Joe Biden was accused during the presidential campaign of planning for the end of oil, but some analysts say the president-elect won’t hurt — and may actually help — the industry.
The pandemic has forced dozens of oil and gas producers out of business and sparked a wave of cost-cutting, debt reduction and consolidation among surviving companies.
That has added to industry warnings that a crackdown by Biden as president could interrupt energy production and spark a deep economic decline.
"You’re talking big job losses, nearly a million jobs through the entire economy by 2022," Dean Foreman, chief economist for the American Petroleum Institute, said in a panel last week hosted by the Dallas Federal Reserve Bank and Kansas City Federal Reserve Bank, speaking about Biden’s proposals.
But others say the Biden administration may force the oil and gas sector to comply with investors’ increasingly climate-conscious demands and help it adapt and survive longer in a carbon-conscious world. The president-elect’s proposals on issues such as methane also could align the U.S. more with other countries, giving a potential boost to U.S. gas, analysts say.
Biden’s energy plan touches on oil and gas development in several ways, perhaps most prominently by calling for an end to oil and gas leasing on public lands, which accounts for roughly a quarter of U.S. oil production depending on the year. Biden was accused of calling for a ban on hydraulic fracturing during the campaign, but he has not been firm on a fracking ban and denied any ban on private land. Biden also calls for modifying royalties to account for climate costs and ending fossil fuel subsidies.
It’s unclear at this point how high a priority those policies are for Biden, considering some were not mentioned with other energy initiatives on his transition website. But the tightened regulatory approach could be beneficial to companies after the "Wild West mentality" of greater access to drilling rights across federal lands and reduced oversight on issues like methane pollution that characterized the Trump era, said Jen Snyder, director at Enverus, an energy data firm based in Austin, Texas.
With the oil and gas industry facing a finite amount of time to be a prominent player in the energy mix, an improved relationship to the rest of society and state officials could be important and extend the industry’s viability, some argue, pointing to states like Colorado and California that have started a crackdown on the side effects of drilling.
"Certainly there will be stress on some operators" under Biden, said Snyder in an interview. "But another four years with a frenzy of permitting and drilling and activity would push action back down to the states and close that window even sooner."
In the near term, oil prices and the stock market don’t seem concerned about the industry’s future.
Oil prices climbed to their highest since March on Tuesday, after promising news on COVID-19 vaccines from Moderna, Pfizer Inc. and AstraZeneca PLC. The price jump also followed the announcement that the government agency overseeing the presidential transition would end its two-week standoff in President Trump’s favor and begin the formal transition process to Biden.
Methane ‘black eye’
The Trump administration may have been characterized by its love for fossil fuels, but the president "raised suspicions about the industry and in some ways pushed back on regulations that were at times supported by the industry," Snyder said.
That renewed public scrutiny dovetailed with rising concerns about methane emissions and climate impacts from investors, she said.
Biden’s tenure could serve to reverse some of that damage and give oil and gas — particularly natural gas — a longer lifeline by addressing the industry’s methane "black eye," she said.
Methane emissions have become increasingly worrisome to scientists as the breadth of leaks and releases from the oil and gas sector has become better understood.
Earlier this year researchers identified the methane release from the Permian Basin in Texas and New Mexico as the largest ever for a U.S. oil play. The wasted gas was estimated as enough to serve 7 million households (Energywire, July 22).
Several federal standards to address methane emissions, by EPA and the Bureau of Land Management, at their source in the oil patch were penned toward the end of the Obama era only to be dismantled or weakened during the Trump years as part of the administration’s commitment to energy dominance and deregulation. Biden has said he will reinstitute strong methane standards.
Snyder said oil and gas should be making the case that they represent an excellent bridge fuel and a crucial part of the power sector despite the longer pivot toward renewables.
"It’s very hard to make that positive argument about gas’s greenhouse gas profile relative to coal when you’ve got methane emissions undercutting it and gas flaring as a black eye for the industry," Snyder said.
Paul Bledsoe, a former climate staff member in the Clinton White House, now strategic adviser at the Progressive Policy Institute, added in an email that the argument for a well-regulated American gas sector could be well received by industry.
"Many major natural gas producers support reasonable regulation of methane as a way to both lower domestic emissions and increase efficiency," he said, arguing that American natural gas has a better profile on climate than the gas coming out of Russia or Iran.
U.S. regulatory weakness on methane has had implications globally, and some have said the U.S. position ultimately is hurting U.S. gas exports. Current U.S. methane policy, for instance, reportedly played a role in French company Engie SA’s October decision to delay a potential long-term supply contract with American LNG developer NextDecade Corp. (Energywire, Nov. 4).
A climate argument about reducing methane can’t be limited to the United States — it has to factor in these other players and talk about displacement of foreign gas in favor of American gas, Bledsoe said.
In that regard, Biden may find himself on common ground with oil-friendly Republicans on Capitol Hill.
"Look for the Biden Administration to emphasize both the climate and geo-political benefits of lowering U.S. gas emissions," Bledsoe said in an email. "There is an overlap between domestic climate, international climate and geopolitics that I think can be a sweet spot for Biden."
Consolidation
Other trends shaping the oil and gas sector could make it resilient against any push from Biden, analysts say.
The industry is already trying to reduce its environmental footprint, in part to help it retain investors, for example. Bankers and shareholders are demanding that companies not only turn a profit, but also set environmental, social and governance goals.
That’s been a key theme in the half-dozen or so energy company takeovers announced in the last few months. The companies involved have stressed that they’ll not only be more efficient, they’ll also produce less emissions. ConocoPhillips, which acquired Concho Resources Inc. last month in a $9.7 billion deal, announced the same day that it’s setting a goal of reducing its emissions to the equivalent of zero by 2030 (Energywire, Oct. 20).
Cutting costs will also help the companies survive, said Bryan Benoit, a partner at the accounting firm Grant Thornton LLP who specializes in oil and gas.
"Going back six months ago, maybe even farther, energy companies were perceiving a need to do that," he said.
The financial pressure has also forced hundreds of companies into bankruptcy, including 43 so far this year, according to a tracker kept by Texas law firm Haynes and Boone LLP.
As a financial underperformer in recent years, the oil and gas sector is also being pressed by investor demands to account for carbon’s social cost. And that’s continually changing the character of the oil and gas sector.
Investors driving this consolidation will reward companies with stable returns, low debt levels and strong environmental performance, according to the consulting firm Wood Mackenzie.
"A world on a 2-degree glidepath does not need thousands of Independents chasing volume," Luke Parker, vice president at Wood Mackenzie, said in an industry note last week. "We may come to look back on the last few months as the beginning of the consolidation that will define the oil and gas sector over the coming decade and beyond."
Additionally, the Biden administration is likely to move slowly on energy policy, partly because it likely won’t have full control of Congress and partly because Biden wants to govern from the center, said Dave Meats, a stock analyst at Morningstar.
That means investors will continue to be the main driver of changes in the energy sector.
"Anything the government does accelerates the timing," Meats added, putting industry closer in line with what its investors are already calling for.
"I don’t think [the Biden administration will] have a huge detrimental impact, and it could possibly have a positive impact if it hurries up the industry on an issue that investors are concerned about," he said.
‘We don’t compromise’
The potential for Biden to benefit the oil and gas sector depends in some ways on the president-elect’s campaign pledges on fracking.
"When it comes to governing, these issues get more complex," said Bledsoe of the Progressive Policy Institute.
In a virtual debate held Nov. 5 by the Oil and Gas Council, participants from the industry and finance world made it clear they were banking on that complexity, arguing that policy proposals such as axing new oil and gas leasing on federal lands could be used as bargaining chips when Biden faces off with a potential GOP-led Senate on his infrastructure push.
The president-elect will be focused on jobs, economic growth and infrastructure in a return from the pandemic slowdown, they said in the virtual debate. That focus is good for the oil and gas industry, and it will require compromises on some of the hard-line campaign promises, they said.
"Maybe you keep issuing permits on the most [profitable lands] and maybe pull back in other areas," said Snyder of Enverus in an interview after the debate. "Maybe that is a piece of the negotiations."
Standing in the way of that moderate approach may be the environmental movement, particularly those concerned with retiring oil and gas development on federal land as soon as possible.
"We expect a fight with the Biden administration," said Jeremy Nichols, climate program director for WildEarth Guardians, a firm keep-it-in-the-ground group based in Colorado.
The advocacy group is one of a handful that have been involved in many of the successful court cases stalling leasing decisions on federal land in recent years as well as active participants in drilling and land management protests aimed at curtailing development and stoppering emissions (Energywire, Nov. 3).
While moderates in the oil and gas sector are pushing the Biden administration for more compromises with industry, advocacy groups are championing even more progressive federal land policies to reform the program and plan to fight for campaign promises around climate, according to Nichols.
The Biden climate approach appears sincere, he said. And it’s the climate argument that ultimately will undergird the federal drilling fights, he added.
"We don’t compromise on the climate crisis at this point," he said.
