TThe outcome of the US elections has cast a long shadow over the heart of the US shale. Joe Biden wants to make the climate crisis his top priority, indicating real hope for global efforts to avoid an environmental catastrophe and real concern for shale operators.
The president-elect’s climate plans include a return to the Paris climate accord, $ 2 trillion (£ 1.5 trillion) of clean energy spending, and the ambition to create a carbon-neutral American energy system by 2035 through “aggressive cuts emissions ”.
He was also quick to dismiss claims by Donald Trump’s campaign that he planned to extinguish the industry with a fracking ban.
The former vice president told voters in the swing state of Pennsylvania before the election that fracking “has to continue because we need a transition,” and said there was no reason to eliminate it “right now.”
So how harsh is the new American administration on the shale industry?
When asked earlier this month if shale producers should be concerned about the incoming administration, US Secretary of Energy Dan Brouillette responded: “Of course.” He told the business news channel CNBC: “I think they should be, frankly, because there are some in Congress who are going to push for a climate policy that is going to be very aggressive. So there may be some concern on the part of those people. “
There is little doubt that Biden’s victory means a slow and steady decline for a fossil fuel industry that has flourished under the light touch of the Trump administration. But it will require careful dismantling of the future of the industry rather than giving it a sledgehammer.
Biden told campaign voters that he would “transition the oil industry” because it “pollutes significantly” and has to be replaced by renewable energy over time. He also said: “We are not getting rid of fossil fuels. We are getting rid of fossil fuel subsidies, but we are not going to get rid of fossil fuels for a long time. “
Many believe that as the new administration tackles the coronavirus pandemic and its economic consequences, any action against fossil fuels will need to be balanced against the short-term impact on employment.
The US oil and gas industry helps prop up the economy by supporting approximately 10 million skilled jobs, enabling relatively cheap trucking and generating more than a third of the nation’s electricity. The coronavirus pandemic has caused the industry to lose 100,000 jobs and wells were forced to close.
Biden is expected to take steps that gently tilt the market economy against fossil fuels by gradually reducing the amount of oil and gas that can be produced and increasing costs. He plans to limit the reserves that frackers can tap into, reduce final demand for fossil fuels by building a green electric system and electric vehicles, and increase the cost of production for each barrel to match industry profits.
His most decisive move is likely to focus on reducing drilling on federal land. Most shale activity takes place on state-owned or privately-owned land – only about 22% of US oil production and 13% of natural gas production is produced from licenses that are federally owned. The move could reduce up to 2 million barrels of total US oil and gas production by the end of 2024, according to analysts at S&P Global Platts’ analytics division.
This shock is unlikely to be too strong in the short term, according to Artem Abramov, an analyst at Rystad Energy.
“The permitting ban on federal land has garnered a lot of attention throughout the presidential campaign, and there are some operators who are concerned,” he said. “But I don’t think they see this as a deciding factor for future growth.”
Many shale operators have accelerated permit applications on federal land in anticipation of policy changes, which should support growth in the short and medium term. Later, the hydraulic fracturing activity will migrate from the federal areas to the remaining private and state areas, so the impact will be silenced.
Some operators are even optimistic that there could be a gas boom in the short term, as the White House takes steps to help displace coal in America’s energy system to reduce emissions. Coal was used to generate nearly a quarter of America’s electricity last year, compared with 38% for gas.
Hydraulic fracturing is likely to get more expensive with Biden, who is expected to reduce many tax incentives and impose stricter regulations on methane emissions and other environmental protections. The net result could add between $ 5 and $ 6 a barrel to the cost of production, according to analysts at Goldman Sachs, which could make some traders uneconomical in a global market where price forecasts are significantly lower than before. the coronavirus pandemic.
This would likely accelerate the consolidation of distressed debt-laden operators into the more financially efficient oil and gas companies that are poised to lead the industry recovery in the coming years, Abramov said. But anything could happen. So that’s the main concern of shale producers. “
Digsmak is a news publisher with over 12 years of reporting experiance; and have published in many industry leading publications and news sites.