February 2020 /// Vol 241 No. 2

Special Focus

Special Focus: 2020 Forecast - Washington Outlook

While attention is focused on the national elections, there are ominous policies gestating at the state and local government levels.

Dr. Roger Bezdek, Contributing Editor

The U.S. national election will be held Nov. 3, 2020, and there is much at stake for the oil and gas (O&G) industry. Aside from the presidency, 470 congressional seats are in play (35 Senate seats and all 435 House seats). The Democrats will likely retain control of the House of Representatives, but the presidency and the Senate are in play. The election has significant implications for the O&G industry.

HOUSE RACES

Democrats hold a majority in the House, as a result of the 2018 elections, when they won 235 seats. To win a majority, Republicans need a net gain of 20 seats. The Democrats will likely retain the majority, as evidenced by the fact that, thus far, 27 House Republicans are retiring—including six from Texas—compared to nine Democrats. Thus, the House will likely continue to be a source of proposed energy, environmental and regulatory legislation detrimental to the industry.

SENATE RACES

The major uncertainty concerns control of the Senate. Republicans currently hold a majority, with 53 seats. There are 45 Democrats and two independents, who caucus with the Democrats. Republicans are defending 23 seats while Democrats are defending 12. The larger number of Republican seats up for election makes them more vulnerable to losing seats. However, 20 of the Republican incumbents are from states that Trump carried in 2016. Two Democrat-held seats are rated as competitive, and five Republican seats are rated competitive.

Thus, even though Republicans are defending nearly twice as many seats, the Democrats have a difficult task to regain control of the Senate. Assuming that Democrats win all of the 10 seats they are defending that are not rated as competitive, they still have to win at least four of the seven competitive seats—three if Democrats win the presidential/vice presidential race, since the Vice President breaks ties in the Senate.

The path to a Democratic Senate majority would be shaped by complex political dynamics—including the tumult of the Trump impeachment and the strength of the Democrats’ presidential nominee. In 2016, every Senate contest went in the direction of the presidential vote. Each party is defending two states, where the opposite party’s presidential candidate won in 2016. Republicans are defending seven seats in states with Democratic governors, while Democrats are defending three seats in states with Republican governors.

However, 2020 is a presidential election year, and this usually works to the Democrats’ advantage. Presidential elections generate high voter turnout, especially among Democratic constituencies. Nevertheless, Republicans are still likely to maintain control of the Senate, but Democrats have a reasonable path to victory, especially if they were to win the presidency.

While the Presidential race has generated the most interest, the battle for the Senate is arguably just as important. Unless Democrats flip the Senate, the grand plans of the presidential candidates—discussed below—are moot. Holding the Senate is just as significant if Trump is re-elected; it would give Democrats control of the legislative agenda, budget and judicial confirmations, and hand them control of both Houses of Congress.

The ages of several of the justices indicate that there will likely be openings in the Supreme Court within the next few years, and the Senate confirms court nominations. Beyond that, a unified Democratic Congress would be a major advantage for a Democratic president in 2021, or a major hindrance to Trump, if he is re-elected. Further, if a Democrat also wins the presidency, then the Democrats would control both Congress and the White House. This would ensure a plethora of economic, energy, environmental and regulatory legislation detrimental to the O&G industry.

THE PRESIDENTIAL RACE

The presidential race is uncertain. President Trump has a disapproval rating as high as 54% (depending on the polling) and an approval rate as low as 42% (Gallup recently put him at 50%). Democrats overwhelmingly disapprove of him, Republicans overwhelmingly approve of him, and independents are split. Perhaps of more concern to Republicans, this level of disapproval exists, both in battleground states and in swing counties, where the 2016 margin was 10 points or less.

However, the polls in the 2016 election were notoriously misleading. Further, the election will be decided in the Electoral College, where Trump won in 2016 despite losing the popular vote. In addition, the Democrats’ war on fossil fuels may come back to haunt them in states critical to the election. Ohio and Michigan have a combined total of more than 400,000 workers in the shale industry, Pennsylvania has 320,000, and entire cities in Ohio and Pennsylvania have been revitalized by fracing and related industries. Colorado and Florida, each, have more than 200,000 workers in O&G.

PRESIDENT TRUMP

The Trump administration has been beneficial for the industry, and if the President is re-elected, will likely continue to be. His campaign is not hesitant about publicizing the administration’s energy initiatives, which include:

  • Enacting numerous policies that facilitate development of U.S. energy resources.
  • Rolling back policies enacted by the previous administration that were hindering O&G development.
  • Downplaying the extent to which climate change is considered a national security threat.
  • Withdrawal from the Paris Agreement on Climate Change and opposition to international climate negotiations.
  • Eliminating many costly Obama-era regulations, such as the Stream Protection Rule.
  • Rescinding the Obama administration’s Clean Power Plan and reversing Obama’s carbon mandates.
  • Legislation to open the Alaska National Wildlife Refuge for energy exploration.
  • The holding of 28 onshore oil and gas lease sales in 2019, generating a record $1.1 billion in revenue.
  • Facilitating energy infrastructure development, to ensure that U.S. energy can be produced
  • Approval of the Dakota Access Pipeline, the Keystone XL Pipeline, and the New Burgos Pipeline.
  • Executive Orders (EOs) to reduce red tape that hinders construction of new energy infrastructure, such as pipelines.
  • Streamlining permitting for LNG terminals.
  • Simplifying environmental review processes.
  • Reduction of business taxes, including those on the industry.
  • Revising the Obama administration’s CAFE standards.
  • An EO expanding offshore O&G drilling, and opening more leases to facilitate offshore drilling.
  • Reform of the Smart Sectors Program, to partner with the private sector to achieve improved environmental outcomes.

Under the Trump administration, U.S. energy production is increasing. The administration’s energy agenda has helped drive the economy, with mining and O&G extraction contributing to growth in 49 states. Energy production has reached record levels, and U.S. crude oil output has exceeded the previous record set in 1970. Crude oil production increased 17% in 2018, reaching 10.96 MMbpd. The U.S. has become the world’s largest crude oil producer, reaching about 12.2 MMbpd in 2019. Similarly, U.S. natural gas production also reached a new high in 2019, marking the second straight year of record output.

Trump refers to oil as the “lifeblood” of the nation. His administration has opened new export opportunities for U.S. energy producers, and the U.S. is exporting increased energy, as production increases and improved market access for producers is negotiated. Crude oil exports nearly doubled in 2018, reaching a record-average 2 MMbpd, and the U.S. has become a net natural gas exporter for the first time since 1957. Negotiations have resulted in the European Union agreeing to import more U.S. LNG. Accordingly, U.S. exports of LNG to the EU have increased 272%, and they reached an all-time high in March 2019.

These initiatives and accomplishments are especially relevant for the industry, when compared to what the Democratic presidential candidates are proposing.

DEMOCRATIC CANDIDATES

There are currently 12 Democrats running for the nomination. All are left-of-center, differing only by degrees. The nominees’ current rankings are: 1) Senator Bernie Sanders (I-Vt.); 2) former South Bend, Indiana, Mayor Pete Buttigieg; 3) Senator Elizabeth Warren (D-Mass.); and 4) Former Vice President Joe Biden. The nominating process and primaries have pushed all candidates to the left, and they all are competing on attacking the energy industry.

The Democratic candidates:

  • Would spend between $5 trillion and $17 trillion on energy, environmental, and climate mitigation programs that would dramatically reshape the U.S. economy.
  • All support implementation of some form of the Green New Deal.
  • All consider the climate crisis (aka global warming, aka climate change) to be a severe national security threat.
  • All would make climate change a top priority of U.S. foreign policy, and intensify U.S. and international actions to mitigate it.
  • All would rejoin the Paris Agreement on Climate Change.
  • All would end “fossil fuel subsidies.”
  • All would seek to achieve net-zero CO2 emissions between 2045 and 2050.
  • All would terminate O&G development on federal lands and limit or end offshore drilling.
  • All would institute carbon pricing and regulations.
  • All would dramatically increase Federal spending on renewable R&D programs, and increase tax incentives and mandates for renewable energy.
  • All would implement the Obama-era CAFE standards.
  • All endorse increased EPA regulation of energy industries.
  • All favor increased pipeline and rail regulations.
  • All, except for Biden and Buttigieg, would ban new O&G pipelines.
  • All, except for Biden and Buttigieg, would ban fossil fuel exports.
  • All, except Biden, would ban fracing.
  • All, except Biden, would not support carbon capture, utilization and sequestration or CO2 enhanced oil recovery.

Democrat candidates propose some truly draconian actions, including:

  • Biden, Sanders and Warren advocate criminal prosecution and jail terms for O&G executives, for allegedly causing global warming.
  • Sanders and Warren would ban use of natural gas in new buildings and eliminate its use in power plants.
  • Sanders and Warren contend that a price on carbon is “too slow” and would instead implement command-and-control legislation to rapidly decarbonize the U.S. economy.
  • Warren would spend $10 trillion to transform the U.S. economy, to achieve net-zero CO2 emissions by 2030.
  • Sanders would declare climate change a national emergency, and require that U.S. transportation and electricity generation be 100%-renewable by 2030.
  • Biden would eliminate fossil fuels and build 500,000 charging stations throughout the U.S., to ensure that by 2030, all U.S. vehicles are electric.
  • Candidate Tom Steyer (a billionaire who made his money from fossil fuels and who has thus far spent $110 million of his own money on the campaign) would declare the climate crisis a national emergency on his first day in office, would implement his Justice-Centered Climate Plan, with or without Congress (!), and would use the emergency powers of the presidency to combat the “climate crisis.”
  • Candidate Michael Bloomberg—former New York City mayor and Democrat-turned-Republican-turned Democrat, who has thus far spent over $210 million of his own money on the campaign—would require all new U.S. cars to be electric by 2035 and would “fully decarbonize” the U.S. economy prior to 2050.

STATE AND LOCAL RED FLAGS

While attention is focused on the national elections, there are ominous policies gestating at the state and local government levels.

In Colorado, a November 2018 ballot initiative on restricting fracing was overwhelmingly defeated. Yet, since then, the enviros have filed six new state ballot initiatives requiring the same draconian setback restrictions defeated in 2018, and increasing the cost of drilling bonds by a factor of 25.

Rhode Island Governor Gina Raimondo (D) has signed an EO directing the state to meet 100% of its electricity requirements with renewable energy by 2030—probably the fastest timetable in the U.S.

Washington State Governor, and short-lived Presidential candidate, Jay Inslee (D) failed to persuade the Washington legislature to pass his cap-and-trade proposal. Undaunted, he attempted to implement, by fiat, his own carbon cap policy, but was thwarted (for now) by the Washington Supreme Court.

New York Governor Andrew Cuomo (D), who has banned fracing and new gas pipelines, instructed state agencies to develop shovel-ready sites for large-scale renewable projects, since “the state needs to take the lead in doing more, faster, on the issue of climate change.”

The California Public Utilities Commission has initiated rulemaking to accelerate a transition from natural gas. Within the state, the city of Berkeley on Jan. 1, 2020, initiated a ban on new natural gas hookups, and similar bans are being replicated in a dozen other California cities, including Menlo Park, Mountain View, Palo Alto, San Jose, San Luis Obispo, San Mateo, and Santa Monica, as well as Marin County.

The Berkeley ban is metastasizing rapidly in other states, including Massachusetts, Oregon and Washington. In Massachusetts, gas bans are being implemented in several cities, but they have hit a roadblock. Massachusetts regulates building codes and gas utilities, and if local ordinances interfere with state regulations, state laws take precedence. However, California allows municipalities to set local building codes that have higher energy efficiency standards than state codes.

Not to be outdone, Bellingham, Wash., is proposing to ban natural gas heating, not only in new construction, but also eliminating it in existing homes and businesses. It would require conversions to electric heating when people purchase existing homes and conversion of all structures by 2030. For now, natural gas cooking would still be allowed.

The Authors ///

Dr. Roger Bezdek is an internationally recognized energy analyst and president of MISI, in Washington, D.C. He has 30 years’ experience in the energy, utility, environmental, and regulatory areas, serving in private industry, academia, and government. He has served as senior adviser in the U.S. Treasury Department, as U.S. energy delegate to the EU and NATO, and as a consultant to the White House, governmental agencies, and various corporations and organizations. His most recent book is The Impending World Energy Mess.

Related Articles ///

  • No related articles found

FROM THE ARCHIVE ///

Comments ///

Comments

{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}