Thursday, January 2, 2020
(January 2, 2020) — Democrats are still months from naming a candidate in next year’s U.S. presidential campaign, but oil producers are already preparing for a policy change that threatens to disrupt nearly one-quarter of daily crude output and throw thousands of federal leases into legal limbo, reports S&P Global Platts.
All Democratic presidential candidates have pushed some policy aimed at slowing U.S. oil production, which the Energy Information Administration (EIA) forecasts will average a record of nearly 13.4 MMbbld by the end of 2020, up more than 40% in just four years. These candidates have pledged to ban drilling on federal lands, and analysts expect that any potential election of a Democrat to the White House will likely lead to stricter limits on hydraulic fracturing and flaring, and increased scrutiny under the National Environmental Policy Act, all contributing to a significant reduction in output.
“It’s a significant hit,” said Dan Naatz, a senior vice president with the Independent Petroleum Association of America. “We think it’s a mistake on several different levels.” Analysts with Rapidan Energy Group said new prohibitions on drilling in federal acreage, both onshore and offshore, could disrupt up to 2.9 MMbbld of existing crude oil output, and new federal regulations would “severely dampen” production in the Permian, Bakken, and Alaska’s National Petroleum Reserve.
“While only a fraction of production is on private lands, federal land crude production is roughly equivalent to the total production of Kuwait, and policies that disrupt output on them would ripple through the global market,” Rapidan analysts wrote. “In addition to limiting current production, policies would negatively impact investor sentiment and plans for future growth on private lands.”
While a hydraulic fracturing ban on private lands would require a change in law, the U.S. president has “vast control” over development on federal lands and waters, according to analysts with ClearView Energy Partners. A ban on leasing on federal lands and suspension of drilling permits could cause a decline of about 650,000 bbld of crude oil output per year, the analysts said.
In a Nov. 1 earnings call, Neil Hansen, an ExxonMobil vice president, said a ban on hydraulic fracturing would slow development of the Permian and other basins. “I think any efforts to ban fracking or restrict supply will not remove demand for the resource,” Hansen said. “If anything, it will shift the economic benefit away from the U.S. to another country and potentially impact the price of that commodity here and globally.”
On an earnings call in late October, Concho Resources CEO Tim Leach said his company was prepared to move operations from federal lands in New Mexico to private lands in Texas if a federal hydraulic fracturing ban is put in place. While a ban on shale development on federal lands would be a detriment to producers in Colorado and Wyoming, the biggest impact is seen hitting New Mexico, said Robert Erickson, an energy analyst with S&P Global Platts Analytics. Some New Mexico producers with federal acreage “are responding to this proposed policy shift by planning to develop these plays to [just] before the election takes place and a Democratic president has the chance to block them,” he said.
Offshore federal leasing may be at greater immediate risk, ClearView analysts said. Oil output in the U.S. Gulf of Mexico averaged nearly 1.96 MMbbld in August and is forecast to average 2.1 MMbbld by the end of next year, according to EIA. The Trump administration is in the middle of developing a five-year offshore leasing plan that is expected to open more areas in Alaska’s offshore and, potentially, new acreage in the Atlantic and eastern Gulf of Mexico to drilling.
But a Democrat in the White House would likely revoke, or ignore, the Trump administration plan, potentially halting all offshore leasing, even in the central and western Gulf. The impact of this policy change may not be clear for years since numerous projects in the Gulf are sanctioned through starts into 2026. “It would take several years to see the impact,” said Rene Santos, an analyst with Platts Analytics, “but after that the impact could be significant.”
Any action to limit oil production on federal lands and in federal waters will face numerous legal challenges from industry. “If such a ban were issued by executive order…we would be in court the next day challenging it,” said Kathleen Sgamma, president of the Western Energy Alliance. “Since Congress has mandated, via the Mineral Leasing Act, quarterly lease sales in states where there is interest, we feel very good about our chances in court, including with a preliminary injunction to stop the order immediately.”
Analysts with ClearView said a Democratic president may attempt to limit oil development by declaring a national climate emergency, similar to President Trump’s national security emergency proclamation in February intended to fund the wall along the U.S.-Mexico border. ClearView analysts said a Democratic president could use such a declaration to shut down U.S. crude oil exports, suspend offshore drilling, and limit oil shipments by pipeline, rail, and marine transport using emergency powers in the Energy Policy and Conservation Act, Outer Continental Shelf Lands Act, and Aviation and Transportation Security Act.
“We are skeptical that such uses of emergency authorities might survive the scrutiny of strict constructionist judges, but we believe the topic deserves serious consideration, not least because a future Congress might seek to create climate emergency authorities that could survive in court,” ClearView analysts wrote.
(SOURCE: The Weekly Propane Newsletter, Dec. 30, 2019. Available by subscription. PHOTO: David Everett Strickler/Unsplash)
All Democratic presidential candidates have pushed some policy aimed at slowing U.S. oil production, which the Energy Information Administration (EIA) forecasts will average a record of nearly 13.4 MMbbld by the end of 2020, up more than 40% in just four years. These candidates have pledged to ban drilling on federal lands, and analysts expect that any potential election of a Democrat to the White House will likely lead to stricter limits on hydraulic fracturing and flaring, and increased scrutiny under the National Environmental Policy Act, all contributing to a significant reduction in output.
“It’s a significant hit,” said Dan Naatz, a senior vice president with the Independent Petroleum Association of America. “We think it’s a mistake on several different levels.” Analysts with Rapidan Energy Group said new prohibitions on drilling in federal acreage, both onshore and offshore, could disrupt up to 2.9 MMbbld of existing crude oil output, and new federal regulations would “severely dampen” production in the Permian, Bakken, and Alaska’s National Petroleum Reserve.
“While only a fraction of production is on private lands, federal land crude production is roughly equivalent to the total production of Kuwait, and policies that disrupt output on them would ripple through the global market,” Rapidan analysts wrote. “In addition to limiting current production, policies would negatively impact investor sentiment and plans for future growth on private lands.”
While a hydraulic fracturing ban on private lands would require a change in law, the U.S. president has “vast control” over development on federal lands and waters, according to analysts with ClearView Energy Partners. A ban on leasing on federal lands and suspension of drilling permits could cause a decline of about 650,000 bbld of crude oil output per year, the analysts said.
In a Nov. 1 earnings call, Neil Hansen, an ExxonMobil vice president, said a ban on hydraulic fracturing would slow development of the Permian and other basins. “I think any efforts to ban fracking or restrict supply will not remove demand for the resource,” Hansen said. “If anything, it will shift the economic benefit away from the U.S. to another country and potentially impact the price of that commodity here and globally.”
On an earnings call in late October, Concho Resources CEO Tim Leach said his company was prepared to move operations from federal lands in New Mexico to private lands in Texas if a federal hydraulic fracturing ban is put in place. While a ban on shale development on federal lands would be a detriment to producers in Colorado and Wyoming, the biggest impact is seen hitting New Mexico, said Robert Erickson, an energy analyst with S&P Global Platts Analytics. Some New Mexico producers with federal acreage “are responding to this proposed policy shift by planning to develop these plays to [just] before the election takes place and a Democratic president has the chance to block them,” he said.
Offshore federal leasing may be at greater immediate risk, ClearView analysts said. Oil output in the U.S. Gulf of Mexico averaged nearly 1.96 MMbbld in August and is forecast to average 2.1 MMbbld by the end of next year, according to EIA. The Trump administration is in the middle of developing a five-year offshore leasing plan that is expected to open more areas in Alaska’s offshore and, potentially, new acreage in the Atlantic and eastern Gulf of Mexico to drilling.
But a Democrat in the White House would likely revoke, or ignore, the Trump administration plan, potentially halting all offshore leasing, even in the central and western Gulf. The impact of this policy change may not be clear for years since numerous projects in the Gulf are sanctioned through starts into 2026. “It would take several years to see the impact,” said Rene Santos, an analyst with Platts Analytics, “but after that the impact could be significant.”
Any action to limit oil production on federal lands and in federal waters will face numerous legal challenges from industry. “If such a ban were issued by executive order…we would be in court the next day challenging it,” said Kathleen Sgamma, president of the Western Energy Alliance. “Since Congress has mandated, via the Mineral Leasing Act, quarterly lease sales in states where there is interest, we feel very good about our chances in court, including with a preliminary injunction to stop the order immediately.”
Analysts with ClearView said a Democratic president may attempt to limit oil development by declaring a national climate emergency, similar to President Trump’s national security emergency proclamation in February intended to fund the wall along the U.S.-Mexico border. ClearView analysts said a Democratic president could use such a declaration to shut down U.S. crude oil exports, suspend offshore drilling, and limit oil shipments by pipeline, rail, and marine transport using emergency powers in the Energy Policy and Conservation Act, Outer Continental Shelf Lands Act, and Aviation and Transportation Security Act.
“We are skeptical that such uses of emergency authorities might survive the scrutiny of strict constructionist judges, but we believe the topic deserves serious consideration, not least because a future Congress might seek to create climate emergency authorities that could survive in court,” ClearView analysts wrote.
(SOURCE: The Weekly Propane Newsletter, Dec. 30, 2019. Available by subscription. PHOTO: David Everett Strickler/Unsplash)
