What Rocky Mountain Producers Can Expect Under a Biden Administration

What Rocky Mountain Producers Can Expect Under a Biden Administration
Washington DC, USA - October 20, 2018: Tourists during White House Garden Tour, residence of the United States President, in the city of Washington DC, USA.

Wyoming’s October 2020 Revenue Forecast shows exactly how hard the COVID-19 economic downturn has hit oil and gas producers in the nation’s Rocky Mountain West. While the state’s revenues were not as bad as predicted in May, the state still is expected to fall short of more than $450 million in lost revenue, largely as a result of lost oil and gas production which, at times, has all but shut down during the pandemic.

Like producers in other parts of the country, the significant drop in demand and the resulting plummet in the market has forced Wyoming producers to make hard choices about how to keep doing business.

“They have been doing whatever they can to survive,” Petroleum Association of Wyoming President Pete Obermueller said. “They have been pulling in as much as they can to weather the storm.” This includes shutting in wells, allowing less productive leases to expire, and laying off employees.

And then, in July, the state’s drill-rig count dropped to zero, a thing that had never happened since production began in 1884, an activity predating statehood.

The rigs, however, soon started up again, and the industry’s will to survive has been demonstrated as both oil and gas continue to flow, but state and local communities are left with compelling questions about how much longer the bust is going to last.

Depending on who you talk to, the rebound could take anywhere from one to two years to get the industry back to firing on all cylinders.

A Biden/Harris administration, however, changes all calculations.

“Data shows demand for liquid fuels, etc., has looked like a ‘V,’” Obermueller said. “Production, on the other hand, has looked like a reverse checkmark, where it ticked back up part-way and then leveled off. Even though the recovery has come partway up, it still has to work its way up the chain to get to us. When I talked to my board a few weeks before the election, we thought we could get there in the second to third quarter of 2021, but a Biden administration may change all that.”

During the 2020 election cycle, both President-Elect Joe Biden and Vice-President Elect Kamala Harris raised concerns about future oil and gas policy and about whether or not they would be willing to regulate the industry out of existence. Both are on record denouncing the “evils” of hydraulic fracturing and, although Biden says he was for fracking before he was against it, he also indicated a willingness to ban federal leasing on public lands, a policy that would hit the Rocky Mountain West particularly hard given the significant amount of land owned by the federal government.

“All we have to go on now is what he said publicly, which is that he wants to halt leasing on public lands. That would be catastrophic to Wyoming,” Obermueller said. “Given that nearly 75% of all minerals in Wyoming are owned by the federal government, a ban on federal leasing and development would decimate the natural gas and oil industry and Wyoming’s economy along with it. It is going to be rough sailing with a Biden Interior. There is no doubt about it.”

The Biden administration is expected to use executive orders and reinterpretation of federal regulations to reinstate Obama-era controls and possibly go even further to limit industry. According to Obermueller, that means states like Colorado, New Mexico and Wyoming will be hit the hardest by limitations on federal lands.

“You have heard that some companies have signaled they are not concerned about the Biden administration, but those companies primarily produce in states whose oil and gas is produced on privately-owned land,” Obermueller said. “Banning fracking and leasing in Wyoming does nothing to reduce U.S. emissions. Production will simply shift to private lands states like North Dakota and Texas.

If the former Obama/Biden administration is any indication of what a Biden/Harris administration will look like, Obermueller’s concerns have a solid foundation.

“I would say a return to the Obama administration is a best-case scenario,” Obermueller said.
Lynn Granger, Executive Director, API Colorado, offers additional insight. “In September, API released a new analysis assessing the impacts of a proposed ban on federal leasing on natural gas and oil development on public lands and waters,” she said. “The results were chilling; in Colorado alone, the study suggested that 18,000 jobs would be lost by 2022, with $108 million in state revenue put at risk. The picture is even gloomier in a state like New Mexico, which would lose an estimated 62,000 jobs. Ultimately, the decision on a federal leasing ban is a choice between American-made energy and foreign energy, and similarly, a choice between American jobs and foreign jobs. We remain hopeful that the Biden administration will choose a different path, as over a million American jobs would be on the near-immediate chopping block.”

In Wyoming, the same report said a federal leasing ban would result in a 31% decrease in the state’s oil production, a 36% decrease in its natural gas production, and would result in a 5.5% increase in CO2 emissions nationally by 2030.

Even before being sworn into office, President-Elect Biden has taken steps that signal potential disquiet within the industry. In November, he announced he would resurrect the position of Climate Czar and would appoint former U.S.
Secretary of State John Kerry to fill the position. At the same time, he proposed a “Plan to Build a Modern, Sustainable Infrastructure and Equitable Clean Energy Future.” A plan that hinges on doubling down on the Obama administration’s green-jobs proposal and promises to “hold polluters accountable” up to and including an effort to “seek additional legislation as needed to hold corporate executives personally accountable — including jail time where merited.” This appears to be a signal he will make a run at reversing recent court decisions to hold oil and gas producers responsible for potential climate change impacts.

And what will the Biden administration do about all those executive orders that the Trump administration issued to automatically undo all the executive orders implemented by the Obama administration four years earlier?

If the Biden administration follows the lead of states like Washington, Oregon, California, New Mexico and Colorado, where Democrats recently found themselves in complete control of state government, it is highly probable to expect the Biden administration to push the envelope as far as they can on some of the Democrat party’s most extreme policies.

For example, one of the first things Colorado Governor Jared Polis did after taking office was push the Colorado Assembly to pass SB-181, a bill that made significant changes in the way Colorado regulates the oil and gas industry. Just a few months earlier, voters had rejected a ballot initiative, Proposition 112, that would have imposed aggressive setbacks that would have placed more than 80% of the state’s available land off-limits to oil and gas development.

“The 2019 passage of Senate Bill 181 represented the most significant legislation targeting our industry in memory, and perhaps in Colorado history,” Granger said. “Its passage has already led to a number of rulemakings and a bevy of new regulations on our industry, some practical, but others arduous and, we worry, potentially subjective in application.
When we began the now-completed Mission Change rulemaking, in which the Colorado Oil and Gas Conservation Commission’s stated mission changed from one of ‘fostering’ natural gas and oil production to one of ‘regulating’ it, my overarching hope was that the changes, however dramatic they might be, would lead to certainty for our industry. Though we have achieved greater clarity in certain areas, we remain concerned that the rules and regulations still to be implemented lack the certainty that our operators need to assuredly go about their work. We remain closely engaged with the COGCC, AQCC and their respective staffs in an effort to achieve this certainty, such that operators and the public can enjoy clearly defined and fully functional standards.”

The industry, however, has demonstrated it is willing to put in the work to make sure it can continue to do business.

“We have worked closely with the Polis administration, as well as with state regulators, to ensure that Colorado’s natural gas and oil industry can operate amid what is admittedly a sea change in the state’s regulatory framework,” Granger said. “This has been a tough year for our entire industry, as a global pandemic and a needless Saudi-Russia trade war sent energy prices plummeting in the spring. We have had to be nimble, navigating those externalities while simultaneously facing tough new regulations at the state level, but we remain optimistic looking to 2021 and beyond. For his part, Governor Polis announced this summer that he would oppose biased and punitive ballot measures aimed at our industry through the 2022 election cycle, and we welcome his partnership, as numerous such initiatives have already been filed by environmental activists.”

Granger also pointed out that the oil and gas industry has weathered storms and significant downturns before.

“Ours is hardly the only industry that has faced economic hardship in 2020,” she said, “but we are optimistic that we will see significant improvement in 2021, with further growth extending into 2022. The natural gas and oil industry is among the most resilient industries in the world. We’ve been through plenty of tough times, but every time, we have recovered and ultimately grown. We expect the same in the wake of the challenges brought forth by the pandemic and other externalities this year.”

In other words, don’t be too quick to count out oil and gas in the Rocky Mountains.
“The oil and gas industry does so much more than just provide energy,” Obermueller said. “Oil and gas delivers the chemical building block for just about everything we use in modern society.” That means food, medicine, clothing, vehicles, and every phone, video game, computer, or other useful gadgets on the market today has oil and gas to thank for either the way it is transported and delivered to the consumer or for its very existence. This list includes, by the way, renewable energy.

Increased use of renewables won’t stop consumers from increasing their personal use of oil and gas as an energy source or as a way to support the energy they ultimately consume. A November 5, 2020, report by the U.S. Energy Information Administration detailed that California, a state which already had installed more than 20 gigawatts of solar capacity as of January 2020, still has an increased call for natural-gas fired generation to fill peak demand.

“Solar-powered generation is typically highest in the late morning and early afternoon hours, requiring a combination of other generation fuels, electricity storage, or imports to serve peak demand in the early evening. Because of this requirement, natural gas remains a primary fuel to meet state electricity demand as load and resource availability shifts during the day,” the report said.

“Natural gas and oil will remain a critical component of the American and global energy landscape for decades to come,” Granger said. “The Paris Agreement-aligned International Energy Agency Sustainable Development Scenario projects that natural gas and oil will still account for 46% of the global energy mix by 2040, even as renewable usage grows dramatically. We will continue to lead, not follow, on reducing emissions and increasing efficiencies, but there is no question that America’s energy future will be powered in large part by natural gas and oil.”

After all, when you work in an industry that runs on boom-and-bust cycles, companies have no choice but to be constantly looking ahead.

“The natural gas and oil industry — in the Mountain West and across the nation — is among the most resilient industries in America,” Granger said. “We have weathered many storms in Colorado, and while they feel more frequent these days, we remain focused on safely and responsibly developing affordable, reliable energy, both for Coloradans and the nation. We are proud of the work we do and will continue to do for decades to come.”

About the author: Dallas Scholes is an experienced legislative attorney, lobbyist and energy policy professional. He earned his law degree from The George Washington University Law School and spent ten years working on Capitol Hill in Washington, DC. For the past 15 years, he has specialized in energy policy issues in the Rocky Mountain West. He and his wife are the proud grandparents of three grandchildren. They currently live in Draper, Utah, with two of their five children.


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