Biden energy plan would not end fracking but could boost infrastructure, renewable stocks

Published Wed, Sep 2 20207:00 AM EDTUpdated Wed, Sep 2 20208:54 AM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Some of Joe Biden's energy policies may not be much different than President Donald Trump's, but if Democrats win big in November, the use of renewable fuels and curbs on carbon emissions could make a noticeable impact on the energy landscape. To make sweeping changes, Biden would need a Democratic majority in the Senate. He would then be more likely to win a big infrastructure package that would encourage energy efficiency and renewables, but analysts do not expect him to halt traditional energy production. "There is a strong public perception that the impact of a Trump loss would be inimical to the traditional oil and gas industries. However, we believe that Biden's energy agenda would be fairly pragmatic by Democratic Party standards," said Helima Croft, head of global commodities strategy at RBC. "For example, while there is a pledge for no new permits for drilling on federal lands, there is no call for a total ban on fracking or U.S. exports in his campaign platform." That in theory should help some energy stocks, but concerns that Democrats could curb oil and gas drilling and pipeline construction could weigh on the group. Stocks that should be helped by a Democratic win include clean energy, such as solar and wind. "What we have seen from Biden is he does not want his candidacy defined by a conversation over fracking, and while he has done a joint appearance with Bernie Sanders and supported the most progressive climate initiative of any presidential nominee for his or her party, he has also been clear that he wants to win over voters in western Pennsylvania," said Ed Mills, Washington policy analyst at Raymond James. "He generally has not sought to alienate. He has sought to expand his potential base, which makes it a little hard to know what the agenda is. As it relates to a general ban on fracking on federal land, that could make energy extraction on private land all the more profitable." One big difference between Biden and Trump would be policy toward Iran. Biden was part of the Obama administration and worked with five other countries to eliminate sanctions on Iran in exchange for a commitment to stop work on its nuclear program. But Trump reestablished sanctions, and Iran's energy exports have been cut back dramatically. Croft said Biden's biggest policy shift could be rolling back those sanctions in return for concessions from Iran. That would put about 1 million barrels of oil back on the market, if he succeeded, she said. Trump has encouraged traditional oil and gas production and has prided himself on breaking down regulations that obstruct energy production and transportation. Under his administration, U.S. energy production surged to a record 13.1 million barrels per day, but it since has fallen to under 11 million bpd as demand declined during the pandemic. "You had a very pro-energy president with Donald Trump, but that has not been reflected in the price of many of these companies," said Mills. The U.S. production surge was seen as one reason for a global oil glut, well before the coronavirus hurt global energy demand. As the price decline worsened during the pandemic, Trump jumped into the negotiations with Russia and OPEC to encourage a production cut to help lift prices. The growth of the U.S. fracking industry, which relies on new technologies to extract oil from shale rock and other hard-to-reach locations, began in earnest during the Obama administration. Biden is expected to allow it to continue, but Democrats might be tougher on pipelines and other permitting. "What we could see under Biden is a much bigger shift towards diplomacy versus the 'America first' aspect of it," Mills said. Biden is also expected to press for expanded export of liquified natural gas to Europe to lessen Europe's dependency on Russian gas. Croft said natural gas production is likely to be encouraged by Democrats as a bridge between dirtier fossil fuels, like coal and a more renewable-based future. Dan Yergin, vice chairman of IHS Markit, said some Biden policies would clearly result in less oil demand. For instance, electric cars combined with higher mileage standards for vehicles could impact gasoline demand. "It would accelerate trends in U.S. oil demand, with less growth," said Yergin. Oil companies have already begun addressing climate change and increasing emphasis on renewables to varying degrees. That trend is expected to continue regardless of who wins the White House. "Our research indicates items Vice President Biden is outlining we're seeing those outlined already by the energy industry," said Degas Wright, CEO of Decatur Capital Management. Of a group of 44 energy companies his firm reviewed, 80% had emissions policies and 25% had emissions targets. "We're seeing it as a market-driven mandate, rather than a mandate being driven by individual governments," Wright said. Clean energy plan Biden would like the U.S. to use 100% clean energy and have zero emissions by 2050 through policies aimed at lower emissions from transportation and limiting methane from oil and gas. He has a $2 trillion plan to invest in infrastructure, electric vehicles, renewable energy, efficient buildings and in agriculture and conservation. Analysts said the plan would be paid for by rolling back recent corporate tax cuts and increasing private and state and local investments. Credit Suisse analysts said residential solar names like Sunrun , Sunnova and SunPower could get a boost, and solar manufacturers like Daqo New Energy, First Solar , JinkoSolar and SunPower 's Maxeon would benefit. Enphase Energy and Solaredge , and hydrogen fuel-cell company Bloom Energy could also gain from the plan. Deutsche Bank analysts said infrastructure plays, such as Caterpillar, Cummins, CNH Industrial , Deere and Oshkosh would benefit since Biden would like to upgrade and repair crumbling transportation infrastructure, including ports, roads, bridges, aviation and rail. He wold also like to electrify the rail system and provide light rail networks for smaller cities and improve transit and bus lines. He also has a plan to expand electric vehicle production. "Biden plans to use all the levers of the federal government, from purchasing power, R & D, tax, trade and investment policies to position America to be the global leader in the manufacture of electric vehicles and their input materials and parts," Deutsche analysts wrote. The Deutsche analysts said companies that could benefit include Eaton, IllinioisTool Works , 3M , Rockwell Automation and Stanley Black and Decker . A resulting surge in electric charging stations could also be positive for utilities' rate-base growth.

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To make sweeping changes, Biden would need a Democratic majority in the Senate. He would then be more likely to win a big infrastructure package that would encourage energy efficiency and renewables, but analysts do not expect him to halt traditional energy production.