An Analysis by PESA VP Government Affairs Tim Tarpley
Tremendous uncertainty still exists regarding the outcome of the U.S. presidential election. Recounts and unexpected legal turns are distinct possibilities in the coming days and weeks. Assuming the race is decided at this point is not prudent. PESA has prepared this analysis of how election results could affect the oil and gas industry.
For a time, it looked like President Donald Trump could win on Tuesday night. Momentum is now with Vice President Joe Biden, but that could change as states continue to count votes. Expect more surprises.
Currently, it appears likely we’ll have a President-elect Biden, Republican Senate and a Democratic House. With margins so close in several states, it bears repeating that what seems likely now could change.
What does that scenario mean for the OFS sector, which has already gone through a series of dramatic disruptions in 2020? The first thing to remember is that elections have consequences. There will be policy changes with a new administration. However, it doesn’t mean that we’re facing a disaster.
The good news is that the most dramatic and potentially negative policy changes that could hurt the oil & gas industry would likely be stopped or mitigated by a Republican-led Senate. Divided government is generally good for business.
That said, we should expect policy challenges ahead. It’s worth keeping in mind that these challenges were likely coming at our industry regardless of election results. Biden’s apparent victory may serve to accelerate things.
Change created opportunities, and our sector has proven to be remarkably adaptable through the years. We’re not going anywhere. We will continue to provide our country, and the world, with the energy it needs for many years to come.
If it all plays out, a President-elect Biden would inherit perhaps the most troubled America since the Vietnam era. The country faces a tremendous threat from COVID-19 and its resulting economic and societal impacts. Our economy is currently supported by massive and unsustainable government spending.
Biden’s top priorities will be to stop the pandemic and revive the economy, which means he likely will not have the time or political capital to immediately focus on energy and climate issues. Look for his appointments for the departments of Energy, Interior and EPA to take the lead on those issues initially.
Biden’s nominees will have to be confirmed by a Republican-led Senate, which may serve to moderate his choices to some extent. Biden and his team will also note that many far-left progressives lost across the country, which may make him hesitant to nominate leaders outside of the mainstream.
Tariffs are an issue many in our sector have struggled with over the past four years. Conventional wisdom in Washington is that Biden will not move immediately to end the China 301 or 232 tariffs imposed by President Trump.
Biden faces strong pressure from his union supporters to maintain the tariffs, especially given the tremendous economic strain and high unemployment related to COVID. His administration could modify tariffs if the Chinese are more willing to negotiate with a new administration. Additionally, many Senate Republicans disliked the tariff strategy, which could mean congressional efforts pushing Biden to modify or end many of the tariffs.
Of particular note to our industry, expect a flurry of executive orders undoing or rescinding Trump-era executive orders. Senate Republicans may try and slow some of these efforts through budget limitations, but this strategy will only work for so long. The GOP is expected to have a slim majority in the Senate, which could limit their ability to stop or slow Biden’s executive actions.
First on the chopping block would be Trump’s changes to enforcement of the Endangered Species Act and fuel emission standards. Next could be regulatory reforms, which allowed streamlined permitting for large infrastructure projects. This could face pushback from labor unions given the number of jobs created by these kinds of projects.
Another concern is that a President Biden could use executive powers to declare a national climate emergency. He will likely come under tremendous pressure from the progressive left to take this action. Such a declaration could give his administration wide-ranging authority to regulate carbon and take other climate-related actions. Given the economic challenges wrought by the pandemic, and poor election results for progressives, the Biden administration is likely to resist taking this type of bold action.
Perhaps the biggest near-term challenge for the OFS sector will be Biden making good on his campaign promise to prohibit fracking on federal lands. To achieve this, he could simply direct the Secretary of the Interior to halt oil-and-gas leasing and fracking on federal lands. Additionally, his administration will face increasing pressure to use other policy tools to slow permitting of fracking on private lands, perhaps using enforcement changes to the Clean Water Act.
While such administrative actions could be taken by the Biden administration, there are legislative avenues for Senate Republicans to blunt these efforts. Republicans would have to find allies among pro-energy Democrats in both chambers to be successful. We can expect this to be a significant area of conflict. Any changes to Clean Water Act enforcement will ultimately be challenged in court and could end up going to the Supreme Court, which now has six conservative justices.
The Biden administration may also consider urging federal agencies to deny or limit permits for new fossil fuel infrastructure, like pipelines, storage facilities, and refineries. This challenge has already manifested itself at the state level in the Northeast and on the West Coast. Many of the tactics used by these states could be replicated at the federal level. Congressional action and legal challenges in the courts will be the best options to prevent or limit such maneuvers.
Biden may also come under pressure to limit the ways money moves through the energy sector. He could prohibit the U.S. government from financing fossil fuel programs overseas and end Department of Energy loans for fossil fuels stateside. He could also require the Federal Reserve manage climate risks or create new reporting standards and investing limitations on fossil fuel companies. Legal challenges may be necessary here as well.
The OFS sector may find opportunities to work with the new administration on the multi-trillion-dollar stimulus the Biden transition team has indicated they are considering. Innovative new technologies like carbon capture could be included in a stimulus bill and OFS companies are uniquely situated to benefit from such opportunities.
Abandoned well plugging programs have also enjoyed bipartisan support, including a $2 billion dollar program that was part of the House-passed stimulus this summer. Such a program could be funded in a large stimulus bill and would be helpful for our sector as we await a rebound in oil prices.
The good news for the OFS sector is that a divided Senate and House is unlikely to pass any significant legislation over the next two years. Major progressive legislative priorities, such as the Green New Deal, will likely be either curtailed or dead on arrival in the Senate.
States are still counting votes and winners have not been declared in several races so the size of the Republican majority is still unclear. Overall, the most drastic policies we could have expected to emerge from Congress will be limited by the divided chambers.
Congress will be focused primarily on COVID stimulus and economic recovery legislation. Expect Senate Republicans to return to prioritizing spending reductions after the COVID situation stabilizes. Look for deal-making with moderate Republicans and Democrats teaming up. This will depend on the final margins, which we don’t know yet.
It’s wise to expect most policy challenges will come from the administration not Congress over the next two years.
PESA is keeping a close watch on the continuing vote counts and will update this analysis if final tallies differ from currently expected outcomes.
For more information about PESA’s Government Affairs efforts, contact Vice President Government Affairs Tim Tarpley.