TEHRAN(Bazaar) –The remarks of US President-elect, Joe Biden during the presidential debate on the fate and destiny of the US oil industry, have sparked heated debate Fitch Ratings announced two days ago that Joe Biden's victory in the US elections and his policy to reduce the consumption of fossil fuels and distance the US from these fuels will influence on the US oil and gas industry.
According to the Fitch report, Biden believes that climate change is a dangerous threat to the planet, and the transition from fossil fuels and the move to clean energy could be a new economic opportunity for the United States that US must be a pioneer in the field of clean energy technology.
Fitch also believes that while the Democrats have won the presidential race, Biden may not be able to pursue his policies because the Republican Party may control the Senate and given the party's support for the US oil and gas industry, Biden cannot advance this field of energy easily.
In this regard and based on the importance of the energy sector for the United States, Bazaar reporter spoke with Andrei Belyi, a founder and CEO of an energy consulting firm Balesene (Tallinn, Estonia), adjunct professor in energy law and policy at the University of Eastern Finland, his recent publications include a collective edited volume 'Beyond Market Assumptions: Oil Price as a Global Institution'.
Andrei Belyi is an Adjunct Professor at the Centre for Climate Change, Energy and Environmental Law of the University of Eastern Finland (UEF). He is a member of the Editorial Board of the Journal of World Energy Law and Business (Oxford University Press), and a member of Brussels Energy Club.
Balesene’s consultancy services cover policy advice on energy and LNG market analysis. The company is also involved in various innovation projects in relation to the various energy sectors.
Following is the text of the interview:
Bazaar: Some believe Biden's presence in the White House could make a significant difference in US oil and gas policies. One reason for this is his focus on renewable energy and the reduction of fossil fuels, and his return to the Paris climate agreement. What is your assessment?
Belyi: Hard to assess Biden's energy policies on what we have. Certainly, he wants to emphasise the green energy, and he promised to return to the Paris Agreement. At the same time, he's done a lot to balance Democrat's position against radical views on New Green Deal. Certainly, a moderate agenda in mind. Plus, oil and gas industry plays an important role, and as a pro-market politician, he will not ignore these industries.
Bazaar: According to Biden, his policies will be similar to those of the Obama administration, which will likely mean the return of Iran and Venezuela as two members of OPEC and the lifting of US sanctions. Of course, this is provided that a way is provided to reduce the crisis between the United States and these two countries. In your opinion, with the entry of Iran and Venezuela into the oil market, will we see a drop in prices?
Belyi: Continuity of US foreign policy remains a tricky topic. Obama played a great role in building a pro-multilateral approach, but no without tensions with China, no without trade conflicts with Europe, etc. Trump made the US foreign policy more controversial, antimultilateralist, he drew the US out of WHO, he halted WTO Court of appeal. Probably Biden will correct those steps. But I don't think that international tensions will decrease. Relations with China won't go well - rising China and its regional policy, including actions in Hong Kong will not be welcomed by Biden administration. Transatlantic relations might improve, but note that relations with the EU wont be same anymore. Also, EU will adapt carbon border tax, US goods will be targeted, the Biden administration will react etc. Will Biden be softer on Iran and Venezuela? Not so sure. Probably other reasons will drive his agenda, eg democracy promotion.
Oil prices will remain in the area of uncertainty mostly because of stagnating demand. remember that 80% of incremental demand for the next decade comes from aviation. But the sector of aviation stalls with the pandemic. How long will it persist? is a big question. As it was mentioned in our edited volume on the oil price: in 2008 markets learned how to assess risks. In 2020 they l need to learn how to live with uncertainty.
Bazaar: One of the shortcomings of the Biden administration over Trump is that the Democrats are unlikely to have close ties with Saudi Arabia, especially in the oil sector. Trump has been able to establish good relations, especially with Saudi Crown Prince Mohammed bin Salman, who is the de facto king of the country and has taken over. Saudi Arabia is the most influential country in OPEC, and the lack of a very close relationship between Biden and the Saudis means that it will probably no longer be able to influence the OPEC as it once did in the past. What is your assessment?
Belyi: Hard to assess the situation in advance. the main pressure comes from small OPEC+ countries who are unable to reduce oil production and follow the quotas. It seems major tensions between Saudi Arabia and smaller players, even the UAE, is more likely to blow the OPEC+ agreement than the US alone.
Bazaar: While Trump has always sought to maximize US oil and gas production, Biden has stated that he intends to ban new drilling in the region and federal waters to counter climate change. In 2019, the United States extracted 3 million barrels of oil per day from its territories and federal waters, and the amount of gas extracted from these fields was equivalent to 13.2 billion cubic meters per day. This is equivalent to a quarter of US federal oil production and one-eighth of US gas production. According to Biden, oil and gas production from these areas will stop in a few years. It could also affect the federal government's revenue from oil and gas production, which was $ 12 billion in 2019. How will this affect US energy production?
Belyi: As you may notice, Biden might indirectly contribute to OPEC+ by removing incremental production in the US. It will then help OPEC+ in maintaining the oil price. As I argued in our book, oil price is also an institution, a demand for high oil price coexists with the demand for oil, and can even be higher than the demand for oil. Even the US green agenda would benefit: with higher oil prices, alternative fuels become more attractive.
Interview by Tahmine Ghamkhar
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