Analysts Look at Oil and Gas Impact of New USA Bills

New infrastructure and social bills will go up for a vote in the United States this Thursday, assuming no additional deadline extensions, analysts at Rystad Energy highlighted – but what impact will they have on climate change and oil and gas stakeholders?

Well, in terms on the infrastructure bill, it is unlikely that we will see any near-term impact on oil and gas stakeholders and market capitalization, Claudio Galimberti, Rystad’s senior vice president oil markets, and Emily McClain, Rystad’s senior analyst, told Rigzone.

“Yet, the reconciliation bill includes environmental initiatives that would work towards meeting Biden’s goal of reducing carbon emissions by 50 percent and for the U.S. power grid to get about 80 percent of power from zero-emission sources by 2030,” the Rystad representatives said in a joint statement.

“This is where we could see the bills really impact oil and gas stakeholders. The regulation bill could potentially add polluter fees/carbon tax and rebates/tax incentives for clean energy, along with several other programs intended to reduce carbon emissions,” the oil experts added in the statement.

In its current base-case scenario, Rystad Energy anticipates that gas demand is set to peak in 2030s with the onset of the energy transition. However, there is a downside risk if significant near-term structural changes are made, Galimberti and McClain noted.

“The challenging road to a Biden compliant energy scenario, in which we assume a 27 percent reduction of gas demand by 2030, would put 30 billion cubic feet per day of natural gas at risk over the next decade, with the potential for this risk to increase if we see extensive infrastructure plans intensify,” the Rystad representatives said.

“Therefore, these two bills will have divergent impacts on oil and gas demand sectors. The infrastructure bill will surely lift U.S. oil demand in the short to medium terms while the reconciliation bill will likely speed up the energy transition to renewables in the medium to long term by increasing the costs of carbon emissions,” they added.

Commenting on the bills, Artem Abramov, the head of shale research at Rystad Energy, said the biggest short-term impact for domestic oil and gas will really come from methane polluter fee piece.

“If in place from 2023, we will be seeing incremental industry wide cost north of $10 billion per year under the proposed pricing structure ($1,800 per metric ton in 2023, grows five percent faster than inflation from 2024 onwards),” Abramov told Rigzone.

“There is no clear understanding in the industry right now on what the government is actually going to use as an input into methane emission calculation. The actual language of the bill does not make life easier for anyone, but it explicitly points to EPA data,” he added.

“A lot of challenges with this option given as larger producers will be affected disproportionally much given that <25,000 metric tons CO2e per year facilities are not required to report to EPA and many smaller producers do not always follow EPA methane-CO2 reporting standards 100 percent, which typically result in the bias in favor of CO2,” Abramov went on to say.

What Is the State of the Bills?

The $1 trillion bipartisan infrastructure bill will provide new federal funding to upgrade U.S. infrastructure over the next five years, including funding for roads, bridges, transit, electric grid and water system improvements, broadband network upgrade, and upgrades to airports, ports and waterways, as wells funds to provide electric vehicles to education facilities and build out of a nationwide charging station network for electric vehicles, Galimberti and McClain highlighted.

The larger “reconciliation” bill for social and environmental spending, with its $3.5 trillion price tag, would provide funding for improving and expanding education, healthcare/childcare, as well as environmental/climate change initiatives, the Rystad representatives outlined.

According to Galimberti and McClain, there’s still quite a bit of uncertainty around bipartisan support. The two Rystad oil experts noted that this was especially due to the fact that an original bill had included much more in terms of childcare and education as well as climate agendas and that progressives have threatened to deny support if the social and environmental spending bill is not passed alongside the infrastructure bill.  

Galimberti and McClain also outlined that it was quite a timely and fortunate coincidence that the infrastructure bill would be getting approved right at a time when the largest real estate developer in China, Evergrande, was on the brink of collapse, raising fears of slowdown in China’s investments.

To contact the author, email andreas.exarheas@rigzone.com