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President Trump wants to create federal government policy that powers a recovery in domestic fossil fuel production, driving renewed drilling and mining investment, and creating new jobs in mines and on rigs. Will these policies — likely to be approved and enacted — signal a shift towards fossil fuels? Or will the economic realities of global energy markets exert an overriding influence?
Much depends on just which policies are successfully implemented by the Trump Administration, and at this time, this remains unknown. Our latest Insight takes an early look at the expected resolution and implications of key policies. The Insight combines views from our oils & refining, gas and coal research teams.
This is all a portion of Trump's America first, jobs first, business-friendly domestic policy, with both demand and supply-side levers in play. How might he do this, and will it meaningfully spur investment in today's low-price commodity world?
Through the eight years of the Obama administration, US oil production rallied by 5.5 million b/d, growing 80% from 2008 levels, gas production surged to 73 bcfd, up 32% from 2008, while coal production slumped to an estimated 743 Mst, just 64% of the 1,171 Mst production achieved in 2008. Keeping pace with that oil and gas growth and spurring a rebound in coal production could be challenging, regardless of policy.
Andy Roberts, Research Director for Global Thermal Coal Markets, explains: "There is nothing in the President’s plan that will dramatically change the future for coal. There will be marginal improvements in coal production costs, but rising coal mine productivity, low-cost energy alternatives and growing US energy efficiency are moving the coal industry in a new, uncertain direction."
Roberts continues: "Nothing President Trump plans will stop natural gas and renewables from taking market share from an increasingly less labor-intensive coal industry serving a progressively less energy-intensive global economy — with two exceptions: expected invalidation of the Clean Power Plan will sustain midterm coal production, likely at the expense of gas; and a national, and perhaps global, commitment to widespread carbon capture and sequestration technology could protect coal market share while minimizing carbon emissions. The President’s presumed budget goals and commitment to federalism must be weighed against plans for coal technology emerging from the Department of Energy. Given that the President seeks to encourage production of all fossil fuels, the odds remain long against a sustainable coal renaissance."
Changes to oil and gas markets also look to be marginal, given the overriding economics and long-term trends in lower energy intensity, renewables penetration and environmental stewardship. "While we expect permitting, regulation, infrastructure build-out and promotion of US industry to be facilitated during this time, ultimate oil and gas production will be shaped by the market, influenced by the global economy and call-on US natural resources.
"President Trump very clearly wants to reposition the industry to be more competitive, but US oil and gas plays were already at the bottom of the global cost curve following the cost rationalization ushered in by low oil and gas prices. Indeed, stronger oil and gas prices over the past six months triggered a rebound in drilling and production even before the inauguration. The US's oil and gas renaissance started in the shales a decade ago, and after a pause last year, markets will determine this next phase of growth," notes Roberts.
In the balance of this Insight, we catalog the energy issues that will have our attention as the early part of the new President’s term begins. Each of these will be explored and detailed as the Cabinet is approved and policy emerges. We make our preliminary estimates of the following issue resolutions:
- Addressing regulations
- Opening up additional land to drilling and mining
- 'Better Way' plan for tax reform
- Clearing the way for infrastructure development
- Dialing back carbon and clean energy goals; supporting fossil fuel demand
- Trade policy: turning inward