August 5, 2020

What’s the issue?

The polls show there is a growing possibility that there could be a change in the presidential administration this fall.

Why does it matter?

The fear for oil and gas companies is that a Biden administration could be a disaster for the oil and gas industries.

What’s our view?

Assuming a newly elected President Biden implements the plans he has laid out in public, there is room for both oil and gas to fit into the Biden plans, but the industry will need to demonstrate its ability to be flexible in its methods and message.

Last week, President Trump visited Midland, Texas and delivered a speech in which he assured the listeners gathered at a Double Eagle Oil Rig that, as long as he was president, he would “never let anyone put American energy out of business, which is what they’d like to do.” He said his visit was to celebrate the incredible achievements in the Permian, but also to “send a clear message to the zealots, radicals, and extremists trying to shut down your industry and to make America subservient to foreign producers. That won’t happen to this nation again.”

He warned his audience that the “Washington Democrats have embraced Representative Ocasio-Cortez’s nearly $100 trillion Green New Deal disaster — I’ve added the fourth word; it’s a ‘disaster’ — which would ban oil and gas leasing on all federal lands. And, by the way, there’d be no fracking.” He asserted that Biden’s platform called for a fracking ban, would mandate “net-zero carbon emissions — which, frankly, is impossible — for all new homes, offices, and buildings by 2030,” and would require “zero-carbon emissions from power plants by 2035. In other words, no drilling, no fracking, no coal, no shale, no gas, no oil.”

So today we look at the plans that former Vice President Biden and the Democratic Party have released to date concerning the oil and gas industry to assess whether the election will, in fact, “demolish” the oil and gas industries. Our view is that Biden is walking a fine line in trying to appease the left-wing of his party while not alienating key swing voters in states like Pennsylvania and among unionized labor, who tend to work in the heavy industries that could be impacted by an overly aggressive environmental agenda. The bottom line is that we see that there are both challenges and opportunities from a Biden administration, and it would create a political environment that would definitely require flexibility on the part of the oil and gas industry.

Overarching Themes

As to be expected by campaign pronouncements, most of what has been released by the Biden campaign is thematic and fairly lacking in specifics. But by reading the language even of the broader goals, it is possible to discern some of the key provisions and effects of the Biden plan, if it were actually to be implemented. The clear message of the Biden plan is that climate change is real and that it is caused by human activity, which should lead to real political change. However, as in most matters of policy, the devil is in the details, and the language used throughout the documents makes it clear that the pace of change and the strategies to be employed allow for oil and gas to remain in the picture for a very long time and perhaps permanently.

Getting to the Specifics

It is important to note that coal is treated very differently than oil and gas in the Biden literature. During his first campaign, President Trump asserted that he would save the U.S. coal industry and, at the end of 2017, Energy Secretary Perry proposed a rule that was intended to save coal plants around the country. But as seen in the following graphic, the fate of coal as a source for electric power, at least in the U.S., likely does not rest with the government.

20200805_EIA ChartAs seen above, data from the U.S. Energy Information Administration shows that, in the last 39 months of the Obama Administration, there was a 23% decrease in the amount of electricity generated using coal. However, the news for coal was even worse during the first 39 months of the Trump Administration, where the usage dropped another 43%. A key beneficiary of this shift from coal was the natural gas industry, which saw an increase in usage under both administrations.

Given the trajectory of coal, it is perhaps no longer surprising that the Biden campaign is willing to say that it will prohibit the Overseas Private Investment Corporation, the Export-Import Bank, and the new U.S. International Development Finance Corporation from financing any coal-fired power plants. No similar statement is made about banning the financing of overseas gas-fired plants. In fact, if the move from coal around the world benefits gas as it has done in this country, such efforts may be very supportive of the LNG facilities that FERC has recently approved, but which cannot seem to reach final investment decisions.

Biden’s Plan is Not the Green New Deal

The Biden campaign uses language throughout its plans that leaves room for oil and gas as an energy source. For instance, the plan does not describe all electricity as being from “zero-emission” energy sources by 2030 as in the Green New Deal, but instead provides for “net-zero emissions no later than 2050.” Not only does that language give fossil fuels 20 extra years, but it even allows for their continued use if the carbon can be captured and sequestered or reused. For instance, while the Biden plan talks about an enforcement mechanism to achieve net-zero emissions by no later than 2050, it also acknowledges that the goal of eliminating carbon pollution from power plants by 2035 would be based on “technology-neutral standards” that could include all zero-emission sources like hydroelectric power, geothermal, existing and advanced nuclear, but also “carbon capture and storage.”

Similarly, while the Green New Deal discussed “upgrading all existing buildings in the United States and building new buildings to achieve maximum energy efficiency, “including through electrification by 2030,” the Biden plan says nothing about electrification and merely sets “a target of reducing the carbon footprint of the U.S. building stock 50% by 2035.” The Biden methane reduction plan even proposes major investment in the gas distribution systems around the country through the use of “targeted support for repairing and replacing aging distribution systems while creating thousands of new jobs.” Clearly, you don’t spend billions of dollars on a system that will become a stranded asset.

Despite the president’s assertions in his speech, there is also no fracking ban mentioned in the Biden plan. It does propose banning new oil and gas permitting on public lands and waters. However, the Bureau of Land Management reports that oil and gas produced from the lands it manages only accounted for approximately eight percent of oil, nine percent of natural gas, and six percent of natural gas liquids produced in the United States in fiscal year 2018. A reduction in competing sources of production could act as a form of price support for those producing in the rest of the country and turn into a benefit for those producers.

Finally, the Biden plan discusses creating a demand for hydrogen as a fuel. In that section of the plan, it notes that the goal would be to use “renewables to produce carbon-free hydrogen at the same cost as that from shale gas.” While such a goal may be achievable, in the meantime, whatever actions a new Biden administration takes to increase the demand for hydrogen could also create a new need for that less expensive “shale gas.”

Demand for LNG

The Biden plan also discusses foreign trade and asserts that, rather than helping Americans compete in the global economy, President Trump has “launched reckless, politically motivated tariff wars that have punished American workers, antagonized our allies, and benefited our adversaries.” There may be some basis for this attack, but, in any case, when LNG developers are trying to sign multi-year offtake contracts, being perceived as a stable trading partner is critical. If the Biden view is accurate and he can restore credibility with potential LNG-using countries, a change in administration may very well help further stimulate the demand for LNG exports from the country.


Some of the Democratic candidates have spoken about converting FERC to the Federal Renewable Energy Commission. The Biden plan barely mentions FERC, discussing it only in the electric arena, where it says that a Biden administration would “increase transparency and fairness in power markets for clean energy and develop and implement a long-term transmission plan to deliver more renewables.” Even though the Biden plan seems to make room for natural gas, we could still see a FERC that is far more skeptical of the need for massive gas pipeline projects.

The key to what happens at FERC will likely be who is appointed to replace Chairman Chatterjee, whose term will end on June 30, 2021. If the Senate confirms the two candidates President Trump recently announced, then FERC will have a full slate of commissioners following the election. We would expect that President Biden would immediately demote Chairman Chatterjee, as President Trump did with Chairman Bay. This would create an interesting dynamic where the Chair would be from a party that does not have a majority on the Commission. This would likely lead to a delay in any action on projects pending at that time, as the Chair controls what projects are voted on, but the Commission would likely not be able to muster three votes to approve projects on terms acceptable to the Chair. Therefore, projects would likely be stuck until a third Democrat could be appointed to replace Chairman Chatterjee on June 30. The views of that appointee and whether that nominee is made the Chair would likely determine the path FERC would follow. This is because Commissioner Glick is viewed as increasingly hostile to gas projects, and the recently announced Democratic appointee, Allison Clements, is expected to form a solid dissenting block with him. Therefore, the future of gas projects under a Biden administration will likely turn on the moderating influence of the first appointee made to replace Chairman Chatterjee.