The results of Tuesday’s elections, with the House of Representatives flipping to Democrat control, is a disaster. That is our considered opinion. And not just because we’re died-in-the-wool conservatives and believe in freedom and the rule of law. But for what it portends for the oil and gas industry. Some on our side, the pro-fossil fuel side, think everything’s just fine with Dems in control of the House. They say the oil and gas industry likes “divided government” because it ensures any changes that happen will happen slowly. We’re not convinced. Why? We look at the actual words of those seizing (and we use that word intentionally) power come January. The House, under Democrat tyranny, is gearing up to hold hearings on everything, including so-called “climate change” and Trump’s efforts to roll back egregious Obama regulations related to “climate change.” Dems plan to use the power of subpoena to try and stop efforts to right-size and eliminate unnecessary regulations in agencies like the EPA. We think the oil and gas industry, whether they admit it or not, is in for the fight of its life come January 1. We hope we’re wrong. We fear we are not.
Here’s why we’re pessimistic about regulatory interference by Democrats in oil and gas beginning next year:
After almost a decade of oil-friendly Republicans controlling Congress, the energy sector faced a dramatically different political landscape Wednesday.
Where Republicans pushed an end to the oil export ban and the relaxing of environmental regulations around drilling, the new Democratic-led House is expected to be more interested in combating climate change than boosting oil and gas production.
Even before the election, Democrats made clear they planned oversight hearings into President Donald Trump’s efforts to cut regulations around oil and gas drilling and other industrial activity. Rep. Frank Pallone, D-N.J., who is expected to chair the House Energy and Commerce Committee, said last week that Democrats would “focus on the need to address climate change by looking at its impacts on our communities and economy, and by holding the Trump administration accountable for dangerous policies that only make it worse.”
The industry also will face the unfriendly fire without key allies, such as Rep. John Culberson, R-Houston, who lost to political newcomer Lizzie Fletcher, and Rep. Pete Sessions, R-Dallas, who lost to former NFL player Colin Allred. They and other Republicans will be unable to stop Democrats from haling energy executives to committee rooms explain their role and influence in the Trump administration’s rollback of regulations.
“I am concerned in the simple fact that we have a lot of Democrats who subscribe to President Obama’s conviction that oil and gas is evil energy, and I’m certain they will go after Texas’ major industry,” said Rep. Kevin Brady, R-The Woodlands, the outgoing chairman of the House Ways and Means Committee. “I think that’s a huge mistake, and we will fight it.”
During the midterm campaign, climate change was a frequent topic for Democratic candidates as they sought to distinguish themselves from their Republican opponents. But with Democrats failing to achieve the so-called “Blue Wave” they had hoped for, there are questions how seriously Democratic leaders such as presumptive House Speaker Nancy Pelosi are going to address the issue.
Democrats will have the power to hold hearings, conduct investigations and pass bills in the House. But with Republicans still controlling the White House and Senate, Democrats face a difficult time enacting legislation into law without GOP support.
“It’ll be noisier. There will be hearings o-rama. But in terms of action, not so much,” said Robert McNally, president of the Rapidan Energy Group, a consulting firm outside Washington. “We don’t see them rolling President Trump, but the pace of deregulation at EPA will probably slow down because officials will be much busier dealing with subpoenas.”
For now, most expect the partisan gridlock that has pervaded Washington over the past decade to continue. But a couple energy issues have increased odds for action with a Democratic majority in the House, McNally said.
Congress is already weighing so-called NOPEC legislation authorizing the Attorney General to sue nations within the Organizaton of Petroleum Exporting Countries for manipulating oil prices, a move opposed by the U.S. Chamber of Commerce and the American Petroleum Institute, the energy industry lobby. And members of both parties are watching for signs of further interference by Russia in U.S. politics, with an eye towards increasing sanctions. One potential target of sanctions would be the Nordstream 2 pipeline project, connecting Russian gas with European gas markets.
Lee Fuller, executive vice president of the Independent Petroleum Association of America, which represents smaller oil and gas producers, said Democrats undoubtedly will come under pressure from their constituencies to take action against climate change and rein in oil and gas development. But, he added, “How many other things do they want to pursue and how much time do they have?
“I think we’re going to have to see it sort out over the next several months. There’s people who want to spend all their time impeaching Trump.” (1)
News flash for the dolts in the House who think they can impeach Trump: He’s here for the next two, and likely for the next six, years. Get over it. Medicate yourselves (some more). And deal with it.
Not everyone believes Democrat control of the House is the end of the world. The following is a Forbes column from David Blackmon, someone who has worked in o&g for decades, and someone whose opinion we highly respect.
As a general rule, a divided federal government is the best kind of federal government where the oil and gas industry is concerned. This is an industry that places a high degree of importance on regulatory and statutory certainty, and a divided government tends to result in a slower pace of change in these areas.
The unified, Republican-controlled government of the past two years produced a rapid pace of change, though much of it has actually been favorable for the industry, as the Trump Administration has gone about revising and repealing a raft of Obama-era actions. But that work is now mostly done, although the ultimate resolution for the EPA’s Waters of the United States rule and various methane-related measures at EPA and the Department of the Interior remain somewhat up in the air for now.
Congress was able to agree to include energy-related provisions in its omnibus spending bill last December, but has done little related to energy since. The lame duck session of the current 115th congress that will convene for four weeks between now and December 31 will have to try to deal with a broad range of potential legislation, as the GOP majorities will likely try to cram in as much as they can before they give way to the 116th congress in January.
Most crucial for oil and gas is the FY 2019 appropriations bill for the Departments of Interior and Energy, which was extended through December 7 as part of the “mini-bus” appropriations bill passed at the end of September. DOI and DOE, together with the EPA, do the most to regulate oil and gas activities at the federal level, and the appropriations bill always impacts how their actions will be carried out in the coming year. The lame duck session will also most likely pass the annual “tax extenders” legislation that includes a few oil and gas-related provisions. This bill also includes provisions related to biofuels and other renewable energy sources and typically attracts broad, bi-partisan support.
Another key bit of legislation that won’t receive much media attention will be the re-authorization of DOI’s Land and Water Conservation Fund (LWCF), a popular program whose sources for funding expired at the end of September, although the program itself remains in place. While there is broad, bipartisan support for the program’s continuance, the debate will be over whether to continue to require its funding to be reauthorized every year, or to award it permanent funding status via an automatic draw from the revenues collected from the oil and gas exploration activities in the Gulf of Mexico and other federal waters.
The other big energy-related outcome from the mid-term elections was the failure of several of anti-oil and gas ballot propositions at state and local levels around the country. Most notable among these was Colorado’s Proposition 112, which would have enacted a 2,500 foot setback rule that was defined in such a way that it would have effectively shut down oil and gas development in the state. With pretty much every major newspaper and political leader in both parties opposing it, Prop 112 failed dramatically, receiving just 42% of the vote.
Also failing was Alaska’s Ballot Measure 1, which would have placed onerous new permitting rules and fees on the industry that is far and away the largest funding source for the state’s government. That initiative received just 36% favorable votes.
With the outcome of Tuesday’s mid-term election, resulting Democratic control of the House of Representatives and Republican control of the Senate, the prospects for any bi-partisan agreement on significant energy-related legislation, or indeed, even the passage of actual appropriations bills, for the next two years are dramatically reduced. This new reality, combined with the Trump Administration’s lack of desire to enact new regulations that would hamper energy development of any kind, is likely to create a largely status-quo federal policy environment through the end of 2020.
“The government which governs least governs best” is a quote that is often attributed to President Thomas Jefferson, though that attribution appear to be erroneous. The actual source for the quote more likely comes from an essay published in 1849 by Henry David Thoreau titled “Resistance to Civil Governance (Civil Disobedience).”
Regardless of which public figure actually first said it, as a general rule, the oil and gas industry endorses its logic. The country’s voters, by creating a once-again divided federal government, just signaled their endorsement of it as well, at least for the next two years. (2)
We sincerely hope Blackmon is right, and that we’re wrong.
(1) Houston (TX) Chronicle (Nov 7, 2018) – In Washington, politics around oil, climate change in flux
(2) Forbes/David Blackmon (Nov 8, 2018) – The Mid-Term Elections Were Generally Good For Oil And Gas