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SAUDI ARABIA, AGAIN: President Joe Biden’s trip east to Saudi Arabia brings his response to the worsening global energy crisis full circle, as he tries to improve cooperation with the oil heavyweight that he had turned to last fall as his first resort for taming high prices.
In the face of record fuel prices, Biden has ordered the release of several hundred million barrels of U.S. reverse oil, moved to expand use of renewable fuels, and encouraged U.S. energy companies to invest more in production – yet each of those actions took months to develop and only came after Biden’s initial overtures last fall to the Saudis and others in the region to raise output.
Oil prices rose steadily over the course of 2021 but took off in late summer. In October, crude traded up into the $80s per barrel for the first time since 2018.
Biden entertained opening the Strategic Petroleum Reserve during a CNN town hall around the time — which he would do for the first time about a month later — while he honed in on Saudi Arabia and OPEC.
“There’s a possibility to be able to bring it down, depends on — little bit on Saudi Arabia and a few other things that are in the offing,” Biden said, pointing a finger at OPEC for withholding supply it cut back during the pandemic.
“It’s going to be hard,” he said. “It’s going to be hard.”
That much has been proven true.
The trip: The White House maintains that Biden’s trip is about more than oil production, although national security adviser Jake Sullivan said yesterday that energy is top-of-mind for Biden.
Biden “believes that the price of gas is too high and that we need to do more with respect to global energy supplies,” Sullivan said. “And he will take every step in his power, both here at home and in terms of his diplomatic engagement in the world, to try to bring that about.”
Beyond Biden’s own petitioning, the administration has sent diplomats to the region throughout the year, and in May the Group of Seven said it sees a need for more production from OPEC to loosen tightening international energy markets.
Bob McNally, president of Rapidan Energy Group who also served in the George W. Bush administration, said he doesn’t expect major energy-related deliverables from the trip, as Biden has “already reached an understanding” with the Saudis and Emiratis on oil.
“That oil understanding included last month’s OPEC+ decision to accelerate the completion of their tapering or hikes, effectively speeding oil to market a bit,” McNally told Jeremy.
The cartel agreed during its June ministerial meeting to increase production during the month of July by 648,000 bpd. It did so by deciding to wrap up the current arrangement on incremental production increases in August rather than in September as planned. To do that, the cartel redistributed equally the 432,000 barrels per day-increase it would have approved for September to July and August, committing OPEC+ producers to more output in the immediate term.
The wrinkles: McNally assessed the White House as being especially worried about oil markets getting even tighter later this year when western oil embargoes, especially the EU’s and the United Kingdom’s, take effect.
While OPEC has committed to raising output on paper, and may yet commit to more, it’s struggled to meet targets for consecutive months.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.
OPEC: OIL DEMAND GROWTH EXPECTED TO SLOW IN 2023: Global oil demand is expected to rise in 2023 at a slower pace than this year, according to a new forecast from OPEC. In its report, the oil cartel projects that demand will rise in 2023 by roughly 2.7 million barrels per day (bpd)—a growth forecast of 2.7% – versus forecasted growth of 3.36 million bpd this year.
“In 2023 expectations for healthy global economic growth amidst improvements in geopolitical developments, combined with expected improvements in the containment of COVID-19 in China, are expected to boost consumption of oil,” OPEC said in its report.
The 2.7 million bpd forecast is more optimistic than the forecast released last month by the International Energy Agency, which projected growth of 2.2 million bpd in 2023.
OPEC said the 2023 forecast assumes there is no escalation of Russia’s war in Ukraine, and that risks such as inflation “do not take a heavy toll on global economic growth.”
TREASURY OFFICIAL WARNS OF FAILURE TO CAP RUSSIAN OIL PRICES: Meanwhile, a senior U.S. Treasury official told Reuters that the global price of oil could surge by 40%, to around $140 per barrel, if world leaders do not adopt a Russian oil price cap, along with sanction exemptions to allow shipments below that price.
The official’s remarks come as Treasury Secretary Janet Yellen makes her first official trip to the Indo-Pacific region to gin up support for the proposed price cap plan, and to answer questions about its efficacy—particularly if India, China, and other nations benefiting from discounted Russian crude fail to participate. Yellen is slated to meet this afternoon with Japanese Finance Minister Shunichi Suzuki to discuss details of the plan.
Japanese officials “had expressed concern” about the price cap being set too low, the Treasury official told Reuters, but had not rejected outright “a potential price range of $40 to $60 per barrel.”
Background: G-7 nations announced last month they plan to explore the oil price cap as a means of limiting Russia’s oil export revenue. Though details are still being hashed out, the basic tenets of the plan are to target insurers and other services that enable the transportation and trade of Russian seaborne crude.
Asked about the plan last month, Biden told reporters that the U.S. has “delegated a commission, a group of our national security people to sit down and work out that mechanism.”
“We think it can be done,” Biden said of the plan. “We think it can be done to drive down the price of oil, and it would drive down the price of gasoline as well.”
In order to successfully implement a Russian price cap, IMF’s former chief economist Simon Johnson told Breanne, leaders “need to work out some of the details—such as exactly how much would be the price cap. They [also] need to talk to OPEC countries, because if Russia declines to export oil under the cap mechanism, then that will be a violation of its OPEC agreements. And there needs to be discussion with OPEC about what they would plan to do to make up the shortfall of production if Russia violates its quotas.”
Overall, Johnson said, “there is already, I think, a pretty healthy dynamic that will move things forward on all those fronts.”
FRENCH NATIONALIZATION OF EDF SLATED TO COST MORE THAN $8 BILLION: The French government is slated to pay more than $8 billion to nationalize power giant EDF, a move that comes as it seeks to secure a more reliable energy supply amid the war in Ukraine and the EU’s ongoing energy crisis.
One source said France, which already owns roughly 84% of the power company, could pay as much as $10 billion to acquire the remaining 16% stake of EDF and bring it back under state control —a goal it hopes to complete by the end of the year.
Purchasing EDF at market price is considered to be the fastest way to secure the power company, sources explained, since the alternative option—urging parliament to pass a law nationalizing EDF—would take too long.
News of the price point caused EDF shares to jump by 9.4% in Paris.
EARTHQUAKE COULD CAUSE TSUNAMI IN SEATTLE WITHIN ‘MINUTES,’ STUDY FINDS: A single earthquake along the Seattle Fault could cause catastrophe along the city’s coast, a new study found—and would send 42-foot tsunami waves crashing along the Seattle coast in less than three minutes.
Researchers at the Washington State Department of Natural Resources focused their modeling on the Seattle Fault, located beneath the Puget Sound and the city of Seattle. They used data from the last major tsunami-triggering earthquake on the fault, an estimated 7.0-7.5-magnitude event that occurred some 1,100 years ago.
The group found that, should a similar size earthquake occur today, it would cause 42-foot tsunami waves to reach the shoreline in fewer than three minutes in many places on the eastern side of Bainbridge Island, Elliott Bay, and Alki Point. Those waves could last upwards of three hours, researchers said.
“Most often, when we think of tsunamis, we think of our outer coast and communities along the Pacific Ocean. But there’s a long history of earthquakes on faults in the Puget Sound,” Hilary Franz, Washington state’s commissioner of public lands, said in a statement.
Though researchers acknowledged such an event could be exceedingly rare, it is not impossible. And as they noted in their report, the Seattle fault “is still active and is capable of generating similar tsunamigenic earthquakes today.” Read the full study here.
RIVIAN PLANNING HUNDREDS OF LAYOFFS: EV startup Rivian is planning to potentially cut hundreds of jobs in the coming weeks, according to people familiar with the move, who say the layoffs are expected to focus on non-manufacturing roles and could target up to 5% of the company’s 14,000 employees.
As Bloomberg reports, the company will seek to target areas that “grew too fast” as the company rapidly expanded and nearly doubled its headcount over the past year.
Growing fears of a recession have prompted a wave of similar reductions at other U.S. companies—including fellow EV manufacturer Tesla, which said last month it plans to cut 10% of its salaried workforce.
CLOCK’S TICKING ON RECONCILIATION: Corporate leaders and green energy businesses are reminding Democratic leaders that time is getting short for them to marshal a social and green energy spending bill through Congress before the November elections, which could put the party in the backseat.
More than 400 green energy companies signed on to a letter addressed to Biden, Speaker Nancy Pelosi, and Majority Leader Chuck Schumer talking up the readiness of the solar energy and storage industries to serve U.S. energy security needs.
“Please pass the tools in reconciliation to help us make that possible,” the letter said. “It’s time to get this done.”
A separate letter endorsed by seven corporate executives, including the heads of utilities Exelon and PG&E, said a reconciliation package with spending for green energy and supply chains will help their companies to combat inflation “right away.”
Schumer, other negotiators, and holdout vote Sen. Joe Manchin are continuing to meet and reportedly making progress — “picking up steam,” as Senate Finance Chairman Ron Wyden put it — on the package.
The lack of a deal has put more of the onus on executive agencies, and on Biden himself, to notch progress on Democrats’ green agenda. Biden has employed the Defense Production Act on several occasions to that end, most recently in a bid to grow domestic manufacturing of solar PVs, solar glass, and other similar products.
The infrastructure bill that passed with Republican support last year funded some of Biden’s green energy priorities, including the construction of an electric vehicle charging network, but priorities like more rigorous methane regulations and generous incentives for EV purchases remain outstanding.
Manchin has taken a particularly strong position against such incentives, considering Chinese dominance of critical minerals and other key supply chains, and called the pursuit “stupid.”
The Rundown
Politico EU Boris Johnson’s climate push loses its champion as Tories eye new leader
Washington Post Nasty weather blew a jet off an aircraft carrier. How’s that possible?
E&E News Biggest CCS failure clouds Supreme Court ruling
Calendar
WEDNESDAY | JULY 13
2:30 p.m. 366 Dirksen The Senate Energy and Natural Resources’ Energy Subcommittee will hold a hearing on pathways to lower energy prices.
THURSDAY | JULY 14
10:00 a.m. 1300 Longworth The House Agriculture Committee will hold a hearing on “A 2022 Review of the Farm Bill: The State of Credit for Young, Beginning, and Underserved Producers.”
