TPT May 2017

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G LOBA L MARKE T P L AC E
60 MAY 2017
Steel
On both sides of the Atlantic, initiatives to
reduce carbon emissions engage entities
beyond the “green” community
“With steel prices falling, multinational steel firms are fighting
to stay alive. But the industry is a heavy user of carbon and
is responsible for 5 per cent of global emissions, which is
putting even more pressure on those domiciled in countries
with tough carbon rules. What to do?”
The question posed by Ken Silverstein in Environmental
Leader stemmed from the passage in early February by the
European Parliament of reforms that would increase the
price of carbon by cutting the emissions allowances granted
to firms. The measures include the European Union’s first
border tax on carbon, levied on cement imports. Reviewing
responses to the EU overture, Mr Silverstein noted Europe’s
steel firms, also heavy users of carbon, were saying that their
exclusion from the scheme is unfair. (“Steel Firms Pressuring
EU to Apply a Carbon Tax Fairly,” 17 February)
Steelmakers in Europe would reportedly pay up to $32 to emit
a ton of carbon while foreign producers selling their product to
the EU would get a free ride, putting the domestic producers
at a disadvantage. In their view, the EU steelmakers are
simply asking their governments to tax all producers equally.
Citing a report in the Economist that CEO Lakshmi Mittal of
ArcelorMittal, the world’s biggest steelmaker, had come out in
favour of the carbon tax, Mr Silverstein wrote that “in theory”,
at least, Europe’s oil industry is also on board. Companies
such as BP, ExxonMobil, Royal Dutch Shell and StatOil do
not, he said, generally advocate for taxes or restrictions; but
they think that such measures would be more efficient than a
patchwork of international laws. Moreover, they have major
investments in natural gas, which is expected to continue to
be the fastest-growing fuel in the US.
In the US, the Climate Leadership Council – comprising
older, establishment stalwarts of President Donald Trump’s
Republican party – have released a plan to begin taxing
carbon at $40 per ton. “The Conservative Case for Carbon
Dividends” lays out a scenario in which that price would rise
each year and carbon emissions would fall.
› The group, which includes former Secretaries of State
James Baker and George Shultz and former Secretary
of the Treasury Henry Paulson, says that revenues of $194bn
would be generated in Year One and increase to $250bn a
decade later. That money would be returned to the American
people in the form of a “dividend”, although separate versions
have suggested it go toward funding newer technologies to
reduce emissions. “If you look at the priorities of President
Trump, our plan ticks every one of his boxes,” said Ted Halstead,
founder and president of the council, at a press conference in
Washington, DC, reported by Scientific American and picked
up by Environmental Leader. “It is pro-growth. It is pro-jobs. It
is pro-competitiveness. It would balance trade. And, last but
hardly least, it would be good for working-class Americans.”
› These ringing assertions prompted Mr Silverstein to
ask another rhetorical question: how do the EU reforms
announced in February compare or differ from this vision? He
did not answer it with very much precision. “Imposing any tax
is difficult,” he wrote. “Getting all governments everywhere
around the world to impose the same tax at the same rate is
even harder.”
Oi l and gas
Energy companies operating in the
Nor th Sea are realising some early benefits
from their reforms
“Business Outlook Report 2017”, published on 7 March by
Oil & Gas UK, attests to a revival in the UK Continental Shelf
(UKCS). According to the non-profit “voice of the UK offshore
industry”, following an intensive two-year drive to improve
efficiency, streamline costs and boost productivity, that industry
is now in better shape to compete for investment. The report
notes that domestic oil and gas production continues to rise
and unit costs are improving, resulting in a more resilient and
globally competitive basin despite ongoing lower commodity
prices. The expectation is that energy companies exploring
and producing in the North Sea will generate positive free
cash flow in 2017 – the first time in four years.
Chockful of buoying statistics, the report points to a further
5 per cent rise in North Sea output to 1.73 million barrels
of oil equivalent per day (mboepd) in 2016. Production has
been rising since 2015, bucking a 15-year trend of decline,
and should continue to rise over the next two years to peak
at between 1.8 and 1.9 mboepd by 2018. Oil & Gas UK
attributes this to recent strong investment in new development
– bringing a total of 34 new fields into production since 2013 –
as well as to improved productivity on existing fields. A further
13 to 18 new fields could start producing this year, building
on that success. By 2018, recent start-ups are expected to
constitute around one-third of UKCS production.
Efforts to bring the industry’s costs under control are also seen
as effective. Average unit operating costs have improved by
half within two years from $29.70 per barrel to $15.30/bbl.
Capital efficiency is also improving. Oil & Gas UK identified a
reduction in development costs for newly approved projects
of over 50 per cent since 2013, and expects these costs to be
lower still in 2017.
› Deirdre Michie, CEO of Oil & Gas UK, duly took note of
the “considerable” challenges ahead for UK North Sea
operators, particularly for companies in the supply chain. To
address these, the trade body is appealing to the Treasury
to extend the investment allowance to operational activities
focused on maximising economic recovery. “Business Outlook
Report 2017” also pointed out that exploration in the North Sea
remains at record lows. In its view, if the UK is to unlock its
remaining estimated resource of up to 20 billion barrels of oil
and gas, the basin urgently needs fresh capital to stimulate
activity. Even so, according to Ms Michie, “Confidence is
slowly returning to the basin.”