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Senior Vice President; Director and Senior Fellow, Energy and National Security Program
If anything, we can be sure that 2019 will be eventful. On the U.S. federal policy front, Democrats took over control of the House of Representatives with an impressive cast of new and diverse voices ready to shake things up. Contrary to expectations going into the mid-term elections, these new members have already pushed to make climate change a headline issue for House Democrats by advocating for the resurrection of a select committee to address climate change under the auspices of a Green New Deal.
To be sure, this Green New Deal has very few established or prescriptive policies underpinning it and even fewer legislative pathways or strategy. Its brilliance, however, is that it takes the most politically urgent issue of our time―inequality and opportunity for advancement―and creates a climate change and clean energy-oriented platform to address it. That is bonafide political strategy.
At this point, we know little beyond what the ascendance of the issue has brought thus far―namely, a shift in the idea that all legislative activity in the House will be about oversight of Trump administration actions to one where Democrats will also be looking for ways to make a down payment toward a bigger policy agenda under a Green New Deal. So far, Chuck Schumer, the Senate minority leader, has reciprocated with a demand that any infrastructure spending bill will have to address climate change.
The trouble is that visions and platforms are great for catalyzing speeches and hearings, but policy design, passing legislation, and implementation are hard. Forward motion on any legislative agenda, no matter how visionary the platform, could be slowed down by other “must-pass” congressional business, the expectation for even more disarray in the relationship between the White House and Congress as the Mueller investigation wraps up, and the increasing role of congressional action in addressing pressing foreign- and trade-related policy issues where they think the administration is not doing enough.
Buckle up.
Associate Fellow, Energy and National Security Program
In 2018, U.S. oil production will realize its largest annual gain in the industry’s over 150-year history.
The upward revision of U.S. oil production data, which has continued to far outpace the forecasts, has been a recurring theme in 2018. According to the U.S. Energy Information Administration (EIA), the United States is now pumping 11.6 million b/d of crude oil, roughly 2 million b/d beyond what it was producing just this time last year. Assuming U.S production holds steady in December, year on year production growth will reach 1.5 million b/d or 2.1 million b/d including natural gas liquids, an all-time high. This astonishing growth has accounted for 90 percent of the net increase in global production and more than 140 percent of the increase in demand.
These U.S supply increases have played an important role in helping to form the current oil market imbalance, recreating a similar dilemma that the Organization of the Petroleum Exporting Countries (OPEC) faced in the wake of the 2014 price crash, whereby any intervention to reduce supply was seen as an enabler of greater levels of U.S. output. While WTI’s decline towards $50 a barrel will likely lead to a tapering off in producer activity in the first half of 2019, Permian pipeline capacity constraints are expected to be relieved by the second half of the year, at which time the projected tightening of the global oil market may reopen the door for further U.S. supply surprises.
Senior Associate (Non-resident), Energy and National Security Program
As far as banner years go, 2018 was a big one for energy storage policy. States continued to lead, with a series of gubernatorial, legislative, and regulatory actions aimed at unlocking the potential of storage to serve as a central catalyst for modernizing and creating a more resilient, efficient, sustainable, and affordable electricity grid. New York, New Jersey, and Massachusetts set long-term energy storage targets, while Nevada and Arizona regulators are considering following suit. Across California, New Jersey, New York, Massachusetts, Maryland, and Nevada, states acted to either increase funding to existing customer-sited storage incentive programs or to launch new programs, or both!
Elsewhere, incorporating energy storage in utility planning processes proved to be a key policy theme this year. The National Association of Regulatory Utility Commissioners adopted a resolution calling on utilities to include storage in long-term planning efforts. Colorado passed a first-of-its-kind legislation calling for the state regulator to review all utility planning processes to ensure those rules adequately consider energy storage procurement, which was later codified by Commission order.
On the federal level, the Federal Energy Regulatory Commission issued its landmark, bipartisan Order 841 directing regional grid operators to establish participation models for electric storage. This critical policy signal triggered stakeholder discussions on the barriers to energy storage deployment in each of the regional markets, culminating in the filing of compliance plans on December 3. Meanwhile, both the U.S. Senate and the House held hearings specifically on battery energy storage, with legislators filing a record number of storage-related bills, including a bipartisan push to clarify the eligibility of standalone storage for the federal investment tax credit.
Senior Associate (Non-Resident), Energy and National Security Program
The change wrought by the 2018 mid-term elections will make 2019 an interesting year for energy policy. With Democrats assuming control of the House of Representatives, energy policy discussions will be dominated by climate change—and, more specifically, what to do about it. A new plan, the so-called “Green New Deal” championed by Rep.-elect Alexandria Ocasio-Cortez (D-NY), will get headline attention, and for good reason.
The Green New Deal aims to effectively decarbonize the U.S. economy by 2030. Expect House Democrats, who are also poised to create a select committee on climate change, to begin fleshing out details of Ocasio-Cortez’s (admittedly vague) plan. Moreover, one should expect prospective Democratic presidential contenders to embrace the Green New Deal and incorporate its various mantras into speeches and legislation.
It contains many bold, and some would say, unrealistic, goals, such as, among other things: decarbonizing the manufacturing, agricultural, “and other sectors”; moving to “100% of national power generation from renewable sources”; and “upgrading every existing residential and commercial facility” with “state-of-the-art” energy efficiency technology. Finally, the plan shall also require “a living wage job for everyone who wants one” and “include additional measures” such as “universal health care programs.”
These goals must be achieved “in no longer than 10 years from the start of execution of the plan,” or as advocates hope, by 2030. But that assumes the Green New Deal becomes law in 2020, something that a Republican-controlled Senate and President Trump will assuredly not oblige. But make no mistake: the Green New Deal is a significant document. If anything, it will establish the battle lines between the two parties on energy and climate change for years to come.
Senior Fellow, Energy and National Security Program
After a few barren years, investment in new liquefied natural gas (LNG) export projects picked up again in 2018. The rebound was modest, to be sure; but we are now entering that rare moment when there is a perfect alignment between market needs and project progress. Projects advance on two timetables. First, a project itself needs to mature—do the engineering work, find contractors, align the partners, secure host government approvals, engage local communities, and reach out to prospective buyers and financiers to make its case and mitigate risks. But there is always a second timetable—a market cycle. Only a few projects are needed and can move forward. Sometimes the market needs more; sometimes, it needs less. Today, it needs more.
The coming year will reveal how competitive the LNG supply has become. Several projects in the United States are edging towards a final investment decision. In Mozambique, two separate projects are out there marketing their LNG. In Papua New Guinea, a long-awaited expansion is making progress. Qatar has lifted its moratorium on new export projects and recently upsized its expansion. In Russia, Arctic LNG 2 is securing partners and progressing the engineering work. Nigeria might expand exports; Egypt might restart them; and a project between Mauritania and Senegal is in the works. And there are many more wildcards out there. It’s a tight race. In 2019, we will see who is inching ahead.
Senior Associate (Non-resident), Energy and National Security Program
The December 2018 OPEC meeting in Vienna had all the makings of a thriller novel—geopolitical tension, a bellicose Washington, rising tension in the Middle East, royal intrigue, and a murdered journalist. And it was a stark reminder (if one was needed) that politics is back at the heart of international oil markets.
But this is not the OPEC of old. U.S. unconventional oil has altered supply dynamics fundamentally, eroding the organization’s ability to act as a swing producer in the market. OPEC now sees the need to act in concert with major non-OPEC producers, notably Russia, to balance supply and demand, bringing an extra political dimension to the organization’s decisionmaking.
The December meeting also hinted at another significant shift, namely the changing underpinnings of the “political” price of oil. The finances of core-OPEC states used to provide the principal guide to price-level targets. Not anymore. Domestic politics and maintaining international alliances are now factors, too. Faced in the past with a sharp downward price correction and weak fundamentals, OPEC would probably not have acted as timidly as it did in Vienna. But that was before Istanbul and Trump.
By taking the middle course in Vienna (OPEC plus its allies announced a 1.3 million b/d cut), the organization has complicated its efforts to support prices in 2019. Meanwhile, the catalog of uncertainties that it faces will only get longer. Clouds over the global economic outlook, risks of an escalation of U.S.-China trade disputes, U.S. efforts to tighten sanctions on Iran, and the more general weakening of international institutions are but a few of the challenges that OPEC will have to deal with. Amidst these cross-currents, one thing does seem certain for oil markets: politics is here to stay.
Sarah Ladislaw is senior vice president and director and senior fellow with the Energy and National Security Program at the Center for Strategic and International Studies (CSIS), in Washington, D.C.
Andrew Stanley is an associate fellow with the CSIS Energy and National Security Program. Nikos Tsafos is a senior fellow with the CSIS Energy and National Security Program.
Nitzan Goldberger, Mike Catanzaro, and Raad Alkadiri are non-resident senior associates with the CSIS Energy and National Security Program.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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