US oil and gas producers entered 2021 bruised by a long stretch of low prices, strained budgets and shrinking workforces.

As Joe Biden prepares to assume the presidency, ushering in a slate of new appointees and what are in effect Democratic Party majorities — albeit razor-thin — in both houses of Congress, the industry is bracing for what could be significant policy and regulatory changes.

Biden announced his “climate team” in December, including nominees for the top posts at the Department of the Interior, the Department of Energy, the Environmental Protection Agency and the Council on Environmental Quality, along with a national climate advisor and deputy national climate advisor.

All could push for policies that have some bearing on domestic oil and gas, but perhaps no single figure will have more direct influence over the industry than Biden’s pick for interior secretary, Deb Haaland, a New Mexico member of the House of Representatives.

Climate goals

Haaland will be the first Native American to serve in a presidential cabinet, heading a department that includes the agencies that manage and regulate oil and gas activity in federal lands and waters, the Bureau of Ocean Energy Management and the Bureau of Safety & Environmental Enforcement.

Her nomination was championed by Native American groups, which have frequently been at odds with the interior department during its 170-year history — its wide remit includes the bureaus of Indian affairs and Indian education, among others. Environmental groups, too, were cheered by her nomination.

Haaland will have to manage the expectations of those constituencies while addressing the concerns of an industry that has become increasingly important to her home state, contributing $2.8 billion to state coffers in 2020 despite low oil prices, according to the New Mexico Oil & Gas Association.

During the presidential campaign, candidate Biden vowed to ban new oil and gas leasing on federal lands and expressed opposition to hydraulic fracturing. He has set out ambitious climate goals for the nation, including a pledge to reach net zero fossil fuel emissions from its power sector by 2035.

Haaland supported the so-called Green New Deal as a House member, and although the Democrats’ narrow majorities all but guarantee that the proposed legislation’s most sweeping goals will not become law, the next few years will see a big push on low-carbon and renewable energy initiatives.

That could be a plus for the domestic gas industry in the medium term, says Artem Abramov, head of shale research at Rystad Energy.

After struggling throughout 2018 and 2019, Abramov says, prices for natural gas and natural gas liquids in the Permian basin have rebounded and are now higher than before the onset of the Covid-19 pandemic, which gutted worldwide demand.

The industry has suffered “significant damage, and a lot of people have been laid off”, he says. “But if the current price environment persists, we will actually see a very healthy, but gradual, recovery in activity and production in the country in the next two to three years.”

Most of the producers Abramov has spoken to “do not see Biden as a negative for the oil and gas industry” despite the promise of tightened regulations and an accelerated move to renewables, in part because domestic gas could increasingly replace coal for power generation.

The international market for liquefied natural gas is also growing, he adds, and US exporters could benefit from the same trend towards lower-carbon energy abroad.

It is unclear how much the new administration will support gas exports using its powers of regulation, diplomacy or financial support of projects, writes Nikos Tsafos, a senior fellow at the Washington DC-based think tank Center for Strategic & International Studies.

Gas diplomacy

In a new report, Tsafos says some changes in “gas diplomacy” between the administration of President Donald Trump and the incoming Biden team are “predictable and easy to implement”.

He writes: “We are unlikely to see the secretary of energy go overseas to sell US LNG as we did under the Trump administration. Nor can we expect the United States to give extra credit to countries that buy or pledge to buy gas from the United States — cheering each cargo that arrived overseas or allowing trade commitments to override other concerns like human rights or the rule of law (as in the case of Poland).

“Gas will take a more appropriate place in the pecking order of US priorities — important but not top-tier.”

Abramov is keeping an eye on Biden’s “macro policies” that could shift the terrain, such as a partial rapprochement with Iran and improved trade relations with China.

“If Biden puts an end to these tariff and trade wars, this would actually be very positive for the global market environment, which ultimately would stimulate global oil prices, which in turn will have a positive impact on activity levels in the US,” he says.

Rystad has seen “significant improvement in sentiment” in recent discussions with oil and gas operators and service companies, Abramov says, partly driven by Opec’s surprise announcement this month that it would continue production cuts to help prop up the oil price.

Such macro trends may have more immediate impact on the domestic oil and gas industry than policies embraced by the incoming administration, including a possible ban on fracking on federal lands.

Many operators with significant exposure to federal acreage in New Mexico began to hedge against the outcome of the election early, fast-tracking the lengthy drilling permit process, and have now lined up four or five years of already approved permit locations, Abramov says.

“So even if new permits are banned on federal acreage, we won’t see any impact, at least in the medium term,” he adds.