U.S. Democratic presidential candidate and former Vice President Joe Biden speaks at the Get Out The Vote event on November 2, 2020 in Cleveland, Ohio, United States.
Kevin Lemarque | Reuters
American presidents have long wanted the US to be self-sufficient when it comes to oil, and if former Vice President Joe Biden wins the presidency, he’ll likely have a similar agenda, but with an added focus on clean energy.
During President Donald Trump’s tenure, the US has become the world’s largest energy producer, outperforming both Russia and Saudi Arabia in oil production. It also became a net exporter of oil when refined products like diesel, jet fuel and gasoline were included.
“We finally got energy independence. Every president since Nixon – nine presidents – has called for energy independence, and we’ve finally achieved it, and now we’ll see what happens,” said Daniel Yergin, vice chairman of IHS Markit.
US oil production peaked at 13.1 million barrels a day that year before declining Covid-19 The global economy struck and depressed oil demand. US. Oil production fell below 10 million barrels a day for a while, according to the US government, but has averaged 10.6 million barrels a day again for the past four weeks.
“It was the Obama administration that led the rapid expansion of US oil and gas. They spoke of it as independence and a free hand in foreign policy,” said Helima Croft, director of global raw materials strategy at RBC. She said that Trump card The government has brought the discussion further to the issue of US dominance in the oil sector, where it could be “armed” or used as a stubborn political lever.
“It’s a preferred industry among [Trump]. He was a champion of the industry, “Croft said. When Obama won the White House in 2008, the US was only producing 5 million barrels a day, and production had risen to 9.5 million barrels by 2015 before falling in 2016.
Biden has said it will not stop fracking, a process developed in the US that made oil and gas producers used to hard-to-reach oil. But Biden’s critics say he will side with the more progressive wing of his party that wants to end fracking.
But during Biden’s energy plan includes $ 2 trillion in clean energy initiatives and does not erase oil and gas exploration. Analysts said he could improve regulation of the sector by limiting methane emissions, and he said he would limit fracking to states.
“I think he will look at oil prices and oil diplomacy in terms of the broader world economy, the US economy and US jobs,” said Croft. “I think he will see it as an important economic contribution. I think President Trump really saw the industry as something of strategic importance and it needed to be protected. I think for Biden, oil policy will remain important.” but it will be part of a broader economic input. “
Biden will need a blue wave where he has democratic majorities in the House and Senate.
Croft said the market is focused on this aspect of the election because if there was a blue wave, oil prices would be boosted next year by a bigger stimulus package from Democrats against Republicans.
The market is also watching the progress of the pandemic. The price of oil will be affected if the US joins Europe and re-establishes some aspects of the lockdown. This could affect US gasoline demand, which would have a direct negative impact on world oil prices. US gasoline typically accounts for about 10% of the world’s oil needs.
She said a Biden government is likely to view natural gas as an important bridge to eliminating fuel and reducing coal use. Natural gas may also be seen as an important export item, giving Europe the ability to buy US liquefied natural gas alongside Russian natural gas.
“I think Biden is trying to embrace that center line within the Democratic Party. He’s trying to get the base of the Green New Deal and the voters he needs to win in Ohio and Pennsylvania,” Croft said. “After this [presidential] In the debate, his team was out there and said we’re talking about reducing subsidies, not fracking. “As she explains, it’s a delicate balancing act.
Yergin said Biden won’t and won’t ban fracking.
“He cannot ban fracking anyway. Oil production is regulated by the states,” said Yergin. “In general, a Biden administration has made it clear that there is a general tendency towards more regulation, particularly in the energy sector. It recognized that the US energy position is beneficial from a foreign policy perspective.”
Yergin said whether the US continues to be the No. 1 producer remains to be seen, regardless of who is president.
“It would depend on the price of oil regardless of the two. Still, I think the US will still be one of the top three oil producers. No. 1 is an open question,” he said.
Croft said the net impact of higher regulation could be higher production costs for U.S. manufacturers.
The rise of the US shale industry has changed the dynamics of global energy. During the Trump administration, the US has become a major oil exporter after a long-standing export ban was lifted in the last few weeks by the Obama administration.
When the world became saturated with oil in 2016 and prices fell, Saudi Arabia and OPECand Russia formed a new alliance, OPEC +. To cope with the effects of soaring US oil production, they jointly regulated the oil production of OPEC and Russia and other non-OPEC producers.
When oil demand cratered during the pandemic in early 2020, Russia and Saudi Arabia disagreed on a production target. Trump stepped in personally to forge a deal to stabilize energy prices.
Ed Morse, head of global commodities at Citigroup, said a Biden win could have an immediate impact on the outcome of the OPEC Plus meeting in December. “A Biden win would likely affect and cement relations between Russia and Saudi Arabia,” wrote Morse.
A Biden win could likely change relations with both countries. Russia could face more financial sanctions on a number of issues, including meddling in the US elections. Morse said on behalf of Saudi Arabia US support could cool down and focus on the Saudi human rights record, including the disappearance of journalist Jamal Khashoggi.
“An election in Biden could increase the likelihood that the larger members of OPEC + will take a more conservative approach and, depending on whether the oil price stays in the $ 30 area, cause them to further cut production in January,” wrote Morse. He said they could postpone their Jan. 1 production increase of 1.9 million barrels a day. Saudi Arabia and Russia could move closer together and support their bilateral agenda with new energy projects, but also possibly arms sales, noted Morse.
However, Croft said she doesn’t expect Saudi Arabia to get any closer to Russia, noting that US arms sales are important in the region as well. “I honestly think the first step the Gulf States will take is to ingratiate themselves with a Biden government,” said Croft.
As for Iran, she expects it will be an early priority for Biden to try to re-enter the joint comprehensive plan of action that Trump has abandoned. The Obama-era deal included lifting sanctions on Iran in exchange for an end to its nuclear program, but Trump pulled the deal out as unilateral.
Croft said if Biden takes such a move, it will allow the return of about 1 million barrels of Iranian crude oil per day by the end of 2021. “The chances of a new Iranian nuclear deal that leads to rapid sanctions relief are higher under a Biden administration,” noted Croft.
On the other hand, if Trump wins the election, “the policy of maximum pressure on Iran is likely to continue,” she said, “and the key question is whether Iran will maintain its policy of maximum resistance if it moves on with four more years severe economic problems are faced. ” Pain.”
With a Biden government pushing for greener fuels, Morse believes one of its first steps will be to re-accede to the Paris Agreement and to realign itself with China, at least on climate policy. Trump pulled the US out of the deal.
“It is hard to imagine taking a major step toward significantly reducing carbon and methane emissions without action from the world’s two largest economies and two of the world’s largest emitters,” said Morse. China is committed to becoming climate neutral by 2060.
But he doesn’t expect this to end tensions with China.
“The fact that the EU, China and the US, under a Biden Presidency, will all seek to promote new technologies in order to create new jobs through green policies puts them in a position to focus on the very technological issues that are at the fore stand to compete with each other in economic difficulties between China and other countries, “notes Morse. He added that this includes cybersecurity and technology transfer issues, which have sparked tension between the US and China and have manifested themselves in trade disputes.
Biden wants the US to use 100% clean energy and zero emissions by 2050 by taking measures that aim to reduce emissions from transport and limit methane from oil and gas. His $ 2 trillion plan would encourage investment in infrastructure, electric vehicles, renewable energy, efficient buildings, and agriculture and conservation.
Analysts said the plan would be paid for by reversing recent corporate tax cuts and increasing private, state and local investment.
“In a sense, it’s a form of energy industry policy,” Yergin said. He said the effort would continue to bring the supply chain back to the US. Besides automobiles, “China makes 70% of the world’s solar panels in China and another 10% outside of China,” he said.