THE SET-UP: The outgoing Biden Administration just committed the US to a 61% reduction of greenhouse emissions by 2035. It’s a symbolic move given that it meets the “Nationally Determined Contribution” under the Paris Agreement. Trump seems certain to pull out of it … again. Ironically, he might be surprised to find oil drillers ”pulling out” of his “drill, baby, drill” policy if the market can’t absorb the additional production. Not for nothing, his whole economic strategy depends upon cheap oil washing away inflation. Best laid plans? - jp
TITLE: Trump 2.0: What’s in Store for US Energy and Climate
https://rhg.com/research/trump-2-0-whats-in-store-for-us-energy-and-climate/
EXCERPTS: We find that rolling back executive action on climate and repealing the energy and tax policies that were enhanced and expanded through the Inflation Reduction Act (IRA) starting in 2025 could raise average household energy costs by as much as $489 a year in 2035, increase dependence on imported oil and gas, drive GHG emissions levels 24-36% higher compared to current policy in 2035, and risk substantial levels of private investment. However, opportunities remain to advance energy innovation, including investments in research, development, demonstration and deployment of clean energy technologies, reforms to accelerate siting and permitting of energy infrastructure, and clean trade measures.
To begin to understand potential policy decisions made by the second Trump administration and Republicans in Congress, we quantified the impacts of two future policy pathways:
Rollbacks: Under this policy pathway, the Trump administration repeals key climate regulations including: EPA’s GHG standards for new and existing coal plants and new gas plants; light-duty vehicle (LDV) regulations from EPA and the National Highway Transportation Safety Administration (NHTSA) governing model year 2027 and beyond LDVs; Phase 3 medium- and heavy-duty vehicle GHG standards from EPA; and EPA’s methane emissions limits on oil and gas operations. The Trump administration also revokes its waivers to California allowing the state to establish its own vehicle rules, resulting in California and states that follow its lead being unable to implement the Advanced Clean Cars I and II and Advanced Clean Trucks rules. While additional executive actions by the Trump administration could further impact GHG emissions, this pathway represents a starting point of major regulatory rollbacks.
Rollbacks and repeal: Building on the rollbacks described above, this pathway also includes the repeal of all components of the IRA beginning in 2025. We detail the components of the IRA that we model under current policy in the technical appendix of Taking Stock 2024. It’s far from guaranteed that this is the policy pathway that Trump and a Republican Congress would pursue, but we provide it as a preliminary bounding case estimate.
We find that both policy pathways could increase household energy bills. In 2035, national average annual household energy bills are 7-12% higher ($299 to $489) under the rollbacks + repeal pathway relative to current policy (Figure 1). Under the rollbacks pathway, by 2035, bills increase in the mid and high emissions scenarios by 6% and 9%, respectively, ($226 and $346), but they remain effectively flat in the low emissions scenario. These trends also hold in 2030, but the effects are more modest.
Gasoline price dynamics are more straightforward. Under the rollbacks + repeal pathway, retail gasoline prices are 6-15% higher in 2035 compared to current policy. This translates to a $0.20 to $0.37 per gallon increase in 2035, equivalent to more than doubling or even tripling the federal gas tax. Prices at the pump rise steadily over time compared to current policy. Without robust EV adoption to offset traditional fuel consumption, gasoline demand continues to increase, driving higher prices at the pump.
The story is a bit different for natural gas, as increased domestic demand is primarily met by higher domestic production. Changes in net export levels for gas are largely driven by a 13-16% increase in demand for pipeline imports from Canada in the rollbacks + repeal pathway relative to current policy, and 5-9% lower liquified natural gas (LNG) exports in the low and mid scenarios, respectively. LNG exports stay flat in the high scenario.
Rolling back executive actions and repealing the IRA significantly increases US economywide GHG emissions. Under current policy, the US is on track for a 38-56% reduction in GHG emissions below 2005 levels in 2035. However, our rollbacks + repeal pathway results in roughly 1 gigaton more emissions in 2035 in each emissions scenario, reducing the US emissions decline to 24-40% below 2005 levels (Figure 6). A 24% reduction is roughly equivalent to US emissions in 2020 during COVID restrictions and signals the possibility of stagnation in decarbonization efforts over the next decade.
The power sector is the largest driver of emissions increases in the rollbacks + repeal pathway compared to current policy, driving 53-59% of the overall increase. Without EPA’s Section 111 regulations in place, significant coal capacity remains on the grid. Combined with the repeal of energy tax incentives, coal retirements are more than halved by 2035 relative to current policy. Clean energy deployment also slows sharply, with solar capacity reduced by more than half and wind installations dropping by 37-44%. In place of these clean resources, natural gas surges, with its share of generation increasing from 9-35% under current policy to 20-45% under the rollbacks + repeal pathway. Beyond the power sector, the transportation and industrial sectors also contribute to emissions growth, each accounting for 10-20% of the increase relative to current policy by 2035, depending on the emissions scenario.
Clean energy and transportation investment in the US has been on a historic and sustained growth path over the past three years since the passage of laws focused on climate and manufacturing including the IRA, the IIJA, and the CHIPS and Science Act. The Clean Investment Monitor, a project jointly managed by Rhodium Group and MIT’s Center for Energy and Environmental Policy Research, tracked private and public clean investment reaching a new high of $71 billion in the third quarter of 2024, accounting for 5% of total US private investment in structures equipment and durable consumer goods.
Since the third quarter of 2022, when the last of these three major bills passed, total investment (both public and private) in clean technology manufacturing, utility-scale clean energy, and industrial decarbonization projects has totaled $264 billion (Figure 8). An additional $435 billion worth of investment in these categories has been announced but remains unspent, including money left to be invested in projects already under construction and announced projects that haven’t yet broken ground. Changes to the manufacturing and energy tax credits supporting these projects, or even the uncertainty that these policies may change could put at least some of these unspent investments at risk of disappearing.
TITLE: Why Trump's plan to 'drill, baby, drill' is unlikely to cut gas prices and fix inflation
https://www.usatoday.com/story/money/2024/12/15/trump-drilling-gas-prices/76931654007/
EXCERPT: “It’s a world oil market that determines the supply and demand balance,” said Robert Kauffman, a Boston University professor who studies global oil markets, climate change and land use changes. A significant boost in U.S. production would trigger responses from other producers that would leave crude and gas prices roughly unchanged, he said.
Yet pump prices already have plunged. The price of benchmark U.S. crude oil, called West Texas Intermediate, has tumbled to about $70 a barrel from $120 in June 2022, shortly after Russia’s invasion of Ukraine. In turn, average U.S. unleaded gasoline prices have fallen to about $3 a gallon from nearly $5, according to AAA.
Kauffman attributed the drop to record global oil production, especially in the U.S., softening energy demand in China and around the world amid slower growth, and the ability of European nations to find alternative sources to Russian oil.
The U.S., in fact, is already the world’s largest crude oil producer, churning out a record average of 13.6 million barrels a day recently, according to the U.S. Energy Information Administration and the Oil Price Information Service, a private firm. The nation turned out an average 12.9 million barrels a day of crude in 2023 and has been the world’s largest producer for the past six years, ahead of Saudi Arabia and Russia, EIA says.
“U.S. oil production is at an all-time high, and it has increased during the Biden administration without opening up” any new lands or waters to drilling, Kauffman said.
The EIA credits horizontal drilling and hydraulic fracturing, or fracking – which uses water, sand and chemicals to pump oil from deep underground – with allowing producers to use fewer wells to draw much more oil from a larger area.
Much of the activity has occurred in the Bakken rock formation in North Dakota and Montana and the Permian Basin in West Texas and New Mexico.
Crude prices are hovering near a three-year low. If the Trump administration made new federal land or waters available for drilling and that led producers to pump out enough additional oil to push down global and U.S. prices, “That would slow the rate at which companies drill for oil,” Kauffman said, nudging prices up again.
Adam Ferrari, CEO of Phoenix Capital Group, an oil producer in North Dakota and Montana, called the current U.S. crude oil price “a floor.” The company, he said, can make a profit as long as oil prices top about $25 a barrel. But the cost to drill a new well is about $45 to $65 a barrel, he said.
Because the company wants to cover its costs and make about a 15% profit, “if prices got any lower, we would stop producing oil” from new wells, Ferrari said.
TITLE: Oil may plummet below $50 a barrel in 2025 if this perfect storm hits the market
https://www.marketwatch.com/story/oil-may-collapse-below-50-a-barrel-in-2025-if-this-perfect-storm-hits-the-market-87d72b8b
EXCERPTS: Oil prices look set to end the year lower as demand weakness, particularly from China, prevails — but 2025 may bring an even steeper loss, with the possibility of a drop below $50 a barrel if the market sees a “perfect storm” of factors, including sharp economic declines in China and Europe.
“There’s much more risk of a price collapse next year than a price spike for crude,” said Tom Kloza, global head of energy analysis at OPIS, a subsidiary of MarketWatch publisher Dow Jones. Proposed U.S. tariffs “might elevate crude-oil benchmarks short term but lead to lower prices as companies become used to the impact, with Canada and Mexico perhaps forced to be more aggressive to move their exports.”
He added that universal tariffs might impede GDP growth in the U.S. and abroad, while there could be considerably more U.S. oil output, as well as reasonable growth in shale production in both the U.S. and Canada.
For prices, a collapse in oil would mean a drop below $50 a barrel — and the driver of that would have to be a “dramatic drop in demand globally,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. Front-month WTI and Brent crude futures haven’t traded below $50 since 2021, FactSet data show.
In its most recent monthly report, the International Energy Agency forecast global oil supply of 104.8 million barrels per day and global demand of 103.9 million bpd in 2025, implying a supply surplus of roughly 900,000 bpd.
Whether the IEA’s forecast comes true will ultimately depend on global demand, said Zacks Investment’s Mulberry. “If there are material declines in the Chinese or European economies, that would be the biggest additive to supplies.”
Meanwhile, incoming U.S. President Donald Trump’s pledge to raise domestic production has contributed to worries about a supply surplus, particularly given that current U.S. output of around 13.6 million barrels per day is a record high.
U.S. production should grow next year by around 200,000 to 300,000 bpd despite record oil output, said Matthew Polyak, managing partner at Hummingbird Capital. However, boosting oil production by 3 million bpd seems “unlikely unless there is a large financial incentive for companies to grow,” he said.
Trump’s pick for Treasury secretary, Scott Bessent, has advised Trump to pursue a “3-3-3” policy: cut the budget deficit to 3% of gross domestic product by 2028, spur GDP growth of 3% and produce an additional 3 million barrels of oil per day.
There’s a “mismatch” between the incoming administration’s “‘drill, baby, drill’ rhetoric” and the industry’s discipline, according to [Pavel] Molchanov. Raymond James monitors capital expenditures for the world’s top 50 oil and gas companies, he noted; of those, 20 have already disclosed capital budgets for 2025 and, of those 20, 13 budgets are down, six are up and one is flat.
“This speaks to the continuation of strong discipline in the industry,” said Molchanov. “There is essentially nothing the U.S. government can do that would meaningfully boost drilling activity from current levels.”
TITLE: OPEC+ Supply Delay Won’t Prevent Oil Glut Next Year, IEA Says
https://www.bloomberg.com/news/articles/2024-12-12/opec-supply-delay-won-t-prevent-oil-glut-next-year-iea-says
EXCERPTS: Global oil markets face a glut next year despite last week’s decision by OPEC+ to delay supply increases, the International Energy Agency said.
World markets will be oversupplied by a hefty 1.4 million barrels a day if the group proceeds with plans to revive output starting in April, the IEA predicted in a monthly report. Even if OPEC+ cancels next year’s hikes entirely, there’ll still be an overhang of 950,000 barrels a day.
The cartel led by Saudi Arabia and Russia on Dec. 5 agreed yet again to postpone plans to restore shuttered output amid faltering crude prices, and slow the pace of increases once they do begin in the second quarter.
The OPEC+ delay “has materially reduced the potential supply overhang that was set to emerge next year,” the agency said. Nonetheless, “robust supply growth from non-OPEC+ countries and relatively modest global oil demand growth leaves the market looking comfortably supplied.”
For several months, the Organization of Petroleum Exporting Countries and its partners have been seeking to restore production idled during the past couple of years, but have been thwarted by deteriorating market conditions.