Daily on Energy: Energy fallout from Ukraine invasion – and Biden’s poor options

In the hours since Russian troops launched a multi-pronged invasion of Ukraine, stock markets plummeted and oil prices soared. The U.S. and allies are expected to impose sanctions as punishment, but President Joe Biden is wary about taking steps that would upset U.S. markets and, especially, further raise the cost of oil and gas.

Stocks plunged in the U.S. Thursday morning: All three U.S. markets opened significantly down Thursday, with the Dow Jones Industrial Average falling nearly 700 points, or 2%, after the index ended down 464 points Wednesday evening.

The price of oil jumped to its highest point since 2014: Futures for international benchmark Brent crude surpassed $105 a barrel amid concerns about disruptions to the global energy supply, while futures for U.S. West Texas Intermediate (WTI), jumped by more than 8% to trade at $99.46.

What’s coming down the pipe: President Joe Biden met this morning G7 ministers, White House officials said. The group is expected to introduce a new round of punishing sanctions against Russia later this afternoon.

How much is Biden willing to raise energy prices through sanctions? The problem for Biden, of course, is that inflicting pain on Russia would also raise costs for U.S. consumers, who are already seeing high prices and souring on Biden’s handling of the economy. Russia is the world’s second-largest producer of oil and a leading producer of natural gas, so it is inevitable that sanctions packages will roil the global economy to some degree.

“At this stage it is anything but clear what could bring the Russian president to his senses, therefore the situation, the equity and oil markets will remain volatile,” Tamas Varga, a senior analyst at PVM Oil Associates, told CNBC on Thursday.

“Even if prices drop back below $100/bbl due to abating tension in Eastern Europe, the retracement might prove short-lived and product tightness could keep oil prices at elevated levels in months to come,” he added.

In a White House speech earlier this week, Biden acknowledged sanctions would likely touch off higher gas prices in the U.S., even as he vowed his administration would use “every tool” at its disposal to limit pain at the pump.

“As I said last week, defending freedom will have costs for us as well, and here at home,” Biden told reporters Tuesday. “We need to be honest about that.”

“But as we do this, I’m going to take robust action to make sure the pain of our sanctions is targeted at Russia’s economy, not ours,” he added.

The U.S., Biden added, is “closely” monitoring energy supplies for any disruption: “This will blunt gas prices. I want to limit the pain the American people are feeling at the gas pump.”

In crafting this sanctions package, the White House has tried to avoid, or at least minimize, harsh economic blowback on the United States. Reuters reports that administration officials took into consideration and were “considered about the possible impacts of a loss of Russian oil supply at a time of rising U.S. gasoline prices.”

Is targeting oil a step too far? One senior official said they do not expect the Biden administration to target Moscow’s crude oil or refined fuel sector in any coming sanctions packages, citing fears of inflation and the harm such sanctions could cause other U.S. allies in Europe.

“Because oil markets are global — and because the United States is an oil-producing country itself — there’s reason to think that … we’ll be able to get through this without too much damage, but certainly it is something that we continue to watch closely,” the administration official said.

State Department officials also sought to assuage concerns about skyrocketing gas prices this week, telling reporters Tuesday that the sanctions being considered by the U.S. are not intended to hit global energy markets.

But Senate Banking Committee Chairman Sherrod Brown said this early afternoon that sanctions will hit Russian oil companies.

The more immediate option — cutting Russia from payments systems: U.S. and European leaders are debating whether to cut Russia off from the Swift international payments system, which would be a significant escalation. U.K. Prime Minister Boris Johnson is lobbying for it, according to the Financial Times, which noted that such sanctions would hurt Russia’s ability to recoup international profits from oil and gas exports, which account for more than 40% of its revenue.

Another option for Biden to limit price effects – tap the SPR again: It’d be the third time he did so since taking office––but it may well be one of his only options to reduce the strain on Americans’ wallets. White House press secretary Jen Psaki declined to rule out such a move during yesterday’s press briefing, telling reporters it “is certainly an option on the table.”

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.

KERRY HOPES FOR PUTIN’S HELP ON EMISSIONS: Biden climate envoy John Kerry sounded on-message but a bit off-key discussing the invasion in an interview with BBC Arabic, warning of “massive emissions consequences to the war.”

“I hope President Putin will help us to stay on track with respect of what we need to do for the climate,” Kerry said.

“I think, hopefully, that President Putin would realize that in the northern part of his country, they used to live on 66% of a nation that was over frozen land,” Kerry said. “Now it’s thawing. His infrastructure is at risk. The people of Russia are at risk.”

A CLOSER LOOK AT WHY THE USPS SPURNED ELECTRIC VEHICLES: The United States Postal Service moved ahead with plans yesterday to purchase tens of thousands of mostly internal combustion-powered vehicles, and its primary reasoning for not going as green as environmentalists wanted — and the Biden administration, too — came largely down to dollars and cents.

USPS issued a record of decision with environmental and cost analyses outlining its intentions to acquire up to 165,000 delivery vehicles over a decade beginning next year, with a minimum of 10% of those being battery electric vehicles.

White House and environmentalist opposition: Those figures have underwhelmed green groups and the Environmental Protection Agency, which commented extensively and critically on the USPS proposal. EPA Associate Administrator for Policy Vicki Arroyo previously called USPS’s proposal “a crucial lost opportunity to more rapidly reduce the carbon footprint of one of the largest government fleets in the world.”

USPS said its plan “was intentionally designed to be flexible, with at least 10 percent [battery electric vehicles], precisely to allow for situations where BEVs became more affordable, either through significant price shifts or through the receipt of additional funding.”

But additional funding is outstanding, and the fiscally-challenged entity said it’s all in the numbers.

The figures: Postmaster General Louis DeJoy in a statement yesterday pointed to USPS’s “fragile financial condition” (something Congress is trying to fix), and the Postal Service’s record of decision basically said it wanted to go greener but couldn’t afford to.

USPS estimated that the 20-year cumulative estimated cost for maintaining a baseline 75,000 of internal combustion engine vehicles is $9.3 billion, versus $11.6 billion for that many battery electric vehicles.

It also assessed that infrastructure costs associated with a prospective full EV fleet “will continue to grow due to increases in [battery electric vehicle] infrastructure costs as the Postal Service installs charging infrastructure at more logistically challenging facilities.”

On the contrary: EPA said in response to USPS’s proposal that it used faulty data points that biased its findings in favor of gas-powered vehicles.

The response: Environmental groups challenged the USPS proposal, saying it would stand in the way of Biden’s goal of acquiring a 100% zero-emission federal vehicle fleet by 2035.

“Look at UPS, look at FedEx, look at Amazon. These fleet owners have all made — and these are the heavy hitters — but they’ve all made pretty big commitments in terms of purchasing electric delivery vans,” said Alex Laska, senior policy adviser for transportation at Third Way.

FedEx, for its part, intends that half of new vehicles purchased by 2025 be electric, and the share rises to 100% by 2030.

“Is USPS really still going to be driving [internal-combustion powered] delivery vans in 2050?” Laska told Jeremy. “Nobody else is.”

A ‘Build Back Better’ angle: That “receipt of additional funding” USPS referred to could have come in the Democrats’ defunct spending bill. The Build Back Better package proposed more than $2.5 billion for USPS to purchase EVs and $3.4 billion for charging stations.

BLM TAKES CHACO CANYON DECISION TO THE PUBLIC: The Bureau of Land Management held two public meetings in New Mexico yesterday and will host another virtually tonight so the public can weigh in on its proposal to ban oil and gas leasing around Chaco Culture National Historical Park.

The administration announced in November it would pursue a 20-year ban on new leases inside a 10-mile buffer surrounding the Native American heritage site, and a two-year segregation period of the targeted lands was automatically triggered when BLM formally proposed to withdraw the 351,000 acres in January.

Environmental groups and New Mexico’s two Democratic senators support the withdrawal effort, but leadership of the Navajo Nation has opposed it and says it will cut off its members and land allottees from royalties associated with development there.

SUPPLY CHAIN OFFICE COMING TO ENERGY: The Energy Department is launching a new “manufacturing and energy supply chain office” to roll out funding for eligible projects authorized by the new infrastructure law.

A senior administration official told reporters the office will ensure those funds will be used to “help strengthen and secure the supply chains needed to modernize the nation’s energy infrastructure and to support the clean energy transition.”

Executive agencies detail supply gain weaknesses: Seven cabinet agencies and the White House released reports today detailing weaknesses in supply chains within the respective industrial bases within their agency scope.

The Energy Department’s focused on barriers, especially in the form of lagging critical mineral supplies, to expanding green energy and said inadequate availability of raw materials is linked to lack of U.S. natural reserves for some, such as cobalt.

It also acknowledged that “important environmental justice concerns related to mineral extraction” compete with mining expansions in something of a recognition of a tension between the administration’s environmental and energy policies.

CONSUMER GROUP DEMANDS BIDEN ‘OPEN THE GULF’: The Consumer Energy Alliance is demanding the Biden administration make more of the Gulf of Mexico available for wind, oil, and gas development as energy consumers struggle with high and rising costs.

CEA, which represents various consumer groups including farmers, manufacturers, and families, launched an “Open the Gulf” campaign today to pressure Biden untie development potential it says is “tangled up in red tape and intentional delays” to blunt high prices for gasoline and other fuels.

“The pervasive sense that the Gulf is closed to new leases – whether by bureaucratic slowdowns or political maneuvers – is hurting America’s energy security, reliability of supply and environment,” CEA President David Holt said in a statement.

Holt brought up news that the administration has effectively paused its oil and gas leasing and drilling permitting activities after a federal judge enjoined the government from using it’s preferred calculus for estimating the social cost of carbon emissions when assessing a given project’s effect on the environment.

The fight for the gulf: The campaign reflects the intense pressure Biden is feeling to blunt gasoline prices, which he has made a special point of focus in recent days when talking about the consequences of the Russia-Ukraine conflict.

At the same time, Biden faces demands that he do just the opposite of what CEA, Republicans, and the oil and gas industry have pressed him to do.

Environmentalist groups strongly opposed to the drill-more-oil strategy have set their own gazes upon the gulf, too, and just prevailed in a case challenging the administration’s recent oil and gas lease sale there.

That pressure is not letting up, even with the delays associated with the social cost of carbon ruling.

Sierra Club, one of the plaintiffs in the gulf auction case, circulated a memo yesterday urging the Biden administration to stop leasing and permitting on federal lands.

NEW SURVEY ON YOUNG VOTERS AND CLIMATE: A new survey of 18- to 30-year-olds in the U.S. found that a majority of young voters are not happy with the state of the country, with a majority expressing disapproval for how the Republican Party is handling climate change.

According to the new poll, conducted by Echelon Insights and the right-of-center American Conservation Coalition, more than half of young people in the U.S. say the country is on “the wrong track,” with majorities also saying they disapprove of Biden’s performance as president and his handling of the U.S. economy.

Meanwhile, a 50% majority of young people also said they disapprove of the way Republicans in Congress are handling climate change. Four in 10 adults, and one in four Republican voters, also said the GOP prioritizes climate change “too little.” Meanwhile, a strong 75% of young adults said they support investing more in solar and wind plants as a means of combating climate change. Read the full survey here.

The Rundown

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EE News Tesla: We’ll open our charging network for federal cash

The Wall Street Journal Opinion | How to Beat Putin With Natural Gas

Calendar

TUESDAY | MARCH 1 

10:00 am: The Senate Energy and Natural Resources Committee will hear testimony on pending legislation, including the Department of Energy Science for the Future Act of 2022 (S. 3699), the Fission for the Future Act of 2021 (S. 3428), the Energy Emergency Leadership Act (H.R. 3119), and more.