The Great Energy Divide
The chasm separating the right from the left only widened during the 2020 Presidential election.
Differing opinions on everything from unemployment benefits to healthcare plans to climate change led to heated debates throughout the year. Even with the Presidential election now in the rearview mirror, we’re no closer to a resolution on any of these hot-button topics. So, the next four years will likely be characterized by more bickering over what is the right path forward for the U.S.
Today, let’s consider how the different policies could impact the oil and gas industry.
It’s no secret that the coronavirus global pandemic wreaked havoc on energy prices and demand this year. Back in April, crude oil prices plunged below $20 per barrel and briefly fell into negative territory. With several countries in Europe reinstating lockdown orders and social distancing restrictions, crude oil prices have declined again. Prices per barrel are sitting near $35.[1]
The International Monetary Fund (IMF) recently predicted that oil prices aren’t likely to recover any time soon either. The IMF expects crude oil prices to be between $40 and $50 per barrel in 2021, simply given lowered demand and high inventories. OPEC and the International Energy Agency (IEA) seem to agree, with both agencies forecasting a daily contraction of more than eight million barrels year-over-year.[2]
We believe the oil industry is hurting, and its recovery could hinge on new energy policies.
What these energy policies could look like is anyone’s guess at this point. The reality is that there were a lot of contradictory statements, or “flip-flopping,” on the campaign trail regarding the U.S.’s energy policy going forward. Americans were left wondering what was fact or fiction when it came to fracking and clean energy initiatives.
On the left, the Biden/Harris campaign touted a carbon-neutral America by 2035 and net-zero emissions by 2050. The Democrats’ $2 trillion clean energy plan doesn’t call for a complete end to the oil industry, but it would increase regulations, reduce coal usage, pressure the auto industry, increase tailpipe-emission requirements and limit fracking.
On the right, the Trump/Pence campaign promoted the U.S.’s energy independence, as it is leading global oil and natural gas production. The Republicans plan to focus on the deregulation of the oil industry, the construction of more pipelines and terminals, the continued reduction of CO2 emissions, and innovative energy technologies like fracking.
Interestingly, fracking is one of the main reasons why the U.S. earned its title as the “world’s top oil producer” and gained energy independence in recent years. So, it’s not too surprising that oil and gas fracking took center stage for many states, including Pennsylvania, Michigan, West Virginia, and Texas.
Consider this: total oil production exceeded 12 million barrels per day in 2019.[3] Before the global pandemic, oil fracking accounted for the production of 8.2 million barrels of oil per day. However, ConocoPhillips (COP) recently forecast that fracking will only account for 6.5 million to seven million barrels per day in December.[4] That figure could continue to fall in the upcoming months if there’s a ban or limit to oil fracking in the U.S.
On the natural gas side, fracking has helped reduce CO2 emissions in the U.S. According to the Energy Information Administration, natural gas-powered electricity increased to 38.1% between 2016 and 2019, up from 33.7%., while coal-powered electricity dropped to 23.3%. Natural gas power has even reduced CO2 emissions by 60% over the past 10 years.[5]
One has to wonder if oil and natural gas fracking were curtailed, 1) would it erase the U.S.’s recent reduction in CO2 emissions related to natural gas, and 2) would the U.S. no longer be energy independent?
None of us has a crystal ball, and we can’t predict where the oil and gas industry is headed in the upcoming years, or even months. What we believe is that we’re standing at a crossroads. Energy policies that are made and passed will have a significant impact on the oil and gas industry, and all companies associated with this industry.
If you’re already invested in oil and gas companies or have considered investing in this industry, give me a call today and we can discuss how energy policies could potentially impact your investments and financial goals.
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[1] https://www.cnn.com/2020/11/02/investing/oil-prices-coronavirus-lockdowns/index.html
[2] https://www.cnbc.com/2020/10/19/imf-reveals-2021-forecasts-for-oil-prices-and-the-middle-east-economy.html
[3] https://www.eia.gov/todayinenergy/detail.php?id=43015
[4] https://www.wsj.com/articles/natural-gas-drillers-outshine-oil-peers-as-covid-19-surges-11604404800
[5] https://www.wsj.com/articles/kamala-harris-gets-a-fracking-education-11602283301