News Code : 45560

 

HIGHLIGHTS

Oil markets react to election results, COVID-19 news

High-decarbonization scenario for generation fuel consumption

Washington — Energy markets and sectors were quick to react to the weekend's news that Joe Biden had been declared winner of the 2020 race to the White House.

After natural gas-rich Pennsylvania fell his way in ballot counting on Nov. 7, Biden was unofficially declared the winner and president-elect of the US.

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.

But before he can do any of that, he'll have to withstand a series of legal and administrative challenges raised by President Donald Trump, which could drag out a final resolution for months.

Also key to Biden's success is the makeup of the next US Senate. While a shift to Democratic control of the senior legislative body would grease the skids for new initiatives, the chances of that happening were narrowing after the party lost tight races in Alabama, Iowa and South Carolina. Democrats will retain control of the House of Representatives, but with a smaller majority.

Petroleum markets

The petroleum futures complex rallied Nov. 9 primarily on reports of a breakthrough in COVID-19 vaccine research. Crude had already started to rise earlier in the day, after news over the weekend of Biden's victory.

"Certainty over the election results in the US is certainly one of the factors driving prices up today, it doesn't seem to matter that much who became president, rather that there is one finally elected," according to Global Risk Management trader Alexander Black.

The rally extended on news that from Pfizer and BioNTech that their COVID-19 vaccine had shown itself to be more than 90% effective in a phase 3 trial. The news lifted crude and refined products prices on expectations that demand could soon recover.

However, NYMEX front-month crude futures ended that day at $40.29/b, up $3.15 on the day, but where it has lingering mostly since late June.

The vaccine announcement was especially bullish for energy sector equity prices, specifically refiners, who stand to benefit from an increase in demand for gasoline, diesel and jet fuel.

Heading into the market close, Valero Energy stocks were trading at around $50/share, up 31% on the day, while PBF Energy was trading at around $6.72/share, up 34%.

Federal lands drilling

Biden has vowed to halt new drilling permits on federal lands and waters, which puts 1.1 million b/d 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 US federal lands has already increased in anticipation of a potential policy change, according to Platts Analytics.

"Permitting ticked up in October, driven by spikes in the Piceane and Uinta, two basins with heavy exposure to federal lands. Both basins more than doubled their 2020 permitting totals in October alone, with a combined 97 wells approved," said analysts Rene Santos and Parker Fawcett in a report.

"In the prolific Delaware New Mexico (NM) basin, permitting on federal lands doubled year-to-date," the analysts said. However, "October permitting did slow to its lowest levels since early 2019, with just 67 wells permitted."

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.

Biofuels rally

Biofuel credits extended their weeklong rally Nov. 9 on anticipation of stronger enforcement of the US 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 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 EPA.

Investors pushed shares of US LNG exporters higher Nov. 9, on the possibility of the lowering of 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 US to China and for new long-term contracts to be signed that would help US developers sanction projects.

Shares of Cheniere Energy, the biggest US LNG exporter, rose 3.6% to $51.80, while shares of Cameron LNG operator Sempra Energy advanced 4.5% to $130.39. Rio Grande LNG Developer NextDecade jumped 13.7% to $2.49, while shares of Driftwood LNG developer Tellurian rose 9.5% to $1.08.

Power/Climate

The US appears headed for a clean energy future regardless of who sits in the White House next year. But the pace of the energy transition – and presumably the severity of ensuing 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.

While a potentially divided Congress could hamper legislative efforts to pursue climate goals, Biden could make use of 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 that the Trump administration rolled back.

The president-elect could advance climate goals on the international level, as well, by promoting US leadership in the global effort to cut emissions. While Trump officially withdrew the nation from the Paris climate agreement on 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 US 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 – US natural gas consumption from power generation begins to decline sharply in about five years before flattening out around 100 average GW from about 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 US needs low carbon power options to meet more challenging decarbonization goals.

Nuke support

The apparent failure of Democrats to capture control of the 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, a uranium exploration company, in a note Nov. 9. Trump had to ensure than 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 Republican economic orthodoxy, Munro said.

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

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Source : PLATTS

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