Wind vs Oil – The choice to be made by America

At the end of October and beginning of November, America routinely chooses a president – and as a rule the process becomes the main focus for even the remotest corners of the planet.

But this time, the oil industry throughout the world is following the debates and vote with special attention: the two candidates, President Donald Trump and Democrat challenger Joe Biden, have expressed particularly divergent views on the country’s energy future.

The United States has in recent years become not only a major importer, but also an exporter of hydrocarbons. And that means that the energy landscape of the entire world depends on the path to be chosen by America.

What will America be banking on – the sun and wind, or oil and gas?

Trump: traditional values

Trump remains the best friend of those in the American oil and gas sector. From the moment he took office, he signed orders rescinding bans ordered by his predecessor, Barak Obama, on construction of the Dakota Access and Keystone XL oil pipelines.

Trump has presented no specially devised energy programme in his campaign. And this essentially means that if Trump is re-elected, U.S. energy policy will remain the same. The government will continue its support for the oil and gas sector and reduced regulatory measures, it will make tracts of federal land available for drilling rigs, develop new pipeline projects and the shale oil extraction which returned the country to the club of major energy exporters.

On environmental issues, Trump promised immediately after taking office to leave the Paris climate agreement aimed at fighting global warming. According to his statements, abandoning the agreement would support the national economy, employment, industry and the energy sector.

The announcement on leaving the agreement was made in 2019 and the process is due to conclude on the day after the presidential election – 4th November.

In any event, against the background of increasing discussion of an energy transition in Europe and the strengthening of environmental protectionism, even Trump’s supporters and U.S. oil companies are publicly speaking out against the abandonment of the Paris agreement.

And however passionately Trump has defended the oil industry, he recently made a gesture in favour of the environmentalists by declaring that he would extend a moratorium on drilling on a number of coastal sectors in Florida, South Carolina and Georgia. He had previously intended to open these areas to drilling despite protests from environmentalists, residents and local authorities.

Biden – a revolution in clean energy

Joe Biden presented his ambitious energy plan in the summer, calling for electricity generation in the country to be carried out without greenhouse house gas emissions by 2035 and a totally clean economy by 2050.

His “green plan” is based on vast investment of $2.2 trillion. Taking into account investment by private companies, the sum could add up to $5 trillion. According to energy consultants Wood Mackenzie, in order to implement Biden’s plan, a total of 142 GW of wind and solar energy would have to be brought on stream each year. That is seven times the figure over the past 70 years – 20 GW per year.

About 63 % of electrical generation in the United States at the moment is provided by fossil fuels, leaving nuclear power and renewable resources in a minority position.

Biden proposes coming up with funds for investment by raising income taxes and removing tax reductions for corporations introduced by Trump and through a number of other measures involving taxes and subsidies for fossil fuels.

The extent to which these levels of investment are realistic to produce such revolutionary change in the current financial and social-economic climate remains an open question.

From the outset, the Democratic Party proposed a more modest – but still considerable – energy plan of action in order to achieve the planned carbon-free energy plan by 2050. Investment of $1.7 trillion is planned over the next 10 years.

But, in Biden’s own words, for the majority of people 2050 “won’t come for a million years.

“My plan is based on taking measures now. If I serve for eight years, I want to make sure that we have set the bar such that the next president won’t be able to take it away,” media quoted him as saying.

Moving away from oil

In his last debate with Trump, Biden made an important, and possibly reckless, statement. Asked by the U.S. president whether he would shut down the oil industry, the Democratic candidate said: “Yes, I would transition from the oil industry.”

Oil, the presidential candidate said, “pollutes significantly” and “has to be replaced by renewable energy over time”.

Biden also promised to halt federal subsidies supporting the oil and gas industry and concentrate on creating new projects in renewable energy sources.

The American Petroleum Institute, bringing together all players in the oil and gas industry, reacted immediately.

"Democrats, Republicans and Independents know that the U.S. natural gas and oil industry delivers affordable and reliable energy to American families and businesses and all over the world,” it said in a statement. “We are proud of the grit, innovation and progress we've made so that Americans no longer have to choose between environmental progress and access to affordable, reliable and cleaner energy. And we aren’t going anywhere.”

According to research by PriceWaterhouseCoopers, the sector provided jobs for 10.3 million Americans in 2015 and produced more than $1 trillion for the economy.

Biden later clarified his comments to journalists.

“We’re not going to get rid of fossil fuels for a long time,” he said. “We’re going to get rid of subsidies for fossil fuels.”

That was doubtless a more expedient tone to adopt.

A poll conducted by the Yale University programme on Climate Change Communication and George Mason University, showed that 62 % of registered voters in the United States in 2016 supported an end to federal subsidies for fossil fuels.

Against the background of the pandemic, Trump offered a tax break cushion to the oil industry – estimated to cost $25 billion. And he made no mention of removing subsidies for fossil fuels. Biden intends to remove those subsidies, evaluated at $20 billion dollars a year.

To frack or not to frack?

The foundation of the shale revolution is hydraulic fracturing, or fracking, technology – pumping in water, sand and chemicals into the shale layer in order to draw out oil and gas from dense rock formations.

The process has given rise many questions in terms of the environment, but it is the root of the “shale revolution” in the United States, leading to a steep growth in hydrocarbon extraction. Fracking is in use in a long list of states, including Texas, Pennsylvania, Ohio, Colorado and California.

Fracking has also become one of the “hot button” issues in campaign promises and debates – for the simple reason that the technology, according to government figures, is used for gas and oil extraction in 95 % of the country’s wells. And Trump is a big supporter of the process.

Biden’s position is more nuanced.

Back in March, he said “No to new fracking”. That referred to using the technology on federally-held land. In July, he said he would “deal with eliminating” hydraulic fracturing technology. In September, Biden said he intended to “stop using fossil fuels”. In October, he said he would not ban fracking – the technology, he said, would have to be used as the country moved towards cleaner energy sources.

Biden also called for stricter regulation of methane emissions in the fracking process. That, for the moment, looked like an attempt at a gentle rejoinder aimed at oil-producing states while bidding for the support of environmentalists. In any case, the Democratic Party candidate cannot ban fracking on private land on his own – that would require an Act of Congress.

On private land, authorities can ban the issue of new drilling permits, the conclusion of new agreements on leasing land or the very use of fracking. Or they could take a simpler approach through altering the judicial appeals process or rewriting plans for drilling and land use, or freezing new lease agreements or simply introducing new requirements on infrastructure for oil companies that those companies would find difficult to implement in the short term.

According to analysts ClearView Energy Partners, quoted by Bloomberg news agency, surface oil extraction in the United States accounted for only 6.5 % of total 2019 production on federal land. The figure for gas was 10 %. And drilling in federal shelf waters accounted for 16 % of total production.

Figures provided by Rystad Energy show that a ban on fracking would lead to a decline in extraction of shale oil from 8.5 million barrels per day in March 2020 to 3 million bpd by the end of 2023. Sixty percent of workers in the oil industry would be put out of work.

Alexander Dynkin, President of the Institute of World Economy and International Relations of the Russian Academy of Sciences (IMEMO RAS), commented on the situation in this way: “I believe that with only a few days left before the election, all remarks, all commentaries, are motivated strictly in terms of calculating whether it will win over undecided voters.

“When Biden made a tough statement about fracking, that it caused specific environmental damage, Trump came straight out with appeals to voters in Texas, Oklahoma and Pennsylvania to take a stand on such a statement because the well-being of those states is to a great extent dependent on that technology,” Dynkin told the first meeting of experts within the framework of the project: “Russia and the world: a professional discussion” organised by IMEMO and the Interfax news agency.

New deals and restrictions

The Trump administration would almost certainly continue to hold drilling auctions for federal land tracts. Biden’s programme would provide for a ban on new land and water lease agreements -- a ban rescinded by Trump three years ago.

According to Wood Mackenzie, extractable reserves of oil and gas in the Gulf of Mexico and Alaska account for about 25 billion barrels of oil equivalent. A long-term ban on new lease agreements would end production of more than 28 % of reserves (7 billion barrels of oil equivalent). Extraction on the U.S. shelf over 10 years would decline by 7 % in the event of a ban.

Any new U.S. administration could also introduce taxes on CO2 emissions or quotas on imports of carbon-intensive goods from countries failing to meet their emissions obligations.

Renewable energy sources and transportation

The Democratic Party’s plans call for expanding tax breaks to stimulate construction of solar energy and wind power stations by local industry and energy companies. At issue is installation of 500 million solar panels on roofs and local solar energy systems, 60,000 wind turbines and half a million charging stations for electric vehicles throughout the country.

The plans also provide for the creation of energy storage networks at one-tenth the cost of lithium-ion batteries, inexpensive small modular nuclear reactors and use of renewable energy sources to produce “green hydrogen” at the same price as that produced from gas.

Biden also intends to concentrate on reducing the carbon footprint of the U.S. construction industry by 50 % by 2035 as well as a reduction to zero in the farming sector.

The Democrats are paying particular attention to transport which, according to the U.S. Department of Energy, accounts for 40 % of the country’s carbon emissions. The party’s plan calls for re-equipping half a million school buses and three million cars used by federal, regional and local officials to bring their emissions down to zero.

Biden is also calling for all cars produced in the United States to be carbon emission-free and for an extension of a tax break of $7,500 for motorists purchasing electric vehicles. Legislation now allows subsidies only for the first 200,000 cars to be purchased, Tesla and General motors have already used up their quotas.

Research by Wood Mackenzie shows that introducing tougher standards for cars would result in only a reduction in gasoline use of 150,000 barrels per day – or 2 % of gas demand by 2030. The analysts believe that gasoline consumption in the United States reached a peak in 2018 and is set to decline as the number of electric vehicles rises or engines become more effective – irrespective of government policy.

Woods Mackenzie forecasts that by 2030, a total of 2.3 million electric vehicles will be on U.S. roads, though that figure could rise to 4 million should tougher standards be introduced.

“If you take account of the fact that Democratic Party voters have strongly shifted to the left, towards the approach taken by the European Union, I believe that if Biden wins, he will stick to that narrative, that track, he could come back to the Paris Agreement”, said Prof Dynkin.

“Of course, he will not press for the elimination of environmental restrictions, as Trump did - and that includes construction of pipelines, fracking and other things. I believe a drift of this sort is inevitable.”

By Anna Zhuravlyova.