Obama and Congress: Two More Years of Gridlock on Energy Issues?

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The Republican Party commands majorities in the Senate and the House of Representatives, but will energy interests fare any better than they did in 2014? The early prognosis is, no. Washington energy watchers expect a continuation of a "give with one hand and take away with the other" approach to energy issues that have been the hallmark of the Obama presidency. The president also is expected to continue using executive orders to implement rulemakings and policy changes around energy and the environment.

Last week, the Senate passed a bill authorizing the start of construction for the Keystone XL pipeline. Earlier in January, the House of Representatives passed their own Keystone XL bill. A House-Senate conference committee is expected to quickly reconcile differences between the bills passed by the different bodies. President Obama's spokesperson has said the president will veto any bill that authorizes the start of construction for the controversial $8 billion pipeline project that would transport up to 800,000 barrels of oil per day (BBL/d) over a 1,179-mile distance from Hardisty, Alberta to Steele City, Nebraska.

It takes a two-thirds majority vote in both houses of Congress to override a presidential veto, something only done a handful of times in the last 50 years. Despite Republican majorities in both houses of Congress, the GOP does not appear to have the votes needed to override Obama's veto, absent widespread Democratic defection. For more on the Keystone XL pipeline, see November 20, 2014, article - Senate Kills Keystone XL Bill, But Republicans Promise Redo in January.

Oil & Gas interests initially were quite pleased with the results of last November election, which strengthened the Republican majority in the House and swung the Senate to GOP control for the first time during Obama's presidency. But the early indications are that the election did nothing fundamental to change the outlook for Oil & Gas interests in Washington.

With their eyes on the 2016 presidential election, the Republican Party's energy strategy appears to be two-fold: Expand their investigations of the Obama administration, and dare the president to veto energy legislation they pass that plays well with their base and Oil & Gas interests. Congress only needs a simple majority to defund specific activities in an executive agency, as it did last December on efforts to protect the Sage Grouse. For more on that, see December 16, 2014, article - Omnibus Spending Bill Halts Federal Action on Sage Grouse, Benefiting Oil & Gas, Mining Companies.

There are ample opportunities to repeat that to pre-empt the U.S. Environmental Protection Agency's (EPA) (Washington, D.C.) potential regulation of methane emissions by the Oil & Gas Industry, and the Department of Interior's (DOI) (Washington, D.C.) rulemakings on natural gas venting and flaring on public lands. For more on those issues, see December 22, 2014, article - EPA Delays Decision on Methane Reduction Among Oil & Gas Companies; and July 30, 2014, article - EPA Considering Steps to Cut Methane Emissions from Oil & Gas Facilities.

The Safe Drinking Water Act has prevented the EPA from issuing a rule on hydraulic fracturing, and the GOP-led Congress is expected to be vigilant in maintaining that prohibition.

Democrats have said the swoon in retail gasoline prices creates the ideal conditions for increasing the gas tax, which pays for construction and maintenance of highways and bridges. Gasoline prices have fallen by more than 50% since mid-2014, so consumers likely would not feel an increase in taxes at the pump. The Federal Highway Trust Fund is nearly out of funding, but Republicans have opposed raising the gas tax.

Last month, the House passed a bill designed to expedite the approval of interstate natural gas pipelines. The bill would set a one-year deadline for the Federal Energy Regulatory Commission (FERC) (Washington, D.C.) to make a decision on natural gas pipeline applications. Republicans said building more pipeline infrastructure faster was necessary to bring the benefits of expanded gas production to businesses and consumers.

As it did late last year, Congress could try attaching a rider on Keystone XL to a "must-pass" piece of legislation. The next piece of such legislation is the reauthorization of the budget for the Department of Homeland Security (DHS) (Washington, D.C.). That agency only had funding through February. Many Republicans in Congress strongly oppose Obama's executive action on immigration, and have pledged a showdown over that action when reauthorizing that agency's budget. DHS is the agency charged with implementing the nation's immigration laws as well as its anti-terrorism statutes, airport security checks, emergency response to natural disasters, cyber-security, currency counterfeiting and presidential security.

While the president continues to take steps to create a climate change legacy, Republicans have been equally active in trying to oppose it or dismantle it. There are early signs that the administration and Congress may clash over how government nutritional standards contribute to climate change. The federal government's three-decade-old food pyramid includes a good chunk of animal protein, like steak. But recent evidence has shown bovine flatulence is a significant contributor to increased concentration of heat-trapping gases in the atmosphere. And grazing meat cattle takes a lot of land and water. Does the Obama administration, as part of its fight against climate change, have the appetite to de-emphasize the role of beef in American's diets?

On another congressional front, a coal-state Republican, U.S. Sen. Shelley Moore Capito (West Virginia), recently was appointed head of the Senate subcommittee overseeing EPA regulations established under the Clean Air Act. Capito is expected to hold several investigations into those regulations, including the president's Clean Power Plan, which seeks to cut CO2 emissions from power plants 30% by 2030, from 2005 levels.

As the Keystone XL drama was playing out in Congress, the president in late January made two decisions on oil and gas issues. One pleased oil and gas interests, the other infuriated them.

Last month, the president approved a plan to open a stretch of the Atlantic Coast, from Georgia to Virginia, to offshore drilling. The DOI will include that acreage when it offers leases for federal offshore drilling for 2017-2022. Democrats and Republicans have tried to open these waters to exploration and production for years. The drilling would be permitted to take place at least 50 miles from shore. In seismic surveys conducted three decades ago, the DOI estimated the area contained 3.3 billion barrels of recoverable oil and 31.3 trillion cubic feet of natural gas. Technology advancements since then could swell the estimate of technically recoverable reserves.

But in a separate decision the same day, Obama prohibited offshore drilling in the Beaufort and Chukchi seas off the coast of Alaska, which the industry also had long sought. That move is expected to particularly rankle the new chair of the Senate Energy & Natural Resources Committee, Alaska Sen. Lisa Murkowski.

"He giveth, and he taketh away," Kevin Book, an analyst at Clearview Energy Partners, told The New York Times. "The pairing of environmental policy with energy policy is something that, conceptually, this administration has done since the first term. Sometimes it looks like a balancing act, sometimes it's serendipitous."

Obama had wanted to permit offshore drilling off the East Coast back in 2010, in a move to mollify Republicans who were angry over a congressional plan to reduce carbon dioxide (CO2) emissions from the electric power industry. But the president pulled that plan after the Deepwater Horizon accident in the Gulf of Mexico, and the CO2 bill died in the Senate after narrowly being passed by the House.

In another example of holding out an olive branch to Republicans, Obama pulled a planned update to ground-level ozone regulations a few years ago. Industry and business groups had opposed that update because of its potentially huge costs and compliance problems. For more on that issue, see September 8, 2011, article - Business Groups Cheer EPA's Withdrawal of Draft Rule on Ground-Level Ozone.

"Despite Republican gains last November, we still have divided government in Washington," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "As far as the energy industry is concerned, the 2016 presidential campaign began the day after the polls closed last November. We can expect the rhetoric over energy to be dialed up over the next two years because it's pretty clear neither party really wants to work with the other. The Oil & Gas industry may get a victory here or there, but we expect most of the news out of Washington to be negative for the industry. It looks like gridlock will continue to be the prevailing reality inside the Beltway."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.