This was how the economic, technical, and political uncertainties facing the energy industry were described by Mark Finley, Fellow in Energy and Global Oil at the Baker Institute Center for Energy Studies.
Against a backdrop of rollercoaster oil prices, a rapidly changing energy mix, and the prospect of a second COVID-19 wave, the sector’s geopolitical landscape is encountering turbulent times.
The outcome of the looming U.S. election could have serious implications for crude oil markets. For example, a Joe Biden presidency could lead to a renegotiation of the Iran Nuclear Deal, removing U.S. sanctions and paving the way for millions of barrels of Iranian crude oil to return to the market, at a time when the world doesn’t need extra supply.
And the implications of a Biden win would also be felt closer to home.
“A new administration in Washington could introduce restrictive methane regulations, for example, or make it more difficult to obtain permits for new pipelines or other infrastructure,” says Finley. “But we could also see a more concerted federal effort to deal with the challenge of climate change.”
So could Biden impose a ban on U.S. shale growth?
Even before the current oil price crisis, U.S. shale growth was expected to slow markedly, due to financial constraints, limiting the rebound in activity, points out Dr Bassam Fattouh, Director of the Oxford Institute of Energy Studies.
“There is nothing to suggest that as prices recover further in 2021 and the deficits in the oil market persist, capital will not start flowing back to U.S. shale,” he says. “But this is most likely to be in much smaller quantities and companies will be under severe pressure with their capital program, so much lower growth is expected.”
Dr Fattouh adds that Biden’s election will amplify these financing constraints and any move to stop new drilling on federal lands will reinforce the slowdown in U.S. shale.
Open to International Trade
The shale boom has led the U.S. to become more energy self-sufficient in recent years, dramatically reducing its dependence on imports. But that could quickly change.
Biden has put renewable energy onto his election agenda, a move which could alter the dynamics of America’s domestic energy sector and place greater dependence on international cooperation. The migration of economic power to Asia has seen countries like China dominate production of wind turbines and solar panels, but weakened relations between the U.S. and China under President Donald Trump present a barrier to trade. The end of ‘America First’ diplomacy under Biden could usher in a new era of trade relations helping to move his sustainable energy agenda forward.
Elsewhere, two unlikely allies have dissolved trade barriers. After 25 years, a treaty agreement between Israel and an Arab nation – the United Arab Emirates – has been signed. This landmark agreement connects two of the most powerful national lobbies in Washington. For energy, it is a game-changer, but one that was bound to come about now that Israel is officially a major player in the global hydrocarbons game.
The alliance between these two nations, both opposed to Turkey’s influence in conflict-ridden Libya, presents new challenges for the efforts of Turkey’s Erdoğan-led government to secure oil rights in the Mediterranean Sea. Time will tell what impact the newly forged ties will have on the delicate balance of relationships in the Middle East.
And time will tell how much the global oil & gas industry will be impacted by the U.S. presidential election. Until the votes are counted, the sector will simply continue to grapple with the many other challenges it faces at this time.
Johnny Wood has been a journalist for over 15 years working in different parts of the world – Asia, Europe, and the Middle East. As well as an accomplished features writer he has edited several prestigious lifestyle magazines and corporate publications.