Heating Oil News
New regs – & LNG approvals – possible in Obama’s second term
November 7, 2012
President Barack Obama enters a second term in the White House free to impose tougher regulations on domestic drilling despite industry objections and with new latitude to approve natural gas exports and the controversial Keystone XL pipeline without fear of alienating environmentalists he needs at the ballot box.
But the newly unfettered president still will be navigating many of the same political obstacles he confronted during the first term, when his administration balanced new air pollution regulations by delaying mercury rules for power plants and giving the oil industry big concessions as part of other environmental mandates.
Obama also will be facing a sharply divided Congress, with Republicans eager to use their House control to undercut new environmental requirements and Democrats in charge of the Senate pushing back against efforts to weaken them.
“The president faces checks and balances from Congress,” noted Benjamin Salisbury, an analyst with FBR Capital Markets. “He also faces checks and balances from litigation, from industry and negotiations and environmental groups.”
And Obama is not completely immune from political calculations, with preparations already under way for the Senate and House elections two years from now and potentially new concerns about the economic legacy he would leave after eight years in the White House.
Energy experts said Obama’s reelection could translate into more certainty for the oil and gas industry, which can expect to soon see a handful of looming drilling regulations proposed and finalized.
For instance, the Interior Department’s Bureau of Safety and Environmental Enforcement has already foreshadowed its plans for new requirements on blowout preventers and other equipment safeguarding offshore wells.
Interior’s Bureau of Land Management is finalizing recently proposed rules governing natural gas wells on federal lands, including mandates that would force companies to disclose what chemicals they use to extract the fossil fuel and mandates on how the sites are designed.
Obama’s reelection also is likely to breathe new life into a stalled plan to slash the amount of sulfur emissions allowed from gasoline. Federal regulators also could resume advancing air emission and greenhouse gas rules for coal-fired power plants.
“All of this stuff was put on hold until after the election,” Salisbury said. “The stuff we know about, at least, has been in the chamber for a long time.”
The industry-backed Institute for Energy Research predicted that coming regulations “will drive up the price of oil, coal and natural gas by making their exploration, production, transportation and consumption more costly and uncertain.”
“Within a few days,” the group said, “we can expect the (Environmental Protection Agency) and other agencies to start issuing the regulations they have been withholding until after the election.”
Obama will soon face a decision on whether to approve the Keystone XL pipeline that would deliver oil sands crude from Alberta to Gulf Coast refineries, after rejecting an initial proposal from TransCanada Corp. during his first term.
Environmentalists say the pipeline would expand the market for a type of oil that is harvested using energy-intensive extraction methods that generate more greenhouse gas emissions than alternative crudes.
Oil industry leaders accused Obama of kowtowing to environmentalists by rejecting a permit for the U.S.-Canada border-crossing Keystone XL pipeline late last year. But in his second term, Obama may be unshackled from pressure to please his environmental base.
But environmental activists aren’t going to back down; they are planning a White House demonstration on Nov. 18 to keep pressure on Obama.
Even if the administration approves a permit for the border-crossing pipeline, it could be delayed by lawsuits and environmental protests.
Separately, environmentalists seized on polling data suggesting that concern about climate change was a motivating factor for many of Obama’s voters and were pressing the White House to make it a signature issue.
“With the election behind him and (Hurricane) Sandy’s full impact still mounting, President Obama has an opportunity and an obligation to press the case for stronger climate action,” said Eileen Claussen, president of the Center for Climate and Energy Solutions.
In a memo issued Wednesday, League of Conservation Voters president Gene Karpinski said the election results — including Obama’s reelection and more “pro-environment” members installed in the Senate — proved that “there has been a shift in the politics of energy and climate change.”
“Candidates that stood by the environmental community and a clean energy agenda were overwhelmingly elected, while candidates tied to oil and coal companies lost,” the group said.
Analysts at HSBC Holdings predicted Obama could seize on climate change concerns renewed when superstorm Sandy hit the East Coast by pursuing a tax on carbon dioxide emissions that would help fill federal coffers. Obama’s options may be limited to administrative actions, given the political division on Capitol Hill, where previous efforts to arrest climate change and cap greenhouse gas emissions stalled.
Global Hunter Securities analysts predicted Obama’s second term could benefit natural gas producers.
“Although (Obama) is no fossil fuel friend, natural gas may get a boost in the next four years, despite Democrats’ perception as strong environmentalists,” Global Hunter Securities analysts said in a research note.
On the campaign trail and during his first term, Obama widely touted the nation’s abundant natural gas supplies, now being unearthed because of technological advancements in horizontal drilling and the hydraulic fracturing practice that uses high-pressure blasts of water, chemicals and sand to free hydrocarbons trapped in dense rock formations.
Oil and gas industry leaders are nervously watching an Environmental Protection Agency study of the effects of hydraulic fracturing on groundwater, which could lay the foundation for wider federal regulation of the practice.
Separately, the Obama administration also is weighing whether to boost U.S. exports of liquefied natural gas _ a politically fraught decision because it could boost prices and hamper a domestic manufacturing renaissance tied to a glut of the fossil fuel.
An Energy Department study of the economic effects of expanded liquefied natural gas exports was initially expected to conclude this spring but was delayed and is now likely to be issued before the end of the year.
Obama’s top energy adviser, Heather Zichal, has said that study will guide the administration’s decisions on whether to grant LNG export licenses.
There’s one big potential upside for oil and natural gas producers in Obama’s reelection. Where Romney’s administration was likely to preside over a sweeping rewrite of the nation’s tax code — potentially putting the industry’s coveted tax breaks on the chopping block — some House Republicans are likely to zealously protect them as part of any fundamental tax reform while Obama is in the White House.
Salisbury said the difference is that with Romney in the White House, Republicans would have to work more aggressively to produce workable tax policy, which could require axing those tax incentives. With Obama, congressional Republicans can draw a line in the sand over which tax incentives are expendable.
“Romney had a lot of tax risk for the E&Ps;,” Salisbury said. “Doing a massive tax reform bill would require a significant amount of revenue, and oil and gas is on the menu.”
