Alliance President Featured at Senate Hearing on Addressing High Gas Prices

Earlier this week, Alliance President Kathleen Sgamma testified at a hearing entitled “Ensuring Transparency in Petroleum Markets” before the Senate Committee on Commerce, Science, and Transportation. Kathleen discussed the need for the president to reverse course to enable American producers to increase supply and bring down energy prices.
 
The following are excerpts from responses by Kathleen and Robert McCullough, Principal, McCullough Research, to questions from the senators. Her full written testimony is also available here

​Sen. John Thune (R-SD): In your opinion, what would be the single most effective step the federal government could take or stop taking to get the greatest volume of energy back online the fastest?
 
Kathleen: I think backing off the SEC (Securities and Exchange Commission) regulation meant to deny capital to the industry would be the biggest signal they could send.

Sen. Thune: If you could please speak to how this onerous ESG or environmental, social and governance agenda that's being imposed on energy financing affects the pace at which domestic energy production can come back online. Do you think a heavy-handed ESG approach in the government undercuts voluntary ESG targets?
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Kathleen: It definitely would undercut voluntary disclosures. I think right now it's so volatile in that marketplace of climate change disclosure that to impose the one-size-fits-all approach that the SEC is looking at now is not going to be helpful because there's so much uncertainty in how to report and what information is the best to report. I'm struck reading through that SEC regulation, the sheer magnitude of what they're requesting and the dampening effect that will have.

Sen. Shelly Moore Capito (R-WV): Let me go back to the leases, because this is something I've wondered about myself. The administration has called to impose fines on companies who have leases but have idle wells on those properties. What kind of impacts does that happen?
 
Kathleen: The non-producing fines are not going to incentivize more development, certainly, by making something more expensive. There's a variety of reasons that we're not operating on all leases. There are about 37,000 leases and about 12,000 that are non-operating now or non-producing now, and that could be various things. It could be that exploratory work has determined there are not sufficient quantities of oil and gas on some of those leases. We’re in court defending about 5,900 leases, and it's very difficult to develop on those leases when they’re held up in court. So various issues like that can hold up leasing. Plus, environmental analysis under NEPA often takes years and years. Those leases will be considered non-producing while they goes through that environmental analysis.

​Sen. Capito: Are you discounting the administration's projection to the American people that everybody's sitting on these leases and they won't produce and it would be so easy if you just turned a switch on?
 
Kathleen: Well, the blame game is not particularly helpful in trying to say that…the 9,000 leases is, I mean, it's a red herring.

​Sen. Mike Lee (R-UT): This is a not-so-subtle push by the administration to push more electric vehicles and stifle gas consumption. I fear that could have a strange shift. Do you share that concern?
 
Kathleen: I do share that concern, but we’re proud in the natural gas and oil industry that we have delivered the equivalent reduction in greenhouse gas emissions of 190 million electric vehicles already over the last decade. Right now, there are only 11 million EVs globally. 

​Sen. John Hickenlooper (D-CO): So if this is right, and oil and gas cannot deliver those returns to investors when it reinvests in its own operations, how does that reflect long-term growth prospects for these companies, and how does it reflect our country's necessity to diversify our energy sources?
 
Robert McCullough: Well, Ms. Sgamma put it correctly. People were overleveraged in the last cycle and there were a lot of bankruptcies and that scared investors. And there's no question that we see that. The issue we have to deal with is how do we reassure those investors.
…

​So what can we do to help? Well, the first thing as I've noted is we can replace the Strategic Reserve by forward purchases. That would give more liquidity to the forward market and aid smaller players and getting possible capital. But there's no question in my mind that we need to address that investor fear in some active way.
 
I'm a price-theory economist. I'm also an environmentalist. The two don't always go together. But the fact of the matter is that when we're talking about wildcatters, we're not talking about deep pockets, and so we need to make sure that they can go out and drill. Wildcatters have produced most of our oil in recent years, and they are a powerful force for states from West Virginia all the way to North Dakota and Texas.

Sen Ted Cruz (R-TX) Is it harder to maintain capital discipline when the federal government is waging a war on your ability to get equity funding or debt funding and you can’t get capital? Does that make companies more reluctant to risk what limited capital they have when they can’t get new capital?
 
Kathleen: It’s hard to shake out how much is capital discipline and how much is ESG risk.

Sen. Cruz: The theory that Democrats are postulating is that gasoline prices in 2021 and 2022 that have skyrocketed are because oil companies are manipulating the market and they’re not drilling because they want to hoard. If that’s true, why didn’t they do that in 2017 or 2018 or 2019? Did oil companies not want to make profits then and what’s changed from 2019, the high point, to today?
 
Kathleen: I think it’s the polices that are discouraging production. And just because I haven’t had the chance to get this in, but the FTC has looked at price gouging and price manipulation 50 different times in recent years, and each time they found no evidence that the oil and gas industry is manipulating or price gouging. 

Chair Maria Cantwell (D-WA): So Ms. Sgamma you don’t see a need for more transparency in the market?
 
Kathleen: I think with 50 different investigations by the FTC there’s been lots of transparency.