Honda Clarity grows from one-shot to series

Honda Clarity times three For years, the Honda Clarity has been one thing: a hydrogen fuel-cell-powered sedan available for lease to a vetted group of early adopters in California. Now in its third generation, the Honda Clarity fuel-cell car is still basically that. But it’s getting a couple of friends. This year, the Honda Clarity adds two new versions: an all-electric car and a plug-in hybrid. Read More

Banks see electric car industry revving up and ushering in an energy fortune

By Ambrose Evans-Pritchard

Morgan Stanley is betting that electric cars will corner 70 per cent of the European vehicle market by the middle of the century, leading to upheaval for the power sector and a scramble for dominance of lucrative new technologies.

Global banks in London and New York are no longer debating whether the switch-over will occur. Research reports have shifted to granular analysis over what this means for large swathes of the economy, and who will be the winners and losers as the old edifice crumbles.

Morgan Stanley says in a report this week that a ratchet effect is under way. It’s becoming more costly each year to develop petrol and diesel cars that comply with tightening rules on emissions of CO2 and particulates (NOx), yet the cost of electric-vehicle (EV) batteries keeps falling. The crossover point will arrive in the mid-2020s.

EV sales

The US bank expects global EV sales to reach one billion annually by 2050, pulling ahead of internal combustion engines. The switch could take place much faster. A widely-cited report by Tony Seba and James Arbib at think tank RethinkX argues it will make no sense to make fossil-fuel driven cars, trucks, buses, or tractors within a decade.

The US pioneer Tesla – worth more on Wall Street than General Motors or Ford – is targeting annual sales of one million EVs within three years. It is mulling a joint venture in China, the biggest market for zero-emission cars.

China has banned petrol motorbikes, leading to a massive switch to EV two-wheelers. Some 230 million are on the roads. Under draft proposals from the industry ministry, all car companies will have to reach an EV quota of 8 per cent of sales from next year, 10 per cent by 2019, and 12 per cent by 2020.

Morgan Stanley said it would be “very difficult” for Volkswagen, BMW, and Mercedes to comply with this. They will hit a sales cap in China. This will be a rude shock.

Whether China’s breakneck drive for EVs lowers CO2 emissions is an open question. This depends on how quickly it cuts reliance on coal plants – down 8 per cent in two years – and shifts to gas, nuclear, and renewables.

In Japan, Honda is betting its future on EVs, aiming to raise the sales share to two-thirds by 2030. Ford plans 13 new EV models in the next three years.

In Europe, Renault-Nissan is targeting 1.5 million EVs sales a year by 2020, and Volvo 1 million by 2025; Volkswagen is scrambling to make up lost ground with plans for 2 million to 3 million annually by 2025.

Power companies

A parallel battle is under way among power companies, each eyeing control of ultra-fast charging points in the way that US railroad barons sought to snap up land in the late 19th century. Even more money will be made from the “big data” networks that underpin EV technology. Chargemaster in the UK runs a network of public charging stations called POLAR. ChargePoint in the US offers an ultra-fast unit enabling “hundreds of miles of range in under 15 minutes”.

Morgan Stanley expects up to 3 million public charging stations in Europe by 2050, up from 100,000 today. They will be ubiquitous. Smart phones will locate them instantly. “Range angst” will rapidly fade. Britain’s National Grid has carried out advance planning under its Future Energy Scenario and is eyeing a network of fast-chargers for the motorways. It estimates there could be 6 million EVs in Britain by 2030 under a “Gone Green” assumption.

A string of European firms are jostling to seize the lead in their home markets, with SSE in the UK, Innogy, EON, Iberdrola, Enel, Fortum, EDP, ABB, and Schneider Electric, all pushing ahead with expansion plans.

They are watching developments closely in Norway. The country is close to 30 per cent penetration for EVs, achieved by tax-free status and waivers on toll roads, as well as free parking until 2016.

Germany’s Bundesrat has voted to ban the sale of new fossil-fuel cars by 2030. This is not binding but it is a straw in the wind. In Italy, EVs are tax-exempt for five years. France offers euros 6,300 subsidies for EVs.

Nicholas Ashworth from Morgan Stanley says electrification will break the existing system with time. Utility companies should have no trouble over the next decade but the extra power required to recharge a European fleet of 150 million cars in 2050 would be equivalent to “another Germany” springing into being.

Nobody knows how much could be achieved by shifting to off-peak hours through smart grids and variable tariffs. Nor whether car batteries will act as a major storage reservoir.

Everything is up in the air. All we know is that vast sums are at stake and vested interests that fail to adapt in time will be wiped out.

Cenovus facing tough market for critical sale of $5 billion in energy assets

CALGARY — Cenovus Energy Inc’s efforts to sell $5 billion of energy assets, already facing a rocky road because weak oil prices are depressing the appetite for deals, has become complicated by the surprise departure of its chief executive officer, fund managers said.

Brian Ferguson’s announcement on Tuesday that he will step down as CEO in October is the latest sign of tumult within Canada’s oilsands industry, which has seen international oil majors dump $22.5 billion in assets this year alone.

It follows Cenovus’ unpopular, debt-fueled $13.3 billion purchase of ConocoPhillips’ oilsands and natural gas assets in March, which sparked a near 50 per cent fall in Cenovus shares.

Cenovus’ aim to pay down debt to restore its once-pristine balance sheet now hinges on selling conventional oil and gas assets in a market with a shrinking pool of buyers as oil prices hit 10-month lows around US$42 a barrel.

“Everybody knows they are selling and that they have a weak hand. (The divestitures) are not impossible and they have good assets, but it’s challenging,” said John Stephenson, president of Stephenson & Co Capital Management. He said Cenovus needs to repair its balance sheet and find a credible CEO replacement to look attractive again.

His fund has sold around 85 per cent of its Cenovus holding since the ConocoPhillips deal.

Drilling for oil and gas in western Canada is relatively expensive compared with other parts of the world, making these assets less appealing.

Fierce opposition to new crude oil export pipelines like Kinder Morgan’s Trans Mountain expansion project and stricter environmental regulations than in the United States are also likely to be of concern to potential buyers.

Cenovus should be able to achieve at least the low end of its divestiture target, said Ryan Bushell, portfolio manager at Leon Frazer & Associates Inc, which is a shareholder. But doing so would depend on commodity prices and finding buyers with a positive long-term view on the oil market, he added.

The pool of potential buyers is limited. Global majors like Royal Dutch Shell have already cut back operations in Canada, and large domestic firms like Canadian Natural Resources Ltd are digesting sizeable acquisitions.

Small- and medium-sized companies whose share prices have taken a battering from more than two years of depressed oil prices are likely to struggle to raise the equity to fund acquisitions, analysts said.

“Many shareholders will be wanting management to be prudent and not issue equity at such depressed levels, which will naturally take buyers out of the bidding process,” said Jeremy McCrea, an analyst with Raymond James.

Mid-sized conventional producers Painted Pony Energy Ltd and Cardinal Energy Ltd issued equity to fund acquisitions this year, and saw their share prices slump as a result.

For Cenovus shareholders, who are sitting on about a $10 billion paper loss, ConocoPhillips’ impending sale of its 20 per cent stake in the company is another factor to weigh on the stock on top of the current challenges.

Ratings agencies DBRS is currently reviewing Cenovus’ credit rating, spokesman Scott Anderson said. DBRS placed Cenovus, which it rates BBB, under review with negative implications after the ConocoPhillips deal and said a rating downgrade is likely depending on proceeds from asset sales.

© Thomson Reuters 2017

Obama’s Energy Secretary is starting a low-carbon energy think tank

Former Energy Secretary Ernest Moniz announced that he is establishing an energy-focused think tank to provide research and analysis for state and local governments, industry leaders, and NGOs.

The organization, called Energy Futures Initiative (EFI), aims to provide analytical and technical reports on a wide variety of energy-related topics. The first eight topics that EFI will address are listed on its website and cover areas from “Modernizing the North American Energy Sector” to “Decarbonization of Energy Systems” and “Evolution of Natural Gas Markets.”

The EFI’s first study, called “Modernizing the North American Energy Sector,” is due in the fall, and group spokesman David Ellis said that the group is currently working on three or four topics. The report will take a look at baseload energy and grid reliability, with a view to providing strategies for regional energy authorities to modernize their systems and improve reliability. That may sound startlingly similar to a baseload study that current DOE secretary Rick Perry has ordered, which is due out at the end of this month. But in his Wednesday morning announcement at the National Press Club in Washington, DC, Moniz stressed that EFI’s study is not in response or related to Perry’s study. “I want to emphasize that this… initiative has been in formation now since—basically since we left the Department in January. It is not in response to recent events.”

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Saudi king empowers 31-year-old son in succession shake-up

By Stephen Kalin and William Maclean

Saudi Arabia’s King Salman made his son next in line to the throne on Wednesday, handing the 31-year-old sweeping powers as the kingdom seeks radical overhaul of its oil-dependent economy and faces mounting tensions with regional rival Iran.

Although Mohammed bin Salman’s promotion to crown prince had long been expected among those who follow the royal family closely, the timing was a surprise, and puts the kingdom’s future in relatively untested hands.

Mohammed bin Salman replaces his cousin, Prince Mohammed bin Nayef, a veteran security chief who led the Saudi campaign against Islamic State and al Qaeda, at a time when Riyadh faces heightened tensions with Qatar and Iran and is locked into a war in Yemen.

His appointment may make Saudi policy more hawkish against arch-rival Iran and other Gulf rivals such as Qatar, increasing volatility in an already unstable region, analysts say.

“Under his watch, Saudi Arabia has developed aggressive foreign policies (Yemen, Qatar) and he has not been shy about making strong statements against Iran,” said Olivier Jakob at Switzerland-based oil consultancy Petromatrix.

“It is not really a question of if, but rather of when, a new escalation with Iran starts,” he added.

Iran, Saudi Arabia’s main rival for regional influence, called Prince Mohammed’s appointment a “soft coup.”

Its leadership was critical of comments by Prince Mohammed last month that the “battle” should be taken into Iran, with Supreme Leader Ayatollah Ali Khamenei labeling the Saudi leaders then as “idiots.”

Iran, which is predominantly Shi’ite Muslim, and Saudi Arabia, which is mostly Sunni, compete for power and influence across the region. The two countries support opposite sides in the conflicts in both Syria and Yemen.

U.S. President Donald Trump made his first speech abroad in Riyadh last month, aligning with the views of his hosts in singling out Iran as a source of support for militant groups. He met separately with Mohammed bin Salman during the visit.

Washington did not have advance warning of the young prince’s promotion but could see it coming, a senior U.S. administration official said.

“This is why the president has tried to foster good relations with him,” the official told Reuters.

Analysts say the young prince’s rapid rise has created friction within the ruling family, however, and made Saudi policy less predictable than in recent decades.

Favourite son

The reshuffle sparked speculation on Twitter about a possible future abdication by the octogenarian King Salman bin Abdulaziz Al Saud in favor of his son, whose youth and dynamism have appealed to younger Saudis who make up the majority in society and are often eager for change.

After decades in which the same small group of princes handled Saudi affairs on the world stage, Prince Mohammed has led diplomacy with global powers, reportedly charming both U.S. President Donald Trump and Russian President Vladimir Putin.

He was appointed crown prince and deputy prime minister by royal decree, but he retains the defense portfolio and still controls oil and economic policies.

Mohammed bin Nayef, the king’s nephew and a counter-terrorism chief admired in Washington for putting down an al Qaeda campaign of bombings in 2003-06, was relieved of all his posts, according to the decree.

The decree said the decision by King Salman to promote his son and consolidate his power was endorsed by 31 out of 34 members of the Allegiance Council, made up of senior members of the ruling Al Saud family.

Intent on dispelling speculation of internal divisions in the ruling dynasty, Saudi television was quick to show that the change in succession was amicable and supported by the family.

Throughout the early morning it repeatedly aired footage of Mohammed bin Nayef pledging allegiance to the younger Mohammed bin Salman, who knelt and kissed his older cousin’s hand.

“I am content,” Prince Mohammed bin Nayef said. Prince Mohammed bin Salman replied: “We will not give up taking your guidance and advice.”

No power struggle

Analysts said the change ends uncertainty over succession and empowers Mohammed bin Salman to move faster with his plan to reduce the kingdom’s dependence on oil, which includes the partial privatization of state oil company Aramco.

“The change is a huge boost to the economic reform program… Prince Mohammed bin Salman (MbS) is its architect,” said John Sfakianakis, director of the Gulf Research Centre.

Bernard Haykel, professor of Near Eastern Studies at Princeton, said the king’s decision was aimed at avoiding a power struggle between his son and Mohammed bin Nayef by setting the line of succession out clearly.

“It’s clearly a transition that has happened smoothly and bloodlessly. Now it’s clear, it’s straightforward. That kind of clarity lowers the risk. There’s no question as to who’s going to be in charge.”

Saudi Arabia’s stock market surged after Prince Mohammed’s promotion was announced, closing more than 5 per cent up on the day.

“Some people were predicting that this would lead to a division in the family and strife and some kind of revolt. I don’t see that happening,” Haykel said.

Arab leaders, including Oman’s Sultan Qaboos, Jordan’s King Abdullah, Egypt’s Abdel Fattah al-Sisi and Yemeni President Abd-Rabbu Mansour Hadi congratulated Prince Mohammed bin Salman on his appointment, according to state media.

The royal decree did not nominate a new deputy crown prince. The position is relatively new in Saudi Arabia, where kings have traditionally chosen their own successors.

In an apparent attempt to appease the family, the decree had a clause that made clear that Mohammed bin Salman won’t be allowed to appoint one of his own sons as his successor.

It also appointed young princes from other branches of the family to government roles, seemingly to reassure them that they will remain part of the ruling structure.

As deputy crown prince, Mohammed bin Salman has been responsible for running Saudi Arabia’s war in Yemen, dictating an energy policy with global implications and spearheading plans for the kingdom to build an economic future after oil.

Power behind the throne

Until his father became Saudi Arabia’s seventh king in January 2015, few people outside the kingdom had ever heard of Prince Mohammed.

He is currently defense minister, giving him command of one of the world’s biggest arms budgets and making him ultimately responsible for Saudi Arabia’s military adventure in Yemen.

Prince Mohammed chairs the supreme board of Aramco, making him the first member of the ruling family to directly oversee the state oil company, long regarded as the preserve of commoner technocrats.

But perhaps most importantly, he is the gatekeeper to his father, King Salman, who in Saudi Arabia’s absolute monarchy retains the final say in any major decision of state.

Outside Saudi Arabia, that rapid rise and the sudden changes to longstanding policies on regional affairs, energy and its economy have prompted unease, adding an unpredictable edge to a kingdom that allies long regarded as a known quantity.

Inside, they have prompted admiration among many younger Saudis who regard his ascent as evidence that their generation is taking a central place in running a country whose patriarchal traditions have for decades made power the province of the old.

Oil hasn’t had this bad a first half of the year in two decades

By Amanda Cooper

LONDON — Oil steadied on Wednesday, paring earlier losses, but was set for its largest price slide in the first half of any year for the past two decades, as investors discounted evidence of strong compliance by major producers with a deal to cut global output.

August Brent crude futures were flat at US$46.02 a barrel by 1107 GMT, having fallen earlier to seven-month lows.

U.S. crude futures for August delivery were up 4 cents at US$43.55, having hit their lowest since September on Tuesday.

So far this year, oil has lost 20 per cent in value, its worst performance for the first six months of the year since 1997.

Compliance with an agreement by the Organization of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day from January reached its highest in May since the curbs were agreed last year.

“The slide in oil prices seems to be unstoppable,” said Julius Baer commodities research analyst Carsten Menke.

“The supply deal’s effectiveness is increasingly questioned. We believe that downside risks to oil prices from a (disorderly) and early unwinding have risen … we still see prices trading sideways, spending more time in the high 40s than the low 50s as growing shale output and stagnant western-world oil demand undermine the Middle East’s restriction efforts.”

Data from the American Petroleum Institute on Tuesday showed U.S. crude stockpiles last week had dropped more than forecast. Gasoline and distillate inventories rose.

A government report on inventories is due at 10:30 a.m. EDT (1430 GMT) on Wednesday and the official figures often differ sharply from those of the industry group.

OPEC and non-OPEC oil producers’ compliance with the output deal reached 106 per cent in May, a source familiar with the matter said on Tuesday. That means they cut output by more than they were required to do.

OPEC compliance with the curbs was 108 per cent, while non-OPEC compliance was 100 per cent, the source said. Another source confirmed compliance by all producers in May was 106 per cent.

While compliance is high, it is what went on before the production cut that counts, BMI Research said in a note.

“A number of producers – notably Iraq, Saudi Arabia and Russia – aggressively ramped up output in the run-up to the deal, fast-tracking projects, expanding drilling programs and deploying spare capacity,” BMI said.

© Thomson Reuters 2017

Qatar wealth fund boosts dollar deposits in local banks

Qatar’s sovereign wealth fund has injected deposits into local banks to shore up liquidity as an ongoing Saudi-led campaign to isolate the gas-rich Arab state hurts lenders, according to people familiar with the matter.

Qatar Investment Authority (QIA) has placed billions of dollars of cash with Qatari lenders after some banks in Saudi Arabia, the United Arab Emirates (U.A.E.) and Bahrain started withdrawing funds from the country amid the standoff, the people said, asking not to be identified because the information is private. The exact amount of funding provided by the sovereign fund isn’t clear, they said.

The QIA, which owns stakes in global companies ranging from Glencore Plc to Barclays Plc, has since told lenders that it won’t be making any more deposits directly and that any future funding will come from the central bank, one of the people said. Representatives for the QIA declined to comment.

Tensions between Qatar, one of the world’s richest countries and the biggest producer of liquefied natural gas, and its neighbors are escalating after Saudi Arabia, Bahrain, Egypt and the U.A.E. cut diplomatic relations and closed transport routes three weeks ago. Some banks in these countries are cutting their exposure to Qatar amid concerns of a widening of the blockade, people familiar with the matter said earlier this month.

Financial crisis

This isn’t the first time that the QIA has stepped in to support local lenders. In 2009, the fund took equity stakes in Qatari banks and agreed to buy their real-estate portfolios to limit the impact of the global credit crisis, strengthen capital and ensure funding for projects. The QIA is the biggest shareholder in Qatar National Bank SAQ, the region’s largest lender, with a 52 per cent stake, according to data compiled by Bloomberg.

Qatar has enough financial firepower to defend its currency and economy, Finance Minister Ali Shareef Al Emadi told CNBC in an interview broadcast last week, while the regulator said that the banking system was functioning without disruption.

 

Studies say ARPA-E, EPA programs have worked well, contrary to political rhetoric

An independent review of ARPA-E and a graduate study program offered by the EPA has found that the two embattled, federally funded grant programs are necessary, contrary to claims made by Washington. The studies relied on years of record-keeping and could be useful for politicians arguing against the aggressive budget cuts to the Environmental Protection Agency (EPA) and the Department of Energy (DOE) proposed by the Trump administration.

The studies focused on the DOE’s ARPA-E (or Advanced Research Projects Agency-Energy) program and the EPA’s STAR (Science To Achieve Results) program. The Trump administration has proposed that funding be cut entirely for ARPA-E and that funding for the EPA’s Office of Research and Development (which directed the STAR program) be cut by half.

Both studies were conducted by the National Academies of Sciences—the ARPA-E study was conducted at Congress’ request, and the EPA STAR study was conducted at the EPA’s own request.

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