when the sector increased final energy consumption by 6.3pc compared with 2022. EU states also need to strengthen policies to phase out fossil fuel subsidies so as to align with the EU goal of becoming a climate neutral economy, the commission said. For France, the commission estimated a net budgetary cost of emergency energy support measures at 0.9pc of GDP in 2023 and a projected 0.2pc in 2024, falling to 0pc in 2025. And for Italy the commission forecast a net budgetary cost of emergency energy support measures of 1pc of GDP in 2023, reaching 0pc in 2024. For Germany, the estimations are 1.2pc of GDP going to energy support measures in 2023, 0.1pc in 2024, and 0pc in 2025. Another of the commission's key recommendations is to cut the share of Russian imports in total EU gas imports beyond the 15pc seen in 2023, even if the share historically stood at around 40pc. Further efforts are needed from "certain" countries to phase out imports of LNG from Russia, the commission said. EU states have struggled to agree a further round of sanctions against Russia, which would include restricting the reloading of Russian LNG for export outside the EU at terminals in Europe. EU foreign ministers are expected to discuss the matter at a meeting on 24 June. By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Iran's crude output at 3.6mn b/d, says oil minister


19/06/24
News
19/06/24

Iran's crude output at 3.6mn b/d, says oil minister

Dubai, 19 June (Argus) — Iran's crude output has risen to around 3.6mn b/d, according to the country's oil minister Javad Owji. This puts production at the highest level since sanctions were reimposed on Tehran's oil sector in 2018 following Washington's exit from the Iran nuclear deal. "Our oil production, which was 2.1mn b/d at the beginning of our time in office [in September 2021], has reached 3.6mn b/d," Owji said today during a presentation to the Iranian parliament. "During these three years… with round-the-clock work and effort, production of crude oil in the country rose by more than 1.4mn b/d," he said. "A major part of that increase came through signing investment contracts with [domestic] contractors." When the administration of Iran's late president Ebrahim Raisi assumed office, Iran's crude exports were at their lowest level in a decade, Owji added. Owji's current production figure is 200,000 b/d above where he put Iranian crude output in November last year . At that time, he predicted a rise to 3.6mn b/d by March 2024, continuing an upward trend since the back end of 2022. In July last year, Owji put output at just shy of 3.1mn b/d. His latest assessment is around 300,000 b/d above Argus' estimate for both April and May . The last time Argus estimated Iranian crude output as high as 3.6mn b/d was back in July 2018. The rebound in production has been driven by Iran's ability to boost its exports. Iranian exports began picking up in the months after US president Joe Biden assumed office in January 2021, reaching around 700,000-750,000 b/d compared with 500,000 b/d before the US election. It was not until the second half of 2022 that exports took another leap, to 1mn b/d and beyond. Iran's crude exports have averaged just shy of 1.6mn b/d since the start of this year, according to data from Vortexa, up from 1.42mn b/d in 2023 and 990,000 b/d in 2022. The reasons for the revival in exports have been the subject of much debate, with some attributing it to more relaxed enforcement of sanctions by the US and others saying it has more to do with Iran scaling up its methods of circumvention. The debate even became a point of contention among Iranian presidential candidates this week as they gear up for the country's election on 28 June. Conservative candidates and even regime hardliners largely attribute the boost in exports to methods of circumvention. "Constructive and extensive relations with the world are required for [improving] the economy. This happened during the tenure of martyr Raisi. Now the US foreign secretary must explain to the [US] Senate why Iran can sell 2mn b/d of oil now," former nuclear negotiator Saeed Jalili said on 15 June. Raisi administration officials have repeatedly pointed to their techniques to get around sanctions and "energy diplomacy" as reasons for Iran's success in raising exports. But the reformist camp refutes those claims, with former foreign minister Javad Zarif rejecting the conservative narrative on state television on 18 June. "They [hardliners] said 'we taught them how to sell oil.' Not at all," Zarif said. "When Biden took office, his policy was to loosen the screw. Wait until Trump returns to office, and then we can see what [the hardliners] say." By Bachar Halabi and Nader Itayim Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Gas necessary for Asia, unwise not to invest: Summit


19/06/24
News
19/06/24

Gas necessary for Asia, unwise not to invest: Summit

Singapore, 19 June (Argus) — Asia's LNG market faces many uncertainties, but not continuing to invest in it would be unwise as it is necessary for economic growth, said speakers at the Association of Energy Negotiators' International Energy Summit in Bangkok, Thailand last week. Many countries are increasingly focusing on batteries and renewables as part of their energy transition plans to move away from fossil fuels, but batteries are still far from being commercially attractive from a cost perspective, said Andrew Kirk, vice-president of origination, LNG at conglomerate B Grimm. Batteries may be able to provide a stable solution to the intermittency challenges posed by renewables in some regions, but wealthier countries are failing to acknowledge that developing countries cannot accept the higher costs involved, as well as the massively daunting task of building and installing the required capacity, he said. "We have to separate the aspirational from the unachievable," said Kirk. There is already instability resulting from gas shortages even in more developed economies such as Australia, where the Australian Energy Market Operator has projected a shortage in southern states. The federal government has confirmed the need for a pro-upstream approach in its future gas strategy , and intends to bring on line new gas supplies and make them affordable during the transition. "The timeline we have given ourselves is starting to look disorderly," said Kirk, with reference to net zero targets. Advancements and breakthroughs in battery technology will be made, but the timeframe for this cannot be defined. If policymakers do not consider reversing declining gas production, the next 10-15 years will create more geopolitical uncertainty, he said. Billions of dollars have been spent on current energy systems, said Steve Morrell, senior vice-president of ExxonMobil PNG LNG, adding that it would make more sense to put more gas into the system considering the higher cost of moving to renewables, he added. "Just by replacing coal [with gas], we'll see a 60pc decrease in emissions without any need for breakthrough technologies." said Morrell. If too much emphasis is placed on renewable energy, this will also lead to declining investment in finding new oil and gas resources, said the executive director of the Petroleum Institute of Thailand, Kurujit Nakornthap, which could lead to energy shortages and more volatile energy prices. "The stone age [ended] not because we ran out of stone, so the oil age is not going to [end] because we're running out of oil," said Nakornthap, paraphrasing a famous quote by ex-Saudi oil minister Sheikh Zaki Yamani. 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Secondly, the affordability of low-emission LNG may be an issue because some markets are unable to afford the extra costs when they are struggling to even move from a coal to gas-based market. Thirdly, SPAs will evolve and contracts must change to become more flexible. So buyers and sellers need to "act in good faith", said Kirk. But governments and regulators can slow down developments, which can be frustrating for suppliers, said Morrell. There needs to be a realisation that the consumer is paying for incentives and subsidies that the government provides, he said, adding that discussions should move away from 3–5-year political cycles and look at 20 years in the future. By Prethika Nair Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Tropical storm warning for South Texas coast: Update


18/06/24
News
18/06/24

Tropical storm warning for South Texas coast: Update

Updates with closure of Galveston, Texas City ports. New York, 18 June (Argus) — A tropical storm warning has been issued for parts of south Texas and northeastern Mexico, bringing with it the risk of heavy rainfall and flooding. The warning is in effect for the Texas coast from Port O'Connor south to the mouth of the Rio Grande, as well as the northeastern coast of Mexico, according to the National Hurricane Center. "The disturbance is very large with rainfall, coastal flooding, and wind impacts likely to occur far from the center along the coasts of Texas and northeastern Mexico," the center said overnight. Maximum sustained winds this morning remained near 40 mph and the disturbance is forecast to become a tropical storm by Wednesday. The system has been classified as a potential tropical cyclone by the center since it has not yet become better organized, but is expected to become the first named storm system of the year by early Wednesday. The port of Corpus Christi in South Texas and the Houston Ship Channel remained open as of Tuesday morning, but the nearby ports of Galveston and Texas City closed to inbound and outbound shipping traffic at 10pm ET Monday due to heavy weather, the US Coast Guard said. The system was expected to disrupt ship-to-ship transfer operations off the Texas coast as of Monday evening because of heavy seas. In the Gulf of Mexico, the transfer typically is from an Aframax or Suezmax onto a very large crude carrier (VLCC) at designated lightering zones near Corpus Christi, Galveston and Beaumont-Port Arthur. Prolonged lightering delays can prevent crude tanker tonnage from becoming available and exert upward pressure on freight rates, while also adding to demurrage fees. The storm is expected to turn towards the west-northwest and west tonight and Wednesday, with the system forecast to approach the western Gulf coast late Wednesday, the NHC said. Rainfall totals of 5 to 10 inches are seen across northeast Mexico into South Texas, with maximum totals of 15 inches possible. Flash and urban flooding are likely to follow with river flooding. By Stephen Cunningham and Tray Swanson Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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