America’s two biggest oil companies are starting to push back against the fracing ban touted by the leading candidates for the Democratic presidential nomination, which may become one of the most consequential flashpoints for energy markets during the election campaign.
Exxon Mobil and Chevron executives spoke out publicly against the proposals for the first time on Friday, saying they would shift profits from crude production from the U.S. to other countries, and may increase prices for consumers while doing nothing to reduce oil demand or greenhouse-gas emissions.
It’s a line of attack that’s likely to feature heavily in debates in the year ahead as the energy industry and Republicans seek to counter the Democratic Party’s green wing. To be sure, whoever gets elected next year will find it difficult to end fracing. Presidential powers to enact a ban only extend to federal lands, something that would be certain to face immediate legal challenges. A wider restriction would need to go through Congress.
“Any efforts to ban fracing or restrict supply will not remove demand for the resource,” Neil Hansen, Exxon’s vice president of investor relations, said on a conference call with analysts. “If anything it will shift the economic benefit away from the U.S. to another country, and a potentially impact the price of that commodity here and globally.”
Elizabeth Warren and Bernie Sanders, two front-runners in the race to be the Democratic candidate, are keen to stop America’s reliance on fossil fuels, and they also want to end what they say is Washington’s subservience to corporate interests. They also know how to hit Exxon and Chevron where it hurts. Five years ago, both companies produced little crude from fracing and might have even have benefited from a ban if it led to higher oil prices. But now fracing is the fastest-growing part of their global businesses and a key profit driver.
On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracing—everywhere.
— Elizabeth Warren (@ewarren) September 6, 2019
Hydraulic fracturing of shale rock is pushing U.S. oil production to record highs, touching 12.4 million barrels a day in August. Exxon said Friday its output from the Permian Basin in West Texas and New Mexico had boomed by more than 70% in the third quarter from a year earlier. Chevron, a bigger Permian producer, saw its output there climb 35%.
That wave of supply has ensured lower gasoline and energy prices for domestic consumers, bolstered economic growth for states such as Texas and North Dakota, and restored the country to ranks of the world’s major crude exporters.
“It’s really unlocked an economic huge economic benefit for the country, as well as for the companies involved,” Jay Johnson, the boss of Chevron’s upstream business, said during the company’s earnings conference call.
But fracing also has costs, particularly in terms of the climate. Cheap fossil fuels typically mean people use more of them, causing higher emissions. Hansen said that while Exxon shares concerns about climate change, “there are more effective policies” such as a revenue-neutral carbon tax and technology initiatives.