Weekly Climate Recap: Air Quality and Permian Activity Continues
Story 1 is on air quality and the steps back that the US has taken due to wildfires driven by climate change. Story 2 is all about steps forward taken by the oil & gas industry in the US, Diamondback acquiring Endeavour Energy. Story 3 is a throwback to December’s COP 28 where countries announced the goal of tripling renewables and seeing what exactly it will take to do just that.
🌬️ Air Quality Setbacks Despite Regulation
First Street has published their 10th National Risk Assessment titled Atrocious Air. The report dives into the background of regulation and the positive impacts it has had on improving pollution and contrasts it with the impacts that climate change is having and will continue to have on PM2.5 pollution from sources such as wildfire smoke.
PM2.5 refers to particulate matter with a diameter of 2.5 micrometers or less, often originating from combustion sources such as vehicle emissions and industrial processes. These tiny particles can penetrate deep into the lungs and pose significant health risks when inhaled.
“Future Climate Change is expected to increase PM2.5 exposure from Wildfire Smoke by nearly 8%, raising pollution levels to those from 2004 and wiping away 20 years of air quality improvements.”
The headline takeaways are that the First Street modelling finds that across the USA more than 83 million people are exposed to air quality considered unhealthy by the EPA. This is concentrated in the west due to the prevalence of wildfires. Reportedly, there has been an increase of nearly 2x the poor air quality days compared to the beginning of the century. Looking forward, First Street expects the share of properties experiencing 10 or more poor air quality days a year from PM2.5 and O3 to increase by 15% over the next 30 years.
O3, commonly known as ozone, is a molecule composed of three oxygen atoms. In the Earth’s atmosphere, ozone plays a dual role, serving as a protective layer in the stratosphere by absorbing harmful ultraviolet radiation from the Sun, while at ground level, it acts as a pollutant, causing respiratory issues and contributing to smog formation.
Takeaway: The United States has made significant progress in air quality since the Clean Air Act of 1963, but climate change is causing a “climate penalty” that is undoing some of that progress. Changes in environmental conditions are causing an increase in specific pollutants such as O3 and PM2.5, contributing to concentrations above safe levels in much of the country. First Street finds that over 83 million people in the US, more than 25% of the population, are already exposed annually to air quality thresholds categorized as “unhealthy” by the Environmental Protection Agency’s (EPA) Air Quality Index (AQI). The most persistently impacted areas of the country are in the West where we have already seen an increase of nearly 2 times as many poor air quality days today compared to the beginning of the century.
🛢️ Diamondback Energy to Purchase Endeavour Energy
Let’s tally the acquisitions in the permian basin to date shall we?
- Exxon to Acquire Pioneer Natural Resources, discussed here. Announced October 11, 2023.
- Chevron to Acquire Hess, discussed here. Announced October 23, 2023.
- Diamondback Energy to Acquire Endeavour Energy. Announced February 12, 2024.
In the span of less than half a year, we have had an astounding amount of M&A activity in the top shale oilfield in the US. This transaction in particular will create the third largest oil and gas producer in the Permian Basin behind Exxon and Chevron which had transactions in October as discussed above. The deal is worth US$26B and the post-takeover company will have a value of ~US$50B.
Per Reuters:
“The combined company would pump 816,000 barrels of oil and gas per day (boepd), behind the Exxon-Pioneer combination of about 1.3 million boepd and Chevron’s 867,000 boepd in the basin.”
This shale merger & acquisition frenzy is largely being driven by the increased profitability that oil & gas companies are experiencing. These profits are being earmarked towards future growth with acqusitions being a proven way to increase proven reserves. This frenzy stands in the face of the IEA declaring (3 years ago) that no new oil & gas fields can be exploited if we meet the goal of net zero emissions by 2050.
The markets awarded Diamondback for this acquisition with the stock popping 9% upon announcement as shown above. If you want to read more into the decision to sell, Reuters covers the story here.
Takeaway It isn’t good news, but it is interesting news. With competition for Endeavour Energy reportedly being stiff it points to continued confidence in oil and gas production in the permian basis, and by extension, beyond. I am hopeful my sentiment regarding the Chevron/Exxon acquisitions are correct, that these are acquisitions as a survival mechanism in the face of likely declining debt in a post-fossil fuel world but honestly this continued dealmaking has me nervous about the longevity of these oil & gas fields.
🌻 Tripling Renewables by 2030
During the COP 28 conference in December of last year, there was an agreement reached by more than 100 countries to triple the deployment of installed renewables by 2030. A new report from Climate Analytics dives into this goal to determine what it will take, and, if it is achievable.
Given the state of deployment of renewables across the world at this point in time, there are various growth rates required by various regions of the world in order to hit the global goal of tripling renewables.
Unsurprisingly, Asia makes the largest contribution to total renewable capacity by 2030 with 5,350 GW /11,510 GW or about 47%. Fortunately, per Climate Analytics, Asia is determined to be the only region that is broadly on track to triple renewables with massive expansion from China and India driving this forecasted achievement.
In lockstep with renewables deployment is the monetary investment required to hit these goals. Financing this deployment will require:
- US$12T in spending through to 2030, an average spend of US$2T per year
- Of the US$12T, US$8T will go towards the deployment of renewables
- The US$4T balance will go towards storage and transmission build out (for reference, we need about 80 million km of new or refurbished grid to accomodate renewables build out)
- Currently we are on track to put US$6.6T into the energy transition and US$6T into fossil fuels under current policies, if we redirect that US$6T… suddenly we get to the required US$12T
Takeaway A 1.5C compatible future requires the non-negotiable tripling (at least) of our deployed renewables capacity. While this seems incredibly ambitious, and it truly is ambitious, I am confident that the inherent human bias to not understand exponential growth is impacting me as I put my thoughts to the paper. A huge amount of capital is required to finance this explosion in capacity and I view capital, with rates where they are, and the grid as the bottlenecks to tripling capacity. The price of the technologies is low but the cost of financing and interconnection are high. We need to solve these problems before tripling renewables is a target within reach.
What Else is in the News
- Qcells, a major player in the U.S. clean energy market, has partnered with Solarcycle to recycle its decommissioned solar panels, marking the first collaboration of its kind in the country. This collaboration aims to create a circular clean energy supply chain, reducing dependence on imported materials and generating jobs. Recycled materials from Qcells’ panels will be reused domestically, thanks to Solarcycle’s advanced recycling technology, which extracts over 95% of a panel’s value. The partnership reflects Qcells’ commitment to sustainability, complementing its plans to invest $2.5 billion in expanding its solar production capacity and creating 4,000 clean energy jobs by 2024. This Qcells news comes just a month after the announcement of them partnering with Microsoft for provision of solar panels as I covered here.
- Here is some drama for your Sunday morning: Scientists warn that the Atlantic Meridional Overturning Circulation (AMOC), a vital system of ocean currents that helps regulate the world’s climate, may be approaching a tipping point. The AMOC plays a crucial role in maintaining milder temperatures in the UK and Western Europe compared to other regions at similar latitudes. If the AMOC were to collapse, it could potentially lead to a new ice age in the UK and Northern Hemisphere, disrupt rainfall patterns, cause sea levels to rise, and have significant impacts on ecosystems and human societies. Further, these effects are nearly irreversible on human timescales.
- Barclays has announced that it will no longer provide direct funding for new oil and gas projects and will restrict lending to energy businesses planning to expand fossil fuel production. The move comes in response to mounting pressure for the bank to curb its support for the sector. While campaign groups have welcomed the decision, they argue that it doesn’t go far enough. Barclays was the largest funder of the fossil fuel sector in Europe between 2016 and 2021, providing just under $16.5bn in 2022. The bank’s new climate change statement also includes restrictions on funding for coal mining and coal-fired power generation.
Thanks for reading!
