Energy issues and the 2016 election

Senators serve six-year terms, and one-third of the Senate is up for re-election every two years. Of the 34 Senate seats up for grabs in 2016, 24 are currently occupied by Republicans and 10 by Democrats. This means the narrow edge Republicans hold in the Senate is especially vulnerable this year.

Over in the House, all 435 seats are contested every two years. Republicans currently hold a 33-seat majority over Democrats. Since districts tend to be drawn to favor incumbents, relatively few change hands in any given election. Although Democrats may pick up some seats this year, it is highly unlikely Republicans will lose their majority in the House.

Although there are Democratic senators and representatives that support the petroleum industry, particularly in oil and gas-producing states, most energy industry organizations believe Republicans tend to be more supportive of oil and gas interests than their Democrat counterparts in Congress.

With that in mind, here is an overview of some of the major issues facing the petroleum industry with the upcoming US general election just 80 days away as this is written.

OFFSHORE EXPLORATION AND DEVELOPMENT

What happens if the government held an auction of oil and gas leases in the Gulf of Mexico and nobody came? That's a bit of an exaggeration, but the August 24 federal auction had a record low number of bidders, down more than 80% from the last auction in 2014.

The Bureau of Ocean Energy Management only received bids on 138,000 acres, totaling $18 million in offers. Although low commodity prices are partly responsible for the lack of interest, the industry blames the Obama administration for making it difficult to drill in federal lands and waters - onshore as well as offshore.

The National Ocean Industries Association, which represents US offshore oil and gas interests, attributes the poor sales in part to pressure that environmentalists are putting on the White House and Congress to reduce overall fossil fuel production to try to slow the impact of climate change. Environmental activists have also pressured the Obama administration to cancel onshore leases in the Western United States. Reduced interest from the domestic oil and gas industry following the economic downturn has also been a factor.

Earlier this year, the Obama administration stated it would not permit drilling off the east coast of the US even though some state governors on the Atlantic seaboard supported such drilling. Some offshore players in the Gulf of Mexico have implied that stricter safety rules put in place in the aftermath of the Deepwater Horizon accident have made compliance so expensive that they might move their operations abroad where there is less regulation.

HYDRAULIC FRACTURING

Fracking has been a controversial subject and has increasingly become the focus of legislation in the US. Recently, the state of Colorado has pushed for new restrictions, and activists have obtained more than 200,000 signatures to introduce two new initiatives on the Nov. 8 ballot in that state. If passed, these initiatives would impose the toughest regulations on fracking to date by increasing local control and dramatically limiting where fracking can take place. Initiative 75 would provide local governments with the authority to regulate oil and gas development in a manner that supersedes statewide regulations. A similar ballot item, Initiative 78, would prohibit fracking within 2,500 feet of houses, parks, schools, playgrounds, and clean water sources. Opposition by the industry has been fierce with more than $15 million raised so far to fight the proposed measures. Industry players leading the opposition include Anadarko Petroleum, Noble Energy, Synergy Resources, PDC Energy, Bill Barrett Corp., and also the Denver Metro Chamber of Commerce.

In July, US District Judge Scott Skavdahl in Wyoming struck down the US Bureau of Land Management's hydraulic fracturing regulations applicable to oil and gas activities performed on federal and Indian lands. The BLM first proposed the rules in 2012 and they went into effect June 24, 2015. In blocking the rules, Skavdahl found that the BLM "lacked Congressional authority to promulgate the regulations."

The ruling was yet another setback for the Obama administration's regulatory push, as previous industry challenges have resulted in the stay of other major new regulatory programs, including the EPA's Clean Power Plan and the Clean Water Act jurisdictional rule. The district court's decision is just one of several recent examples where federal courts have rejected the administration's attempts to assert itself (through regulatory action or enforcement action).

The BLM has appealed Judge Skavdahl's decision to the US Court of Appeals for the Tenth Circuit, signaling a long battle ahead. More than 25% of US oil and gas production takes place on federal lands, both onshore and offshore.

CLIMATE POLICY

The 2016 general election will have enormous implications for energy and climate policy in the United States. While much attention will be paid to the positions of presidential candidates, congressional and state elections will also have major implications for how federal and state governments address a variety of crucial issues such as implementing greenhouse gas reduction policies, regulating fracking, crafting subsidies for renewable energy, and much more.

Electric power generation, particularly from coal-fired plants, is the single largest emitter of greenhouse gas emissions in the US, accounting for 30% of total US emissions. The Obama administration has been proactive in trying to phase out coal as a major factor in power generation in favor of natural gas and renewables. Because of its relatively low GHG emissions, natural gas is widely seen as a satisfactory transitional fuel for generation until cleaner fuels become more economic.

The US has an abundant, long-term supply of natural gas, but much of it is embedded in shale formations, which requires the use of horizontal drilling and hydraulic fracturing to make production economic. Although seen as a bridge fuel, some environmental activists oppose switching to natural gas even as a short-term transition because they oppose fracking. In this case, perfect is the enemy of the good.

METHANE EMISSIONS

In March 2014, President Obama issued the Climate Action Plan Strategy to Reduce Methane Emissions (CAP). Obama has been under pressure from environmental groups to address global climate issues and target emissions from the American oil and natural gas production sector. Reducing methane emissions is a key component of the President's climate change agenda. Environmental groups have petitioned the US Environmental Protection Agency to promulgate regulations to reduce methane emissions from oil and natural gas production that would potentially impose duplicative and burdensome regulations on America's independent producers. It is important to remember that as natural gas production increases it will displace the burning of coal, the dirtiest fossil fuel. As such, natural gas will play a key role in reducing methane emissions.

CRUDE OIL EXPORTS

In 1975 during the administration of President Gerald Ford, the United States enacted limitations on the export of crude oil to prevent exposure to a volatile world market. Today, however, America's energy industry is booming. The US has surpassed Saudi Arabia and Russia as the world's largest producer of oil and natural gas. The ban on crude oil exports was outdated. By lifting the ban on oil exports, the United States will see increased investment in free trade, grow the economy, create new American jobs, and reduce America's need for importing foreign oil. On Dec. 18, 2015, President Obama signed into law federal government funding legislation that included a provision that lifted the restrictions on US crude oil exports.

We urge our readers to stay informed on the issues and to go to the polls and vote on Tuesday, Nov. 8, or to vote early.