There is only one place to start this week: the US election, which is still not entirely settled. Joe Biden seems destined to be America’s next leader, but with an unruly Congress to contend with.
Mr Biden’s election — presumed, but yet to be confirmed — is the subject of our first note. Our second item raises a quizzical eyebrow as it looks at the claims of environmental, social and governance progress at Marathon Petroleum, the US’s biggest oil refiner.
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A constrained Biden energy agenda
Joe Biden is likely to be the next president of the United States. That is no shock to the world’s energy industry, which has been expecting and preparing for that outcome for months. But his victory, if it is confirmed, will be far narrower than the polls predicted. What does it mean for energy?
The short answer: at worst, congressional logjam hindering all the big imperatives around climate change. At best, incremental, not radical change; bipartisan climate policy; an all-of-the-above energy strategy; and a more significant role for federal institutions.
Without a Senate majority and without the sweeping popular endorsement across the country, the radical clean-energy programme some Democrats hoped to see from a Biden administration is no longer on the cards.
“Even with a Biden win, the clean energy revolution is at best delayed because the Democrats failed to add seats in the House or win control of the Senate,” said Dan Eberhart, head of oilfield services company Canary and a prominent supporter of Donald Trump.
Progressive Democrats will seek to direct energy policy, but a green new deal of the kind espoused by Bernie Sanders and Alexandria Ocasio-Cortez (which would have struggled even with a slight Democratic advantage in the Senate) is now politically impossible — it simply wouldn’t get through Congress.
“A Red Senate could cap Biden’s green ambition, but a big climate bill can’t fit through a thin Democrat Senate majority, either,” said Kevin Book, managing director of Clearview Energy Partners
Even Mr Biden’s more modest $2tn climate plan is also probably dead on arrival.
And although Mr Biden will, if confirmed, rejoin the Paris climate deal the US officially left on Wednesday, this may not spark the swift policy reversals needed for the US to reclaim some global leadership on the matter.
As Frank Maisano, a Washington lobbyist at Bracewell, told ES: “Climate has just been pushed down the ladder of things to do.”
Oil industry fears about Mr Biden shutting down fracking or ending tax breaks can probably be put aside. The fracking ban was always a canard — although it would be intriguing to know how many votes Mr Biden lost to this fantasy propagated by the Trump campaign. Adding taxes to oil companies is unlikely to get through Congress.
Bipartisan Joe will be the order of the day. Progressives in his own party will hate this. But energy legislation will see Mr Biden mustering the cross-aisle skills he’s known for. As Mike Sommers, head of Big Oil’s powerful lobby group the American Petroleum Institute, said of Mr Biden in an interview earlier this year:
“He’s someone who wants to cut a deal and advance the country. And I expect that that’s how he will operate if he’s president of the United States as well.”
A Biden administration forced to deal with oil and gas lobbyists on the Hill is also likely to be one accepting an “all-of-the-above” energy policy: that is, promoting clean energy alongside technology such as nuclear, hydrogen and carbon capture, while also allowing room for natural gas and oil.
This was the strategy of the Obama administration in which Mr Biden served — and which oversaw a huge surge in oil and gas output. Progressive Democrats will hate its revival; moderates, not least in some oil and gas states like Pennsylvania, will welcome it.
Executive orders will remain within Mr Biden’s purview, if he reaches the Oval Office. They could be used to swiftly rejoin the Iran nuclear deal and end sanctions on the country’s oil exports, if Tehran complies with its terms — a potentially significant move for crude markets.
Bob McNally, head of Rapidan Energy Group and a former adviser to President George W Bush, said Mr Biden could also use such orders to add new environmental regulations and other rules, increasing drillers’ costs.
But the Supreme Court that Mr Trump has successfully stacked with conservatives may be “less tolerant of expansive interpretation of statute”, Mr McNally said.
Key roles for regulatory bodies
Less noticed, but also significant, is that Mr Biden may look to administrative avenues to execute some of his policy objectives.
“Given the fact that you’re not going to have a compliant Senate to work with, don’t look for him getting policy done through a reconciliation bill, or even an ambitious climate bill,” said Eric Washburn, a Bracewell consultant and co-chair of Sportsmen and Sportswomen for Biden, an environmental interest group.
“He’s going to have to do what he’s going to do to promote his clean energy and climate agenda administratively.”
Three institutions are of particular note: the Federal Energy Regulatory Commission, Environmental Protection Agency and Securities and Exchange Commission.
FERC: Mr Biden may look to use the Commission and a new Democratic chair to usher through goals such as decarbonising the power sector by 2035, making use of powers under existing laws.
EPA: He could use an activist EPA to crack down on methane leaks, tighten restrictions on carbon emissions from power plants and restore a host of other Obama-era environmental rules.
SEC: Financial regulators appointed by Mr Biden could constrain or raise the cost of capital for fossil fuel producers. They could also look to expand climate disclosure obligations, making corporate exposure to ESG risks much clearer.
But, with all of the above said, the drama of the 2020 election campaign is not yet over — far from it. Mr Trump has vowed to take the matter to the Supreme Court, which will leave the US in a state of uncertainty for some time to come as the two candidates slog it out in the country’s highest court.
“There is nothing graceful about a cage match between septuagenarians,” said Mr Book.
(Derek Brower and Myles McCormick)
Marathon Petroleum’s ESG ‘journey’
The largest US oil refiner by processing capacity made a case for its environmental, social and governance credentials as it reported dismal quarterly results this week.
It’s part of a broader trend of fossil fuel companies trying to raise ESG scores in the eyes of demanding investors.
It also demonstrates the pliability of the ESG concept. Transportation — mostly powered by gasoline, diesel and jet fuel — is the largest energy-related source of US carbon dioxide emissions.
Ohio-based Marathon sits on the board of a refinery trade association that supported federal changes to car fuel economy standards projected to dump 900m tonnes more carbon into the atmosphere — while raising oil consumption by 2bn barrels. The New York Times reported in 2018 that Marathon was a central participant in a campaign to roll back the standards.
Marathon was also the first independent US refiner to declare a greenhouse gas target. The pledge covers emissions intensity — the amount emitted per barrel of oil equivalent — inside its operations. The company hopes this measure will decline 30 per cent from 2014 levels by 2030.
The refiner made the commitment in March, just as the pandemic sharply curtailed global oil demand. The resulting drop in sales volumes pushed the company to a $1bn loss in the third quarter. It may also improve ESG scores: Marathon’s decision in August to shut down two refineries in New Mexico and California will also reduce refining emissions by 8 per cent.
“By indefinitely idling two of our highest cost, least efficient facilities, we are becoming more cost efficient and lowering the carbon intensity of our operations,” Marathon said in a climate report last month. The closed California refinery may be repurposed to make renewable diesel from animal fat and vegetable oil.
“We look forward to continuing on our ESG journey and our commitment to stakeholder engagement with our people, business partners, customers and communities,” Michael Hennigan, Marathon’s chief executive since March, told analysts. (Gregory Meyer)
US oil and gas stocks rose yesterday, while their clean energy counterparts fell, as traders bet that Mr Biden’s plans for a clean energy revolution would not materialise.
Oil and gas companies were buoyed by the initial election results as the Democrats’ likely failure to seize the Senate threatened Mr Biden’s $2tn clean-energy revolution.
Industrial metals including copper and aluminium also slid as the election looked set to dash hopes of a climate-focused stimulus package.
Danish turbine maker Vestas — a big supplier of equipment to the US — also took a knock over worries about the future of tax credits.
Saudi Aramco still plans to pay a bumper third-quarter dividend of $18.8bn despite a blow to its earnings.
Follow our election blog for live updates as votes continue to be counted.
US petroleum demand remains well below its normal range. It may soon get worse, as coronavirus cases surge and states debate how to combat the spread. In the Energy Information Administration’s latest update, petroleum demand fell 6 per cent compared with a week earlier, and was still 13 per cent lower than in the same week last year.
Meanwhile, Johns Hopkins Center for Systems Science and Engineering data show new US coronavirus cases hit 84,000 on November 3 — the day millions of Americans cast their vote.
“We believe rising coronavirus cases could continue to hamper the recovery of US demand for refined products,” noted analysts at Clearview.