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Midterm 'blue wave' could give Democrats new authority on oil, gas regulation


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Midterm 'blue wave' could give Democrats new authority on oil, gas regulation

While the November U.S. midterm election could bring a "blue wave" of Democrats into House seats and potentially give them the power of the gavel in energy oversight committees, the party's ability to thwart the Trump administration's deregulatory agenda will be limited, a number of analysts said.

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S&P Global Market Intelligence explores the potential impacts of the 2018 midterm U.S. elections on the economy, industries and individual companies across the globe.

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Democratic control of the House could put up new hurdles to the Trump administration's energy deregulation agenda, compelling the White House to repeatedly return to Capitol Hill to justify environmental and other regulatory changes before oversight committees.

"In the most direct and immediate sense, [Democrats] would launch a wave of oversight investigations, tying up agency heads with hearings, document requests (enforced by subpoenas), and (in an extreme scenario) impeachment threats," Raymond James & Associates Inc. oil and gas analyst Pavel Molchanov told his clients Oct. 4.

How Democrats feel about oil and gas depends largely on how close they are to the wellhead. Former Democratic Sen. Mary Landrieu of Louisiana often teamed up with Republican Sen. Lisa Murkowski of Alaska to push legislation favorable to oil and gas drillers. Democrats like veteran California Sen. Dianne Feinstein and rookie House seat nominee Alexandria Ocasio-Cortez of New York City, may routinely call for fracking bans, but Democratic Rep. Conor Lamb, running in a new district in shale gas-rich western Pennsylvania, is all for it — the top U.S. natural gas producer, EQT Corp., is headquartered practically next door in Pittsburgh.

Pollsters expect few if any changes in the state houses of major energy-producing states, such as Texas and Oklahoma. But a court-ordered redistricting for seats in the U.S. Congress for Pennsylvania, combined with suburban dissatisfaction with President Donald Trump, could give the Democrats new congressional seats from the state, which Trump carried by less than 70,000 votes in 2016.

Pennsylvania may send more Democrats to Congress this cycle after congressional districts were changed by the state's Supreme Court to reduce gerrymandering, according to longtime Pennsylvania pollster and political observer Terry Madonna of Franklin and Marshall College. He said the Democratic gains would come from a less partisan district map and the defection of voters away from Trump in the suburbs of Philadelphia.

While pipeline politics has not figured into congressional races in Pennsylvania's newly drawn districts in the suburbs around Philadelphia, Democrats are expected to flip previously Republican seats in districts to Philadelphia's southwest (along the routes of oil, gas and liquids pipelines into Philadelphia's port and industries), according to RealClearPolitics. Democrats are also expected to win one or two more seats in the northern Philadelphia suburbs, along the proposed route of the 1-Bcf/d PennEast gas pipeline into New Jersey.

This means oil and gas executives are potentially one accident away from marching down to Washington for investigative hearings. "We think it is likely under [a Democratic-controlled House] that the [House Energy and Commerce Committee] will put pressure on [the Federal Energy Regulatory Commission] to do something about the environmental ramifications of pipeline spills and other issues," analysts with the Washington, D.C.-based Height Capital Markets said in an Oct. 8 note. "While we do not see legislation or a change in regulation as a result of these hearings, we do think it is reasonable to expect that FERC may levy fines on [Energy Transfer Equity LP] as a result of the multiple [Rover Pipeline LLC] pipeline spills. … We could see other companies building major gas pipelines, like EQT and Dominion Energy Inc., dragged into the fray, as well."

Washington energy policy analyst Kevin Book of ClearView Energy Partners said that while House Democrats could throw sand into the engine of energy projects as the majority party, they are also conscious of their constituents. "Democrats always oppose what the administration approves? Not true," Book said Oct. 11. "There are wedge issues that repeatedly divide the Democratic Party. They are not unified in their support of the globalism that preceded [Trump]." Long before Trump was a candidate, Midwestern Democrats wanted trade barriers to protect the steel industry from unfair competition, Book said, and oil and gas Democrats are just as likely to put their constituents' economics ahead of the party platform.

In a 61-page analysis of the 2018 midterms, Book and ClearView said they expect that if Democrats gain control, new chairmen of relevant committees such as Energy and Commerce or Natural Resources will freely wield their power to conduct oversight hearings. "We would expect them to do so repeatedly," ClearView's Sept. 11 analysis said. "Committee chairmen enjoy significant power even in a deadlocked Congress, and Democrats' newfound oversight powers could enable them to slow the pace and narrow scope of the White House deregulatory agenda."

ClearView also said a Democratic House would almost immediately vote to impeach the president, further adding to turmoil on the Hill.

How hard Democrats can step on the Trump administration's energy brakes is a mystery because Trump has not made clear where he is headed on energy, said Ian Bowles, a private equity money manager and former Massachusetts secretary of energy and environmental affairs.

After getting tax cuts passed, "it's not obvious to me what Trump wants from Congress," said the former adviser to President Bill Clinton and founder of clean energy private equity firm WindSail Capital Group. "I'm surprised at how command-and-control Trump has been, not a true free-market Republican," Bowles said in an Oct. 16 talk with Raymond James investment clients. "Trump has the malleability to work with Democratic leadership," Bowles said.

"The most interesting day of the year will be the day after the election" if a lame-duck GOP Senate has to scramble to fill judicial and regulatory appointments before losing power, Bowles said.