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Daily on Energy: What are Biden's options for responding to OPEC+?

Washington Examiner logo Washington Examiner 10/7/2022 Jeremy Beaman, Breanne Deppisch
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WHAT ARE BIDEN’S OPTIONS? The White House said yesterday that “nothing is off the table” when it comes to responding to OPEC+’s decision to cut oil production by 2 million barrels per day.

Here are some of President Joe Biden’s options:

Additional SPR releases: Since March, Biden has released 155 million barrels from the Strategic Petroleum Reserve into the market, with sales for another 10 million barrels extended through November.

Senior Biden officials said this week that the White House is weighing additional SPR drawdowns to help protect consumers against a surge in energy prices.

The Treasury Department estimated in July that the SPR sales, in coordination with the 60 million barrels released by the International Energy Agency, lowered U.S. gas prices by around 38 cents per gallon.

But there are limits to further releases, including that, at some point, they could pose a risk to national security.

“The long-term future of the SPR is very much in doubt, and everything that the Biden administration has done with respect to it has only accelerated its demise,” Tristan Abbey, president of Comarus Analytics and a former Republican senior policy adviser at the Senate Committee on Energy and Natural Resources, told Breanne.

NOPEC legislation: Senate Majority Leader Chuck Schumer could bring to the floor the No Oil Producing and Exporting Cartels Act, or NOPEC—the long-stalled bill that would allow the U.S. government to sue OPEC and OPEC+ producers for violating antitrust laws and trying to control oil production.

The Senate Judiciary Committee voted in May, 17-4, to advance the bill to the floor for a full vote, but it was never called, and concerns remained that Biden might not sign it into law.

At the time, the White House had expressed concerns about “unintended consequences” that NOPEC might have on the global energy market.

“Obviously, our objective is ensuring the supply in the oil markets meets the demands,” then-White House press secretary Jen Psaki told reporters in May. “OPEC has a role to play there, [and] we’ve obviously been working with them” even prior to Russia’s war, she said.

Export restrictions: The Department of Energy said it will “consider all options” to ensure domestic inventories in the months ahead.

This week, Bloomberg reported that White House officials asked the DOE to analyze the impacts of an export ban or restriction on U.S. oil and gas producers.

The restrictions would prohibit domestic producers from selling their supplies to other markets at higher prices. But the highly controversial step risks backfiring, disrupting markets even further and cratering key U.S.-EU relationships at a critical time for the bloc.

Suggestions of the plan were met with sharp criticism from industry leaders, who urged DOE in a letter this week to explicitly rule out such a possibility.

A tax holiday: In July, Biden floated the idea of a three-month federal gas tax holiday —which was shot down following opposition from economists and lawmakers in Congress. Members from both parties noted it would do little to address the root cause of the problem, do little to decrease prices for consumers, and would also cut into critical funding for the Highway Trust Fund, which is financed by the federal gas tax.

Pressuring industry: The administration has called on U.S. oil and gas companies to ramp up domestic production to help bolster supply, though those efforts have not been met with much success, as analysts and industry officials note that ramping up capacity to the extent needed would require “years,” as well as hefty investment—which has been upended by regulatory uncertainty.

(Republicans and industry officials say the calls to increase production are incongruent with the administration's broader positions on fossil fuels, including its efforts to scale up clean energy and production from renewable sources, such as wind and solar.)

Biden and Democrats have also put pressure on the industry through other means, including by calling for a Federal Trade Commission investigation into anticompetitive behavior and holding hostile congressional hearings. But it’s not clear how much any of that has helped or will help.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email or for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

IDAHO COBALT MINE OPENS TODAY AMID US PUSH FOR BATTERY MINERALS: A nearly 200-acre cobalt mine is slated to open today in Idaho, signaling the revival of U.S. cobalt production for the first time in decades as it seeks to ramp up domestic production of critical minerals used in the creation of EV batteries.

The mining project, located on a plateau some 8,000 feet above sea level in Idaho’s Salmon River Mountains, is expected to be fully operational by February, mine owner Jervois Global told the Idaho Mountain Express. From there, it is expected to produce roughly 2,000 tons of mined cobalt per year, and roughly 16,890 tons over the course of its eight-year lifespan—enough to power between 1.1 and 7 million EVs.

The U.S. has not had a major operational cobalt mining facility since 1994, according to data from the U.S. Geological Survey. At present, it produces just 0.4% of the world’s supply at the Eagle Mine in Michigan—largely a byproduct of nickel and copper mining.

“Jervois’ mine is practically and symbolically a major step toward growing the United States’ domestic critical minerals supply chain,” the company said in a statement.

OIL RECOVERING FAST AFTER OPEC CUT: Crude oil prices are recovering solidly after briefly falling to pre-war levels in September now that traders know OPEC+ intends to cut its daily production target for next month.

Brent crude saw midmorning trading in the $95-96 per barrel range, just over a week after the benchmark closed at $84 per barrel — at the time a new post-invasion low. WTI is nearing $90 per barrel after falling to above $76 on Sep. 26.

OPEC+’s 2 million barrel per day cut, which it said was adopted “in light of the uncertainty that surrounds the global economic and oil market outlooks,” sent shockwaves through Washington. The Biden administration just spent months lobbying the Saudis and OPEC more broadly to raise production more aggressively than its incremental monthly targets had been providing for.

The production cut is interpreted to indicate that OPEC “will not allow prices to go any lower than what we see right now, despite calls from the U.S. to avoid lowering output,” analysts with Energi Danmark said in a market note today.

Targets and barrels: Even though the cartel’s new headline target is a 2 million bpd cut, it hadn’t been hitting its aggregate targets for many months anyway, many analysts have noted, driving expectations that actual supply cuts will amount to less.

The 2 million bpd cut to headline volumes works out to about a 950,000 bpd cut, according to ClearView Energy Partners. S&P Global Commodity Insights puts it in the 700,000 to 800,000 bpd range.

“Producers could always cut deeper and undershoot the new allocation,” ClearView’s Kevin Book told Jeremy. “But a sacrifice of volumes for collective benefit would make more sense at a time of more significant supply surplus.”

MORE LEASING NEWS: BLM EYEING NEW SALES: The Bureau of Land Management initiated a scoping period yesterday to take input on a lease sale each in Wyoming and New Mexico for what would be the second series of onshore lease sales to be contemplated since Biden took office.

BLM’s scoping notice suggests the potential lease of 251,086 acres in Wyoming, nearly twice the roughly 132,000 acres made available in the bureau’s June Wyoming sale. The New Mexico sale suggests the lease of more than 10,000 acres.

Scoping notices covering acreage for potential sale in other states will be posted in the coming weeks, the Interior Department said. It also noted that future sales will have higher minimum bids, and higher royalty rates of 16.67%, both changes codified in the Inflation Reduction Act.

Thanks to the IRA: BLM cited a different justification for carrying forward with new leasing this time around, and it wasn’t the Mineral Leasing Act. Its April sales announcement was initiated in compliance with an injunction from the Western District of Louisiana, it said.

The bureau is moving ahead with these lease sales “in accordance with congressional direction in the Inflation Reduction Act,” it said yesterday.

The IRA requires Interior to carry out quarterly lease sales in order to issue rights-of-way for wind and solar developments on federal lands, priorities of the Biden administration.

GREEN CONSUMER GROUPS PRESS FOR FURNACE RULE OVERHAUL: Environmental groups and energy efficiency advocates want the Biden administration to quickly finalize regulations that would phase out a common design of natural gas furnaces and encourage more efficient alternatives like heat pumps.

The Department of Energy proposed the rule in question in June, which would require new nonweatherized gas furnaces and mobile home gas furnaces to use about 15% less energy than today's common models. It’s expected the standard would effectively phase out common noncondensing models, which allow for the venting, rather than the repurposing, of excess heat energy, in favor of condensing models or electric heat pumps.

Pro-regulation advocates argue the phase-out serves climate change mitigation goals, while efficiency gains would make consumer bills cheaper.

“The benefits of increased furnace efficiency standards go beyond just pocketbook savings – the proposed standards will help address climate change, and also will provide substantial health benefits,” the National Consumer Law Center told the Department of Energy, which was taking comment on the rule through yesterday.

The gas industry has pushed back on the proposed rule in its comments, saying it would reduce consumer choices for heating appliances that are generally cheaper up front.

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Tags: Energy and Environment, Daily on Energy

Original Author: Jeremy Beaman, Breanne Deppisch

Original Location: Daily on Energy: What are Biden's options for responding to OPEC+?


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