In this week’s energy industry analysis, we take a look at priorities for the upcoming United Nations climate change conference, the recent production surge in the Permian Basin, and new Cabinet appointments in Canada.
1. U.N. climate change conference
Next week, the United Kingdom will host the 26th United Nations Climate Change Conference of the Parties—known as COP26—to accelerate action toward the goals of the Paris Agreement and the UN Framework Convention on Climate Change. The conference will be attended by world leaders, high level officials, ministers, energy companies, climate activists, and many of the professional services firms that participate in the industry.
Alok Sharma, president of COP26, has cited several key goals to focus on at the conference. Those include:
- Keeping the goal of 1.5 alive, in reference to the Paris Agreement goal of limiting the increase in global temperatures to 1.5 degrees Celsius
- Ending “unabated” coal use and transitioning to only using coal when greenhouse gas emissions can be captured and stored
- Developed countries providing climate financing to assist developing countries reduce their fossil fuel emissions
- Making all new car sales zero emissions within 14-19 years
- Ending deforestation by the end of the decade
- Reducing methane emissions
While the vast majority of UN member nations are expected to attend, including President Joe Biden, neither Russia’s President Vladimir Putin nor China’s President Xi Jinping plan to be there. Their absence comes at a pivotal time when conversations around China’s energy needs and coal use along with OPEC+ oil production increases are top of mind in the context of global energy needs and the associated effects of climate change.
2. Permian production surge
After a long stretch of production restraint from U.S. shale producers, activity in the Permian Basin is now leading recovery in the country’s shale sector.
“In the face of a worldwide demand surge, the increase in production domestically will help replenish inventory shortages and keep the deficit to moderate levels within the United States,” we wrote this week. “As we look ahead to 2022 and beyond, it is our viewpoint that this supply trend will continue and further temper prices. While high prices may impact middle market companies in the short term, leaders should consider the potential duration of the price surge as a part of their long-term strategy.”
Read our previous blog post to learn more.
3. Trudeau appoints former Greenpeace activist as climate change minister
Canadian Prime Minister Justin Trudeau this week sent a surge of apprehension through the nation’s oil and gas industry with the appointment of two Cabinet members, one of which has a long background in environmental groups and another with a history in the green tech sector.
Canada’s new environment and climate change minister Steven Guilbeault had worked for environmental groups for over two decades and was a senior member of Greenpeace before entering politics with Trudeau’s Liberal party in 2019. (He was notably arrested in 2001 for climbing Toronto’s CN Tower “to draw attention to the issue of climate change,” CBC reported.)
Canada’s previous environment and climate change minister, Jonathan Wilkinson, was appointed as the new minister of natural resources. He brings a background in green tech to a position that has in the past been an advocate for the oil and gas industry.
Guilbeault has opposed every pipeline proposed in Canada, including Keystone XL, Energy East, Northern Gateway, and Trans Mountain, which the federal government purchased in 2018 and whose controversial expansion is underway.
The oil and gas industry can expect to face headwinds with the two new appointments having considerable influence over federal policies on natural resources development. One consequence to restricting natural resource production may, however, benefit the industry; commodity prices will likely remain high.
As demand for natural resources such as oil, natural gas, copper, aluminum, nickel, and even coal remains high amid the global energy and supply chain crisis, prices for these commodities have skyrocketed. Crude oil prices hit a new seven-year high earlier this week. Should commodity prices remain high, it will be interesting to see where investor appetites may shift.