D.He has shown a long shadow in the heart of the American shale as a result of the US election. Joe Biden wants to make climate change his priority, instilling real confidence in global efforts to avert an environmental catastrophe and a genuine concern for shale operators.
The president’s climate plans include a return to the Paris climate deal, the cost of clean energy t 2tn (t 1.5tn) and the ambition to create a carbon-neutral U.S. energy system by 2035 with “aggressive emissions reductions”.
He quickly discovered the claims of the Donald Trump campaign that prevented him from shutting down the industry.
The former vice president told voters in the state of Pennsylvania before the election that “we need to continue because we need a change” and that there is no reason to remove it “right now”.
So, how difficult will the new US administration be in the shale industry?
Earlier this month, when asked if shale manufacturers should worry about incoming management, US Energy Secretary Dan Brulette replied: “Of course.” He told the business news channel CNBC: “I think they should be transparent, because some people in Congress are going to run a climate policy that is going to be very aggressive. So that might be a little worrying for everyone.”
There is no doubt that Biden’s victory will cause a slow and steady decline for the fossil fuel industry, which has thrived under the Trump administration’s light touch. But the fate of the industry may be carefully removed rather than destroyed immediately.
On the campaign trail, Biden told voters he would “leave the oil industry” because it “significantly pollutes” and needs to be replaced with renewable energy over time. He added: “We are not getting rid of fossil fuels. We will remove subsidies for fossil fuels, but we will not remove fossil fuels for long.”
As the new administration tackles the corona virus epidemic and its economic downturn, many believe that any action against fossil fuels should be balanced against the short-term impact on jobs.
The U.S. oil and gas industry is helping to accelerate the economy by supporting 10m of efficient work, enabling relatively cheap road transport and generating one-third of the country’s electricity. The corona virus infection has caused 100,000 job losses in the industry, forcing wells to be closed.
Biden is expected to take steps to slow the market economy against fossil fuels, which will gradually eliminate the amount of oil and gas it can produce and increase costs. He plans to control reserves by shrinking the final demand for fossil fuels by creating a green electric system and electric vehicles, and raising the cost of production per barrel to tighten industry profits.
His most decisive move is likely to focus on reducing drilling in federal land. Much of the shale operation takes place on U.S. state-owned land or privately owned property – about 22% of U.S. oil production and only 13% of natural gas production is produced from federally owned licenses. The move could hit up to 2m barrels a day from total U.S. oil and gas production by the end of 2024, according to analysts at S&P Global Platts’ analysis team.
According to Artem Abramov, a researcher at Rystat Energy, the impact is unlikely to be severe in the short term. “The ban on allowing federal lands has attracted a lot of attention through the presidential campaign, and some operators are concerned,” he said. “But I don’t think they think this breaks the whole contract for future development.”
In anticipation of policy changes many shale operators have quickly identified permissible applications on federal land that should support short- to medium-term growth. Then the bad activity will move from the federal to the rest of the private and state-owned areas, so the vulnerability will be disabled.
Some operators are also optimistic that there will be a rise in gas in the short term as the White House moves to replace coal in the U.S. energy system to reduce emissions. Coal was used to produce a quarter of U.S. electricity last year, at 38% for gas.
Fraud under Biden is expected to be even more expensive as he is expected to withdraw several tax breaks and impose tougher regulations on methane emissions and other environmental protections. According to Goldman Sachs analysts, the net result could add as much as $ 5 to $ 6 a barrel, which could make some operators in the global market unaffordable, where price forecasts are significantly lower than they were before the epidemic.
This will accelerate the integration of debt-ridden operators into lean, financially efficient oil and gas companies that will lead to a recovery in the industry in the coming years, Abramov said. “It simply came to our notice then. So this is the main concern for shale makers. ”