Impacts of a Biden vs. Trump Victory: What Next For the U.S. Oil & Gas Industry?

Based on the results of the opening poll taken before this webinar debate, it is evident that, by and large, the U.S. Oil & Gas industry sees President Elect Joe Biden as a pro green infrastructure/non-traditional oil and gas proponent, hence the predominately negative and undecided stance in the poll before the webinar debate. The panelists participating in this debate opted to take the opportunistic stance and set out their arguments for why.

Energy Balance and Climate Change

With every new presidency comes opportunities and threats regardless of the president elect’s political stance. Bill Marko of Jefferies believes a Biden victory presents an opportunity as it will allow conversation about balancing the energy business with climate change and what the energy industry does for the economy. Donald Trump was not and never has been a supporter of a cleaner energy approach, instead proposing to ease taxation on Oil & Gas companies. Bill hoped that market forces will control the day and not force legislation that does not make economic or reliability sense, such as pushing to eradicate Oil & Gas from day one in favour of Renewables. Above all the left should be conscientious about job creation and the Oil & Gas industry is still a very important contributor to the economy.

Jordan Marye of Denham Capital sees this election as an opportunity and as a pragmatic outcome for Oil & Gas because there will be a divided government. This divided government will help avoid the “reckless” right wing drive by the republicans for incentivizing oil and gas. There might be an infrastructure bill which would be good for oil and gas.

For any analyst or general observer of United States Oil, Gas and Energy politics, a reasonable question to ask would be what Biden’s day agenda will be as far as Oil, Gas and Energy is concerned. As far as infrastructure is concerned it would be ill-advised for the democrats to try get rid of Oil & Gas as it is still a vital source of economic wealth. The left should still be sensitive towards introducing light green infrastructure because the main issue at hand is creating jobs and a strong swift move to green infrastructure will undoubtedly affect the economy. Joe Biden had expressed his intention to move back to the Paris Agreement, the same agreement Trump left in 2017 in favour of his America First policy, however being a member does not necessarily imply progress. There will be a number of regulatory and federal hurdles to get over before being a member of the Paris Agreement actually produces tangible change. As far as foreign policy is concerned, this would be a great move. However, as far as domestic policy is concerned this is another way in which U.S. funds are being used by other countries instead of aiding local economies.

Regulations and BLM lands

It was no great mystery that along with the Trump administration, a host of environmental regulations were relaxed on the Oil and Gas industry. In light of this, a question on a number of people’s minds is whether these environmental regulations will be put back in force. According to Jordan, Joe Biden is pro foreign policy and therefore is expected to move back to the clean water act. In terms of BLM lands there are roughly three options the Biden administration can take. The first would be banning all drilling on BLM lands all together, the second would be banning any new unpermitted drilling and the third would be just banning certain areas e.g. New Mexico. The third option could essentially help Biden have a majority of the left on his side; that would be his “trump” card. Above all Biden should care about jobs once COVID-19 settles.

Private Equity, DFI’s and Gas

Private Equity firms and Asset Managers such as BlackRock have become aware of ESG policies. On the other side the upstream business is already under extreme pressure by the bad returns it has been experiencing over the past decade. The power ultimately lies in endowments and Sovereign Wealth Funds. Jordan added that the main concern of the Oil & Gas industry at the moment is returns. The main challenge is creating returns while aligning with clean energy transition goals, thus making it a complex problem to solve. With more DFI from the U.S., OPEC members will remain committed to production cuts in order to rebalance global oil markets. This move will further U.S. interests in other parts of the world.

Based on the Biden administration’s desire to have a transition fuel, would natural gas be a good alternative? According to Jen Snyder of Enverus, gas is a good partner for renewables as it is a low cost solution at the moment, taking into account emissions as well. Bill Marko agreed by adding that natural gas is always available unlike solar or wind which are dependent on the presence of a certain degree of sunlight or wind. Biden had mentioned that he would halt any pipelines being built and thus more pipelines have been delayed.

O&G Investments, Infrastructure and Returns

It is more likely than not that Biden will introduce an infrastructure bill for the Oil and Gas industry. The main concern however is how this bill will make both sides happy. The extreme left demands will not work because they would require over 60 votes which is highly improbable. Midstream development is governed more by states and local governments. The cost of capital for renewables is quite low and there is high incentive to build solar and wind farms. This will be dependent on whether the federal mandate on renewables will be across state or a state by state solution, the latter being more likely. A partnership between certain renewable and non-renewable entities may be a viable solution too.

Another pressing question considered in the debate was whether a return to the global agenda equates to growth in Asia/Africa. China will still have a fossil fuel demand therefore the U.S. should use gas as a lever the same way the Russians are using it. Gas is a more cost effective transition fuel. According to Bill, Oil & Gas will probably shrink by 25% and will be starved of capital. This is partly because it was over invested in. Today there are less oil rigs the U.S., with the number going from 2,200 to 1,100 in the past decade due to poor returns.

Taking all this information into account, what is the general outlook on Oil and Gas over the next 5-10 years? The reality is that oil is here to stay and the U.S. will still be living with it. Oil demand will not really be affected. As much as natural gas is cost effective and worth looking at, there are still some pockets of opportunity in oil and it is critical that the oil and gas production returns. This is a great time to invest in the energy sector due to potential innovation around renewables.

The panel managed to shift the mindsets of a significant portion of the audience, thus suggesting that the future outlook is not all doom and gloom for the Oil & Gas industry following a Biden victory. This victory presents an opportunity on both sides, as opposed to a Trump win which would have meant that renewables and green energy would have been put on the shelf again.

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