Oil, gas, coal, and electricity companies spent more than $115 million on the presidential campaign, more than any race since at least 1990, according to the Center for Responsive Politics. Eighty percent of the candidate donations went to Republicans. Yet President Obama’s reelection may wind up benefiting some parts of the industry. Obama “is now going for a full-throated endorsement of oil and natural gas production in the United States, which is 180 degrees opposite from where he started,” says Jack Gerard, president of the American Petroleum Institute (API), a trade association that represents the breadth of the industry. “The real question will be: Will the president’s actions match his words?”
While the industry has adopted a defensive stance, oil and gas didn’t fare too badly during Obama’s first term. Output of crude and other liquid petroleum products in the U.S. is on track to surge by more than 80 percent through 2020, the kind of consistent growth that hasn’t been seen since the 1960s, says Edward Morse, global head of commodities research for Citigroup (C). The administration has made more acreage on federal land available to energy companies than any president since Ronald Reagan, he says. “Facts are stubborn things, and they often defy people’s ideology,” says John Hanger, a special counsel at Eckert Seamans Cherin & Mellott and the former head of Pennsylvania’s Department of Environmental Protection.
Producers of natural gas, which is favored by some environmentalists because it burns more cleanly than other fossil fuels, stand to benefit the most from Obama’s reelection, Hanger says. The administration has endorsed policies that will likely boost demand for natural gas at a time when domestic supply has been growing at record rates, pushing down prices. New and more stringent fuel efficiency standards finalized in August include incentives to spur production of natural gas-powered cars through 2025. Mitt Romney had pledged to roll back the rules if he became president. “Obama actually has been very good to the natural gas industry,” says Joshua Greene, a Washington-based attorney at Patton Boggs who specializes in energy.
The gas industry may also get a lift from a raft of new environmental regulations designed to curtail the use of coal, which competes with natural gas. Last year, the Environmental Protection Agency issued rules that limit mercury and sulfur dioxide emissions from coal-fired power plants. While those face court challenges, the agency is weighing new controls on such plants. Next on the EPA’s agenda is completing the first-ever standards for greenhouse gas emissions from power plants, which Romney also opposed. “There is a lot of regulation in the pipeline,” says James Lucier, managing director at Capital Alpha Partners, who tracks energy and environment issues for investors in Washington.
The next wave of environmental standards for coal plants “will probably add another incremental gas demand share, which is pretty significant,” says Kevin Book, managing director at ClearView Energy Partners, a policy analysis firm in Washington. Low natural gas prices have already prompted a shift. The proportion of U.S. electricity that comes from coal was 38 percent in August, down from about 48 percent in 2008, according to the Energy Information Administration.
Coal producers have accused Obama of waging a “war on coal.” Three days after the election, Ohio-based Murray Energy said it was firing 163 workers, laying the blame on “the actions of Mr. Obama and his appointees” at the EPA and other agencies, according to a statement e-mailed in response to reporters’ questions. Shares of Peabody Energy (BTU) and Alpha Natural Resources slid more than 9.5 percent the day after the election in anticipation of more regulation.
Oil faces a more uncertain future. On the campaign trail, Obama pledged to raise taxes on oil companies, which the industry says would stifle growth, though he’ll face resistance from Republicans. The EPA and the U.S. Department of the Interior are considering regulations on hydraulic fracturing, which would raise costs for drillers. The additional costs, however, are unlikely to exceed 50¢ a barrel, says Amy Myers Jaffe, executive director of energy and sustainability at the University of California at Davis, and are therefore unlikely to harm profits.
Whether to permit the Keystone XL pipeline to proceed is shaping up as one of the earliest and most contentious energy decisions of Obama’s second term. The pipeline would carry 830,000 barrels of Canadian tar sands oil a day to U.S. refineries. Obama rejected developer TransCanada’s (TRP) permit application for the $7.6 billion project in January after pressure from environmentalists. He asked the company to resubmit a bid with a different route that won’t endanger water supplies in Nebraska. The company has filed a new proposal. The API’s Gerard singled out the project’s approval as an immediate step Obama could take to prove his support to the industry. On a Nov. 8 conference call with reporters, Gerard said: “It will be one of the early tests for the president.”