The Coming Energy Shocks under a Biden Administration

Reposted from Forbes

By Tilak Doshi,

There is a view that suggests that now that Joe Biden has (most likely) won the US presidential election, a modicum of pragmatism will prevail as the Democrats’ excessive   campaign promises face  the cold light of day and as the real costs of policy decisions become apparent. Furthermore, one would have to note that there are limits as to what even a US Presidency – the world’s most powerful executive office — can do within constitutional limits. There is the likelihood that the US Senate will remain Republican and hence provide a check on the more extreme pledges made in the name of ‘net zero’ emissions in the power sector by 2035 and in the entire economy by 2050.

Energy Policy Discontinuities

But don’t be lulled by soothing thoughts of policy continuity under a Biden-Harris administration. The contrast in Republican and Democratic world-views of fossil fuels and global energy geopolitics could not be more stark. And nowhere are the costs as extravagant as in the promises made regarding  the Green New Deal. The adverse impacts on US domestic affairs will be as profound as they will be on the global stage. The policy discontinuity expected to take place in the oil and gas sectors under a Biden administration is about as radical as one can contemplate in US and global affairs.

The Biden Plan for a “100% clean energy economy [which] reaches net-zero emissions no later than 2050” will require his administration to sign in its own words “a series of new executive orders with unprecedented reach that go well beyond the Obama-Biden Administration platform and put us on the right track”. The 4-year, $1.7 trillion Biden plan – reflecting an even more aggressive “climate crisis” action plan set out by the House Democrats — includes banning fracking in federal lands and waters, denying federal permits for new fossil fuel infrastructure projects, and ensuring 100% clean renewable energy by 2035 in electricity generation, buildings, and transportation.

Joe Biden flip-flopped during the campaign trial over his proposed ban on fracking, depending on whether his audience was in an oil and gas-producing state like Pennsylvania or in environmentally-obsessed California. But, as President, ‘where the buck stops’, Biden will have to handle, for example, the situation in New Mexico where Democratic Rep. Xochitl Torres Small has repeatedly tried to reassure constituents of her support for the state’s mainstay oil and natural gas industry.

Will a Democrat-run New Mexico – which depends hugely on oil and gas production on federal lands — be somehow “exempted” from the anti-fracking ban in federal lands of a Biden administration? Or will the oil and gas workers in that state be sacrificial lambs for the global climate cause? An analysis by the state’s oil and gas association projects New Mexico to be among the states potentially hardest hit by a Biden presidency, losing over  62,000 jobs by 2022.

Taking a page from the previous Obama-Biden book, a politicized Environmental Protection Agency under Biden would block oil and gas pipelines and other fossil fuel infrastructure by enabling activists to launch interminable legal suits as in the case of the Dakota Access Pipeline. A Biden Administration would also likely resurrect the Obama EPA’s “sue and settle “ practices — deals through which radical environmental groups file lawsuits against federal agencies so that  court-ordered “consent decrees” are issued based upon a prearranged settlement agreement collaboratively crafted together by like-minded climate advocates in advance behind closed doors.

Re-joining The Paris Agreement

At the international level, Biden is committed to immediately re-join the Paris Agreement if elected president. At a stroke, a Biden-Harris administration will advantage key global energy players which have been sorely tested by President Trump’s “energy dominance” and “America First” agendas. A Biden presidency which would relinquish the role of the U.S. as the world’s leading oil and gas producer would no doubt be welcomed by Russia and the OPEC oil and gas exporters struggling with low energy prices. For oil and gas companies such as Russia’s Gazprom and Rosneft or Saudi Arabia’s Aramco, the prospect of a US government-induced degradation of its own country’s prolific shale oil and gas production as part of a climate change commitment would be like music to the ears.

A Biden-Harris administration intent on renewable energy and climate change priorities by constraining US oil and gas production would achieve, at a stroke, the long-sought and common objectives of Russia,  Saudi Arabia and other OPEC oil and gas producers. It would achieve results that Saudi policy since 2014 had consistently failed to attain by engaging in an all-out price war against a resilient and resurgent US oil and gas sector.

The Middle East: Wary of a Biden Presidency

But Biden is no unalloyed blessing for the Middle East. While assisting Russia, Saudi Arabia and the rest of the OPEC+ group by hobbling US oil and gas production, a Biden administration will also consider easing President Trump’s “maximum pressure” sanctions on Iran. Biden’s loyalty to President Obama’s legacy project to rehabilitate Iran is well known, and he has stated that he would return to the 2015 nuclear deal if Tehran “resumes compliance”. A potential resumption of Iranian exports of over 2.5 million barrels per day (its peak export level in 2018 before President Trump’s oil sanctions were imposed) would make it impossible for the OPEC+ group to balance supply and demand. The OPEC+ cutback agreement of 9.7 million b/d would be at the risk of collapse, along with oil prices from their already low sub-$40/barrel levels.

According to one newswire report, key members of OPEC “are wary that strains in the OPEC+ alliance could re-emerge with Joe Biden as U.S. President” and “would miss President Donald Trump who went from criticising the group to helping bring about a record oil output cut”. While President Trump brokered a deal between Russia and Saudi Arabia that brought about a record oil output cut by the OPEC+ group, a future President Biden would likely re-assess US ties to Saudi Arabia (called by Biden a “pariah” state) and Russia (which he considers to be the most serious security threat to US interests).

The surge in U.S. oil and gas exports which gathered pace in the past decade allowed President Trump to pursue an  “energy dominance” agenda which made the U.S. less vulnerable to political and social upheavals in the Middle East. It increased its foreign policy leverage in achieving strategic objectives, giving the Trump administration greater latitude to support allies and sanction rivals. It made it easier for President Trump to impose export sanctions on oil-producing adversaries such as Venezuela and Iran without the fear of a resulting spike in global oil prices.

A Biden presidency committed to the radical decarbonization agenda would undermine these achievements, and in the process, make the US and the rest of the world far more vulnerable to the vicissitudes of volatile energy markets and political instability in the Middle East. Whether the energy shock emanates from the eclipse of the US as the world’s leading oil and gas producer (leading to high oil and gas prices) or from the collapse of the OPEC+ production cut agreement brought about by the re-emergence of unconstrained Iranian exports (leading to very low oil and gas prices), a Biden presidency presents some dangerous scenarios in global energy affairs.  

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November 12, 2020 at 01:01PM

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