U.S. oil and gas companies will soon be facing a climate-conscious president who has vowed to transition away from the oil industry.
So you might expect a sense of existential dread in the oil world about President-elect Joe Biden. Instead, there's a surprising amount of optimism.
The U.S. oil and gas industry has transformed over the last decade or so, as a remarkable shale revolution turned the country into the world's top petroleum producer. Unlike President Trump, who is an ally of the industry, Biden has emphasized the devastating cost of carbon emissions for the climate.
Nonetheless, the oil industry sees the president-elect as open to compromise — and likely constrained by a Republican Senate.
"The gut reaction [to Biden's win] is that this isn't good news for the industry, but we're actually cautiously positive," says Jen Snyder, a director at Enverus, a company providing data and analytics to oil and gas companies.
There are bound to be plenty of disagreements with Biden. He has made tackling climate change a key platform of his agenda, and even without Senate control, he's expected to take actions that would put a damper on oil profits.
His foreign policy is unlikely to prioritize oil companies' interests, like Trump has repeatedly done.
Environmental regulations rolled back under Trump are likely to return. And the incoming president is also expected to ban or restrict new drilling on federal lands, a change he could institute through an executive order.
But none of those changes would spell the end for the industry.
Limiting drilling on federal lands seems likely to be the biggest blow for some companies — particularly in New Mexico, a region where federal leases have been particularly lucrative for producers.
But a majority of U.S. oil and gas production won't be affected by that change.
"On private lands, it's a different story," says Rene Santos of S&P Global Platts. "[The White House does] not have the power to just say to somebody in south Texas, 'You cannot drill anymore.' "
Biden did lay out a vision for ambitious climate action. It's not the same as the Green New Deal, though it shares many of the same goals, and the president-elect sought input from more progressive members of the Democratic Party for his $2 trillion proposal.
Among other aspects, his plan calls for massive investments in renewable power such as solar and wind, which compete with fossil fuels. It also includes much more support for electric vehicles, which would reduce demand for petroleum.
But it does not include some policies that concerned the industry, like a ban on exporting crude oil or a ban on all fracking.
"We actually wrote a note over the summer about the Biden energy plan called 'Hugging the Midline,' " says Helima Croft, managing director at RBC Capital Markets. "And not just because I love Pilates. ... We really did see this as an effort to sort of thread the needle."
Moreover, Biden's boldest proposals would require Congress to act, and the Senate appears likely to remain in Republican hands as two Senate races in Georgia head to runoffs on Jan. 5.
The prospect of a divided government has many in the oil industry predicting more moderate action, with plenty of room for compromises and middle ground.
"I personally don't think it's going to be something radical unless, you know, the more liberal side of the Democratic Party gets a lot of influence," Santos, of S&P Global Platts, predicts.
And what about Biden's memorable statement, in the final presidential debate, that he supported "a transition from the oil industry"?
He immediately sought to walk back those comments, telling reporters that "we're not getting rid of fossil fuels for a long time." Biden said he meant he would end oil and gas subsidies, not end the industry as a whole.
But more importantly, transitioning away from oil is not a surprising idea to energy insiders. The oil industry itself has already been preparing for that future — while emphasizing that the transition might take a very long time — as the effects of climate change grow ever clearer.
"A move away from fossil fuels is underway at the society level, regardless of the administration," says Snyder of Enverus.
In fact, Snyder argues that a president who manages a gradual shift away from oil might actually be better for business in the medium term, compared with Trump's denialism.
And of course, who wins the presidency is hardly the only factor affecting the outlook for oil and gas. The coronavirus pandemic has sharply reduced global travel, causing an unprecedented drop in oil demand that has been disastrous for many oil and gas companies.
For the fossil fuel industry, at least in the near term, the biggest boost to the bottom line might come from getting the pandemic under control.
In short, Biden's election win — while not, perhaps, an oil executive's top choice — isn't regarded as a death knell for the industry.
"I don't think it's a wholesale assault on the oil industry," agrees Croft from RBC Capital Markets. "It's just not going to be in favor like it was under President Trump."
STEVE INSKEEP, HOST:
On the surface, the oil and gas industry is losing a friend on January 20. Donald Trump, the departing president, gave fossil fuels his loud support. President-elect Biden supports efforts against climate change, yet some in the oil and gas industry are feeling cautiously optimistic. NPR's Camila Domonoske explains why.
CAMILA DOMONOSKE, BYLINE: You might have heard that Biden's win could mean the end of the oil industry. President Trump warned it would. Some climate activists hoped it would. And in the final debate, Biden himself said this.
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JOE BIDEN: I have a transition from the oil industry, yes.
PRESIDENT DONALD TRUMP: Oh, that's a big statement.
BIDEN: I will transition. It is a big statement.
DOMONOSKE: And that would be a big change. Over the last decade, U.S. oil and gas production has boomed. The shale revolution turned the United States into the world's top oil producer. A lot of that remarkable growth happened during the Obama administration, and Trump promoted the jobs and profits that resulted. But emissions from burning oil, gas and coal are the biggest contributors to climate change, which is already starting to have devastating effects around the world. So how could Biden tackle those emissions? Step one might be a ban on new drilling on federal lands.
RENE SANTOS: On private lands, it's a different story. They do not have the power to just say to somebody in South Texas, you cannot drill anymore.
DOMONOSKE: Rene Santos is with S&P Global Platts. He says that that kind of a ban would be significant, but not the end of the industry. Biden is also expected to restore some environmental regulations, which again won't eliminate oil and gas. The big question mark is what a climate bill might look like.
SANTOS: I personally don't think it's going to be something radical unless, you know, the more liberal side of the Democratic Party gets a lot of influence, which as we see right now, it does not appear to be the case.
DOMONOSKE: Climate activists and scientists have called for ambitious action. That might be impossible to push through Congress if Republicans keep the Senate. So for now, this doesn't seem like a doomsday scenario for oil and gas.
HELIMA CROFT: I don't think it's a wholesale assault on the oil industry. It's just not going to be in favor like it was under President Trump.
DOMONOSKE: Helima Croft is a managing director at RBC Capital Markets. She says that Biden is serious about climate change, but also doesn't plan to do away with fossil fuels.
CROFT: Well, we actually wrote a note over the summer about the Biden energy plan called "Hugging The Midline," and that's not just because I love Pilates. But we really did see this as an effort to sort of thread the needle.
DOMONOSKE: The oil and gas industry sees room for some compromises and negotiations, which might raise the question - what about Biden's big statement about transitioning away from oil and gas? Jen Snyder is a director at ENVERUS, which provides data to oil and gas companies. She says that was hardly breaking news to energy insiders. They know that a global transition is happening.
JEN SNYDER: A move away from fossil fuels is underway at the society level, regardless of the administration.
DOMONOSKE: Biden also said, quote, "We're not getting rid of fossil fuels for a very long time." Snyder argues a president who manages a gradual shift away from oil might actually be better for business.
SNYDER: The gut reaction is that this isn't good news for the industry, but we're actually cautiously positive.
DOMONOSKE: And politics aside, right now oil producers are facing a more immediate struggle. The coronavirus has caused a big drop in oil demand as the global economy slows down. So the most important thing for their bottom line might be getting the pandemic under control.
Camila Domonoske, NPR News.
(SOUNDBITE OF MATT JORGENSEN'S "SPACE, PLANE AND LINE") Transcript provided by NPR, Copyright NPR.