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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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European stocks stabilise ahead of US inflation data




European equities stabilised on Wednesday after a US central banker soothed concerns about inflation and an eventual tightening of monetary policy that had driven global stock markets lower in the previous session.

The Stoxx 600 index gained 0.4 per cent and the UK’s FTSE 100 rose 0.6 per cent. Asian bourses mostly dropped, with Japan’s Nikkei 225 and South Korea’s Kospi 200 each losing more than 1.5 per cent for the second consecutive session.

The yield on the 10-year US Treasury bond, which has dropped in price this year as traders anticipated higher inflation that erodes the returns from the fixed interest securities, added 0.01 percentage points to 1.613 per cent.

Global markets had ended Tuesday in the red as concerns mounted that US inflation data released later on Wednesday could pressure the Federal Reserve to start reducing its $120bn of monthly bond purchases that have boosted asset prices throughout the Covid-19 pandemic.

Analysts expect headline consumer prices in the US to have risen 3.6 per cent in April over the same month last year, which would be the biggest increase since 2011. Core CPI is expected to advance 2.3 per cent. Data on Tuesday also showed Chinese factory gate prices rose at their strongest level in three years last month.

Late on Tuesday, however, Fed governor Lael Brainard stepped in to urge a “patient” approach that looks through price rises as economies emerge from lockdown restrictions.

The world’s most powerful central bank has regularly repeated that it will wait for several months or more of persistent inflation before withdrawing its monetary support programmes, which have been followed by most other major global rate setters since last March. Investors are increasingly speculating about when the Fed will step on the brake pedal.

“Markets are intensely focused on inflation because if it really does accelerate into this time near year, that will force central banks into removing accommodation,” said David Stubbs, global head of market strategy at JPMorgan Private Bank.

Stubbs added that investors should look more closely at the month-by-month inflation figure instead of the comparison with April last year, which was “distorted” by pandemic effects such as the price of international oil benchmark Brent crude falling briefly below zero. Brent on Wednesday gained 0.5 per cent to $69.06 a barrel.

“If you get two or three back-to-back inflation reports that are very high and above expectations” that would show “we are later into the economic recovery cycle,” said Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management.

He added that the pandemic had sped up deflationary forces that would moderate cost pressures over time, such as the growth of online shopping that economists believe constrains retailers’ abilities to raise prices. Widespread working from home would also encourage more parents and carers into full-time work, he said, “increasing the labour supply” and keeping a lid on wage growth.

In currency markets on Wednesday, sterling was flat against the dollar, purchasing $1.141. The euro was also steady at $1.214. The dollar index, which measures the greenback against a group of trading partners’ currencies, dipped 0.1 per cent to stay around its lowest since late February.

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Potash/grains: prices out of sync with fundamentals




The rising tide of commodity prices is lifting the ricketiest of boats. High prices for fertiliser mean that heavily indebted potash producer K+S was able to report an unusually strong first quarter on Tuesday. Some €60m has been added to the German group’s full year ebitda expectations to reach €600m. Its share price has gone back above pre-pandemic levels.

Demand for agricultural commodities has pushed prices for corn and soyabeans from decade lows to near decade highs in less than a year. Chinese grain consumption is at a record as the country rebuilds its pork herd. Meanwhile, the slowest Brazilian soyabean harvest in a decade, according to S&P Global, has led to supply disruptions. Fertiliser prices have risen sharply as a result.

But commodity traders have positioned themselves for the rally to continue for some time to come. Record speculative positions in agricultural commodities appear out of sync even with a bullish supply and demand outlook. US commodity traders have not held so much corn since at least 1994. There are $48bn worth of net speculative long positions in agricultural commodities, according to Saxo Bank.

Agricultural suppliers may continue to benefit in the short term but fundamentals for fertiliser producers suggest high product prices cannot last long. The debt overhang at K+S, almost eight times forward ebitda, has swelled in recent years after hefty capacity additions in 2017. Meanwhile, utilisation rates for potash producers are expected to fall towards 75 per cent over the next five years as new supply arrives, partly from Russia. 

Yet K+S’s debt swollen enterprise value is still nine times the most bullish analyst’s ebitda estimate, and 12 times consensus, this year. Both are a substantial premium to its North American rivals Mosaic and Nutrien, and OCI of the Netherlands, even after their own share prices have rallied.

Any further price rises in agricultural commodities will depend on the success of harvests being planted in the US and Europe. Beyond restocking there is little that supports sustained demand.

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Amazon sets records in $18.5bn bond issue




Amazon set a record in the corporate bond market on Monday, getting closer to the level of interest paid by the US government than any US company has previously managed in a fundraising. 

The ecommerce group raised $18.5bn of debt across bonds of eight different maturities, ranging from two to 40 years, according to people familiar with the deal. On its $1bn two-year bond, it paid just 0.1 percentage points more than the yield on equivalent US Treasury debt, a record according to data from Refinitiv.

The additional yield above Treasuries paid by companies, or spread, is an indication of investors’ perception of the risk of lending to a company versus the supposedly risk-free rate on US government debt.

Amazon, one of the pandemic’s runaway winners, last week posted its second consecutive quarter of $100bn-plus revenue and said its net income tripled in the first quarter from the same period a year ago, to $8.1bn.

The company had $33.8bn in cash and cash equivalents on hand at the end of March, according to a recent filing, a high for the period.

“They don’t need the cash but money is cheap,” said Monica Erickson, head of the investment-grade corporate team at DoubleLine Capital in Los Angeles.

Spreads have fallen dramatically since the Federal Reserve stepped in to shore up the corporate bond market in the face of a severe sell-off caused by the pandemic, and now average levels below those from before coronavirus struck.

That means it is a very attractive time for companies to borrow cash from investors, even if they do not have an urgent need to.

Amazon also set a record for the lowest spread on a 20-year corporate bond, 0.7 percentage points, breaking through Alphabet’s borrowing cost record from last year, according to Refinitiv data. It also matched the 0.2 percentage point spread first paid by Apple for a three-year bond in 2013 and fell just shy of the 0.47 percentage points paid by Procter & Gamble for a 10-year bond last year.

Investor orders for Amazon’s fundraising fell just short of $50bn, according to the people, in a sign of the rampant demand from investors for US corporate debt, even as rising interest rates have eroded the value of higher-quality fixed-rate bonds.

Highly rated US corporate bonds still offer interest rates above much of the rest of the world.

Amazon’s two-year bond also carried a sustainability label that has become increasingly attractive to investors. The company said the money would be used to fund projects in five areas, including renewable energy, clean transport and sustainable housing. 

It listed a number of other potential uses for the rest of the debt including buying back stock, acquisitions and capital expenditure. 

In a recent investor call, Brian Olsavsky, chief financial officer, said the company would be “investing heavily” in the “middle mile” of delivery, which includes air cargo and road haulage, on top of expanding its “last mile” network of vans and home delivery drivers.

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