President Joe Biden took his oath of office just before 11 a.m. on January 20. By 11:15 that day, I’d received my first email decrying the forthcoming death of America’s energy industry. A few minutes after that came a press release proclaiming the salvation of the planet. The rest of the day, my inbox yo-yoed between apocalypse and hallelujah.
Biden certainly wasted no time in issuing executive orders pushing an agenda that raises concerns in the oil patch. Just hours into his presidency, he signed directives banning the Keystone XL pipeline (again), implementing a sixty-day hiatus for new drilling leases on federal lands, and recommitting the United States to the terms of the Paris Agreement for reducing carbon emissions. A bigger concern to the industry came this week, when Biden moved to slash long-standing tax breaks that could cost oil and gas producers billions at a time when many can least afford it. In response, producers said little about the lost tax benefits, choosing instead to focus on the potential fallout from the leasing moratorium.
“President Biden’s ban on oil and natural gas production on lands owned by all Americans will result in higher energy prices, job losses, and reduced economic growth,” said Thomas Pyle, president of the American Energy Alliance, an oil industry advocacy group that advised Trump on energy policy. The industry will undoubtedly challenge Biden’s initiatives—both in court and by lobbying members of Congress.
Senator Ted Cruz, in questioning Transportation Secretary–designate Pete Buttigieg last week, said he fears “a whole series of regulatory decisions” from the Biden administration that will eliminate jobs in energy and other industries. Of course, the Texas energy industry hasn’t fared all that well under the recently departed Republican administration either, despite gifts such as the last-minute opening of Alaska’s Arctic National Wildlife Refuge to drilling.
“What could be worse for the oil industry than Trump?” asked Ed Hirs, an energy fellow at the University of Houston. “The last four years have been disastrous.”
To bolster his case, Hirs ticks off a litany of recent misfortunes that includes oil prices driven so low—in the last year, especially, because of the Trump administration’s halting response to the coronavirus pandemic—that 125 energy companies have filed bankruptcy in Texas since 2015, more than all other states combined. The industry has burned through hundreds of billions of dollars in investment capital, and Texas energy companies have slashed some 60,000 jobs just since last February—far more than will be lost by canceling the Keystone pipeline. Trump not only failed to get Keystone built on his watch, but other major projects—such as the Atlantic Coast Pipeline and the now-canceled Constitution gas line from Pennsylvania to New York—also stagnated. And all of that happened “over the four years that Trump has been calling for low oil prices,” Hirs said. “With friends like this, who needs enemies?”
Biden hasn’t made himself an industry darling either. In the final presidential debate, he stumbled through a question about how he would handle the transition to renewables, allowing Trump to claim he planned to kill the energy industry, which may have hurt not just Biden but other Democrats in oil-producing states. Since then, Republicans have been quick to label all his energy initiatives as job killers. The ban on drilling federal lands, though, is likely to have little effect, even if it’s extended beyond a couple months. That’s especially true in Texas, where fewer than 500,000 acres of federal lands are leased for oil and gas drilling. That’s much lower than other energy-producing states such as Colorado, where the government leases almost 3.7 million acres for oil and gas production. To be sure, Texas’s most prolific oil field, the Permian Basin, extends into New Mexico, where much more of the land—35 percent statewide—is owned by the feds. Still, federal lands account for just 5 percent of oil production nationally, so it’s not likely to be a game changer for oil production or carbon reduction. Fortunately for the industry, Biden had been promising such a move for months, so oil companies snapped up leases ahead of the presidential election. The government awarded 60 percent more leases last year than in 2019, despite the plunge in oil prices.
As for the Paris Agreement, which Trump dumped and Biden has reinstated, the significance of Biden’s action is really less about energy than America’s leadership in the world. “It’s the right thing, because we were instrumental as a nation in pulling together a very large and diverse audience of about 194 nations,” said John Hofmeister, former president of Shell Oil and head of the nonprofit Citizens for Affordable Energy. “It puts 194 nations on the same path. That’s a pretty powerful symbol.”
Biden’s executive order also reignited the decade-long battle over the $8 billion Keystone XL pipeline. Many environmentalists see shutting it down as a way to further reduce carbon emissions. The XL, the fourth line in the Keystone series (three others are already in operation), is designed to transport heavy crude from northern Alberta in Canada to refineries on the Texas Gulf Coast. Because it crosses the international border, the northern portion of the line requires State Department approval. (The southernmost leg, from Cushing, Oklahoma, to Texas, has been operating for years.) Obama blocked it, Trump reinstated it, and now Biden has blocked it again.
For years, Keystone has pumped far more hyperbole into the public discourse than it has oil into Texas refineries. Environmentalists argue that blocking the construction will slow production from oil sands, a mining-like process that produces more carbon than conventional oil drilling. However, oil sands mining still produces less carbon than transporting crude from Saudi Arabia via tanker, according to a 2015 study by the Congressional Research Service. The real problem isn’t in Canada. It’s in your garage. As long as there’s demand for gasoline—and for stretchy yoga pants and skis and cosmetics and a thousand other popular products—there will be demand for oil. Canada has other ways to ship the oil out, including other pipelines.
That may be the biggest shortcoming in Biden’s flurry of executive orders—none meaningfully address the demand side of the equation. “That’s going to leave him with a problem,” Hofmeister said. “He will be victimized by those who blame him and his executive orders for restricting the supply side, leading to higher prices, fewer jobs, less energy production in the U.S., meaning more imports and more control by OPEC.”
Higher oil prices, at least initially, would be welcomed by the industry. As oil prices rose at the end of 2020, topping $50 a barrel for the first time in almost a year, the prospect of profits returned to the oil patch. Now some investors and company executives fear that cash-strapped producers who shut in their oil after the price plunge last spring will open the taps and send prices tumbling again.
Biden may be a convenient bogeyman, but, for now, he’s operating at the margins of much bigger forces, including the industry’s own ill-timed investments.