Energy doomsday scenario pushed by industry groups as election approaches
Will the nation’s recently found energy independence evaporate if former Vice President Joe Biden wins November’s election against President Donald Trump?
The issue came up in Thursday's debate when Biden said, “I would transition away from the oil industry, yes. The oil industry pollutes, significantly. It has to be replaced by renewable energy over time.”
Trump, who has repeatedly stated that Biden favors a ban on hydraulic fracturing (fracking), responded, “Basically what he is saying is he is going to destroy the oil industry. Will you remember that, Texas? Pennsylvania? Oklahoma? Ohio?”
The interchange highlights how the energy industry once again is in the crosshairs of political action. Speculation over which candidate or party best supports the industry is always debated — especially leading up to presidential elections.
The American Petroleum Institute (API) and other energy-related advocacy groups are making last-minute predictions about how the industry might change if Biden emerges as the victor.
Some, like Continental founder Harold Hamm, feel Biden would significantly harm the industry and the broader economy as a whole, while others estimate the energy industry could see a more "mixed bag" of results.
If Biden were to bar new oil and gas leases for wells drilled on- and off-shore on federal lands and waters, API predicts domestic production of natural gas would drop about 12% and cut the production of crude oil by nearly a quarter.
It also predicts significant losses of jobs, royalty revenues to state and federal governments and a decrease of the nation's gross domestic product.
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It also predicts foreign oil imports would increase and that U.S. consumers could pay substantially more for the energy they consume.
Hamm warns of consequences
Harold Hamm, the executive chairman of Oklahoma City-based Continental Resources, is visiting with reporters across the country to discuss how he believes Biden’s proposal could harm the nation’s domestic energy industry.
He told The Oklahoman that while predicted production cuts could help commodity values, he feared resulting job cuts, the loss of economic activity and other factors could throw the nation into a full-fledged depression.
While the Biden campaign has temporized its plans related to climate change and the environment as the election approaches, Hamm said its ultimate goal remains unchanged.
“What they are really talking about is shutting down horizontal drilling across the country,” he said, noting the industry expects it would see a return to what it experienced under President Obama's administration, which did what it could administratively to slow development of oil and gas leases involving federal lands.
“We called it a death of 1,000 cuts,” Hamm said. “Under Biden, we would go right back to an environment of scarcity of resources, rather than the abundance of resources the industry has developed under the Trump administration.”
He also criticized Biden for his vote as a congressman to support the Fuel Use Act of 1978, a law that required that any new power plants built in the U.S. to supply base loads of electricity using coal (estimates at the time predicted the U.S. was rapidly using up its remaining oil and natural gas reserves).
Congress repealed that law nine years later.
Hamm said the U.S., under President Trump, achieved a state of energy independence that provides citizens with home-grown, affordable energy while keeping the U.S. clear of potential geopolitical entanglements or outright conflicts involving overseas energy sources.
Here in Oklahoma, the oil and gas industry generated a third of the state’s economic output in 2018, supporting 357,000 Oklahoma jobs directly involved in energy production or supporting the industry, Hamm noted, citing data published by the Oklahoma Energy Resources Board.
“President Trump realized the energy renaissance we have had could be a tremendous driver of our economy, and it has. If you go the other direction, you are going to throw the country into a depression. We think the choice is clear."
A potential 'mixed bag'
A ban against new leases on federal-controlled lands in the U.S. would impact Oklahomans, but perhaps in ways you might not expect.
First, outside of Osage County, most mineral rights in Oklahoma are not held by federal agencies on behalf of tribes or the nation’s government.
Second, if predicted production cuts ultimately proved accurate, some analysts expect commodity values would rise during the next decade.
That could boost the value of reserves companies hold within the state, making it more economical for those companies to drill and complete wells here.
Increased drilling and completions activities could help put some of Oklahoma’s energy workers who recently lost their jobs back to work.
Embark, a company that provides businesses with financial services, is hearing from its energy industry clients in Oklahoma that a Biden administration would result in a “mixed bag” of results.
Robert Grisaffe, Embark’s Oklahoma market president, said companies holding federal leases certainly have reason to be concerned.
“But for companies that have significant production and not much in the way of development, they see a Biden administration could improve their situations if drilling slows down … by pushing prices up,” Grisaffe said.
Zac Reynolds, the chief investment officer of Oklahoma City-based Full Sail Capital, noted what Embark is hearing from its clients isn't unique, adding he recently read a column penned by a C-suite energy company executive who recalled how he had warned his colleagues to be careful about what they wished for as they celebrated Trump’s victory four years ago.
While the executive’s colleagues were celebrating, he wrote that he was worried less regulation would lead to an oversupply of oil and natural gas and lower pricing for those commodities.
“That’s what happened," Reynolds said. "Even though it has been a really friendly business environment for oil and gas companies, it actually has been a really difficult environment for their shareholders because you have seen commodity prices go down as supplies have climbed and that has really hurt returns.”
While Biden’s proposal certainly could create significant consequences for the nation’s energy industry, answers to several big questions will determine how severe they become.
First, specifics are lacking when it comes to Biden’s proposal. Would it be enacted immediately across Alaska, the Lower 48 and Gulf of Mexico? Or, would it be gradually phased in over time? How would it impact companies’ abilities to drill and complete new wells on federal leases they already are contracted to produce? And could his proposal be delayed by court challenges that surely will come?
Also, ongoing demand destruction that was caused globally by the COVID-19 pandemic continues.
In a short-term energy outlook released by the U.S. Energy Information Administration the first week of October, it estimates that while the global consumption of petroleum and liquid fuels will climb by 6.3 million barrels of oil per day in 2021, that will still be less than what was consumed in 2019. So if a recovery from the pandemic takes time in the U.S., would a production loss be noticeable?
And what about OPEC+? Would it shift its production quotas one way or another as the U.S. production profile changes to influence global markets to give it an advantage?
Good politics, but tinkering isn't easy
Steven Agee, an economics professor with about four decades of energy industry experience who is the dean of the Meinders School of Business at Oklahoma City University, said the energy debate makes for good politics.
But Agee cautioned that tinkering with the nation’s energy system isn’t an easy thing to do.
First, he said people need to be aware the U.S. consumes more than 15% of the energy used globally each year.
Second, he said the EIA estimates that nearly 70% of the 100.2 quadrillion British thermal units (Btu) of energy the nation consumed in 2019 came from oil and natural gas.
Renewable energy sources only provided 11% of that energy, a breakdown published by the EIA on its website shows.
“People have no clue how much energy we consume as a nation — one quad of energy is like a trillion cubic feet of natural gas,” Agee said. “When you consider that 70% of that was provided through oil and natural gas, there is no way the nation could eliminate that by 2035, and probably not by 2050.
“A carbon neutral approach might be possible, if you were to implement some kind of carbon tax system to adjust for people who are admitting CO2 and those who would want to take it out. But there is just no way that renewables can replace that much energy consumption, unless you are willing to shut the entire economy down.
“Nobody — no matter how hardcore they are — is going to go that far.”