The United States, world’s largest crude consumer and producer, is set to elect a new president. The outcome will carry immense impact on the global crude trajectory. What if President Donald Trump wins a second term? And what in case of a Joe Biden presidency? All this is up for debate.
If Trump wins a second term — which most expect him to after loosening methane rules and opening new offshore and arctic areas to drilling in his first term — he would continue his deregulatory push to expand federal areas to drilling. The Trump administration sees drilling on public lands as vital to maintaining the nation’s status as the world’s No. 1 oil and natural gas producer. Oil production from public lands and waters topped a record one billion barrels in 2019.
Only recently the administration had announced they were opening the Arctic National Wildlife Refuge to drilling.
In contrast, Biden and his running mate, Sen. Kamala Harris support ending new oil and gas drilling on federally managed lands and waters.
Trump is also expected to persist with his policy of easy permits for new crude pipelines and export projects. Trump is also expected to stay a vocal player in supply negotiations among the Organisation of Petroleum Exporting Countries and its allies — known as the Opec+ — and all concede that Trump would continue to keep a tight hold on sanctions against Iran and Venezuela.
A Biden presidency would be different. In case he gets elected, this status-quo “energy dominance” policy under Trump would give way to a significantly more “middle-of-the-ground” strategy anchored between a reengagement in US global leadership towards sustainable energy targets weighed against the US energy dominance policy strategy, Ehsan Khoman, head of Mena Research and Strategy at the investment bank Mitsubishi UFJ Financial Group (MUFG), was quoted as saying in a podcast.
“A Biden presidency will de-emphasise fossil fuels immediately and would attempt to accelerate the shift to alternative energy, but will also require significant policy implementation with full democratic control of the government,” Khoman said, adding, “A Biden presidency will mark the moment when the world’s biggest oil and gas producer officially re-joins the global energy transition.”
Energy transition is a fact. It is here to stay, but the pace of evolution could pivot on the US elections. From an electoral viewpoint, Biden had to tread a careful path. In view of the uneasiness felt in the energy belt of the country, Biden was forced to clarify, “I will not ban fracking. I (only) said no fracking on federal lands.” He emphasised, “We’re going to still need oil. We’re gonna still have combustion engines. We’re still going to need oil for many things.”
In July he presented a plan to spend $2 trillion over four years to significantly escalate the use of clean energy in the transportation, electricity and building sectors, designed to create economic opportunities and strengthen infrastructure while also tackling climate change. The initiative would create ‘millions of high paying jobs’, he had to underline in the wake of a barrage of questions about the jobs being lost due to the transition.
However, the most-watched over issue under a Biden presidency would be Iran. Geopolitics would impact the sector significantly. A rapprochement with Iran seems certain under a Biden administration, raising the prospect of the return of 2-2.5 million barrels per day of Iranian crude onto global oil markets. On the other hand, a Trump victory could well mean the end of any hope in a negotiated deal with Iran, Khoman added in the podcast.
Riyadh-Washington ties would also be under focus in a Biden administration, with reverberations across the global oil markets. A weakening of US-Saudi ties could lead to two major oil market outcomes: A return of Saudi Arabia’s strategy of defending market its share if the Opec+ supply coordination crumbles, and a strengthening of Saudi ties with China, a growing destination for its crude, Meghan Gordon quoted Kevin Book, managing director of ClearView Energy Partners as predicting.
Scott Modell, managing director of Rapidan Energy Group said a Saudi reset under Biden would also “mark the end of the White House going to bat for US shale at Opec+ and restraining a Democratic Congress when it comes to anti-Saudi legislation.”
“I find it unimaginable that a Biden administration would be intervening when global prices are low, pleading with Saudi Arabia to please restrict supply,” David Goldwyn, the State Department’s top energy diplomat under the Obama administration told Gordon.
In crude speak, Biden and Trump are poles apart.
Published in Dawn, November 1st, 2020