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Monday, June 27, AEA president Tom Pyle joined Stuart Varney on Fox Business to discuss the Biden administration’s refusal to embrace energy realism. Watch the video below to see Tom call out Biden for chasing the “green dream” even while scaring away investments in reliable, affordable sources of energy.
Follow Tom on Twitter for his latest on America’s energy policy.
President Biden is grasping at straws to reduce gasoline prices because he refuses to let the American people have access to oil and gas on their lands or modify regulations to encourage new refineries to be built. Instead, he has asked Congress to pass a gasoline tax holiday lifting the 18.4 cent federal tax on a gallon of gasoline and the 24.4 cent tax on a gallon of diesel through the end of September, which he hopes will make Americans vote for his favored people this November. Biden also demanded that companies pass on the benefits of the tax holiday to consumers, and asked states to suspend their gasoline taxes. The administration estimates that if states also suspend their gasoline taxes and oil companies step up refining, gasoline prices could fall by at least $1 a gallon. But because the federal gasoline tax makes up less than 4 percent of the total cost of gasoline per gallon, consumers probably will not see the federal tax change as significant, which is why he needs states to join in and is demanding refineries produce more.
It is unclear what refineries can do to help out President Biden. Because of Biden’s policies, onerous regulation and the realities of investment decisions when the government is saying they will end your business, the United States lost about 1 million barrels per day of refining capacity since the COVID pandemic began. Refineries are also converting to biofuel facilities where government policies and regulation encourage the improvement of their revenues through subsidies and mandates. The remaining operating petroleum refineries, which the Energy Information Administration indicates have a capacity of 17.94 million barrels per day, are producing at record rates of over 90 percent, supplying Americans with gasoline, diesel and jet fuel, among other petroleum products.
There is a small amount of idled refinery capacity, 0.4 million barrels per day, that Biden wants to have operable, but he has not provided any reason for the industry to bring those facilities back online. Rather, he has indicated that he wants to do away with fossil fuels, which makes companies reluctant to invest. The supply situation is so dire, refineries in India are raking in profits by buying oil at a discount from Russia and selling finished petroleum products to Western countries, including the United States. India and China have both added refineries in recent years to meet growing demand, while the United States was shuttering capacity.
Congress has never lifted the gasoline or diesel tax, which supply the majority of the Highway Trust Fund—federal funding used to build and maintain highways—which in 2019 totaled $36.5 billion. For more than a decade, those revenues have fallen short of federal spending on highways and other public works, prompting transfers from the Treasury’s general fund to the trust fund to make up the difference. Despite the fact that outlays of the fund have exceeded dedicated revenues in recent years, Congress has not increased the federal gasoline tax since 1993. Biden’s request to suspend the fuel tax for three months will cost the Highway Trust Fund roughly $10 billion in forgone revenue that must come from someplace else.
State Experience
Some states, such as New York, Connecticut, and Georgia have already suspended state fuel taxes, and other states are also considering consumer rebates and direct relief. Maryland suspended its state tax of 36.1 cents per gallon on gasoline and 36.85 cents per gallon on diesel from March 18 to April 16, 2022. Georgia lifted its state fuel taxes for 10 weeks from March 18 until May 31, consisting of a tax of 29.1 cents per gallon on gasoline and a tax of 32.6 cents per gallon on diesel. Connecticut suspended its state tax on gasoline of 25 cents per gallon from April 1 to June 30. In each case, the tax holidays were relatively short, and the state taxes were higher than the federal gas tax of 18.4 percent.
Recent research at the University of Pennsylvania looked at the experience of the three states. The researchers found that the suspensions of state gasoline taxes in the three states were mostly passed onto consumers in the form of lower gasoline prices, but that the reduced-price levels were not sustained during the entire tax holiday. In Maryland, 72 percent of tax savings were passed onto consumers, in Georgia, 58 percent to 65 percent of the tax savings were passed onto consumers, and in Connecticut, 71 percent to 87 percent of the tax savings were passed onto consumers. However, as the market adjusted over time, the consumer benefit faded as can be seen in the graph below.
Gasoline Prices In Maryland, Georgia, Connecticut And The Rest Of The Country
Conclusion
Gasoline prices will decline if the demand falls, as it did during the COVID pandemic or if supply increases as it did when U.S. oil companies used hydraulic fracturing to produce oil from shale deposits. A gas tax holiday does not decrease demand nor raise supply because it is designed to be temporary. Further, not all the tax decrease ends up in the pockets of the consumer. And, as one can see from the above graph the prices in Maryland and Connecticut ended up slightly higher than the average of the other states after the tax holiday ended. (Georgia’s tax holiday did not end until the end of May.)
President Biden refuses to do what is necessary to truly lower gasoline and diesel prices because he has stated repeatedly he wants to put an end to fossil fuels. Companies will not invest under that environment because it makes no economic sense. Americans need and want fossil fuels to live a comfortable life. Biden’s policies will only result in economic damage and a lower living standard for Americans. The country does not need band-aids; it needs policies and regulations that encourage companies to make investments that benefit Americans. So far, President Biden has been taking actions to drive up the price of gasoline while talking about reducing them, as in the case of the suspension of the gas tax.
*This article was adapted from content originally published by the Institute for Energy Research.
On this episode of The Unregulated Podcast, Tom Pyle and Mike McKenna discuss the prospects of Congress passing a reconciliation bill, Biden getting his “gas tax holiday,” SCOTUS rulings, and an update on the Ukrainian conflict.
Links:
Americans need real regulatory reform, not empty gestures.
WASHINGTON DC (06/22/2022) – Earlier today, President Joe Biden called for temporarily suspending the federal gasoline tax, asking lawmakers to pass a three-month pause on the federal 18-percent-per-gallon tax.
This continues his administration’s routine of offering empty gestures to Americans who are struggling with record-high energy prices. Since President Biden took office, his administration and Congressional Democrats have taken over 100 actions deliberately designed to make it harder to produce energy here at home. Thirty-two of these anti-energy proclamations were enacted after the Russian invasion of Ukraine, which Biden regularly touts as the reason for rising gas prices.
AEA President Thomas Pyle issued the following statement:
“President Biden is once again grasping at straws to make Americans believe that he is doing all he can to lower gasoline prices. The reality is the Biden climate agenda calls for higher energy prices and this Administration has done everything in its power to make energy more expensive for American families.
Instead of proposing what even President Obama called a gimmick, Congress should take substantive steps to reverse Biden’s assault on affordable and reliable energy from oil and natural gas. Clearly, the President doesn’t care about the struggles of American families. If the Democrats on the Hill still do, as they claim, they can do something that’s actually meaningful instead of playing along with Biden’s charade.”
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Over a dozen battery storage projects that were meant to support intermittent renewable energy supplies have been postponed, canceled or renegotiated due to labor and transport bottlenecks, soaring minerals prices, and competition from the electric vehicle industry. The delays, ranging from several months to a year, are in a number of states including California, Hawaii and Georgia, with battery providers Tesla and Fluence warning of disruptions to supply. The battery projects are needed to capture excess generation from solar and wind power to be used when there is no generation from these sources, that is when the wind does not blow and the sun is not shining, which occurs every evening. Frequently, electricity demand is highest when the sun goes down and people return home from work. Battery projects are expensive and not included in the cost of solar and wind power when determining what technologies should be built, i.e., in the “levelized cost” projections often used to estimate relative costs of generation sources. As a result, consumers are seeing and will continue to see higher electricity prices.
Battery storage makes up about 3 percent of U.S. electrical capacity. Installations increased 170 percent in the first quarter of 2022, totaling 758 megawatts. But the pace is slowing below forecasted amounts. According to Energy research firm Wood Mackenzie, its current forecast for battery storage installations of 5.9 gigawatts for 2022 may be revised down because of market disruptions and because 2021 installations came in at about two-thirds of what the company had expected.
Battery Prices
Prices for lithium-ion batteries, three-quarters of which are produced in China, have increased as much as 20 percent since last year due to rising lithium and nickel costs, disruptions to manufacturing from COVID lockdowns, and slow shipments from transport constraints. According to Bloomberg, the cost of metal necessary to make batteries increased by 280 percent last year. In the first quarter 2022, the prices of many metals more than doubled. Prices for lithium alone have increased 438 percent this year, according to Fortune. The United States has one active lithium mine in Nevada and it produces less than 2 percent of the global lithium supply. The United States has about 4 percent of the world’s lithium reserves.
New lithium mines in the United States are being held up by the Biden administration or by legal challenges. The Thacker Pass Lithium Mine in Nevada could produce a quarter of today’s global lithium demand but is being held up by a lawsuit. Ioneer Ltd.’s lithium mine also in Nevada could supply 22,000 metric tons of lithium annually (enough for about 400,000 electric cars), but is being held captive by environmentalists, who claim the mine threatens Tiehm’s buckwheat, a rare flowering plant, which the Biden administration has listed as endangered. The company still needs to obtain permits for the mine. In normal circumstances, the process of getting a mine to first production can take 7 to 10 years, but recalcitrant federal bureaucracies can extend that timeline, as has been the case for other mineral mines in the United States under the Biden administration.
Competition from Electric Vehicle Market
Battery manufacturers are favoring the EV market because their orders are more predictable compared to the much larger project-specific orders from power storage developers. Tesla Chief Executive Elon Musk acknowledged earlier this year that the company had prioritized EV battery supplies over stationary storage. Fluence issued force majeure notices on three contracts because its battery suppliers in China were not able to fulfill their obligations. It also raised prices on new contracts by 15 to 25 percent and would price future contracts based on raw material indices to guard against volatility.
Solar Projects Being Built with Associated Storage Projects
Storage projects are being constructed alongside solar farms, allowing the storage facilities to claim a federal tax credit that does not exist for standalone batteries. But, the ongoing investigation by the Commerce Department regarding China using other Southeast Asian countries to avoid tariffs has resulted in fewer solar projects than expected because of the uncertainty over potential tariffs on Asian imports. President Biden recently waived the tariffs for two years on panels from countries impacted by the Commerce Department investigation, which should encourage more solar construction with panels from Asia, and thus more storage facilities.
Storage Projects
There are supposedly about 14.7 gigawatts of battery storage in development, some of which state authorities had hoped would be in place to prevent blackouts this summer. According to Governor Gavin Newsom, California had been counting on new battery storage projects, many of which were procured following rolling blackouts in August 2020, to shore up summer reliability. Among recent delays is 535-megawatts of storage Ameresco Inc. is developing for Southern California Edison. The company expects only a portion of the project—about 300 megawatts—to be online by its August target.
Central Coast Community Energy (CCCE), which has 430,000 customers in five California counties, is also facing delays of six projects, including 122 megawatts of storage, needed to meet state-mandated requirements for “clean” energy. The projects, originally meant to come online this year and next, are experiencing delays of between six and 12 months. CCCE and Silicon Valley Clean Energy Authority, its partner in several projects, sued developer EDF Renewables over its termination of contracts for the Big Beau solar and storage project that started generating power last year. EDF in March asked to increase the price for the project’s energy storage component by $76.8 million—a 233 percent increase.
In Hawaii, utility Hawaiian Electric is seeing delays in solar and storage projects that are to replace the state’s only coal-fired power plant, which is supposed to retire in September. The developer of four projects, Canada’s Innergex Renewable Energy, is seeking to renegotiate the terms of the deals – including price and timing – after receiving force majeure notices from its battery supplier, Tesla, which as mentioned above, is concentrating on EV batteries. Hawaiian Electric expects just 39 megawatts of the 378.5 megawatts of solar and storage it procured to be in service prior to the coal plant retiring.
According to the International Energy Agency IEA), battery storage needs to reach 585 gigawatts by 2030 to decarbonize the global power sector—a 35-fold increase from 2020. With supply chains as they are, lockdowns continuing over COVID in China, the huge price increases in critical metals and competition from electric vehicles for batteries, it is unlikely that IEA’s battery storage number will be achieved.
Conclusion
It seems unlikely that President Biden’s decarbonization of the electric sector will happen by 2035 since it is unlikely that the battery storage needed to support wind and solar power can be accomplished by then. With competing priorities, i.e., governments wanting 50 percent of cars sold in 2030 to be electric, it is putting a great deal of strain on available resources, particularly when obstacles are put in front of mine development in the United States. Many forecasters have predicted a metal shortage as companies are pursuing electric vehicles to meet Biden’s goal and the goals of European countries. Battery storage to back-up intermittent solar and wind power seems almost an afterthought, except to places like California where residents are used to rolling blackouts and increasingly high energy prices, so storage batteries are just another cost added to the state’s attempts at reliability combined with their focus on wind and solar.
*This article was adapted from content originally published by the Institute for Energy Research.
Many leading Democrats in Congress, including Rep. Rho Khanna, ran for office promising to end domestic production of natural gas, oil, & coal. Back in October of last year, he praised oil companies for decreasing oil production in Europe and asked if they were embarrassed because they were increasing production in the United States.
Now Rep. Rho Khanna is singing a different tune and wants to make sure everyone knows that he now wants to distinguish between the long-term and the short-term. In an interview on CNBC, Rep. Khanna said “Of course, we need short-term production to go up.”
Watch the interview here:
China is surpassing the United States this year as the world’s largest refiner as government climate goals and regulation cause U.S. refiners to close facilities. China is expected to have 18.81 million barrels per day of refining capacity while the United States has 17.7 million barrels per day of operating refinery capacity and about 0.4 million barrels per day of idled capacity. While additional refinery closures are expected in the United States, China is expected to add capacity, capping the country’s primary refining capacity at 20 million barrels per day by 2025 and boosting utilization rates of its refining facilities to above 80 percent. Refining is the manufacturing of petroleum products from raw materials, producing gasoline, diesel and aviation fuel that Americans need and adding value, wealth and jobs via the processing.
Due to growing domestic demand, U.S. operating refineries are running all out with utilization rates averaging above 90 percent. But refined stockpiles are low, indicating a shortage that could result in rationing, particularly for diesel fuel on the East Coast. President Biden recently wrote a letter to energy executives, acknowledging a global refining capacity shortage, and asking for their help. He directed industry, “to work with my aAdministration to bring forward concrete, near-term solutions that address the crisis.” According to Biden, about 3.0 million barrels per day of global refining capacity has shuttered since the beginning of the COVID pandemic, 801,000 barrels per day in the United States.
In late May, Biden searched for spare refining capacity, but apparently found little to none. In his letter, he told refiners that “unprecedented” profit margins are unacceptable and called for “immediate action” to improve capacity as the price of gasoline keeps increasing, feeding record inflation and fears of a recession. Biden called on companies to provide an explanation of why they have cut capacity and what could be done to address gas prices that average more than $5 per gallon nationwide. Apparently, oil and gas companies and their investors have listened to policymakers’ calls for less investment in fossil fuels and have heeded those calls. For example, Shell operated 54 oil refineries in 2004, but cut the figure to 8 refineries to reduce the company’s climate footprint. By 2025, the company plans to operate 5 refineries.
While there is almost no ability for the U.S. refining industry to grow capacity domestically, significant spare capacity exists in China and Russia. As western energy companies cut capacity to meet politicians’ promised climate goals, China expanded its capacity as noted above. In 2016, China allowed independent oil refineries to export oil products for the first time, and the government was happy to meet the world’s demand for gasoline and diesel. But, in mid-2021, China cut petroleum product exports by more than half. Despite margins increasing and domestic demand falling as China is in continual lockdowns due to a zero-COVID policy, the country continues to export less gasoline and diesel, stockpiling the fuels instead.
China has also refused to play Biden’s game. Biden thought he had coordinated a global effort to release more than 1 million barrels per day of strategic oil reserves in order to reduce gasoline and diesel prices since he expected those reserves to be refined and sold to consumers. However, for every barrel of reserve the President has sold, China has taken a barrel off the global market, adding it to Chinese stockpiles. China’s stockpiling eliminated any benefit to U.S. consumers from the SPR release, instead reducing U.S. energy security while strengthening China’s energy security.
No new major oil refinery has been built in the United States since the Carter administration and Biden’s climate policies and regulations will ensure that none are built in the future. Due to the renewable fuel standard and tax credits, some of the refineries that have not shuttered are being converted to biofuel facilities. Those incentives, for example, resulted in renewable diesel obtaining a $3.70 a gallon premium over regular diesel in California in early 2022, benefiting from the $1 a gallon federal tax credit and regulatory credits under California’s low-carbon fuel standard. With over 1 million barrels per day of capacity being converted to bio-fuel processing, the U.S. refining industry’s ability to respond to rising petroleum prices is definitely handicapped.
While the U.S. refining industry has closed or converted much of its refining capacity in recent decades, the United States is still a net exporter of petroleum products. Analogous to the ban on oil exports from the United States that lasted for about 40 years, the Biden administration may look to implement a petroleum product export ban. It is unclear, however, what the ramifications of such a ban would be.
China Continues Its Refinery Production Drop
China’s refinery throughput in May fell 10.9 percent from the same month a year earlier in the steepest year-on-year drop in at least a decade. Oil throughput in May was about 12.7 million barrels per day, slightly more than the 12.61 million barrels per day throughput in April, which was the lowest in two years, and 1.55 million barrels per day below the year-earlier level. Processing volumes for the January to May period were down 5.3 percent at 13.4 million barrels per day. May trade data, however, showed a continued reduction in exports, down 40 percent year on year and about 15 percent month on month. Although reduced exports will impact profitability for state-owned refiners, the policy has the benefit of reducing costs for consumers and industry, allowing the government to stimulate the economy and export inflationary pressure to the rest of the world.
The data also showed a 3.6 percent increase in China’s oil production to 4.14 million barrels per day.
Conclusion
It is no wonder that China and Russia have excess refining capacity and that the United States has none. U.S. climate policy and regulatory policy under the Obama and Biden administrations will ensure no new refineries get built in the United States and will make it difficult for existing refineries to get operating permits from the EPA. Increasing credit prices under the renewable fuel standard have driven some small, independent refineries out of business and many of those that seek a temporary exemption from the mandates by showing a “disproportionate economic hardship” have been denied. About 69 waiver requests have been recently denied by Biden’s EPA that has also increased biofuel blending volumes to “unachievable” levels, according to the refining industry.
The end result is that Americans can expect higher gasoline and diesel prices because there is simply a shortage of U.S. petroleum refineries and Biden’s only answer is to rebuke those that are operating for their profit margins that have resulted from government policies to “transition” from oil. Oil and gas companies and their investors have listened to Biden’s calls for less investment in fossil fuels and have heeded those calls. Consumers and the economy are feeling the effects every day.
tensions.
*This article was adapted from content originally published by the Institute for Energy Research.
On this episode of The Unregulated Podcast Tom Pyle and Mike McKenna discuss the ever-expanding distance between the Biden administration’s talking points and reality. Plus see the return of a fan favorite: “By The Numbers.”
Links:
Together, China and India are planning to increase their domestic coal production by a total of 700 million tons per year. That increase is about 100 million tons more than the total coal production expected in the United States this year of 600 million tons. U.S. coal production today is about half of its high in 2008 of 1.17 billion tons. In 2021, however, coal production increased due to increased demand from rising natural gas prices and increased exports. U.S. coal exports increased 23 percent last year, with the largest buyers ironically being India and China, together representing a third of U.S. coal exports. U.S. coal exports to China skyrocketed from roughly 1.8 million tons in 2020 to 12.8 million tons in 2021—an increase of 616 percent. U.S. coal is being shipped overseas rather than to U.S. electric plants because of the negativity around the fuel due to its carbon emissions and because of the federal government announcements against its use.
Biden’s War on Coal
At the COP26 climate conference in Glasgow, Scotland, climate envoy John F. Kerry declared that the Biden administration plans to put the coal industry out of business within eight years. “By 2030 in the United States, we won’t have coal. We will not have coal plants,” Kerry said.
Biden’s forced transition to renewable energy will result in blackouts this summer because of the early shuttering of fossil-fuel plants—particularly coal—that are needed to meet increased summer electricity demand. Some of the coal plants that regulators assumed would keep running for another year or two are instead coming offline because plant operators are choosing to shutter them rather than invest in upgrades for coal plants that Biden won’t allow to operate in the coming years. When the government announces that it intends to drive an industry out of existence, companies will not invest in it. Because a renewable-energy infrastructure currently does not exist to replace it, the result will be shortages and blackouts.
According to the Energy Information Administration, the shuttering of coal-fired electric plants will make up 85 percent of all electric-generation capacity retirements this year, taking 12.6 gigawatts offline. According to NERC’s 2022 Summer Reliability Assessment, the remaining coal-fired plants are “having difficulty obtaining fuel,” because of “mine closures, rail shipping limitations, and increased coal exports” — further reducing the nation’s ability to generate power this summer. The result will be not only blackouts but also skyrocketing energy prices. The Federal Energy Regulatory Commission in its Summer Assessment indicates that electricity prices could be 77 percent to 233 percent higher than last summer’s power prices. That could dwarf the increase in gasoline prices that has taken place since Biden took office.
Biden in his usual late response will not be prepared. He could make provisions to keep the coal plants on stand-by as Germany is doing, but that means his staff must acknowledge the problem and alert him to possible solutions. His only answer so far is to import more solar panels from Chinese manufacturers in Asia, which he announced on June 6. Biden also indicated he would invoke the Defense Production Act to supposedly benefit U.S. solar panel manufacturers, although they have called his efforts “a pittance” and do not believe it will help much. Essentially, President Biden’s response to energy shortfalls in the United States is more solar panels.
Big Bend Power Station
The Big Bend power station in Florida could not get all of its needed deliveries of coal, and its, owner, Tampa Electric, who had to curtail operations at the plant, blamed the railroad for insufficient coal shipments. According to the railroad, CSX, the issue is intermittent supply from the Sugar Camp mine in Illinois, which halted production from August 2021 to February 2022 because of a fire and has since resumed production at only 50 percent capacity. According to CSX, trains have encountered numerous instances where an arriving empty train is forced to wait extended durations because the mine is out of coal. The United States is not short of coal – and in fact, has the world’s largest proven reserves—but after years of government assaults against U.S. coal production and consumption, many mines have closed.
While the freight rail industry has experienced shipping shortfalls in the last year, they are largely outcomes of supply chain issues. Over the past two years, American railroads have set records at various points for volume levels of grain, chemicals and intermodal containers carrying consumer goods. In the latest American Society of Civil Engineers report card, U.S. freight rail is the top performing infrastructure and is the world’s most technologically advanced and energy-efficient.
While NERC believes the rail industry is causing some of the shipment problems, shipping by rail rather than truck reduces greenhouse gas emissions by 75 percent. The 1980 Staggers Act, which largely deregulated freight rail’s economic activities, resulted in an improved industry with doubling of goods shipped by rail, plummeting rates that shippers pay (it would have cost them $70 billion more to send the same freight via truck), and rail safety and environmental advancements, in part from rail infrastructure investment of $760 billion.
China and India Continue with Coal Deployment
In April, China announced it will increase coal output by 300 million tons this year, and, India, last month, indicated it plans to increase domestic coal production by more than 400 million tons over the next two years. Adding the 700 million tons of new coal that China and India will be mining to the amount they are now producing leads to China producing about 4.4 billion tons of coal per year and India producing about 1.2 billion tons. Together, they will be producing 5.6 billion tons of coal, which is more than 9 times the amount of coal that will be mined in the United States this year. The incremental coal production in India and China is exceeding whatever coal-fired generation capacity was retired in the United States and Europe. The end result of U.S. and European actions is an increase in the cost of energy for their citizens since policymakers no longer allow markets to work economically.
In order for India to up its coal production, the government had to provide “special dispensation” to the Ministry of Coal which allows the agency to relax environmental controls and public consultations so mines can produce more coal. The action was a result of the government receiving “a request from the Ministry of Coal ‘stating that there is huge pressure on domestic coal supply in the country and all efforts are being made to meet the demand of coal for all sectors.’”
Conclusion
Energy choices should reflect consumers’ desires, which is not the case under the Biden administration, where they are literally picking winners and losers. America’s growing energy needs demand fuel from all domestic sources, but Biden is holding resources hostage and increasing regulatory activity making it harder to produce energy. The closures of coal plants and coal mines are part of the administration’s plan to “decarbonize” U.S. power generation. The problem is that renewables are not yet ready to make up for lost coal capacity, despite their increasing generation levels, which now make up 20 percent of U.S. electricity generation, when hydroelectric is included.
President Biden has been caught short on a number of pending issues such as baby formula, and the same result can occur with electricity blackouts if he just ignores the problem. Other leaders are responding. Germany has put idled coal plants on standby and India is allowing its miners to produce more coal. Even Japan is using more coal for electricity generation. Even if blackouts do not occur, the projected shortages will result in higher prices as FERC has indicated. Americans are getting hit from all sides with massive energy price hikes, with much of it purposeful based upon policy choices in Washington, D.C.
*This article was adapted from content originally published by the Institute for Energy Research.
President Biden’s Environmental Protection Agency (EPA) proposes to restore authority to states and tribes under Section 401 of the Clean Water Act to veto gas pipelines, coal terminals and other energy projects, reversing a Trump administration rule that had curtailed that power. Prior to 2020, the Clean Water Act gave states and tribes the ability to review federal permits for industrial facilities and block projects that they said might affect water quality within their borders. Without their certification, the federal government could not approve a project.
In 2020, President Trump’s EPA revised the regulation, resulting in a reduction of state and tribal authority under Section 401. This was part of his overall regulatory streamlining efforts designed to speed U.S. construction and infrastructure projects. Trump’s 2020 rule gave federal regulators one year to make permitting decisions, while this proposed EPA reversal will allow states and tribes unlimited time to gather information. In other words, states and tribes can delay needed projects. The proposal would counteract the well-defined timeline and review process enacted by Congress, increasing permitting delays and allowing states to go beyond their scope for water quality certifications.
EPA will provide a 60-day comment period after the rule is published in the Federal Register. The final rule is expected to go into effect sometime in 2023.
Background
Some states have used their authority under the Clean Water Act to stop or delay energy projects. In 2017, Governor Jay Inslee of Washington refused to certify a federal water permit for a coal export facility on the Columbia River, using as an excuse the risk of spills and effects on air quality. In truth, Inslee had stipulated his opposition to coal use well before this action. In 2020, Governor Andrew Cuomo of New York denied a permit for a pipeline that would have shipped natural gas into New York from Pennsylvania, based on the project’s supposed “inability to demonstrate” that it could comply with water quality standards. This was after Cuomo banned hydraulic fracturing in New York in 2014, despite President Obama’s EPA repeatedly stipulating that it could not find that hydraulic fracturing damaged groundwater.
The Biden administration’s proposed rule change would essentially restore the conditions that existed before the Trump administration changes that stopped the projects above. The needless red tape being added is clearly not going to help improve oil and gas production that President Biden claims he wants increased. The new regulation could easily block infrastructure needed to meet both domestic demand and exports that President Biden promised Europe.
For instance, U.S. natural gas production needs to increase and gas pipelines need to be constructed to supply the promised LNG to Europe and to meet domestic demand. LNG exports were 674 billion cubic feet higher (187 percent) in the first three months of 2022 compared with the same period in 2019, while domestic production increased by only 433 billion cubic feet (5 percent). As a result, LNG exports have grown to around 12 percent of domestic gas production, up from 4 percent in 2019, and is expected to increase further. Net exports of LNG and pipeline natural gas hit a record of 377 billion cubic feet in March 2022, up from 121 billion in March 2019—over a 200 percent increase.
The growth in LNG exports, in excess of domestic production, has drained natural gas inventories and increased prices. At the end of March, working stocks in underground storage were 318 billion cubic feet below the pre-pandemic five-year average. Reflecting the anticipated shortage of gas, futures for June delivery ended at $8.908 per million Btu, down from a high of $9.401. July futures were at $8.895 per million Btu toward the end of May. Natural gas prices between 2015 and 2020 were $4 or less.
Court Action
Lawsuits were filed by 20 states, the District of Columbia, three tribes and six conservation organizations to the Trump administration’s 2020 rule. In 2021, Biden’s EPA planned to revise the 2020 rule, and a district court agreed with the agency that the case should be remanded and the 2020 rule vacated. Louisiana and seven other states joined with the American Petroleum Institute and other industry groups to reinstate the Trump administration rule. After both a federal judge and the Ninth Circuit denied them a stay in December, the states sought relief from the U.S. Supreme Court, which sided with them in an emergency ruling to reinstate the Trump administration policy.
Conclusion
Oil and gas producing states are concerned that the EPA proposed rule change will veer from the intent that Congress had when authorizing the Clean Water Act and allow some states to delay and increase costs for essential energy infrastructure to meet domestic demand and supply the Biden-promised LNG to Europe. States have used Section 401 in the past to stop or delay projects, which in effect restricts commerce of other states. Despite Biden telling the American public that he wants companies to increase oil and gas production, his actions continue to demonstrate the exact opposite.
The United States is entering the summer travel season, where cars and planes fueled by petroleum products will be taking families on much needed vacations, and homes and offices will need air conditioning fueled by electricity where over one-third is generated by natural gas, not to mention that natural gas heats half of U.S. households that will be purchasing the fuel this fall and winter. Unless production is increased, Americans can expect shortages that will adversely affect their lifestyle. The administration’s non-stop assaults on the supply chain of conventional energy supplies in the United States is beginning to have a real impact.
*This article was adapted from content originally published by the Institute for Energy Research.
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