In the closing stages of the US election last year, then presidential candidate Joe Biden declared: “I am not banning fracking in Pennsylvania or anywhere else!”
Not only has President Biden kept that promise, but shares oil and gas development companies have surged in the first months of his administration in an echo of a similar rally that marked Franklin Roosevelt’s first term in 1933. And, it could be argued, for similar reasons.
The Democrats, along with the moderate end of the environmental movement, are, in effect, helping to save the US fossil fuel industry from overbuilding and overproduction.
Since Biden’s inauguration, the S&P Oil & Gas Exploration & Production Index is up about 35 per cent. Chesapeake Oil and Gas, the shale pioneer which has about 45 per cent of its production in Pennsylvania, finally went into bankruptcy last June (under the Trump Administration). Since its re-emergence in February, Chesapeake’s debt-shriven shares are up around 25 per cent.
Shares of Range Resources, another Pennsylvania fracker, are up by 125 per cent this year. EQT, the Pittsburgh, PA, gas producer, is up by about 75 per cent. Williams, a pipeline, gathering and processing system that has a strong position in Pennsylvania and the rest of the north-east, has seen a share price rise of about a third since pro-Trump demonstrators failed to take over the Capitol.
It suited both the Trump and Biden campaigns for the Democrats to take on the colouration of anti-fossil fuel campaigners. Trump whipped up his support in pro-cheap fossil fuel rural areas, and Biden kept the various green factions on his side.
Biden promised the greens he would stop issuing new fossil fuel leases on federal land, and has been able to carry that out by executive order. But that did not affect the Pennsylvania frackers, since there is very little, if any, drilling on federal land in the state. Its fossil fuels are mostly produced on private land, which, by the way, helps create a base of popular support for the industry.
Oil and gas production on federal lands takes place mostly in the western states and on the outer continental shelf. While fossil fuel drillers always itch for more undrilled land, in recent years the industry has been more constrained by investors’ demands for free cash flow rather than a shortage of properties.
The drillers’ true nightmare is the same one they faced in the years up to 1933: a production glut. In the 1920s and 1930s this was created by giant new Texas fields that were overrun and over-drilled by independents. In the decade just past, the fracking industry faced ruin by cheap production from the Marcellus gas area, which stretches across Appalachia, from Pennsylvania through Ohio and West Virginia.
Producers in the western states found it difficult to compete with a gas resource as extensive and rich as the Marcellus, as well as the neighbouring Utica play.
All the Marcellus frackers required were a few new pipelines to get the gas out of there. But after an initial expansion of the eastern pipeline network, the producers ran into implacable opposition from local environmentalists, renewable energy enthusiasts, and their Democratic allies.
This was enormously frustrating for the frackers, who were already under financial pressure. Their instinct, like their predecessors’ in Texas in 1932, was to produce even more hydrocarbons to offset the revenue shortfall.
Roosevelt was not a natural ally of the oil industry. But in the face of oil industry distress in 1933, his administration prohibited the interstate shipment of overproduced or “hot” oil. Oil prices, employment, industry sales and profits all rose.
In recent years the cash flow pinch has come from interstate shipments of gas, not oil, but once again regulation has helped stabilise industry profits. Luke Jackson, a pipeline industry analyst with S&P Global, says: “If there was no limit on the pipelines built in the north-east, we might have $2.50 (per million British thermal units or mmbtu) gas rather than $3 gas.”
And since the fossil industry has faced the reality of a green-allied Democratic administration, it has started to see the prospective future benefits. If the public wants hydrogen fuel, the fossil fuel and pipeline companies are the most likely producers. The highest prices on offer in the world for carbon capture and storage are in California.
Life as regulated oligopolists may be more comfortable, if less fun than it was on the pirate ships of the fossil fuel drillers.