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Sunday December 17, 2017

The Trump win and widespread Republican gains down ballot suggest many possible changes in the US energy scene even as radicals snipe away in irrelevancy.

By a narrow margin, Measure Z was approved by residents of Monterey County, California.  The ballot initiative, which would ban fracking in Monterey (where it does not currently happen anyway), also bans new oil wells, injection wells and wastewater ponds.  Surprisingly, as Monterey went so didn’t the United States.  Republicans celebrated victories up and down the ballot, and cities like Youngstown, Ohio for the fifth time rejected a “Community Bill of Rights” aimed at reducing, if not banning hydraulic fracturing.   For better or worse, jobs took clear precedence over claims about the ecology.

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Perhaps in reaction to the election returns, federal agencies have been busy placing new hurdles in the way of oil and gas development and transportation.  The Bureau of Land Management came out with new rules on methane requiring companies working on federal or tribal lands to reduce leakage.  In addition, the Army Corps of Engineers announced a delay in the construction of the final piece of the Dakota Access Pipeline in North Dakota.  It seems clear the President is moving swiftly to try to preserve his “green” legacy as much as possible, with the knowledge that much of what his Administration is doing in its final days quickly can be undone by the incoming Trump Administration.

Unfortunately for the current Administration and its supporters, the election was not their only bad news the last two weeks.  In Pennsylvania, Judge Kevin Brobson issued a preliminary injunction blocking the State from enforcing provisions in its Chapter 78a Oil and Gas Regulations pertaining to public resources, well permit reviews, wastewater impoundment and site restoration.  He refused to grant one for regulations pertaining to onsite processing, spill remediation and waste reporting, which now go into effect. 

Perhaps most decisively, the Wyoming Department of Environmental Quality issued its final report on the Pavillion water contamination, rejecting earlier claims by the EPA that fracking was responsible for the contamination of water-supply wells east of the town.  “Evidence does not indicate that hydraulic fracturing fluids have risen to shallow depths utilized by water-supply wells.”  In addition, “upward natural gas seepage…was happening naturally before gas well development.”

Along with Parker, Texas and Dimock, Pennsylvania, the Pavillion story once again puts the EPA in the cross-hairs of those who believed that the federal agencies were abusing their power under President Obama.  They will press President Trump to pull back on federal involvement.   If the EPA had any real successes to point to in this field, it would have a far better argument for continued involvement, but to this point it has little to show.  Those continued failures will make it very easy for President Trump to pull federal involvement way back and return authority over the process to the States.

The new President will take office with sweeping new finds being reported.  The Midland Basin of the Wolfcamp Shale area in the Permian Basin in Texas is estimated to contain 20 billion barrels of oil and 1.6 billion barrels of natural gas liquids.  Meanwhile in Colorado, as previously reported, the Mancos Shale could hold 40 times more technically recoverable natural gas reserves than previously estimated.  As much of this is on federal land, the adequacy and efficacy of federal land management will be front and center come January.

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So what does a stunning and sweeping Republican victory mean for the energy industry moving forward?  First, it seems likely that the pipeline buildout will move quicker, without federal interference.  Opponents will continue to use the courts and state laws to try to block construction, but anticipate FERC and other federal agencies (like the Army Corps) to act more vigorously in opposition to continued delay. 

Second, expect the Department of Energy to be more forthcoming on export permit applications, and on terminal permit construction applications.  This is simply low hanging fruit that will win wide support from nearly all communities except those vigorously opposed to fossil fuels. 

Third, huge government subsidies for renewal energy likely will lessen, although I doubt they will dry up completely. 

Finally, the Trump Administration will use energy as leverage in foreign affairs, something the Obama Administration not only refused to do but actively sought to limit its ability ever to do.

One of the most interesting early skirmishes likely will be between Trump and New York Governor Cuomo over the Clean Streams Permit needed to complete the Constitution Pipeline.   Not only does this issue deal with energy policy, it has elements of federalism and State’s rights intertwined within. 

While the industry has done a poor job of explaining the nation’s vulnerability to some of the world’s worst actors if the infrastructure buildout does not take place, having a government of like mind and not one bent on minimizing the international and political risk is bound to help the industry’s cause.

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Governor Cuomo also now has a very interesting decision to make.  Does he look for a peaceful way out or does he double down, solidifying his green credentials while possibly becoming the poster child for why the Democrats lost an election they seemed sure to sweep?

Happy Thanksgiving to all.

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