Research and consultancy group Wood Mackenzie says a Bernie Sanders presidency could have a significant impact on the oil industry in the United States.
The firm’s comments were issued after Sanders, a self-proclaimed socialist, eked out a win in the New Hampshire Democratic primary on Tuesday.
During his campaign, Senator Sanders has promised to ban hydraulic fracturing. As well, should Sanders win the presidency, he has pledged to adopt a “Green New Deal” which would mean a comprehensive, government-led restructuring of the economy meant to significantly cut greenhouse gas emissions.
Bernie Sanders has also promised to “immediately end all new and existing fossil fuel extraction on federal public lands”.
Wood Mackenzie ran a preliminary, scenario-based analysis to assess the possible impact of Sanders’ ban on fracking and the oil industry.
Elena Nikolova, from Wood Mackenzie’s Lower 48 upstream team, said that initial indications are the liquids market would be hardest hit. In the most extreme case, production could drop by as much as 1.2 million barrels per day (b/d).
She said “Our initial scenario analysis shows that in 2021, annual Lower 48 crude and condensate production could drop from 10.8 million b/d to 10 million b/d.”
“Looking further, the impact peaks around 2025, when Lower 48 crude production is 11.5 million b/d or about 1.2 million b/d less than our base case of 12.7 million b/d.”
Nikolova added: “We used our H2 2019 long-term supply outlook as the starting point for our scenario. The scenario assumes Bernie Sanders is sworn in as president in January 2021 and that he immediately implements a hydraulic fracturing ban on federal lands only.
Nikolova said WoodMac also assumed that there will be no new wells on federal acreage and that already flowing production is unaffected.
She said the analysis indicated that impact of a ban on the gas market would be muted, as federal acreage in the Northeast and Louisiana gas plays is limited. Nikolova added that low Henry Hub prices and debt-heavy balance sheets may be more pressing factors for gas-focused exploration and production companies.
“It’s important to note that we assume an otherwise static environment. Yet there are market factors that could have a further impact on production,” Nikolova said.
“Operators that have acreage optionality would likely choose to develop more of their private-lease acreage instead. Investors have been pressuring operators to operate within cash flow and that expectation is unlikely to change.
“Most Lower 48 E&Ps have set their budgets at $50-$55/bbl WTI. Low investor confidence in the oil price outlook could spur a more significant market reaction as operators recalibrate their plans.”
Sanders won the New Hampshire primary with 25.7 per cent of the vote, Pete Buttigieg finished with 24.4 per cent and Amy Klobuchar ended the night in third with 19.8 per cent support.