The US Election: Stability Amidst Potential Changes

The US election is a major focal point for the global energy market. According to Jared Jeffery, the Senior Research Analyst with S&P Global Commodity Insight, the current 50-50 split in polling suggests a highly uncertain outcome. However, regardless of whether Trump or Biden wins, significant policy shifts are anticipated.

Jeffery emphasized the importance of congressional races:

"We also need to consider the congressional races, right? It’s not all about the president. The Senate and the House races could lead to a split Congress, making policymaking challenging."

The possibility of Trump promoting "drill, baby, drill" policies contrasts with Biden potentially refining his energy legacy. However, Jeffery pointed out the unpredictable nature of Trump’s policies, which could create instability for investors.

Ian Conway, Executive Director for Upstream and Energy Research at S&P Global, highlighted the importance of the Inflation Reduction Act (IRA).

"The IRA has cross-party appeal and significant investments have already been made under its provisions. Repealing it could put substantial sunk capital at risk," Conway noted, referencing investments in carbon capture and hydrogen production by major oil companies.

The UK Election: A Shift Towards Labour

The political landscape in the UK is marked by volatility, with the Labour Party leading the polls by a substantial margin. Jared Jeffery noted the industry's struggle with the Conservative Party's inconsistent policies, which included multiple adverse tax changes. “Labour might bring more consistency, but they also propose increasing the energy profits levy, which could impact investments,” Jeffery stated.

Conway underscored the critical role of the North Sea infrastructure for the energy transition. “Less oil and gas production means lower revenues, which threatens the maintenance of infrastructure crucial for future projects like carbon capture and grid electrification,” he explained.

European Union: Energy Security and Regulatory Shifts

The EU elections also hold significant implications for energy policies. While the EU's mature upstream sector has seen limited recent investments, there is a potential shift towards enhancing domestic gas production due to energy security concerns. Jeffery highlighted, “A shift to the right in EU elections could lead to more leniency towards domestic gas drilling, reducing reliance on imports with high carbon footprints.”

“Despite a mild winter easing the immediate energy crisis, the security of supply issue remains critical, especially with ongoing arbitration proceedings with Gazprom," Conway added.

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As the global political landscape evolves, the upstream oil and gas industry must navigate these changes with caution, assessing the specific trajectories of each country to make informed investment decisions.

Key takeaways:

• Global Election Impact: This year, nearly half of the world's population will vote, with elections in major countries like the US and the UK potentially causing significant shifts in upstream oil and gas policies.
• US Election Dynamics: Despite the polarized political landscape, the US has maintained strong oil production under Biden. However, a potential Trump presidency could bring drastic policy changes, especially concerning federal lands and the IRA package.
• UK Political Volatility: The UK's Conservative government has introduced multiple adverse tax changes affecting upstream investments. A Labour victory could further raise taxes, potentially stifling investment and impacting critical infrastructure for the energy transition.
• EU Energy Security: The EU elections might lead to more lenient domestic gas production policies due to energy security concerns, particularly in light of the ongoing geopolitical tensions and reduced gas supplies from Russia.
• Investment Recommendations: For international upstream companies, the UK is currently seen as a less attractive investment destination compared to other regions. Investors are advised to carefully assess the stability and long-term potential of each country's energy policies.

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