What The Mid-Term Elections Mean For U.S. Energy

I’ve been waiting for election officials in the remaining outstanding congressional districts to determine winners before putting this piece together, in order to avoid needless speculation. However, given that officials in California and other states with close races still outstanding seem in no particular hurry to give up the media spotlight, time has run out on that goal.

The first thing that is quite clear from the outcome which saw Democrats retain a narrow majority in the U.S. senate and flip at least two governor’s offices (possibly three, depending on the final outcome in Arizona) is that voters seem fine with the energy status quo in America. The conventional wisdom held that the high gasoline prices at the pump that have done so much damage to President Joe Biden’s public approval ratings would translate into Republican gains in congress, governorships and state legislatures. None of that materialized.

Biden’s decision to pump hundreds of millions of barrels of oil from the U.S. Strategic Petroleum Reserve in an effort to mitigate gas prices may have harmed America’s energy security, but the visual of his “doing something” to help gas consumers obviously helped Democrats at the ballot box. Similarly, while many energy and political observers chuckle at the Orwellian nature of the title chosen for Biden’s and Senator Joe Manchin’s green energy and social spending bill – the “Inflation Reduction Act (IRA) – it is quite apparent that few voters had any similar reaction to that piece of legislation.

Thus, regardless of which party ultimately ends up with a narrow majority in the U.S. House of Representatives, it would be unwise to expect any real change in the direction of domestic energy policy in the coming two years. When asked by reporters what he plans to change in the wake of the elections, Mr. Biden answered “nothing,” and he should be taken at his word.

Given the inextricable interrelationship between energy and government policy, what this will mean for U.S. consumers is more of the same. Wind and solar power generation will continue to expand, and the pace of their expansion will accelerate thanks to the array of new incentives and subsidies contained in the IRA and last year’s Bipartisan Infrastructure Law (BIL).

This expansion will happen regardless of rising instabilities on the nation’s power grids, as grid managers are forced to integrate and try to manage a rising percentage of intermittent energy into their daily mix. Warnings of increasing instability from grid managers like the one issued last week by the Western Electricity Coordinating Council (WECC) will simply fall on deaf ears, as public officials continue to prioritize signaling their virtues about meeting climate change goals over the provision of affordable and reliable electricity to their constituents.

“If nothing is done to mitigate the long-term risks within the Western Interconnection, by 2025 we anticipate severe risks to the reliability and security of the interconnection,” WECC said in its annual assessment. But policymakers concerned about their next re-election campaign look at the outcomes in these mid-term elections and simply advise the grid managers to deal with it as best they can.

For the domestic oil and gas industry, these mid-terms almost certainly mean the President will feel more emboldened to act on his most aggressive impulses where their business sector is concerned. Expect a more concerted effort to implement a new Windfall Profit Tax, for example, especially should Democrats manage to retain a majority in the House.

The White House said last week that the President would like to see some form of Senator Manchin’s vaunted permitting bill be included in the upcoming Defense Authorization Act. But oil and gas lobbyists should expect any such language to be significantly modified from the version seen in September to include strict sidebars that limit any benefit to oil and natural gas projects, especially any new pipelines. Biden has repeatedly made it crystal clear that he wants “no more drilling” – as he stated to a New York audience just last Saturday – and he has consistently shown that he should be taken at his word where such promises to restrict oil and gas are concerned.

Should the GOP manage to somehow get to 218 seats in the House, then Biden would likely have to put his legislative agenda on hold through 2024. But that would provide scant comfort to producers of fossil fuels in the United States. The Biden regulatory agenda is already in full bloom, and the hundreds of billions in incentives and subsidies contained in the IRA and the BIL will work to ensure the great preponderance of energy-related capital continues to flow away from fossil fuels and into new green energy projects.

Leaders and senior executives in coal, oil and natural gas have had to take on the thankless role of managing their industries’ decline for some years now, since at least 2009. The verdict of the voters in this year’s mid-term elections is that they can expect that decline to accelerate from here.