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US ELECTIONS: Trump v. Biden outcome portends major impacts on US natural gas sector, markets

Highlights

Incumbent Trump would continue 'Energy Dominance' agenda

Biden walking tight line between energy production, environment

The US presidential election coincides with an inflection point in public sentiment on natural gas, and the outcome could have substantial impacts on gas consumption, infrastructure permitting and production.

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President Donald Trump has pledged to continue his pro-fossil fuel, anti-regulation "Energy Dominance" agenda.

While analysts see Democratic nominee Joseph Biden preserving a role for gas, his climate plan would invest $2 trillion in renewable power, electric grid upgrades, green building initiatives and other clean energy initiatives that would displace fossil fuels.

The winner will face an environment that has changed much since the 2016 election.

"I would say there really has been a shift between a view that really saw gas as the cleanest possible fuel that was a really good bridge and a backup to renewables, to a question of just how much of an advantage is there when you factor in methane emissions," said Erin Blanton, senior research scholar at Columbia University's Center on Global Energy Policy.

Industry watchers say the rise of the progressive left ahead of an election with key gas-producing states in play explains why Biden has said little about gas. Yet Trump's false allegations that Biden would ban hydraulic fracturing recently forced Biden to reiterate and clarify his stance.

"Fracking has to continue because we need a transition," Biden said in a CNN town hall In Pennsylvania Sept. 17. "We're going to get to net-zero emissions by 2050 and we'll get to net-zero power emissions by 2035, but there's no rationale to eliminate, right now, fracking."

S&P Global Platts Head of Analytics Chris Midgley suggested a Biden presidency would bring considerable uncertainty, though it is clear he would take a more aggressive stance toward fossil fuel companies. "That said, I don't believe for a moment that his first year will be marked by him taking on the gas sector at a time when they're all struggling," he said.

Power generation

  • Renewables could eat into growth prospects for gas-fired generation sooner under Biden's policies.
  • Trump has sought to bolster the coal industry, but gas-fired power generation continued to grow at coal's expense on his watch.

S&P Global Market Intelligence analysts expect power sector gas demand growth to average roughly 2.7% per year through 2024.

Going forward, they see renewable energy growing its share of US power generation as gas' share remains roughly flat. Biden's plan could accelerate that trend.

Currently, gas-fired generation is steady or growing around Appalachian shale gas fields, southeastern integrated markets and parts of Texas and Great Plains states, according to Market Intelligence. California's aggressive renewable power goals are pressuring gas-fired generation, with some Western states and the Northeast following suit.

To make US power generation carbon neutral by 2035, Biden would invest in solar and wind projects, battery storage, advanced nuclear reactors, renewable hydrogen and carbon capture technology. Under that plan – assuming Congress mandates national clean energy standards – more of the US would look like California, ultimately suppressing power demand, Market Intelligence analysts expect.

Biden's proposal to upgrade the US electric transmission grid could also galvanize renewable energy growth, according to Market Intelligence analyst Alex Cook. A 2008 program to connect Texas' wind-rich west with central and eastern demand centers via transmission lines yielded an "explosion" of wind energy development, even without aggressive renewable portfolio standards, he said.

Direct use of gas

  • Biden would leverage grid investments in a bid to electrify the economy, potentially cutting gas use among industrial, residential and commercial customers.
  • Trump is expected to provide some support for gas alternatives.

The Democratic nominee's plan calls for incentives to switch from gas to electric home appliances, but also includes proposals that reflect the national building electrification and gas ban movement. Changes to local building and energy codes underpin those ordinances. Biden pledges to fund efforts to amend building codes and would support nationwide building performance standards.

Blanton said it is difficult to see the policies creating a quick and meaningful decline in gas demand because direct gas use is ingrained throughout the economy and the path to decarbonizing heavy industry remains unclear.

Some climate activists, however, want Biden to move away from gas more quickly and are urging him to exclude advisors with any fossil fuel industry ties from his team.

Biden's policies would establish an overarching US low-carbon policy, offered Randy Bell, director of the Atlantic Council's global energy security program. While the Trump administration lacks a cohesive policy, its Department of Energy likely would continue to support gas alternatives like advanced nuclear reactors, renewable hydrogen and battery storage, he said.

Infrastructure permitting

  • A Biden FERC would ramp up environmental oversight of energy projects.
  • Litigation and market forces could define second term for Trump.

One area that could get noticeably more challenging for the natural gas sector is federal infrastructure permitting. Momentum from anti-fossil fuel campaigners has been building for years, taking down some high-profile projects.

If Biden wins and Democrats have a majority at the Federal Energy Regulatory Commission, most analysts foresee an increased focus on environmental considerations, including climate change, although it's unclear how often that would lead to outright rejections. Regulators also are likely to more deeply scrutinize whether proposed pipelines are needed.

Under a second Trump administration, litigation and market forces are expected to keep development in check. Gas pipeline infrastructure already appears to be at the end of a roughly nine-year buildout cycle, particularly in the Northeast.

Northeast pipeline capacity entering service peaked in 2018 at 8.1 Bcf/d, while just 490 MMcf/d is targeted to enter service in 2022, according to a tally of significant projects tracked by S&P Global Platts. While stronger activity continues in the Gulf Coast region, a wave of new capacity out of the Haynesville Shale, tied largely to LNG demand, is mostly already permitted and seen coming online by 2024.

LNG

  • Policies backing LNG exports are unlikely to be upended.
  • Market forces, trade disputes with China have defined Trump era.

LNG project reviews could face similar permitting hurdles, though a large number – 14 projects totaling 23.8 Bcf/d in export capacity – already have received major permits since mid-2017. As the election approaches, active developers of roughly a dozen projects had yet to make final investment decisions (FIDs) due to demand headwinds.

Biden's campaign has said little about LNG, but he has historically taken a holistic view of gas' role in US policy, including its potential to displace coal in foreign markets and its role in diplomacy, according to Bell. Biden was "deeply concerned" with European energy security and Russia's influence over the gas market, particularly in Eastern Europe, he said.

The Obama administration permitted all six currently operating US LNG export terminals.

The Trump administration has aggressively promoted US LNG and permitted additional terminals, but only one of those facilities has reached FID. While market forces played a major role, Trump's trade war with China also inhibited long-term contracts that support FIDs.

"I would say they have set back the second wave of US LNG export projects," Columbia's Blanton said. "What had an impact on the future of US gas is they really diminished what our export volumes could have been over the next few years."

Upstream

  • While stopping short of a fracking ban sought by progressive Democrats, Biden would put a moratorium on new oil and gas leases on federal lands and water.
  • Trump has targeted regulations and red tape.

S&P Global Platts Analytics estimates that Biden's approach could lower US gas production by 4.2 Bcf/d by 2025, a roughly 4% decrease from Platts' base case, trimmed primarily from New Mexico's prolific Delaware Basin and the Gulf of Mexico offshore region.

The prospects for lower associated gas production to help spur activity in the Rockies are limited by heavy exposure to federal lands there. Amid takeaway capacity limitations in the Northeast, there is likely to be increased reliance upon incremental Louisiana and Texas gas to replace lost supply, according to Platts Analytics.

Most production on federal lands and waters yields associated gas plumbed during oil production, so the policy would have less impact on gas supply than it would on oil output. Natural gas production growth surged during the Obama administration even as it sought to regulate frackers. Those gains have accelerated under Trump, who has slashed oil and gas regulations and vows to continue cutting red tape.

Analysts said the rollbacks do not have a meaningful impact on supply fundamentals, though increased regulation could crowd out some smaller, vulnerable producers. Some also worry that deregulation could make US gas supplies less attractive in the European Union because the bloc is developing a carbon tax on imports.

Biden has vowed to restore methane emissions rules, and Bell believes he could work with European partners on complementary border adjustment mechanisms. For their part, ClearView Energy Partners has said that whoever wins the White House "seems likely to preside over the advent of trade-mediated carbon pricing."