Trump plan to boost oil, coal could lower prices

Kuwait Times - - ANALYSIS -

Pres­i­dent-elect Don­ald Trump has pledged to boost the oil and gas sec­tor and bring back coal, re­vers­ing Pres­i­dent Barack Obama’s ef­forts to en­cour­age re­new­able en­ergy and cut de­pen­dence on fos­sil fu­els. But an­a­lysts say Trump’s poli­cies could serve to worsen the global en­ergy glut, which would re­duce prices while do­ing lit­tle to re­vive the for­tunes of “Big Coal”. Trump has made no se­cret of his sup­port for fos­sil fu­els. His pol­icy ad­vi­sors in­clude top oil in­dus­try lob­by­ists, frack­ing king Harold Hamm, and oil­rich North Dakota’s con­gress­man Kevin Cramer.

Trump has promised to elim­i­nate reg­u­la­tions re­strict­ing frack­ing; sup­port oil and gas pipe­line con­struc­tion, in­clud­ing the Key­stone XL project blocked by the Obama ad­min­is­tra­tion; open now-re­stricted fed­eral lands and off­shore ar­eas, for ex­plo­ration, in­clud­ing Alaska; and end Obama’s 2015 Clean Power Plan, which aimed to cut back coal-fired power gen­er­a­tion. “Pro­duc­ing more Amer­i­can en­ergy is a cen­tral part of my plan to mak­ing Amer­ica wealthy again,” Trump told a frack­ing con­fer­ence in Septem­ber. “I’m go­ing to lift the re­stric­tions on Amer­i­can en­ergy and al­low this wealth to pour into our com­mu­ni­ties.”

Adding to the Oil Glut

But an­a­lysts say his plans could ex­ac­er­bate the global over­sup­ply. Oil prices col­lapsed in 2014 prin­ci­pally due to the rapid build in US out­put that came from the revo­lu­tion in frack­ing tech­nol­ogy, which al­lowed drillers to tap dif­fi­cult-to-access shale-based re­serves. US crude out­put shot up to 9.6 mil­lion bar­rels a day by July 2015, nearly dou­bling from 5.5 mil­lion in 2010. This al­lowed the coun­try to sharply cut back oil im­ports, and global prices sank. Since then US out­put has fallen by about one mil­lion bar­rels, but prices re­main de­pressed due to higher pro­duc­tion from Iraq, Libya, Saudi Ara­bia and Iran.

Open­ing up more ar­eas to ex­plo­ration would add to that sup­ply. Though there are ben­e­fits to main­tain­ing US pro­duc­tion ca­pac­ity for the long run, any added ca­pac­ity in the short- and medium-term would hurt prices. That leaves an­a­lysts du­bi­ous Trump can achieve his goal of en­ergy in­de­pen­dence. “Most of the big fac­tors im­pact­ing the en­ergy in­dus­try have re­ally been mar­ket-driven. The shale oil boom put an in­cred­i­ble amount of new oil in the mar­ket,” said Sam Ori, ex­ec­u­tive di­rec­tor of the En­ergy Pol­icy In­sti­tute at the Univer­sity of Chicago. “The big chal­lenge fac­ing the oil in­dus­try is oil prices.”

Oil an­a­lyst Carl Larry of Frost & Sul­li­van said the only way to in­crease do­mes­tic pro­duc­tion would be to cut back im­ports by tax­ing them. “Un­less you find a way to stop im­ports, Amer­i­can oil pro­duc­tion doesn’t have a great fu­ture,” he said. Re­viv­ing the coal in­dus­try, mean­while, faces a sim­i­lar dy­namic: Frack­ing also opened up huge sup­plies of cleaner, eas­ier-to-trans­port nat­u­ral gas, mak­ing coal less de­sir­able.

In­de­pen­dent from Obama’s poli­cies, coal has fallen from more than one-half to just one-third of US power gen­er­a­tion. Cleaner nat­u­ral gas is pre­ferred not only by fed­eral but also by state and lo­cal poli­cies. US coal pro­duc­tion ac­tu­ally re­mains quite high, to sup­ply ex­ist­ing coal-fired power plants. The 100,000 lost min­ing jobs Trump prom­ises to re­store are al­most all in the east­ern Ap­palachian coal re­gion, where min­ing costs are 10 times those of Wy­oming, which has cleaner, more eas­ily mined coal, and where the in­dus­try is highly mech­a­nized. At best, said Ori, you can only slow the coal in­dus­try’s de­cline. “Noth­ing a Trump ad­min­is­tra­tion does is go­ing to change that,” he said.

Wind, So­lar Un­der Threat?

Trump’s stance has wor­ried many over the plight of en­ergy re­new­ables like wind and so­lar, which have for years ben­e­fit­ted from sub­stan­tial sub­si­dies. But ex­perts say that equip­ment prices have fallen so much that re­new­ables are now com­pet­i­tive on their own. For ex­am­ple, with­out par­tic­u­lar sup­port, Texas, the cap­i­tal of the US oil in­dus­try, now re­lies heav­ily on wind and so­lar en­ergy for elec­tric­ity. “The re­new­ables sec­tor is re­ally com­pet­ing on a cost ba­sis and do­ing so ef­fec­tively, said Greg Wet­stone, pres­i­dent of the Amer­i­can Coun­cil on Re­new­able En­ergy. “None of that changes with the elec­tion.”

The threat, he cau­tions, is a fur­ther fall in nat­u­ral gas prices which would make it more com­pet­i­tive against re­new­able sources. But the Trump ad­min­is­tra­tion needs to un­der­stand that the re­new­ables in­dus­try em­ploys 300,000 peo­ple. “This is main­stream busi­ness and there’s no rea­son to un­der­mine growth and jobs.”

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