Permitting reform plans raise hopes for accelerated investment in US infrastructure

From The Wild Bunch to Fast Five, movies are full of characters who have to pull off one last job before retirement. US energy policy has something of the same feel at the moment.

President Joe Biden and Senator Joe Manchin of West Virginia are coming to the end of their careers in government. But before they leave the stage, they have an opportunity to enact legislation that could radically change the outlook for energy investment in the US.

Congress is currently considering the proposed Energy Permitting Reform Act of 2024, a bill put forward by Senator Manchin, an Independent and former Democrat, and Senator John Barrasso, a Republican representing Wyoming. The bill would accelerate the permitting process for critical energy and mineral projects of all types in the US, helping both renewables and oil and gas production, electricity transmission and LNG plants. If it passes, it would make a material difference to many of the issues that have obstructed infrastructure development in the US.

When he provided the critical vote needed to pass the Inflation Reduction Act in the Senate in 2022, Senator Manchin made it clear that the law was only one part of a two-part strategy. The act created, expanded and extended tax credits for many forms of low-carbon energy. But to maximise the benefits of increased investment, he argued, the country also needed permitting reform to clear away some of the regulatory and legal obstacles that delay and deter infrastructure projects. And to win bipartisan support, the reforms would have to help expedite projects for fossil fuels as well as renewables.

Attempts to reform permitting since then have met with only very limited success. But with only a few months left in Congress, Senator Manchin is making a final attempt to complete the second part of his plan.

The Manchin-Barrasso bill’s key measures include:

• Shorter timelines for litigation over federal authorisations for energy and mineral projects
• New deadlines and doubled production targets for renewable energy permitting on federal lands
• Streamlined environmental reviews for many renewables, grid, and storage projects
• A requirement to hold at least one offshore wind lease sale and one offshore oil and gas lease sale per year from 2025 to 2029
• Two new pathways for electricity transmission development that include clear standards for cost allocation among customers that benefit from a project
• A new 90-day deadline for the Secretary of Energy to grant or deny LNG export applications following environmental reviews, with applications deemed approved if the Secretary fails to meet the deadline. This would end the Biden administration’s pause on export approvals
• New processes for permitting and leasing for geothermal energy

In the power sector, the bill has been backed by groups that represent the renewables industry and advocate for increased investment in the grid. Jason Grumet, CEO of the American Clean Power Association, commended Senators Manchin and Barrasso, and said: “We have the technology, workforce, and financial capital to build great things, but we lack a governing process that is designed to succeed. This legislation changes that.”

For the oil and gas industry, the American Petroleum Institute said the proposed legislation “takes tangible steps toward a more transparent, consistent and timely permitting process”. Like the electricity industry groups, it urged Congress to take up the bill as an urgent priority.

The acclaim for the proposals is not universal: some environmental groups have spoken out against them. Over 360 organisations, including the Sunrise Movement, the Sierra Club and 350.org, last week wrote a letter to senators urging them to oppose the bill, warning that it “guts bedrock environmental protections” and would “lead to more leasing [and] more drilling without federal oversight and community input”.

Despite that opposition, the legislation has been making progress. The bill advanced out of the Senate Energy and Natural Resources Committee on a 15-4 bipartisan vote last week, and will now be considered by the full Senate.

Its best hope of becoming law may be in the “lame duck” session of Congress after the elections on 5 November, when many politicians will feel braver about taking potentially controversial positions. For Senator Manchin, it will be his last chance to finish the job that he failed to complete in 2022. For President Biden, it will be an opportunity to cement his legacy as the president who did more to encourage investment in low-carbon energy than any other before him.

If the elections result in the Republicans taking full control of Congress and former President Donald Trump securing a second term, they may be tempted to wait until next year, when they could pass a different permitting reform bill that would do more for the oil and gas industry and less for renewables.

But former President Trump has also been talking about wanting to do more to boost electricity supply. “We have to produce tremendous electric for AI and for all of the other things,” he told a Bitcoin conference recently. “And we're going to get it produced fast, or we're not going to be able to compete with China and other countries.”

Those comments suggest that even if the bill does not pass this year, permitting reform to support investment in electricity transmission could make progress under a future Trump administration.

In the movies, taking on one last job often ends in disaster, and the characters never get to enjoy the comfortable retirement they dreamed of. Senator Manchin and President Biden may miss their final shot at permitting reform. But even if they do, the breadth of support for change, right across the energy sector, means the fight will not be over.

PJM electricity capacity prices soar

Electricity market capacity auctions do not generally make the headlines, but the one held by PJM last week made a lot of people sit up and take notice. Prices jumped more than nine-fold, from US$28.92 per megawatt-day in last year’s auction, to U$269.92/MW-day this year.

The results were a clear signal that electricity supply is failing to keep pace with strong demand growth in the PJM region, and more investment is needed. The higher prices mean increased bills for customers.    

The capacity market for PJM, which stretches from New Jersey to Kentucky, is intended to help support grid stability by paying for enough generation to meet expected future demand. Companies that make offers in the auction commit to being able to supply power to meet demand in system emergencies, and will owe significant penalties if they fail to deliver.

There were three reasons why prices soared in the most recent auction. One is the surge in electricity demand expected in the PJM region, which includes the leading global location for data centres, in Virginia. Peak load is expected to rise from about 151 gigawatts in 2024-25 to about 154 GW in 2025-26.

Secondly, supply is tightening. About 6.6 GW of generation capacity has retired or signaled an intention to since the last auction, and only 110 MW of new capacity was procured in the auction.

Thirdly, PJM has changed some of the rules of its capacity market, with the aim of improving modelling for extreme weather risk and using accreditation that more accurately values each resource’s contribution to reliability. The net effect has been to decrease the accredited capacity available.

Manu Asthana, PJM’s CEO, said the higher prices “confirm our concerns that the supply/demand balance is tightening”. He added that the market was sending a price signal that should incentivise investment in additional generation.

The increases will mean a significant boost for generators’ revenues. Shares in Talen Energy and Vistra, independent power producers that participated in the PJM auction, rose 19% overnight last Tuesday after the results were announced, although they have since fallen back. Talen said it expected to earn US$670 million in PJM capacity revenues for the 2025-26 year. Its total capacity revenues in 2023 were US$241 million.

Patrick Finn and Ryan Sweezey, Wood Mackenzie power analysts, wrote in a note last week that the impacts of increased capacity prices would “undoubtedly” be felt by electricity customers in their bills. Exelon said last week that the auction was likely lead to double-digit rate increases for some of its utility subsidiaries.

Wood Mackenzie’s Finn and Sweezey said there could be a political reaction to the increase in costs in PJM. Politicians have generally welcomed new data centers as sources of economic development, construction jobs and tax revenues, but some have begun to express concerns about the potential impacts of increased power demand on ratepayers.

Policymakers and regulators could respond by changing rate-setting processes to shield residential and commercial customers from cost impacts, and by reassessing their incentives intended to attract data centre investment.

Uncertainty over Venezuela continues

The outcome of the recent elections in Venezuela, holder of the world’s largest oil reserves, remained unclear over the weekend. The results of the vote on 28 July are disputed: both President Nicolás Maduro and the opposition leader Edmundo González Urrutia have claimed victory.

The US has said it believes there is “overwhelming evidence” that González won the election, but President Maduro has refused to concede. The president said in an address to troops on Sunday that he and his supporters were “confronting, defeating, containing and pulverising an attempted coup in Venezuela”.

Oil production in Venezuela has increased modestly from its low point in 2020-21, mainly because of the licence issued in 2022 that allows Chevron to resume limited operations. The company has added at least an extra 100,000 barrels per day from its operated assets since that license was awarded at the end of 2022.

However, the results of the presidential election will not radically change the short-term production outlook, says Adrian Lara, Wood Mackenzie’s principal analyst for Upstream Latin America. There is currently no expectation of a significant oil output increase, as there is no major investment flowing to the upstream sector.

Achieving a more substantial recovery in production, such as reaching the 1 million b/d  promised by the Maduro regime, remains a challenge. To regain the levels of the early 2010s, above 2 million b/d, the amount of investment required in the upstream sector will have to increase significantly.

Without a permanent lifting of sanctions, Lara said, Venezuela’s oil and gas sector would remain in a difficult situation. Any progress made with a particular operator or asset for increasing output could be countered by the production decline of other fields and the overall deterioration of infrastructure due to a lack of investment.

In brief

Chevron is moving its corporate headquarters from San Ramon, California to Houston, Texas. The company said that Texas “offers a business-friendly environment, a more affordable cost of living, and better proximity to key counterparts in the service sector, our industry and academia”. ExxonMobil also moved its headquarters to Houston last year, relocating within Texas from Irving, near Dallas.

Oil and gas producers in the US are emitting methane at over four times the rates estimated by the Environmental Protection Agency, according to a new study backed by the Environmental Defense Fund. The analysis is based on data collected by a jet aircraft fitted with imaging spectrometers, which can measure methane in the air with a high degree of sensitivity. The EDF said the data were “just a preview” of the continuous high-resolution measurement of methane emissions that will soon be available from its MethaneSAT project and other satellites.

Other views

Wind from the east gathering strength: the outlook for OEMs – Endri Lico

Changes to North Sea profits levy could sound death knell for industry

A tale of a looming surplus in the lithium industry: sticky supply to stay? – Allan Pedersen

The LNG Majors’ strategies in five key charts – Sean Harrison and Daniel Toleman

5 things you need to know about carbon offsets in 2024 – Nuomin Han and others

Decade of the battery – Noah Smith

Heat pumps are expensive. What if billionaires bought them for everyone? – Matt Simon

Quote of the week

"This is coming whether we like it or not… Consumers, particularly younger people, are into this. And the world is into this. America needs to play in this space for a variety of reasons, whether it's clean air, whether its just creating jobs for the new economy… The march toward electric cars is inevitable."

Senator Lindsey Graham, a Republican from South Carolina and staunch supporter of former President Donald Trump, had some warm words for electric vehicles when he spoke at a hearing last week.

Trump has also seemed to soften his opposition to EVs recently, saying he believed they could take “a small slice” of the market. He added: “I’m for electric cars… I have to be, you know, because Elon [Musk] endorsed me very strongly.”

Chart of the week

This comes from a recent Wood Mackenzie presentation titled ‘Carbon offsets: How to realise value in the net zero transition’, written by Nuomin Han, Wood Mackenzie’s head of carbon markets, and her team. The full deck is available to download here, providing extra context for their article on ‘5 things you need to know about carbon offsets in 2024’.

The point of this chart is to show the wide range of prices for carbon offsets, which vary significantly across different types of projects. It is also worth noting that the great majority of the credits that have been retired went for prices below US$10 per tonne of carbon dioxide equivalent.

Compared to allowance prices in the EU’s Emissions Trading System, and even more so compared to the kinds of carbon price that might be needed for the world to reach net zero emissions, these offsets are remarkably low cost. Take a look at the full slide deck for a lot more fascinating detail around this issue.

Energy Pulse will now be taking a short summer break. Many thanks for reading, and I will be back in September.

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