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Déjà vu: Massive storm leaves Americans in the dark

One thing to start: EU carbon prices pushed through €60 a tonne yesterday to hit a new record as traders bet on higher coal demand this winter.

Welcome back to Energy Source, returning to your inbox today after a summer break.

Hurricane Ida wreaked havoc as it barrelled into the US Gulf Coast over the weekend, leaving millions in Louisiana without electricity and knocking out about 15 per cent of the country’s crude production.

Ida is the focus of today’s newsletter. Justin Jacobs takes a look at the fallout in America’s power grid.

We also cast an eye ahead to tomorrow’s Opec+ meeting.

For now, the group is likely to stick with its current plans to gradually restore output. But analysts say speed bumps in the post-pandemic economic recovery could soon cause it to reconsider.

Data Drill charts the surge in ESG commitments by oil and gas groups.

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US power grid no match for Hurricane Ida

America’s power grid was put to the test again as Hurricane Ida, a powerful storm that packed 150mph winds and brought storm surges as high as 9ft, barrelled through Louisiana.

Again, the grid looks like it might have failed.

Louisiana’s governor John Bel Edwards called Ida the worst storm to hit the state “in modern times” and the damage from floods and wind was extensive, so power disruptions were to be expected.

But the damage looks extensive and Entergy, Louisiana’s largest power provider, is warning it could take weeks to recover service.

Scenes of millions of Americans being stranded without power for days or weeks on end amid yet another natural disaster will reverberate across the country.

Hurricane Ida left more than 1m customers without power, which means closer to 2m individuals were plunged into the dark and left without air conditioning amid stifling Gulf Coast August heat, according to Edwards. There was a collapse of the infrastructure supplying power to New Orleans, in which all eight transmission lines into the city came down. One tower collapsed into the Mississippi River.

Hospitals, already stretched by a surge in Covid-19 cases, are now reliant on generators and officials have warned that grid-reliant water and sewage systems could fail in the coming days in areas where the power is out.

It is, of course, just the latest of a string of recent failures of America’s increasingly rickety power grid.

California has struggled to keep the lights on amid record wildfires and raging heat this summer, while the Texas power system was brought to its knees in February by a winter storm, leaving millions to brave Arctic air in the dark.

The role climate change did or did not play in fuelling the strength of the storm will be front and centre.

Hurricane Ida strengthened at an “unprecedented” rate as it neared Louisiana, Governor Edwards said. It passed over a pocket of unusually warm water in the Gulf of Mexico, giving the storm extra steam as it hit the coast. That rapid warming gave residents and emergency services little time to prepare for what ended up being a very powerful storm.

It will also put the spotlight on efforts in Washington DC to push forward funding for the grid in a new infrastructure bill that is currently being debated in Congress.

“Extreme weather events like Ida show the value of investment in local transmission projects to replace ageing transmission infrastructure with stronger more resilient build-out,” said Larry Gasteiger, executive director of WIRES, a trade group advocating for spending on new long-distance transmission networks.

“The fact is we need a huge boost in transmission investment now, and we are far behind where we need to be.”

(Justin Jacobs)

Opec to hold firm on output increases . . . for now

Opec and its allies are likely to stick to plans to restore output cuts when they meet tomorrow. But as jitters around the Covid recovery grow, analysts say the group may have to adjust course before the year is out.

The Opec+ group struck a deal last month to pump an extra 400,000 barrels a day each month from August, ultimately bringing output back to pre-pandemic levels by the end of next year.

But worries that rising infection rates could derail the economic recovery from the pandemic have raised the prospect of that plan being revised.

“I don’t think there’s any realistic prospect that [Opec] can continue to put back into the market the oil that they’ve projected that they will,” Bill Farren-Price, a director at Enverus and long-time Opec watcher, told ES.

“I think they will need to pause at some point but I’d be a little bit surprised if they did it in September.”

Kuwait’s oil minister caused a stir this weekend by indicating a move to halt the agreed increase was possible given the latest wave of infections sweeping some countries.

His comments mean talk of a taper will definitely feature in the meeting, analysts at Commerzbank said. But most observers agreed that any change to last month’s deal would be unlikely.

“We are always cautious about the perils of predicting a non-event meeting,” said Helima Croft at RBC Capital markets, in a note.

“However, we think that given the exhaustive effort to craft a collective compromise around benchmark adjustments and the relative health of the market, despite continued high Covid case counts and mobility restrictions in some key geographies, they will stand firm for September.”

Biden’s call to be sent ‘straight to voicemail’

Oil prices have fluctuated in recent weeks as rising infection rates forced traders to once more weigh the risks facing demand recovery.

Brent crude, the international marker, slipped from around $76 a barrel at the beginning of the month to less than $65 last week. That had fed speculation of a rapid reversal from Opec. But a rally in recent days left the benchmark at around $73 yesterday.

Meanwhile, the White House in recent weeks called for Opec to pump more oil as it frets over domestic inflation and high petrol prices.

But analysts said those calls amounted more to political posturing than any serious pressure for a supply boost.

“We think the group will send that request straight to voicemail,” Croft said. “This is especially because we believe that request was made largely for domestic political consumption and was not a hard diplomatic ask.”

Opec said last month it would take stock in December and “assess market developments and participating countries’ performance”. But with the outlook for demand looking murky, that process may happen sooner.

“The thing that will tip their hand will be price behaviour,” said Farren-Price.

“Right now, prices are healthy for one reason or another. But if we saw Brent tick down to the low 60s, I think that their enthusiasm for the state of planned pace for restoring supply would probably [fade].”

(Myles McCormick)

Data Drill

A new survey from Texas law firm Haynes and Boone found that 83 per cent of oil and gas producers have announced ESG policies, up from 70 per cent in March.

More companies are also publicly disclosing greenhouse gas emissions and pledging net-zero commitments, the analysis found. Since March, the number of oil and gas companies with goals of net-zero emissions by 2025 has grown by 150 per cent. 

Still, a general lack of clarity over how these goals will be achieved has prompted scepticism in some quarters over how serious companies are about ESG.

The shift comes as the US Securities and Exchange Commission considers whether to impose mandatory disclosure requirements for greenhouse gas emissions, as well as other climate metrics — a move many companies have lobbied against.

(Amanda Chu)

Bar chart of Number of sampled companies showing Oil and gas ESG commitments increased nearly 20 per cent

Power Points

  • European countries are setting solar power records

  • Algeria, home to the last leaded petrol refinery in the world, has officially exhausted its supplies, marking a milestone in global development.

  • Interview: How Boston Consulting Group’s Rich Lesser led his company on climate change. 

  • The Biden administration announced a new office for Climate Change and Health Equity. (NYT) 

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek BrowerMyles McCormickJustin Jacobs and Emily Goldberg.

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