What Harvey Taught Us: Lessons From The Energy Industry

By Dr. Latha Ramchand, Dean, Bauer College of Business, University of Houston and Dr. Ramanan Krishnamoorti, Chief Energy Officer, University of Houston

The last week of August 2017 will remain etched in Houston’s memory for a long time to come. The week started with a total solar eclipse that captured the nation’s imagination. Then, Harvey made landfall on Aug. 25.

Dumping more than 51 inches of rain in some areas, Harvey gave new meaning to flooding.  Damaging more than 148,000 single family homes, 163,000 apartments and more than 500,000 vehicles, Harvey also is responsible for 88 fatalities.

The storm’s impact on the energy supply chain was significant, too.  Airports, roads and freight were affected, including about 10% of the nation’s trucking business. Harvey shut down 22% of nation’s refining capacity, 25% of oil production in the Gulf of Mexico and half of both the production of organic chemical and plastics resin and of natural gas in the Eagle Ford. Fuel shortages (perceived or real) hit Houston, Austin and Dallas.

So how did the industry deal with the disaster? We interviewed key decision-makers from a dozen companies to find out what they had learned from the past and what should be changed before future storms. And we asked their thoughts on remaining and growing their organizations along the Gulf Coast, a geographic region prone to severe weather.

This wasn’t the industry’s first test, although past emergency management plans mostly addressed hurricane-force winds and storm surge.  Massive rain and inland flooding on the scale witnessed during Harvey was unprecedented. In addition to facilities and operations, approximately 10% of industry personnel were impacted, as was access to offices, and industrial sites.  In short mobility was curtailed for 7 days for over six million people.  Harvey was unique.

After Superstorm Sandy, the Department of Energy (DOE) requested the National Petroleum Council (NPC) to study emergency preparedness, which led to a series of recommendations. These revolved around coordinating industry efforts with those of federal, state and local agencies to make sure emergency management plans reflect energy system interdependencies in responding to regional and national disruption.

The American Petroleum Institute has protocols for members to use during emergencies while maintaining compliance with antitrust laws that limit information-sharing across companies. During emergencies, the electric power utilities operate under rules set by the Federal Energy Regulatory Commission and in the state of Texas by ERCOT, which operates most of the state’s electric grid.  In addition, in Texas the Fuel Team, a state level coordinating council, brings together industry and the public sector to help coordinate relief efforts, including the ports, Federal Emergency Management Agency, the Department of Public Safety, Department of Transportation, health care and local emergency management officials.

While the framework for disaster planning was in place, Harvey tested its effectiveness.


Is This A Normal Business Cycle, Or Are We Seeing Structural Changes To The Energy Business?

By William “Bill” Maloney, Energy Advisory Board, University of Houston

There are many aspects of what we are experiencing today in energy markets that can lead you to believe we are simply in another commodity cycle. In years past we have seen the low-cost producers maintain production to capture market share. We have also seen production cuts aimed at balancing supply and demand. Today we are approaching a delicate supply-and-demand balance. We see oil prices firming as a result.

However, I do not believe this is the entire story. My view is that there are four factors impacting the energy business that will lead to long-term structural change. They are:

  1. Changing of the guard: We are witnessing a change in the type of individual running some of the largest energy companies.  ExxonMobil, Chevron, Shell, Total and Statoil are all currently or about to be run by people who have significant downstream experience. Why is that important? The downstream sector of the energy business (refining, chemicals and marketing) has had to live with thin margins forever. So the focus on cost cutting and a relentless drive for improvement has always been part of downstream’s DNA. Now the same drive to control costs and improve profitability will be happening across all sectors within these companies – upstream, downstream and new energy.
  2. Costs: We have experienced a large reduction in the cost of doing business especially in the upstream sector. Service companies are hurting and struggle to make a profit at current commodity prices. As supply and demand comes into balance and prices firm we will likely see some increase in costs. However, an argument can also be made that a significant percentage, perhaps up to 50% of the cost reductions we have witnessed are both structural and sustainable. Many publicly traded companies are disclosing how they are now profitable at $50 a barrel. They have made changes to their businesses in the form of greater efficiency, fewer staff and the application of technology. In my view, there is no going back. Having worked hard to make these changes, companies are not likely to abandon all the good work they have done.
  3. Climate: Many oil and gas companies are working toward producing cleaner and greener energy. Many states in the U.S. and countries outside the U.S. are demanding a stoppage or significant reduction to flaring. Companies are spending more money on various forms of clean and renewable energy. Looking toward the future we can already see that power generation, heating in buildings and passenger cars are all changing and will result in less carbon usage in decades to come. We are clearly on a long journey, which will result in the world changing to a lower carbon society.
  4. Financial markets: We have just finished third quarter earnings reporting. The financial markets are pushing companies for even more capital discipline and even further improvements on returns. Some companies are almost bragging about their ability to lower costs and be robust at current commodity prices. Right now only the best projects, especially offshore oil and gas, are being funded. Non-core or non-competitive assets in company portfolios are being sold to others that can see better profitability. No longer are the headlines being about growth in reserves. Rather the conversation is all about the growth in profits.

These four factors will have a large impact on the energy business going forward and will lead to some structural change. Recently I was talking about this on a radio program and the interviewer asked, “What about the state run companies? Will they be doing what you describe as well?” My answer was first, we are all aware that Saudi Aramco is getting ready for an initial public offering (IPO). When that happens, Saudi Aramco will be subject to the same pressure from financial markets that I have mentioned. In addition to that, if any company, be they public, private or state run, can increase profitability, bring down costs and produce cleaner energy, it is a win for all concerned. So my view is that state controlled companies have as much to gain as public companies in running their businesses as efficiently as possible.

I would like to mention one more thing. The structural changes outlined above will not circumvent commodity cycles. Companies have adjusted to a low price environment by cutting costs, lowering capital expenditures, deferring projects, layoffs and some have even cut their dividend. There will come a time where this underinvestment will manifest in a supply shortage. As a world, we use over 30 billion barrels of oil a year. We are currently not replacing the reserves we produce by a wide margin. Additionally, oil fields naturally decline at 5% each year, although I continue to marvel at how advances in technology enable the industry to slow that decline.

In any case, at some point in the next decade we could very well see a supply shortage due to the massive underinvestment we are witnessing at the moment. Related to this, some believe that shale in the U.S. can come to the rescue. I would not count on that. Today the onshore U.S. produces approximately 8% of total world oil production. It is hard to visualize a world where shale can take the place of a large portion of today’s conventional oil production.

In closing, many people ask me what the future will look like, especially for jobs in the energy industry. Bringing reliable energy to the world’s population will always be a priority for any energy company. The fundamentals of science and engineering will never go away. They are the foundation of the energy business.

Technology will improve and as it does, it will only enhance our ability to safely and efficiently bring energy to the world. So my view is that while today things may look tough for employment in energy, the future is bright. The world needs energy and it needs smart dedicated men and women to deliver that energy.

William “Bill” Maloney has been a member of the University of Houston’s Energy Advisory Board since 2014. He is currently on the Board of Directors of Trident Energy and serves as an energy advisor to Warburg Pincus. Bill retired from Statoil in 2015, where he was Executive Vice President, leading the business area Development and Production North America. Bill attended Syracuse University where he received an MS in geology.

Robin Hood Rides Again: Lifting The Electric Vehicle Tax Credit

By Chris Ross, Executive Professor, C.T. Bauer College of Business, University of Houston

The recently issued House GOP tax overhaul bill proposes to eliminate the $7,500 federal tax credit for battery electric vehicle (BEV) purchases. This subsidy was introduced in 2012 and applies only to the first 200,000 BEVs sold by each manufacturer.

A smaller tax rebate has been available for plug-in hybrid electric vehicles, or PHEVs, since 2016. In California, BEV manufacturers can also benefit from sales of clean air credits through the sale of zero emission vehicles, funded by manufacturers who sell the internal combustion engine vehicles that most people choose to drive.

These tax credits and other benefits are generally intended to reduce greenhouse gases and on-road emissions of toxic pollutants in urban areas. There is a widespread belief that BEVs represent the future and will steadily displace internal-combustion-powered vehicles in the global vehicle fleet.

BEV advocates worry that cutting the subsidies will slow the growth of electric vehicles. But the reality is more complex.

As important as tax rebates in promoting BEVs is the aggressive Corporate Average Fuel Efficiency (CAFE) standards imposed by the Obama administration in 2012 as a measure to “reduce our dependence on foreign oil,” as well as reduce emissions. This will require manufacturers’ sales of cars and light trucks to average 54.5 mpg in model year 2025, up from a mandated 35.5 mpg for model year 2017. The standards and their penalties are under review by the Trump administration, and in July 2017 the National Highway Traffic Safety Administration (NHTSA) of the Department of Transportation filed in the Federal Register:

“NHTSA seeks comment on whether and how to amend the civil penalty rate for violations of Corporate Average Fuel Economy (CAFE) standards. NHTSA initially raised the civil penalty rate for CAFE standard violations for inflation in 2016, but upon further consideration, NHTSA believes that obtaining additional public input on how to proceed with CAFE civil penalties in the future will be helpful.”

There is a lot to like about BEVs. Neighbors of mine both recently retired after long careers as engineers for major oil companies and immediately acquired a Tesla Model S. They are enraptured with its design, extraordinary torque and technological sophistication. Doubtless, the tax credit helped them decide; there is gratification beyond economics in receiving money from, rather than sending it to, the IRS. But the Tesla Model S probably would have competed well with conventional vehicles in the luxury car niche even without the tax credit.

The tax credit is more important outside the luxury niche, but the CAFE standards may be more important still. A Bloomberg report estimated that GM was selling its Bolt BEV at a loss of $8,000 or $9,000 per vehicle, presumably hoping to recover the costs through lower penalties from failing to meet increasingly stringent CAFE standards. In this case the costs are being borne ultimately by GM’s shareholders. If the CAFE standards are relaxed and penalties reduced, GM may have to answer questions from shareholders on whether this was a wise use of resources.

The answer will probably be yes, on the grounds that battery costs are declining such that the BEV niche may expand beyond the luxury sector. Nevertheless, there remain barriers to BEV penetration rates:

  • Range anxiety: The Chevy Bolt takes about 10 hours to fully recharge from empty to its full range of 238 miles at a home 24 Volt/32 Amp charging unit in your garage; there are a limited number of publicly available DC power fast-charging stations to top up. This suggests that the Bolt would be best suited for commuting or short trips, which limits its functionality.
  • Full cycle cost: The Bolt received very positive reviews but remains expensive for a small hatchback when fully equipped, relative to its internal combustion engine competitors. It would be economically more attractive if gasoline prices increase while the price of natural gas – which in many areas is the marginal source of the electricity that powers these vehicles — stays low. Thus, BEVs will be most competitive where gasoline is highly taxed and power is relatively inexpensive.
  • Social costs: Cobalt, which is required to stabilize lithium ion batteries, is largely found in parts of the Congo renowned for human rights violations and abusive workforce practices.
  • Battery recycling: As BEVs penetrate the vehicle fleet and batteries wear out, a new industry will be required to recycle the spent batteries and separate the component materials.

These barriers will put brakes on the penetration rate of BEVs.

There will doubtless be an angry response to the GOP proposal, but its effect will be minimal. Tesla will likely reach the 200,000 battery electric vehicle mark in early 2018, followed quickly by GM and Nissan, so killing the rebate this year will only slightly advance the schedule for eliminating the tax credit.

There is also an issue of equity. The $7,500 tax rebate is most valuable to high income people, but it is paid for by the rest of us in a reverse Robin Hood move of robbing the poor to give to the rich. Eliminating it will rob the rich of this perk, and the money saved can be put to more fruitful and equitable uses.

Hopefully the administration will seek out other situations that are regressive, where high-cost energy solutions favored by the rich are paid for by spreading the costs over rich and poor alike.

Chris Ross is an Executive Professor of Finance at the C.T. Bauer College of Business and the University of Houston, where he teaches classes on strategies in the oil and gas industry. He also leads research classes investigating how different energy industry segments are creating value for shareholders.   He served on the Program Committee of the Offshore Technology Conference as Chair of the Marine Technology Society OTC Sub-Committee from 2008-13, when he was also Co-Chair of the Energy Policy Sub-Committee of the Greater Houston Partnership’s Energy Collaborative. From 2012-15, he served as Board Chairman of the River Oaks Chamber Orchestra and remains on the Board and the Executive Committee.

Leaving EITI Will Be A Blow To U.S. Leadership And Sustainable Global Energy Effort

By Tom Mitro, Co-Director, Global Energy, Development & Sustainability Certificate, University of Houston

The Extractive Industries Transparency Initiative has little impact on the U.S. domestic oil and gas industry but has been transformative in some parts of the world. So why did the U.S. pull out?

Last week, the U.S. government officially withdrew its membership from the Extractive Industries Transparency Initiative (EITI). On the surface, this sounds like another of the Trump administration’s efforts to disentangle the U.S. from costly “bad deals” made through “big government overreach” in trade treaties, climate change agreements, or military and economic assistance whose benefits may not be worth the tradeoffs in costs, troops and economic growth. But that is not the case with EITI.

EITI is a voluntary coalition of 53 countries and more than 80 large corporations (including ExxonMobil and Chevron) plus more than 30 civil society groups and international organizations (like the World Bank) committed to adhering to standards to increase transparency around payments made to governments in oil, gas and mining activities. EITI was designed to serve in lieu of government-imposed requirements. In fact, the American Petroleum Industry successfully argued that by virtue of its member companies’ active participation in EITI, the disclosure requirements mandated by the Dodd-Frank Act were not necessary.

EITI participation carries very little cost, no real downside risk and the potential for great benefits. It has virtually no impact on the operations or profitability of the U.S. domestic oil and gas industry. But not participating in EITI has the potential to destroy U.S. international credibility and leadership on a range of issues.

More on these points later, but a simple example might help explain what EITI is all about. Suppose you make $1,000 per month in rent payments ($12,000 for the year) to your landlord, but your landlord tells you and the IRS that he received only $10,000. Wouldn’t it be worth keeping clear track and regularly comparing the amount of rent paid and received so that you can make sure you don’t overpay on your rent and that the government receives the correct amount in taxes? EITI standards reflect the exact same principle – in this case, the oil, gas and mining companies voluntarily commit to track and disclose the amount of royalties and taxes they pay to various governments, and in turn each participating government agrees to disclose what it has received from the companies. It’s actually quite simple. Why is this so important?

In the U.S., the rights to oil and gas can be owned by individuals, states, tribes or the federal government. These various mineral rights owners receive royalties from the companies that produce the oil and gas. In addition, most state governments are paid “severance” or production taxes based on the value of that production. Such a variety of individuals and government entities benefiting directly from oil and gas production ends up providing a strong degree of checks and balances that ensure that financial benefits are in line with agreements and the law.

But in virtually all other countries in the world, the rights to oil and gas are owned exclusively by the national government, so 100% of these payments are funneled to a single central government entity. Consequently, in the absence of strong democratic countervailing checks and balances, the central government and individual officials grow to be much more powerful, which creates a greater potential for abuse of that power, conflicts of interest and corruption.

One proven way to protect against misuse of those funds is by greater public disclosure and transparency with respect to what was produced and the financial benefits that were derived by the government. Not only does this help reduce corruption, but it helps citizens independently assess whether funds were spent and allocated wisely and equitably – an essential element for any democracy.

Numerous studies have demonstrated that oil and gas and mining have led not to greater prosperity but have instead resulted in less diversified economies, boom and bust cycles, and greater regional and ethnic strife. One of the factors leading to those results has been the corruption that often accompanies the large flows of funds into centralized coffers, which is often enabled by governments and companies agreeing to restrict public information of the amounts involved. Referring to conflicts in Iraq, Syria, Nigeria, South Sudan, Ukraine and the East and South China Seas, Michael Klare, professor of peace and world security studies at Hampshire College, has summed it up: “It would be easy to attribute all this to age-old hatreds, as suggested by many analysts; but while such hostilities do help drive these conflicts, they are fueled by a most modern impulse as well: the desire to control valuable oil and natural gas assets. Make no mistake about it: These are 21st-century energy wars.”

The Extractive Industries Transparency Initiative began in 2003 when members established the first set of principles; and the number of member countries and organizations has grown substantially along with refinement in the standards and disclosures that members pledge to follow. Many member countries long had poor track records for corruption. In order to comply with EITI standards they had to collect and publish detailed data on the moneys received from oil and gas and mining. Member oil and mining companies also began to publish what they paid to those governments as a means of comparing and verifying. Compliance with these mutually agreed standards have made it much more difficult for corruption and its attendant impacts to thrive in many parts of the world.

If reducing corruption contributes to reducing conflict over energy, why wouldn’t the U.S. government and businesses prefer to hire a hundred extra accountants whose impact on reducing corruption and conflict might reduce the need for deploying and potentially endangering hundreds of U.S. troops? Of course, the choices and consequences are not quite as simple as that. So what did the U.S. consider in making its decision to not withdraw?

The coordinating U.S. agency, the Department of the Interior, suggested that EITI disclosures might violate business confidentiality and that some outlying U.S. companies were unwilling to participate. Most feel these issues can be overcome, especially if participants can better understand the public support for doing so and the greater benefits.

Corruption within the U.S. domestic oil and gas industry has not been seen as a significant risk, so U.S. participation in EITI can be viewed as more of an international leadership question rather than necessarily addressing a problem within the U.S. The Office of the Attorney General states, “The U.S. Government has long had a management system featuring numerous controls and protections to oversee natural resource extraction, which helps reduce the risk of corruption.” Inspector General Report on US EITI Compliance

But illustrating the point using a simple example, if you constantly admonish your friends and family for not eating their broccoli while at the same time munching away on a candy bar, then your views on nutrition lose believability. And this quickly erodes the credibility of your counsel and advice on other topics in this example, such as financial matters or family and neighborhood conflicts.

Finding a way to actively participate in anti-corruption initiatives can highlight the U.S. example for the rest of the world and at the same time be good for business. A coalition of ninety-plus institutional investors and pension funds have proactively endorsed the EITI approach as being good for encouraging investment in the oil and gas and mining sectors. So, by withdrawing from EITI the U.S. has yielded an opportunity for influence and leadership in this and other arenas. Now is the time before it’s too late for the U.S. to re-establish a form of leadership and influence that requires no troops, no financial aid, and no sacrifice of economic growth – in short, “an unbelievably good deal”.

Tom Mitro is co-director of the Global Energy, Development and Sustainability Graduate Certificate at the University of Houston and a visiting lecturer at the UH Center for Public History. He spent 30 years in senior international management roles in the oil industry and another decade as an advisor to governments and national oil companies in Africa.

Sabotaging Energy And Peace: Trump Moves To Undermine Iran Nuclear Deal

By Dr. Emran El-Badawai, Program Director and Associate Professor of Middle Eastern Studies, University of Houston

Is sabotaging international agreements the “art of the deal?”

Last week, U.S. President Donald Trump announced he would not “recertify” the Iran Nuclear Deal — fancy lingo for the U.S. government undercutting an international contract. Trump further designated Iran’s Revolutionary Guard a “terrorist” group and authorized new sanctions against them. Somewhere in the middle of this, the U.S. Congress is to decide the fate of the now-damaged deal with Iran.

The Joint Comprehensive Plan of Action (JCPOA) is an Obama era policy limiting Iran’s nuclear program from ever including nuclear weapons, in exchange for much needed sanctions relief. Since the deal first took effect in July 2015, Iran has kept its end of the bargain and complied with the terms. One year into the deal, in 2016, analysts at the Brookings Institution concluded the JCPOA to be a “net positive” among supporters or a “new normal” compromise among detractors.

Even today Iran is “compliant.” Who says so? As late as last month, the U.S. Department of State (DOS) and the International Atomic Energy Agency (IAEA), among numerous other government or regulatory bodies, agree.

So why is Trump appearing to dump this deal? Since his presidential campaign began in 2015, Trump has reviled former president Barack Obama’s diplomacy with Iran and that nation’s growing power in the Middle East, including mutual animosity with Israel and funding of militant groups in neighboring countries. His latest policy against Iran comes in the context of “Protecting the Nation from Foreign Terrorist Entry into the United States,” the enhanced vetting proposal issued March 6. The law makes it virtually impossible for foreigners from Iran and a handful of other nations to enter the U.S.

Those of us who study the Middle East have seen this movie before. This is not simply a campaign promise. Trump’s undermining of the JCPOA deliberately sabotages new energy projects and foments old wars in the Middle East.

Restricting European and Asian Energy Business

Outside the dysfunction and xenophobia of Washington D.C. much of the world has started doing business with Iran. In July, French Total SA and China National Petroleum Corporation (CNPC) signed a $5 billion agreement to develop some of the world’s largest natural gas fields, located in Iran. China recently opened up a $10 billion line of credit for Iran. What is more, throughout 2015-2016 China, which relies heavily on importing Middle Eastern oil, has moved swiftly to import more oil from Iran and less from its rival Saudi Arabia. Iranian oil production has boomed from about 1.3 million barrels a day in early 2016 — before sanctions were effectively lifted — to 2.3 million barrels in the fourth quarter of the 2017 fiscal year. That is more than three times U.S. oil exports.

Moreover, a consortium of over 30 oil and gas giants and service providers have been “qualified” to do business in Iran since sanctions were lifted between 2015-2016. Oil companies include Royal Dutch Shell Plc, Italy’s Eni SpA and Russia’s Rosneft Oil. Service providers include Schlumberger, among others.

Is it any surprise that European leaders condemn Trump’s undermining of the Iran Nuclear Deal? Of course not. Nor is it any surprise that China is against Trump’s actions involving a deal 13 years in the making. Might the Americans and Saudis be troubled by Iran’s newfound economic success in the oil and gas markets?

Iranian oil has not flowed into American ports for 40 years. Furthermore, no American oil and gas companies or service providers have been doing business in Iran since sanctions spiked in 2011. How could they do business there when Washington flip-flops between war and diplomacy with the third largest OPEC member?

Perhaps mixed signals from Washington turned off Iranian interest in business with the Americans. Wrong, and quite the contrary. In 2016 Iranian Oil Minister Bijan Zanganeh announced, “we welcome the presence of American oil companies in Iran…we will definitely prepare the grounds for the presence of American oil companies in Iran.” The Trump administration appears to be single handedly calling the shots on American business with Iran.

In other words, the policy appears to be don’t do business with Iran; if anything reclaim global market share through undercutting Iranian oil exports.

This is precisely what U.S. Secretary of Energy Rick Perry has been doing in India throughout 2017. India has typically been supplied by Iranian oil exports. Trump is working to change this and assert American oil dominance in India. Asserting U.S. dominance and clawing back market share are not appropriate demands while cutting out a nation — Iran — with whom the U.S. had a binding international agreement, JCPOA. U.S. Interior Secretary Ryan Zinke justified this behavior earlier this month by blaming Iran for —what else? — “terrorism.”

Undermining the Iran Nuclear Deal is more than bad for business. It sends a message to potential partners in the Middle East that the Americans don’t play fair. They cannot be trusted to keep their word. It sends a message to commercial and political allies in Europe and Asia that their economic interests are against ours. To complete the logic of the Trump doctrine, “America first”…everyone else last.

The Invisible Hand Is Gone; the Oil Curse Returns

Ten months into his presidency, Trump’s greatest contribution to “Middle East peace” has been undermining the Iran Nuclear Deal. This contribution is, unfortunately, a step backwards. It means moving once again towards war and renewed instability in the Middle East. Tehran feels betrayed by Trump, and justifiably so. However, the director of the National American Iranian Council (NIAC), Trita Parsi, is correct in calling the Trump presidency a “gift to the [Iranian] hard-liners.” This is as true for Iran as it is for North Korea, where Trump is sparring with Supreme Leader Kim Jong Un over a possible nuclear conflict in East Asia.

In the case of Iran, Trump’s disregard for diplomacy and his explicit desire to step up to foreign military strikes has a long history in the Middle East. The U.S. has been making war intermittently with Iran’s neighbors — Iraq and Afghanistan — for about four decades. American wars helped birth Al-Qaeda, the so-called Islamic State (ISIS) and increase global terrorism. During this time Iran has stayed remarkably stable — and defiant. With each American blunder in the region, Iran has filled one power vacuum after another. This is especially the case after the Second Gulf War in 2003 and following the Arab Uprisings (or “Arab Spring”) in 2011. Iran’s influence in Shia-controlled Iran, Syria, Lebanon and north Yemen is now a fact. Along with Iranian influence comes Russian dominance, especially in Syria where the Trump Administration’s merciless bombing campaign against both militants and civilians there and in Iraq throughout 2017 have only renewed accusations of yet another U.S. president committing war crimes.

The ground continues to shift in the Middle East. Within the past year the Saudis and Israelis have both received U.S. President Donald Trump, as well as made visits to Russian President Vladimir Putin in Moscow. The fate of the region is being shaped behind the scenes. To say this differently: Syria, Iraq and Iran are accessible through military might or economic sanctions, whichever serves foreign interests.

In this context, “refusing to recertify” the JCPOA has an entirely different meaning. It demonstrates a loss of trust after more than a decade of hard fought diplomacy. It represents a plunge back into the dark ages. I describe the time when Iran secretly developed highly enriched uranium (perhaps for a bomb) and the U.S. and Israel were accused of acting together to assassinate Iranian nuclear scientists. The dark storm clouds have already gathered over the region as Iran’s two arch-enemies — Israel and Saudi Arabia — now celebrate the damaged JCPOA.

Like a shrewd (even reckless) businessman, Trump is determined to dismantle international diplomacy and grip U.S. energy and strategic interests forcibly through the language of war. In economic terms, the “invisible hand” does not truly control the global oil and gas market. That control belongs to the series of wars, failed states and broken promises characterized by the “oil curse.”

The Economic Importance of Iran

Iran sits on the fourth largest proven oil reserves and second largest proved natural gas reserves in the world. However, it also has an active, storied nuclear energy program stretching back to the 1970s, i.e. before the days of the Islamic Republic. Iran is also home to a thriving and diversified alternative energy portfolio, including solar, wind and geothermal energy. Iran’s “renewable energy boom” runs parallel to innovative water solutions being implemented. And again its partners on this front include foreign investors and companies from Norway, China, South Korea and others.

Over the past two years Iran has re-forged its economic and political relationship with European, Russian and Asian partners. Therefore its progressive energy and water agenda are attractive to foreign investors and trusted by a growing number of foreign governments. Iran is simply too important economically to ignore. The choice, therefore, is either to partner with Iran on economic terms as most of the world has done — as former U.S. President Barack Obama did — or to fester through decades of failed U.S. foreign policy, further destabilizing the region and the world.

Sanctions against Iran have not worked in the past, and they won’t work now. There is a good chance Europe and Asia will continue to do business with Iran, leaving the U.S. with no option but the ‘war card.’ This is all to say nothing about future vacillations in the price of oil, changes in energy security or decline of American supremacy in the Middle East and the incremental rise of Russian-Chinese power instead. Those are subjects for another day.

The coming days will truly decide the fate of the Iran Nuclear Deal, and just how much damage Trump has precipitated.

Dr. Emran El-Badawi is Program Director and Associate Professor of Middle Eastern Studies in the Department of Modern and Classical Languages, at the College of Liberal Arts and Social Sciences, University of Houston. His research examines liberalism, Islamism and the impact of oil and gas on MENA societies. His work includes advising government, legal and business communities on Middle East related projects. He can be followed on Twitter @EmranE.

Eliminating The Clean Power Plan Is A Step In The Wrong Direction

By Dr. Robert Talbot, Professor of Atmospheric Chemistry & Director of Institute for Climate and Atmospheric Science

The Trump administration formally proposed Tuesday to scrap the Obama administration’s signature climate change rule for power plants. The plan was meant to curb emissions of carbon dioxide from coal- and natural-gas-fired power plants, which are responsible for about one-third of the U.S.’s carbon dioxide emissions.

Carbon dioxide is the primary greenhouse gas in the Earth’s atmosphere, causing global warming.  Today, China is the largest emitter of carbon dioxide, but the U.S. is the clear leader in cumulative emissions over the past several decades (Figure 1).

Figure 1. Cumulative emissions of carbon dioxide by country from 1990 – 2013. Source: Joint Resource Centre EDGAR

When the Clean Power Plan was unveiled in 2015, it had a goal of cutting power industry emissions by 32%.  Many states were already shifting away from coal for economic reasons. This reversal could slow the transition.

Environmental Protection Agency (EPA) chief Scott Pruitt signed the notice Tuesday, arguing that former President Barack Obama’s 2015 rule, dubbed the Clean Power Plan, exceeds the agency’s authority under the Clean Air Act. Environmentalists and Democrats have pledged to fight the rollback. Environmental groups and some states plan to challenge the new plan based on scientific and economic grounds.

The scientific evidence of the need to continue to curb emissions is overwhelming. The last two years have seen the largest increase of carbon dioxide in the Earth’s atmosphere – more  than 3 ppm (parts per million) per year based on National Oceanic and Atmospheric Administration’s data from Mauna Loa (Figure 2).

Figure 2. The carbon dioxide record at Mauna Loa, Hawaii over the past five years. The black line is the moving average and the red dots connect the monthly averages.

Methane Is A Powerful Greenhouse Gas, But Where Does It Come From?

By Robert Talbot, Director of Institute for Climate and Atmospheric Science (ICAS) Professor of Atmospheric Chemistry, University of Houston

Carbon dioxide, or CO2, gets all the attention when people talk about global warming, but it’s far from the only greenhouse gas we should be thinking about. Methane (CH4) – like carbon dioxide, a gas emitted by both natural and man-made sources – is starting to draw more attention, too.

Methane has a global warming potential of 28 over a 100-year time frame, a measure developed to reflect how much heat it traps in the atmosphere, meaning a ton of methane will absorb 28 times as much thermal energy as a ton of carbon dioxide. That makes it a very important greenhouse gas, much more powerful than carbon dioxide.  Methane comes from natural sources, such as wetlands and animal digestion, along with thermogenic sources, including oil and gas production. Natural gas is approximately 90% methane.

Recent analysis indicates that additional sources of atmospheric methane should be considered, as well.

While methane is just starting to gain public attention, scientists have been studying it for decades. The National Oceanic and Atmospheric Administration started measuring methane in the Earth’s atmosphere at its global monitoring sites, such as atop Mauna Loa in Hawaii, in the early 1980s. Throughout the ’80s, methane levels showed a steady increase of 1% to 2% per year, dropping to around 1% per year in the ’90s.

IT held steady from 2000 until 2007, when the rate of increase abruptly began to rise again, which continues today. (Figure 1)

These changes have been challenging for scientists to explain quantitatively and to attribute explicitly to varying sources.

Global Monthly Mean of Methane

Recently there has been a flurry of activity to quantify fugitive methane emissions from oil and gas production sites. Indeed, I was a participant in the Barnett Shale Coordinated Campaign in 2013. Using our mobile laboratory, we visited 152 facilities and found that instead of well sites, the largest emissions occurred from compressor stations and chemical processing plants. Other studies have investigated distribution systems and other components of the delivery system. All were found to be leaking methane to some degree. Could the recent 10-year increase in global methane be related to oil and gas production?

The answer appears to be probably not.

A paper published in Science magazine  last year showed that the dominant source of 13C (carbon-13) in methane was shifting on a global basis. Carbon-13 is useful in that it can distinguish different sources of methane from one another. For example, isotopic analysis suggests a new trend away from oil and gas sources in the 21st century and indicates that global agriculture may be responsible for the recent increase in atmospheric methane.

This directly contradicts emission inventories and points out the growing problem of controlling methane emissions while still feeding an increasing human population – truly a delicate balance to manage responsibly.

A second scenario that has been suggested to account for increasing global methane is increasing production of biogenic (bacterial) methane in tropical areas. Under global warming, these areas are receiving more rainfall, which increases the size of flooded areas. This may, in turn, enhance the biogenic production of methane.

However, it appears that increasing agriculture and human population is a more likely scenario. That’s consistent with the isotopic data analysis.

The situation should become clearer in the future as more data is collected. Stay tuned.

Dr. Bob Talbot is Professor of Atmospheric Chemistry and Director of the Institute for Climate and Atmospheric Science (ICAS). Dr. Talbot is also an adjunct Professor of Atmospheric Chemistry in the School of Atmospheric Science at Nanjing University, Nanjing, China. He also serves there as Vice Chair for the Institute for Climate and Global Change Research at Nanjing University. Dr. Talbot has been part of the NASA Global Tropospheric Chemistry program since 1983, serving on the science team for 20 major airborne expeditions supported by this program and is currently the Editor-in-Chief of the international journal Atmosphere.