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Occidental claims green push ‘does more than Tesla’

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Occidental Petroleum, a longstanding titan of the US oil sector, says it is doing more than Tesla to reduce greenhouse gas emissions, as it seeks to build up its carbon management business in response to investor demands over climate change.

Vicki Hollub, Occidental chief executive, said the amount of CO2 the company pumped back underground in the oil extraction process exceeded the electric-car maker’s contribution towards decarbonising the atmosphere through switching people away from combustion engines.

“What we’re sequestering today takes essentially about 4m cars off the road on an annual basis,” Ms Hollub told the Financial Times. “It does more than what Tesla’s doing right now — although we need Tesla to continue what they’re doing. It’s going to take everything.”

Ms Hollub’s claims do not take into account the volume of carbon Occidental — one of America’s biggest fossil-fuel producers — pumps into the atmosphere from its operations and the burning of its oil. And while it does inject about 20m tonnes of CO2 back into the ground annually, it does so in order to make the extraction of more oil easier.

Occidental produced about 1m barrels of oil equivalent a day in 2019. Doing so emitted about 28m tonnes of CO2 equivalent from its operations. The subsequent burning of that oil by its customers in the form of petrol and other fuels emitted a further 103m tonnes of CO2 equivalent — though the company said that these so-called Scope 3 emissions were beyond its control. 

Vicki Hollub: ‘We’re definitely going all in [on carbon management]. This is going to be huge for us’ © Kyle Grillot/Bloomberg

For its part, Tesla delivered about 500,000 electric vehicles in 2020, most of which switched drivers away from carbon-spewing combustion engines, and says its cars have cut US emissions by about 3.7m tonnes to date. It did not respond to a request for comment.

Ms Hollub’s comments come as Occidental looks to expand the part of its business focused on the management of carbon emissions by capturing, reusing and storing them. By 2050 it says the volume of emissions it replaces will equal those it creates. It is the only significant US oil producer with a target to cut emissions to net-zero both from its own operations and those of its customers.

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Occidental already has the largest carbon management operations globally and has plans to build the first large-scale direct air capture plant by 2023, which will pull carbon out of the atmosphere to be pumped underground. 

Carbon management will generate as much revenue for the company as its chemicals business within 15 years, Ms Hollub said. By 2050, she said it would account for more revenue than its oil and gas and chemicals businesses combined. 

Occidental’s shift in approach comes as it tries to carve out its own niche in the changing oil production landscape after its disastrous purchase of Anadarko for $56bn in 2019, a deal that racked up billions of dollars in debt, sent its share price tumbling and entangled it in a stand-off with activist investor Carl Icahn.


Its troubles were accentuated by last year’s coronavirus-induced oil price crash, which forced it to book hefty writedowns. The company’s shares have fallen more than 60 per cent since the beginning of 2019.

Investors have piled pressure on oil producers to eliminate their contribution to climate change by cutting their emissions.

Occidental’s carbon management-focused response stands in contrast to the approaches taken by many of its rivals. European oil majors such as BP and Shell have signalled a shift into renewables. Other US producers such as ConocoPhilips remain focused on oil but have committed to cutting emissions from their own operations to net zero — but not those from the burning of their oil. ExxonMobil is doubling down on oil production.

“We’re definitely going all in [on carbon management],” said Ms Hollub. “This is going to be huge for us.”

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European stocks stabilise ahead of US inflation data

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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

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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

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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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