The outlook for US O&G is bright, Jack Gerard, president of the American Petroleum Institute, said during his “State of American Energy” speech in Washington, DC. Three key factors underlie his positive read of the American energy landscape: the incoming, industry-friendly Trump administration, the restart of US oil and gas production and the decrease of domestic dependence on foreign oil.
“In this new year and at the start of this new Congress, we have an opportunity to change the national conversation when it comes to energy policy,” Gerard said. Following eight years of increasing regulations under the Obama administration, an aggressive climate change agenda and overt attacks on the US oil industry, the deregulatory overtures of President-elect Trump, as well as a Republican Congress, bode well for the US energy sector. Key appointments, most notably former ExxonMobil CEO Rex Tillerson as Secretary of State, as well as Continental Resources CEO Harold Hamm and Texas oil tycoon T. Boone Pickens as chief energy advisors, are signs that Trump’s energy policies will be crafted and implemented by individuals who know of what they speak and do when it comes to US oil and gas.
“We have a once-in-a-generation opportunity to find solutions for many of today’s most pressing issues, including creating middle-class jobs, tackling income inequality, ensuring sustained affordable energy for consumers, and enhancing our national security. And for all of these goals, and others, the 21st American energy renaissance offers a solution,” he said.
The nature of this solution is the rise of US shale production since about 2006 and the recent uptick of activity indicated in companies’ 2017 plans amid recovering oil prices after the recent major production cut agreements by OPEC and major non-OPEC producers. The rise in O&G production has reduce costs of gasoline for consumers has been joined by a boom in the construction of new downstream facilities. The US is also in a position to emerge as a significant oil exporter for the first time since the 1970s and of LNG for the first time in its history, he added.
And all of this is occurring as recent government data show that US carbon emissions from electricity generation in 1H16 were at their lowest level in over two decades, even as electricity demand rose. The rise in natural gas production is a major reason for this, which last year passed up coal as the leading fuel for generating electricity.
Gerard also expressed optimism that many of the regulations imposed by the Obama administration on the domestic O&G sector will be rolled back by the Trump administration, including drilling bans in the Arctic and Atlantic oceans as well as mandates requiring additional reductions in methane emissions from O&G operations. Of the latter, the API head said that companies are already cutting methane emissions and are incentivized do to more, as captured gas is gas that can be sold for a profit. These recent developments demonstrate, Gerard said, that rising energy production and consumption are not antithetical to a cleaner environment, highlighting a “both-and” dynamism that the Trump administration will likely be more amenable to than its soon-to-be predecessor.
“The government at the federal, state and local levels, as they should, set the regulatory parameters in which we operate,” he said. “For all of the innovation, investment and talent within this and other industry, policy clearly matters.”
He continued, “The energy policy decisions we make today will determine whether this nation remains a positive and stabilizing force in the world’s energy market and whether consumers can continue to count on reliable, affordable and abundant domestically produced energy for generations.” As noted above, Gerard and the majority of the US oil and gas industry see the incoming Trump administration as comprising a more industry-favorable context in which the energy sector can thrive.
Gerard also criticized the rejection of the Keystone XL Pipeline Project within the context of a broader critique of an excessively heavy-handed regulatory environment in recent years. “Much of these limitations are the result of a dangerous combination of outdated policies and anti-fossil fuel political ideology that discourages American companies from investing in tomorrow’s pipelines, marine terminals and other energy infrastructure projects,” he said, adding, “Emboldened by their ability to stop the Keystone XL pipeline, anti-fossil fuel advocates have set their sights on all energy infrastructure projects. Their arguments against this energy infrastructure project were not based on its economic merits or true environmental impact.”
Instead, the arguments against Keystone point to the dangers of “energy policy driven by ideology rather than economic reality and has a chilling effect on expansion efforts for our nation’s energy infrastructure. That’s not just bad national energy policy. It is also bad news for our nation’s economy.”
Finally, despite ideologically-driven claims to the contrary, “energy from fossil fuels is and for decades to come will be fundamental to our society – and as a result, the policies we put into place in that area will have repercussions beyond the wellhead, pumping station or refinery.”
We shall soon see if the optimism Jack Gerard holds for the future of US O&G is merited.