Oil and Gas Investor Energy Policy: An Interesting Confluence of Events

Presented by:

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

Last month we looked at the looming torrent of energy and environmental policy initiatives that will be considered this year by the administration and in Congress, and the significant impacts that they might have on the U.S. oil and gas industry. Like every new administration and Congress, ambitious plans are being proposed, yet significantly altering public policy is rarely easy. The system of checks and balances set forth in the Constitution makes change hard. Executive orders and regulations can be litigated and altered or reversed by the courts. Legislation that passes the House can be thwarted or significantly altered by the Senate, an institution designed to instill comprehensive and often time-intensive deliberation.

Major energy legislation tends to pass Congress every decade or so and usually occurs in reaction to events, generally a crisis or perceived crisis. In that context, the last Congress established the House Select Committee on the Climate Crisis and the Senate Democrats’ Special Committee on the Climate Crisis to investigate and develop recommendations for public policy solutions to climate change. Those recommendations appeared in House and Senate reports and are included in legislation being introduced in Congress such as the CLEAN Future Act, which recently received a legislative hearing in the House Energy and Commerce Subcommittee on Environment and Climate Change. The bill sets ambitious net-zero carbon emission goals for the electric power and transportation sectors, makes changes to the Federal Energy Regulatory Commission and attempts to accelerate zero-emission vehicles adoption.

During the next few months, we can anticipate many more energy-related bills and hearings in Congress and major administrative actions taking place as well. While it is hard to predict final outcomes, we do know that things will not likely take place in accordance with pre-established plans. Events of the day—geopolitics, economic events, supply disruptions, pandemics and natural disasters, to name a few—all play a role in impacting energy policy.

Watch Jack Belcher in the latest installment of Energy Policy Watch, a partnership between Hart Energy and Cornerstone.

Subscribe to receive notifications about new Energy Policy Watch episodes.

The February freeze and blackouts in Texas are a case in point on how legislative and executive agendas can change at a moment’s notice. The Texas legislature and executive agencies are now laser-focused on taking action to prevent a similar event from taking place in the future. At the national level, natural gas has been falling out of favor with environmental non-governmental organizations and political forces on the left for years. In fact, on the campaign trail, President Joe Biden endorsed a plan that would remove natural gas from U.S. power generation in 15 years.

While disagreement remains over the causes of the Texas blackouts and who should take the blame, there is consensus that a reliable gas supply is essential to preventing future blackouts in Texas and elsewhere. In fact, President Biden reportedly told union leaders in March, “I am all for natural gas.” Also in March, Energy Secretary Jennifer Granholm acknowledged the role that LNG exports can play in reducing greenhouse-gas emissions in the emerging world, while emphasizing the need for reducing flaring and leaks from gas infrastructure. Finally, Secretary of State Antony Blinken stated that the Nord Stream 2 Pipeline, which would bring gas from Russia to Germany, is a security threat to Europe, warning any entity involved with the pipeline’s construction “risks U.S. sanctions and should immediately abandon work on the pipeline.”

While events like the Texas blackouts and geopolitical developments appear (for now) to have moved the needle for some with respect to natural gas, the potential for harmful impacts to oil and gas remains very high as proponents seek to push big policy initiatives through Washington in the coming months.

With the COVID-19 relief package having passed, attention has turned to the infrastructure bill, a Christmas tree full of billions of dollars in shiny decorations in the form of financial incentives. A major focus of the infrastructure bill will undoubtedly be climate change and energy, with the stated justification being that climate and environmental protections are needed to ensure the resiliency and sustainability of the nation’s infrastructure.

To that end, beyond monetary enticements, candidates for inclusion in the legislation could include everything from a tax on carbon, tax code changes adversely impacting oil and gas, federal land leasing and permitting restrictions, and expansion of regulations and restrictions on oil and gas activities including hydraulic fracturing.

Ultimately, the infrastructure bill will likely pass the House on a party line vote and then pass the Senate through the budget reconciliation, a procedure that allows passage with a simple majority. That is what might happen, but unexpected events and a closely divided Congress could bring about a different outcome.

Jack Belcher is principal for Cornerstone, a consulting firm specializing in government relations. He can be reached at 713-494-2427; jbelcher@cgagroup.com.