As the November U.S. presidential election grows nearer, the Democrats are ratcheting up rhetoric about banning hydraulic fracturing and closing federal lands to hydrocarbon extraction. Bernie Sanders’ victories in the Democratic presidential primaries have focused attention on the self-proclaimed socialist senator’s policy platform. If he becomes president, Mr. Sanders has a plan to ban hydraulic fracturing and has pledged to adopt a “Green New Deal” (GND).
The GND would be a comprehensive government-led restructuring of the economy, intended to achieve a steep reduction in greenhouse gas emissions. He also said he would “immediately end all new and existing fossil fuel extraction on federal public lands.” Although Senator Elizabeth Warren is no longer running for the Democratic nomination, she stated that “On my first day as President, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracing—everywhere.”
This irresponsible pandering to the Democratic party’s left wing, and saying-anything to get elected, sets a dangerous precedent. It has tarnished the intellectual integrity of the Democrats and puts their green platform on a collision course with the wellbeing of every man, woman and child in the U.S. Fortunately, whoever gets elected will find it difficult to end fracing. Presidential powers to enact a ban only extend to federal lands and should face immediate legal challenges. A wider restriction would have to go through Congress.
California joins fracing fight. In a continuation of its long-practiced environmental activism, California intensified its battle against the industry by seeking third-party scientific reviews of all pending frac permits and halting approvals of high-pressure steam-flooding. Governor Gavin Newsom ordered regulators to assess the safety of the production process that allegedly has been linked to recent oil leaks in Kern County.
Mr. Newsom, a San Francisco Democrat in his first term as governor, has been increasing pressure on oil and natural gas producers by denying permits and drilling leases on land that is protected by federal authorities. “These are necessary steps to strengthen oversight of oil and gas extraction, as we phase out our dependence on fossil fuels and focus on clean energy sources,” Newsom said. “This transition cannot happen overnight; it must advance in a deliberate way to protect people, our environment, and our economy.”
California Resources Corporation, the state’s largest oil producer, tumbled 32% on the news, and its bonds dropped to just $0.25 on the dollar, the lowest since 2016. However, the company predicted no “significant effect” on its output, because the type of steam-flooding it employs is exempt from the ban. Bakersfield-based Berry Petroleum slumped 25% on the news.
Who benefits? Officials at Berry concluded by saying the new moratorium will help “countries that export oil to California, including OPEC, which has poor social justice and environmental records, pay no California taxes and don’t employ our citizens.”
ExxonMobil and Chevron push back. Finally, America’s two biggest oil companies are starting to push back against the fracing ban touted by the Democrats. Executives for both companies spoke out publicly against the proposals for the first time in November, saying that the fracing ban would shift profits from crude production out of the U.S. to other countries (OPEC), and may increase prices for consumers while doing nothing to reduce oil demand or greenhouse-gas emissions. “Any efforts to ban fracing or restrict supply will not remove demand for the resource,” said Neil Hansen, Exxon’s V.P. of investor relations. “If anything, it will shift the economic benefit away from the U.S. to other countries, and impact the price of the commodity in the U.S. and globally.”
Fracing in U.S. shale fields has pushed U.S. oil production to record highs, touching 12.99 MMbopd in January. Exxon said its output from the Permian basin had increased 70% in the third quarter from a year earlier. Chevron saw its output there climb 35%. For both companies, production from shale fields is now the fastest-growing part of their global businesses and a key profit-driver. “Fracing has a huge economic benefit for the country, as well as for the companies involved,” said Chevron’s upstream business development manager Jay Johnson.
How would a ban affect the U.S.? The API says that a fracing ban would be devastating to U.S. oil production and eliminate millions of jobs. “Fracing has been one of the most important technological advancements in American history, and banning it would erase a generation of U.S. progress. A fracing ban would leave working families behind, and deliver a major win to OPEC and Russia. Presidential candidates who stand with American workers, must stand against a ban on fracing,” said API Director Ben Marter. An analysis by WoodMackenzie’s Elena Nikolova indicates that oil production could drop 800,000 bpd in just one year. “Looking further, the impact peaks around 2025, when U.S. crude oil production hits 11.5 MMbpd, or 1.2 MMbpd less than our base case of 12.7 MMbpd, with fracing.”
A return to sanity? The environmental groups pressuring the Democrats refuse to acknowledge that renewables cannot replace fossil fuels in the foreseeable future. Nor do they admit that a fracing ban would hurt the climate far more than regulating it more effectively. The only reason why electricity generators can close coal-fired plants is because natural gas offers a lower-priced alternative with lower emissions. Ban fracing, and gas prices will skyrocket, forcing utilities to switch back to coal. The goal should be to reduce emissions, not tell the business community how to get there. Democratic candidates must stop bending to environmental groups, who reject a role for the private sector and push pipe dreams over responsible public policy.
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