On The Hill

 

On Friday (Mar. 27), International Energy Agency Director Fatih Birol said oil demand could drop as much as 20 percent this year. A drop in demand could extend the pain caused by reduced crude prices, which are at 20-year lows due to the COVID-19 pandemic and the Russian-Saudi price war.

 

“Oil demand is in a free fall,” Birol said on a webcast for the Atlantic Council. “Today, its 100 (million barrels), but 60% is used for transportation and three billion people are locked down. As a result, we may well see sometime this year demand to fall down about 20 million barrels per day.”^[1]

 

Saudi Arabia’s boost in production has flooded the market, driving down prices globally. Russia has made it clear their objective is to “wipe out shale.” Saudi King Salman spoke on Thursday about the COVID-19 outbreak, but did not mention or address the looming energy issues.

 

The U.S. shale industry’s growth the past decade has strained Saudi Arabia’s power to influence global prices. The aggressive moves by Saudi Arabia shows they have lost patience with competitors, and aim to push outside producers out of the market.

 

Republican lawmakers are urging the Trump administration to push Saudi Arabia to end the oil price war. Half a dozen lawmakers called on Secretary of State Mike Pompeo to increase pressure on Riyadh to end the “warfare” on American companies. Companies across the United States are cutting workings idling drilling rigs.^[2] Secretary of Energy Dan Brouillette floated the idea of trying to convince Saudi Arabia to drop out of OPEC, but experts have warned none of the proposed ideas seem realistic.

 

According to a report by Rystad Energy, more than a million jobs in the oilfield service industry are likely to be cut in 2020.^[3]

 

 

 

On Thursday (Mar. 26), the Environmental Protection Agency (EPA) issued a temporary policy that will allow industries including oil, gas, and chemical companies to delay some regulatory compliance due to the COVID-19 pandemic. Industry groups requested the policy shift because of the difficulties surrounding reporting, training, and monitoring requirements for workers following “social distancing” recommendations.

 

EPA Administrator Andrew Wheeler said the discretion is to ease administration requirements rather than pollution rules. “If there is an acute risk or imminent threat, we will still enforce,” Wheeler said.^[4] 

 

The memo is broadly written and does not make specific enforcement promises. EPA has only eased specific enforcement requirements (related to coronavirus) for 11 pharmaceutical facilities in Puerto Rico. These facilities are still powered by generators because of the island’s damaged electrical grid. Public water system operators were singled out in the memo to continue normal operations, maintenance, and required sampling to ensure the safety of drinking water.

 

EPA is also considering letting oil refiners sell winter-blend gasoline later in the year due to reduced demand.

 

To view the full memo on EPA’s Enforcement and Compliance Program, click here.

 

Additionally, the Trump administration is expected to release its rollback of vehicle fuel economy targets on Tuesday (Mar. 31) morning. The proposal by EPA and the National Highway Traffic Safety Administration will replace the Obama administration’s safety and tailpipe emissions standards for vehicles.^[5]

 

 

 

On Friday (Mar. 27), the House passed by voice vote H.R. 748, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act). The $2 trillion package is the biggest economic stimulus in American history as an intervention to save the economy.

 

The measure includes expanded worker protections, $500 billion to help U.S. industries, and direct checks to Americans. Included in the legislation: $100 billion for hospitals, $58 billion for airlines, and $150 billion for local governments.^[6]

 

To view a section-by-section summary, click here.

 

Lawmakers are now looking to the next coronavirus package. Senate Majority Leader Mitch McConnell (R-KY) said he wants the next bill to be a cash infusion to agencies, but House Speaker Nancy Pelosi (D-CA) said she “wants more,” and wants to shift from “emergency mitigation to recovery” by focusing on ways to create more jobs. House Minority Leader Kevin McCarthy (R-CA) cautioned against rushing into talks of another stimulus.

 

Two competing proposals were floated this week. The first focused on spending $3 billion to purchase oil for the SPR, and another from Pelosi with green elements and tax credits. Neither made it into the final deal.^[7]

 

Energy issues will resurface in the next round of stimulus talks. Industries will likely look to the fourth package for targeted relief left out of the third bill.

 

 

 

^[1] Dillon, Jeremy & Clark, Lesley. “‘Oil demand is in a free fall’ – IEA Chief” E&E News, 27 Mar. 2020.

 

^[2] Lefebvre, Ben. “‘Good luck with that’: US confronts Saudi oil market war.” Politico Pro, 27 Mar. 2020. https://subscriber.politicopro.com/article/2020/03/good-luck-with-that-us-confronts-saudi-oil-market-war-1902624

 

^[3] “Above a million OFS jobs will likely be cut in 2020 as COVID-19 and low oil price take toll.” Rystad Energy, 25 Mar. 2020. https://www.rystadenergy.com/newsevents/news/press-releases/above-a-million-ofs-jobs-will-likely-be-cut-in-2020-as-covid-19-and-low-oil-price-take-toll/

 

^[4] Guillen, Alex. “EPA eases enforcement over virus.” Politico Pro, 26 Mar. 2020. https://subscriber.politicopro.com/article/2020/03/epa-eases-enforcement-over-virus-1903335

 

^[5] Joselow, Maxine. “Final rollback expected next week.” Greenwire, 27 Mar. 2020. https://www.eenews.net/greenwire/2020/03/27/stories/1062716561

 

^[6] Emma, Caitlin & Scholtes, Jennifer. “”Here’s what’s in the $2 trillion stimulus package-and what’s next.” Politico, 26 Mar. 2020. https://www.politico.com/news/2020/03/25/whats-in-stimulus-package-coronavirus-149282

 

^[7] Dillon, Jeremy; Lunney, Kellie; & Sobczyk, Nick. “Energy, enviro interests regroup for next coronavirus bill.” E&E Daily, 26 Mar. 2020. https://www.eenews.net/eedaily/stories/1062702615/search?keyword=SPR