Biden’s big election shake-up
The Democratic candidate has a healthy lead heading towards the November US election and a manifesto that will strike fear into the heart of the shale patch
The probability of a Joe Biden presidency appears to be increasing with every passing week, with President Donald Trump’s handling of Covid-19 and the Black Lives Matter protests and the collapse of the US economy hammering him lower in the opinion polls.
The prospect of a Democratic win will start to make many in the energy sector feel uneasy. Biden has pledged to reverse much of Trump’s energy policy, upend the US’ energy mix and stimulate a low-carbon revolution over the medium to longer-term if he takes the presidency.
Biden’s proposed policies would likely have a smaller direct impact on US oil and gas output, at least in the short-term. Offshore drilling and production will be hit significantly harder than onshore output, and there will be little or no impact on Canadian oil production despite his stand on the Keystone XL oil pipeline project.
Biden is leading national polls by an average of about 10 percentage points and is ahead in many key battleground states. Trump never trailed Hillary Clinton by such a large margin nationally during the 2016 presidential election cycle and has seen his polling numbers in freefall since the start of the year. Support is beginning to be eroded even among white men—his traditional power base.
6.6pc – US economy contraction forecast for 2020
Historically, only one US president has won re-election when an economic recession occurred during the last two years of their first term—Harry Truman in 1948. But the recession did not begin until November of that year, the same month in which the presidential election was held. The other four presidents to run for re-election during or shortly after an economic downturn all lost.
At present, the US is not in recession, but a depression triggered by Covid-related lockdowns. The International Monetary Fund (IMF) is forecasting the US economy will contract 6.6pc in 2020, including an annualised 37pc contraction in the second quarter. And this is despite “unprecedented policy support” that has seen the federal fiscal deficit balloon to 18pc of GDP this year—the largest since 1945, the last year of World War 2—compared with 4.6pc last year.
The last US president to seek re-election during an economic depression was Herbert Hoover in 1932. Franklin D. Roosevelt won that poll by a landslide in terms of both the electoral college and the popular vote. He carried every state except six, all of which were in the US northeast, and received what was then a record high percentage of the popular vote for a Democratic nominee.
Trump’s recent behaviour suggests he sees the writing on the wall. He fired his campaign manager, Brad Parscale, in mid-July and has refused to publicly commit to accepting the election result if he loses, claiming the potential for mail-in ballot fraud. He has also sent federal forces to Portland, Oregon, and potentially other cities with Democratic Party mayors, to quell Black Lives Matter protests in an apparent attempt to play the ‘law and order’ card—as fellow Republican Richard Nixon did to win the presidential election in 1968.
Biden was widely viewed as a moderate on energy and the environment among the challengers to be the Democratic candidate, but, since becoming the party’s presumptive nominee in April, he has jumped on the climate change bandwagon. He now claims “there is no greater challenge facing our country and our world” and has outlined a plan for a Clean Energy Revolution in the US to “lead the world in addressing the climate emergency”.
Trump never trailed Hillary Clinton by such a large margin nationally during the 2016 presidential election cycle
The goal of Biden’s Clean Energy Revolution plan is to achieve a 100pc clean energy economy and net-zero emissions in the US no later than 2050. Although greenhouse gas emission reductions are to be economy-wide, he appears to have set his sights on the transport sector in particular—the fastest growing source of emissions in the US in recent years.
To reduce emissions from this sector, he plans to preserve and implement the existing Clean Air Act as well as to develop “rigorous new fuel economy standards” to ensure 100pc electrification of all new light and medium-duty vehicles and annual improvements for heavy-duty vehicles. To support this effort, Biden is planning to restore the full electric vehicle tax credit—up to $7,500 per vehicle—and have the federal government support state and municipal efforts to add 500,000 new public charging outlets by the end of 2030.
At the same time, Biden believes the Green New Deal is a “crucial framework” for achieving America’s Clean Energy Revolution. He views the climate emergency as a “huge opportunity” to revitalise the US energy sector, boost economic growth and job creation, and “re-claim the mantle as the world’s clean energy leader and top exporter”. To regain America’s technological lead in the area, he is proposing the federal government spend $400bn over 10 years, the largest public sector investment in clean energy research and innovation in history.
The US government, in collaboration with universities and the private sector, did something similar following World War 2 to spur American innovation more generally, leading to rapid economic and job growth, which in turn helped to build a strong middle class in the country.
Biden also plans to re-enter the 2015 Paris Agreement and push governments around the world to increase their national emission reduction pledges. A Biden administration would “name and shame global climate outlaws”, in a similar manner to the way the US State Department ranks countries’ records on human trafficking and human rights.
The Biden team was originally planning to commit $1.7tn of government funds to the Clean Energy Revolution over the next ten years, but in mid-July it nearly tripled annual planned spending to $2tn over four years.
CanAm oil and gas
Biden has been less forthright about his plans for the US oil and gas industry, by all appearances to try to avoid alienating the progressive wing within his own party while at the same time charming them with his opposition to the Keystone XL pipeline.
He was supportive of the US shale revolution when vice president under Barack Obama, and likely does not want to kill a goose that lays golden economic and geopolitical eggs. Massive growth in US oil and gas production has allowed Washington to impose economic sanctions on the petroleum industries of many of its foes—including Iran, Russia and Venezuela—without causing oil and gas prices to skyrocket.
However, Biden has proposed several policies that will have a negative impact on future US oil and gas output. These include banning new drilling permits on federal lands and waters; tightening environmental regulations, including stricter limits on fugitive methane emissions, which will increase production costs; and ending all subsidies for oil and gas.
$2tn – Clean Energy Revolution projected spend
The direct impact of these policies should be relatively minor for future onshore oil and gas production, since federal lands account for only roughly 10pc of prospective acreage in the US and massive shale resources remain to be developed elsewhere.
But based on a study commissioned by industry association the National Ocean Industries Association, released in May, the impact of a drilling permit ban on offshore federal waters would be substantial, especially in the longer term. The study estimates oil and gas production in the US Gulf of Mexico would be only 910,000bl/d oe in 2040 with a leasing ban compared to 1.96mn bl/d oe on present policies.
In May, Biden said he would kill the 830,000bl/d Keystone oil pipeline project if elected US president because of his opposition to Alberta’s high-carbon ‘tar sands’. In reality, this move may have little discernible impact on Western Canadian oil production in the future, given alternative oil pipeline projects moving forward and the collapse in regional capital spending over the past six years significantly curtailing the region’s output growth potential.