Weekly Climate Recap: Chevron, Politics of EVs, Hurricane Otis
This week sees Chevron acquiring Hess in a transaction that is similar yet very different from the Exxon acquisition. Additionally, some research has shown the politicization of EVs and hurricane Otic wreaks havoc in Mexico.
⛽ Chevron Acquires Hess
In a transaction that will make you say, “wait didn’t I hear about this two weeks ago?” Chevron announced on October 23 2023 that it entered into a definitive agreement to acquire all shares of Hess Corporation for a transaction valued at US$53B. The total enterprise value of the transaction is US$60B. This transaction comes on the heels of Exxon’s acquisition of Pioneer Natural Resources that I wrote about 2 weeks ago. While this may give you déjà vu, this transaction is actually quite different than Exxon’s. While Pioneer operates in the Permian Basin, Hess has operations concentrated in the shale patch in North Dakota, offshore in the Gulf of Mexico, and offshore at Guyana, as well as gas operations in the Gulf of Thailand.
Interestingly, mentions of the energy transition were also in the transaction press release, though to a lesser extent than in the Exxon announcement.
“The acquisition of Hess upgrades and diversifies Chevron’s already advantaged portfolio. The Stabroek block in Guyana is an extraordinary asset with industry leading cash margins and low carbon intensity that is expected to deliver production growth into the next decade.”
and
“Importantly, our two companies have similar values and cultures, with a focus on operating safely and with integrity, attracting and developing the best people, making positive contributions to our communities and delivering higher returns and lower carbon.”
Finally
“Chevron has a world-class diversified portfolio of assets and one of the industry’s strongest balance sheets and cash return profiles. I believe our strategic combination creates a company that is stronger in every respect, with the leadership, asset portfolio and financial resources to lead us through the energy transition and deliver significant shareholder value for years to come.”
Similar to my commentary on the Exxon acquisition, Chevron acquiring Hess point to oil supermajors belief in the long term nature of our society needing oil and gas regardless of net zero goals and decarbonization plans.
Takeaway: The forecasting demand for fossil fuels that Exxon and Chevron anticipate based on their transactions is inconsistent with the commitments and scaling down of fossil fuel production required to meet Paris Agreement targets to limit warming. One view on these recent consolidations is that of acquisitions to survive. With increasingly cheap renewables, geopolitical uncertainty impacting prices, and an increased knowledge on the role fossil fuel companies play in global warming may be driving these acquisitions as scale may be key to survive the coming decades for this industry.
⚡ Electric Vehicles get Political
A new working paper from the Energy Institute at Haas dives into the political ideology of U.S. EV adoption. The researchers used county level data on new vehicle registrations from 2012–2022 in the united states and analyzed how EV adoption is concentrated in the furthest left counties.
The report has some interesting takeaways in addition to the above scatterplot.
- During the analyzed time period, ~50% of all new sales of EVs went to the 10% most democrat counties with approximately 1/3 going to the top 5%. This manifests in the affluent counties driving the increases in EV adoption
- There is little evidence to support the fact that the correlation between political belief and EV adoption has decreased over time. Reportedly, as late as 2022, ~50% of all new EVs went to the 10% most democrat counties and 1/3 went to the top 5%. This has no clear negative trend.
As covered by Forbes, in a New York Times interview, the great-grandson of Henry Ford and current Ford Motor Company Executive Chair Bill Ford said:
“Blue states say EVs are great and we need to adopt them as soon as possible for climate reasons. Some of the red states say this is just like the vaccine, and it’s being shoved down our throat by the government, and we don’t want it,”
Takeaway: This trend is both extremely interesting and unfortunate. A technology that represents a cleaner, more efficient, and increasingly cheaper option to everyone has been politicized to the extent that mass adoption as required to meet our climate goals faces stiff opposition. This political opposition represents a huge challenge to overcome. Should right leaning parties take power, incentives for these products and programs to encourage adoption are at risk. EVs getting political helps no one.
🌀 Hurricane Otis
A Hurricane Otis swept through Mexico leaving massive death and devastation behind. The storm reached wind speeds of 266 km/h and tore trees out of the ground, flooded hospitals, and left a reported 27 people dead. The storm went through a rapid intensification as it approached the coast of Mexico that surprised meteorologists and represents a failure to predict the nature of the storm.
The combination of climate change and an El Nino year created hotter than normal ocean temperatures that created water that was hotter at deeper temperatures and thus fuelled a stronger hurricane. A study published earlier in the month finds that quick intensifying hurricanes intensification have increased as emissions have increased.
Takeaway: Climate change impacts extend to increase the frequency and severity of storms. It is one of the consequences of our continued emissions and is a clear negative impact. As our water gets hotter due to average increasing temperatures these storms will only become more frequent. The money required to recover from these events represents capital that could have been allocated to more productive endeavours if our actions did not cause the frequency of these storms to increase.
What Else is in the News
- Li-Cycle, a Canadian battery recycling company, announced plans to pause construction on their Rochester Hub project in an announcement that sent their stock plummeting 46%. This announcement comes on the back of reported escalating construction costs. Further, LiCycle received a US$375 million loan commitment from the Department of Energy through the Advanced Technology Vehicles Manufacturing program for the project so it will be interesting to see how this shapes out for the company.
- Earlier in the week, Governor Hochul of New York announced the United States’ largest ever state investment in renewables. The announced projects include 3 offshore wind projects and 22 onshore renewables projects (not exclusively wind), together totalling 6.4 GW. This announcement comes days after the New York State Public Service Commission announced that they would not be altering contracts previously awarded to renewables developers despite the change in the world that has left rates high and challenged the economics of these projects
- In a decision delivered Monday by the US Supreme Court, a law in Texas that banned non-incumbent companies from building transmission in Texas violated the US Constitution Commerce Clause. With the vast amount of transmission that needs to be built, it is a major issue to determine who is able to / responsible to build transmission in the country in order to connect more renewables. This decision is incredibly important and enables more entities to construct the required infrastructure.
