Daily Archives: April 17, 2009

Kate Mackenzie

The US Environmental Protection Agency has made its much-anticipated decision that greenhouse gases should be regulated under the Clean Air Act, which it enforces.

This is important for two reasons: it clears the way for regulation on carbon emissions, and it is also a formal declaration that carbon dioxide and five other greenhouse gases are endangering health and wellbeing.

It could also have implications for the passage through Congress of the energy measures, including a cap and trade regime, proposed by the Obama administration.

However as Marc Ambinder points out, not only is there still some way to go before it is known whether the decision actually affects carbon emitters, but how it affects them will depend very much on how the EPA decides to use the Clean Air Act. For example, the EPA’s background information on the decision specifically refers to “the combined emissions of CO2, CH4, N2O, and HFCs from new motor vehicles and motor vehicle engines” as contributing to the threat of climate change.

From the EPA announcement:

The proposed endangerment finding now enters the public comment period, which is the next step in the deliberative process EPA must undertake before issuing final findings. Today’s proposed finding does not include any proposed regulations. Before taking any steps to reduce greenhouse gases under the Clean Air Act, EPA would conduct an appropriate process and consider stakeholder input. Notwithstanding this required regulatory process, both President Obama and Administrator Jackson have repeatedly indicated their preference for comprehensive legislation to address this issue and create the framework for a clean energy economy.

Related links:
Greenhouse gases endanger human health: EPA
(Reuters)
EPA begins carbon regulation process
(Marc Ambinder/Atlantic)

Kate Mackenzie

Bernstein Research have looked at the mergers and acquisitions undertaken by the oil majors in the last decade and have found that most of them failed to add the sort of value that shareholders appreciate.

Lead oil analyst Neil McMahon uses this anonymous quote to illustrate the problem (author’s emphasis):

“If we increase the size of the penguin until it is the same height as a man and then compare the relative brain size, we find that the penguin’s brain is still smaller. But, and this is the point, it is larger than it was!”

It’s a simple matter of ratios: markets prefer to reward increased profitability, cash flow and dividends rather than growth in the overall size of the company.

Unsurprisingly, they suggest that this is why the markets have not rewarded the majors’ acquisitive spending with higher share valuations. What is surprising – perhaps – is the disconnect between the companies’ view of their activities and the actual impact on the bottom line.

Synergies are a popular rationale for acquisitions, but the market tends to view synergies with scepticism, at least in the oil sector:

The only way that acquisition can lead to value enhancement is when the assets in question are below long term market value.  Although many of these deals are supposed to bring with them synergies, these are very hard to measure, and in an inflationary environment it is very hard to tell apart normal cost inflation from slightly lower, but still positive cost inflation, as a result of synergies.  We also note that the only company that has managed to gap away at all from the peer group on ROACE over the last ten years has been ExxonMobil – the company which has undertaken exactly the least acquisitions, but has continually rationalized its asset base to keep it efficient and grown value on a per share basis by buying back large quantities of its own shares.

However, as we have heard on many a conference call, while investors are not particularly impressed in growth for the sake of scale, they are even less impressed by natural shrinkage because the company’s have failed to replace production. The Majors must walk a fine line between overspending on growth projects that the market is unimpressed by, but investing just enough to replace their production preferentially through organic means.

Kate Mackenzie

The Nano: Is it green?

Alaska’s gas pipeline plans hit by downturn

Recession, depression, secession

Elsewhere:

Contract law and regulation in European energy markets – (European energy blog)

Venezuelan gasoline: $1 a tank (Green Inc/NYTimes)

Oilwatch monthly April 2009 - The Oil Drum

Fiona Harvey

The Nano car – the small, cheap car being produced in India – is not generally regarded as the greenest of ideas. Though small, if taken up in large numbers the car will contribute to rapidly rising greenhouse gas emissions.

But Western liberal handwringing over the car for the masses can sometimes smack of hypocrisy – most people in the developed world rely on cars, so why shouldn’t poorer people in the developing world?

The car’s green credentials were stoutly defended recently by Shyam Saran, special envoy of the Indian prime minister for climate change. He insisted that the Nano was not, as critics have suggested, a scourge to the climate.

More importantly, he made clear the divisions between the developed and the developing world over the right of people in poor countries to increase their standard of living – even if it means raising greenhouse gas emissions. If it does mean raising greenhouse gas emissions, then rich countries will just have to reduce theirs by even more to compensate, his argument ran – after all, they have reaped the benefits for more than a century.

Sheila McNulty

Alaska’s efforts to drive interest in a natural gas pipeline to the rest of the US have been slowed by the triple hit to the industry from the economic downturn, plunging commodity prices and the credit squeeze.

It has had to push back to September a conference planned this month to urge the oil and gas industry to invest in the state’s large pool of natural gas as part of a broader effort to push forward a long-held plan for a $30bn pipeline to carry the energy to other states.

While the Alaska Natural Gas Tranportation Projects insists two competing proposals to build that massive pipeline, as well as in-state projects, are still on track, conference organisers recognised attendance would be hit.

Energy news from elsewhere:

- EPA considers higher ethanol mix in US gasoline (WSJ)

- UTS rejects Total for third time on inadequate offer (Bloomberg)

- US ‘cash-for-clunkers’ proposal may cover cars from overseas (Bloomberg)

- Indonesia says Italy’s Eni makes big oil find (Reuters)

- US chamber says ‘green tape’ stopping thousands of energy projects (Platts)

Energy news from the FT:

- Shareholders protest over BP pay packages
Anger over Sir Tom McKillop’s compensation

- Vestas blows new life into Chinese energy
Trying to localise to stave off Chinese competition

- Anglo concludes refinancing with $1.5bn bond
Group raises more than rival Xstrata

- Regal suspends talks with Macquarie
Ukraine-focused company sought $100m loan

- Novera sells energy project for £1.25m
UK company produces energy from landfill gas

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