Industry News

New Political Dynamic

The astonishing political reversal in Massachusetts is a game-changer for politics as usual for the U.S. oil and gas industry. Together with the fallout from "Climategate," the new political dynamic in Washington, DC, suggests that climate change-related policy developments will not be as much of a threat to oil drilling-nor as much of a boon to natural gas drilling-as previously thought. But it's also important to note the Massachusetts election is just the current crest of a wave of grassroots activism that started with "tea parties" last year but one that could help strengthen the NIMBY syndrome this year.

Which brings us to oil and gas drilling. We're seeing signs of local resistance to expanded urban drilling and to the growing use of hydraulic fracturing in the burgeoning shale plays. Even if frac-curbing legislation at the federal level makes little headway, states and municipalities looking askance at fracing can only be emboldened by the grassroots fervor in the air. One need only glance at how horizontal drilling-and its nearly universal connection with fracing in shale plays-dominates the rig count today, and it's clear that widespread resistance to fracing would decimate the rig count.
With populism the ubiquitous buzzword in 2010, the oil and gas industry would do well to heed what came out of the White House right after the populism-driven Massachusetts election surprise: a vigorous attack on Wall Street banks, coming on the heels of their strong profits reports. Any spike in oil prices resulting from geopolitical events will revive talk among revenue-desperate governments of a windfall profits tax or cement other drilling fiscal disincentives that are currently on the table. And it would be easy for oil and gas companies to replace Wall Street banks in certain populist scenarios as the villains of the moment (they've been there often enough).
Above all, the political mantras reflecting change in 2010 will center on a refrain from 1992: "It's the economy, stupid." And that bodes both good and ill for the oil and gas industry.
Excerpted from The Land Rig Newletter: Jan 2010 Volume 32, number 1