Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
Not only does it appear that the Biden administration is losing control of the oil market, sort of how they lost control of our border and world events, but they are also losing control of the narrative as they try to defend the indefensible. The LNG pause has angered our allies and has brought accusations that was nothing but a political stunt. The Department of Energy tried to refute the things that critics said about this administration’s decision to pause exports for an unprecedented ‘climate review’ but maybe they might better serve the American people by addressing growing concerns about a tightening diesel and gasoline market and the longer-term risk to the American People of the growing risk of a supply gap because of climate extremism and underinvestment in fossil fuels.
Before we get into the DOE’s defense of the export ban, we had better focus on the markets. They are starting to price in the possibility of a diesel supply squeeze and to a lesser extent gasoline. Global distillate prices are soaring in the US and Asia. It is soaring as we have refinery outages that are planned and unplanned. The Whiting Refinery in the US as well as the fact that Ukraine is pounding Russian refineries. We saw that on February 3, 2024, two Ukrainian attack drones hit the Lukoil company’s primary oil processing facility at the Volgograd oil refinery in southern Russia. John Kemp, senior market analyst at Reuters warns that, “Global stocks of diesel and other middle distillates are below normal and prices could start to rise quickly if the industrial economies of North America and Western Europe emerge from their lingering recession in 2024. Quantum Commodity Intelligence points out that US gasoline stocks sank to a near one-month low, while demand jumped to its highest level so far this year.
OPEC controls all of the spare capacity as the US discourages production with a record amount of executive orders, drilling moratoriums, and further review. S&P Global is reporting that OPEC members pumped 26.49 million b/d of crude collectively, down from 26.80 million b/d in December when Angolan production was removed. The West African country quit the group in January following a row over quota cuts. OPEC’s 12 countries contributed the lion’s share of the month-on-month production decline, with core group output slipping to 310,000 b/d.
As we saw in the US with inventories and global inventory, we’re seeing a significant tightening of supplies. All of a sudden the market is taking this seriously as before they seemed to ignore the warning signs of this coming squeeze on the market and was ignoring it on the assumption that the Federal Reserve was going to cause a recession. Yet with the economic data being strong and the possibility that inflation might not be as bad as people thought, this should allow the economy to flourish. It also increases the possibility that the Fed will have to cut rates.
This comes as the oil industry warns of what we have been talking about for years, a coming energy shortage. Just this week Occidental CEO Vicki Hollub warned that the global, “Oil market will face supply shortage by end of 2025 as the world fails to replace current crude reserves fast enough. She told CNBC that, “About 97% of the oil produced today was discovered in the 20th century, she said. The world has replaced less than 50% of the crude produced over the last decade. “We’re in a situation now where in a couple of years’ time we’re going to be very short on supply.”
This comes as OPEC is forecasting that global oil demand will grow by 1.8 million barrels per day in 2025 on a solid economy in China, outstripping crude production growth of 1.3 million barrels per day outside the cartel. The forecast implies a supply deficit unless OPEC ditches current production cuts and boosts its output.”
US natural gas prices are getting buried, hitting 42-month lows and the Biden drilling pause may cause a death knell open to many small producers. Natural gas tanked after the EIA reported that, “Working gas in storage was 2,584 Bcf as of Friday, February 2, 2024, according to EIA estimates. This represents a net decrease of 75 Bcf from the previous week. Stocks were 187 Bcf higher than last year at this time and 248 Bcf above the five-year average of 2,336 Bcf. At 2,584 Bcf, total working gas is within the five-year historical range.
The Biden administration all sudden is taking offense at the criticism leveled at them in what many believe is a politically motivated and short-sighted natural gas pause. The DOE decided to respond. They Wrote that, “The Department of Energy (DOE) is responsible for assessing if domestic natural gas can be authorized for export as liquefied natural gas (LNG) to non-Free Trade Agreement (FTA) countries. To make that determination, the DOE evaluates and analyzes a range of factors related to economics, national security, market and environmental data to determine whether that LNG export request is in the “public interest.”
Recently, the DOE announced it would be pausing the review of pending export applications while it updated its economic and environmental analysis that underpins this review. The last time these were formally updated were in 2018 and 2019, respectively. At that time, U.S. LNG export capacity was less than 4 billion cubic feet per day (Bcf/d). Today, that capacity has more than tripled, and the U.S. is the world’s largest LNG exporter with capacity set to nearly double by 2030 because of additional projects currently under construction. Cumulative approved exports are at 48 Bcf/d, over three times our current export capacity.
A lot has changed since 2018. Americans should have the latest understanding of what higher exports mean for our economy, our security, and our health before U.S. energy leaves our shores. Since the announcement, there has been a lot of noise about what this decision means. To correct the record, DOE is shedding light on the facts and dispelling common misconceptions.
❌ Myth: The Biden Administration is banning LNG exports in its war against fossil fuels
✅ Reality: The temporary pause in reviewing new non-FTA export applications. It will not affect operating LNG facilities or additional already authorized LNG exports. It will not disrupt projects under construction.
The industry reality though is that this comes at a time when natural gas producers are under pressure this temporary pause could discourage investment. In this hostile environment that this administration is creating it’s not helpful as we try to expand are energy security.
The DOE Says that Before issuing any new LNG export decisions, DOE is embarking on a transparent process to ensure we are using the most up-to-date economic and environmental analyses to determine whether additional approvals of LNG exports to non-FTA countries are in the “public interest.”
The Biden-Harris administration has repeatedly stated that the future is in clean energy and our transition to clean energy will be a managed transition, one that will help ensure American families and businesses can reliably and affordably keep the lights on, but no reason to do business as usual. We’re updating our analysis to adapt to market dynamics. Supply and demand are shifting rapidly at home and around the world. The U.S. should know how its resources are and will be utilized, and what the need will be as countries around the world commit to reducing emissions and their use of fossil fuels.
My take is that the future is in in everything in above energy policy not just green energy. The Biden Harris administration is short sighted and wants to believe in a world that doesn’t exist they want to ban the use of natural gas buildings and natural gas stoves but not with any viable replacement that’s gonna mean higher prices for consumers the reality is is that natural gas is going to be burned around the globe and whether it comes from the United states or from Russia or Qatar is going to be the only remaining question.
❌ Myth: These actions empower our enemies and harm our allies.
✅ Reality: This action will not affect already authorized or operating export capacity, which currently totals 48Bcf/d, nearly half our total domestic natural gas production. It will also not impact our ability to supply our allies in Europe, Asia or other recipients of already authorized U.S. exports.
In 2022, when Russia waged its war of choice against Ukraine and used energy as a weapon to undermine European security, the U.S. and the European Commission formed a Joint Taskforce to reduce Europe’s dependence on Russian fossil fuels organize its efforts around two primary goals: (1) Diversifying LNG supplies in alignment with climate objectives; (2) Reducing demand for natural gas.
In 2022 and 2023, over 60% of U.S. LNG exports went to Europe in 2022 and 2023 and the U.S. has worked with the E.U. to successfully economize consumption and manage its storage to ensure that unprovoked acts of aggression cannot threaten its supply. The Department is committed to ensuring our partners’ energy security needs are met, and if needed, it can determine if exceptions should be made for immediate national security needs.
My take is is that the administration is talking out of both sides of its mouth. On one hand they say they’re gonna continue to export liquefied natural gas to our allies but at the same time not approve any new projects this is going to be a devastating blow to our allies as they will be more reliant on countries that do not like us at the same time it’s going to potentially devastate the US oil and gas industry which made investments based on the assumption that they were going to be able to export this whale overseas if the Biden administration cancels these projects that’s not gonna happen at the same time our allies are looking at us like we are the Saudi Arabia of natural gas they pinned their hopes on cheap US natural gas if we decide to restrict our exports our allies would not be very happy with us the same way they wouldn’t be happy with Saudi Arabia if they decided to restrict their exports. And besides if we don’t export cheap natural gas to other countries the cost of natural gas globally will go up that will force the usage of more coal and n a dirtier world.
❌ Myth: This action is only in response to climate activists
✅ Reality: DOE last updated its economic and environmental assessments of U.S. LNG exports in 2018 and 2019. A lot has changed since then. U.S. LNG exports have more than tripled, making the United States the largest exporter of LNG. Further, we have authorized additional volumes representing well over three times today’s currently operating export capacity — in projects that are under construction or awaiting a final investment decision.
It is imperative to know what these greatly expanded exports mean for affordable and stable prices for American consumers and industries. But also what the CO2 and methane emissions related to the projects mean for the communities they operate in, where it’s produced and inevitably used. Because LNG export facilities are huge infrastructure projects that will have impacts for decades, we must understand and evaluate the long-term effects on local communities and our global climate at-large.
We need to know what these expanded exports mean for available domestic consumption, for American industries, and household energy prices. By updating the analyses now, we’ll be better positioned to avoid export authorizations that diminish energy availability here at home, undermine our economy, and worsen the consequences of climate change.
. . . My take is is that big green is calling the shots for this administration. The reason why I believe that is that they are basing their decisions not on the reality of meeting growing demand but based on the green ideology.
❌ Myth: This action will harm American jobs
✅ Reality: The Biden-Harris Administration is committed to restoring and growing American jobs. This action will not disrupt projects under construction or those that may be planning construction in the coming years. To keep it simple, there will be no domestic jobs displaced as DOE takes the necessary steps to update its analysis with the best data to make public interest determinations.
My take is this is already costing jobs. I spoke to people in the oil and gas industry that say this is a devastating blow especially with natural gas prices going down right now because of the growing glut of natural gas and without an outlet for this gas many producers will shut down wells will not be drilled and people will be laid off but what’s more the inability of the US to produce gas will also discourage businesses who have flocked to the United states because of a cheap supply of natural gas and if we continue to drive producers out of business we will produce less gas and that will mean higher prices.
❌ Myth: This pause is going to increase prices at home for American consumers.
✅ Reality: This action is actually meant to best inform how we can avoid a situation that leads to higher prices at home. There are no anticipated effects to domestic consumers as we update our analyses before making decision on additional U.S. LNG export requests. A lot has changed since DOE did a complete analysis of the economic impacts of U.S. LNG exports in 2018 as our export capacity has more than tripled and is set to nearly double again by the end of this decade.
To best inform our public interest determinations, our updated economic analysis aims to ensure that we are accurately capturing the full economic impacts of LNG exports to all American households and businesses. For example, the Energy Information Administration (EIA)’s 2023 long-term outlook found that as the U.S. exports more LNG, global and domestic prices converge and that “higher LNG exports create a tighter domestic natural gas market (all else held equal), increasing domestic natural gas prices.” Updating our analysis using the latest data will help mitigate risks of future decisions that could cause domestic consumers and manufacturers to face higher energy prices.
My take is it will lead to higher prices for consumers in fact if the Biden administration gets its way and pushes out natural gas from homes and businesses we will find that the price for electricity will go through the roof.
❌ Myth: This decision is bad for the climate
✅ Reality: Across the globe there is an unprecedented build-out of clean energy and increased climate commitments by our allies. In addition, the most recent International Energy Agency (IEA) reference scenario shows global demand for natural gas peaking this decade. Given this increased deployment of clean energy that is in turn driving updated estimates of fossil fuel demand and usage over time, it is imperative that our analysis for public interest determinations accurately reflects the latest economic, demand and security landscape.
Ultimately, this action is a recognition that LNG exports result in greenhouse gas emissions – CO2 and methane – and we must have the best information to fully understand and evaluate its effects on communities at home and examine the role of natural gas and LNG in a net zero economy.
My take on this is that liquefied natural gas and US natural gas is one of the major reasons why the globe is able to replace coal and reduce greenhouse gas emissions. If the US fails to live up to their responsibility to supply clean burning natural gas to the rest of the world, the reality is that it will be replaced by coal. Once again short-sighted thinking based on ideology and not facts, is a blow for the global economy and devastating blow for Americans at home.
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