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Hydrogen: what industry insiders think of the ‘fuel of the future’



One thing to start: Oil major Chevron has been accused of “greenwashing” in a complaint to the Federal Trade Commission, the US consumer protection agency, marking a novel approach by activists in their battle with Big Oil.

Welcome to the latest edition of Energy Source.

Hydrogen is vogue again. In the media, at conferences, in company presentations, there is no escaping the buzz around it.

Industry players are increasingly convinced that the so-called “fuel of the future” can provide the missing piece of the puzzle in the energy transition: a route to cutting emissions in sectors where carbon-free electricity can’t.

Today’s first item takes a step back and looks at where things stand in the development of hydrogen as a key part of the energy complex. For more on this subject, we also suggest checking out the series the FT is currently running: Hydrogen — Fantasy or fuel of the future?

Our second item takes a look at the International Energy Agency’s oil market outlook for the next half-decade. It is not buying into the supercycle hype.

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

The ‘rock star of new energies’

Bill Gates says it’s “a huge deal”. Frans Timmermans, the EU’s green boss, says “it rocks”. Shell chief Ben van Beurden says “we cannot aim to be a net-zero economy [without it].”

In the energy world, it has become increasingly difficult to avoid the subject of hydrogen. 

“It is really hard to pick up industry trade press these days without seeing at least one, if not two, three or four stories on hydrogen,” said Sandra Safro, a lawyer and partner at K&L Gates, at a panel I moderated last week at MIT’s annual energy conference.

But for all the buzz around this “rock star of new energies” (another Timmermans moniker), understanding of where it fits into the future of energy remains slim.

At the MIT event, panellists delved into where things stand now with hydrogen and the road yet to be travelled. Here is some of what was discussed:

Why now?

Hydrogen is not new. It has played a role in the US for almost a century and is widely used today in oil refining and agricultural fertiliser.

Efforts to give it a meaningful role in energy have not been lacking: General Motors built its first hydrogen-powered vehicle in the 1960s and there was a drive under the Bush administration to incentivise its use as a fuel.

But for all the hype, it has yet to take off. Today, though, the drive to tackle climate change has focused minds:

  • Most countries have signed up to the goals of the Paris Agreement and governments are scrambling to find feasible strategies to cut emissions nationally.

  • Energy companies, under pressure from environmentally-conscious investors are being forced to develop their own strategies to achieve net-zero emissions at the corporate level.

  • And the plummeting costs of wind and solar power mean the wide scale production of “green hydrogen” from renewables is no longer a pipe dream.

Most hydrogen produced today is either dubbed grey (from natural gas) or brown (from coal). In order for it to play a role in decarbonising the energy sector, the key is to develop production at scale of blue (from natural gas with carbon capture technology) and green (from the electrolysis of water by renewables) hydrogen.

“There’s a lot of opportunity right now to use hydrogen, as part of an overall carbon emission reduction strategy,” said Safro. “And countries around the world . . . are burning significant dollars to make those efforts into reality.”

Where would it be used?

The lion’s share of decarbonisation can be achieved by electrification — fuelling everything from cars to heating systems with electric power (provided it comes from clean sources). Seventy per cent of the energy spectrum could likely be decarbonised this way, according to analysts.

But for some so-called “hard to decarbonise” sectors, that will not possible. Enter hydrogen.

“If we have obvious ways of decarbonising certain parts of say our light duty vehicle transportation sectors . . . battery electric vehicles make a tonne of sense in that space,” said Mark Ruth, who heads up the Industrial Systems and Fuels Group in the Strategic Energy Analysis Center at the National Renewable Energy Laboratory.

“The value of hydrogen on the demand side is where it’s really hard to decarbonise in other ways.”

That means the likes of steel, concrete and heavy-duty transportation such as long-distance trucks could be decarbonised through a shift to clean hydrogen. It could also be used in energy storage, providing dispatchable power to compliment intermittent renewables.

For more on the “where” check out these pieces on whether hydrogen has a role to play in vehicles and aviation. (Watch this space for another story coming soon on energy storage.)

When would this happen?

Barclays estimates the hydrogen market could grow by a factor of eight by 2050 to a $1tn industry, saving up to 15 per cent of energy-related emissions.

Key to this is bringing down the costs of clean hydrogen. (See here).

They have a long way to fall. Producing green hydrogen via electrolysis currently costs between $900-$1,100 per kilowatt of power, said Ruth. For the process to be competitive, that needs to fall to $200-250/kW.

Most of that cost can be slashed quickly, falling to about $400/kW as supply chains are developed. “If the market starts to develop . . . you’ll be able to get components cheaper, you no longer have PhDs turning wrenches to be able to build these things,” said Ruth.

To go the final few yards, the market will need to turn to technological advances. But industry players are optimistic this can be achieved.

Belén Linares, innovation manager at renewables group Acciona, which is pivoting into hydrogen, reckons green hydrogen should be profitable within the next decade.

“Green hydrogen for us is going to be a business,” she said. “I believe that the tendency of the cost decrease of the electrolysers is similar as what we saw in solar PV panels.”

Acciona is targeting profitability from its green hydrogen production by 2030. “It’s huge work that we will have in the next nine years in order to reach that,” said Linares.

(Myles McCormick)

Forecasting the global oil market’s next 5 years

The pandemic, coupled with the low-carbon energy transition, has prompted serious debate about the trajectory of the global oil industry.

The International Energy Agency jumped into the fray yesterday with its first five-year outlook since the outbreak, a 163-page deep dive into the market. Some key takeaways:

  • The IEA is not buying the supercycle hype. Wall Street has grown increasingly convinced that oil is heading into another supercycle as supply lags demand growth, which has helped fuel oil’s rally towards $70 a barrel this year. But the IEA argues “there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied”.

  • Oil demand has not peaked, but growth is set to slow. The group sees a sharp rebound in demand this year after last year’s collapse, but growth quickly fizzles from 2022. Forecasted global consumption of 104.1m barrels a day by 2026 is up more than 4m b/d from 2019. Yet the 2025 demand outlook is 2.5m b/d lower than the group’s last forecast, reflecting a rise in electric vehicles and more efficient petrol engines. Although oil consumption growth has been dented, it remains far too robust for the world to hit long-term net-zero emissions targets, the group said. Serious policy and consumer behaviour changes are needed to bend the trajectory lower.

  • America’s frackers have been (mostly) tamed. The IEA largely agrees with a growing consensus that US supply growth will be markedly lower in the coming years — it only expects the US to add 1.6m b/d of supply through 2026, less than it added in 2018 alone. The industry will see a dearth of cheap capital and is taking a “more conservative approach to investment”, argued the IEA.

  • Opec+ might finally be winning the market share fight with US producers. With US growth slowing, the IEA sees the market share fight starting to tip into Opec+’s favour for the first time in years. It could “encourage Saudi Arabia and other key Middle East producers to boost investments and accelerate expansion plans,” the group said.

(Justin Jacobs)

Power Points

  • The oil price rally is testing discipline in the US shale patch.

  • Shell and Eni have been cleared of corruption in a long-running case over a 2011 Nigerian oil deal.

  • The US has warned China it will enforce Trump-era sanctions against Iranian oil as shipments soar.

  • Power producer NRG had its profits wiped out by the Texas freeze.

  • A host of vehicle charging companies are entering US stockmarkets through mergers with special purpose acquisition companies.


The IEA, the US Energy Information Administration, and Opec have all released their monthly oil-market reports. Here is our round-up of what matters and what changed:

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.

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Earnings beats: lukewarm reaction shows prices are stretched




Investors are picking over first-quarter results for signs of economic recovery and proof that record market highs can continue. Stock markets have only been this richly valued twice before — in 1929 and 2000. Bulls hope strong corporate earnings and rising inflation can pull prices higher still. But pricing for perfection means even good results can be met with indifference.

L’Oreal illustrated this trend on Friday. The French cosmetics group stated that sales in the first quarter of the year rose 10.2 per cent. This was a better performance than expected. Yet the announcement sent shares down by around 2 per cent. Weak cosmetics sales were seen as a veiled warning that consumers emerging from lockdowns might not spend as freely as hoped.

Online white goods retailer AO World, a big winner from pandemic home upgrades, also offered a positive update this week. In the quarter that marked the end of its financial year, sales were £30m ahead of forecasts. But even upbeat commentary from boss John Roberts could not stop shares slipping 3 per cent.

Banks are not immune. Their stocks have outperformed the market by 7 per cent in Europe and 12 per cent in the US this year. But stellar Wall Street results were not enough to satisfy investors this week.

JPMorgan Chase, the biggest US bank, smashed expectations for the first quarter. Even adjusting for the release of large loan loss reserves, earnings per share beat expectations by 12 per cent because of higher investment banking revenues. Bank of America earnings also rose thanks to the release of loan loss reserves. Yet shares in both banks ended the week down. Goldman Sachs had to pull out its best quarterly performance since 2006 to hold investor interest.

On multiple metrics, stock valuations look steep. On price to book, banks are now back to the pre-crisis levels recorded at the start of 2020. Living up to the expectation implicit in such valuations is becoming increasingly hard.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Click here to sign up.

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Barclays criticised for underwriting US private prison deal




Barclays has attracted criticism for underwriting a bond offering by the US company CoreCivic to fund the building of two new private prisons, in a new dispute over Wall Street’s relationship with the controversial sector.

The UK-based bank said two years ago that it would stop financing private prison companies, but the commitment did not extend to helping them obtain financing from public and private markets.

About 30 activists and investors, among them managers at AllianceBernstein and Pax World Funds, have signed a letter opposing the $840m fundraising for two new prisons in Alabama, which was due to be priced on Thursday.

The signatories said the bond sale brings financial and reputational risk to those involved and urged “banks and investors to refuse to purchase securities . . . whose purpose is to perpetuate mass incarceration”.

Activists and investors who pay attention to environmental, social and governance issues have sought to cut off companies that profit from a US criminal justice system that disproportionately incarcerates people of colour. As well as raising ethical issues, many also say such financing may be a bad investment because legislators are increasingly calling for an end to the use of private players in the prison system.

While Barclays is not lending to CoreCivic, activists and investors attacked its decision to underwrite the deal, which is split between private placements and public issuance of taxable municipal bonds. The arrangement is “in direct conflict with statements made two years ago” when the bank announced it would no longer finance private prison operators, according to the letter.

Barclays said its commitment to not finance private prisons “remains in place”, adding it had worked alongside representatives from the state of Alabama to finance prisons “that will be leased and operated by the Alabama Department of Corrections for the entire term of the financing”.

CoreCivic said the Alabama facilities will be “managed and operated by the state — not CoreCivic. These are not private prisons. Frankly, we believe it is reckless and irresponsible that activists who claim to represent the interests of incarcerated people are in effect advocating for outdated facilities, less rehabilitation space, and potentially dangerous conditions for correctional staff and inmates alike.”

Barclays’ 2019 commitment to limit its work with private prison companies came as other banks, including Wells Fargo, JPMorgan Chase and Bank of America, also said they would stop financing the sector.

Critics said they were not sure why Barclays is differentiating between lending and underwriting.

“You’ve already taken the stance, the right stance, that private prisons and profiting from a legacy of slavery is bad,” said Renee Morgan, a social justice strategist with asset manager Adasina Social Capital, one of the signatories of the letter. “But then you’re finding this odd loophole in which to give a platform to a company to continue to do business.”

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Hedge funds post best start to year since before financial crisis




Hedge funds have navigated the GameStop short squeeze and the collapse of family office Archegos Capital to post their best first quarter of performance since before the global financial crisis.

Funds generated returns of just under 1 per cent last month to take gains in the first three months of the year to 4.8 per cent, the best first quarter since 2006, according to data group Eurekahedge. Recent data from HFR, meanwhile, show funds made 6.1 per cent in the first three months of the year, the strongest first-quarter gain since 2000.

Hedge fund managers, who often bet on rising and falling prices of individual securities rather than following broader indices, have profited this year from a rebound in the cheap, beaten-down so-called “value” stocks and areas of the credit market that many of them favour. Some have also been able to profit from bouts of volatility, such as the surge in GameStop shares, which turbocharged some of their holdings and provided opportunities to bet against overpriced stocks.

“We’re going into a market environment that is going to be more fertile for most active trading strategies, whereas for most of the past decade buying and holding the index was the best thing to do,” said Aaron Smith, founder of hedge fund Pecora Capital, whose Liquid Equity Alpha strategy has gained around 10.8 per cent this year.

The gains are a marked contrast to the first three months of 2020, when funds slumped by around 11.6 per cent as the onset of the pandemic sent equity and other risky markets tumbling. However, funds later recovered strongly to post their best year of returns since 2009.

This year, managers have been helped by a tailwind in stocks and, despite high-profile losses at Melvin Capital and family office Archegos Capital, have largely survived short bursts of market volatility.

It’s a “good market for active management”, said Pictet Wealth Management chief investment officer César Perez Ruiz, pointing to a fall in correlations between stocks. When stocks move in tandem, it makes it more difficult for money managers to pick winners and losers.

Among some of the biggest winners is technology specialist Lee Ainslie’s Maverick Capital, which late last year switched into value stocks. Maverick has also profited from a longstanding holding in SoftBank-backed ecommerce firm Coupang, which floated last month, and a timely position in GameStop. It has gained around 36 per cent. New York-based Senvest, which began buying GameStop shares in September, has gained 67 per cent.

Also profiting is Crispin Odey’s Odey European fund, which rose nearly 60 per cent, having lost around 30 per cent last year, according to numbers sent to investors.

Odey’s James Hanbury has gained 7.3 per cent in his LF Brook Absolute Return fund, helped by positions in stocks such as pub group JD Wetherspoon and Wagamama owner The Restaurant Group. Such stocks have been helped by the UK’s progress on the rollout of the coronavirus vaccine, which has raised hopes of an economic rebound.

“We continue to believe that growth and inflation will come through higher than expectations,” wrote Hanbury, whose fund is betting on value and cyclical stocks, in a letter to investors seen by the Financial Times.

Additional reporting by Katie Martin

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