Contenders to be the Democratic Party's nominee for U.S. president have outlined varying paths away from fossil fuels and toward a greener economy, some of which include some form of a hydraulic fracturing ban. While such a policy would affect a significant chunk of the nation's economy if enacted, not all oil and gas companies would feel it equally, a study by Canadian investment bank RBC Capital Markets concludes.
Massachusetts Sen. Elizabeth Warren, who has surged to poll near the top of the Democratic field, has put forward a plan to curb domestic oil and gas production on her first day in office. "It is wrong to prioritize corporate profits over the health and safety of our local communities. That's why on my first day as president, I will sign an executive order that says no more drilling — a total moratorium on all new fossil fuel leases, including for drilling offshore and on public lands," Warren's "Protecting Our Public Lands" plan says on her campaign website.
A July 2017 study conducted by PwC and commissioned by the American Petroleum Institute found that in 2015, the U.S. oil and gas industry supported 10.3 million jobs and accounted for 5.6% of total U.S. employment, with the industry directly creating 2.8 million of those jobs. The study also found the industry accounted for $1.3 trillion, or 7.6%, of the nation's GDP that year.
"In our view, the highest risk for energy is Elizabeth Warren winning both the White House and Democrats controlling Congress," RBC Capital Markets analysts said in an Oct. 14 report. "From our understanding, Ms. Warren would be able to issue this executive action without approval from Congress."
The analysts expect Warren's fracking ban would be limited to federal land, which produced 16.1% of the nation's 10.9 million barrels per day of oil production and 10.7% of its 83.40 Bcf/d of its dry natural gas production in 2018, according to government figures.
Industry allies are likely to challenge any such ban in court, which could lead to an injunction, but the analysts said unopposed, the ban would have a detrimental effect on the industry.
"No new drilling on federal land in 2021 would have an immediate impact with federal oil production at a 41% base decline rate. This would reduce our 2025 U.S. oil forecast by 1.2 [million barrels per day] and natural gas output would be down by 4 Bcf/d, compared to our prior view," the analysts said. Over the next few years following a ban, lower production could increase oil prices by $5 to $10 per barrel and gasoline prices by 10 cents to 25 cents per gallon, they added.
The analysts pegged lost oil and gas revenue due to the federal government at between $15 billion and $20 billion from 2021 through 2025. Oil and gas revenue from federal lands totaled $2.51 billion in the 2018 fiscal year, according to the U.S. Department of the Interior.
Company exposure to proposals to curb production on federal lands varies, according to RBC's analysis. Based on first-quarter 2019 data, oil production on public lands at majors such as Exxon Mobil Corp., BP PLC, Royal Dutch Shell PLC and Total SA accounts for a relatively large chunk of those companies' overall U.S. production, but those companies' global footprint leaves them relatively less exposed to a fracking ban on U.S. public lands. Talos Energy Inc., followed by Ultra Petroleum Corp., are the top two most exposed producers.
"The silver lining of a selective fracking ban in the Lower 48 could be a market gravitation towards Canadian energy producers that offer low natural decline rates and sustainable free cash flow generation," the analysts said. "The outcome of an Elizabeth Warren presidential election is an open question from a Canadian export pipeline perspective. However, we believe the Alberta government will continue to exercise a high degree of monitoring and control over [Western Canadian Select crude oil price] spreads via its mandated curtailment policy."