US President-elect Joseph Biden could have a major impact not only on US oil and gas production, but on the global oil and gas industry when he takes office in January 2021.
A few changes are relatively easy to predict: it’s probable, for instance, we will likely see far fewer angry tweets at OPEC, criticising their decisions and urging them to make deals which favour the US.
“Trump played a very activist role with OPEC,” said Herman Wang, managing editor for Middle East and OPEC news at S&P Global Platts, during a panel at the Oil & Gas Future Forum. “I would not expect that kind of activist role by a Biden administration.”
While Trump frequently tweeted at OPEC to stop cutting oil production, he also pushed Russia and Saudi Arabia to come to an agreement and make a deal to cut output after a short price war erupted in early 2020, following the coronavirus outbreak and the ensuing market turbulence.
“On the same token, relations between the US, Saudi Arabia and other key members of OPEC are still going to be largely based on oil diplomacy,” Wang added.
US President-elect Joseph Biden could have a major impact not only on US oil and gas production, but on the global oil and gas industry when he takes office in January 2021
Biden’s approach to foreign policy with key oil producers and consumers like Saudi Arabia, Russia and China, will inform their decision-making as well as market sentiment. UAE energy minister Suhail al-Mazrouei said that he looked forward to the “ease of [trade] tension between the United States and China,” which he said would boost oil demand and would likely make international trade easier.
This also comes at the same time as a Russian government reshuffle, which will see Pavel Sorokin replace energy minister Alexander Novak. Novak in turn is expected to take on the role of deputy prime minister, although he will reportedly remain the nation’s main link to OPEC. This is significant because Russia is the main non-OPEC contributor to the production cuts agreed to by OPEC and its allies (OPEC+).
Biden is also expected to reverse a number of Trump’s foreign policy decisions, in particular signing back up to the Paris Climate Accords and re-entering the Iran deal. Easing sanctions on Iran, and potentially Venezuela, would allow both nations to drastically ramp up exports – potentially hitting oil prices as demand continues to recover from the impact of the coronavirus pandemic.
OPEC has been cutting production to balance the market following the crash in oil demand due to the coronavirus pandemic, and would likely have to revisit their agreement if countries including Venezuela and Iran are able to produce and export oil more freely.
A stronger environmental commitment
It’s clear a Biden administration will also renew US interest and focus on climate change, resulting in increased scrutiny of US oil production and tighter regulations on the energy sector, which could increase costs for producers and slow projects. The midstream segment, which facilitates the transport and storage of oil and gas, is particularly vulnerable with growing resistance to pipeline projects.
Importantly, Biden has promised at various times to ban hydraulic fracturing on US federal lands and waters, which will significantly cut the nation’s production. Vice President-elect Kamala Harris has also been outspoken about completely banning fracking in the US.
Saudi Energy Minister Prince Abdulaziz bin Salman congratulated Biden on his win, and said that the administration’s plans to move towards lower emissions were in line with Saudi Arabia’s national strategy, as it moves towards renewables and gas as cleaner sources of energy. “Regardless of what happens, we have 80 years or more of dealing with each other,” he added.
OPEC’s Secretary General Mohammed Barkindo is keen to bring the US back into the global oil conversation. “This global conversation would be incomplete, as we found out in the last four years. The US has a special place at the table for the global energy transition,” he said.
Having the US involved in the conversation on the energy transition and oil in general – using more than 280 characters at a time – could add some certainty to the market, with a clearer direction and stated intent from the Biden administration.
However, the biggest concern right now is that Biden represents the unknown, and the oil market does not frequently respond well to surprises. We already understand what oil markets and oil diplomacy are like under Trump, and while we can speculate about Biden’s future actions and their repercussions, we really just have to wait and see.
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