Goal of Democrats in the 2020 Election

The US is the world leader for extracting natural gas and oil resources from shale and tight formations. Unfortunately, Democratric presidential candidates want to ban or restrict drilling. What started as a rallying cry by enviornmental groups to “keep it in the ground,” has evolved in the 2020 campaign season with calls to ban or restrict fracking. Numerous Democrats have jumped on the bandwagon, with many asserting they will do what they can to restrict or ban the process if they are elected.

Energy industry leader, Daniel Yergin, vice chairman of IHS Markit, said the notion to ban a method of oil and gas extraction that has ensured US energy security, created thousands of jobs, and added revenue to sate and federal coffers is absurd. At the annual Abu Dhabi International Petroleum Exhibition & Conference, he said, “To say I’m going to stop fracking is like this allencompassing term. What are you talking about? I mean really, what are you talking about?”

If elected, Senator Warren of Massachusetts has vowed to “ban fracking everywhere,” sounding like Vermont Senator Bernie Sanders. Candidates who want to limit fracking or impose more regulations are former Vice President Joe Biden and Mayor Pete Buttigieg of South Bend, IN. Also calling for limits are Minnesota Senator Amy Klobucar and Andrew Yang.

In his critcisms of a ban on fracking, Yergin cited Warren, who has promised on her first day as president, “to sign an executive order that puts a total moratorium on allo new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking .. everywhere.”

Although US production is primarily regulated by the states, “There is a lot the federal government can do with a thousand cuts of regulation and so forth,” Yergin said. For Warren to say she is “against fracking shows a total lack of understanding.” Lower 48 exploration & production (E&P) has become “one of the most dynamic parts of the U.S. economy,” he said. “You’re talking about millions of jobs.” Politicians opposed to drilling are “not even able to explain what they don’t like about fracking.”

Due to the displacement of coal by natural gas, the US Energy Information Administration (EIA) forecasts year-over-year decreases in carbon dioxide (CO2) emissions through 2021. CO2 emissions decreased by 2.1 percent in 2019. CO2 emissions will decrease about 2.0 percent in 2020 and again by 1.5 percent in 2021. That’s the third year in a row for declines. If this forecast is on the mark, CO2 emissions will have declined in 7 of the 10 years from 2012 to 2021. In other words, the forecast for 2021 is for CO2 emissions at a level not seen since 1991. Increasing use of natural gas explains the improvement.

Changes in the relative prices of coal and natural gas can cause fuel switching in the electric power sector. The EIA expects coal related CO2 will decline about 11 percent in 2020 after declining by almost 13 percent in 2019 due to low natural gas prices. EIA expects thew rate of the coal-related CO2 to decline at less than 3 percent in 2021.

The declines in CO2 emissions are driven by two factors that continue from recent historical trends. EIA expects that:

a) Less carbon intensive and more efficient natural gas-fired generation will replace coal-fired generation and that

b) Generation from renewable energy-especially wind and solar-will increase.

Coal and natural gas electric generation combined were 63 percent of generation in 2018. The figure eased to 62 percent in 2019. The EIA estimates it will drop to 59 percent in 2020 and 58 percent in 2021.

Coal-fired generation has fallen from 28 percent in 2018 to 24 percent in 2019 and will fall further to 21 percent in 2020 and 2021.

The natural gas-fired generation share reached 37 percent in 2019, and is estimated to reach 38 percent this year.

Given the impressive reduction in CO2 emissions, analysts have said Democrat’s call to ban fracking is a poor idea, especially with respect to the jobs at

stake in numerous areas. However, if a Democrat were elected president, then by using executive actions, it would be possible to ban fracking on federal lands. But only about 5 percent-10 percent of all fracking occurs on federal lands.

Other regulatory agencies, including the Federal Energy Regulatory Commission and the Environmental Protection Agency (EPA), handle permitting and interstate pipelines. Thus, a Democrat president could have an enormous impact on fracking by limiting permits and blocking pipelines. But, again, they should be careful, given the number of fracking jobs in the Midwest.

International energy agency executive director Faith Birol also said a ban on fracking would:

1) Have major negative implications for jobs growth and expansion of the economy.

2) Would be negative for energy security. Natural gas from the US provides a lot of security to the makets. Before the fracking boom in the lower 48 states, Russia was the country dominating the gas markets. With the U.S. coming into the picture, there is a choice. There are options for consumers, which is better for energy security.

The Amercian Petroleum Institute (API) also says banning any type of drilling would be bad for the country. The API produced a video featuring Jimmy Carter, Ronald Reagan, George W. Bush and Barack Obama, each declaring the importance of ending US reliance on foreign oil. API’s message is simple. “Support America’s Energy Security. Oppose a Fracking Ban.”

The concerns of E&P companies about possible drilling bans were evident recent conference calls. Some are already preparing for any drastic changes to drilling.

Permian Basin player Concho Resources Inc. is making plans for 2020 around lower price forecasts, according to CEO Time Leach. He acknowledges the significance of campaign promises that would severly limit or regulate oil and gas operations. He notes the political opposition is coming at a time when Concho and others are making significant gains in reducing their environmental footprints, all the while unlocking an energy source in the country.

Devon Energy Corp. CEO Dave Hager said a ban on drilling would harm communities and impact the broader economy by causing a spike in energy costs. Devon has already performed a lot of legal work around the threat of a drilling ban.

According to a report issued in 2018 by the Congressional Research Service, only 13 percent of US gas production occurred on federal lands in 2017. The percentage has declined every year since 2009.

According to Energy Aspects analysts, a ban on fracking for gas on federal land appears overhyped. Nearly 90 percent of the gas extracted from federal land occurs in Wyoming, New Mexico and Colorado. But the current production growth is happening in Texas, Pennsylvania, Ohio and West Virginia, which all rank in the bottom half of states in terms of land owned by the federal government.

Operators able to adapt would likely shift resources to overcome the obstacles. Still, according to Raymond James analyst Pavel Molchanov, it’s clear that energy and climate policy will play a key role in the Democratic campaign for the White House.

Some of the Democratic proposals regarding energy related plans, such as imposing a carbon tax, would require congressional action, but a fracking ban on federal acreage and even public acreage could be implemented.

Low-cost abundant energy is the key to sustaining US prosperity in the coming decade. We should not jeopardize the well-being of all Americans by allowing one group of zealots to undermine the source of our good fortune. The solution is to vote for the candidates who will preserve our access to fossil fuels.

Reprinted with permission of:

Chris Bischof is the Senior Writer and Editor of the Bakken Oil Business Journal lending his expertise from NYC. Previously he worked as a securities analyst and financial writer. Chris can be reached at [email protected]