Looking Forward: What a Trump Presidency may mean for U.S. Energy Markets
November 11, 2016
President-elect Donald Trump is now in place. While promising to “cancel” the COP21 Paris Accord accepted under President Obama and pushing a fossil fuel-led revival to underpin job growth, a Trump administration will rearrange domestic energy and environmental priorities. Yet, there are still conflicting implications for oil and gas prices going forward. Trump is expected to shrink the role of EPA to a mostly advisory one while also seeking to eliminate President Obama’s Clean Power Plan (CPP) that was already under challenge by 27 states and dozens of businesses and unions. New regulations for tighter controls on domestic oil and gas drillers could be rolled back or potentially eliminated. Importantly, changing the Obama administration’s legacy of climate legislation is made easier by the fact that it was mostly done with existing authority, not through Congress.
President-elect Trump has stated that he wants to open up federal lands to more coal mining and oil and gas drilling, the latter perhaps including the 85% of the Outer Continental Shelf that remains off-limits to development. Trump has voiced support for an “all-of-the-above” energy strategy, but clearly sees renewables like wind and solar as the supplemental systems they are today, not as the baseload sources the Obama administration claimed they must become. Critical to curtailing incremental demand, energy efficiency, however, will continue to win out because it saves businesses and families money while also being a natural byproduct of constant technological evolution.
Overall, a Trump administration will be most positive for coal, but the industry won’t return to where it once was, mainly due to a low cost natural gas market with no relief in sight. For example, with the CPP, coal generation from 2015-2040 has an EIA projection to decrease 35% to under 900 TWh, but without the CPP, coal power is set to slightly increase.
As for oil and gas prices, the election of Trump has a fundamental offsetting effect. New interstate pipeline capacity, expected to face less political interference and get prominent billing in any Trump infrastructure bill, would unleash supply but also up demand by increasing access. This is especially true for the numerous customers savoring links to the Northeast gas surge. At a combined 22 Bcf/d, the Marcellus and the Utica shale plays now produce 30% of U.S. natural gas, and we could see 18 Bcf/d of new takeaway capacity in the region before 2020.
Fewer regulations will facilitate more drilling, but such policies could ultimately keep oil prices lower by encouraging more supply into a world already awash in oil and gas. More U.S. oil and LNG export projects could get fast-tracked under a President Trump, but this will increase prices by lifting demand, yet once again a development counterbalanced by the higher production expected under his leadership.
Ongoing growth in U.S. gas demand was assured no matter what, but Trump’s victory could instill a less talked about rebound in U.S. oil demand. Stagnant for over 10 years, U.S. gasoline demand, for instance, should regain an upward trend: less economical electric vehicles might find incentives like the Zero Emission Vehicle Credits removed and overly stringent mileage regulations already opposed by automakers could get pulled back.
Particularly for oil, a market where prices are connected globally, Trump’s victory is bullish because the poorer nations are likely to reconsider their anti-oil climate commitments made at COP21, realizing that the world’s largest economy is doing so. But we know one thing for now as we move toward the OPEC meeting on November 30th, where production cuts now seem improbable - the fundamentals supporting low prices are still firmly in place: too much supply colliding with not enough demand equaling too much inventory.