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UNCERTAIN OIL MARKETS: Oil markets are likely to remain fairly unpredictable until OPEC+, the group of oil-producing nations, reaches an agreement on whether and how to boost output amid recovering demand.
U.S. oil prices hit multi-year highs early this morning after the OPEC+ talks failed to yield a deal to increase production and abandoned talks after the United Arab Emirates refused to agree. But that spike in prices was followed by a “sudden mini-crash” that likely is leaving most market participants “beyond confused,” said Louise Dickson, oil markets analyst with Rystad Energy.
Dickson floated several potential causes for the sudden price dip, including increasing pressure from the U.S. and Russia for OPEC+ to reach a deal and a realization that, without a deal, OPEC+ nations could rebel and bring unregulated output to market. A new oil price rise could occur, too, the longer OPEC+ fails to reach agreement, she added.
Former Trump administration Energy Secretary Dan Brouillette told CNBC this morning that oil prices could “very easily” hit $100 per barrel in the fallout of OPEC+ failing to reach a deal. But he acknowledged significant uncertainty, too.
“If there isn’t any agreement on production, and countries tend to go off and do their own thing, or do their own production, you could have a collapse of oil prices,” he added.
The OPEC+ nations are still withholding around 6 million barrels of oil per day from the market, the remnants of a deal the countries made in the wake of the pandemic when oil demand took a massive hit. Now, however, demand is returning rapidly as the United States and other major economies open back up as more people are vaccinated.
“At the moment the market is getting too tight for consumers, especially in the U.S. where oil is becoming uncomfortably expensive for consumers and industry,” Dickson said.
Tricky spot for Biden: The White House said in a statement Monday that it is “closely monitoring” the OPEC+ talks and administration officials “have been engaged with relevant capitals to urge a compromise solution that will allow proposed production increases to move forward.”
The Biden administration sees stable oil market conditions as critical to the U.S. economic recovery from the pandemic, Biden aides told Reuters.
Nonetheless, the administration’s stance puts President Joe Biden in the tricky spot of asking for increased global oil production at the same time he is imposing policies to tighten domestic production in an effort to curb greenhouse gas emissions.
Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). 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.
CAN BIDEN’S CLEAN ELECTRICITY STANDARD CLEAR SENATE RULES? Democrats may struggle to revamp Biden’s signature climate policy to comply with strict budget rules that govern the reconciliation process, the legislative maneuver they are using to bypass the filibuster.
Senate procedural experts interviewed by Josh for a story posted this morning are skeptical a clean electricity standard as typically defined could fit the “Byrd rule” that prohibits “extraneous matters” unrelated to the budget to be considered in reconciliation.
“The term ‘clean energy standard’ suggests a regulatory activity, and quite frankly, if it’s purely a regulation requirement that utility companies meet a certain standard, I don’t see how that can possibly be considered under a reconciliation instruction,” said Bill Hoagland, former staff director of the Senate Budget Committee who is now senior vice president at the Bipartisan Policy Center.
Insight into Democrats’ strategy: Democrats are coalescing around an idea to pitch a clean electricity standard as a straightforward investment program, sources close to discussions on Capitol Hill tell Josh.
It would be different than the clean electricity standards or more narrow renewable portfolio standards that have been enacted in more than 30 states.
How Democrats’ federal approach would differ: They would likely propose setting up annual targets for each utility to hit in terms of growing their share of clean energy. If utilities hit these targets, they would get financial support from the federal government. If they do not, they would face penalties.
The utility sector as a whole would have to hit 80% clean power by 2030, which would fit the 10-year budgetary window of reconciliation and keep pace with Biden’s campaign promise of 100% carbon-free power by 2035.
Utilities would be assigned different targets based on their starting level for zero-carbon power, enabling utilities in carbon-intensive states more time to wean off fossil fuels.
If they hit their targets, utilities would get money from the federal government that they could use for a variety of purposes, such as paying for the transition to clean power, reducing customer power bills, or providing benefits to workers at fossil fuel plants. If a utility doesn’t reach its target, the federal government would penalize the company.
“The way to get a CES done is to turn it into an investment program,” said Leah Stokes, associate professor at the University of Santa Barbara.
“Of course, you can put an investment program through reconciliation,” added Stokes, who is also an adviser to Evergreen Action, an environmental group.
BIDEN PUSHES NEW DEAL-STYLE ‘CLIMATE CORPS’: Biden envisions putting thousands to work addressing the effects of climate change in a revamped New Deal-style public service program.
White House officials, including national climate adviser Gina McCarthy, say funding to establish a Civilian Climate Corps is a must-have in the Democrats-only spending bill to follow the bipartisan infrastructure deal. The idea is popular among many Democratic lawmakers, with several proposals gaining traction on the Hill from both left-wing and centrist members.
Biden’s proposal would revamp the conservation program that President Franklin Delano Roosevelt established in the 1930s, repurposing it to fight climate change.
Nonetheless, Democratic lawmakers and climate activists say Biden is proposing far too little to support the scale of the program needed, both to curb climate change and to employ those out of work from the pandemic. Centrist and left-wing Democrats alike say the program should be funded at a level multiple times that of the $10 billion Biden is proposing.
More on the potential Civilian Climate Corps in Abby’s story posted over the weekend.
TC ENERGY IS SEEKING DAMAGES FOR CANCELED KEYSTONE XL: The Canadian energy company said Friday it filed a notice of intent with the State Department to initiate a legacy claim under NAFTA over Biden’s cancelation of the Keystone XL pipeline.
TC Energy said in a press release that it is seeking to recover more than $15 billion “in damages it has suffered as a result of the U.S. Government’s breach of its NAFTA obligations.”
Biden revoked a presidential permit for the 1,210-mile pipeline, which would have delivered crude from Canada’s Alberta oil sands to refineries on the Gulf Coast, in a day-one climate executive order. TC Energy suspended work on the pipeline after Biden’s decision, and the company confirmed early last month it would cancel the project entirely.
FOSSIL FUEL CONSUMPTION DIPPED 9% IN 2020: The drop in U.S. fossil fuel consumption — the largest annual decline since at least 1949 — brought total consumption down to its lowest level since 1991, the Energy Information Administration said in a research note this morning.
Unsurprisingly, much of the decline in fossil fuel consumption was due to the pandemic, which prompted a 15% decline in energy consumption in the transportation sector, the EIA said.
Out of all the fossil fuels, coal saw the biggest consumption decline at 19%, though the EIA expects coal consumption to increase this year. Petroleum consumption fell 13% in 2020, and natural gas consumption declined 2%. Natural gas accounted for the largest share of fossil fuel consumption on record last year, the EIA adds.
HOW ELECTRIC CARS’ GROWTH WILL AFFECT OIL PRODUCERS: Oil companies with significant exposure in the U.S. and European markets are likely to fare worse because electric vehicles’ growth will take a big chunk out of existing oil demand, BloombergNEF said in a research note yesterday.
BloombergNEF projects that the U.S. and Europe will lose more than 8 million barrels per day of existing demand as electric vehicles become more widespread. Companies like Phillips 66 and Marathon Petroleum, which are heavily invested in the U.S. market, “now need to assess the long-term viability of assets,” BloombergNEF said.
By contrast, however, companies that operate more heavily in markets such as India and China will see oil demand growth “fail to materialize” as electric cars begin to dominate. It’s a key difference because those companies will have an opportunity to “configure new assets to produce jet fuel or petrochemical feedstocks,” BloombergNEF said.
In its electric vehicle outlook released last month, BloombergNEF said passenger electric cars will rise to nearly 70% of all sales by 2040, even without new government support for the technology. The outlook also predicts that gas-powered vehicle sales likely peaked in 2017.
ASSET MANAGERS CALL FOR GLOBAL CARBON PRICING: An alliance of some of the world’s biggest asset managers and pension funds is calling on governments to immediately establish a carbon pricing system or strengthen existing ones to ensure the world can reach the Paris Agreement’s climate targets.
In a report released this morning, the Net-Zero Asset Owner Alliance, convened by the United Nations, notes that roughly 80% of global carbon emissions aren’t covered by a carbon price yet. The report says governments’ net-zero emissions targets should include clear carbon pricing policies, such as a fee on emissions or an emissions trading system, complemented by other policies that boost research and development in harder-to-abate sectors of the economy.
For carbon pricing strategies, the alliance recommends a “corridor” approach that sets a floor and a ceiling for the emissions price that both rise over time. The floor offers certainty to investors, while the ceiling protects against spikes in energy prices that could undermine political support for carbon pricing.
To avoid carbon leakage, the alliance calls for a “commitment to seek global agreement on a carbon price floor in the G7 and G20 nations, and targeted use of carbon border adjustments for energy intensive sectors.”
The Rundown
Financial Times A $140bn asset sale: the investors cashing in on Big Oil’s push to net zero
Wall Street Journal Cash is good for green energy but a grid authority is better
New York Times Fox’s new channel changes the climate for weather TV
Politico Climate scientists take swipe at ExxonMobil, industry in leaked report
Calendar
THURSDAY | JULY 8
12 p.m. CRES Forum will hold an online event titled, “How Conservatives are Planning to Tackle Climate Change.”
