Wealthy Liberal States and Fossil Fuel Divestment

May 19th, 2015 |

At CERAWeek in Houston at the end of April, Richard Kinder (Chairman and CEO of Kinder Morgan) spoke about how the energy industry hides from the public “like we are selling cigarettes”.   The battle for public opinion around energy in the US is constant, however the drumbeat seems to be getting louder with the ramp up of unconventional oil and gas production.  As the character Andy Dufresne said in Shawshank Redemption, “get busy living, or get busy dying”.  In this case, the US energy business needs to “get busy living” ie. be more aggressive on promoting the benefits of increased domestic production of oil and gas as it relates to jobs, economic growth, and US balance of trade.  At the same time, the industry also needs to manage the impact to water, air, and public health near production activity.

Certainly the anti-fracking movement is an increasingly very vocal and local opposition especially as it relates to any new infrastructure development whether it be Keystone XL in the Plains States or Kinder Morgan’s Northeast Energy Direct in New England.  These projects are the targets of grassroots opposition using social media, old-school media and on-the-street protests.  By extension, this sentiment overlaps with the ‘anti fossil fuel’ movement where by individual cities and academic institutions are putting in place fossil fuel divestment commitments for their financial endowments.  Basically, these institutions commit to sell all equity positions with fossil fuel exposure.  According to the website gofossilfree.org, this list includes Stanford University, Syracuse University, City of Seattle and City of San Francisco, to name a few.  While many analysts see these divestments as being purely symbolic and having little impact on the energy industries’ access to capital, this warrants watching as the loss of faith in public opinion can result in slippage in regulatory and legislative standing of energy development.  In the current North American  hydrocarbon market, every ounce of demand is needed to balance the oversupplied oil, refined products, NGL and natural gas markets.

BTU Analytics decided to look specifically at where divestment activity is occurring and then draw on some metrics that might be driving this movement.  This should then highlight where the industry has the most public opinion work to do.

Below is a map that shows relative average household income across the lower 48 states.  Green states have an income higher than the national average while red states’ incomes on average are lower than the national average.  There are 15 states above the national average and 33 states below the national average with a high concentration of green (above average) on the coasts.

Household income slide 1

If we then look at where divestment is occurring, we see there are 22 academic institutions with divestment commitments across 10 states with California at the top with 8 schools.  In terms of cities, there are 32 cities with divestments across 14 states with Massachusetts at the top with 9 cities.

Income vs fossil free slide 2

It would appear higher household incomes tends to be a decent predictor of divestments with 35 institutions of a total of 53 being located in ‘green states’ (higher average household income).

As you would expect, net natural gas export states (those that produce more natural gas than they consume, 12 in total) tend to be free of divestment activity.  The exceptions are Boulder, CO,  Santa Fe, NM, State College, PA and the Dayton, OH.

gas export states slide 3

It turns out politics is also a good indicator of divestment activity as 18 states where divestment have occurred, 16 of them voted democratic in the 2012 presidential election, with the exception of AZ and NC.

2012 election map slide 5

 

The impact of the rise of unconventional natural gas and oil production has now made its way to consumers in the form of lower priced gasoline and smaller utility bills.  This is not enough. The US energy industry needs to “get busy” spreading the word of economic development in the political “blue states” to win the battle of public opinion.

 

Author: Andrew Bradford

Andrew is the CEO at BTU Analytics, LLC and has worked in the energy and technology industries for over 20 years. Prior to BTU Analytics, he was the Senior Commercial Director of North American Natural Gas at Platts-Bentek Energy where he led the natural gas analytics team. Andrew’s past experience includes positions at Amoco Production Company and Constellation Energy. He holds a Masters in Energy and Environmental Analysis from Boston University and a Bachelors in Geology from Colorado College.