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Biden win to bring new approach to energy markets

Energy markets and sectors were quick to react to the news that Joe Biden was declared the winner of the 2020 race to the White House.

After natural gas-rich Pennsylvania fell Biden’s way in ballot counting Nov. 7, media organizations The Associated Press, CNN and Fox, among others, declared Biden the winner of the election, although President Donald Trump’s reelection campaign is challenging that result on a number of fronts.

Biden would bring a decidedly different approach to shaping energy, climate and trade policy. Among other things, Biden has vowed to make a swift pivot to clean energy.

A pivotal factor in determining Biden’s ability to achieve his goals will be the makeup of the next U.S. Senate. While a shift to Democratic control of the senior legislative body would grease the skids for new initiatives, the chances of that happening have narrowed, and two runoff races in Georgia in January 2021 may prove critical. Democrats are slated to retain control of the House of Representatives but with a smaller majority.

Federal lands drilling

Biden has vowed to halt new drilling permits on federal lands and waters, which puts 1.1 million barrels per day of oil output and 3.7 Bcf/d of gas output at risk by 2025 if existing permits and drilled-but-uncompleted wells are allowed to continue, according to S&P Global Platts Analytics. A total federal drilling ban would cut oil output by 1.6 million b/d.

Well permitting on U.S. federal lands has already increased in anticipation of a potential policy change, according to Platts Analytics.

Permitting rose in October, particularly in the Piceane and Uinta, two basins “with heavy exposure to federal lands,” analysts Rene Santos and Parker Fawcett said in a report. Both of these basins saw their 2020 permitting totals more than double in October, with a combined 97 wells approved, the report said.

Platts Analytics expects “permits on federal leases to continue to increase through the end of the year, as President-elect Biden could make good on his promise to stop new drilling on federal lands. However, the pace of increase is likely to drop as operators may be close to having built enough inventory to last for two years (the time limit for federal drilling permits),” the analysts said.

Power and climate

The United States’ transition toward clean energy has already gotten underway, but the pace of the energy transition and the potential climate change impacts could look dramatically different under Biden.

While analysts see Biden preserving a role for natural gas, his climate plan would invest $2 trillion in renewable power, electric grid upgrades, green building initiatives and other clean energy initiatives that would displace fossil fuels.

A potentially divided Congress could hamper legislative efforts to pursue climate goals, but Biden could use federal agency and executive actions, continuing a more recent trend of governing through executive orders.

Biden has already said he plans to sign a series of executive orders reinstating certain environmental rules the Trump administration rolled back.

The next president could advance climate goals on the international level as well by promoting U.S. leadership in the global effort to cut emissions. While Trump officially withdrew the nation from the Paris Agreement on climate change Nov. 4, Biden has committed to rejoining the accord on his first day in office.

Gas consumption flat to lower

A Biden presidency will likely push the Platts Analytics reference case forecast for U.S. power generation fuel consumption toward a high-decarbonization scenario.

The most recent Platts Analytics forecast reference case has natural gas consumption as a generation fuel flattening out over the next few years and continuing on a flat trajectory through 2050.

However, under a high-decarbonization scenario, one similar to the Biden plan, U.S. natural gas consumption from power generation begins to decline sharply in about five years before flattening out about 100 average GW from around 2035 to 2050.

As expected, a Biden presidency could lead to a sharper increase in wind and solar generation, a sharper drop in coal-fired power generation and much less of a decline in nuclear power as the U.S. needs low-carbon power options to meet more challenging decarbonization goals.

Looking to international markets, investors have pushed shares of U.S. LNG exporters higher in the wake of the election results on the possibility of lowered trade tensions between Washington and Beijing once Biden takes office.

The elimination of tariffs would provide the certainty the market needs for greater flows of LNG from the U.S. to China and for new long-term contracts that would help U.S. developers sanction projects.

Nuclear support

A Republican-controlled Senate means more ambitious climate agendas may be tempered by the political reality of that chamber’s makeup, Atlantic Council senior fellow for nuclear energy Jennifer Gordon said in a blog post Nov. 7.

“While the full scope of Democratic policies may not be realized by the next Congress, legislation that encourages the rapid deployment of nuclear energy technology represents an area where Democrats and Republicans can continue to work together — as they have over the last four years,” she said.

The bipartisan support may apply to the existing nuclear fleet as well as a new generation of smaller advanced reactors that can integrate better with renewable energy and cost less than earlier-generation nuclear units, Gordon said.

In some ways, Biden may be more favorable for nuclear energy than Trump was, said Brandon Munro, CEO of Bannerman Resources Ltd., a uranium exploration company, in a note Nov. 9. Trump had to ensure that any support he gave to nuclear energy did not hurt fossil interests supported by his base and was hesitant to pick winners and losers, in keeping with the Republican economic platform, Munro said.

“In contrast, Biden’s climate plan calls for various tax incentives and credits for clean energy, including nuclear power,” he said.

Biofuels rally

Biofuel credits extended a weeklong rally Nov. 9 on anticipation of stronger enforcement of the U.S. Renewable Fuel Standard and fewer refinery exemptions under a Biden administration, though prices could be nearing their peak.

The credits were last higher in February 2018 before the Trump administration accelerated the use of small refinery waivers to the biofuel mandate. Market uncertainty remains as it is not clear if Trump will set final blending volumes for 2021 or leave the policy to Biden’s Environmental Protection Agency.

Christopher Newkumet, Jeff Mower, Chris van Moessner, Rocco Canonica and Harry Weber are reporters and editors with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.


Source S&P Global Inc.