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US energy’s most underrated acronym



One thing to start: energy markets soared yesterday as a Covid-19 vaccine was found to be more than 90 per cent effective. This followed statements from the Saudi energy minister, who said that the Opec+ group could “tweak” their supply deal “even beyond what the so-called analysts are talking about”. Oil prices and oil and gas equities flew up.

Energy Source’s main note today is on the changes at the top of the US’s Federal Energy Regulatory Commission — a body which could have a central role to play in a Biden administration. Our second is on another net-zero carbon commitment, this time from FirstEnergy, a company otherwise preoccupied with court battles.

Thanks for reading. Contact us at Please sign up for the newsletter here. — Derek

FERC: From obscure agency to key player

Climate change is, in Joe Biden’s words, the “number one issue facing humanity”. Tackling it will be at the heart of his presidency. Yet pushing through sweeping legislation without a Democratic Senate (as looks increasingly likely) will be difficult — if not impossible. Governing via executive order can be undone. And so the role of government agencies shifts to the fore, with a focus on bodies such as the Environmental Protection Agency, the Fish and Wildlife Service, the Securities and Exchange Commission and — perhaps most importantly — the Federal Energy Regulatory Commission.

“There will be no Green New Deal. There will be no $2tn investment in clean energy technology. There will be no national carbon tax or clean energy standard,” said Neil Chatterjee, who was ousted from his role as chair of FERC, the country’s leading energy regulator, by the Trump administration last week.

“In a divided government, the efforts that FERC can pursue as a market regulator for market-driven solutions to carbon mitigation, I think, is the whole game,” Mr Chatterjee said.

FERC has a broad remit, with responsibility for everything from regulating the transmission of oil, gas and electricity, to licensing liquefied natural gas terminals and investigating issues around competition in the energy market.

‘You’re fired’

Under Mr Chatterjee, a Republican appointed by Donald Trump, FERC took a more active role on climate, removing barriers to entry on battery storage technology; allowing dispersed energy resources like electric vehicles and rooftop solar to sell power into the grid; exploring proposals on carbon pricing; and making strides on integrating wind energy into the grid.

Those positions, Mr Chatterjee told ES, may have been responsible for his sacking last week. “My suspicion is for a Trump-appointed chairman, to be promoting, ostensibly clean energy policies, perhaps, didn’t jive with their energy agenda,” he said.

“I think it is one of those things, perhaps, in the waning hours of an outgoing administration, they chose to symbolically take it out on me,” he said.

Although not all of Mr Chatterjee’s chairmanship was viewed in a positive light by environmentalists, his ousting has riled Democrats. “His sudden removal as chairman for merely starting a dialogue on markets and climate change . . . is as petty as it is wrong,” said Frank Pallone, a Democratic congressman who chairs the House Energy and Commerce Committee.

He has been replaced by fellow Republican James Danly, who will probably only hold the role for 10 weeks until a Democratic chairman is appointed by Mr Biden. But the agency looks set to play an outsized role in the new administration.

Agency focus

“Without control of the Senate, which it looks likely he won’t have, Biden is likely to look to FERC and its Democratic chair to achieve many of his climate and energy goals, such as decarbonising the power sector by 2035,” said Christine Wyman, an energy and environment lawyer at Washington lobby group and law firm Bracewell.

The new president would have powers to achieve this, she added, under existing legislation including the Natural Gas Act, the Public Utilities Regulatory Policies Act and the National Environmental Policy Act.

Mr Chatterjee, who is set to remain one of FERC’s commissioners until mid-2021, believes the new president will look to more incremental markets-oriented solutions to climate issues, driven by FERC.

“Now that grander vision is off the table . . . stakeholders may come to realise that what I was doing, and my leadership at FERC — this previously obscure, but now increasingly significant agency — was valuable and significant all along,” he said. “And that FERC may be the arbiter of a market driven carbon mitigation policy.”

That would involve accelerating action in areas that FERC has already begun, he said — from integrating renewables into the grid and making it easy for new forms of battery storage to reach the market to increasing the role of distributed energy resources and pushing forward state-level carbon pricing.

“Those are real, legitimate, concrete, legally durable, sustainable things that can drive over the next four years, that I think quite frankly, are far more realistic than legislative efforts that will go nowhere, or larger scale regulatory efforts or executive actions that will not have long term durability,” Mr Chatterjee said.

(Myles McCormick)

FirstEnergy’s new shade of green

FirstEnergy has been in the news lately, and not in ways that a public relations office enjoys. The US electric utility company is entwined in a political corruption scandal in Ohio that last month claimed the job of its chief executive, Charles Jones. On Sunday it dismissed its chief legal officer and chief ethics officer as investigations swirl around the company. 

The probes by the US Department of Justice and Securities and Exchange Commission centre on payments FirstEnergy and spun-off generator FirstEnergy Solutions made to successfully press for a law that enabled a $1bn bailout of two Ohio nuclear plants, subsidised coal plants and weakened efficiency and renewables programmes.

But on Monday, FirstEnergy offered a different headline. It pledged carbon neutrality by 2050, in line with the Paris climate agreement. 

The commitment makes FirstEnergy the 25th US investor-owned utility to embrace a net-zero carbon goal, according to Edison Electric Institute.

Such corporate commitments lean heavily on fledgling technologies, the Financial Times reported this week. Many companies are also building natural gas-fired generation because it’s cleaner (and cheaper and more versatile) than coal, but this means locking in new emissions for decades to come. 

FirstEnergy is a somewhat different case. The company spun off most of its power plants in order to transform into a transmission and distribution utility that moves electrons, rather than make them, so shifting to cleaner generation is a smaller part of the equation. FirstEnergy did say it would retire its two remaining coal-fired power plants but set a deadline of 2050, long after many peers.

Ben Inskeep, principal energy policy analyst at EQ Research, which tracks utility policy, was sceptical of the new shade of green.

“FirstEnergy’s carbon neutrality pledge rings hollow after it has spent years undermining climate and clean energy policies while pushing for expensive bailouts that keep coal plants open longer,” he told ES.

(Gregory Meyer)

Data Drill

Crude prices and shares in oil companies soared on Monday after news of a promising Covid-19 vaccine hit the market. The commodity rally continued on Tuesday morning in London.

Line chart of Percentage change since September 1 showing Vaccine hopes sent oil stocks surging on Monday
Line chart of $ per barrel showing Brent crude prices surged on the vaccine news

Power Points


We don’t know yet if the Republicans will retain a majority in the Senate, or who will execute energy policy for Joe Biden at the Department of Energy, at the Environmental Protection Agency, at other federal bodies, or in a possible new climate tsar role.

We do know he will make climate central to policymaking — the president-elect made this plain in his transition document. And we know he’ll rejoin the Paris climate accord on day one of his presidency.

Interest groups and politicians are already trying to shape the narrative.

Climate groups are pleased. The Sierra Club summed up the sentiment of many, saying said Mr Biden’s victory was “just the first step toward repairing the damage of the past four years, and taking the bold, urgent action needed to address the climate crisis and protect our planet for all people”. Ceres, another environmental group, said the election result was a “win for our health, our planet, our economy, and our future”.

But fossil fuel companies, their financiers, and their lobbyists also want a role.

The CEO Climate Dialogue, representing companies such as Shell, BP, Dominion Energy and Citi, said it was “looking forward to working with the Biden administration” to pass “meaningful climate policy” based on “market-based policies”.

The American Petroleum Institute, Big Oil’s main Washington lobbyist, tweeted its congratulations to Mr Biden and Kamala Harris, and said it was ready to work towards “bipartisan solutions” on energy and climate.

The sourest notes were in the Democrat party itself, as a brewing dispute between progressives and moderates became visible.

Conor Lamb, a Democratic congressman representing a district in Pennsylvania’s shale gas-rich south-west, told the New York Times he had been “extremely frustrated” by some in his party talking of banning fracking ahead of the election.

“If someone in your family makes their living in some way connected to natural gas, whether on the pipeline itself, or you know, even in a restaurant that serves natural gas workers, this isn’t something to joke around about or be casual about in your language,” Mr Lamb said.

That was a reference to Alexandria Ocasio-Cortez, a congresswoman from New York — who also gave a blistering interview to the NYT — and to “her tweeting out that fracking is bad in the middle of a presidential debate when we’re trying to win western Pennsylvania”.

Climate Nexus, a clean energy advocate, weighed in on that debate, pointing out that Mr Trump’s vote fell in Pennsylvania’s top 10 fracking counties compared with the 2016 election. This confirmed polling showing US voters were more amenable to clean energy than assumed, Climate Nexus said. It may also simply show that voters in those fracking counties — nine of which went to Mr Trump, by huge margins — slightly preferred Mr Biden to Hillary Clinton.

Energy Source is a twice-weekly energy newsletter from the Financial Times. Its editors are Derek Brower and Myles McCormick, with contributions from David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London, and Gregory Meyer in New York.

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Oil hits highest price since April 2019 before moderating




The price of crude oil briefly hit its highest level for more than two years on Monday, lifting shares in energy companies, as traders banked on strong demand from the rebounding manufacturing and travel industries.

Brent crude crossed $75 a barrel for the first time since April 2019 before falling back slightly, while energy shares were the top performers on an otherwise lacklustre Stoxx Europe 600 index, gaining 0.7 per cent.

The international oil benchmark has risen around 50 per cent this year, underscoring strong demand ahead of next week’s meeting of the Opec+ group of oil-producing nations.

US manufacturing activity expanded at a record rate in May, according to a purchasing managers’ index produced by IHS Markit. Air travel in the EU has reached almost 50 per cent of pre-pandemic levels, ahead of the July 1 introduction of passes that will allow vaccinated or Covid-negative people to move freely.

“This is a higher consuming part of the year,” said Pictet multi-asset investment manager Shaniel Ramjee, referring to the summer travel season. “And the oil market is pricing in strong near-term demand that is better than previous expectations.”

In stock markets, the Stoxx Europe 600 dipped 0.3 per cent while futures markets signalled Wall Street’s S&P 500 share index would add 0.1 per cent at the New York opening bell.

The yield on the 10-year US Treasury was steady at 1.494 per cent. Germany’s equivalent Bund yield gained 0.02 percentage points to minus 0.154 per cent.

Equity and bond markets have consolidated after an erratic few sessions since US central bank officials last week put out forecasts indicating the first post-pandemic interest rate rise might come in 2023, a year earlier than previously thought.

US shares tumbled last week, while government bonds rallied, on fears of tighter monetary policy derailing the global economic recovery.

Wall Street equities then bounced back on Monday, with a follow-on rally in some Asian markets on Tuesday, as sentiment got a boost from more dovish commentary from Fed officials.

Fed chair Jay Powell, in prepared remarks ahead of congressional testimony later on Tuesday said the central bank “will do everything we can to support the economy for as long as it takes to complete the recovery”.

John Williams, president of the Federal Reserve Bank of New York, also said that the US economy was not ready yet for the central bank to start pulling back its hefty monetary support.

Jean Boivin, head of the BlackRock Investment Institute, said that “the Fed’s new outlook will not translate into significantly higher policy rates any time soon”.

“We may see bouts of market volatility . . . but we advocate staying invested and looking through any turbulence,” Boivin added.

The dollar index, which measures the greenback against trading partners’ currencies and has been boosted by expectations of US interest rates moving higher before other major central banks take action, was steady at around a two-month high.

The euro dipped 0.1 per cent against the dollar to purchase $1.1901, around its lowest level since early April. Sterling also lost 0.1 per cent to $1.3909.

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Wall Street rebounds as markets adjust to Fed rate rise outlook




Wall Street stocks bounced back and government bonds softened on Monday following tumultuous moves last week after the Federal Reserve took a hawkish shift on interest rates and inflation.

The S&P 500 added 1.2 per cent in early New York dealings. The share index’s resurgence came after it posted its worst performance in almost four months last week in the wake of Fed officials signalling the central bank could raise rates to tame inflation sooner than investors had expected.

The yield on the benchmark 10-year US Treasury bond dropped sharply last week as investors viewed the Fed as ready to control surges in inflation that erode the returns from fixed interest securities. On Monday it rose 0.02 percentage points to 1.472 per cent.

Fed policymakers on Wednesday projected that interest rates would rise from record-low levels in 2023, from their earlier median forecast of 2024. James Bullard, president of the St Louis Fed, told television network CNBC on Friday that the first rate increase could come as soon as next year as inflation grew.

However, Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham, urged caution. “The facts are that the Fed hasn’t done anything yet. Wall Street loves to climb the wall of worry.”

Fed officials’ statements last week prompted fears of rapid policy tightening by the world’s most powerful central bank that could derail the global economic recovery from Covid-19. Investors also backed out of so-called reflation trades, which had involved selling government bonds and buying shares in companies that benefit from economic growth, such as materials producers and banks.

On Monday, however, energy, basic materials and banking stocks were the best performers on the S&P 500. The technology-focused Nasdaq Composite index was also up, gaining 0.7 per cent in early dealings.

The Russell 2000 index of smaller US companies, whose fortunes are viewed as pegged to economic growth, gained 1.7 per cent. Europe’s Stoxx 600 share index rose 0.7 per cent, with materials stocks at the top of its leaderboard.

The yield on the 30-year Treasury briefly fell below 2 per cent on Monday morning for the first time since February 2020 before bouncing back to 2.065 per cent.

Investors last week had taken profits on reflation trades that had become “crowded” and “expensive”, said Salman Baig, portfolio manager at Unigestion.

Baig added that, following the initial shocks after the Fed meeting, markets would probably return to betting on “a cyclical recovery as economies reopen”.

Other analysts said the bond market reaction had been too pessimistic, predicting a broad-based economic slowdown in response to Fed rate increases that had not happened yet.

The fall in long-term yields “is only justified if the Fed is making a policy error, choking the economy”, said Peter Chatwell, head of multi-asset strategy at Mizuho. “We think this is far from the truth — the Fed has simply sought to prevent inflation expectations from de-anchoring.”

Elsewhere in markets, the dollar index, which measures the greenback against other major currencies, dropped 0.3 per cent after gaining almost 2 per cent last week.

Brent crude, the international oil benchmark, rose 0.9 per cent to $74.18 a barrel.

Additional reporting by Tommy Stubbington in London

Unhedged — Markets, finance and strong opinion

Robert Armstrong dissects the most important market trends and discusses how Wall Street’s best minds respond to them. Sign up here to get the newsletter sent straight to your inbox every weekday

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Saudis agree oil deal with Pakistan to counter Iran influence




Saudi Arabia has agreed to restart oil aid to Pakistan worth at least $1.5bn annually in July, according to officials in Islamabad, as Riyadh works to counter Iran’s influence in the region.

Riyadh demanded that Pakistan repay a $3bn loan last year after Islamabad pressured Saudi Arabia to criticise India’s nullification of Kashmir’s special status.

But the acrimony between the two longtime allies has eased after Imran Khan, the prime minister, met Saudi Crown Prince Mohammed bin Salman in May.

News of the oil deal with Pakistan comes as Saudi Arabia embarks on a diplomatic push with the US and Qatar to build a front against Iran, said analysts. Riyadh lifted a three-year blockade of Qatar in January in what experts said was an attempt to curry favour with the newly elected Joe Biden.

Pakistan had shifted closer to Saudi Arabia’s regional rivals Iran and Turkey, which, along with Malaysia, have sought to establish a Muslim bloc to rival the Saudi-led Organisation of Islamic Cooperation.

Khan has developed a strong rapport with President Recep Tayyip Erdogan, encouraging Pakistanis to watch the Turkish historical television series Dirilis Ertugrul (Ertugrul’s Resurrection) for its depiction of Islamic values.

Ali Shihabi, a Saudi commentator familiar with the leadership’s thinking, said that “bad blood” had accumulated between Riyadh and Islamabad, but recent bilateral meetings had “cleared the air” and reset relations to the extent that oil credit payments would restart soon.

A senior Pakistan government official said: “Our relations with Saudi Arabia have recovered from [a downturn] earlier. Saudi Arabia’s support will come through deferred payments [on oil] and the Saudis are looking to resume their investment plans in Pakistan.”

The Saudi offer is less than half of the previous oil facility of $3.4bn, which was put on hold when ties frayed.

But Fahad Rauf, head of equity research at Ismail Iqbal Securities in Karachi, said: “Any amount of dollars helps because time and again we face a current account crisis. And with these prices north of $70 a barrel anything helps.”

Pakistan’s foreign reserves were more than $16bn in June compared with about $7bn in 2019 before it entered its $6bn IMF programme.

Robin Mills at consultancy Qamar Energy said: “Saudi Arabia and Pakistan are allies, but their relationship has always been rocky. And the Pakistan-Iran relationship is better than you might think.”

Mills said that the timing of the Saudi gesture was “interesting” given that Iran was preparing to step up oil exports with the US considering easing sanctions.

“The Saudis are on a bridge-building mission more generally. They have sought to mend fences with the US and there is also the resumption of relations with Qatar,” he said.

Ahmed Rashid, an author of books on Afghanistan, Pakistan and the Taliban, said that there were a variety of factors that might have spurred Riyadh to restart the oil facility.

It may be “partially linked to the American need for bases” to launch counter-terrorism attacks in Afghanistan from Pakistan, he said, but added that its priority was probably to prevent Islamabad from falling under Tehran’s influence.

Rashid pointed out that Pakistan was caught between China, which has invested billions of dollars in infrastructure projects, and the US.

“Pakistan has to play it carefully, it is dependent on China for the Belt and Road, dependent on the west for loans,” said Rashi. “This is a very complex game.”

Anjli Raval in London and Simeon Kerr in Dubai

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