Energize Weekly, September 9, 2020
Joe Biden becoming president of the U.S. could be a boost for clean energy and perhaps somewhat ironically, for oil and gas – at least in the short run.
That was the conclusion of energy industry consultants Wood Mackenzie and Rystad Energy in separate analyses. While Wood Mackenzie looked at Biden’s clean power plans and Rystad at oil markets, they both saw two things in the Biden approach – more stability and certainty.
Biden is proposing a $2.2 trillion climate plan aimed at eliminating carbon emissions from the nation’s power sector by 2035. That is 15 years ahead of Wood Mackenzie’s base case scenario, which has the U.S. reaching 87 percent clean energy in the sector by 2050.
“If Biden’s climate plan comes to pass, it will have widespread consequences for the U.S. power sector,” Dan Shreve, Wood Mackenzie research director, said in a statement.
The plan would require the deployment of 1.5 terawatts of renewable generation, a huge number at a fast pace. Shreve called it a “daunting task” that would “shakeup the hierarchy of the energy industry.”
The plan’s “Made in America” requirements for domestic wind, solar and storage would also need a rapid expansion of industrial production capacity.
For example, current U.S.-based solar module supply is about 4.7 gigawatts (GW), while module demand under the Biden plan would be more than 100 GW a year.
“Biden’s plan teeters between achievable and aspirational but the backing of energy sector giants could tip the balance and once again establish the U.S. as a leader in the fight against climate change,” Shreve said.
While there are some risks, Wood Mackenzie said, “if Biden’s plan comes to fruition the U.S. power sector will gain policy certainty.”
Shreve warned, however, that “If Biden’s bid fails, the U.S. will forfeit four more years in the fight against climate change. This would dramatically reduce the possibility of eliminating carbon emissions from the region’s power grid before 2050.”
While an emphasis on clean energy might appear to hold no good news for the fossil fuel industry, a Rystad Energy study of oil industry production under the administration’s former President Barack Obama and President Donald Trump, as well as prospects under a Biden administration, found some positive news.
Rystad Energy found that the single highest compound average rate of growth in oil and gas production since World War II – 7.2 percent – came during the Obama administration.
While much of that was due to technological breakthroughs in shale drilling, the Obama administration did boost the industry by opening up exports of liquified natural gas (LNG).
“It is in contrast with the broader opinion that Obama was generally more sympathetic towards the environment than his predecessor and successor,” Rystad Energy said.
Under Trump, production continued to increase – at a 7.1 percent compounded annual rate – and the U.S. became a net crude oil and total petroleum product exporter in late 2018 for the first time since the 1950s.
The Trump administration pushed a reduction in the federal corporate tax rate to 21 percent from 35 percent that yielded between $250 million and $300 million a year in tax benefits to a sample of 50 oil and gas operators studied by Rystad Energy.
The Trump administration has also pushed to open drilling in Alaska’s Arctic National Wildlife Reserve and reduce regulations on the industry.
Still, the administration tariff and trade wars, particularly with China, and its handling of the novel coronavirus pandemic have been blows to the economy and markets.
While part of Biden’s energy plan focuses on the power sector, it also calls for a ban on future oil and gas development in federal lands, although Biden has clearly said he is not opposed to fracking (the key production technique in shale oil development).
While the federal lands ban could hit New Mexico, which gets 65 percent of its oil and gas from federal lands and a few other western oil-producing states, such as Colorado and Wyoming, it would not have a substantial impact on production.
Activity, Rystad Energy said, will migrate from federal acreage to equally commercial state and private lands.
“If Joe Biden becomes the next U.S. president, there are clear expectations of an increased focus on the environmental aspects of U.S. oil and gas operations,” Rystad Energy said. “While some additional environmental policies might challenge the U.S. producers’ economics, it is quite possible that Biden’s policies will be beneficial for them – at least in the short term.”
“A potential end to the ongoing trade war with China would surely help support demand and oil prices,” the analysis said. “Similarly, an increase in measures to prevent the spread of COVID-19 would benefit oil prices in 2021–2022 in our view. A potential fracking ban on federal land, as discussed above, would also most likely have a positive impact on oil prices in the short term.”
“Taking all these factors into consideration, it seems entirely plausible that the U.S. oil and gas industry could benefit from a Biden presidency during the first quarters of his term amid a recovery in oil prices.”