Huge spending cuts and a precipitous drop in oil demand brought on by the coronavirus pandemic this year has toppled the U.S. shale industry from its lofty position as a world leader in oil production, ending a great run that started in 2018.
Oil and gas production has been a major engine in fueling the U.S. economy, and the loss of over 100,000 jobs this year has hit the industry hard. Thousands of shale wells have been forced to shut down and many small companies have taken bankruptcy or been forced to sell at low- to no premiums to market value.
All in all, the industry will ring in the New Year pumping 7.44 million barrels per day (bpd), down nearly 20 percent from the beginning of 2020, reports Reuters.
What does the future hold?
Fossil fuel producers have a number of worries keeping them up at night. Perhaps the biggest worry is the new, incoming administration of Joe Biden, who has pledged to pursue “aggressive emissions reductions,” focusing on a greener agenda that will eventually reduce the world’s dependence on fossil fuels, according to CNBC News.
A 2018 report by scientists in President Donald Trump’s own administration warned that climate change will cost the U.S. hundreds of billions of dollars yearly and harm human health. Trump’s reply to the report: “I don’t believe it.”
Biden doesn’t plan to outright ban fracking, the process used by shale producers to extract gas and oil. However, as part of Biden’s green initiative, gas and oil producers will see more stringent regulations – the direct opposite of Trump’s efforts to relax rules governing the energy industry.
Another obstacle looming for the oil and gas industry is the Environmental, Social, and Corporate Governance (ESG) movement. According to U.S. Energy Secretary Dan Brouillette, the ESG movement has grown over the past several years and is now very strong. When asked by CNBC’s Hadley Gamble if oil and gas producers should be worried about the movement, Brouillette said, “Of course.”
“I think they should be, frankly, because there are some in Congress who are going to drive a climate policy that’s going to be very aggressive. The investment money may become a bit more difficult to get,” he added. “Those are all policies where we’ll have to wait and see what happens with this new Congress.”
“It’s hard to make the case for energy, even for the best of companies,” said Hank Smith, head of investment strategy at Haverford Trust. He has soured on the outlook for fossil fuels in part because of the rise of alternatives, such as solar and wind power.
