Debt deal aims to expedite US energy investment

“Pork barrel politics”, referring to elected representatives securing benefits for their own districts, is generally used in a derogatory sense. But it can have its uses. To mix metaphors a bit, pork can grease the machinery of politics to help reach outcomes that are better for everyone, when the alternative might be gridlock.

The debt ceiling legislation passed by Congress last week, avoiding a potentially disastrous financial crisis, is a case in point. Alongside the measures to curb government spending and lift the debt limit, which were at the heart of the deal between President Joe Biden and Republicans in Congress, the bill included provisions to expedite the Mountain Valley Pipeline, which will transport natural gas from northwest West Virginia to southern Virginia.

Although the pipeline is not exactly a central issue for the US national debt, it is supported by Senator Joe Manchin, a centrist Democrat from West Virginia, where gas producers will benefit from the pipeline being completed, and his support was useful for getting the deal agreed.

The bill’s support for the Mountain Valley Pipeline, and other measures intended to help expedite permitting for infrastructure projects more generally, sparked outraged criticism from environmental campaigners. In reality, however, the legislation will probably not have a huge impact on the Mountain Valley Pipeline project in particular, or others across the US.

The most positive thing that could probably said about the latest bill is that it is a step in the right direction. To make a material difference to the pace of infrastructure development in the US, particularly for the power transmission that is essential for the development of renewable energy, further reform will be needed.

Much of the construction work for the Mountain Valley Pipeline has already been done. By the end of 2021, the project had completed all its compressor stations, and 94% of its pipeline tranches were laid in the ground, but progress had been stalled by court challenges. The debt ceiling bill will help expedite construction by committing the federal government to awarding the permits that the project needs, and limiting future legal challenges.

Some of the Senate’s strongest supporters of climate action, including Edward Markey of Massachusetts and Jeff Merkley of Oregon, voted against the bill. Senator Merkley said in a statement that the legislation “sets two truly horrific precedents”, on permitting and future litigation. But despite their opposition, the bill passed the Senate on Thursday night, and was signed into law by President Biden on Sunday.

In reality, the bill probably does not make that much difference to the Mountain Valley Pipeline. It already looked on course for completion, and Wood Mackenzie’s base case forecast projected it coming into service by the end of 2023. We have been forecasting that pricing differentials between the Northeast supply areas such as Eastern South Point, near Pittsburgh, and Transco Zone 5, in southern Virginia, will close as the MVP allows more gas to flow south. That is exactly what has been happening as the debt ceiling bill has made its way through Congress.

We do not expect a surge in Appalachian gas production as a result of the pipeline coming into service. Low natural gas prices across the US, with Henry Hub front month futures currently trading at about US$2.15 per million British Thermal Units, mean there is little incentive for producers to ramp up output. Exploration and production companies are still aiming to meet investors’ demands for capital discipline.

As for greenhouse gas emissions, it is quite possible they will be lower as a result of the pipeline being built. By putting downward pressure on gas prices in the markets it serves, it will make gas-fired generation more competitive against coal plants, which have higher emissions.

“Initial steps” on permitting reform

Beyond the specific provisions for the Mountain Valley Pipeline, the bill includes a raft of wider measures intended to speed up and streamlining the processes for approving infrastructure projects.

The key provisions include new deadlines for environmental reviews: one year for an initial environmental assessment, and two years for a more detailed environmental impact statement. The bill also specifies maximum numbers of pages for those documents, makes clear that analysis for previous reviews can often be re-used, and sets procedures for deciding which government bodies have responsibility.

Those changes are among the measures that business groups, including both the fossil fuel and renewable energy industries, have been calling for. They should certainly help prevent some of the issues that dogged the proposed Keystone XL oil pipeline project, including repeated environmental reviews and disagreements between different government agencies.

However, they do not go as far as many supporters of permitting reform had wanted. In particular, there are no measures specifically aimed at accelerating the construction of new power transmission infrastructure, a key issue for renewables developers.

The only measure in the debt ceiling bill specifically related to electricity transmission was an order for a study of inter-regional transfer capacity, that will make “a recommendation of prudent additions to total transfer capability between each pair of neighboring transmission planning regions that would demonstrably strengthen reliability”.

Cynics commented that ordering a study was Washington’s traditional way of kicking an issue into the long grass.

As I have commented in the past, reform of federal environmental reviews, as passed in the debt ceiling bill, is a necessary but far from sufficient condition for accelerating transmission investment. Other bodies, including independent system operators, the Federal Energy Regulatory Commission, and state regulators, need to work to make building new transmission lines easier.

American Clean Power, the renewable energy industry group, commented:

“While ACP is appreciative of the steps taken to include much-needed reforms to improve efficiency of the permitting process for clean energy projects, it’s critical that Congress build upon these initial steps and tackle comprehensive, meaningful reform to improve our nation’s clean power transmission capabilities and bring about the clean energy future America needs.”

The debt ceiling deal takes the issue off the political agenda until January 2025, by which time a new Congress and the next president will have been elected. Without that looming crisis forcing Democrats and Republicans to come together to negotiate, it may be difficult to find bipartisan compromise to take permitting reform further. Anyone who wants infrastructure development in the US to be made easier will have to look for new ways to build agreement to take the next steps.

In brief

Saudi Arabia plans to cut its oil production by a further 1 million barrels per day in July, it announced after a meeting of the OPEC+ countries on Sunday. The cut will take Saudi oil production to 9 million b/d for July, and possibly longer. It is initially just for one month, but “can be extended”, the official Saudi press agency said. A Saudi source said the voluntary cut “comes to reinforce the precautionary efforts made by OPEC Plus countries with the aim of supporting the stability and balance of oil markets.”

At the meeting, the OPEC+ countries agreed to set a total production level of 40.463 million b/d for the group during 2024, including 10.478 million b/d from Saudi Arabia. Alexander Novak, Russia’s deputy prime minister, suggested that this meant extending the current agreed production framework through to the end of next year.

Crude oil prices initially rallied on the news, with Brent crude trading at about US$77 a barrel, up almost a dollar, in early trading in Asia. The most recent peak in the Brent price was above US$87 a barrel, in April.

Austria-based European Lithium has announced plans to build a joint venture lithium hydroxide processing plant in Saudi Arabia. It will be the country’s second lithium processing plant.

Ajay Banga, the new president of the World Bank, says the lender needs to speed up project approval times to help tackle climate change and other challenges.

At the shareholder meetings of ExxonMobil and Chevron, climate-related shareholder proposals were rejected by large majorities.

Unit 3 at Plant Vogtle in Georgia, the first newly-constructed nuclear unit in the US for more than 30 years, has reached 100% power output. Jigar Shah, the director of the Loan Programs Office at the US Department of Energy, which has supported the project, commented: “We respect the perseverance and grit of Southern Nuclear to get this plant completed. It makes a nuclear renaissance possible.”

Other views

Simon Flowers and Michelle Davis — Cutting dependence on China’s renewables supply chain

Gavin Thompson — Securing Asia’s energy and natural resources future

Allan Pedersen — Six factors shaping the lithium market

Morgan Bazilian and Simon Lomax — The United States needs a shift in perspective on mining

Martin Sandbu — ‘Degrowth’ starts to move in from Europe’s policy fringes

Matthew Yglesias — Grinding green rocks into tiny dust could be very helpful on climate change

Quote of the week

“The complexity and severity of national security problems faced by our country have increased dramatically. The national security front must build up strategic self-confidence, have enough confidence to secure victory, and be keenly aware of its own strengths and advantages. We must be prepared for worst-case and extreme scenarios, and be ready to withstand the major test of high winds, choppy waters, and even dangerous storms. More efforts must be made to modernize our national security system and capacity, and get prepared for actual combat and dealing with practical problems.” — China’s Xinhua news agency reported an account of President Xi Jinping’s speech to the country’s National Security Commission. His remarks raised concerns about worsening tensions between China and the US.

Chart of the week

This comes from Wood Mackenzie’s latest quarterly assessment of global wind turbine orders, showing another strong quarter for the industry worldwide. Total global orders of 23.5 gigawatts in the first three months of 2023 represented a new first quarter record, and were up 27% from the same period of 2022. China continues to be the overwhelming driver of global activity, with a surge in orders to a new record for the first quarter, but there was also a strong increase in orders in the US, supported by the extended tax credits included in the Inflation Reduction Act. There are also signs of momentum starting to build in other parts of the world. Latin America also had a record first quarter, thanks to strong activity in Argentina and Brazil.