Volatility is the real risk from increasingly active politics

While the upcoming presidential election is unlikely to significantly alter the trajectory of US energy production, the oil and gas sector faces a more immediate challenge: regulatory and legal volatility stemming from increasingly active regulators and combative politicians. The inconsistency between political rhetoric and practical realities is exemplified by the Biden administration's struggle to curtail drilling on federal lands, despite campaign promises to the contrary. This disconnect highlights the complex interplay between policy intentions and economic realities. 

Yet, from the Texas Railroad Commission's surprise proposed overhaul of waste management rules to a federal appeals court's decision to vacate major portions of a major pipeline safety rule, the legal operating environment is changing rapidly for the oil and gas sector. Even municipal governments - traditionally stable in their interactions with corporates - are beginning to pose problems, with Chevron forced into a $550 million “settlement” after the Richmond City Council used the threat of a new "Make Polluters Pay tax".

While many regulatory outcomes ultimately favor the oil and gas industry, the very process of navigating these challenges creates a climate of uncertainty. The time, resources, and strategic planning required to address evolving regulations and potential legal battles can divert attention from core business operations and long-term planning. 

This regulatory volatility, more than the specific outcomes of individual cases, poses a growing risk to the sector's stability and growth prospects. As the industry continues to face scrutiny from all levels of government, companies must factor this ongoing uncertainty into their risk assessments and strategic decision-making processes, potentially dampening the confidence needed for substantial long-term investments, hiring, and expansion.