Analysis: US Midterm Elections’ Impact on Oil and Natural Gas Industry

What difference does it make to U.S. energy whether Democrats maintain their razor-thin majority in Congress or Republicans regain control once Americans’ midterm ballots are tallied today?

Maybe not much.

A Republican sweep of the House and Senate would give conservatives sway over forthcoming legislation, which would likely gear toward rolling back Democrat President Joe Biden’s climate change agenda. But it wouldn’t give them the ability to trump a presidential veto of anything they manage to pass.

“The Republicans will want to try to cut back some of the approaches with respect to electric vehicles and renewable,” said former U.S. Sen. Byron Dorgan, who represented North Dakota as a Democrat in Congress for 30 years. “But the fact is they can pass some legislation if they do gain control the House or the Senate, they don’t have the votes to override a presidential veto. And so, it’s going to be very hard for Republicans to dramatically change the energy situation.”

A Republican majority would likely legislate efforts to dismantle Biden’s work on key items, particularly the Inflation Reduction Act of 2022 and the Infrastructure Investment and Jobs Act. However, at this point, no key poll-watchers anticipate the GOP will take 67 seats, which would constitute the two-thirds majority required to override a veto in the Senate.

Overriding a presidential veto requires the supporting votes of two-thirds in the U.S. House, too. Each of the 435 U.S. House seats is up for grabs today; Republicans currently hold 213 seats and are unlikely to muster a total of 290 from this midterm cycle.

Production postures 

A GOP majority win in the U. S. House would probably resurrect the agenda laid out earlier this year by freshman U.S. Rep. Kevin McCarthy, R-California. His Commitment to America calls for increased U.S. production and faster permitting.

But it doesn’t seem that domestic producers—who are more beholden to their shareholders than politicians’ rhetoric—are driving the strategy. At the end of October, U.S. oil production was finally nearing the pre-pandemic peak of 12 million bbl/d.

“But the fact is [Republicans] can pass some legislation if they do gain control the House or the Senate, they don’t have the votes to override a presidential veto. And so, it’s going to be very hard for Republicans to dramatically change the energy situation.”—Former U.S. Sen. Byron Dorgan

Oil and gas shareholders haven’t changed their tune from the refrain against growth, and no U.S. producer has suggested they intend to challenge their authority.

Third-quarter reporting is in full swing, and key U. S. producers so far show little interest in ramping up. ConocoPhillips’ 2022 production outlook remains unchanged. Chesapeake Energy is choking back on Haynesville growth. And Exon Mobil is pumping the brakes on growth projections in the Permian Basin.

Indeed, in the mighty Permian, shale output is losing steam.

And no contemplation of U.S. politics would be complete without a nod to the perpetual polarization of climate change agendas.

“There’s a bit of a difference in terms of the two parties and how they approach climate change—and whether they approach it,” Dorgan told Hart Energy. “The Biden administration would be much more interested in renewable sources of energy, but they also understand that we’re going to need to continue to use oil and gas of the petroleum resources.”

On the other side, Republicans are less excited about alternatives to petroleum.

And it seems that no one is particularly excited by Biden’s threat to impose a windfall tax on high-profit oil majors.

University of Houston Energy Fellow and economics lecturer Ed Hirs gives odds of it coming to fruition a firm “zero.”

Moreover, he told Hart Energy, U.S. oil and gas doesn’t exist in a vacuum.

As global commodities go, world events such as Russia’s invasion of Ukraine and the follow-on disruption of European gas supply or the OPEC+ decision to cut oil production weigh heavier on the industry than the whims of American voters, which are subject to change with each election.

States of play

There is more opportunity for Republicans to alter energy policy at the state level, experts agree.

In Texas, Republican Gov. Greg Abbott, who presided over the state’s deadly power grid fiasco last year, faces perennial political candidate Democrat Beto O’Rourke. Abbott is expected to retain the Governor’s Mansion.

Despite widespread and lingering criticism of systemic failure by the Electric Reliability Council of Texas (ERCOT), which is overseen by the Abbott-appointed Public Utility Commission, the issues raised by rolling power outages during a freeze in which hundreds of Texans died is largely absent from midterm debate.

Gubernatorial race rhetoric espoused in paid advertising in Texas has centered on social issues and criminal justice more than energy and accountability, several campaign strategists told Hart Energy.

On the other end of the spectrum is electoral effects in California—which typically differ from Texas, almost regardless of the issue, but especially on energy matters—where voters are poised to address parts of the state’s electricity market.

Power in California—where it’s federally regulated, unlike in Texas—came under fire during record heat this summer.

California’s grid failure may usher in a “red wave” that flips power in Congress, some election watchers say. California Democrat U.S. Rep. Mike Levin is facing Republican challenger Brian Maryott; Biden is expected to swoop in for a crunch-time show of support today in San Diego.