Oil and Gas Investor Energy Policy: The Future of US Energy Leadership

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[Editor's note: A version of this story appears in the August 2021 issue of Oil and Gas Investor magazine. Subscribe to the magazine here.]

We tend to forget in the U.S. how much the global economy impacts our daily lives. For the past several decades, the U.S. economy has experienced steady growth, largely due to low inflation, low interest rates, a strong dollar, cheap energy and robust global trade. These factors have helped grow the U.S. and global economies alike, especially in emerging markets such as Asia and Latin America.

The shale revolution created a new and unique situation whereby the U.S. was able to satisfy most of its own domestic energy consumption needs while also becoming a net exporter. This has been a game changer that freed the nation from the geopolitical and trade constraints associated with its traditional dependence on energy production from unstable, and sometimes hostile, parts of the world.

Sustained market dominance for natural gas will require increased LNG exports to the developing world where cheap, clean energy is needed to fuel economies, provide electricity to the masses, reduce air pollution and replace coal-fired generation in order to meet greenhouse-gas emissions goals. In order to meet this demand, however, the U.S. gas industry needs stability in global trade policy/geopolitics, regulation and access to capital.

On the geopolitical and trade front, relations with China, the largest potential LNG consumer, remain tense. Chinese aggression toward countries including Taiwan, Vietnam, the Philippines, India and Japan threatens regional stability and Sino-American relations more broadly.

In Europe, the European Commission took another step toward implementing the European Green Deal by introducing a legislative package that would help the EU achieve net-zero emissions by 2050. The proposal would place a carbon tariff on certain goods entering the EU that do not meet certain performance standards for climate/carbon. The proposal would also require significant emissions reductions in the power sectors and establish an emissions trading platform for the power and industrial sectors. Although the EU is bent on eliminating natural gas, its member countries continue to make significant investments in natural gas infrastructure.

In the U.S., energy and climate policies are taking aim at domestic oil and gas, threatening future offshore and public lands access, making pipelines more difficult to permit and build, and considering changes to fiscal terms that would make it more costly to develop domestic energy resources. Natural gas does appear to be somewhat of a dilemma for the Biden administration. While it is a clean fuel and pressure exists to support it, including from Democrats in the swing state of Pennsylvania and Sen. Joe Manchin (DWV), it is also a fossil fuel and a greenhouse gas and remains subject to pressure from within the administration to thwart it.

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Today’s scrutiny by the Biden administration over environmental issues and performance could easily become tomorrow’s stringent regulations.

Access to capital also continues to be an issue for the oil and gas industry globally, as investors continue to shun fossil energy for climate and ESG reasons and because shale production, in particular, has not been offering the types of returns investors are seeking. Issues regarding flaring, methane emissions, and perception over hydraulic fracturing further hamper investor interest. One bright spot has been rising commodity prices for oil and natural gas.

Against that backdrop, U.S. gas exports are reaching records again this summer which is great for the U.S. economy. In a visit to Houston this summer, U.S. Energy Secretary Jennifer Granholm talked about carbon capture and storage and hydrogen as ways to produce “natural gas that has been decarbonized,” which in turn would make it more marketable for LNG export.

Recent developments highlighted by Granholm’s statement and the EU’s actions open the door for certified or responsibly sourced natural gas—gas that is certified as lower in carbon intensity and/or higher in ESG performance. In the past few weeks, there has been a proliferation of announcements about producers using certifiers like Equitable Origin and MiQ, which will certify natural gas for Chesapeake Energy Corp. in the Marcellus and Haynesville, and Project Canary, which is certifying gas for EQT Corp. and Southwestern Energy Co.

As the U.S. looks at developments in Europe, Asia and even its partners in North America, certified gas could enable U.S. gas exports to meet lower carbon standards and offset coal emissions globally. That’s a story that the Biden administration might feel comfortable telling and one that could make them more willing to include natural gas as part of its global climate and energy diplomacy strategy.