A Biden plan would speed a clean energy transition, but have limited impact on oil
Energize Weekly, October 28, 2020
As Election Day nears, analysts are starting to focus on what the administration of front-running Joe Biden will mean for energy and find it could accelerate the decline of coal, stabilize near-term oil markets, as well as boost renewables and new jobs.
A Biden administration, despite its avowed aim of banning new oil development on federal lands, will likely not have much immediate impact on onshore oil and gas production, but could limit future offshore production, according to an analysis by Wood Mackenzie.
“The 2020 elections present American voters with a choice between two radically different visions for the future of energy,” Ed Crooks, Wood Mackenzie vice chair for the Americas, wrote. “President Donald Trump rejects the idea of using government policy to cut greenhouse gas emissions, and talks about energy in terms of prices and jobs. Joe Biden says he would create jobs through a ‘clean energy revolution.’”
The Biden plan aims to invest $2 trillion in clean technologies over 10 years and cut carbon emissions to a net-zero by 2050.
At the final presidential debate, Biden said that he would “transition” away from fossil fuels. “The oil industry pollutes significantly,” Biden said. “It has to be replaced by renewable energy over time.”
President Donald Trump jumped on the remark. “Basically, what he is saying is he is going to destroy the oil industry,” Trump said. “Will you remember that Texas? Pennsylvania? Oklahoma? Ohio?”
Following the debate, a Biden spokesman said the candidate was talking about transitioning away from fossil fuel subsidies. Biden also told reporters he would not ban fossil fuels or move away for “a long time.”
Despite the debate flap, energy analysts said that regardless of presidential politics, a transition is already underway across the board.
Furthest along in that transition is the power sector. The Biden administration has a target of net-zero emissions from the sector by 2035.
The Biden plan “creates enormous opportunities,” Wood Mackenzie said. “It could mean a seven-fold expansion of U.S. onshore wind and utility-scale solar generation capacity, coupled with steep growth in offshore wind and battery storage. It would lead to the emergence of a new generation of energy majors, with total investments in new renewable energy generation and storage of over US$2.2 trillion.”
Wood Mackenzie cautioned, however, that the plan faces challenges. “Grid reliability will weaken under high renewables penetration unless market reforms incentivize the deployment of enough carbon-free balancing power.”
A comparative analysis of the Trump and Biden approaches to the energy sector, by Santa Barbara-based Quantum Energy Consultants, estimated that by 2035, the Biden policy would generate 750,000 more jobs – almost entirely in the power sector.
Fossil fuels are also already in transition with coal consumption falling. The International Energy Agency is projecting oil demand plateauing in 2030, and the robust U.S. natural gas market growth likely coming to a close, according to Morgan Stanley.
The Biden plan could speed those trends, particularly for coal. “Coal-fired power plants would be hit harder and more quickly than other fossil fuels (including natural gas),” Ben Nelson, Moody’s Investor Services’ coal analyst, said in a note.
The move to decarbonize the power sector by 2035 would place the dual burden on coal-fired generation of having to cut emissions and increase costs to do so, at a time when the sector is already in decline. The policy “would have substantial negative implications for the thermal coal industry,” Nelson said.
The immediate impacts on the oil sector are more mixed. In the short term, a Biden victory, if combined with Democratic control of the Senate, is likely to result in greater fiscal stimulus for the economy, which is likely to translate to stronger economic growth and higher fuel demand, according to Wood Mackenzie.
Banning hydraulic fracking on federal onshore lands would also have minimal impact since the bulk of federal acreage, in key producing regions such as the Permian Basin and Bakken, are already leased under existing rules.
A ban on offshore leases could result in a production decline. A ban on new leases, if made permanent, would lead to about 7 billion barrels oil equivalent (boe) being left under the seabed, Wood Mackenzie said.
In the first term of a Biden presidency, there would be much impact on offshore production, but by 2030, U.S. offshore production could be down 7 percent or about 160,000 boe – compared to levels if new leases had been awarded.
Natural gas consumption after 10 years of steady growth reached a record 85 billion cubic feet per day (Bcf/d) primarily in 2019 on increased demand from the power sector, according to the U.S. Energy Information Administration (EIA).
Many utilities in the last 15 years shut coal-fired plants and switched to cleaner burning natural gas, which was also cheaper thanks to large quantities of shale gas. Natural gas will continue to play a major role in electricity generation, analysts say, but already trends are limiting its future.
Wind and utility-scale solar generation are now cheaper to build than natural gas plants, according to Bloomberg New Energy Finance. Many states have already adopted goals or statutory targets to zero-out power plant carbon emissions.
The Biden plan to have a carbon-neutral power grid by 2035 will accelerate the trend. “It’s not a nail in the coffin for gas demand, but it’s a big headwind for gas over time,” Devin McDermott, an analyst at Morgan Stanley, told Bloomberg News.