State of the Industry
After the first several weeks of the Biden Administration, the oil and gas industry has been overwhelmed by the number of Executive Orders and other announcements aimed at their industry. However, as with most issues, the reality is much more complex than the headlines. This column will lay out some of the less-than-obvious ramifications of the recent actions, especially with respect to the Appalachian region.
Drilling ban on federal lands.
The Department of Interior, on January 21, acted quickly related to President Biden’s campaign pledge to block oil and gas drilling on public lands, freezing leases for the next 60 days. Subsequently, an order was signed to ban development of any new leasing or drilling permits. Of course, this is bad news for oil and gas companies operating in the areas of the country with federal lands. In Appalachia, there are few, if any, parcels that are impacted by this ban, likely creating more relative demand for the products drilled locally. It may also create upward pressure on oil and gas prices, creating some additional profitability for companies throughout the industry supply chain, but potentially driving up fuel costs for businesses and consumers.
Canceling the Keystone XL Pipeline.
One of the first Executive Orders signed by the new administration was to cancel the Keystone XL pipeline, which was already under construction to bring Canadian crude oil to U.S. markets. Even though the pipeline cancelation does not directly impact our region, it is unfortunate for the workers losing their jobs. In addition, akin to the drilling ban on federal lands, the resulting reduction in supply should raise prices.
Re-joining the Paris Climate Accord.
The Biden administration acted to rejoin the Paris Climate accord on his first day in office, bringing the U.S. back into the global discussions about climate change. It is well-understood that the U.S. has reduced its greenhouse gas emissions beyond what would have been required by Paris due to the switching to natural gas for electric power generation. That could bode well for the use of our region’s natural gas going forward to further reduce emissions. However, a competing priority to decarbonize the U.S. power sector in 15 years could work against these goals.
On January 25, President Biden signed an Executive Order strengthening the nation’s Buy American provisions, which could prove to help encourage more locally made products to enter the vast energy supply chain. More domestic manufacturing will create more demand for energy which is good for the industry.
In addition to these major developments, oil and gas, and other industries will be facing additional requirements to calculate the social cost of carbon and to incorporate yet-to-be-defined ESG (Environment, Social, Governance) criteria into their financial reporting and daily operations. These are expected to be costly and difficult to implement, though ripe for innovative solutions from our region’s entrepreneurs.
With all of this said, it would be folly to try and predict the future outcomes of these and other actions by the multiple branches and many agencies of the federal government, not to mention the individual states with their vastly different perceptions of the energy industry. However, change and necessity are often the parents of invention. All the more reason to stay engaged with Shale POWER!
by Katie Klaber
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