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US Chamber forecasts $60/b increase in WTI prices

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Full fracking ban seen as highly unlikely

  • Washington —

A Democratic win in November's US presidential election is expected to lead to new limits on US oil and gas production, but the ultimate impact of these efforts range from an economic catastrophe to a relatively minor and short-lived dip in global oil supply, according to a pair of studies released Thursday.

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The US Chamber of Commerce's Global Energy Institute said Thursday that a ban on fracking would be "catastrophic” for the US economy, causing widespread job loss and significant increases in oil and natural gas prices.

"In a future where hydraulic fracturing is banned, the systemic shocks to the global oil and gas markets would be immense,” the report states. "Oil and gas prices would be based on scarcity pricing, as supply would be significantly reduced and demand would be inelastic in the short-term.”

With a fracking ban, WTI prices would reach $130/b in 2025 according to the study, roughly $60/b above where WTI prices would be without a ban.

That study, however, looked at the impact of an all-out ban in the US, an outcome many analysts view as both politically unlikely and legally unattainable.

"We currently regard a fracking ban on private lands as somewhere between impracticable and illegal without a change in law,” analysts with ClearView Energy Partners wrote in a recent note.

The data analytics firm Kayrros also released a study Thursday, which found that a fracking ban on US federal lands would have a far less substantial impact on US supply.

Most fracking on federal lands occurs on the New Mexico side the Permian's Delaware sub-basin, according to Kayrros. Wells in federal leases in the Delaware Basin accounted for about 350,000 b/d of new oil production since the start of 2018, about 14% of US production growth over that time, Kayrros said.

"There is more than enough capacity in OPEC countries to make up for a drop in production growth on US Federal leases, so global oil supply is not substantially at stake,” Kayrros said. "In the US itself, the potential for further production growth is obviously not limited to Federal leases, even if replacing these lands might entail venturing into less prolific private lands in New Mexico, Texas or elsewhere.”

Oil output in New Mexico climbed to 956,000 b/d in September, up 555,000 b/d since September 2016, according to US Energy Information Administration data. According to Kayrros, rig counts on federal leases have fallen by 40%, compared to the average 15% decline in the Permian, yet the number of frac fleets on federal lands has increased.

"Whether the trend has anything to do with the policy debate going on in the US Primaries is anyone's guess,” Kayrros said.

Nearly all Democratic candidates for US president have called for end to federal fossil fuel leasing and some have committed to a fracking ban. Massachusetts Senator Elizabeth Warren, for example, pledged in September to ban fracking and put a total moratorium on all new fossil fuel leases both on and offshore on her first day as president.

In an interview with the Platts Capitol Crude podcast, set to air Monday, Greg Priddy, Stratfor's director of global energy and Middle East, said the market was not pricing in risk of such an outcome since a full fracking ban or total moratorium was so unlikely.

"It's so crazy, it can't happen,” Priddy said.

If Warren or another Democrat with similar plans was elected such far reaching prohibitions on domestic output would likely be toned down by advisers or opposed by moderate Democrats in Congress, Priddy said.