US Democrats take a stand against fracking [NGW Magazine]

The US primaries and caucuses are underway, in a pre-election process that will end with the nomination of a Democrat candidate to run against the US president Donald Trump late this year. While Trump’s approval ratings have been rising, suggesting an increased likelihood that he could be re-elected, the contest brings with it the possibility of a different political landscape, which would affect the energy industry if a Democrat were to win.

For all the Democrat candidates, oil and gas issues fit within broader goals to accelerate the transition away from fossil fuels to renewables. Indeed, all of the candidates have announced targets of lowering greenhouse gas emissions to zero on a net basis by 2050 or earlier. At the same time, though, they have set out varying positions on further oil and gas development, with some keen to restrict it as soon as possible, while others view natural gas as a necessary bridge fuel towards a cleaner future.

With a handful of primaries and caucuses having already been held, a few of the Democrat candidates look closer to being ruled out. Meanwhile, the senator for Vermont, Bernie Sanders, has become the front-runner, following a decisive victory in the Nevada caucuses on February 22. If Sanders follows up with a victory in the South Carolina primary on February 29, he may gain an insurmountable lead, which could then be consolidated on March 3 – known as Super Tuesday – when 14 more states hold their votes.

Thus, out of the various oil and gas positions that have been taken, the scope of what potentially stands to become policy under a new Democrat administration is rapidly narrowing. And with Sanders in the lead at time of press, this looks dramatically different from what Trump has been pursuing over the past three years: exports of energy and soaring production have allowed the US to retreat from costly overseas exercises.

Backing a ban

Sanders, who is considered to be the most left-wing of the Democrat presidential candidates, backs a ban on the use of hydraulic fracturing in drilling for both oil and gas. Indeed, in late January he introduced a bill in Congress that seeks to ban the use of the technique nationally by 2025.

Sanders is not the only candidate to support a ban on fracking. US Senator for Massachusetts Elizabeth Warren has also been a prominent supporter. US Representative for Hawaii Tulsi Gabbard and former hedge fund manager Tom Steyer – who both look increasingly likely to be taken out of the running – have also voiced support for a fracking ban.

Some of the other candidates, while not supporting a fracking ban, have said they want stricter regulations on the use of the technique in order to protect safety and the environment. Candidates taking this position include former US vice president Joe Biden, who is widely considered to be Sanders’ main contender for the Democrat nomination. Former New York City mayor Mike Bloomberg and the senator for Minnesota Amy Klobuchar are also in favour of stricter fracking regulations, though both have described gas as a bridge fuel to a more renewable-heavy future.

The varied stances, and the fact that the current front-runner takes a particularly tough line on fracking, are a cause for concern among moderate Democrats in resource-rich states that have been revitalised by the shale boom. Prominent among these states is Pennsylvania, which has become the second-largest producer of natural gas after Texas thanks to its portion of the Marcellus shale play. Representative Conor Lamb, a Pennsylvania Democrat, has urged his colleagues to reject the House version of Sanders’ anti-fracking legislation, citing the number of jobs that could be lost in his state and across the US if a ban was enacted.

However, if the Republicans retain control of the Senate after this year’s election, the fracking ban legislation is unlikely to make it into law even if a Democrat does win. Furthermore, the majority of shale drilling activity takes place on private land, making it more difficult to target. A Democrat president that backs a ban on fracking may therefore be limited to enacting the measure on federal land. This could, however, still hurt producers with exposure to federal land within their portfolios.

This list includes EOG Resources, Devon Energy, Concho Resources, ConocoPhillips and Hess, Bernstein Research analysts said in a note in late 2019, when Warren’s stance on fracking first started making headlines. The fact that Bernstein was not the only one to comment on Warren’s position at the time suggested growing concern among oil and gas investors over the prospects of a Democrat with potentially far-reaching energy policies winning the presidency. However, a Bernstein analyst told NGW that the firm had not recently published any update, as investors currently have more pressing concerns. This could potentially also illustrate a growing confidence that Trump is likely to be re-elected.

Another policy that has widespread support among the Democrat candidates and stands to have a particularly dramatic impact on the oil and gas industry is the restriction of new drilling on public land. Warren was the first to adopt this position, and the other candidates have since followed suit. They also support at least restricting – and in some cases ending – offshore drilling.

All of the candidates apart from Biden and former South Bend, Indiana mayor Pete Buttigieg would also ban new oil and gas pipelines, as well as the export of fossil fuels.

Countering Trump

The energy policies of the Democrat candidates stand in stark contrast with those rolled out by Trump over the past three years. Trump’s administration has been aggressive in promoting oil and gas development, though weak oil and gas prices have hampered these efforts somewhat. The period since Trump took office has been characterised by a rollback of many environmental protections brought in by his predecessor, Barack Obama. The Democrat nominees now want to reverse the Trump era rollbacks, but also to go further than Obama ever did with a view towards their long-term decarbonisation goals.

All of the candidates support the Green New Deal – an ambitious package of legislative proposals aimed at combating climate change and economic inequality – to varying degrees. The climate change policy plan set out by Sanders is the one that most closely aligns with the goals of the Green New Deal. Sanders’ plan is also the most expensive among the candidates, coming in at $16.3 trillion over 15 years.

Sanders says that under his plan, “climate change will be factored into virtually every area of policy, from immigration to trade to foreign policy and beyond.” He also goes further than the other candidates in terms of his expectations for job creation under his plan. He has suggested that he could create 20mn jobs, even as he phases out fossil fuels. His hope is that this will be enough to alleviate fears in states where shale drilling has been a significant job creator.

In its note from late last year, Bernstein said “primary politics tend to be about moving towards extremes while general elections are a race towards the middle.” However, Sanders is the candidate most likely to buck this trend. In some states his ambitions to tackle climate change will prove popular if he wins the nomination. At the same time, fears among moderate Democrats over his anti-fracking position receiving pushback in shale-producing states are likely to be justified.