Lauerman: Biden Presidency Series Part 2 – Policies For U.S. Oil And Gas Industry
Joe Biden, the presumptive Democratic nominee for the U.S. presidency, upped the ante for his Clean Energy Revolution on July 14, the day after part one of this four-part series was published.
He is now planning to spend US$2 trillion of federal funds over four years if elected president in November, nearly three times more on an annual basis than his original commitment (see Biden Presidency Series Part 1 – Clean Energy Revolution).
This reinforces the fact Biden is serious about combating climate change, and increases the potential impact of his Clean Energy Revolution on global energy consumption and energy mix in the medium to longer term. However, increased spending should have little or no impact on future U.S. oil and gas production. His probable policies for the industry, the focus of this, the second part of the series, are regulatory rather than fiscally driven.
To identify Biden’s probable policies for America’s oil and gas industry, it’s important to first determine whether or not he supports a ban on fracking, as his critics claim, as this would mean the end of the U.S. Shale Revolution. Next, explore his track record on this issue while serving as vice president under Barack Obama. Third, identify his proposed policies for the U.S. oil and gas industry to date. The final section explores possible reasons for Biden’s apparent pragmatism, suggesting continuing pragmatism if he becomes president of the U.S.
Energy critics of Biden, such as Harold Hamm, billionaire shale pioneer and close ally to President Donald Trump, continue to claim the Democrat is anti-fracking and is planning to impose a ban on the practice in the U.S. if he becomes president. During a debate for the Democratic presidential nomination on March 15, and following much prodding by Senator Bernie Sanders, Biden did say: “No more — no new fracking.”
This view appears to be widely held by U.S. oil and gas industry executives, at least based on polling results by the University of Houston’s Hobby School of Public Affairs. It surveyed Texas oil and gas executives between May 12 and 27 to determine what they believe to be the greatest threats to the economic well-being of their industry over the next year.
The greatest threat in the eyes of the respondents was the election of Biden to the presidency, with 76 per cent of respondents saying it posed either a ‘great deal’ (51 per cent) or ‘good deal’ (25 per cent) of a threat, trailed by an oversupply of oil and gas, continued weak oil demand and the prospect of a global and U.S. recession — 75 per cent, 73 per cent and 68 per cent, respectively.
However, immediately after the March 15 debate, the Biden campaign said their candidate had misspoken, and in fact was referring to his long held position of banning new oil and gas drilling permits on federal lands and water — only indirectly impacting fracking, and accounting for just 10 per cent of prospective acreage in the U.S. Reinforcing this point, Biden explicitly said he does not support a fracking ban before the debate, during a CNN Town Hall last September, and since then during an interview with KDKA television in Pittsburgh in April.
The Obama-Biden administration did impose the first regulations on fracking on federal lands in March 2015, leading to withering criticism and lawsuits by the U.S. oil and gas industry and some producer states. But, if anything, the purpose of these regulations was to protect the industry, not shut it down.
A growing anti-fracking movement was spreading across America early last decade, supported by documentaries such as “Gasland,” released in 2010. In response, in May 2011, the Obama-Biden administration asked the Department of Energy (DOE) to form a panel of academic and environmental experts to identify immediate steps to improve the safety and environmental performance of fracking — a move the Alberta government would have been wise to have taken when oilsands growth ramped up the decade before.
“America’s vast natural gas resources can generate many new jobs and provide significant environmental benefits, but we need to ensure we harness these resources safely,” DOE Secretary Steven Chu said in a statement — growth in U.S. light-tight oil (LTO) production had yet to take off at that point in time.
The seven-person panel, including Daniel Yergin and Fred Krupp, president of the Environmental Defense Fund, released its draft report in August 2011. The panel said the natural gas industry must become more transparent, engaged and better regulated, if it is to avoid a severe backlash from the American public.
The panel also recommended a number of specific regulations, some of which were incorporated into the federal 2015 fracking regulations — after four years of political struggle. These include: the testing of cement for separating wells from groundwater before operations begin; and the storing of frack water flowing back to the surface in above-ground storage tanks rather than lined pits.
In addition, the Obama-Biden administration supported an end to the 40-year ban on U.S. oil exports in December 2015, despite America still being a significant importer of oil at the time — many refineries on the Gulf Coast, California and Midwest are configured to run heavy-sour crude. The U.S. was suffering a glut of light crude oil, given rapid increases in LTO production, leading to prices significantly below global benchmarks such as Brent blend.
Biden has been less than forthright about specific policies for the U.S. oil and gas industry compared to ones to combat climate change for a simple reason, to avoid alienating the Progressive wing within his own Democratic Party, who want greenhouse gas emissions curtailed on both the demand and supply sides of the fossil fuel equation.
But he has indicated he would ban new drilling permits on federal lands and waters (as previously mentioned), tighten environmental regulations, including strict limits on methane emissions for new and existing oil and gas operations, and end all subsidies to the oil and gas industry.
At the same time, Biden is planning to push for a global moratorium on offshore drilling in the Arctic, while re-establishing climate change as a priority of the eight-member Arctic Council. As a first step, he would end new oil and gas drilling in U.S. Arctic waters.
Basis for pragmatism
The core reason for the apparent pragmatism of Biden’s proposed policies for the U.S. oil and gas industry: he doesn’t want to kill the goose that lays the golden economic, security of supply and geopolitical eggs. The U.S. Shale Revolution has given a tremendous boost to the American economy, especially over the past decade with it spreading to LTO. It has added jobs, increased revenue for federal and state governments, while improving the country’s trade balance.
In addition, the shale revolution has allowed America to achieve energy independence, and with it security of supply, unthinkable a mere decade ago. As a result, the U.S. is no longer beholden to foreign dictators for its oil, as it was during the oil price shocks of the 1970s.
Finally, massive increases in domestic oil and gas production has allowed the U.S. government to impose economic sanctions on petroleum industries of many of its geopolitical foes — such as Iran, Russia and Venezuela — without causing oil and gas prices to skyrocket.
The third part of this series will quantify the impacts of Biden’s probable policies for the U.S. oil and gas industry and his Clean Energy Revolution on global energy consumption, energy mix and U.S. oil and gas production through 2035, while providing plausible prices for these two commodities.