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Climate activists choke Appalachian pipeline expansion



Two things to start: US emissions plunged last year but could rise sharply if and when an economic recovery takes hold, according to Rhodium Group. In Europe, Russia’s Gazprom will this week defy US sanctions to begin laying the final parts of its controversial Nord Stream 2 natural gas pipeline to Germany.

And BP joined the list of companies announcing a halt on some political contributions saying — in the wake of the deadly riot by Trump supporters at the Capitol — that its “employee political action committee will pause all contributions for six months” and “re-evaluate its criteria for candidate support”.

Our first note today is on the US’s natural gas sector, where environmental opposition to new infrastructure may have called time on one of the biggest boom stories of the shale revolution: the rise of Appalachian gas.

Our second is on methane emissions — the oil and gas industry’s dirty secret. In just over a week, a new federal administration takes power with a mandate to crack down on emissions of this potent greenhouse gas. Many operators are not prepared.

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

Trouble in the pipeline for Appalachian gas

As US natural gas production boomed over the past decade, operators in the Appalachian region in the country’s north-east led the charge. Output from the Marcellus and Utica shales soared from less than 5bn to almost 35bn cubic feet a day.

But that growth may be about to hit a ceiling. Not because of lack of demand (that is still rising). And not because of lack of supply (there is still plenty of gas to be extracted). But because an activist drive to block further infrastructure development is choking off gas producers’ route to market. 

“If you look beyond 2021 . . . you’re not going to see much in the way of any material additional pipeline takeaway capacity provided to support further growth out of the Marcellus and Utica — given the political climate we find ourselves in,” said Richard Redash, head of global gas planning at S&P Global Platts. 

“It’s dominated by political and environmental situations and the opposition of other stakeholders,” said Mr Redash.

Line chart of Production (billion cubic feet per day) showing Appalachia led the boom in US gas

Activists opposed to the growth of fossil fuels have targeted the construction of new pipelines. They point out that, as a fossil fuel, any new natural gas development will simply add emissions when the US must urgently replace them — and that falling renewables costs make new gas-fired generation unnecessary anyway.

In the US north-east, their tactics have proved strikingly effective. “What they’ve figured out is . . . they can’t beat us on the supply side and can’t beat us on the demand side,” Mike Sommers, chief executive of the American Petroleum Institute, told industry executives last September. 

“So what they do is they try to step on the hose in the middle and stop this country from building the infrastructure that it needs to continue to grow,” Mr Sommers said.

Last year, the Atlantic Coast Pipeline — which would have pumped 1.5 bcf/d from the region — was abandoned after repeated challenges sent costs soaring. The Mountain Valley Pipeline is the only significant project still in the offing. It is due to come online this year — but analysts reckon it could be delayed by another four years as it struggles to attain the requisite permits.

Analysts estimate there is about 2 bcf/d of output growth left in Appalachia before it hits a ceiling, given current pipeline capacity. The reckoning has been kept at bay as the chaos of the past year caused companies to hold off growth plans.

But as the industry cranks into gear elsewhere, looking to supply an expected surge in liquefied natural gas exports, operators in the Marcellus and Utica — worried about the lack of market access — are not returning to growth mode. 

Those plays, said Mr Redash, now look to be “fenced off” because of the lack of new pipelines. “That’s going to put the onus on other plays to meet that incremental production.”

Focus shifts south

All of this is good news for at least one group: producers operating in the Haynesville shale of Louisiana and Texas, where they are planning for major growth.

“Haynesville is really the only other player that has gas resource to scale to replace the kind of development pace that the north-east has had over the past decade,” said Jen Snyder, a director at Enverus.

Line chart of Rig count by basin showing Haynesville operators are raring to go as Appalachian growth stalls

Southern state legislatures and regulators remain friendlier to the fossil fuel industry. Operators there are also closer to the key demand centres — industry and LNG terminals — that will drive future growth. 

Even so, federal restrictions are likely to tighten under the incoming Biden administration, which plans to cut power emissions to net-zero by 2035. 

Deb Haaland, the new interior secretary, has been a vocal opponent of certain pipeline projects. Would-be midstream investors — and gas operators — are wary. 

As Energy Secretary Dan Brouillette said last year: “The product has no value without the ability to get it to market.” (Myles McCormick)

The Permian Basin’s methane emissions problem

With less than two weeks until President-elect Joe Biden takes office, the US shale patch shows little sign that it is ready for a coming crackdown on emissions of methane, the potent greenhouse gas blamed for supercharging global warming trends.

Of 144 oil and gas operators asked in the most recent Dallas Fed survey, two-thirds had no plan to reduce methane emissions. The same share of companies had no plan to reduce gas flaring and 80 per cent didn’t even have a plan to cut carbon emissions. (More data from a similar questionnaire from the Kansas City Fed in our Endnote.)

“There is a real split between those who see what the future holds and are preparing for it and those who seem to be blind to what’s in their own best interest,” said Matt Watson, vice-president for energy at the Environmental Defense Fund.

The Dallas Fed survey came after New Mexico’s Environmental Department released emissions data showing the state’s share of the Permian Basin saw methane leak rates that more than doubled in 2020, to 5 per cent from 2 per cent a year earlier.

The regulators spotted leaks from “a variety of oil and gas equipment, including storage tanks and flares”, and said that leak rates were “significantly higher than those reported by industry”.

A natural gas flare on an oil well pad burns outside Watford City, North Dakota © REUTERS

Total methane emissions from across the Permian, including Texas, fell sharply last year as production and drilling activity collapsed in the basin along with the oil price, but have since risen back towards pre-crisis levels, according to data from the Environmental Defense Fund’s Permian Methane Analysis Project.

Before the crisis, the group found that Permian producers were releasing methane at three times the national rate. Some 1.4m metric tonnes of methane are released from the Permian every year, enough to supply 2m homes, says EDF.

Oil and gas producers broadly welcomed the Trump administration’s light-touch regulatory approach — which included elimination of Obama-era regulations requiring stringent monitoring and repairing of methane leaks — saying self-policing would be as effective.

But New Mexico’s regulators said the data they collected cast doubt on the industry’s assertion it could arrest its own emissions. “It is clear that voluntary emissions reductions measures undertaken by some operators are not enough to solve this problem,” says James Kenney, cabinet secretary at New Mexico’s Environmental Department.

The state, one of the fastest growing areas of the Permian by production, says it plans to roll out new gas capture rules in March that would “curb 98 per cent of methane emissions from oil and gas operations”.

Last year saw a flurry of announcements focused on methane emission targets from ConocoPhillips, Occidental Petroleum and Pioneer Natural Resources, among others. ExxonMobil pledged to reduce its methane emissions per barrel produced by 40-50 per cent by 2025, although it did not promise absolute emissions reductions.

US producer equities have rallied in recent weeks on higher oil prices, but many analysts see the emissions problem scaring off investors and acting as a structural weight on the sector — especially as a new president in Washington arrives with a mandate to deal with the methane problem.

“The winners in this game are going to be the ones that respond to the call for urgent action and the losers will be those that continue to model themselves on the noble ostrich,” said Mr Watson. (Justin Jacobs)

Data Drill

Zero-emission electricity — including wind, solar, batteries and nuclear — will account for more than 80 per cent of new additions by capacity in the US this year, according to the Energy Information Administration. Natural gas accounts for the rest.

More than 15GW of new solar power will be added to the grid, making it the largest single source of new generating capacity, followed by wind power at 12.2GW. Wind and solar combined will account for about 70 per cent of new capacity.

New battery capacity additions of 4.3GW in 2021 will smash the record for annual deployments — almost matching new natural gas capacity additions, which will come in at about 6.6GW in 2021.

Column chart of Planned utility-scale electricity additions by capacity in 2021, GW showing US renewables to surge in 2021

Power Points

  • A Dutch court case involving Shell could force oil and gas companies to accelerate a shift away from fossil fuels and push other corporate polluters to reassess their carbon footprint.

  • The US Federal Reserve, Securities and Exchange Commission, Commodity Futures Trading Commission and other US federal bodies can help the country take leadership in global climate policy if it embraces “the potential of America’s complex financial regulatory system”, argues Duke University’s Sarah Bloom Raskin, a former deputy US Treasury secretary.

  • US coal miners’ last-ditch hope for shipping big volumes to Asia has crumbled as the developer of a sprawling export terminal abandons its project on the Pacific coast. 

  • Shell resumed shipments from Prelude, its floating LNG facility off the shore of Australia, after a year-long interruption that damped industry enthusiasm for the technology.


The mood is picking up in second-tier US shale regions, according to a survey of operators by the Kansas City Federal Reserve. Activity is increasing too, but remains beneath the level of a year ago. Respondents from Colorado, Wyoming, Oklahoma and other areas — but not the core shale plays of Texas and New Mexico — suggested oil prices still needed to rise further, to $56 a barrel, before a “substantial” pick-up in drilling could occur. Still, those levels may be struck within a couple of years, if operators’ price expectations are correct.

Meanwhile, environmental concerns are moving more slowly through the shale patch. More than 40 per cent of respondents said their company had no plans to reduce CO2, ethane emissions or flaring, nor to recycle or reuse water.

Line chart of WTI, expected ($ per barrel) showing US oil producers' future price hopes are inching up again

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 Houston, Gregory Meyer in New York, and David Sheppard, Anjli Raval, Leslie Hook and Nathalie Thomas in London.

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Chancellor spots break in clouds after Brexit, Covid and battered finances




Rishi Sunak will next week deliver a Budget in the shadow of a pandemic, in the aftermath of Britain’s painful divorce from its biggest trading partner and with its public finances, on his own account, under “enormous strains”.

But the chancellor, in an interview with the Financial Times, insisted he can see a brighter future and that his second Budget since being appointed last February will help to build a “future economy” characterised by nimble vaccine and fintech entrepreneurs.

Sunak supported Brexit and now has to show it can work. He knows he cannot expect much help from the EU, which has shown no appetite for opening its markets to the City of London, but still insisted Brexit is an opportunity.

He said post-Brexit Britain would be an open country. “It’s a place driven by innovation, entrepreneurship, taking the agility we have after leaving the EU and putting that to good ends, whether in vaccines or fintech,” he said.

Sunak’s Budget on Wednesday will attempt to flesh out the government’s “build back better” slogan; Britain’s successful vaccine scientists and scrappy tech start-up twenty-somethings will be the poster children of this new approach.

While big and profitable companies are expected to face a hefty increase in their corporation tax bills — part of Sunak’s drive to restore fiscal discipline — the chancellor will focus on companies for whom a profit is a distant dream.

On Friday he told the FT he would launch a new fast-track visa scheme to help Britain’s fastest-growing companies recruit highly skilled workers, as part of a drive to build an “agile” post-Brexit economy.

He said he wanted to help “scale up” sectors such as fintech to compete for the best global talent. The new visa system, he added, would be “a calling card for what we are about”.

Next week Sunak will publish a report by Lord Jonathan Hill, Britain’s former EU commissioner, on the City of London’s listings regime, to make it more attractive for fast-growing tech companies.

“We want to make sure this is an attractive place for people to raise capital — we’ve always been good at that,” Sunak said. “We want to remain at the cutting edge of that.”

The chancellor confirmed Hill will look at whether London can be a rival to New York as a location for so-called Spacs, the modish blank-cheque vehicles that hunt for companies to buy and take public.

He declined to speculate on what Hill will recommend, but gave a broad hint he supports radical reform. “Do we want to remain a dynamic and competitive place for people to raise capital? Yes we do,” he said.

The loss of some City business, including EU share trading, to Amsterdam has reinforced criticism of the government over its negotiation of a trade deal that focused heavily on fish, but hardly at all on financial services.

Last summer the Treasury filled in hundreds of pages of questionnaires from Brussels about its regulatory plans for the City but Britain is still waiting for a series of “equivalence” rulings that would allow UK firms to trade with the single market. It could be a long wait.

When Emmanuel Macron, French president, was asked this month by the FT if he was in favour of Brussels granting “equivalence” to UK financial services rules, he replied simply: “Not at all. I am completely against.”

Sunak insisted he has not given up and that the Treasury remained “constructive and open” in talks with Brussels. But he added: “We live in a competitive world. It’s not surprising other people are looking after their interests.”

Sitting in his sparse Treasury office, stripped of any clutter, wearing his trademark bright white shirt, Sunak said: “We just need to focus on what we’re in control of. I’m enormously confident about both the future for the City of London and, more broadly, financial services.”

At the age of 40, Sunak is only just a year into the job. “When I got the job I had three weeks to prepare a Budget,” he recalled. “I genuinely thought at the time it would be the hardest thing professionally I would have to do in my life.” But that was before the full-blown pandemic hit the UK.

“That Budget turned out, probably, to be the easiest thing I did in my first year in the job. It has been a tough year, dealing with something that nobody has had to deal with before. There was no playbook. We had to move at speed and scale.”

His critics argue that handing out £280bn of borrowed money to support the economy may not have been that difficult either — Sunak’s approval ratings remain very high — and that the really difficult bit is yet to come: trying to rebuild the economy and the tattered public finances.

Conservative MPs are anxious that Sunak’s innate fiscal conservatism might lead him to make unwelcome raids on the finances of core Tory voters and businesses, just as the economy starts to reopen.

The chancellor is expected to freeze income tax thresholds, pushing people into higher tax bands as their pay rises. Another “stealth” move — freezing the lifetime pensions allowance at just over £1m for the rest of the parliament — was reported in the Times on Friday and not denied by the Treasury.

And all the while Sunak will carry on running up debts into the summer to protect the economy from what he hopes will be the last Covid-19 lockdown. He said he is “proud” of what the support measures have achieved so far.

“I’m going to keep at it,” he said. “Some 750,000 people have lost their jobs and I want to make sure we provide those people with hope and opportunity. Next week’s Budget will do that.”

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‘Digital big bang’ needed if UK fintech to compete, says review




Sweeping policy changes and reform of London’s company listing regime will spark a “digital big bang” for the City and turbocharge the UK’s fintech industry, according to a government-commissioned review.

The report, to be published on Friday, warns that the UK’s leading position in fintech is at risk from growing global competition and regulatory uncertainty caused by Brexit

The review, carried out by former Worldpay chief Ron Kalifa, is one of a series commissioned by the government to help strengthen the UK’s position in finance and technology.

Both sectors are under greater threat from rivals since the UK left the EU in January amid growing global competition to attract and retain the fastest growing tech start-ups. 

Changes to the UK’s listing regime are recommended, such as allowing dual-class share structures to let founders maintain greater control of their companies after IPO. The review also proposes a lower free-float threshold to allow companies to list less of their stock.

Kalifa said the rapid evolution of financial services, from online banking and investment to digital identity and cryptocurrencies, meant that the UK needed to move quickly.

“This is a critical moment. We have to make sure we stay at the forefront of a global industry. We should be setting the standards and the protocols for these emerging solutions.”

John Glen, economic secretary to the Treasury, said more than 70 per cent of digitally active adults in the UK use a fintech service “but we must not rest on our laurels . . . all it takes is a bit of complacency to slip from being a leader of the pack to an also ran”.

He said the government would consider the report’s recommendations in detail. 

The review was welcomed by executives at many of the UK’s largest fintechs and leading financial institutions such as Barclays. Mark Mullen, chief executive of Atom Bank, said the review was “essential to maintain momentum in this key part of our economy and to continue to drive better — and cheaper outcomes for all of us”.

The review also recommended the government create a new visa to allow access to global talent for tech businesses, a move likely to be endorsed by ministers as early as next week’s Budget, according to people familiar with the matter.

Fintechs have been lobbying for a visa scheme since shortly after the 2016 Brexit vote, but the success of remote working since the onset of the coronavirus crisis has reduced its importance for some firms.

Revolut, for example, has ramped up its hiring of fully remote workers in Europe and Asia to reduce costs and widen its potential talent pool, according to chief executive Nik Storonsky.

Charles Delingpole, chief executive of ComplyAdvantage, a regulatory specialist, agreed that fintech was becoming more decentralised. He added that the shift in tone from the government could have as big an impact as specific policy changes. “Whilst none of the policies is in itself a silver bullet . . . the fact that the government recognises the threat to the fintech sector and is publicly acting should definitely help.”

The review also proposed a £1bn privately financed “fintech growth fund” that could be co-ordinated by the government. It identified a £2bn fintech funding gap in the UK, which has meant that many entrepreneurs have in the past preferred to sell rather than continue to build promising companies. It wants to make it easier for UK private pension schemes to invest in fintech firms. 

The report also recommended the establishment of a Centre for Innovation, Finance and Technology, run by the private sector and sponsored by government, to oversee implementation of its recommendations, alongside a digital economy task force to align government efforts.

The review has identified 10 fintech “clusters” in cities around the UK that it says needs to be further developed, with a three-year strategy to support growth and foster specialist capabilities.

Dom Hallas, executive director at the Coalition for a Digital Economy (Coadec), said it was now important that people “follow through and actually implement” the ideas in the review. The sector’s direct contribution to the economy, it is estimated, will reach £13.7bn by 2030.

However, the review also raised questions over the role of the Competition and Markets Authority, saying that the CMA should better balance competition and growth. 

“There is a case for more flexibility in the assessment of mergers and investments for nascent and fast-growing markets such as fintech,” it said. 

“Success brings scale but as some businesses thrive, others inevitably will fail. Some consolidation will therefore be critical in facilitating the growth that UK fintechs need in order to become global champions.”

Charlotte Crosswell, chief executive of Innovate Finance, which helped produce the report, said: “It’s crucial we act on the recommendations in the review to deliver this ambitious strategy that will accelerate the growth of the sector.

“The UK is well positioned to lead this charge but we must act swiftly, decisively and with urgency.”

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Coinbase: digital marketing | Financial Times




Coinbase will be a stock riding a runaway train. The US cryptocurrency platform wants investors to think long term about the prospects for a global “open financial system”. Most will be unable to tear their eyes away from wild, short-term price swings in bitcoin, the world’s largest digital asset. 

This has its benefits. Coinbase, which has filed for a US direct listing, makes most of its money from commissions on crypto trades. Sales more than doubled to $1.3bn last year. The company has swung from a loss to net income of $322m as crypto prices jumped.

But the company has given no detail on the financial impact of the 2018 bitcoin price crash. Will Coinbase’s 2.8m active retail users and 7,000 institutions hang on if there is another protracted price fall? 

Coinbase was valued at $8bn in a 2018 private funding round and $100bn in a recent private share sale, according to Axois. That rise looks remarkably similar to the increase in bitcoin’s price from less than $5,000 to more than $50,000 this year.

The rally is hard to justify. Bitcoin has not become a widely used currency — nor is the US ever likely to countenance that. It offers investors no yield. Volatility remains high. Elon Musk’s tweet this weekend that bitcoin prices “seem high lol” propelled a sharp fall that hit shares in crypto-related companies. Shares in bitcoin miner Riot Blockchain have lost a quarter of their value this week. 

Prospective investors in Coinbase should keep this in mind. Its listing will take cryptocurrencies further towards the financial mainstream. But risk factors are unusually numerous, including the volatility of crypto assets and regulatory enforcement. 

Both threats are widely known. Another risk factor in the listing document deserves more attention. Vaccination campaigns and the reopening of shuttered sectors of the economy is raising yields in safe assets such as Treasuries. Risky trades may become less attractive. Coinbase might be about to go public just as the incentive to trade cryptocurrencies is undermined. 

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