Trump’s ‘art of the deal’ skills tested by oil price war

Trump has banked on person-to-person diplomacy with unpopular leaders to try and break out of crises in the past. Supporters and analysts say he can do it again, as the costs of the price war may prove too high for the U.S., Russians, and Saudis, the world’s three largest oil producers.

“This is a game of brinksmanship,” Dan Eberhart, CEO of the oil services firm Canary and a Trump donor, told Josh. “This is boys being boys who took it farther than any of them want, thinking the other would cave. It’s now in everyone’s interest for there to be some sort of international diplomacy. Ultimately, I think there will be some sort of deal to prop markets up.”

The White House confirmed Tuesday that Trump spoke with MBS, and Eberhart said there has also been dialogue with the Russians as well.

David Goldwyn, chairman of the Energy Advisory Group at the Atlantic Council, said the Trump administration has leverage over Saudi Arabia given its pariah status among some western countries and Democrats in Congress over its actions in Yemen — and its decision to kill journalist Jamal Khashoggi.

“The Saudis don’t have a lot of great friends in the West,” said Goldwyn, who served as the State Department’s special envoy and coordinator for international energy affairs from 2009 to 2011. “They are not in a position to alienate the president.”

“This is more about Russia going to war with U.S. shale than the Saudis,” Goldwyn said in an Atlantic Council press call Wednesday. “I am slightly more optimistic about the road back here.”

Saudis double-down: The Saudis, however, are showing no signs of easing off the taps in retaliation for Russia backing out of its three-year alliance with OPEC to cut oil production in order to raise prices. Saudi Arabia on Tuesday moved to fulfill its pledge to flood oil markets with low-priced crude, announcing plans to supply a record 12.3 million barrels per day in April. Saudi Arabia said on Wednesday it plans to boost oil production capacity for the first time in a decade, raising it to 13 million from 12 million barrels per day.

Russia’s calculus: Analysts said Russia may have less reason to defuse tensions, after finally breaking over losing market share to U.S. shale producers.

Anders Aslund, senior fellow at the Atlantic Council’s Eurasia Center, said Wednesday that Igor Sechin, the head of Russia’s biggest oil company, Rosneft, was instrumental in convincing Putin to abandon OPEC. Sechin, he said, is angry with U.S. sanctions on him and his company, along with the Trump administration’s lobbying against Russia’s Nord Stream 2 pipeline to Germany.

“There is no reason to believe Russia will change its stance,” Aslund said. “Sechin wants to do as much damage to the U.S. as possible.” Aslund added that Russia is disappointed with Trump, who has proven “impotent” to stop U.S. sanctions driven by Congress despite his public friendliness with Putin.

Possible ways out: Helima Croft, global head of commodity strategy at RBC Capital Markets, predicts a more realistic “offramp” for diplomacy may be the next scheduled OPEC-plus meeting with Russia in June.

She argued Trump may not be in a strong position to intervene, given his long-time prodding of Saudi Arabia and OPEC to abandon its production-cutting strategy in favor of increasing production so prices stay low for U.S. drivers.

“It’s a challenging argument for an administration that has spent three years saying OPEC should be abolished and there should be no coordination on production,” Croft said Wednesday on the Atlantic Council press call.

But Goldwyn said congressional support for more sanctions on Russia will rise the longer the price war goes on, which could force Moscow to make amends with OPEC.

“A race to the bottom is not going to help any of us,” Goldwyn said.

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US OIL PRODUCTION TO FALL NEXT YEAR FOR FIRST TIME SINCE 2016, EIA SAYS: The Energy Information Administration projected Wednesday that U.S. oil production will fall next year in response to the price collapse, which would be the first annual drop since 2016.

U.S. oil production will average 13.0 million barrels per day in 2020, up 0.8 million b/d from 2019, but then fall to 12.7 million b/d in 2021.

Global oil demand to slow: EIA also revised down its global oil demand growth outlook for 2020 as a result of the coronavirus.

But EIA does not expect demand for the year to fall overall, a contrast from the International Energy Agency, which projected this week that global oil demand will drop in 2020 for the first time since 2009.

EIA on Wednesday projected global demand growth of 0.4 million barrels per day in 2020, a reduction from its January forecast of 1.3 million barrels per day. Most of the reduction is in China, but EIA also issued significant downward revisions to demand for Japan, South Korea, and Italy, which have also been hit hard by coronavirus, leading to reduced economic growth and air travel.

The agency expects oil prices to recover somewhat from their current standing in the low-to-mid $30s per barrel to average $43 per barrel in 2020. That’s down from an average of $64 per barrel in 2019.

Emissions reductions will also slow: After falling by 2.8% in 2019, EIA projects that energy-related carbon emissions will decline by 2.2% in 2020 and by only 0.4% in 2021.

EIA attributes the slowdown in emissions reductions to its forecast for return to normal temperatures in 2021, after warmer than normal weather this winter.

CONSERVATIVES LOOK TO SQUASH TRUMP BAILOUT FOR OIL INDUSTRY: Conservatives are pushing back against the possibility of the Trump administration providing federal aid to oil and gas producers.

“They can take care of themselves,” said Republican Sen. Mike Braun of Indiana, who co-chairs the Climate Solutions Caucus, referring to the oil industry. “Why do you overreact just when there’s a little pain? That doesn’t make sense.”

The White House is pushing the idea of providing low-interest government loans to shale companies, according to the Washington Post.

But conservative groups usually aligned with Trump administration policies are speaking out.

“Not only would it potentially put taxpayers on the hook for future potential losses and bankruptcies, it would distort the risk-taking process that is so critical in making these investments,” Heritage Foundation expert Nick Loris told Josh.

Loris noted the ability of the oil industry to withstand previous price plunges in 2014 and 2015.

“We’ve seen the resiliency in the industry before, and I believe we’ll see it again,” Loris said.

Oil industry is split: The possibility of federal aid, which would likely have to be approved by Congress, is divisive among the oil and gas industry.

Bigger oil producers have hedged against low prices and can likely withstand low oil prices for a while, as they have during past downturns.

Smaller producers, though, don’t have the same access to cheap capital and could be driven out of business or forced to consolidate with larger companies.

“People are borderline desperate for help and are reaching for a life raft,” Eberhart said. “The Trump administration shouldn’t bail out the oil industry, but should look to be helpful around the edges.”

Other policy options: Eberhart said the industry is pushing for assistance other than a direct bailout, such as buying oil to put into the Strategic Petroleum Reserve, receiving faster approval of drilling permits, and increasing tax deductions for drilling expenses. The White House is also considering lowering royalty rates for oil and natural gas extracted from federal land, Bloomberg reported.

Eberhart said his oil services company, Canary, is in the process of reassessing its plan for the year and could limit capital expenditures, impose a hiring freeze, and prepare to cut staff to match decreased demand.

ENERGY BILL MIGHT NOT BE THE ONLY CASUALTY OF COOLANT DISPUTE: Senator Tom Carper, the top Democrat on the Senate environment committee, says he could hold up Trump’s nominee to be the EPA’s deputy, too.

Carper, during a nomination hearing Wednesday, confronted Douglas Benevento, tapped to be the EPA’s second-in-command, about analysis the agency has supposedly conducted on legislation to reduce potent greenhouse gas coolants.

That legislation, co-sponsored by Carper and Louisiana Republican John Kennedy, has ignited a dispute that threatens to derail a major bipartisan energy bill. The two senators have been fighting for a vote on their bill as an amendment to a broad energy package the Senate was considering, but Senate Environment Committee Chairman John Barrasso has blocked a vote. The White House has also said it opposes the coolant amendment.

Carper says the EPA has analysis that shows $3.7 billion in consumer savings from his bill: But it’s withholding the numbers, the senator said.

“I want to support your nomination. I don’t want to impede it, but we want that information,” Carper told Benevento. “We’re going to count on you to be truthful to the vows you just took.”

Benevento, in response to Carper, said he had asked agency officials about the analysis after meeting with the senator privately. “It is still under review. It is not yet complete,” Benevento said, adding he would check again on the progress and report back.

SPEAKING OF NOMINATIONS: Senate Majority Leader Mitch McConnell has teed up votes on Trump’s nominee to the Federal Energy Regulatory Commission, James Danly. Senators could vote on whether to limit debate on his nomination as soon as Thursday.

Danly was re-nominated earlier this year, and he cleared the Senate Energy Committee with the support of just one Democrat, West Virginia’s Joe Manchin. The nomination has riled Democrats because the White House has refused to pair Danly with a Democratic nominee, as is custom for FERC given its intent to be an independent regulator.

Manchin, in remarks following the committee’s vote, said he only supported the nomination because of a previous commitment to Danly. Democrats wouldn’t vote for a FERC nominee again, though, unless the White House also puts forward a Democratic nominee, Manchin added.

TRUMP SAYS DEMOCRATS WANT TO TAKE YOUR CARS: What they really want to do is make them all electric.

“If you like automobiles, how can you vote for a Democrat who all want to get rid of cars, as quickly as possible, especially if they are powered by gasoline,” Trump tweeted Tuesday. He also suggested Democratic presidential candidates would limit Americans to “no more than one car per family,” a directive neither Joe Biden nor Bernie Sanders have in their climate plans.

“I, on the other hand, have new plants being built all over Michigan, Plus!” Trump added.

Trump is right that Democrats want to wean the U.S. off gas-powered cars: Both Biden and Sanders’ climate plans set aggressive targets to decarbonize the transportation sector.

Biden’s plan says he would set “rigorous” new fuel economy limits to ensure 100% of new car sales are electrified and require year-over-year improvements from heavy-duty trucks. Sanders’ plan eyes a 100% renewable transportation sector, which he would achieve through a more than $2 trillion vehicle trade-in program and billions in grants to electrify school buses and boost public transport.

The Trump administration, by contrast, is working to relax fuel economy limits set by the Obama administration at automakers’ request. Its final version, currently under review at the White House, is expected to require passenger cars to improve their fuel economy by just 1.5% year-over-year through 2025, as opposed to the 5% target ultimately required by the Obama limits.

OREGON GOVERNOR SIGNS CLIMATE EXECUTIVE ORDER: It’s an end run around the state’s Republican lawmakers, who have refused a vote on carbon trading legislation by repeatedly fleeing the state capitol.

“Republican lawmakers repeatedly walked out on the job, thwarting the democratic process,” said Democratic Governor Kate Brown, in remarks before signing the order Tuesday.

Brown’s executive order sets long-term emissions goals, targeting a 45% reduction below 1990 levels by 2035 and an 80% cut by 2050. It orders the state’s Environmental Quality Commission to issue regulations setting caps on carbon emissions for the transportation, natural gas, and large industrial sectors.

It also strengthens the state’s clean fuels standard to set what Brown calls the “most ambitious clean fuels goal in the country.” The new goal requires 20% of Oregon’s transportation fuels to come from clean sources, including biofuels, electricity, natural gas, and propane, by 2030 and 25% by 2035.

REPUBLICANS PUSH TO GROW SUPPORT FOR TREES: House Republican Leader Kevin McCarthy said at a press conference Tuesday to boost the Trillion Trees Initiative that the plan is “seriously ambitious and actionable.”

Bruce Westerman of Arkansas, the lead co-sponsor of the bill, tried to reach out to Democrats who’ve indicated they do not plan to bring the bill to a vote without Republicans supporting other measures to reduce fossil fuel use.

Westerman said the tree-planting legislation is “a starting point, a place to come to the table and negotiate on long-term climate solutions.”

Braun, Republican senator from Indiana, joined the press conference to say he would soon introduce matching legislation.

The Rundown

New York Times Trump administration presses cities to evict homeowners from flood zones

Bloomberg The UN’s state of the climate report paints a grim picture

Reuters EU plans support for heavy industry’s climate challenge

Calendar

WEDNESDAY | MARCH 11

1:30 p.m. 2359 Rayburn. The House Committee on Appropriations Military Construction, Veterans Affairs, and Related Agencies subcommittee holds a hearing entitled “Impact of PFAS Exposure on Servicemembers.”

2 p.m. 2362-B Rayburn. The House Committee on Appropriations Energy and Water Development, and Related Agencies subcommittee holds a hearing on several pieces of the Energy Department’s FY21 budget request, including the Advanced Research Projects Agency—Energy, or ARPA-E.

THURSDAY | MARCH 12

10 a.m. 2154 Rayburn. The House Committee on Oversight and Government Reform’s Environment subcommittee holds a hearing entitled “Climate Change, Part IV: Future Impacts of Continued Federal Inaction.”