As we bear witness to the geopolitical horrors and turmoil in both the Middle East and Eastern Europe, the world confronts the convergence of two important realities. The first recognizes that maintaining domestic and global energy security is critical as the ongoing threats to worldwide crude oil and natural gas supplies remain very real. The second reality reflects our goals to balance the need for energy security while not losing sight of our environmental and climate objectives. Both goals are achievable, but attaining both requires clear and realistic energy and environmental policy.
In their efforts to achieve the aforementioned goals, U.S. energy companies have the challenge of bringing the financial strength necessary to continue exploration and production activities that will help to secure both domestic and global energy supplies, all the while employing world-leading environmental best practices to battle the effects of climate change. Understanding these needs, the two most recent energy industry merger announcements, one between ExxonMobil and Pioneer Natural Resources, and the other between Chevron and Hess, are perfectly timed and will help achieve these goals.
Given the challenges, additional energy sector mergers can be expected. Faced with increasing regulations and legislation aimed at reducing the production and use of fossil fuels, as well as the potential for implementation of expanded global ESG guidance that could have the effect of restricting capital access and investment, energy companies will justifiably seek the benefits of scale along with an array of synergies which accrue from merger activity. The result will be a broad application of superior technology and operations, innovation to support energy transition, and environmental best practices. All these results, inherent in the scale provided by such mergers, will benefit the American economy and energy consumers around the world.
Despite these benefits, roughly 20 Democratic senators have expressed to the FTC concerns with the mergers, citing potential for anti-competitive behavior and increased prices. None of these claims have merit. In fact, these two mergers, given the benefits of synergies, technical expertise and financial strength, will be the best way to avoid the price increases that are feared. While the FTC has the obligation to respond to the Senate request, it also has obligation to recognize the precarious nature of secure and affordable energy supply. As such, the FTC must consider the importance of maintaining a strong and resilient domestic energy sector that has a significant capacity to compete globally, explore for and produce the traditional energy sources we need now and into the future, and the ability to maintain the financial strength to develop the renewable low carbon fuels and new energy sources that markets demand and expect.
Accordingly, the FTC must also recognize that energy industry mergers, rather than being anti-competitive, will not only benefit consumers and the economy, but will work to build investor and stakeholder confidence in much needed long-term U.S. energy development. In fact, maintaining strong energy production capabilities is imperative given the Energy Information Administration’s most recent demand forecast that projects global oil and gas demand to continue to increase between now and 2050.
Knowing that and considering that oil prices are not set domestically but are rather a global market driven function of supply and demand, U.S. consumers will actually be better shielded from anti-competitive behavior with the reliability of long-term and secure energy supplies. Similarly, greater domestic natural gas production will also put downward pressure on natural gas costs to U.S. consumers. Understanding that the FTC enforces laws that prohibit practices that could lead to higher prices and fewer choices, the proposed energy mergers are more likely to lead to greater, not less, price stability, and more energy supply options. These mergers should also provide the assurance needed to attract the necessary levels of energy investment required to sustain domestic and global economic growth. All this can be accomplished while advancing important climate objectives, thus benefiting not only energy security, but providing the necessary financial leverage and strength needed to achieve established environmental goals, as well.
Kyle Isakower is Vice President of Energy and Regulatory Policy at the American Council for Capital Formation in Washington, D.C.
