How Will the Biden Administration Affect the Energy Market?
March 19, 2021
Written By Tim Danze
On Jan. 20, Joe Biden was inaugurated as the 46th president of the United States of America. While the coronavirus pandemic and the country’s economic situation will dominate much of his early days in office, there are many climate and energy issues Biden addressed through executive actions on day one of his presidency.
Biden’s ambitious environmental agenda is focused on “transitioning away” from fossil fuels in favor of green energy and transition technologies. He wasted no time demonstrating this direction by revoking the permit for the Keystone XL pipeline, rejoining the Paris Climate Agreement, reimposing methane regulations on oil and gas operations, placing a moratorium on all oil and natural gas leasing activities in the Artic National Wildlife Refuge, and using federal procurement power to shift government building toward cleaner energy sources through executive orders within hours of his inauguration.
It remains to be seen how some of these actions will impact energy prices in the short term, but it’s not hard to imagine long-term diesel and gasoline prices rising. Certainly, Biden’s climate-conscious approach is in stark contrast to the last four years of Donald Trump’s efforts to roll back environmental regulations on fossil fuel production in an effort to promote “American energy dominance.” But embracing green energy will require a delicate balancing act. The Biden administration will need to find economical green solutions without pushing consumer prices too high. This will be difficult to manage as energy markets are volatile, and many times prices move contrary to prevailing outlooks.
Should Biden follow through on his campaign pledges to ban new permitting and bar new leasing on government-owned property, such actions could impact oil drilling and exploration on federal land and water for many years to come. Currently, federal land accounts for 3 million barrels per day of crude oil production and roughly 13.2 billion cubic feet per day of domestic natural gas production, according to data from the U.S. Department of the Interior. Those numbers equate to roughly 25 percent of U.S. crude oil production and 12.5 percent of natural gas production.
There could also be more crude oil coming back to the market if sanctions imposed by the Trump administration on countries like Venezuela and Iran are eased or rescinded. Trump’s sanctions are estimated to have kept 3 million barrels of crude per day, or roughly 3 percent of international production, off the market. Any changes to the current sanctions would not happen overnight, and if they should occur, a relatively quick ramp up in production could be expected. This would have a bearish effect on prices. Of course, demand remains a big unknown as the coronavirus pandemic continues to stall economic recovery.
Relations with the Organization of the Petroleum Exporting Countries (OPEC) are likely to be less cozy under Biden than his predecessor. Trump established a good working relationship with Mohammed bin Salman, the crown prince of Saudi Arabia. While OPEC is formally composed of 13 countries, for all practical purposes it’s run by the Saudis. Biden is expected to take a tougher stance with Saudi Arabia than the Trump administration, including withdrawing U.S. support for Saudi Arabia’s war in Yemen.
During his campaign, Biden voiced support for ethanol, biodiesel and the Renewable Fuels Standard (RFS). Under the RFS, refiners are required to blend billions of gallons of biofuels in the nation’s fuel supply. Demand generated by biodiesel and ethanol production is crucial to row-crop farmers. From 2020 to 2021, an estimated 8 billion pounds of soy oil was expected to go toward biodiesel production. Roughly 40 percent of the U.S. corn crop is refined into ethanol.
MFA Oil is doing its part to support the future of clean fuel. The co-op offers both biodiesel and ethanol fuel blends in support of its farmer-members whose soybean and corn crops contribute to renewable fuel production. Studies have shown biodiesel and ethanol can play a role in curbing life-cycle greenhouse gas emissions while contributing to U.S. energy security, which fits with Biden’s climate goals.
Propane could also find a place in Biden’s green energy platform. Propane is a clean-burning American-made fuel source that emits fewer greenhouse gases than diesel, gasoline and electricity. Though most propane is produced as a by-product of natural gas and petroleum processing, there are opportunities to create propane from renewable sources.