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Small regulatory changes, not fracking, plague Biden plan: panel

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Platts Global Alert - Oil

Small regulatory changes, not fracking, plague Biden plan: panel

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Possible impacts on taxes, capital access, project approval times

Eye possible oil output drop of 1-2 million b/d: panelists

Changes could also result in loss of 1 million jobs: API

Houston — President-elect Joe Biden's incoming administration may not ban hydraulic fracturing of oil and gas wells outright, as some feared during the campaign, but it may make small regulatory changes that could affect processes like taxes, capital access and time needed for project approval, panelists said at an industry conference Nov. 20.

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While Biden has been vague on details of his proposal to ban permitting and fracking of new wells sited on federal lands, the American Petroleum Institute warns the key issues could be a loss of production and jobs, according to Dean Foreman, API's chief economist, during a panel discussion at the webcast "Energy and the Changing Economy: Navigating the Changing Energy Landscape" conference.

The conference was sponsored by the Dallas Federal Reserve Bank and the Kansas City Reserve Bank.

"You're talking about a couple of million of barrels a day of less production ... and as a result of that, $700 billion of GDP decline through 2023," Foreman said. "You're talking big job losses, nearly a million jobs through the entire economy by 2022."

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"Beyond that, a split [US] Congress could mitigate the potential for major taxes," if the Republicans hold onto the Senate next month as a result of the Georgia Senate runoff of that state's two Senators.

The state's two incumbents, Kelly Loeffler and David Perdue, each failed to gain 50% of the general election vote, which will result in runoffs against Democratic challengers.

The results of the Nov. 3 election gave Republicans 50 seats and Democrats 48 seats in the Senate, but many consider the runoff will be fiercely competitive. If Republicans lose the two seats, the 50-50 balance would effectively give the Democrats control of that chamber as incoming vice-president Kamala Harris could break any tie vote with by voting with her party.

Climate-oriented priorities

Moreover, Biden's Democratic Party has signaled a platform of climate-change priorities, such as a clean energy standard, national ambient air quality standards, improved vehicle fuel economy standards which could all "be in play," Foreman said.

"It's really the regulatory channels we'll have to watch, and see what prevails," he said.

Likewise, Kathryn Miller, co-founder and president of BTU Analytics, an energy market consultancy, doubted a complete ban on fracking or policies that are "likely to hit hard and deep" will occur in the near term.

"But by making processes and regulatory burdens more challenging, you can impact infrastructure and the supply of natural gas and crude oil," Miller said. "We expect to see more impact coming from small regulatory changes that then have to fight legal battles which can affect the cost of capital and affect the regulatory space."

If the Democrats were to overtake the Senate, the main implication is oil tax increases, as well as the energy lending front too, raising restrictions and tightening the rules, Bob McNally, founder and president of Rapidan Energy, said.

"And then there's environmental justice – a whole new area of litigation for industry," McNally said. "By 2023, we see oil 1 million b/d lower than it would have been if Trump had been re-elected."

Lesser Iran geopolitical risk

Biden likely also will "warm up" to Iran, and probably renegotiate a nuclear deal as the Obama-Biden administration did prior to the election of President Donald Trump in 2016, as well as a provision that allows Iran's oil exports to resume, he said, adding that will initially lessen the geopolitical risk of war with that country.

However, that does not necessarily mean a more peaceful world under Biden, McNally added, pointing to the Yemeni Houthis' September 2019 attack on Saudi Arabia's giant Abqaiq crude processing plant September 2019, knocking offline about 7 million b/d of that country's production – most of it spare capacity.

"We're just one bad afternoon away from a colossal not only energy but macroeconomic and geopolitical crisis," he said. "It's hard to overstate what a cannonball, not only a bullet, the global economy dodged" in that attack, which surprised many in industry when global oil prices spiked very briefly.

Brent, which had traded $60.22/b on September 14, 2019, the Friday prior to the weekend attack, jumped 15% the following Monday but then fell back to the mid-$60s/b immediately afterwards. Within two weeks, Brent had returned to pre-attack price levels.

The damage done to the facility was "light and reparable," McNally said, but the attackers had "exquisite precision-guided munitions" and showed they could, and would, attack that key infrastructure.

"It could happen again," he said. "There are many facilities like that ... vulnerable to conventional attacks in that region. So we're never out of the woods."

S&P Global Platts Americas Petroleum and Energy Virtual Conference | January 26-28, 2021

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