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House Bills Safeguard Federal Land Production

May 2, 2024 by Leave a Comment

WASHINGTON DC (05/02/2024) – This week, the House passed a series of bills sponsored by Natural Resources Committee and Western Caucus Members related to resource development and mining on federal lands. AEA included H.R. 6285, “Alaska’s Right to Produce Act of 2023” in its American Energy Scorecard. This legislation affirms that the National Petroleum Reserve in Alaska and a portion of the Alaska Coastal Plain should – by clear and specific direction from Congress – be available for oil and gas leasing and development.

Following the passage of these bills, AEA President Thomas Pyle issued the following statement:

“We continue to support legislative efforts that call out the Biden administration for their wrongheaded attempts to restrict domestic energy production and raise energy prices. In particular, we commend Natural Resources Subcommittee on Energy and Mineral Resources Chairman Pete Stauber for working to defend oil and gas development in Alaska, while this Department of Interior tries to illegally cancel and suspend leases. The administration’s ‘anywhere but America’ energy policies will spell job losses across The Last Frontier and higher costs for consumers in the lower 48 states. Thankfully, Congressman Stauber recognizes this and is working to protect Alaskans, Minnesotans, and all Americans.”


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Key Vote YES on H.R. 6285

May 1, 2024 by Leave a Comment

The American Energy Alliance supports H.R. 6285 Alaska’s Right to Produce Act of 2023, legislation which would affirm Congress’s clear instructions on leasing and development of energy resources in Alaska.

By clear and specific legislation, Congress has directed that the National Petroleum Reserve in Alaska and a portion of the Alaska Coastal Plain shall be available for oil and gas leasing and development. The Department of Interior, with no legal authorization, has declared that it will simply ignore this clear law and will of Congress, purporting to cancel leases and suspending leasing in these areas.

These actions by Interior are illegal, and this legislation reiterates that Interior’s actions are in contravention of clearly stated existing statute.

A YES vote on H.R. 6285 is a vote in support of free markets and affordable energy. AEA will include this vote in its American Energy Scorecard.

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The Unregulated Podcast 179: Mike’s Last Show

April 26, 2024 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the recently passed foreign aid bill, updates on the unfolding presidential contest, and everything else that has Mike heating up.

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Team Biden Wants You In A Chinese EV

April 25, 2024 by Leave a Comment

A made-in-China electric vehicle will arrive at U.S. dealers this summer offering power and efficiency similar to the Tesla Model Y, with sticker price of about $8,000 less. The $35,000 window sticker of Volvo’s compact SUV (the EX30)–a five-seater electric SUV that will have a 275-mile driving range and a five-second 0-60 mile-per-hour time–will provide a more affordable electric vehicle to U.S. markets. Volvo is the Swedish luxury brand owned by China’s Geely. The competitive price reflects a combination of China’s cost advantages and Volvo’s ability to skirt U.S. tariffs on Chinese cars because it also has U.S. manufacturing operations. Chinese EV makers can undercut global competitors largely because of the nation’s domination of battery minerals’ mining and refining, as well as its decades-long commitment to EV development, including heavy government subsidies. In addition, Geely has cut manufacturing costs by merging supply chains and sharing platforms and parts with Volvo and other Geely brands. Despite its lower price, Volvo is expecting profit margins on the EX30 of between 15 percent and 20 percent globally.

The EX30 is one of only a handful of China-made cars sold in the United States, none of them from Chinese brands. Vehicles from China currently face a 27.5 percent tariff. Volvo, however, is eligible for tariff refunds under a law that awards them to firms with U.S. manufacturing operations — such as Volvo’s South Carolina plant — that also export similar products. According to a Volvo spokesperson, the company pays all legally required duties on cars and parts, and although owned by Geely, it is independently operated and designs its cars in Sweden.

The EX30 could get even cheaper if Volvo and its dealers use an EV-policy loophole regarding leased vehicles enacted in the Inflation Reduction Act of 2022. The legislation reauthorized an existing $7,500 tax credit for EV buyers — but blocked the subsidy for cars with components from countries, including China, that are deemed an economic or security threat. The U.S. Internal Revenue Service determined, however, that leased electric vehicles qualify as commercial vehicles and are eligible for a similar $7,500 subsidy with no China-content restrictions. That could bring a leased EX30’s effective price to $27,500. The EX30’s specifications closely match Tesla’s Model Y, and Volvo dealers are touting the comparison. The major difference is that Tesla’s Model Y has more cargo room.

According to a sales manager at Volvo Cars Carlsbad in California, the dealership has already taken deposits for every 2025 EX30 it expects to be allocated. More than half of the dealership’s customers who buy currently available Volvo electric vehicles initially lease them to qualify for the U.S. tax credit — then immediately buy out the lease, a loophole that apparently the Biden administration has missed.

U.S. Competition from China

The EX30’s low price and entrance into the U.S. auto market point out the competition that U.S. automakers will face from low-cost Chinese EV imports, particularly if they can avoid tariffs. Chinese manufacturers could also avoid U.S. tariffs by setting up plants in Mexico, inside the North American free trade zone, then exporting vehicles to the United States. China’s BYD, which recently outsold Tesla for global EV sales, announced plans for a Mexico plant earlier this year.

In China’s auto market, the world’s largest, dozens of domestic EV brands are experiencing a price war while foreign automakers have steadily lost market share. The intense competition has driven China’s biggest EV makers, led by BYD to accelerate exporting electric vehicles that can capture higher prices and profits in less competitive overseas markets. BYD, China’s largest automaker, for example, offers an array of electric vehicles for less than $30,000 in China, including an electric hatchback that sells for less than $10,000. BYD is planning to sell the same hatchback in Latin America for about $21,000, still far below any U.S. electric vehicle. As a result, cheap Chinese electric vehicles could cause an “extinction-level event” for U.S. automakers.

Tesla Lowers Prices

Recently, Tesla lowered the Model Y’s price by $2,000 in the United States as part of a series of global reductions. In an effort to increase sales, Tesla has cut prices on three models (X, Y, and S) this month. Tesla is cutting prices as it faces softening demand and stiffer competition from China’s EV makers.

Tesla had plans for a cheaper car, called the Model 2. It was expected to cost around $25,000 — roughly 26 percent less than the Model 3 — and be more attractive in potential new markets like India. But Musk pivoted from the Model 2 approach to robotaxis, and he has indicated that the Cybercab would be introduced in August.  Due to first-quarter profits falling 55 percent, to $1.1 billion, on an annualized basis, and revenue falling 9 percent, to $21.3 billion, Musk has promised to focus on “more affordable models.” The “new models” would be introduced by early 2025 using its current platforms and production lines. Recently, the company announced it would lay off more than 10 percent of its work force as sales slow and competition, especially from Chinese rivals, erodes market share.

Conclusion

Geely’s Volvo is making an entrance into U.S. auto markets this summer at substantially lower prices than U.S. car manufacturers can afford to meet due to China’s dominance of the battery supply chain, Volvo’s operational efficiencies and its ability to avoid U.S. tariffs by having a U.S. plant in South Carolina. Geely and Volvo have created a series of shared platforms allowing Volvo and other Geely brands to share batteries, motors, gears and electric power-management inverters – all high-cost EV components that are cheaper in high volumes. The sticker price for Volvo’s EX30 electric SUV of $35,000 can be lowered by leasing the car through a loophole in the U.S. law allowing it a $7,500 tax subsidy despite it being built in China with Chinese components.

Chinese automakers’ operational efficiencies, government support, and innovations have propelled the country to the forefront of the EV industry, as has the country’s aggressive stakes in the minerals production and processing supply chain worldwide.  President Biden or his successors may need to salvage the U.S. auto industry in the future as cheap Chinese electric vehicles, which Biden’s policies are promoting and even subsidizing, could become an “extinction-level event” for U.S. automakers.

*This article was adapted from content originally published by the Institute for Energy Research.

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Biden’s EV Mandate A Gift To Communist China

April 24, 2024 by Leave a Comment

Biden’s policies of forcing electric vehicles on the American public and domestic auto manufacturers through regulations and standards is playing into China’s hands. China, with few oil and gas resources of its own, has found electric vehicles to be a way to dominate the world’s auto market. China achieved number one ranking in EV sales last year. As with other commodities, Chinese companies have an operating edge on EV production with cheap energy and labor, operational efficiencies and hefty government support. And China controls the bulk of global raw materials, such as lithium, for EV batteries. According to an auto analyst, Chinese EV manufacturers have a structural cost advantage of 25 percent. Now, Chinese automakers and shippers are ordering a record number of car-carrying vessels to support the country’s boom in EV exports, putting China on course to amass the world’s fourth-largest fleet of car-carrying vessels by 2028. China is in the EV game to win it, even though it is U.S. and European climate policies that are creating the demand by adhering to the Paris Climate Accord ignored by China, India and other countries around the world.

Now that China has surpassed Japan as the world’s largest vehicle exporter, it is vastly expanding its shipping fleet to send the vehicles around the globe. According to Reuters, China has 47 car-carrying ships on order, a quarter of all ships globally. Once this armada has been delivered to China, the Chinese controlled car carrier fleet will jump from current 2.4 percent to 8.7 percent of the world total with new trade routes established almost exclusively for Chinese automakers.  The increase in orders has mostly benefited Chinese shipyards, which received 82 percent of orders globally. Because Chinese shipyards are also actively building ships for China’s fast-growing navy, the boon to business from EV export ships indirectly aids China’s military buildup.

How China Became Dominate in the EV Market

Chinese automakers are around 30 percent quicker in development than legacy manufacturers. They work on many stages of development at once and they are willing to substitute traditional suppliers for smaller, faster ones. They run more virtual tests instead of time-consuming mechanical ones. And they are redefining when a car is ready to sell on the market.

NIO, one of China’s leading electric-vehicle startups, takes less than 36 months from the start of a project to delivery to customers, compared with roughly four years for many traditional carmakers. The company manufactures cars with latent technology such as a spare chip that allows it to frequently add new features through software updates that is enabling it to gain market share. Zeekr, an EV component of auto manufacturer Geely, can develop vehicles from scratch in as fast as 24 months. It rapidly releases different models ranging from SUVs, multipurpose vehicles, and hatchbacks that all share manufacturing and digital architecture with other Geely brands such as Polestar and Smart.

China’s carmakers are backed by generous government stimulus policies. They are heavily customer focused, emphasizing software and digital technology, from driver-assistance functions to in-car entertainment. The slowdown in demand for electric vehicles is spurring Chinese carmakers to constantly update and release new models. Cars launched last year contributed to 90 percent of China’s passenger-car sales growth. Chinese buyers tend to prefer new or recently released cars, making their cars have a short shelf life. Domestic Chinese EV makers offer models for sale for an average of 1.3 years before they are updated or refreshed, compared with 4.2 years for other global brands.

China controls the market for lithium—a major metal in EV battery production. China dominates lithium processing, controlling nearly half of global lithium production and 60 percent of electric battery production capacity. Its access to lithium deposits currently accounts for less than 25 percent of the world’s lithium resources, but it could account for nearly a third of the world’s supply by the middle of the decade as it ramps up efforts to attract lithium mines. The UBS AG bank expects Chinese-controlled mines, including projects in Africa, to raise output to 705,000 tons by 2025, from 194,000 tons in 2022. China is also responsible for 70 percent of production capacity for cathodes and 85 percent for anodes, which are both crucial components of batteries.

China also controls the bulk of other global raw materials needed for EV batteries, including cobalt, graphite, and nickel. Chinese companies now own most mines in central Africa that produces around 70 percent of the world’s cobalt.  Over half of cobalt and graphite processing and refining capacity is also located in China.

China’s Build Your Dream (BYD) EV manufacturer has become the world’s largest maker of electric vehicles in just over a decade. BYD delivered 1.86 million fully electric and plug-in hybrid vehicles in 2022, outselling Tesla’s 1.3 million by 42 percent. BYD’s innovations in battery packs and its founder’s belief in batteries as the dominant power source have been key to its success.

Biden Aids China Through Regulatory Action and Anti-Mining Activity

Biden’s Environmental Protection Agency (EPA) finalized emission standards in late March for light-duty vehicles that would effectively require 67 percent of new models sold to be electric or hybrid by the end of 2032. The regulations are in spite of slowing American EV demand that has led to losses and slowdowns in production for automakers. Several American auto manufacturers have posted huge losses due to EV development and sales, including Ford, which lost $4.7 billion on electric vehicles in 2023, losing nearly $65,000 on each electric vehicles that it sold. General Motors lost $1.7 billion in the fourth quarter of 2023, despite strong profits overall. Biden’s rush into electric vehicles is not allowing U.S. automakers the time to transition to electric vehicles that Americans may want and at a price they can afford.

As noted above, China has broad command over the current EV supply chain due to its control over minerals needed to build batteries required for electric vehicles. The country currently controls 87 percent of the world’s mineral refining capacity, while U.S. attempts to increase its own capacity face obstacles from the Biden administration. As a result, Biden is forcing electric vehicles to be made outside the United States despite throwing tens of billions of tax dollars at them. Biden’s war on mining has made the U.S. almost entirely dependent on China (and a handful of other unfriendly nations) for many of the metals and precious minerals necessary for EV batteries to be produced. China and its partner countries have a near monopoly throughout the value chain.

Chinese electric vehicles have already made large headwinds in the European market, with around 19.4 percent of electric vehicles sold on the continent in 2023 being made in China, which is expected to rise to 25 percent by the end of 2024. The European Union announced in September 2023 that it had launched an investigation over whether to impose punitive tariffs on Chinese electric vehicles due to artificially cheap prices from state subsidies.  The EU’s record in this area is not good, however, as Politico recently reported that European solar companies were “hurdling towards extinction” in the face of Chinese dominance of the solar energy market on the continent.

Conclusion

Chinese automakers’ operational efficiencies, government support, and innovations have propelled it to the forefront of the EV industry. China state control over lithium and other critical mineral resources and BYD’s success exemplify the country’s dominance. As the world deliberately transitions toward electric transportation by adhering to the Paris Climate Accord, China has positioned itself as a dominant force in shaping the global landscape of electric mobility. This is happening as China rapidly expands all forms of energy, including coal mining and generation and nuclear power. It is artfully moving the global landscape to areas where it dominates after years of preparing for the transition and away from oil and gas resources where the United States dominates. The Biden administration is promoting China’s domination by pursuing “green” technologies and an unworkable energy transition by adherence to the Paris Accord, even as China ignores them and continues to be the world’s biggest emitter of carbon dioxide, by far.

*This article was adapted from content originally published by the Institute for Energy Research.

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The Unregulated Podcast #178: Brian Visits!

April 19, 2024 by Leave a Comment

On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna check in on presidential polling, explain “how it all ends” for climate targets, and weigh in on the legality of Team Biden’s “Climate Emergency” potential proclamation.

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Biden Takes Another Swipe At Offshore Energy

April 19, 2024 by Leave a Comment

On April 15, Biden’s Interior Department’s Bureau of Ocean Energy Management (BOEM) finalized a new rule requiring federal offshore oil and natural gas leaseholders to provide an estimated $6.9 billion in additional financial assurances to cover offshore decommissioning costs. The goal of the financial assurances is to limit the number of abandoned wells in the Gulf of Mexico’s Outer Continental Shelf (OCS) and to address concerns related to aging OCS infrastructure, property transfers from large companies to smaller ones, and complex financial security arrangements within the industry. According to BOEM, to facilitate compliance, companies can opt to make the payments in installments distributed over three years. Interior holds about $3.5 billion in bonds from companies to cover a potential cost of $40-70 billion. BOEM estimated in its draft rule that the new supplemental bonding would bring its bonding levels to less than a quarter of what it would cost to decommission all the oil and gas infrastructure currently in U.S. oceans that it estimated at $42.8 billion.

The Government Accountability Office (GAO) found that Interior was not doing enough to protect taxpayers from the costs of plugging wells and decommissioning platforms if a company abandons the lease. In its February 20 report, GAO indicated that over 75 percent of end-of-lease and idle infrastructure in federal waters of the Gulf of Mexico—more than 2,700 oil and gas wells and 500 platforms—are overdue for decommissioning. According to GAO, decommissioning delays can indicate that companies are in financial trouble and may leave the government to pay for plugging the well.

The BOEM’s new rule establishes two metrics—the financial health of the company and reserve values—by which BOEM will assess the risk that a company poses. The rule streamlines the factors BOEM uses to determine the financial strength of a company by using a credit rating from a Nationally Recognized Statistical Rating Organization, or a proxy credit rating equivalent.

Under the new rule, BOEM will consider the current value of the remaining proved oil and gas reserves on the lease compared with the estimated cost of meeting decommissioning obligations. If a lease has significant reserves still available, the lease will likely be acquired by another operator who will assume the plugging and abandonment liabilities in the event of a bankruptcy of the previous owner. Companies without an investment-grade credit rating or sufficient proved reserves must provide supplemental financial assurance to comply with the new rule. The rule also clarifies that current grant holders and lessees must hold financial assurance to ensure compliance with lease obligations and cannot rely on the financial strength of prior owners.

Midsized oil and gas companies will likely be most affected by the changes. Large offshore producers are often the original drillers of wells and builders of platforms offshore, but they sell them to smaller companies when the flow of oil or gas declines. The larger firms see the supplemental bonds as helping shield them from having to pick up decommissioning costs during bankruptcies of smaller firms. Under current regulations, Interior can seek cleanup costs from former owners when current owners dissolve. The increased cost, however, could drive some midsized operators toward bankruptcy and exacerbate the risk of abandoned offshore wells. According to midsized operators, the offshore bonding market does not exist for BOEM’s level of anticipated demand for new insurance.

Some groups including those representing sport fishermen question whether dismantling offshore rigs makes any sense since the structures provide some of the finest aquatic habitat in the ocean, acting as artificial reefs that promote marine life.  Directing the habitat for fisheries and marine creatures be destroyed reduces the biodiversity the reefs provide.

Biden Continues to Support Offshore Wind

Earlier this month, the Interior Department announced its approval of the New England Wind offshore wind project – the nation’s eighth approval of a commercial-scale, offshore wind energy project under President Biden’s term in office. The Department of the Interior has now approved more than 10 gigawatts of offshore wind projects towards Biden’s goal of 30 gigawatts by 2030.

Offshore wind technology is not a panacea for Americans as it is very expensive—over 3 times as expensive as onshore wind and over twice as expensive as natural gas generation.  Since President Biden took office, residential electricity prices have increased by 27 percent—not as much as gasoline prices, but still a hefty amount for Americans dealing with inflationary increases in most goods and services. Gasoline and electricity prices are not only affected by inflation but also by Biden’s onerous regulations and anti-fossil fuel policies that are forcing retirements of existing coal, natural gas and nuclear generators. Their demise is impacting the reliability of the grid with brownouts and blackouts getting increasingly likely.

An interesting question is why this new rule did not include additional financial assurances for decommissioning offshore wind projects as their expected life is about 25 years. The Energy Policy Act does establish specific financial security requirements for OCS projects and requires the lessee to provide a surety bond or other form of financial assurance that covers offshore wind as well as offshore oil and gas activities. A $100,000 basic lease-specific bond, or another BOEM-approved financial assurance of the same value, is required upon issuance of the lease, and more bonds or BOEM-approved financial assurances are supposedly required throughout the project’s phases. But exactly how much have offshore wind projects provided in financial assurances now that two or three projects have been completed and are operating? Since these wind projects are operating in the Atlantic does the Energy Policy Act apply?

Conclusion

BOEM is forcing a new rule on offshore oil and gas production, requiring companies for an additional $6.9 billion in new financial assurances for well decommissioning. The new rule affects midsized operators the most as large oil and gas companies sell their wells to smaller companies when the flow of oil and gas diminishes. The timing of the rule is being criticized because it is weakening U.S. energy development at a time of global energy insecurity.

The Biden administration is pursuing misguided energy policies during a time of geopolitical unrest in the Middle East. Recently, Biden has raised royalties, rents and fees on oil and gas development on federal lands, proposed the removal of about half the land from the National Petroleum Reserve Alaska from oil and gas development, and cut over 3000 acres from an oil and gas lease sale in New Mexico to be held this June. As the November election is nearing, President Biden wants his constituents to know that he is continuing his anti-oil and gas policies that he promised on the campaign trail in 2020.

*This article was adapted from content originally published by the Institute for Energy Research.

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Biden Blocks American Mines Needed For Mandated “Energy Transition”

April 18, 2024 by Leave a Comment

The Biden administration is expected to block an agency of the State of Alaska’s application to build a 211-mile road through northwestern Alaska to reach an area long known for its mineral richness. The road-building project is proposed by the Alaska Industrial Development and Export Authority (AIDEA) and is needed to access major copper and zinc deposits needed for Biden’s “clean energy” transition, including transmission lines, wind turbines and photovoltaic cells. Biden’s failure to permit the road blocks access to over 600,000 acres of land owned by Alaska that is rich in copper, zinc, lead, silver and cobalt deposits. The proposed 211-mile-long Ambler Road was initially approved under the Trump administration, which issued a 50-year right-of-way permit to build the road just days before President Trump left office. AIDEA, the state’s economic development agency, argues that the action will break commitments made at statehood in 1959 by denying Alaskans access to their resources.

The Biden administration is expected to explain its decision that is based on presumed negative impact on tribal communities that claim that the project poses a threat to local wildlife and fisheries. The decision is due 90 days after the publication of the environmental impact statement to be released this week. The Biden administration has handed the environmentalist movement major victories in Alaska, including the cancellation of previously-awarded oil and gas lease sales, major restrictions on drilling activity in the Arctic National Wildlife Refuge and a proposal to remove lands from oil and development in the National Petroleum Reserve-Alaska.

Biden’s decision on the Ambler Access project, however, ignores the support of local communities for the project, denies jobs for Alaskans and critical revenues for a region where the young are being forced to leave because of a lack of opportunity. The project is backed by the state’s two Republican senators, Senators Lisa Murkowski and Dan Sullivan, as well as its congressional representative, Representative Mary Peltola (D). The decision is likely to be challenged by the state agency overseeing the project and its rejection will infuriate Alaska lawmakers who lobbied the administration to allow the road to be built.

Background

The Tanana Chiefs Conference, which represents 42 villages in interior Alaska, some of which are near the road, sued the Interior Department in 2020 over the Trump administration environmental analysis, arguing that it did not adequately address impacts to their way of life. Since the lawsuit was filed, however, three of the villages are now supporting the road because of its economic benefits. According to the Tanana Chiefs Conference, the road would cause harmful impacts along 125 miles and 200,000 acres of public lands managed by the State in trust for its people. The gravel access road would cross hundreds of rivers and streams, 26 miles of Gates of the Arctic National Park and Preserve, and the tribal lands of several Alaska Native communities. The area south of the Brooks Range—a patchwork of wetlands and densely forested wilderness—is one of the largest roadless areas in North America, but most of Alaska is roadless and in order to promote economic development roads are necessary.  With oil revenues declining, Alaska is looking for ways to generate jobs and opportunity for people in its far-flung reaches for whom there is little but government programs.

The environmental impact statement produced under the Trump administration was determined to be “flawed” by the Biden administration and was scheduled to be reworked. As the Interior Department pursued that course of action, the Alaska Industrial Development and Export Authority (AIEDA) was denied a right of way permit to continue with the project. Without the road, the copper and zinc assets in the Ambler Mining district in the northwestern part of the state remained effectively stranded. AIDEA has spent tens of millions of dollars on the Ambler Road project; it will be forced to file a legal challenge if the administration decides to reject the project or go back to the drawing board.

Ambler Metals, a joint venture between developers Trilogy Metals and South32, has been engaged in exploratory work in the region for several years and had requested the Interior department approve the road, spending $370,000 in the last two years. The Alaska Native corporation in the region, known as NANA Corporation, also owns some of the subsurface rights in the mining district and has a longstanding partnership with Ambler Metals to develop the deposit.  NANA has a history of mining projects, and operates the Red Dog Mine in Northwest Alaska, hiring and training local indigenous people who benefit from the mineral wealth on their own Native lands.  In Alaska, Native Corporations are chartered owners of their indigenous lands for the benefit of their people.

Conclusion

A right of way permit is needed for the Ambler Road project in northwestern Alaska to reach copper and zinc mines needed to produce critical minerals for Biden’s energy transition. However, the Biden administration is denying the permit as it believes that putting the road in Alaska will cause harm to tribal communities who are located near the road and who hunt and fish there. This decision will benefit China, who dominates the global supply chain and refining capacity for many of the key minerals necessary to build the “green” infrastructure pushed by the Biden administration. As the United States has no apparent strategy to ensure a stable domestic supply of these commodities, the Ambler Access Project would provide strategic infrastructure that can be safely built and boost Alaska’s economy, strengthening U.S. national security.

*This article was adapted from content originally published by the Institute for Energy Research.

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Rising Electricity Prices Creating Electoral Headache For Biden

April 17, 2024 by Leave a Comment

President Biden’s administration worries about gas prices reaching or exceeding $4 a gallon—a price where the electorate looks for an alternative to the incumbency in a Presidential election. Last time, gas prices were that high was before the 2022 mid-term elections when President Biden released billions of barrels of oil from the Strategic Petroleum Reserve, leaving it at its lowest level in 40 years. Since that alternative has largely been diminished with few barrels bought back to restock it, gas prices could again be a concern as they are escalating due to a number of factors including growth in global demand, geopolitical unrest and anti-oil policies by the Biden administration.

But electric rates may soon give the Biden administration another energy sector to worry about. Residential electricity prices have increased an average of 27 percent across the nation since President Biden has taken office due to his climate agenda, including increasing weather-driven wind and solar power on the grid and forced electrification of the transportation, heating and cooking industries through standards and regulations. So far, the percentage increase in electricity prices is about half the percentage increase in gasoline prices (52 percent) since Biden has taken office, but it is growing. EPA regulations are forcing existing coal and natural gas generators to retire and be replaced by heavily taxpayer-subsidized wind and solar units that require very expensive battery back-up. Biden also wants expensive offshore wind along the Atlantic, Pacific and Gulf coasts that will also escalate electric prices as offshore wind is over 3 times as expensive as onshore wind and more than double the cost of natural gas combined cycle technology.

Electricity prices may not have surfaced yet to be an election concern as they vary widely across the nation with blue states having the highest prices—states that are more in tune with Biden’s climate agenda. For instance, California has the third highest electricity prices in the nation at 29.11 cents per kilowatt hour—almost double the national average price. On a percentage basis, they have risen more than any other state due to the anti-fossil fuel policies in the state. In 2022, the California Public Utilities Commission unanimously approved a project to add more than 25 gigawatts of renewables and 15 gigawatts of batteries to the state’s electric grid by 2032 at an estimated cost of $49.3 billion. Also in 2022, the California Independent System Operator released a plan to upgrade the state’s transmission grid at a cost of some $30.5 billion. The combined cost of those two plans is about $80 billion and could be an underestimate with inflation under Biden continuing. The state’s biggest electricity provider, PG&E Corp., raised bills for residential customers 13 percent in January, and expects more increases may be coming this year.

Source: Grid Brief

Nationwide, residential electricity inflation is outpacing the wider consumer price index. Prices were up 3.6 percent in February from a year earlier, compared with declines for staples such as eggs and milk, according to the U.S. Bureau of Labor Statistics. More than three out of every four major metropolitan areas the Labor Department tracks in the continental United States saw power prices rise in the latest month of data—which voters may factor into their assessment of President Joe Biden’s performance when they head to the polls in November.

Source: Bloomberg

Behind the price increase are several massive expenditures that utilities are having to fund at the same time. Grids coast to coast were already undergoing a multibillion-dollar transition to replace fossil fuel plants with “green” technologies. Now grids also need to increase generation capacity to accommodate a surge in demand that the utilities themselves were not forecasting a year or two ago, fueled by artificial intelligence, data centers, federally subsidized manufacturing plants and Biden’s forced electrification program.

Electricity Demand Is Expected to Soar

Electric demand by 2028 is expected by some to be almost 5 percent more than 2023 consumption levels, nearly double the increase companies were expecting a year ago, surprising companies that saw 20 to 25 years of flat power demand. Funding that tremendous expansion on top of the transition to renewable energy, including burying power lines underground, fireproofing poles and replacing fossil fuel plants with solar panels and wind turbines, will ultimately be paid for by electricity ratepayers, who will be asked to foot the bill for new infrastructure.

Georgia Power recently increased 17-fold its winter power demand forecast by 2031, citing growth in new industries such as EV and battery factories. According to AEP Ohio, new data centers and Intel’s $20 billion planned chip plant will increase strain on the grid. PJM Interconnection, which operates the wholesale power market across 13 Midwest and Northeast states, this year doubled its 15-year annual forecast for demand growth. Its projected power demand in the region for 2029 has increased by about 10 gigawatts—about twice as much as New York City uses on a typical day.

Data centers—like manufacturing plants—require reliable power around the clock year-round, which wind and solar do not provide. Businesses cannot afford to wait for batteries to become cost-effective. Building transmission lines to connect distant renewables to the grid typically takes 10 to 12 years. For these reasons, China is building coal plants and is becoming the world’s dominate provider of the technologies needed for the West’s energy transition.

About 20 gigawatts of fossil-fuel power are scheduled to retire over the next two years, including a large natural-gas plant in Massachusetts that provides electricity during extreme cold when demand increases and renewables falter. PJM’s external market monitor recently warned that up to 30 percent of the region’s installed capacity is at risk of retiring by 2030. An onslaught of costly regulation is making the situation worse as a soon-to-be-finalized Environmental Protection Agency rule (the power plant rule) would require all coal plants and most new natural-gas plants to install expensive and unproven carbon capture technology or convert to hydrogen. New natural gas plants are needed to provide reliable power to back-up wind and solar and replace retiring coal plants.

The Inflation Reduction Act’s hefty renewable subsidies make it harder for fossil-fuel and nuclear plants to compete in wholesale power markets as they can offset up to 50 percent of the cost of solar and wind power. Baseload coal, gas and nuclear plants cannot turn a profit operating only when needed to back up renewables, so they are closing. The United States has already seen the ramifications in Texas’s week-long power outage in February 2021 and the eastern U.S.’s rolling blackouts during Christmas 2022. Biden’s energy transition, forced electrification, and onerous regulations will result in huge electricity prices and an unreliable grid.

Conclusion

Electricity prices are escalating and electricity demand is soaring due to the addition of data centers, AI, heavily subsidized manufacturing, and Biden’s forced electrification and energy transition to wind and solar power. Along with the higher prices, Americans will also face an unreliable grid as onerous regulations are keeping reliable and affordable baseload power from being built to replace forced retirements of existing fossil fuel plants. Electric prices may become the new gas prices when it comes to American elections if Biden’s anti-fossil fuel policies continue and Americans begin to pay more for less reliable electricity.

*This article was adapted from content originally published by the Institute for Energy Research.

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Biden Axes Auctions For Oil & Gas Development

April 16, 2024 by Leave a Comment

The Biden administration has been active over the past month in producing policies to put future domestic oil and gas production on public lands in jeopardy. Specifically, he has proposed removal of 13 million acres from the National Petroleum Reserve—Alaska, finalized policies that increase the cost of producing oil and gas on federal land, and cut the amount of land to be leased for oil and gas development in a New Mexico auction by over 3000 acres. These are on top of holding the fewest OCS sales in the history of the program and leasing fewer acres than any President since WWII. These actions harm national security, reduce jobs, and raise prices for oil and gasoline for American consumers. With global oil demand increasing, global oil production slowing, and geopolitical tensions high, it is a dangerously vulnerable time to put further restrictions on domestic oil and gas production, but Biden is working to gain votes from people unfamiliar with energy facts for this November and doing what he can to demonstrate he is serious about his campaign pledge to end oil and gas production.

Biden Blocks Oil Development in the National Petroleum Reserve—Alaska

The Biden administration is preparing to finalize a rule to restrict future oil and natural gas development across approximately 13 million acres of the National Petroleum Reserve-Alaska and increase requirements for future drilling in the rest of the reserve. The U.S. government set aside 23 million acres of Alaska’s North Slope to serve as an emergency oil supply a century ago, but Biden wants to block production on half of it, most likely to gain the votes of environmentalists during an election year. According to Biden’s Interior Department, the rule would not affect existing leases, so it would not affect ConocoPhillips’s 600-million-barrel Willow oil project in the reserve. But oil companies and Alaska lawmakers believe the regulation could hamper investment and infrastructure development. There have been mammoth discoveries in the reserve, which means decades of potential production needed to sustain the Trans-Alaska Pipeline. As such, Biden’s actions would harm America’s energy security, defy federal law, and ignore rising energy prices and growing global volatility.

Source: BNN Bloomberg

The proposed regulation would limit future oil development in around 13 million acres or 20,000 square miles of designated “special areas” within the reserve, including territory currently under lease. There would be an outright prohibition on new leasing in 10.6 million acres. Biden’s proposal would create a formal program for expanding protected areas at least once every five years and make it difficult to undo those designations. It would also raise the bar for future development elsewhere in the reserve.

While the Interior Department said the regulation would not affect existing leases, the proposed rule text does not explicitly offer that assurance. Instead, it gives the government broad authority to limit or bar access to existing leases, “regardless of any existing authorization.” Oil leasing and infrastructure development would be presumed not to be permitted unless specific information clearly demonstrates the work can be done with “no or minimal adverse effects” on the habitat.

According to the Interior Department, the proposal would not have a significant effect on the nation’s current energy supply as it takes years to develop a new drilling site. But the reserve would be a notable source of future fuel, holding an estimated 8.7 billion barrels of recoverable oil, according to the U.S. Geological Survey. New discoveries have been made in the Nanushuk field, and the state of Alaska expects oil production from the reserve to increase from 15,800 barrels per day in fiscal 2023 to 139,600 barrels per day in fiscal 2033—almost 9 times more.

According to the Biden Administration, the proposal is necessary to balance oil development with the protection of sensitive landscapes that provide habitat for polar bears, migratory birds and the 61,500-strong Teshekpuk caribou herd. Biden’s proposal would shift the role of the reserve to conservation instead of oil development, which is contrary to congressional intent as the current statute indicates that the primary purpose of the reserve is to increase domestic oil supply as expeditiously as possible.

ConocoPhillips, which has 156 leases in the reserve, warned the regulation would violate its contracts and “drive investment away from the NPR-A.” Santos Ltd., which leases more than a million acres within the reserve and is developing the nearby Pikka Unit joint venture with Repsol SA, indicated that the proposal would infringe on its holdings, with impacts “as extensive as whole projects being denied.” And Armstrong Oil & Gas Inc., whose leases in the reserve span 1.1 million gross acres, said the measure could block it from building the infrastructure needed to access those tracts. The proposed rule would effectively nationalize the company’s leases, the company told the White House.

Biden Finalizes Reforms Against Oil and Gas Drilling on Public Lands

On April 12, the Biden administration finalized a range of changes to government policies pertaining to oil and gas drilling on public lands and the returns the government receives from oil and gas companies pursuing that development, incorporating provisions contained in Biden’s 2022 Inflation Reduction Act (IRA). The rule also incorporates provisions in the 2021 infrastructure law and recommendations from an Interior Department report on oil and gas leasing issued in 2021 that recommended an overhaul of the oil and gas program to limit areas available for energy development and raise costs for oil and gas companies to drill on public lands and waters. The report came after the Department of Interior issued Secretarial Order 3398, which among other things, repealed “American Energy Independence” as a goal of the Department.

Under the new policy, oil and gas companies will pay higher bonding rates to cover the cost of plugging abandoned oil and gas wells, as well as increased lease rents, minimum auction bids and royalty rates for the fuels they extract. The rules also limit drilling in certain wildlife and cultural areas. Higher costs to extract fuels from federal lands are likely to raise oil prices for consumers and increase U.S. reliance on foreign supplies at a time when global supplies are tight, global oil demand is rising and geopolitical factors are volatile. About 10 percent of the nation’s oil and gas comes from drilling on federally owned land.

Minimum lease bonds will increase to $150,000 under the new rules from $10,000—a factor of 15. Drillers are required to pay upfront bonds to cover future cleanups should they fail. Royalty rates will increase by a third to 16.67 percent from 12.5 percent, and the minimum amount companies can bid at oil and gas auctions will increase to $10 an acre from $2—a factor increase of 5. The rental rate for a 10-year lease will double to $3 an acre for the first two years, eventually rising to $15 per acre in the final years. The fees can be adjusted for inflation after 10 years.

The new royalty rate codified by the IRA is expected to remain in place until August 2032, after which it can be increased. The new rate would increase costs for oil and gas companies by an estimated $1.8 billion over that period, according to the Interior Department.

Unfortunately, the rule changes will result in less drilling, fewer jobs and more dependence on oil from the Middle East at a time when oil markets are extremely tight. As energy demand continues to grow, oil and natural gas development on federal lands is needed for maintaining energy security and powering the U.S. economy. Overly burdensome land management regulations will put oil and gas supply at risk when no alternative exists, despite Biden’s energy transition plans, which are not working to the extent needed to put an end to oil and gas consumption that is continuing to rise around the world.  Biden threatened to end oil and natural gas production on federal lands during his last campaign and he is demonstrating to his constituents that he will continue to make it economically impossible to produce energy on federal lands, in hopes of gaining votes in November.

Interior Cuts Federal Land for Lease in New Mexico Auction Sale

Federal officials cut a proposed public land auction for the oil and gas industry by over 3,000 acres in southeast New Mexico. The Bureau of Land Management (BLM) initially proposed to lease 18 parcels in New Mexico but removed seven, cutting the sale by 3,152 acres. BLM proposed leasing four parcels of land in Eddy, five parcels in Lea and two in Chaves counties in the southeast Permian Basin region, combining the New Mexico sale with eight parcels of land in Kansas. The sale offered 760 acres in Eddy County, 480 in Lea County and 359 acres in Chaves County for a total of 1599 acres.

The decision was made in response to an instructional memorandum issued by the Department of the Interior in November 2022 which stipulated new guidelines for evaluating lands nominated by the oil and gas companies for lease. Criteria included the lands’ proximity to existing oil and gas operations, giving preference to those that expanded ongoing operations. The Agency also sought preference for lands that would not impact fish and wildlife habitats, cultural resources, or outdoor recreation. The reduction was also in response to several public comments the BLM received on the nominated parcels, calling for leases to be deferred if they did not appear likely to produce oil and gas, could impact wildlife and cultural resources or contribute to greenhouse gas emissions. The smaller lease sale is to be conducted on June 13, 2024.

Conclusion

The Biden administration has undertaken several proposed and finalized policies over the past month to make it more difficult to produce oil and gas in the United States, despite U.S. needs and the needs of our allies. Despite the U.S. government setting aside 23 million acres of Alaska’s North Slope to serve as an emergency oil supply a century ago, the Biden administration is ignoring the intent of Congress by moving to block oil and gas development across more than half of it. President Biden has also finalized rules to increase the cost of producing oil and gas on public lands, which will likely increase the price of oil and gasoline for American consumers. His Interior Department has also cut over 3000 acres from a lease sale in New Mexico. These actions will hurt national security, reduce jobs, increase costs for consumers, tighten an already tight oil market with a volatile Middle East, and drive investment offshore, where Biden is ignoring sanctions against Iranian and Venezuelan oil production. Biden is looking for votes this November and he is continuing his anti-oil and gas policies to gain that support.

*This article was adapted from content originally published by the Institute for Energy Research.

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