Daily on Energy: Not so fast on those rising gas prices

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WHY MEMORIAL DAY GAS PRICE UPTICK IS A ‘RED HERRING’: Driving is picking up in the U.S., but it’s not going to return anywhere close to normal levels in the immediate future, meaning there won’t be the usual uptick in summer gasoline prices.

That’s according to Hannah Breul, the team lead for the Energy Information Administration’s Petroleum Market Analysis. The EIA is the statistics arm of the Department of Energy.

“There’s very little in the market putting upward pressure on gasoline prices,” Breul told Josh in an interview.

Our conversation came ahead of the EIA’s closely watched short-term energy outlook, released Tuesday afternoon (Breul works on that report as well, but she was not commenting on it specifically).

That report projected U.S. gasoline consumption will fall from 8.6 million barrels per day in the first quarter of 2020 to an average of 7 million barrels per day in the second quarter.

EIA forecasts that gasoline consumption will average 8.3 million barrels per day this year, a decrease of 11% compared with 2019.

Timing matters: Last week, we speculated that gasoline prices could rise around Memorial Day as EPA’s waiver exempting oil refiners from summer-grade fuel requirements is set to expire.

But Breul dismissed that possibility, calling it a “red herring” during a “very unusual situation” when drivers have not been able to take advantage of super low gasoline prices because of stay-at-home policies to control the coronavirus pandemic.

“Normally, there is a very close relationship between what prices are doing and what the impact is on consumption,” Breul said. “In this situation, with the demand shock, we are not seeing extra driving because of low prices because people are staying at home.”

As some states begin to relax their rules, we have “seen [gasoline] demand come up a little bit the last two weeks, but not nearly to normal levels this time of year,” she said.

“It’s hard to imagine a world where there is a notable uptick in summer driving,” Breul said. “It’s going to take some time for gasoline consumption to get to normal seasonal patterns.”

It’s hard to project future demand: Breul talked through some of the factors that could determine gasoline demand in future weeks, but was careful to note EIA does not model for those possibilities. So for example, it’s possible, she said, that more people eschew public transportation in favor of driving. But it’s also true that “economic activity is a major driver of driving behavior,” meaning the more than 20 million Americans who lost their jobs in April aren’t traveling to their workplaces.

Those jobs could come back as states open their economies, but it’s difficult to project how that translates to gasoline consumption habits, Breul said. Her job, she suggested, is harder than ever.

“It’s a hard thing to forecast in normal times, but when faced with an unprecedented situation like this, it’s all the more challenging,” Breul said.

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Josh Siegel (@SiegelScribe) and Abby Smith (@AbbySmithDC). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

US OIL PRODUCTION TO FALL IN 2021 TOO: U.S. oil production will not only fall this year for the first time since 2016. It will also decline next year, the EIA projected Tuesday.

U.S. crude oil production has not declined for two years in a row since the 17-year period of declines beginning in 1992 and running through 2008, EIA said.

EIA forecasts crude oil production will average 11.7 million barrels per day in 2020, down 0.5 million barrels per day from 2019. In 2021, EIA expects U.S. crude oil production to decline further by 0.8 million barrels per day.

BUT DEMAND WILL COME BACK: Nearly all of pre-pandemic oil demand could return by the second half of 2021, the research group IHS Markit projected Tuesday morning.

“It may be hard to comprehend now. But barring a second wave of the pandemic, nearly all pre-COVID demand could return by the second half of 2021,” said Roger Diwan, vice president financial services at IHS Markit.

If that happens, it could lead to a “market squeeze in the medium-term” as supply struggles to keep up with recovering demand, an issue that could lead to high oil prices, as Josh wrote about over the weekend.

IHS Markit expects 13-15 million barrels per day of crude production taken off the market in the next two months, while demand is showing some improvement from “the abyss” it reached in mid-April.

That means Brent crude prices, the international benchmark, could pass the $40 per barrel mark, probably before the end of this year.

SANTORUM-BACKED CONSERVATIVE GROUP’S CLIMATE CHALLENGE: It remains to be seen whether a new climate group backed by Rick Santorum, C3 Solutions, and the broader conservative movement is willing to support policies that can significantly reduce greenhouse gas emissions without violating their small-government political ideology.

“It’s just a recognition of where the American public is,” Santorum, the former conservative senator and presidential candidate, told Josh, explaining the political motivation around his decision to advise the group’s founders, Drew Bond and John Hart.

“I still don’t think Republicans think this is the No. 1 issue out there, but this is an issue people care about,” added Santorum, who said he’s motivated by his seven children. “To ignore it is politically stupid and not in conjunction with your stated purpose, which is to make sure the environment is strong and healthy.”

C3 Solutions, which seeks to help “unleash” clean energy innovation, has provided little detail on what kind of policies it favors to enable that.

Santorum indicated C3 Solutions supports the concept of tax incentives in addition to increasing government spending on R&D to encourage innovation. Hart and Bond also said they consider natural gas to have a “big” role in a clean energy future.

Bob Inglis, a former GOP House member from South Carolina who was friendly with Santorum in Congress, said he’d like to see C3 Solutions propose more specific ideas to achieve innovation. His environmental group, republicEn, supports a carbon tax.

“This is great that we have a group of conservatives coming forward to enter the competition of ideas about how to deal with climate change,” Inglis told Josh. “Innovation is a great turn of the conversation, but how do we get the innovation?”

Read more on the new conservative group in this week’s Washington Examiner magazine.

TRUMP’S BIG APPROVAL OF SOLAR POWER: The Trump administration approved a proposal Monday to construct and operate the largest solar power project in U.S. history, issuing a final permit for a massive facility just north of Las Vegas.

The $1 billion Gemini project would be the eighth-largest solar facility in the world, the Interior Department said, generating 690-megawatts of power, enough electricity for 260,000 homes in the Las Vegas area and potential markets in Southern California.

Nevada utility NV Energy, a subsidiary of billionaire Warren Buffett’s Berkshire Hathaway, is providing financial backing to the project, which will be completed as early as 2022. It will generate more than $3 million annually in federal revenues, the Interior Department said.

The Trump administration cast the decision as representative of its “all of the above” approach to increasing U.S. energy production on public lands, which critics say has been mostly focused on fossil fuels. President Trump has frequently criticized renewable power, questioning its reliability. The administration also touted the project as a job-creator for an area hit hard by the coronavirus pandemic.

TRUMP ADMINISTRATION WANTS TO PRE-EMPT INSLEE’S CRUDE-BY-RAIL LAW: The Trump administration moved Monday to block a Washington state law to regulate the transport of crude oil by rail.

The Pipeline and Hazardous Materials Safety Administration, an agency of the Transportation Department, determined that federal law preempts Washington’s law adopted last year that sought to set a limit for the level of vapor pressure, or volatility, of crude transported by rail.

PHMSA’s announcement comes a few weeks after the Energy Department issued a report to Congress, completed by Sandia National Laboratories, that determined the federal government does not need to issue new regulations to improve the safe transport of crude oil by rail.

The study determined “vapor pressure is not a statistically significant factor” in effecting the safe transport of crude.

“Such unnecessary regulation would increase costs for a U.S. energy sector that is already facing tremendous challenges due to COVID-19 and would not improve safety,” said Rob Benedict, senior director of petrochemicals, transportation, and infrastructure at the American Fuel & Petrochemical Manufacturers, the main refining trade group.

Washington adopted its law after a number of high-profile crude by rail accidents in 2013-14.

“Washington’s law helps protect the public from the inherent risks of transporting oil by rail by decreasing explosion risk in the event of an oil train derailment,” Tara Lee, communications director for Washington Gov. Jay Inslee, a Democrat, told the Associated Press. “Public health remains our top priority and we are considering our options.”

COMPANIES DELAY AIR EMISSIONS MONITORING AMID PANDEMIC: Four facilities — three Marathon Petroleum refineries and a paper company — have notified the EPA they can’t complete required quality assurance monitoring of emissions controls due to restrictions imposed to protect workers from COVID-19. The four facilities are delaying relative accuracy test audits that had a deadline of April 30, according to documents posted on the agency’s website, using flexibilities the EPA provided in an interim final rule last month the agency says are “designed to reduce COVID-19 exposure risk to power plant and other essential personnel.”

BIPARTISAN LAWMAKERS PUSH PARKS BILL AS PART OF RECOVERY: More than 100 lawmakers are urging congressional leadership to include full and permanent funding for the Land and Water Conservation Fund, as well as funding to address maintenance backlog in national parks, as part of a future virus recovery package.

“These provisions will create jobs, expand access to recreation for all, and support a sustained resurgence in a key economic sector devastated by the ongoing impacts of the pandemic,” the lawmakers wrote in a letter Monday, led by Colorado Congressman Joe Neguse and Pennsylvania Congressman Brian Fitzpatrick.

The lawmakers’ push came the same day as a letter from a broad swath of environmental and conservation groups, calling on Congress to pass “as quickly as possible” the Great American Outdoors Act, introduced in early March by more than half the Senate. The bill would fully, permanently fund the LWCF and provide up to $9.5 billion to address maintenance backlog in national parks.

As a reminder: Before the pandemic hit, Republican leadership was teeing up the Great American Outdoors Act as a political win for two of its co-sponsors, vulnerable Western state Republicans Colorado Sen. Cory Gardner and Montana Sen. Steve Daines.

BIOFUELS PRODUCERS SAY THEY NEED HELP NOW: The next virus relief package must include “immediate, temporary, and direct assistance” to biofuels producers, which were left out of previous rounds of relief, a coalition of biofuels and farming groups wrote congressional leadership in a letter Monday.

Biofuels producers say there is broad bipartisan support for helping the industry. Even so, it’s likely the next round of coronavirus legislation won’t include sector-specific relief and instead will focus broadly on assistance to states, local communities, and healthcare and frontline workers.

INDIA’S FIRST CARBON EMISSIONS DECLINE IN FOUR DECADES: The country’s emissions fell by 1% over the last fiscal year, due to falling coal consumption, expanding renewable energy, and the coronavirus pandemic, analysts from the Centre for Research on Energy and Clean Air said Tuesday.

The effects of the virus outbreak have prompted steep emissions declines just in the last two months, especially as India’s coal-fired power has taken big hits in March and April. The analysts estimate India’s carbon emissions fell 15% in March and 30% in April.

Whether emissions continue to fall depends on India’s recovery: The country will have to make decisions about whether to boost its renewable energy program, how to address air pollution, and whether to bail out struggling coal power generators. How India designs any bailout of coal, and whether it includes conditions that the industry must address structural problems, will be especially important, the analysts note.

COURT PAUSES TRUMP EXPANSION OF CALIFORNIA WATER EXPORTS: A federal district court judge, in an order Monday, granted California’s request to halt Trump administration attempts to increase water exports from the state’s San Joaquin Delta through the end of the month.

California is challenging biological opinions from the Bureau of Reclamation that the state says would significantly reduce protections for California wildlife. In April, the state asked the court to pause the Trump administration’s actions, which it said would cause “immediate and irreversible harm to California’s ecosystem,” including endangered and threatened fish species.

The Rundown

Wall Street Journal Wanted: Somewhere, anywhere to store lots of cheap oil

Washington Post Tesla’s Elon Musk reopens factory, defying county orders and daring officials to arrest him

Reuters Saudi Aramco profit falls 25% but dividend in line with planned payout for year

Financial Times BP chief sees risk of oil demand passing peak as pandemic hits

Bloomberg Big Oil has big plans for net zero. Are they credible?

Calendar

TUESDAY | MAY 12

The Senate is in session. The House hopes to return soon.

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