GLM Comment: Trump's policies on energy broad in scope

30 March 2017 10:41 Source:ICIS

US President Donald Trump this week made good on a campaign promise to endorse all forms of energy production and streamline regulation, after signing an executive order on 28 March that pledges many things.

A return to coal was one of Trump’s pre-election pledges. In theory this could dampen US demand for gas as a competing source of power generation but the expensive economics of coal production are likely to mitigate any major impact.

The most recent executive order was applauded by the US trade organisation Center for LNG on rescinding the guidance that attempted to broaden the environmental scope of an LNG export project by including upstream greenhouse gas emissions.

But this could ultimately be a moot point given that the Federal Energy Regulatory Commission (FERC), which is responsible for the siting, permitting and licencing of LNG export plants, has already determined that its regulatory overview would not reach back to the wellhead and would only consider the infrastructure itself.

It is very likely that Trump will allow for oil and gas drilling on federal lands, a measure that was resolutely opposed by President Barack Obama’s administration.

More of an impact will likely follow with the outcome of the Clean Power Plan, a set of rulings by the Environmental Protection Agency that was stalled through court review.

However, delays in implementing the Clean Power Plan may also have a knock-on effect with natural gas-fired generation that was projected to come online as a result of states adjusting emissions targets.

Trump’s pro-coal stance and rhetoric may carve further demand destruction for the profile of natural gas in the energy complex. But a recent study by the Energy Information Administration found that even if the act was halted, coal production would at best stabilise over the coming years with much coal demand already permanently destroyed.

Attempts were made earlier in March to expedite the permitting of pending LNG export projects by the Department of Energy.

But even with full-on approval advanced by the energy department under Trump, market conditions would be the deciding factors on whether or not new LNG export projects could be sanctioned and reach final investment.

Beyond the broad scope of diminishing environmental review by the government, trade relations instead will need to be closely monitored for gas and LNG out of the US.

The implications of rolling back NAFTA - the free trade agreement between the US, Mexico and Canada, would likely send shockwaves to US natural gas producers who are poised to send gas exports via pipeline to Mexico through growing expansion capacity at the border.

At the same time, it is not clear whether a border adjustment tax that has been proposed would be passed under Congress, considering the reliance that the US has on Mexico as a trade partner.

The cost of investment required by implementing regulation has long been decried by the US energy sector.

The terms set out by Trump in his latest executive order remain so broad that it is difficult to fashion how these goals could be set out, and at what cost.

The uncertainty in policy may be most detrimental to industry in the near-term, as this could delay the direction of future investment.

By Ruth Liao