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The Federal Reserve has amended guidelines for its coronavirus relief loans after a major push from the oil and gas industry and politicians.
The Fed’s Main Street Lending program, a $600 billion piece of the $2 trillion CARES Act passed in March, exists to “provide support to small and medium-sized businesses” who are unable to maintain their operations during the shutdown. Further, the program’s purpose is to only “help companies that were in sound financial condition prior to the onset of the COVID-19 pandemic maintain their operations and payroll until conditions normalize”.
After a large lobbying push from both industry giants such as Range Resources and EQT and state representatives, rules that would have left the industry unable to access the capital were altered, opening up the funding to the industry, while also drawing criticism.
Among the changes made were reductions in minimum loan amounts, and reversal of a rule prohibiting the use of Main Street funds for paying off or refinancing existing debt, a major issue plaguing the industry even before the shutdown, but now exacerbated given the state of the economy.
Critics of this move note that the shale gas industry was not in great financial condition prior to the pandemic, and fault the federal government for giving any money to the fossil fuel industry. Proponents of the rule change argue that the oil and gas industry was unfairly excluded from the opportunity to receive these vital loans purely due to the nature of the industry.
However, the charge that the industry was not in sound financial shape before the pandemic certainly bears some truth. Natural gas’s price as a commodity had dropped in the months prior to COVID, due to low demand and a high supply of gas, and many gas producers in the Marcellus and Utica basins cut capital spending on drilling. Additionally, the oil price war between Russia and Saudi Arabia collapsed prices and production of that commodity. Representatives argue that the industry is not looking for a bailout, but rather fair access to federal funds.
For those who argue against taxpayer dollars going toward the fossil fuel industry, the alternatives may result in taking a few steps backward on their mission. In 2019, fossil fuels accounted for 62.7 percent of total energy production, 38.4 percent of which was from natural gas, the largest share of any energy source.
If the natural gas industry was to fail, this could lead to several negative outcomes, including electricity rationing, inflated energy prices, and a massive increase in coal-fired power. An increase in coal-fired power would result in a rise in greenhouse gasses, as coal power generates 50 percent more harmful emissions than natural gas. Unfortunately, renewable energy only accounted for just 17.5 percent of electricity generation in 2019, and is not yet at the technological point where it could replace natural gas as the main energy source if the industry collapsed.