- Baron Lamarre
WHAT BIDEN'S VICTORY MEANS FOR THE ENERGY MARKET AND TO YOU AS AN INVESTOR
When Trump officially took over the White House on 21st January 2017, his foreign policy was pretty straight forward: AMERICA FIRST!
He viewed his victory as a mandate to push American products to the rest of the world. Barely four months into the job, he signed a weapon deal with The Saudi King Salman bin Abdul-Aziz Al Saud on May 20th 2017.
Saudi Arabia would agree to purchase arms (including missile defense systems, radars and cybersecurity technology) from the United States totaling US$110 billion immediately followed by an additional $350 billion over 10 years.
On the Energy front, The United States had just become a Net exporter of Natural Gas for the first time since 1958 thanks to the Shale revolution.
Trump wanted to sell American’s gas surplus to the rest of the world. With existing Natural gas consumers (Japan, South Korea, Japan & India) already tied down in long-term supply contracts with established producers (Qatar, Iran, Norway, Algeria etc.), how will the United States penetrate a saturated LNG market?
Something had to give.
Trump started to push China, Japan & South Korea to buy more American Gas while simultaneously ramping up his hostile rhetoric against Iran.
Without providing any evidence, he accused them of breaching the JCPOA (The deal secured by President Obama to stop Iran from nuclear enrichment). A year later, despite a strong rebuttal by Yukiya Amano, the Director-general of the International Atomic Energy Agency (IAEA) Trump would withdraw from the JCPOA and re-impose stricter sanctions on Iran.
Yukiya Amano was emphatic:
“Iran is implementing its nuclear commitments “.
Was the sanction on Iran just a “Trumped”-up excuse to kick them out of the Gas market (and take their customers) or really a case of Teheran not complying with the Nuclear deal?
It didn’t really matter, Trump’s sanctions effectively took Iran out of the Global LNG business and their market share was quickly replaced by the USA.
In Latin America, new sanctions were imposed on Venezuela with the same result: Make way for America into the Crude Oil export market.
President Trump’s unilateral sanctions on both Iran and Venezuela have taken out a combined volume of 2-3 million barrels per day of crude oil from the markets or about 3% of global supply. These actions ensured America’s ‘Energy Dominance’ ‘by maximizing its energy production while suppressing supply from competitors.
When Biden takes over on 21st January 2021, Nicolas Maduro of Venezuela and the Ayatollahs of Iran will be breathing a sigh of relief.
For they have survived Trump’s sanctions and outlasted him.
What will Biden do about them and how will his actions impact the Energy market and you?
BIDEN’S DOMESTIC PRIORITIES
The newly elected President has consistently stated during the campaign and after his victory that his priorities are to rebuild the US economy, fight COVID and implement his Clean Energy transition agenda.
His policies are encapsulated in his BBB (Build Back Better) slogan. He plans to address the structural weaknesses and inequalities in the U.S. economy by building a modern and sustainable infrastructure, the revitalization of U.S. manufacturing, and a mobilization of R&D for new technologies such as biotech, clean energy and artificial intelligence at the gigantic cost of $2 trillion over four years. It also seeks to modernize the U.S. auto industry to better compete with China on electric vehicles.
Biden's biggest hurdle will be the Republicans in the Senate.
They have no secret that their role is to torpedo his agenda and make him a one-term President. They are considering giving him $500 billion at most (the so-called skinny bill), far short of the $2 Trillion he wants.
The gridlock in the congress will therefore limit what Biden can do quickly. To deliver prompt results on impatient Americans he will rely on executive actions (that doesn’t require congressional approval) and the intervention of the Federal reserve.
BIDEN’s FOREIGN POLICY TO CREATE A BULLISH MARKET IN 2021
IN THE MIDDLE EAST
Biden has pledged to re-engage with IRAN on the multinational nuclear deal and refrain from arms sales to Saudi Arabia.
During the campaign Biden said:
“I would make it very clear we were not going to in fact sell more weapons to them, we were going to in fact make them pay the price and make them in fact the pariah that they are".
His posture should compel MBS (Mohammed Bin salman, Saudi de-facto Ruler) to retreat from all his failed wars: failed war in Yemen, failed Oil Price War against US Shale and Failed sanctions on Qatar.
After all, the Saudi Arabian economy is in dire shape. Their oil revenue in the first half of the year was 35% lower than 2019, while non-oil revenue fell by 37%. Moreover, in the second quarter of 2020 alone, the Kingdom’s petroleum refining activities recorded a 14% drop from 2019.
IN LATIN AMERICA
Although Biden’s campaign has not detailed how he would approach Venezuelan sanctions, some experts on Latin American affairs expect Biden to lower the tone on Venezuela at a minimum.
Jason Marczak, director of the Atlantic Council’s Adrienne Arsht Latin America Center, assesses that while Biden is likely to continue to favor sanctions to pressure the regime of President Nicolas Maduro, he could increase diplomatic efforts to end the impasse by negotiating a new election or a power-sharing arrangement with the opposition.
Venezuela has been struggling with 2,400% inflation with US sanctions under Trump, I expect the left wing of the democratic party to lean on Biden to ease the pain of the Venezuelan people.
When Trump abruptly exited the TPP (Trans-Pacific Partnership signed by President Obama) he effectively ensured that America has even less leverage to pressure China into modifying its trading and economic practices.
The leadership vacuum created by the United States in Asia- Pacific has now been filled by China. By signing RCEP (Regional Comprehensive Economic Partnership) on 15th November 2020 with 14 other Asia-Pacific countries (Including US Allies such as Japan, South Korea, Australia and New Zealand) China has established itself as the trade anchor for Asia-Pacific.
RCEP is currently the world’s largest trade agreement and will further elevate China’s political and economic influence in the region.
The most important ingredient that this region needs from the White House is stability.
If Biden re-engage with Asia, normalize relations with China and avoids Trump innuendos, Equity & Energy markets will likely respond positively.
BIDEN’s ENERGY TRANSITION POLICY
During the final presidential debate last week, Joe Biden shocked Trump and the republicans by admitting that he would "transition from the oil industry”.
Instead of dodging the question, he reaffirmed his intention to keep the Oil industry in check. Not long ago it would be considered a political suicide in several Oil-dependent swing electoral swing states to directly confront the Oil & Gas industry for their contribution to climate change.
Biden did it anyway as he sees the money in Green Energy.
Before Biden became a candidate, the Democratic Party in the congress had been promoting the GND (Green New Deal): a legislation package that aims to address climate change and economic inequality.
In Europe, for its part has the European Green Deal which aims to achieve a Net Zero Carbon emission by 2050 at the cost of Euro 7 Trillion. Biden sees the shift towards renewable as a job creator for the American people rather than a punishment to the Oil industry.
He has vowed to make the necessary investment to bring U.S. emissions down to net zero by 2050, including bringing emissions from the power industry to net zero by 2035.
According to Goldman Sachs (Investment Banker), renewable power will reach 25% of the total energy supply capex in 2021, beating out hydrocarbons for the first time ever.
Their analysts assess that cleantech has the potential to drive $1-2 trillion per annum in green infrastructure investments and could hit $16 trillion by 2030. This could create 15-20 million jobs worldwide (green infrastructure is actually 1.5 to 3 times more capital- and job-intensive than traditional energy).
OIL INDUSTRY CLEANS UP
The Oil & Gas industry is swiftly getting on with the program.
Oil supermajors such as BP and Royal Dutch Shell have already begun implementing strategies for a global energy transition. They have closed down several of their refineries across the world and sold some of their downstream assets.
In the Upstream sector, new technologies are being rapidly introduced. For example, DIGITAL TWINS provide interactive 3D simulations that engineers can use to maneuver oil platforms and plants remotely when they cannot get to the rig.
My organization, Sarepta Oil has developed a cutting-edge Technology for EIOR (Enhanced Intelligent Oil Recovery) to extract maximum hydrocarbon with minimal water pollution. Remote monitoring systems such as drones are being used to survey pipelines and manage Oil flares.
LNG IS THE TRANSITION ENERGY
LNG (Liquefied Natural Gas) is the cleanest fossil fuel. In the context of Biden’s Energy transition drive, it represents an excellent alternative to reduce greenhouse gas emissions and help combat global warming. With the United States currently the world’s third largest Exporter of LNG ,Biden has an opportunity to lead Americans into developing and adopting the use of LNG particularly for industry and transport.
The development of natural gas fuel - either in compressed form (CNG) for urban transport or short distances, or in liquid form for regional and long-distance transport (LNG) - is seen as a promising alternative to achieve the new environmental targets.
Natural gas makes it possible to comply with the new environmental standards. Compared with diesel, natural gas fuel represents 25% reduction in carbon dioxide (CO2),80% reduction in nitrogen oxide (NOx)and 97% reduction in carbon monoxide (CO) emissions.
WHAT THIS ALL MEANS TO YOU
Since Biden’s victory was announced, Crude Oil prices have risen by more than $5.50/Barrel in anticipation of Covid containment , economic recovery and a weak dollar.
There is very little chance that a Republican party (that has so far refused to acknowledge Biden’s victory even after almost three weeks), will support his proposal to raise tax on the wealthy in order to pay for his $2 Trillion economic & Covid rescue package. I suspect that the Federal reserve will step in with quantitative easing (money printing).
This would lead to a weak dollar and stronger Global oil prices. Because Crude Oil is a commodity priced in USD, producers ask for more dollars for the same barrel when the dollar weakens.
If you’re a conservative investor, I’d suggest considering buying gold now as a refuge to the future devaluation of the Dollar.
While Biden has expressed an interest in supporting climate-related lawsuits against the oil industry and his VP Kamala Harris has cited her record in suing oil companies as Attorney General in California. I expect him to protect fracking jobs in the States that helped in defeating Trump ( Michigan, Pennsylvania, Colorado , New Mexico etc).
His (Biden)’s commitment to renewable energy should boost stock price in 2021 for companies manufacturing electric cars, solar panels, wind mills and other renewable energy products.
Nonetheless, Trump is still the President until January 20th and he could still mess things up and derail Biden’s agenda.
If he escalates tensions with Iran, a retaliation by the latter will complicate Biden’s diplomatic re-engagement efforts. If Trump pulls out from Afghanistan then Biden will be under pressure from the US military industrial complex to send troops back to Kabul again, instead of Building Back a Better America.
Author: Baron Lamarre