January 2021

The last barrel

Tangled up in blue
Craig Fleming / World Oil

Well, it finally happened. A slight blue wave has swept over Washington D.C., and the Democrats now control the U.S. political landscape. President Biden has already launched an overly aggressive environmental campaign, designed to phase out the hydrocarbon industry and the immense value it provides our country, in terms of energy independence and employment opportunities.

Blue eliminates American jobs. On his first day in office, Biden revoked the permit for the Keystone XL pipeline and rejoined the Paris Agreement. The move to block the $9 billion project is a clear signal that constructing a major new pipeline in the U.S. has become a near-impossible task. Officials at TC Energy, the pipeline’s primary contractor, and union representatives tried to persuade the Biden team by explaining Keystone’s benefits, including: 10,000 American union construction jobs; U.S.-manufactured steel pipe; a $10 million Green Job Training Fund; $500 million for indigenous suppliers and jobs; and 100% renewable power to operate the pipeline. However, after Biden’s unilateral action, TC Energy announced it would eliminate 1,000 high-paying, working-class jobs in the U.S. and Canada (WSJ).

The incoming president has pledged to reshape the U.S. energy sector and accelerate the transition from fossil fuels. The cancellation of the proposed link to Canada’s oil sands is most likely the first of many such environmental actions. This is a slap at Canada, and it sends a message to investors that playing by U.S. rules provides no immunity from arbitrary political whim. Alberta Premier Jason Kenney said Biden’s decision to cancel the Keystone project is an “insult” and urged Prime Minister Justin Trudeau to consider retaliation. Last year, Kenney’s government invested $1.1 billion of taxpayer money to jump-start construction of the pipeline that would carry 800,000 bopd from Alberta’s oil sands as far south as the U.S. Gulf Coast.

Blue hysteria. Terminating Keystone won’t keep fossil fuels in the ground. It will merely strand billions of dollars in Canadian investment and eliminate thousands of U.S. jobs, while enriching adversaries and alienating a historically strong ally. Mr. Biden is sending an early signal that the climate panic will trump nearly everything else in his administration. The unstated, but operative message from the Keystone action is that he will use regulation and permitting to do the dirty work.

What Paris Agreement? Since 2000, the U.S. has led the world in energy-related emissions reductions, as natural gas from shale plays has replaced coal in power production. China’s Paris commitment doesn’t require it to cut emissions for another decade. Russia’s carbon output is set to rise for years. Last November, Russia’s Rosneft launched a large exploration project in the Arctic. “Mineral resources will remain a competitive advantage of Russia’s economy, and will determine the role and place of our country in the world,” according to Russia’s strategic mineral plan (WSJ).

American Petroleum Institute President Mike Sommers responded to President Biden’s executive actions on climate and energy issues by saying, “we share President Biden’s goal of leadership in addressing climate change, and we have long held that any action must be global in nature.” That’s why we support the Paris Agreement, including global action to reduce greenhouse emissions. Models show this agreement between nations cannot be achieved without access to natural gas, and that’s why we continue to advocate for expanded U.S. LNG exports as a path to transition countries toward cleaner fuels while ensuring millions of people in developing nations have access to electricity.”

Conversely, “revoking Keystone is a significant step backwards, both for environmental progress and our economic recovery,” Sommers continued. “Pipelines are the safest, most environmentally friendly way to transport energy.” Cancelling the Keystone project, he noted, which “has been through 10 years of extensive environmental reviews…[is a] misguided move [that] will hamper America’s economic recovery, undermine North American energy security and strain relations with one of America’s greatest allies. With smart regulations, we can continue to meet our shared goals of reducing emissions, protecting public health and developing affordable energy.”

How about some good news? President Biden also wants to suspend/stop the sale of oil and gas leases on federal land, which accounts for 10% of U.S. supplies. The moratorium, which would also freeze coal leasing, is set to be unveiled, along with various other climate policies later this month. The move would block the sale of new mining and drilling rights on approximately 700 million acres of federal land. However, the ban would require years to take effect, because most major shale producers have stockpiled federal leases and drilling permits (Reuters).

The seven companies that control half the federal onshore supply in the Lower 48 have secured leases and permits that could last for years. “We have always been confident that we will continue to develop and drill on federal land,” said David Hager, executive chairman of Devon Energy. The right to drill is “embedded in the leases we have secured.” As of 2020, Oxy indicated it had 200 federal drilling permits in hand and had requested another 200 permits on federally owned land in New Mexico.

Blue agenda promotes foreign interests. The API’s Mike Sommers said, “restricting development on federal lands and waters is nothing more than an ‘import more oil’ policy.” Energy demand will continue to rise—especially as the economy recovers—and we can choose to produce that energy, here in the U.S., or rely on foreign countries hostile to American interests. With this move, the [Biden] administration is leading us toward more reliance on foreign energy from countries with lower environmental standards. [The agenda] also risks hundreds of thousands of jobs and billions in government revenue for education and conservation programs.”

About the Authors
Craig Fleming
World Oil
Craig Fleming Craig.Fleming@WorldOil.com
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