Biden’s Energy Policies The Focus Of New Report From Sproule

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A new report by Sproule that takes an initial look at United States’ president-elect Joe Biden’s potential energy policies says that from a Canadian perspective his administration’s handling of the Keystone XL pipeline will be front and centre in the coming months.

The report, produced in collaboration with Boost Energy Ventures and called President-Elect Biden and the Clean Energy Revolution, highlights several key initiatives underpinning Biden’s energy platform and aims to provide insight into his plans’ feasibility and potential implications.

“We tried to look at what the Biden administration has come out and said their focus is going to be in terms of energy policy,” said Liam O’Brien, Sproule’s senior associate, strategic advisory and one of the authors of the report.

In the report, the firm noted that a Biden presidency could put long-term Canadian and Williston Basin excess pipeline capacity “at risk” but that the impact of cancelling Keystone XL for Canadian producers is “likely minimal” in the near-term from an excess pipeline capacity perspective.

“From a Canadian point of view, Keystone XL has obviously been in the forefront of a lot of peoples’ minds in terms of what the impact will be of a Biden administration, especially considering he has already come out in opposition to the project,” O’Brien said,

“And vice-president elect Kamala Harris has been vocal in her opposition on both Keystone and Dakota Access.”

However, the report suggests that with Enbridge Inc.’s Line 3 and TMX set to add almost one million bbls/d of new egress leaving Western Canada and limited green and brownfield oilsands projects in the hopper, Western Canadian production “should remain at or below” pipeline capacity over the near-term.

“Our report highlights that from an egress perspective, Canada is in a much more optimistic position than we were say two or three years ago in terms of actually achieving excess pipeline capacity leaving Western Canada, especially with the most recent approval of Line 3 that came a few weeks ago,” O’Brien said.

“And then with Trans Mountain, which is under construction and still on track for a late-2022 commissioning, that’s another positive.”

With the addition of the two lines and about one million bbls/d of extra takeaway capacity, combined with the “relatively flat” growth trajectory for Western Canadian output over the next five years, O’Brien said operators are currently in a “much better situation” than they were a few short years ago when there was very limited line of site on excess pipeline capacity, if any at all.

But that’s not to say that Keystone XL wouldn’t be welcomed by western Canadian producers.

“Keystone is obviously still going to be hugely beneficial to the industry in that if it does go through it presents room for growth and all the benefits that come with that,” O’Brien said.

O’Brien said that from a political perspective, with Republicans retaining their Senate majority and gaining seats in the House of Representatives, implementing “contentious campaign promises” like cancelling the Keystone XL project will prove challenging for Biden.

“Adding to this, with COVID-19 causing widespread job losses, cancelling a project that is set to provide over 8,000 union jobs is unlikely to sit well with the traditionally Democratic U.S. trade unions,” he said.

“In our view, now that Biden has secured the election victory, it’s possible he softens his stance on Keystone XL in favour of more attainable and appeasing campaign promises.”

Excess pipeline capacity for Williston Basin producers, on the other hand, hinges on the Dakota Access pipeline (DAPL). Without DAPL, the report noted that producers would be forced to utilize more expensive rail options to move crude out of North Dakota to downstream demand centers.

“In a region that already sees pricing discounts due to its distance away from key refining hubs, this added transportation cost could negatively impact well economics and subsequently limit production growth potential of the basin,” the report said.

Currently, DAPL is operating near capacity while undergoing a revised environmental impact and permitting process. As of Q3 2020, Energy Transfer (owner of DAPL), announced plans to expand DAPL by up to an additional 500,000 bbls/d by the end of 2021.

At this point, according to the report, it “seems unlikely that the expansion will receive approval” and there is “uncertainty around” whether the existing DAPL system will be allowed to continue operating during and/or after the environmental review.

The report also points out that Biden has been clear that no new drilling leases will be granted on federal lands under his administration.

“One of Biden’s climate plan objectives is ‘…banning new oil and gas permitting on public lands and waters…’. It is unclear whether this means eliminating the permitting of new leases only or if the plan also includes banning any future drilling on existing leases,” the report states.

“Regardless, it will be important to understand the magnitude of development attributable to federal lands and any related implications.”

Decarbonization is feasible; net-zero is uncertain

Sproule looked at the current cost competitiveness of renewables, and the feasibility of decarbonizing the U.S. power sector.

For example, an 80-90 per cent clean power grid by 2035 is likely to be both technically feasible with existing technologies and potentially quite cost-effective. However, according to the report, a 100 per cent net-zero grid, as proposed in Biden’s plan, will “require significant technological improvements” to meet electricity needs economically while preserving grid reliability.

Those technologies would have to include storage, CCUS, hydrogen and/or nuclear, significant grid system upgrades, and significant additional policy mechanisms.

“Nevertheless, it seems very likely that a significant amount of current U.S. natural gas demand from the power sector will be displaced towards the end of the 2020s and into the 2030s,” the report said.

Deep decarbonization of the residential and commercial segments, however, will likely also require large-scale deployment of electric heat pumps and boilers, geothermal heating and/or hydrogen-based heating, a roll-out which is not addressed explicitly in Biden’s plans.

“Furthermore, decarbonizing the industrial segment would likely require both mass electrification and conversion of coal- and gas-fired industrial heating to some clean alternative [like hydrogen],” Sproule said in its report.

“Reducing fossil fuel use in the industrial sector, which alone makes up 33 per cent of U.S. gas consumption, is therefore contingent on R&D success in alternatives like hydrogen leading to an organic, market-driven transition from fossil fuels.”