Energy Update (March 23)
Oil Prices & Industry
Russia and Saudi Arabia show no signs of stopping their price war that continues roiling global energy markets. The price per barrel will likely drop below $20, and Moscow has spent years building reserves for this type of crisis. In addition to the standoff, COVID-19 has had enormous effect on economic activity, leading to less demand for the industry. It is predicted that unemployment among oil and gas workers will skyrocket if the downward trajectory continues.
Prices are currently hurtling toward the lowest levels since 2000, with U.S. oil producers slashing spending and cutting workers. Construction of chemical plants, export facilities, and pipelines has also been delayed worldwide. Many workers are facing layoffs and unpaid furlough, and companies are looking at the market environment to re-think projects before they invest capital.
The oil crash and global pandemic are also challenging the U.S.’s energy dominance, and the prospect that the U.S. will continue “record setting” oil production is in doubt. In 2018, the U.S. became the world’s largest producer of crude oil.
The Trump administration has projected optimism and confidence about energy throughout the crisis, and Energy Secretary Dan Brouillette said he thinks “we are stronger than ever.”
“The oil market has nothing to do with the coronavirus other than there’s just a lot less demand at this point,” Treasury Secretary Steve Mnuchin said.
SPR Purchase Progress
Brouillette announced Friday (Mar. 20) that the Department of Energy (DOE) may buy oil beyond what it can put into the Strategic Petroleum Reserve. On Thursday (Mar. 19), the department asked Congress for $3 billion to make the oil purchases.
“We’re simply creating a sense of security for the United States economy. We’re sending a very strong signal to U.S. producers that we believe in your industry,” Brouillette said.
On Thursday (Mar. 19), DOE issued a request for proposals to buy 30 million barrels of oil, but awaits congressional appropriations prior to the purchase.
Potential Help for the Industry
The fossil fuel industry is asking for a lifeline through the current economic turmoil presented by the COVID-19 outbreak and global price war. The National Mining Association has recommended keeping coal-fired plants up through the Defense Production Act, but that determination would likely receive significant opposition. Representative David McKinley (R-WV) wrote a letter Thursday (Mar. 19) asking the president and congressional leaders to classify coal as an “essential Industry” to be exempt from business closure orders.
Other lawmakers are eyeing a temporary royalty reduction for extraction on public lands and waters. Representative Garret Graves (R-LA) said he and other Republicans will be asking the Interior Department for short term relief.Gulf Coast lawmakers Minority Whip Steve Scalise (R-LA) and Rep. Dan Crenshaw (R-TX) are also pushing for temporary royalty cuts.
The American Petroleum Institute is asking the Trump administration to ease regulations due to the coronavirus pandemic. In a letter sent Friday (Mar. 20), CEO Mike Summers said, “The oil and natural gas industry needs to maintain safe and reliable operations, taking into consideration that there may be limited personnel capacity to manage the full scope of the current regulatory requirements.”
“As such, we will be requesting assistance in temporarily waiving non-essential compliance obligations from the relevant agencies and departments within your Administration and/or their state counterparts, and may include recordkeeping, training or other non-safety critical requirements,” Summers added.
COVID-19 Economic Stimulus
Senate Republicans unveiled ‘Phase 3’ of the coronavirus economic impact congressional response on Thursday (Mar. 19), the “CARES Act.” Highlights of the package include: recovery checks of up to $1,200 for qualified taxpayers; $300 billion in small business loans; and $200 billion in financial support for the airline industry. A number of other individual and business tax provisions are included to help increase cash flow.
Environmental groups are pushing to get clean energy taxes and infrastructure into the stimulus debate. Congressional Democrats are more focused on individuals and healthcare infrastructure, raising doubts about the focus on energy. The Senate Republican proposal does not currently have any specific aid for oil and gas companies.
Senate Majority Leader Mitch McConnell (R-KY) is hoping for a quick deal on the package and is aiming to pass the third phase by Monday, March 23.
To view the full proposal, click here.
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