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For the past six years, the oil and gas industry has served as a savior to the Obama presidency by providing the near-lone bright spot in economic growth. Increased U.S. oil-and-gas production has created millions of well-paying jobs and given us a new energy security. The president often peppers his speeches with braggadocio talk about our abundant supplies and decreased dependence on foreign oil.
So now that the economic powerhouse faces hard times, how does the Administration show its appreciation for the oil-and-gas industry boon to the economy over the past six years?
By introducing a series of regulations—at least nine in total, according to the Wall Street journal (WSJ)—that will put the brakes on the US energy boom through higher operating costs and fewer incentives to drill on public lands.
WSJ states: “Mr. Obama and his environmental backers say new regulations are needed to address the impacts of the surge in oil and gas drilling.”
U.S. oil production, according to the Financial Times: “caught Saudi Arabia by surprise.” The kingdom sees that US shale and Canadian oil-sand development “encroached on OPEC’s market share” and has responded with a challenge to high-cost sources of production by upping its output—adding to the global oil glut and, therefore, dropping prices.
Most oil-market watchers expect temporary low-priced oil, with prediction of an increase in the second half of 2015, and some saying 2016. North Dakota Petroleum Council President Ron Ness believes “We’re in an energy war.” He sees “the price slump could last 16 months or even one to two years as U.S. supply stays strong, global demand remains weak and OPEC continues to challenge U.S. production.” However, Ibrahim al-Assaf, Saudi Arabia’s finance minister, recently said: “We have the ability to endure low oil prices over the medium term of up to five years, even if it means delving into fiscal reserves to cover a large deficit.”
While no one knows how long the low-price scenario will last—geopolitical risk is still a factor.
Many oil companies are already re-evaluating exploration, reining in costs, and cutting jobs and/or wages. “In the low price circumstance like today,” Jean-Marie Guillermou, the Asian head of the French oil giant Total, explained: “you do the strict minimum required.”
In December, the WSJ reported: “Some North American companies have said they plan to cut their capital spending next year and dial back on exploring for new oil.” It quotes Tim Dove, President and COO for Pioneer Natural Resources Co.: “We are seeking cost reductions from all our suppliers.”
Last month, Enbridge Energy Partners said: “it has laid off some workers in the Houston area”—which the Houston Chronicle (HC) on December 12 called: “the latest in a string of energy companies to announce cutbacks.” The HC continued: “Other key energy companies have also announced layoffs in recent days as oil tumbles to its lowest price in years. Halliburton on Thursday said it would slash 1,000 jobs in the Eastern Hemisphere as part of a $75 million restructuring. BP on Wednesday revealed plans to accelerate job cuts and pare back its oil production business amid crumbling oil prices.” Halliburton said: “we believe these job eliminations are necessary in order to work through this market environment.”
Civeo, a lodging and workforce accommodation company for the oil-and-gas industry has cut 30 percent of its Canadian workforce and 45 percent of its U.S. workforce. President and CEO Bradley Dodson said: “As it became evident during the fourth quarter that capital spending budgets among the major oil companies were going to be cut, we began taking steps to reduce marketed room capacity, control costs and curtail discretionary capital expenditures.”
I have warned the industry that while they have remained relatively unscathed by harsh regulations—such as those placed on electricity generation—their time would come. Now, it has arrived. The WSJ concurs: “In its first six years, the administration released very few regulations directly affecting the oil-and-gas industry and instead rolled out several significant rules aimed at cutting air pollution from the coal and electric-utility sectors.”
According to the WSJ: “Some of the rules have been in the works for months or even years.” But that doesn’t mean the administration should introduce them now when the industry is already down—after all, the administration delayed Obamacare mandates due to the negative impact on jobs and the economy.
Greg Guidry, executive vice president at Shell, recently said that he doesn’t want the EPA to “impose unnecessary costs and burden on an industry challenged now by a sustained low-price environment.”
Different from Obama, Canada’s Prime Minister Stephen Harper gets it. Under pressure from the environmental lobby to increase regulations on the oil-and-gas industry, he, during a question session on the floor of the House of Commons in December, said: “Under the current circumstances of the oil and gas sector, it would be crazy—it would be crazy economic policy—to do unilateral penalties on that sector.” He added: “We are not going to kill jobs and we are not going to impose a carbon tax.”
Introducing the new rules now kick the industry while it is down and shows that President Obama either doesn’t get it, or he cares more about burnishing his environmental legacy than he does about American jobs and economic growth.