Upcoming National Elections, we all know that a lot is at stake in this year. The U.S. presidency and Congress are up for grabs. Early polls suggest that President Trump is vulnerable in his race against Joe Biden to seek a second term. The slim Republican margin in the U.S. Senate is also at stake. It is still far too early to make any predictions, but the state of the economy, the pandemic and social unrest will all likely play a role in the election outcome.
As to the U.S. oil and gas industry, it is only July and the sector has already endured its most tumultuous year ever. Looking ahead, the outcome of the upcoming presidential and congressional races and the public policies to follow will have a profound impact on the industry’s ability to recover and maintain its dominance as the world leader in both oil and natural gas.
The Democratic presidential primary process that will lead to the official nomination of Joe Biden as the party’s candidate this summer was mired in rhetoric and policy proposals that were extremely anti-fossil energy, including bans on federal oil and gas leasing, fossil energy exports and hydraulic fracturing, as well as a zero-emission energy target for 2035. For his part, Biden stated that we must be willing to sacrifice oil and gas jobs in order to transition to a green economy.
On one hand, presidential candidates tend to soften their positions on issues once they have achieved the nomination and begin to court more centrist voters. While that may well be the case again this year, there are clear indications that Biden’s views on energy may remain hardened, as evidenced by his choice of Alexandria Ocasio-Cortez to co-chair his climate change task force. Let’s explore some of the potential impacts if Biden does not moderate on energy and goes on to win in November.
First, no longer would industry be able to depend on presidential leadership to promote U.S. oil and gas production and exports. Instead, expect a Biden administration to flex its muscle and voice to reduce fossil energy production and to use and promote a climate change agenda.
Although Biden later reversed his stated promise to impose a ban on “new fracking,” Biden would likely be surrounded by energy and environmental policy advisors who, for the most part, oppose hydraulic fracturing. If the Democrats were to take the U.S. Senate and hold on to the House, a Biden administration would also be likely to support the statutory exemption for the regulation of hydraulic fracturing under the Safe Drinking Water Act. Even without a Democratic majority to work within Congress, more stringent environmental regulations should be expected, many of which would likely be detrimental to shale operations and fossil energy more broadly.
Specific areas for more stringent regulation would likely address areas including water management and disposal standards, vehicle fuel economy standards, and flaring and methane emissions, the latter of which is receiving greater attention amid recent efforts by the Environmental Defense Fund to quantify methane emissions in the Permian Basin and identify associated operators.
In addition to stronger regulations, access to future oil and gas resources would likely be severely hampered under a Biden administration. He has already committed to “banning new oil and gas permitting on public lands and waters,” and vowed to increase renewable energy production on federal lands and offshore. Beyond outright banning access through leasing moratoriums, additional actions that would be expected include more stringent application of the National Environmental Policy Act (NEPA) processes and the Marine Mammal Protection Act, application of the Endangered Species act to both federal and non-federal activities, stricter restrictions on offshore drilling, expansion of marine protected areas, and a more top-down, protection-focused ocean policy.
Looking beyond the upstream sector, there would be increased obstacles to federal permitting of oil and gas pipelines and other energy infrastructure under a Biden administration. He has voiced his opposition to both the Keystone XL and Dakota Access pipelines. Under a Biden administration, federal policies would generally oppose the construction of new oil and gas pipelines and other infrastructure, such as LNG export facilities that support fossil energy production and transportation. A Biden administration could also significantly change the criteria by which the Federal Energy Regulation Commission (FERC) approves or disapproves pipeline projects, basing its decisions less on economic and societal impacts and more on climate-related considerations. These changes would result in increased costs and delays for pipeline and LNG projects.
More broadly, U.S. policy on climate would be starkly different under a Biden administration, with an activist U.S. position toward decarbonizing the economy. We would expect an early move toward the adoption of the Paris Climate Agreement from which the Trump administration has taken steps to withdraw. He would likely embark on programs to support Green New Deal concepts such as net-zero carbon by 2050 and subsidies for green energy technologies and infrastructure. Should Democrats control the Senate, expect legislative efforts to implement a carbon pricing mechanism through some combination of a carbon tax and cap and trade program, as well as efforts to change the tax code to increase the cost of fossil energy production and distribution and incentivize renewable energy production, development, and infrastructure.
A Biden administration would similarly be expected to support ongoing efforts by investors and financial institutions to more broadly push for the adoption of environment, social and governance (ESG) principles and standards by corporations and institutions. There are also reasons to believe that it would push the Securities and Exchange Commission to initiate regulations that would attempt to standardize ESG metrics and reporting requirements or even seek to require that publicly-traded companies, including those in the oil and gas industry, publish ESG metrics. Under a Democratically-controlled Congress, there may even be legislation adopted that would require public companies to adopt ESG programs and report ESG metrics.
It is also expected that a Biden administration would be supportive of overall global efforts to discourage investment in or financial support for fossil energy entities and projects. Congress and the administration might impose stricter rules, new disclosures, and stress tests on financial institutions regarding climate-related oil and gas activities. The U.S. government might also join NGOs and other organizations that pressure development banks and large commercial institutions not to support fossil energy projects.
In terms of foreign policy, a Biden administration would likely support the Iran Nuclear Deal and lifting sanctions on Iranian crude oil. It would likely be less supportive of Saudi Arabia’s position in the region, and less prone to actively oppose Russia’s attempts to provide more natural gas to Europe through the Nord Stream II pipeline project.
As for China, a Biden administration would be almost certain to embark on a path of improved relations and relaxation of tariffs, a move that would likely provide relief to the U.S. upstream, midstream, and downstream sectors and remove a cloud that has been hanging over U.S. LNG, crude oil, refined product, and chemical exporters.
While it is far too early to know who will win the White House and who will control Congress, it is clear that the upcoming elections will have a major impact on the future of the oil and gas industry. To the relief, or at least hope, of some in the industry, Biden would not likely be as fervently anti-fossil energy as his rhetoric on the campaign trail might suggest. However, with the power to issue executive orders and shape policies that would affect an oil and gas industry already damaged by a collapse in prices and global demand, should Biden be elected — and especially should his party win control of both houses of Congress — he should be expected to use it.
About the author: Brent Greenfield serves as Vice President and Counsel at Cornerstone Energy Solutions. He provides clients with strategic policy and management guidance, research, analysis and communications support across the upstream, midstream, and downstream segments of the energy industry. In addition, Brent serves as executive director of the National Ocean Policy Coalition, an organization comprised of members representing sectors including energy, fishing, waterborne transportation, construction, agriculture, and critical infrastructure.
About the author: Jack Belcher joins Cornerstone in 2019 with over 25 years of experience in energy and energy policy. As senior vice president of Cornerstone Energy Solutions, he provides strategic and tactical advice to energy and transportation companies and financial institutions, focusing on government relations, regulatory affairs, public policy, strategical communications, situational risk management, and Environmental, Social, and Governance (ESG) performance. Jack also serves as managing director of the National Ocean Policy Coalition.