Photographer: Eliana Aponte/Bloomberg

Teaching the world to frack for peace; Obama, Cuba and Oil

March 21, 2016 Mark Drajem

The First Word Energy team draws on Bloomberg’s worldwide resources to cover all aspects of energy policy. Learn how Bloomberg Government can help your energy lobbying or policy analysis—contact Peter Hsu at yhsu24@bloomberg.net or 202-416-3035.

Today’s Agenda

President Obama is in Cuba,  making him the first sitting president since Calvin Coolidge to visit the island nation. He’s brought along a bevy of White House staffers, the widow and daughter of Jackie Robinson and representatives of U.S. hotel and cruise companies eager to do business in the country famous for its hand-rolled cigars, rum and 50 years of antagonism with the U.S. Obama, who reopened diplomatic ties with the nation at the end of 2014, toured Old Havana last night, and is set to meet with Raul Castro today — and see an exhibition baseball game between the Tampa Bay Rays and Cuban national team tomorrow.

Oil has not featured prominently in the lead up to the visit. It certainly could have. Cheap oil has forced Venezuela to scale back its support for Cuba, and that’s prodding the officially Communist nation to open up to foreign investment and build on its rapprochment with the U.S., according to Moody’s report in December. And opening up may mean boosting the 50,000 barrels a day of oil now produced there. The U.S. Geological Survey estimated that 4.6 billion barrels of crude oil are lurking in the North Cuba Basin, with most of it within 50 miles of Cuba’s coast; that’s one-fifth of what USGS estimated to exist in the Arctic seas off Alaska. But this oil — if it’s really there — wouldn’t need to be produced in some of the world’s harshest conditions, and would be a just a short barge voyage away from U.S. Gulf-area refineries.

Hunt Petty LP  hosted an offshore safety conference in Havana in October, as it seeks to make Cuban offshore regulations comparable to those in the U.S. One of the sessions highlighted the lessons to Cuba from the BP oil blowout in the U.S. Gulf of Mexico. While U.S. companies can’t own oil assets in Cuba, because of the embargo, services companies can help those companies with related safety and drilling work.

Cuba’s not the only place where  U.S. drilling technology could help spur production, analysts from the Hudson Institute will say tomorrow. See the Week Ahead for more on how that could happen — and for the budget hearings on tap this week. We’re especially interested in Thursday’s event at the Aspen Institute about how both Republicans and Democrats can tackle the issues of clean energy and climate change. With both former Republican Rep. Bob Inglis and former Obama adviser Heather Zichal on the panel, it promises to include very different perspectives.

James Inhofe wants Volkswagen to embrace natural gas  following its diesel emissions scandal. The Oklahoma Republican wrote Gina McCarthy last week, urging that a VW settlement should include supplemental environmental projects such as converting gasoline or diesel vehicles into those that run on compressed natural gas or electric vehicles. Volkswagen has until Thursday to provide the court with an explanation of how it plans to fix the problem, he wrote. (For a copy of the letter, e-mail me: mdrajem@bloomberg.net)

Also today,  The New York Times reports on the growing activism against fossil-fuel projects and also discovers a story we’ve already highlighted about large banks pulling back from coal financing; the Washington Post profiles the oil executive now putting her energy into confronting lung cancer and Bloomberg Gadfly says the drop in oil production from Nigeria, Iraq and Venezuela is responsible for the past month’s bull run. And we’ll be watching today for news from Sally Jewell’s visit to the Malheur National Wildlife Refuge in Oregon, which was taken over by armed, anti-government activists early this year.

Drajem’s Daily Don’t Miss

Sometimes a question is most interesting because of who is asking it. That’s how we feel about this one: Will we ever stop using fossil fuels? That’s the title of an event today hosted by the U.S. Energy Association, which represents companies such as Chevron, Shell Oil and Caterpillar. Thomas Covert, a University of Chicago energy economist, isn’t ready to kill off coal, oil and natural gas just yet, according to the preview for his talk: “Without robust efforts to correct the market failures around greenhouse gases, relying on supply and/or demand forces to limit greenhouse gas emissions is relying heavily on hope,” the event blurb says. It’s at 2 p.m. at the USEA offices, 1300 Pennsylvania Ave.

Quotable

“You have a lot of people who do not identify themselves as environmentalists or liberals or whatever you want to call them, who have solar. You try to take away what they signed up for, you’ll have exactly what happened in Nevada. So, yeah, there’s a tension,” Arvin Ganesan of Advanced Energy Economy said at The Debators dinner with First Word Energy.

“I don’t think there’s anything that should lead the American public to believe that absolutely nothing will occur on the clean energy or energy innovation frontier just because Republicans are elected either in the Congress or in the White House. But I think you have to sell it in a different way,” Scott Segal, a lobbyist at Bracewell, said at the dinner.

(Programming note: Tomorrow’s newsletter will include the long-awaited videos and transcript from The Debators dinner.)

The Predictor

Here’s how you can play The Predictor, according to Seeking Alpha analyst Vlae Kershner: Do you think the GOP will win the presidency? If so, now’s the time to invest in coal companies, he says.

Contact Us

Send us your comments, tips and favorite March Madness buzzer beater. Shoot us an e-mail: Mark Drajem is the editor (mdrajem@bloomberg.net or @drajem), Catherine Traywick (ctraywick@bloomberg.net or @ctraywick) and Laura Curtis (lcurtis7@bloomberg.net or @LouKCurtis) cover Congress and regulation.

Chart of the Day

Where Obama Sees Opportunity in Cuba, U.S. Companies See Hurdles

President Obama’s bid to crack open Cuba to U.S. businesses takes a big step forward during his visit there this week. Just don’t expect U.S. companies to follow en masse any time soon. More than a year after Obama and President Raul Castro announced a diplomatic thaw, many U.S. investors remain wary of an economy hobbled by a five-decade-old U.S. trade embargo, restrictive Cuban labor laws and a dual currency system. Companies that have or want to invest, like JetBlue Airways Corp., Carnival Corp. and Airbnb Inc., are more the exception than the rule. “Firms just find it very difficult and don’t want to put a lot of money in,” said Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington who has written about normalizing ties with Cuba.

The Week Ahead

Teaching Fracking to the World for Security

By Catherine Traywick

Sell a country fracked gas, and it will have energy now; teach a nation to frack and it could be energy independent for years to come. That’s the message analysts from the Hudson Institute will discuss Tuesday.

While Republican lawmakers often argue that oil and gas exports can serve U.S. interests abroad by weaning European nations off dependence on Russia, promoting the technologies that made the U.S. energy boom possible is also “hugely important to U.S. strategic interests,” according to Hudson Institute fellow Arthur Herman.

“Fracking, directional drilling and deep seismic testing could also work for a number of countries who have similar shale resources, but don’t have the experience American companies have,” Herman said in an interview.

China, with vast shale deposits and a pressing need to cut air pollution from coal plants, is a prime example of that, he said. But so far, the nation has had limited success developing its shale resources, despite heavy investment in U.S. shale plays.

“It’s going to be very difficult for them to make a breakthrough without direct foreign investment, not just from the U.S. but also from Canada — countries that understand the tools,” Herman said. That represents an opportunity not only for U.S. producers but for policymakers looking to score diplomatic points or strengthen geopolitical relationships, Herman is to argue on Tuesday.

Rep. Mike Pompeo, whose home state of Kansas enjoyed its own short-lived shale renaissance, will join Herman to discuss what lawmakers can do to support U.S. industry in taking advantages of those opportunities. On the House Energy and Commerce Committee, Pompeo has championed several measures to reduce regulatory burdens for the U.S. industry, so expect him to argue that, in most cases, the best thing government can do for industry is get out of the way.

The event starts at 9 a.m. at 1201 Pennsylvania Ave., Suite 400. It will also include discussion of whether the fall in oil prices has deprived the U.S. of the ability to be the swing global producer, and what the security benefits of the oil-boom has been.

ALSO WORTH WATCHING:

CLEAN ENERGY FUTURE: The Aspen Institute hosts a panel discussion on how Republicans and Democrats can find common ground on federal climate and clean-energy policy. That’s on Thursday at 2 p.m. at One Dupont Circle, NW http://aspeninstitute.wufoo.com/forms/finding-common-ground-on-energy-and-environment/

BUDGET WEBINAR: Bloomberg Government holds a webinar on the current state of budget planning in the House with Thomas A. Roe Institute for Economic Policy Studies Deputy Director and Heritage Foundation research fellow Romina Boccia joining BGOV’s legislative analyst Loren Duggan and BGOV’s senior budget analyst Cameron Leuthy. That’s 2pm on Tuesday.

EPA BUDGET: EPA Administrator Gina McCarthy returns to the Hill after her Flint-grilling last week. She appears at the House Appropriations Committee panel to discuss the agency’s budget. It’s at 9 a.m. in B-308 Rayburn. McCarthy will also be at a House Energy and Commerce panel at 2 p.m. in 2123 Rayburn.

DOE BUDGET: House Science, Space, and Technology Committee hears from Energy Secretary Ernest Moniz on his agency’s budget proposal. That’s in 2318 Rayburn on Tuesday at 10 a.m.

OSM BUDGET: A House Natural Resources panel holds a hearing on Obama’s proposed budget and proposals for the Office of Surface Mining on job creation, domestic energy production and state programs. Witnesses are TBA. That’s at 9 a.m. on Wednesday in 1324 Longworth.

PUBLIC LANDS: A House Oversight Committee panel holds a hearing on the Bureau of Land Management’s public lands leasing program. Witnesses TBA. That’s at 9 a.m. on Wednesday in 2247 Rayburn.

Power Profile

API’s Louis Finkel: The Intense Democrat Lobbying for OilBy David Banks

Louis Finkel says he has a hard time sleeping sometimes; once he’s up and his brain starts going it’s almost impossible to shut it down. Luckily, a revving mind is the perfect match for Finkel’s role as a top lobbyist for the American Petroleum Institute.

Finkel, officially API’s vice president for government affairs, speaks rapidly as his words try to keep up with his thoughts. He describes himself as “somewhat intense” with some “rough edges,” but says he also likes to use a one-liner to lighten a serious meeting. And he’s also an unabashed Democrat in a lobbying area — oil — dominated by conservative Republicans.

Finkel sat down in his office with Bloomberg Government to talk about his mentors, the importance of meeting in person instead of firing off e-mails, and why it would be better to play golf than basketball with President Obama.

To read the full interview, CLICK HERE.

Outside the Beltway

Colorado Bill Aims to Make Oil, Gas Operators Pay for Damage: BNA   The Colorado House approved a bill (H.B. 1310) that would make oil and gas operators liable for damage they cause to nearby property, including damage caused by earthquakes.

Corporate coal hub of St. Louis faces more big bankruptcies: St. Louis Post-Dispatch

There’s a real possibility that every publicly traded coal company in the St. Louis region could wind up in bankruptcy court this year, the newspaper reported. Just last week, Peabody Energy and Foresight Energy both disclosed they may have to file for Chapter 11 protection as heavy debt loads weigh them down amid a long industry slump. They would join Creve Coeur-based Arch Coal, which filed for bankruptcy protection in January. And Patriot Coal Corp., formerly based in Creve Coeur, sold itself off in pieces after filing for bankruptcy a second time in 2015. For an industry that has long made St. Louis its corporate home, things aren’t looking good. Bankruptcies don’t mean the companies will close the doors for good, and even if they did, several hundred corporate jobs aren’t nearly as important to a diversified urban economy as the coal mining jobs in a smallish town are. “St. Louis over the last couple of decades has become very diversified in terms of its corporate community and its entrepreneurial community,” said Denny Coleman, the former CEO of the St. Louis Economic Development Partnership. “So I don’t think any one industry defines us anymore.”

Protesters Across U.S. Turn Up Heat on Fossil Fuel: New York Times   A wave of actions across the nation combines traditional not-in-my-backyard protests against fossil-fuel projects with an overarching concern about climate change, the New York Times reports. Activists have been energized by successes on several fronts, including the decision last week by President Obama to block offshore drilling along the Atlantic Seaboard; his decision in November to reject the Keystone XL pipeline; and the Paris climate agreement. Bound together through social media, networks of far-flung activists are opposing virtually all new oil, gas and coal infrastructure projects — a process that has been called “Keystone-ization.” As the climate evangelist Bill McKibben put it in a Twitter post after Paris negotiators agreed on a goal of limiting global temperature increases: “We’re damn well going to hold them to it. Every pipeline, every mine.”

Oil, Gas and Coal

Market Wrap:  Oil fell for a second day in New York, extending declines from a three-month high, as the number of drilling rigs active in the U.S. rose for the first time in three months amid a global glut. West Texas Intermediate for April delivery, which expires Monday, fell as much as 83 cents to $38.61 a barrel on the New York Mercantile Exchange and was at $38.73 as of 9:25 a.m. London time. Natural gas futures for April delivery rallied to 1.957 on Friday, the highest intraday level since Feb. 17, before ending the day at $1.907.

Aubrey McClendon Left His Biggest Backer With Billions to Lose   The late Aubrey McClendon thrived on risk. John Raymond, his biggest backer, not quite as much. But with McClendon gone, the price of oil so low and debts piling up, Raymond could be in a tight spot. McClendon, who died March 2 in a car crash, had recently been ousted from Chesapeake Energy Corp. when he invited a handful of private equity firms to bankroll what he called “the second half of my career.”

U.S. Steel to Idle Two Plants, Cut Up to 770 Jobs Amid Oil Rout   U.S. Steel Corp., the country’s second-biggest producer of the metal, said it will dismiss as many as 770 workers and idle two plants that make tubes used in oil drilling as energy companies cut production.U.S. Steel may cut as many as 450 union-represented jobs at its Lone Star Tubular Operations in eastern Texas and 200 at its Fairfield, Alabama, site, the company said in an e-mailed statement Friday. Pittsburgh-based U.S. Steel is idling Lone Star on Friday, and Fairfield in April.

Saudi Aramco Said to Seek More U.S. Assets After Split   Saudi Arabia Oil Co. representatives told Motiva Port Arthur, Texas, refinery employees Thursday it wants to expand its holdings in the U.S., according to a person with knowledge of the talks. Saudi officials declined to detail the assets being considered until after end of partnership with Royal Dutch Shell. Saudi Aramco officials said it may take up to 18 months to complete splitting assets of Motiva Enterprises refining.

As Coal’s Future Grows Murkier, Banks Pull Financing: NYT   Tens of thousands of miners were on strike and coal prices were skyrocketing in October 1902. Afraid of unrest, President Theodore Roosevelt sought the help of John Pierpont Morgan. The powerful banker, who held great sway over the coal industry, brokered a deal with the miners that ended the strike. America’s coal industry is now facing another dark hour, but this time there are few financiers willing to save it. Mr. Morgan’s bank, now JPMorgan Chase, announced two weeks ago that it would no longer finance new coal-fired power plants in the United States or other wealthy nations. The retreat follows similar announcements by Bank of America, Citigroup and Morgan Stanley that they are, in one way or another, backing away from coal.

Up for Debate

Real Cuts Are Reviving Oil Price: Gadfly

Next month’s gathering of oil ministers from OPEC and non-member countries is fixating traders. But the real re-balancing in the market is already underway — and much of it is taking the form of involuntary production cuts from OPEC members.

Speculation that the meeting in Doha will lead to a production freeze has been a boon for oil, helping to drive a 40% rise in Brent since the idea was first mooted just over a month ago, to more than $42 a barrel, Julian Lee says.

But a freeze would be empty gesture. None of the countries that intend to take part, with the possible exception of Saudi Arabia, was expected to raise production in any case. But global oil production has fallen by 1.37 million barrels per day over the past six months, with OPEC production accounting for nearly half of that decline.

Nigeria revised its official January production number downwards by 192,000 barrels a day in its latest submission to OPEC. It then lost another 300,000 barrels per day in mid-February, following the closure by Shell of the Forcados export system after damage to a pipeline. Meanwhile, the government is sending more troops to protect Niger Delta oil facilities in the face of rising discontent that could see more disruptions to come. The Kurdistan Region of Iraq was forced to halt exports for almost a month after its pipeline to the Mediterranean coast was shut for reasons that remain unclear. More importantly, no sooner was the flow restored than the Iraqi government in Baghdad suspended around 150,000 barrels per day of exports through the line from Kirkuk and other northern fields it still controls. Unless that decision is reversed — which Baghdad says will require a new agreement with the Kurdistan Regional Government — Iraq’s output will fall by a similar amount, as there is nowhere else for that oil to go. OPEC founder-member Venezuela, a prime campaigner for the output freeze, has also been hit hard as falling prices forced state-owned Petroleos de Venezuela to cut capital spending. Official production data show output down 165,000 barrels per day, or 6 percent, since OPEC commenced its current war on high-cost oil in November 2014.