Now that the votes are in and media attention has shifted from a contentious US presidential election to the looming fiscal cliff, energy companies in the oil and gas space as well as wind, solar and other sectors are keeping a sharp eye on what the next four years of energy policy might look like.
The regulatory requirements associated with developing oil and gas on federal lands became a polarizing issue during the election, with republicans claiming the process is too strict, overly burdensome and impedes companies from producing resources vital to the US economy.
There is no need to get into the validity of these claims at this point, as this issue is likely to remain a political football regardless of which party is in the White House now, or in 2016. It’s interesting to note, however, that most of the largest US shale gas plays are not located on federal lands, as EIA chief Adam Sieminski recently told the audience at a major energy conference. These geologic structures are largely credited with the dramatic increase in natural gas and oil production the US has experienced in recent years.
The administration’s widely promoted “all of the above” energy strategy includes fossil fuels, particularly natural gas. President Obama’s energy adviser Heather Zichal said in May at an American Petroleum Institute workshop on hydraulic fracturing: “We know that natural gas can safely be developed, and to the credit of the industry there are many companies that are leaning into this challenge and promoting best practices for safer and more efficient production.”
It is also important to remember that offshore Alaska oil exploration licenses were granted under the previous Obama Administration, so claims that the party is at war with fossil fuels would appear to be somewhat overblown. And as is often the case with energy and politics, the issues tend to run much deeper than the rhetoric, with facts falling somewhere in between.
At the same time though, Zichal has come out in favor of a carbon tax and Obama called for reducing or eliminating tax incentives for oil and gas companies during the presidential debates. While a carbon tax – or some form of carbon price – is something many large oil companies already bake into their long-term forecasts, the tax incentive issue could be much more serious over the short to medium term.
Though often incorrectly referred to as “subsidies for big oil,” – tax experts at Ernst & Young assured Breaking Energy that the “US government is not giving companies money to go out and produce oil” – the industry does receive tax incentives that have come under scrutiny. It will be interesting to see if this issue was more of a stump stance designed to get votes or whether oil and gas companies will see new taxation policies over the next four years.
One of the biggest near-term issues in the energy space is the wind energy production tax credit set to expire at the end of this year. Wind power has grown tremendously in the US in recent years, but most analysts and industry professionals agree that PTC expiration would lead to a significant reduction in installed wind power generating capacity in 2013.
This issue is currently tied up in Congress, with the Obama Administration in favor of extension and republicans largely against. Some recent reports have suggested the possibility of a temporary extension – this is a major issue for the competitiveness of the wind industry, so stay tuned.