The energy landscape is continually evolving, and it’s important for oil and gas investors to stay updated on these shifts and opportunities. Take into account that recent U.S. federal policies are laying a strong foundation for the fossil fuel and energy sector, making oil and gas investment an area worth monitoring closely.
Here, we’ll break down three key legislative acts that set the stage for increased demand and growth – The Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the Creating Helpful Incentives for the Production of Semiconductors (CHIPS) Act.
The Infrastructure Investment and Jobs Act (IIJA)
Let’s start with the IIJA, which has allocated $550 billion for transportation and core infrastructure projects. These projects aren’t just about new bridges and better roads; they’re energy-intensive efforts that will need fossil fuels as a primary energy source. From the manufacturing process to the construction phase, oil and gas will play a critical role. Not only does this drive demand but it also highlights the necessity of a robust fossil fuel sector to support national infrastructure development.
Inflation Reduction Act (IRA)
The IRA introduced $370 billion in clean energy tax incentives. While that might initially sound like a move away from fossil fuels, let’s dig a bit deeper. Note that building any clean energy project still requires fossil fuels. Whether it’s the construction vehicles or the transportation of raw materials, fossil fuels are an integral part of the equation. The act not only advances clean energy initiatives but also indirectly contributes to the growth of the fossil fuel sector.
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CHIPS Act
The CHIPS Act serves as another advantage for the sector, designating $55 billion and projected to fund over 30 advanced manufacturing projects over the next decade. The act aims at reshoring U.S. manufacturing, which involves heavy energy consumption and, by extension, increased demand for fossil fuels. Even in the high-tech world of semiconductors, you can’t escape the need for traditional energy sources like oil and gas.
How Clean Energy Projects Depend on Fossil Fuels
Contrary to common misconceptions, the transition to clean energy does not negatively impact the fossil fuel industry; rather, it serves to support it. Consider this: steel is an important component of almost all renewable energy infrastructure. According to the World Coal Association, 70% of steel production relies on met coal, and all steel production needs oil and gas. The transition to clean energy isn’t a zero-sum game; it’s more of a symbiotic relationship.
Public Support
Strong public support for infrastructure spending is also a promising sign for fossil fuel industries. People want better roads, stronger bridges, and cleaner energy. But many don’t realize that these objectives are aligned with a strong and resilient fossil fuel industry. The support for these federal acts translates into long-term stability and growth opportunities for oil and gas companies.
A Positive Outlook for Fossil Fuels in Light of Policy Shifts
The IIJA, IRA, and CHIPS Act collectively allocate nearly a trillion dollars that will, directly or indirectly, create demand for fossil fuels, raw materials, and steel. The clean energy transition is also pushing the need for more fossil fuels, not less. Hence, the fossil fuel sector isn’t just surviving; it’s strategically positioned to thrive in the current U.S. policy environment.
Remember, these federal acts aren’t just words on paper; they’re plans supported by billions in funding. For oil and gas investors, the takeaway is clear: the long-term returns for fossil fuel companies look promising. If you’re a qualified and approved investor, understanding these policies and their impact can offer you a road map for making informed decisions in the energy sector.
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Sources:
“Infrastructure Bill,” Ernst & Young Global Limited, https://www.ey.com/en_us/infrastructure-investment-and-jobs-act
“The Inflation Reduction Act: Here’s what’s in it,” McKinsey & Company, https://www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it
“Senate approves CHIPS funding and tax credit bill to promote US semiconductor manufacturing,” PwC, https://www.pwc.com/us/en/services/tax/library/senate-approves-chips-funding-and-us-semiconductor-manufacturing-tax-credit-bill.html
“Coal & Steel,” World Coal Association, https://www.worldcoal.org/coal-facts/coal-steel/