Dec
18

2015 Energy Policy Forecast: Make or Break

 
2014 has, without question, been a watershed year for the intersection of oil markets, geopolitics, and domestic energy security. Within the past 12 months we’ve seen the most dramatic oil price swing since the financial crisis, overt military confrontations in major oil producing countries Russia and Iraq, U.S. retail gasoline prices at their lowest point since 2010, China staking oil claims in the South China Sea, record levels of unplanned geopolitical disruptions, and the continuation of historic sanctions against Iran’s oil exports. Right now, next year is looking to be as tumultuous as the last. In fact, on the heels of 2014’s unprecedented volatility, 2015 is likely to be the year we see a number of ongoing debates finally reach their breaking points. While lawmakers are stalled, markets and technologies are racing ahead, and strong leadership is required to navigate these challenges. Here’s a look at what’s coming.

U.S. Energy Policy: 2015 Outlook Before diving into specific policy debates, we should look at the forecast for United States supply and demand fundamentals through the coming year. According to EIA’s Short Term Energy Outlook, domestic supply will continue to increase. Demand will remain relatively flat, as will total vehicle miles travelled. All these signs mean that prices are likely to remain low, or even continue to fall. With these market dynamics in mind, we look at the biggest energy policy issues. The Keystone XL Pipeline: Soon-to-be Senate Majority Leader Mitch McConnell (R-KY) has already announced that the incoming Republican Congress has put approving Keystone XL in first place on its to-do list for next year. Reportedly, the GOP plans to fold the pipeline into part of a comprehensive jobs bill. Similar legislation has passed the House but failed in the Senate by narrow margins within the past two years, but with Republicans taking seats formerly held by Keystone opponents, the calculus might have changed, forcing President Obama to make a decision. Keystone would move just shy of 1 mbd of oil from Canada to Gulf Coast refineries in the United States, but although the world’s most famous pipeline has become an energy policy flashpoint in recent years, most experts agree that its approval or disapproval is unlikely to have a transformative impact on our oil supply and energy security. That said, optimistically, it could be a springboard for other energy policy discussions, such those below. Crude Oil Exports: Even before oil’s price dive, U.S. producers were pouring lobbying effort and political capital into relaxing the longstanding ban on exports of unrefined crude oil from the United States. While the ban remains in place, there have already been some notable cracks in its façade, not least of which was the Obama administration’s decision to allow limited exports of unrefined condensate by granting permits to Pioneer Natural Resources and Enterprise Product Partners. This move was swiftly followed by BHP Billiton’s decision to begin exporting unrefined condensate without a permit, which consultants Wood Mackenzie describe as “sanctioned leakage.” Leakage aside, the export ban is still very much intact, but petroleum producers could have a new weapon in their arsenal. A growing number of studies released within the past year, from reputable groups including IHS and the Brookings Institute, have argued that the crude export ban will ultimately limit the scope of the shale production boom—but the argument from other groups that allowing exports will ultimately drive up gasoline prices has made some policymakers nervous to address the issue. Low oil prices create an opportunity for action, but you can be sure that industry will continue to press the issue. The Renewable Fuels Standard: Like the other important issues on this list, the Renewable Fuels Standard is in a state of energy policy purgatory. As gasoline demand has increased less quickly than anticipated when the standard was developed, producers have met what is known as the “blend wall,” the point at which increased volumes of ethanol can no longer be added to gasoline without exceeding the universally accepted concentration of 10 percent. In its initial rulemaking from earlier this year, EPA mandated a lower volume of ethanol production for 2015 than the previous year for the first time in the policy’s history. Following pushback from producers, the agency announced on November 21 that it won't issue a final renewable fuel standard for 2014 by the end of the year. Instead, the EPA plans to issue a new rule in 2015, one that sets standards for 2014 through 2016, in an effort to bring the annual rulemaking back into compliance with statutory deadlines after several lengthy delays in recent years. The agency was required by statute to finalize the rule by Nov. 30, 2013, and is over a year overdue. The EPA said the compliance deadline for its 2013 rule will be extended until the new rule can be issued. This decision was welcomed by renewable fuels producers, who had opposed the agency's proposal to lower the statutory blending requirements for 2014. But not everyone is pleased with both the delays and the policy itself—the petroleum industry and some environmental groups have created strange bedfellows in opposition to the RFS, citing the postponement as evidence the law should be scrapped. Highway Trust Fund: The Highway Trust Fund, or the primary source of funding for the country’s surface transportation system since the federal highway system was established by President Eisenhower in 1956, has been functionally insolvent since 2008. The fund was effectively empty in August 2014, and when the federal Department of Transportation as well as a number of states were prepared to cut construction funding by 28 percent, Congress passed a temporary $11 billion spending patch to avert the project delays and job losses. At the time, President Obama stated, “Congress shouldn’t pat itself on the back for averting disaster for a few months, kicking the can down the road for a few months, careening from crisis to crisis. We should be investing in the future.” Reading between the lines, the President is criticizing Congressional aversion to the single policy measure that would restore the health of the Highway Trust Fund: increasing the gas tax. The current tax, 18.4 cents per gallon, hasn’t been raised in more than 20 years. According to EIA’s most recent projections, gas prices are slated to drop to their lowest level in 11 years in 2015. Politically, it’s an opportunity make the Highway Trust Fund solvent again without overburdening consumers. Unfortunately, there’s little political will, even though a few advocates from both sides of the aisle have expressed that now is the time. The big question: will 2015 be the year that our stagnant energy policy catches up to us? Without action, and one thing is certain—these issues are all a growing challenge for consumers, producers, and refiners, and political indecision reduces each group’s ability to plan strategically for the future. Accordingly, we need policymakers to rise to the occasion and take a responsive approach towards these transportation and oil industry challenges, ushering in a 21st century energy policy. The alternative is continued postponements, indecision, and delays—a condition unsuitable for a country that is now arguably the world’s preeminent energy superpower.    
Dec
12

What’s at Risk from Low Oil Prices?

 

Earlier this week, prices for West Texas Intermediate crude dipped below $60 per barrel, dipping past what many perceived as a line in the sand. Oil prices in the $50 range are nearly a 50 percent decline from their peak early this year. While drivers have their eyes on gasoline prices, the truth is that this kind of volatility isn’t good ...

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Dec
11

Washington State Makes Strides Towards Energy Security

 

Last month, Governor Jay Inslee unveiled a bold new plan to expand Washington State’s impressive fleet of electric vehicles (EVs). Speaking before the Washington Future Energy Conference, the governor said his state would extend state sales tax breaks for EV owners and prioritize other additional incentives, including access to high occupancy vehicle (HOV) lanes, the placement of new charging stations ...

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Dec
9

Guest Post: When Oil Becomes Optional

 

This blog is a guest post by Carl Pope, former Executive Director of the Sierra Club, and current Principal, Inside Straight Strategies. It originally appeared in Bloomberg View on December 8, 2014.  Is this the beginning of the end for oil's long, tyrannical reign? Amid turmoil in two of the world’s largest oil-producing regions, Russia and the Persian Gulf, the price of oil ...

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Dec
5

The Hidden Costs of Oil Price Volatility

 

As recently as a few months ago, an eerie calm had settled over oil markets. Volatility, fluctuations in the price of oil, had dropped to its lowest point since the 1990s, and was remaining low. Prices were moving roughly 3 percent or less each month, and analysts hailed a new era of oil price stability. Those days are over. Oil prices ...

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