Biden wasted no time signing 17 executive agreements on his first day in office. Three of these were significant to the energy/mining industry, so let us take a look at the potential effects.
REJOIN THE PARIS ACCORD
This was expected. That said, rejoining the Paris accord is extremely bullish for oil, gas, and metals. New regulations and permitting policies will be met with delays all over, thus a slowdown in production. This coupled with CAPEX cuts in oil and gas, as well as, metals and mining set us up for a very bullish run over the next 18-24 months. In addition, lead times on projects are only getting longer and asset quality in general worse, although technology is getting better. Converting to renewables is not an overnight switch, projects take years, and demand for fossil fuels is set to rise over the next couple of years as the world claws back from this virus.
In addition, it should be noted that, under the Obama administration, the US shale industry boomed, as he negotiated US membership in the Paris Accords.
For the US to uphold its fair share of the 1.5C target, we will need 83% reduction by 2030, from 2018 levels. This will not happen overnight.
WORLD LIQUID FUELS PRODUCTION AND CONSUMPTION BALANCE
METALS CAPEX SPENDING
US AND CANADIAN CAPEX CUTS
GLOBAL E & P INVESTMENTS
KEYSTONE XL CANCELLED
This came as a surprise!
BACKGROUND: The pipeline was to connect the hub city of Hardisty in Alberta, Canada, to oil refineries in Texas, US. It would add to the capacity of the existing Keystone pipeline, which runs along a similar route. Barack Obama stopped the 2,735km project in 2015, but Donald Trump campaigned on pushing it forward. In 2017, he used an executive order to permit the project and construction has since started. However, a US Supreme Court decision last year stopped his administration from fast-tracking the plans. The pipeline has attracted protests from environmental campaigners such as Greenpeace, who describe it as “dangerous”. The company behind the pipeline, TC Energy, issued a statement this weekend saying the Keystone XL project will reach net-zero emissions when it begins operations in 2023. It has also pledged to power the pipeline with renewable energy no later than 2030. Keystone XL president Richard Prior said: “We are confident that Keystone XL is not only the safest and most reliable method to transport oil to markets, but the initiatives announced today also ensures it will have the lowest environmental impact of an oil pipeline in terms of greenhouse gas emissions.” -Offshore
This is very bullish for oil and gas, as not adding capacity, restricts the flow of oil into the US, thus slowing imports for much needed heavy crude from Canada. The other options for heavy crude are from Mexico, which currently can not produce enough, Venezuela, which is sanctioned and also can’t produce enough due to crumbling infrastructure, or heavier grades from the Middle East (much more expensive especially when you add the cost of shipping)
Canadian WCS current price: ~42.00
Basrah Heavy: ~55.00
Arab Heavy: ~56.00
For now trains and trucks will remain the methods of transportation, which are slow, expensive and prone to accidents.
ARCTIC OIL AND GAS LICENSING TO PAUSE
his also was expected, as this has been Biden’s flagship environmental platform since the 1970’s when he was first elected to the Senate. This literally will have no affect. Arctic licensing has been prohibited for years. In January the Trump administration opened the area for the first leasing auction. The auction barely attracted any buyers. Expectation was for $900M and sales fell short, totally only $14M. Oil companies are more concerned with their public images than ever before, especially pertaining to the environmental impact of their operations. E&P’s know that drilling in the area would be met with much much displeasure from shareholders and make them even more of a target for environmental groups, in a world where they are trying to transform themselves.
DAILY SENTIMENT INDEX