President Joe Biden’s executive actions on energy policy have won praise from environmentalists and progressive Democrats, while surprising some in the oil and gas sector who hoped Biden would moderate his ambitious campaign promises on climate after taking office.
In this episode of The Crude Report, senior reporter Chris Knight and associate editor Haik Gugarats discuss the emerging outlines of new US energy and foreign policy priorities under US President Joe Biden.
Haik: Hello, and welcome to The Crude Report, Argus' podcast series on global crude oil markets. My name is Haik Gugarats. I am associate editor at Argus Media and my stories and analysis cover the nexus of US energy and foreign policies. I am joined by senior reporter, Chris Knight, whose coverage area includes US domestic energy policy and regulatory actions. We are both based in Washington, DC.
So, Chris, this has been an interesting start to 2021, following just as an eventful year, and big changes both for the government newsmakers we cover and of course a major change in the direction of US energy policy as soon as President Biden took office. The reaction from the oil and gas industry is consternation, renewable energy developers are more enthusiastic. Can you walk our listeners through some of the major highlights in the last weeks?
Chris: Yeah. So, you know, President Joe Biden on the campaign trail, he talked a big game. He calmed a lot of nerves on the liberal side of the Democratic party with his promises to address climate change and, you know, he really came right out of the gate with a lot of policies that satisfied their desires. On his first day he signed an executive order blocking the Keystone XL pipeline. He essentially ordered his government to review every energy and environmental rule that was issued under the Trump administration.
And just in case I wasn't clear enough, they singled out specific rules and said, you know, for example, "EPA, you need to write fuel economy rules. You need to propose a fuel economy rule by no later than April. You need to propose to regulate methane from new and existing oil and gas sources, I think, by September." So those types of actions, they really put a fire under these agencies and say, you know, “You have to get these deliverables done."
Right after that executive order, it's only been, I think, you know, two weeks but Biden issued another executive order saying federal agencies, you have to pause all new federal oil and gas leasing until you complete a comprehensive review of the entire program. That executive order also set a bunch of goals on renewable energy. It told the government that you need to purchase more electric vehicles. It issued something that didn't get a lot of attention but it's pretty important, directed the White House Council on Environmental Quality to start to factor climate change into all the reviews under a statute called NEPA. And this is a big deal for pipelines. It's a big deal for oil leasing, building highways. So really, right out of the gate, tons of items on energy and environmental policy.
Haik: Yes indeed. So the initial reaction from oil and gas folks is fairly strong even though then candidate Biden, as you just said, clearly telegraphed his planned change of course. So what is happening on the congressional side, state capitals and courts? What levers can Biden's opponents use or anyone who would like less of a change?
Chris: So former Senate Majority Leader and now Minority Leader Mitch McConnell said it quite well in 2017, which is, "Winners make policy. Losers go home." And that's the situation unfolding right now in the Congress. Democrats just approved overnight a massive $1.9 trillion budget resolution that will pave the way for Covid-19 relief. It passed entirely with Democratic votes with Vice President Kamala Harris casting the tiebreaker and, you know, Republicans are left on the sideline. They were able to score a few wins on messaging bills but the substance of the policy is that Democrats get to decide what happens.
You know, when Republicans lost those two special elections in Georgia, they really lost the ability to cause a lot of headaches for Biden's energy policy. You know, if Republicans held the senate, they'd be able to insert riders, they'd be able to try to extract concessions related to energy policy, but they lost that. And so Democrats are in the driver's seat for the next two years at least.
Now, there's obviously action in the states. Texas' governor, Greg Abbott, signed an order saying, you know, we're going to try to oppose everything that Biden does on energy policy. I'm sure lots of state attorneys general will be filing lawsuits challenging a lot of the policies that Biden pursues. But, you know, the real action is going to be in the courts.
One of former president Trump's most enduring legacies is going to be all the judicial appointments he made, something like 220 on the federal courts. And, you know, those judges aren't going to be shy to wade into these energy issues and there's a lot of litigation waiting. Some have already been filed challenging some of Biden's energy actions. And, you know, I expect some will be successful, some will not. But at the end of the day, all of these Biden energy policies, they really send kind of a big signal to the industry, a big signal also to investors about the types of projects that will have an easy pathway to completion and the type of projects that won't. So if you were thinking about building a giant pipeline that goes across the country, if you're thinking about developing a new oil leasing project on federal land, you're going to be pretty cautious about doing that, and that sends a signal no matter what happens in the courts.
And so, you know, Haik, I wanted to get to your side of the world. Biden's energy policies are going to change the upstream sector for a while. But one of the biggest things that I've been watching you work on is what's going on in the rest of the world. Can you tell us what's going on the global side?
Haik: Certainly. You mentioned the stimulus package that is moving through Congress and that is going to have probably the biggest effect on global oil markets in the interim despite all the steps you have outlined that are affecting the upstream side. The biggest factor affecting oil prices is the demand picture. And as the US and the rest of the world are yet to recover from the pandemic, from the travel and from economic activity restrictions and government mandates or self-imposed mandates that are carving into the oil demand, last year we have seen a historically unprecedented slump in demand. And just to give an idea, the EIA does not expect US jet fuel demand or gasoline demand even next year to be at the pre-pandemic levels.
Now, those projections, they're pre-stimulus, pre-acceleration in the vaccination rate. So if you're an oil market analyst, all of the sudden you have to watch the epidemiological data, how fast the US and European countries and countries in Asia and the Middle East are rolling out their vaccination package, how quickly are the economies going to recover. So globally, the US and China are in the best position to recover quickly. Specifically here in the US, the faster we recover from this 2.5% decrease in the GDP last year, the sooner oil demand will come back. So that's maybe down the road all the new initiatives from the administration don't sound so positive if you are strictly speaking on the oil upstream side or someone interested in offshore leasing. But in the meantime, any boost in the demand is going to leave off not just the country overall but it's going to increase demand for gasoline and down the road for jet fuel. And so that is a big positive change for the industry overall.
Chris: On the foreign policy front, Biden talked a lot about negotiations with Iran, and that could end with Iran returning to oil markets. What do you think the timeline is for that and how would it affect US and global producers?
Haik: So yes, just to give our listeners perspective, sanctions that were imposed by former president Donald Trump have cut more than 2mn b/d of Iranian production that was, before the pandemic, roughly 2% of global supply. So if Biden's administration and the Iranian government reach some sort of an agreement on a nuclear deal, potentially all or a part of that can come back.
Now, the key thing is you say is the timeline. So two weeks in, at least as of two weeks into the administration, the new government here in Washington has not yet spoken with their counterparts in Iran. Lifting the sanctions is not going to be an overnight task. There are a lot of steps in it just from legal and bureaucratic perspective even if there is political agreement. The US insists that Iran must take the first step in complying with the nuclear agreement, Iran says, well, the US was the first to leave the agreement and it must grant sanctions relief first. So these delicate, so to speak, political discussions are so far in the public space, the two governments have not sat down to negotiate directly. But time is of the issue. Iran has its own domestic politics. They have a presidential election in June, so if we don't see some steps in reviving the nuclear agreement, we may not see them until later in the year.
So later in the second half of 2021 is the most likely timeline for Iran to maybe start coming back into the market if the political side is all clear. Of course when and how and whether Iran does that is of a huge importance for the global oil industry. As you know, the alliance of producers, Opec+, that includes the traditional Opec as well as other major producers, are keeping production down. And if you add up to two million barrels a day into an already oversupplied market, that of course complicates the task of managing the market, the task of allocating these production cuts across multiple countries. And down the road, of course, that affects US oil industry as well because US producers are of course not part of the Opec+ but the decisions made by the producers' alliance affects the bottom line of US producers directly. So it is something to watch and not in the near term but later this year.
And with that, we have come to the end of this podcast. You can find our stories and more in-depth coverage of politics and policy and geopolitical news and insights as it specifically relates to oil markets in both Argus Americas Crude and Petroleum Argus weekly. You can find more information on both services at www.argusmedia.com. Thanks for tuning in and we hope you'll join us on the next episode of (The Crude Report.