The oil industry spent much of Joe Biden’s first week in office publicly squawking in protest. The American Petroleum Institute called his decision to cancel the Keystone XL pipeline a “significant step backwards both for environmental progress and our economic recovery.” And in response to Biden issuing a 60-day halt on new leases and permits for drilling on federal land, API warned that “the administration is leading us toward more reliance on foreign energy,” and that any restrictions on production will decimate the fragile U.S. economy.
But the business press and industry analysts have presented a rather different story. Oilfield services companies are cautiously optimistic, after a rash of bankruptcies last year. The combined prospects of an economic stimulus and infrastructure package—both of which will boost fossil fuel demand—spell a more prosperous 2021 and 2022 for the world’s biggest polluters. Even Biden’s aspirations to “Build Back Better” with green jobs, Oslo-based energy consultancy Rystad Energy predicted last week, may well be welcome news to oil and gas producers. “Any ‘green’ focus of the infrastructure bill,” a company press release read, “will be mostly additive to overall short-term oil products demand due to construction activity, with risks mostly limited to medium-term oil demand, depending on the scope and success of the projects.” Stimulus measures, in other words, will increase energy demand in general. At least for now, that means more demand for fossil fuels. They call it the “Biden boost,” predicting an extra 350,000 barrels per day (bpd) for 2021 and 900,000 bpd for 2022, should he follow through on his promises. They do also note that new environmental rules, if carried out, could cause oil demand to start to fall toward the end of the 2020s.
This may seem counterintuitive given Biden’s campaign promises. The mechanism isn’t complicated, though: There’s a stubborn link between growth in gross domestic product and greenhouse gas emissions. Even the greenest of recoveries is likely to boost both growth and emissions in the near term by putting people back to work and boosting consumer spending. Unless economic recovery policy includes sweeping, rapid changes to electrify and decarbonize the country and actively curtail fossil fuel production, even a stimulus that’s green on many other fronts could help emissions climb for years to come.
Savvy U.S. polluters, of course, could still flourish even with new regulations. Federal lands—on which Biden has issued his two-month pause on new drilling leases and permits, allowing a select few Department of Interior officials to approve exceptions—are now home to just 14 percent of active land rigs. A recently released analysis by Morgan Stanley expects that large, diversified companies can simply reallocate all of their new drilling and planned investment to nonfederal land. While the bank predicts political pressure will put any permanent ban on leasing off the table, it projects tighter rules on everything from methane emissions to environmental reviews going forward. For many companies, that wouldn’t be a bad thing. “In effect,” Oil & Gas Journal writes of the bank’s findings, a Biden administration placing more climate-focused policy constraints on the industry “is constructive for the oil and gas macro—constraining supply and putting upward pressure on the marginal cost of shale production without impacting short-term demand.” Smaller firms that do a lot of business on federal land face big risks, of course. Yet larger and more integrated U.S. oil majors like Chevron are well insulated against even sweeping restrictions and “could benefit to the extent President Biden’s policies tighten the supply/demand balance for global oil & gas markets.”
For years, ballooning production of the sort Trump championed has made the U.S. oil and gas industry its own worst enemy. After a calamitous 2020—when 107 oil and gas companies filed for bankruptcy—shale drillers, in particular, are pledging to refocus their energies away from frantic production and onto profits, eager to win back investors who were fed up with years of negative cashflows long before Covid-19 hit. Companies focused on the long game have already begun to curtail new exploration and production so as to stop hemorrhaging cash and allow prices to rise. In most other countries, such stabilization measures are accomplished through national oil companies, many of them members of OPEC. The United States has no such internal mechanism, leaving more prudent producers here to worry that their competitors won’t be team players. “There are going to be bad actors [who pursue] growth for growth’s sake,” Pioneer Natural Resources executive Matt Gallagher told the Financial Times.
Much of the oil and gas industry, that is, wants to keep production down. A Biden administration could help them do it, all as political constraints—many of their own design—conspire to keep really threatening, emissions-curbing policies off the table. Though there’s no contradiction between a “green” recovery and one for the oil and gas industry, its business model is fundamentally incompatible with a habitable planet. It’s early days yet. Plenty remains to be seen about what the Biden administration will mean for fossil fuel firms. Yet so long as their shareholders and executives are optimistic, climate advocates should be skeptical.