Uncertainties over key policies to weave and commodity prices skyrocket at third quarter 2021 close


Climate change policy and energy transition continued to dominate the attention of the energy sector and policymakers as we entered the final days of the third quarter of 2021. At the regulatory level, the pause on federal leasing Oil and gas continued to be a problem even after federal district court ordered it to end. The Home Office has drawn up a timetable for resuming lease sales, but at a slower and more limited pace. President Biden has announced plans to appoint a utilities regulator, Willie L. Phillips, as the new FERC commissioner, who, if confirmed, would ensure all seats are filled on the Commission.

Two full bills in Congress, the Infrastructure Bill and the Budget Reconciliation Package, are currently under consideration, but there is uncertainty as to the final outcome. The bill on infrastructure contains numerous provisions that would facilitate the development of renewable energy resources and decarbonization, in particular the extension and improvement of the 45Q tax credit for carbon capture and storage projects. The budget reconciliation program would eliminate decades of tax incentives, such as the charging of geological and geophysical expenses, intangible drilling costs, and the percentage depletion allowance. It also contains a framework for a methane tax, to be applied across the value chain, designed to discourage methane emissions. A number of incentives for renewable energy production and research are also included in the package.

Global developments continue to impact the domestic energy industry. The European Commission of the European Union (EU) has announced the introduction of twelve pieces of legislation, known as the European Green Deal, which aim to reduce carbon emissions in the 27 EU member states. The overall objective of the legislative packages is to reduce EU emissions by 55% from 1990 levels by 2030 and to achieve net zero emissions by 2050. The legislation would strengthen the trading system. existing EU emission rights, as well as establishing a carbon tariff for goods entering the EU based on their ability to meet stringent EU emissions and carbon standards. A carbon border adjustment tax will emerge in Europe and is being discussed as a potential vehicle in the United States. .

The United States continues its march towards greater ESG disclosure, led by the investment community. At the same time, there are public policy developments on the ESG front. After soliciting public comment on the concept, the Securities and Exchange Commission (SEC) is moving towards some type of mandatory disclosure of climate change risks and potentially broader disclosure of ESG topics. Congress is also looking at ESG disclosure. Versions of the infrastructure bill contain language that would require the Secretary of Energy to develop and submit a report to Congress within one year of its passage to assess the use of digital tools and platforms as climate solutions, including a summary of “Opportunities for Improving Standardization of and Regulatory Climate Disclosure Protocols.” Legislation passed by the Assembly would require public companies to disclose ESG metrics and their link to long-term business strategies on an annual basis.

During the last quarter, energy prices continued to rise, demonstrating a full recovery in oil and gas prices at the start of the pandemic. Natural gas prices soared above $ 5.00 per MMBtu, prices that had not been seen in years. In Europe and Asia, they are over $ 20.00 per MMBtu. The price increases are due to low supply and there is real fear of natural gas shortages in the northern hemisphere this winter. Crude oil prices exceeded $ 70 a barrel, also driven by supply factors. Bank of America estimates that oil prices could climb to $ 100 a barrel if we experience a cold winter. The rise in prices led President Biden to ask OPEC to increase production.

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