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The distinctly unsexy energy job Biden should fill



Three things to start: First, eight people have died in protests in Iraqi Kurdistan, where this year’s oil-price collapse has exacerbated economic misery. Second, don’t miss David Sheppard’s piece on Saudi Aramco and its treatment of workers. Third, hedge fund DE Shaw has launched an activist campaign at ExxonMobil — the second investor to do so in a week.

Our main item today is an interview with Sean Casten, a Democratic congressman with strong views on the US energy policy blob.

Also in today’s ES: shale spending plunged in the third quarter; the world might not need as much liquefied natural gas as thought; and Adair Turner, head of the Energy Transitions Commission, on the state of the energy transition as the world marks the fifth anniversary of the Paris Agreement.

Thanks for reading. Please get in touch at You can sign up for the newsletter here. — Derek

The case for a US energy tsar

Joe Biden, in an unprecedented move, is promoting climate change to a whole-of-government issue — making it the responsibility of key members of his administration who will transcend departments and agencies. The same should be done for energy policy, which has for decades been the remit of a ramshackle, patchwork quilt of government bodies with little-to-no centralisation.

That is the view of Sean Casten, a Democratic congressman for Illinois and former clean energy executive.

“We still don’t co-ordinate energy policy,” Rep Casten, a Democratic moderate, who sits between the party’s pro- and anti-fossil fuel extremes, told ES. “Where is energy policy done in the United States? Is it the Department of Energy, is it the EPA, is it the Department of Transportation? No one knows.”

The appointment of John Kerry as climate envoy, with cabinet rank and a seat on the National Security Council, puts global warming at the heart of US foreign policy. Mr Biden is expected to appoint a domestic counterpart as well.

John Kerry served as secretary of state under Barack Obama and brings considerable political heft to the climate envoy role. © AFP/Getty Images

But what of energy? Mr Kerry and his colleague will have some remit in this area but it will not be their focus. As it stands, energy is the responsibility of everyone and no one.

The Department of Energy (which you might reasonably think holds this role) is mainly involved with handling the nuclear arsenal and waste, as well as energy R&D. Underlining the current administration’s view of its significance, Donald Trump’s first pick for energy secretary was Rick Perry, a man who in 2011 said he wanted to scrap the department and then forgot its name.

The Environmental Protection Agency is often considered closer to energy in the traditional sense — tasked with things like regulating the emissions the sector pumps out. But the regulation of transmission? That falls to the Federal Energy Regulatory Commission. Rules on transporting fuels? Look to the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration. Meanwhile, onshore oil and gas leases are handed out by the Bureau of Land Management and offshore by the Bureau of Ocean Energy Management (both part of the Department of Interior). What of financial disclosures by energy providers? For that, see the Securities and Exchange Commission.

“With no desk where the buck stops, the buck just keeps moving,” said Mr Casten, who has raised the matter with the Biden transition team.

“I do think that it’s really important that if we are going to treat climate policy as a whole-of-government problem, we have to also treat energy policy as a whole-of-government problem. And I would submit to you that no administration has ever done that,” Mr Casten said.

So what is the solution? Either carve out a new senior role for a member of the administration to manage energy policy, or make the domestic climate tsar a domestic energy tsar, said Mr Casten. Either way energy should not be just a side project, but the core focus.

“Climate would be part of the mandate, but you really have to tie a lot of these things together,” he said. It needs to be someone with real power if it is to be effective.

“If it’s just a tsar, but that person has to go get permission slips from the secretary of energy and the secretary of environment and the secretary of transportation, that’s not a whole-of-government solution, that’s just a co-ordinator.”

While political realities have shifted climate up the agenda, detangling the bureaucracy of US energy policy remains distinctly unsexy. Is an energy tsar a realistic prospect? “A boy can dream,” said Mr Casten. (Myles McCormick)

A bleak outlook for global LNG

Once seen as a promising transitional fuel, natural gas’s best days increasingly seem to be behind it.

The resource’s prospects in the low-carbon energy transition are under threat, especially as cleaner hydrogen emerges to muscle the fuel out of the market, according to new research from Wood Mackenzie.

The fuel’s dimming outlook could force companies to shelve prospective liquefied natural gas export projects and leave existing gas reserves stranded, the consultancy said.

WoodMac said 77 per cent of new supply from LNG projects was at risk under a scenario where emissions are reduced enough to keep global temperatures from rising beyond 2 degrees.

“With weaker global gas demand, the space for new developments will be limited. This is a significant challenge for companies considering final investment decisions on new projects,” said Kateryna Filippenko, a principal analyst at the firm.

Global oil majors once saw LNG as a relatively safe long-term investment with a robust demand outlook, even as countries looked to cut emissions, and ploughed tens of billions of dollars into mega projects over the past decade to find and export gas around the world. But that outlook has increasingly come under question.

In WoodMac’s 2-degrees scenario, only the fittest and lowest-cost producers will prevail in the shrinking market. Qatar and Russia, already moving ahead with the development of large and relatively cheap resources, are seen by WoodMac as the most likely survivors. Low-price US natural gas is likely to help new American export projects remain competitive as well. But more marginal expansion plans in places such as Canada and Mozambique would face the axe. (Justin Jacobs)

Data Drill

American shale companies spent less on capital expenditures in the third quarter this year than in any other quarter over the past decade as the oil price crash put the sector’s finances in a vice, according to data compiled by the Institute for Energy Economics and Financial Analysis.

The group of 33 fracking-focused companies included in the analysis spent just $5.8bn in the quarter, down nearly 60 per cent from the same period in 2019. The all-time high was more than $16bn in the third quarter of 2018, when US oil production was growing at a record pace.

The historically low spending levels came in response to April’s historic price crash, which prompted companies to slash their budgets, curtail drilling plans and lay off workers.

Sharply lower capital spending in the quarter, combined with a price-per-barrel recovery into the $40s, meant the companies generated significant free cash flow, a reversal for a sector that has historically spent more than it brought in. It was the strongest free cash flow performance in a quarter over the past decade, according to the IEEFA.

After a decade of poor returns, shale companies are under intense shareholder pressure to strike a new balance between spending on production growth and delivering free cash back to shareholders while also paying heavy debt loads.

Column chart of $bn capital expenditure by quarter showing Shale spending crashes after price collapse

Power Points

  • Toyota has launched a second-generation Mirai, its hydrogen fuel-cell vehicle, in hopes the technology is now ready for mass take-up.

  • The UK government’s climate advisers have recommended replacing home heating systems and that the population eat less meat, among other consumer-related decarbonisation measures.

  • Trafigura, one of the world’s largest commodity traders, cashed in on the oil turmoil this year to record its best ever gross profits.

  • Executives have left Shell amid discord about the company’s energy transition plans.


This week marks the fifth anniversary of the Paris climate deal — and thus far this marriage has been a rocky one. Ever since the Trump administration pulled the US out of the deal in 2017, the sense of urgency for climate action around the world has waxed and waned, especially with the onset of the coronavirus pandemic.

But with the Biden administration preparing to take the US helm, a slew of increasingly ambitious net-zero target announcements from major economies, and efforts to use the post-pandemic recovery to spur new green investment there is fresh momentum afoot.

In a live panel discussion earlier this week Adair Turner, head of the Energy Transitions Commission, took stock. He contrasted the speed of technological developments set to slash carbon in the long-term with the reluctance of governments to act as needed in the short-term.

“The world has to get the industrial and energy system to about zero carbon emissions by mid-century. We believe that this is absolutely possible — that we can get to a zero-carbon economy. The fundamental reason why we’re so confident is the revolution that has occurred in the cost of various [zero-carbon] technologies,” Lord Turner said.

He is looking to the next round of climate talks, COP26, scheduled for November 2021 in Glasgow, to spur governments into action. “Above all, what one wants from COP26 is to focus countries on the action needed in the next 10 years . . . The crucial issue is what happens in the 2020s.”

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

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How traders might exploit quantum computing




If you had a sports almanac from the future as did Biff Tannen, the brutish bully of the time-travelling Back to the Future movie trilogy, how might you be inclined to take advantage of the foresight buried within it?

The obvious temptation would be to place sure bets in the market that make you rich. In Biff’s case, the wealth is then used to change the world into a dystopian reality in which he himself exists as “America’s greatest living hero”.

That sort of thing used to be considered fiction. But the dawn of so-called “supremacy” of quantum computing over conventional technology raises the possibility that one day soon someone might be able to effectively see into the future.

This is because quantum computers, when they become fully capable, are likely to be uniquely good at crunching probability scenarios. They are based on the mysterious world of quantum physics. Quantum bits or qubits are the basic units of information in quantum computers. Unlike the binary bits of traditional computing, which must be either zero or one, qubits can be both at the same time.

This gives quantum computers super powers that will allow them to solve probability-based tasks that would previously have been impossibly hard for conventional counterparts in realistic timeframes. If the problem at hand was a game of football, adding quantum computers to the mix is like allowing footballers to use their hands to get the ball into the net, say quantum experts.

It’s a prospect that poses an entire new set of challenges for market regulators and participants. If super quantum computers really can help institutions see into the future, the information advantage will be unprecedented.

It might also represent an entirely new type of front-running and market manipulation risk, one that regulators can’t necessarily even identify unless they too have a quantum computer at hand.

In Back to the Future, the almanac gave Biff a 60-year insight advantage over everyone else in his home 1955 timeline. With quantum computers, the edge might only be nanoseconds. But in the fast and furious world of high-frequency trading, that could be enough to sweep up.

The reassuring news — at least for now — is that we’re still at least five years away from quantum computers being powerful enough to compete with existing supercomputers on much simpler problems. Prediction might not even be their initial forte.

Goldman Sachs research recently noted, as and when quantum computers are rolled out, they are far more likely to be deployed on crunching options pricing conundrums or running Monte Carlo simulations that value existing portfolios than they are on predicting future movements of asset classes.

According to Tristan Fletcher, of artificial intelligence-forecasting start-up ChAI, that’s because prediction is ultimately about solving a very specific, deep problem by understanding the nuances of the data that matters.

“We are already at the limits of what any system that isn’t actually listening to Opec meetings and five-year plans is capable of,” he said. It’s not the complexity of the calculation that is the issue as much as the breadth of the data sample at hand. That means prediction wouldn’t necessarily get more accurate with quantum power.

The appeal to focus on “brute-force” problems such as optimising portfolio analysis or cracking cryptographic problems such as those that underpin bitcoin, the cryptocurrency, is far greater.

But this poses its own problems. If cryptographic systems can be broken, exceptionally sensitive data held across the financial system could be exposed and taken advantage of in unfair and market manipulative ways.

Rather than being able to better predict the market, the true pay off in the arms race might lie in achieving quantum-level encryption-breaking capability and using it subtly to seize the information that can get a trader ahead. Experts say the chances someone is already up to this, however, are low. If quantum supremacy had been achieved, the news of it would leak pretty quickly.

“We don’t know what we don’t know,” said Jan Goetz, chief executive of IQM, a quantum computing builder. “But generally the community is very small so everyone knows what’s going on. The status quo is clear.”

Nonetheless, the financial sector seems to be waking up to this quantum computing issue. Many banks and institutions are introducing teams to think exclusively about how quantum computing will affect their business. How far ahead they are on making their systems quantum secure is harder to say. It’s a secretive issue. For now, most agree, the threat level is low, not least because — as the hacking of the Colonial pipeline shows — system security is low enough to ensure far cheaper and simpler ways to hijack digital systems.

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Martin Gilbert returns to dealmaking fray with Saracen acquisition




Martin Gilbert, the acquisitive founder of Aberdeen Asset Management, has returned to the dealmaking fray and scooped up Edinburgh-based boutique Saracen Fund Managers through his new venture. 

AssetCo, the Aim-listed company of which Gilbert became chair in April, said on Friday it had agreed to buy Saracen for £2.75m. The deal marks the first step in its strategy to use its platform to make acquisitions in the asset and wealth management industries.

“We need to acquire a regulated entity,” said Gilbert, who established Aberdeen four decades ago and helped orchestrate the £11bn all-share merger between Standard Life Investments and Aberdeen Asset Management in 2017. “Saracen was typical of a good asset manager that had struggled to grow. That’s where we think we can help.” 

Saracen was founded in the late 1990s and has five full-time employees and three funds, which together manage about £120m in assets. In the financial year ended March 31, the group recorded turnover of £985,364 and a post-tax loss of £15,146.

David McCann, an analyst at Numis Securities, described Saracen as “a nice little business but obviously it’s very small”. He added: “It doesn’t move the needle for AssetCo, but it’s about what they do next. The expectation is that this is used as a building block for something much bigger.” 

Dealmaking is sweeping across the fragmented asset management industry. Gilbert, who stepped down from the board of Standard Life Aberdeen in December 2019 and is also chair of fintech Revolut, said AssetCo was “pretty ambitious, we’re looking at lots of opportunities”. 

“There are lots of opportunities for consolidation at all levels because of headwinds like the move to passive, fee compression, ESG and the move from public to private markets.

“We grew Aberdeen largely by organic growth and acquisitions,” he added. “That is our current strategy but at the boutique end of the market. I’ve told [Standard Life Aberdeen chief executive] Steve Bird ‘you’ve nothing to fear from us’.” 

AssetCo also owns a small stake in UK investment group River and Mercantile. Gilbert and Peter McKellar, who is also a director of AssetCo, will join the board of Saracen once the deal is completed.

Standard Life Aberdeen’s share price has tumbled about a third since the merger was struck.

The group last month cut its dividend by a third after full-year pre-tax profit fell almost 17 per cent and investors yanked money from its funds. It was also widely mocked online after announcing it would change its name to Abrdn.

Gilbert said: “The merger was obviously going to be difficult but the business is not alone in having to look at overheads because of the headwinds the industry is facing. It has the strongest balance sheet in the sector.” 

He added he was “supportive” of the rebrand: “That’s me being diplomatic.”

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Wall Street stocks bounce back after inflation scare




Wall Street stocks went into recovery mode on Thursday, after being pushed lower for three consecutive sessions by fears that central banks will withdraw crisis-era support following a surge in inflation.

The S&P 500 index was up 1 per cent at lunchtime in New York, after falling 2.1 per cent on Wednesday in its worst one-day performance since February. The technology-focused Nasdaq Composite rose 0.6 per cent, having neared correction territory on Wednesday when it closed almost 8 per cent below its record high in April.

US government debt rallied, with the yield on the benchmark 10-year Treasury sliding 0.03 percentage points to 1.67 per cent.

The S&P 500 hit an all-time high on Friday, fuelled by optimism about a global recovery supported by central banks keeping monetary policies loose. The blue-chip benchmark then lost 4 per cent over three sessions as worries about inflation rippled through markets.

Data released on Wednesday showed US inflation rose 4.2 per cent year on year in April, with prices rising at a faster pace than economists had forecast. This increased speculation about the Federal Reserve reducing its $120bn of monthly bond purchases has helped lower borrowing costs and prop up equity valuations.

Fed vice-chair Richard Clarida said this week, however, that “transitory” factors related to industry shutdowns last year had pushed price rises above the central bank’s 2 per cent target but the economy remained “a long way from our goals”.

Analysts warned that market volatility would continue as investors swung from believing the Fed to fretting that its policymakers would act too late to combat inflation and then tighten financial conditions rapidly.

Line chart of S&P 500 index showing Wall Street benchmark on track to snap three-session losing streak

“We are at such an inflection point that volatility in markets is likely to be quite persistent,” said Sonja Laud, chief investment officer at Legal & General Investment Management. “Any chance of a change from the story of constantly low interest rates is going to be unsettling.”

The Vix, an index of expected volatility on the S&P 500 known as Wall Street’s “fear gauge”, is running at around its highest level since early March.

“Markets are volatile because they’re not sure which sort of inflation we have at present, or what, if anything, the Federal Reserve may do to bring inflation down,” said Nicholas Colas of research house DataTrek.

Mark Haefele, chief investment officer at UBS wealth management, said the market jitters also presented an opening for traders.

“Given our view that the spike in inflation will prove transitory, and that the equity rally has further to run, investors can use elevated volatility to build long-term exposure,” he said.

In Europe, the Stoxx 600 index ended the session 0.1 per cent lower, paring a loss of 1.7 per cent earlier in the session.

International oil benchmark Brent crude dropped 3.8 per cent to $66.68 a barrel as the Colonial pipeline in the US resumed operations after being shut down last Friday by a cyber attack.

The dollar index, which measures the greenback against major currencies, rose 0.1 per cent.

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