Movers and SHAKERS
Presidential Hopefuls Float Plans to Curb Fossil Fuels
(Note: companies that could be impacted by the content of this article are listed at the base of the story [desktop version]. This article uses third-party references to provide a bullish, bearish, and balanced point of view; sources are listed after the Balanced section.)
With Democratic 2020 presidential hopefuls embracing green energy to curb climate change, proposals to ban hydraulic fracturing (fracking), limiting U.S. exports of fossil fuels and carbon taxes have all entered the public debate. Due to the increased use of hydraulic fracturing and horizontal drilling, the United States has significantly increased its production of crude oil and natural gas. The U.S. Energy Information Administration expects total crude oil and petroleum net exports to average 750,000 barrels per day (b/d) in 2020 compared with average net imports of 520,000 b/d in 2019. U.S. liquefied natural gas (LNG) exports are expected to average 4.7 billion cubic feet per day (Bcf/d) in 2019 and 6.4 Bcf/d in 2020 as three new liquefaction projects are commissioned. This has resulted in significant economic and political gains. As the country moves from limiting its dependence on energy imports to becoming a significant exporter of energy, should it consider restricting exports in the interest of curbing climate change? Restricting exports would have both positive (bull) and negative (bear) implications for energy producers, consumers and investors.
Curbing global dependence on fossil fuels. Climate experts say there is little doubt that higher U.S. production and exports are contributing to the rise in planet-warming carbon emissions by helping keep crude and natural gas prices low and increasing consumption in developing economies. They believe investments in new fossil fuel infrastructure today “lock in” fossil fuel production. By limiting fossil fuel exports, investment could be directed to accelerate green energy development.
Limiting exports would slow the growth of hydraulic fracturing and its concerns. Many are skeptical of hydraulic fracturing and question whether it represents a good use of water resources and whether it represents a risk to underground water reservoirs or promotes unintended consequences such as earthquakes. Because of the growth in fracking, some might prefer a slow down in activity until its safety is further validated…especially considering that a significant portion of incremental production is being exported abroad.
Restricting free trade will hurt the trade deficit. According to the U.S. International Trade Commission, the United States’ trade deficit in energy products fell 76% from 2013 to 2017. By limiting exports of fossil fuels, economic benefits from free trade will be lost and increase the U.S. energy trade deficit.
Other countries will fill the void. Large producers such as Saudi Arabia and Russia could step in to replace lost U.S. supplies. The net impact on global carbon emissions would be negligible. They might even rise in the short term because production in those countries is much dirtier than in the United States.
Energy producers will be hurt by artificially restricting demand. Private enterprise has financed billions of dollars of investment in companies that have built a world class energy value chain encompassing the upstream, midstream and downstream energy sectors. Limiting exports could damage returns on investment and foster domestic boom and bust cycles.
While most consider an outright ban on hydraulic fracturing as too draconian with severe near-term consequences, limits on exports may offer greater flexibility and a more controlled method of weaning global consumption away from fossil fuels. However, curbing climate change will require global cooperation, along with a suite of well-designed climate policies. Without multinational cooperation and a set of balanced policies, the United States is likely to lose more than it will gain.
Greta Thunberg weaponized shame in an era of shamelessness, The Washington Post, Monica Hesse, September 25, 2019.
Short-Term Energy Outlook (STEO), U.S. Energy Information Administration, November 2019.
What Would Happen if the U.S. Banned Fracking?, The Wall Street Journal, Christopher M. Matthews, November 20, 2019.
US Fossil Fuel Exports Spur Growth, Climate Worries, AP News, Michael Biesecker and Kim Tong-Hyung, December 27, 2018.
U.S. Trade by Industry Sector and Selected Trading Partners, United States International Trade Commission, Brian Daigle, 2018.
To Win the Race Against Climate Change, Fossil Fuel Producers Need to Curtail Supplies. Global Cooperation and Broad Societal Consensus are Key, Policy Options Politiques, Philippe Le Billon and Berit Kristoffersen, December 12, 2018.