The state of the market in US Energy

In this article, we analyze the state of the market following a difficult year for the US energy sector, and look ahead to future challenges.

Published on 11 June 2021
Written by James Haggerty
James Haggerty

Pandemic Problems for the Oil industry

With much of the world in the initial throes of the coronavirus pandemic, and energy markets experiencing an unprecedented lack of demand, in March 2020 a dispute between OPEC and Russia led to tumbling global oil prices when the countries failed to agree to production cuts in the wake of the reduced global demand for energy. As both Russia and Saudi Arabia increased production, global oil prices tumbled and financial markets the world over experienced record drops.

While over the course of the following month various efforts to mitigate the situation saw some price recoveries, the most dramatic day for the US market was April 20th 2020 when WTI prices closed in the negative at -$37.63 for the first time in history. A combination of factors including the pricing volatility in the market, global reduced demand for energy, a lack of storage capacity in the United States and difficulties in the futures market led to the record one-day 300% price drop.

Oil prices recovered from the unprecedented drop but remained low for months in the aftermath of April 2020. The lack of demand for petroleum products across the world continued to adversely affect price stability as the year progressed. Prices increased with market optimism as different nations looked to ease lockdowns and vaccine programmes were rolled out but remained unsteady throughout the year. Oil prices ended the year back to the familiar price point of approximately $51 per barrel.

Challenges for US Shale

The volatility in international oil prices once again shone a light on the vulnerability of the US Shale Industry to low oil prices. Bloomberg reported in November 2020 that the pandemic has “taken the wind out of the sails” of shale producers with no growth predicted in the sector for the immediate future. Exploration and Production activity in US shale basins hit lows in the pandemic that will be challenging to recover from given the need for debt-leveraged shale companies to constantly drill new wells to maintain production levels. OGV Energy, using Haynes & Boone data reports that over 100 oil and gas companies went bankrupt in 2020. Adding further concern, Rystad Energy reports that notably the average debt amount is a record $940 million, double the amount over the slew of bankruptcies in 2016.

Chambers and Partners ranks the USA’s leading transactional energy lawyers with experience in the oil and gas sector in USA – Nationwide: Energy: Oil & Gas Transactional. This ranking category has expanded by 38% in terms of the number of ranked lawyers and law firm departments over last year’s guide, reflecting a legal sector well-placed to guide industry clients through the choppy waters of 2020 and into 2021.

Use our interactive data visualizations below to discover the growth in the number of ranked firms in our Energy and Oil & Gas legal rankings.

A tumultuous time awaits shale producers as the sector is expected to struggle to attract investment through 2021, there are however early signs of a price recovery in the Shale space which is a cautiously encouraging sign for US producers and the health of the sector. Difficulties for America’s shale producers creates fertile ground for disputes in the sector. Leasing, royalty and contractual issues are likely to prove sticking points for many E&P and services companies in the upstream sector. Midstream operators too may find themselves facing significant challenges and looking toward litigation if contracts can’t be fulfilled.

Oil and gas sector clients facing courthouse action may benefit from seeking the services of the experienced litigators and trial lawyers in USA – Nationwide: Oil & Gas Litigation, a section appearing for the second time in the 2021 guide listing 12 firms offering skilled representation in complex disputes affecting clients in oil and gas plays across the nation.

Trouble in the Texas Energy Sector

A second shock to the system for shale producers and the wider US energy sector was the Texas winter energy crisis in February 2021 which saw production tumble again back to near April levels. The crisis identified grid resilience issues in the Electricity Reliability Council of Texas-governed Texas Interconnection grid.

Problems with the lack of winterisation of natural gas and renewable energy infrastructure and unpreparedness for crisis situations were brought to national attention as Texans went days in freezing weather without access to electricity with consumers unprotected by spend caps due to foot highly inflated utility bills.

Energy companies drawing criticism from lawmakers including Texas Governor Greg Abbott, and expecting scrutiny from the Texas Attorney General’s office may do well to look to our Texas: State Regulatory & Litigation rankings of over forty of the top Legal attorneys in Texas best equipped to deal with any significant challenges.

Changes in Generation Priorities

State-level issues are of course far from the only regulatory considerations energy companies need to bear in mind. The Biden Administration’s push to decarbonize the American economy with a goal of net-zero emissions by 2050 is certain to have a wide-reaching and transformative effect on the energy industry. Interior Secretary Deb Haaland and new FERC Chairman Richard Glick are likely to be key figures in the immediate efforts to implement the Administrations energy agenda.

Secretary Haaland’s raft of Spring 2021 secretarial orders revoked several Trump era guidelines affecting the energy industry while the newly assembled DOI Climate Task Force looks to examine the oil and gas leasing regime in the US and push the development of renewable energy. Glick, with agenda-setting authority at FERC is expected to push the agency to support renewable energy initiatives, in particular Glick’s stated opposition to the “minimum offer price rule” is encouraging for renewable energy and nuclear power operators.

The Biden Administration and Changes at Federal Level

FERC is also expected to reform the rules for transmission lines connecting the country’s ISOs, pushing the Biden agenda to update national power infrastructure. Renewable energy companies are likely to benefit from access to power markets hitherto closed to them; coastal power markets gaining new access to wind-generated electricity produced in the Midwest for example.

Renewable energy and transmission companies can look to the expert counsel of the attorneys ranked in our Nationwide: Energy: Electricity (Regulatory & Litigation) legal rankings. Chambers has expanded our coverage in this section 20% for the 2021 Guide, now listing approximately 100 attorneys best placed to guide clients through the changing regulatory environment for power producers and other electricity sector clients.

Glick’s appointment may be more challenging for oil and gas midstream companies and other fossil fuel enterprises. Under his tenure as chairman, FERC is expected to give greater consideration to environmental and emissions concerns when the agency looks to approve new projects. Attorneys with considerable experience appearing before FERC on behalf of oil and gas sector clients are listed in the Chambers legal practice area rankings of Nationwide: Energy: Oil & Gas: Regulatory & Litigation.

In Chambers USA 2021 we’ve increased the number of key attorneys ranked in this section by 20% on the previous year. The experts ranked in this section are among the counsel best placed to keep businesses in compliance with the changing federal regulations and defend their interests in administrative proceedings before FERC.

Investment in a Green Future

As investment interest in many states turns to renewable energy and alternative fuels, companies operating in the sector may see significant opportunities for growth as we move through the second half of this year and into 2022. The Nationwide: Energy: Electricity (Transactional) legal insights and rankings lists firms and attorneys at the forefront of corporate work in the space, helping traditional and renewable power companies through their most important transactions. Many of the attorneys ranked in this section regularly handle industry defining M&A, take on complex power markets work and design Power Purchase Agreements facilitating the future of energy generation in the USA. With a 15% increase in the number of ranked attorneys in the section, Chambers rankings are a go-to for finding counsel in the space. Nuclear Energy already plays a key role in the makeup of the USA’s generating portfolio, Chambers’ Nationwide: Energy: Nuclear (Regulatory & Litigation) market-leading ranking table is home to many of the country’s talented nuclear energy experts including both key younger talent and legends of the Bar able to act on the most complex of issues facing nuclear clients.

Comprehensive Coverage at Chambers

The Chambers USA 2021 Guide launched with our most comprehensive coverage of the US energy sector to date. We’ve opened five new Energy sections this year in Florida, Massachusetts, New Jersey, Washington, North Carolina and Pennsylvania. We have also restructured our tables in other states to broaden our coverage of the whole sector. When compared to last year’s guide we have seen a 47% increase in the number of Energy department rankings across the guide and a 35% increase in the number of individual rankings. Chambers USA 2021 now features over 750 of the USA’s top energy legal experts. In what promises to be an interesting year for the Energy industry, Chambers ranked law firms and legal professionals are ready to help clients of all sizes and in all sectors plot the route through 2021 and beyond.

The data visualization below highlights the significant growth seen in the number of lawyers ranked for Energy in the latest edition of the Chambers USA rankings.

Chambers USA Legal Topics

Chambers USA

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