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January 20, 2017

Trump Inauguration: Positive Signs For Gas Sector As Power Transfers

IPI expert referenced: Merrill Matthews | In The News | Media Hit
  Platts

Donald Trump took the oath of office Friday promising to bring jobs back to the US and put America first in matters of trade and foreign affairs. And a statement released by his White House as soon as the power transferred to Trump touted "an America first energy plan," promising to maximize the use of American energy resources, end dependence on foreign oil and scrap burdensome regulations.

Trump is committed to eliminating harmful and unnecessary policies such as the "Climate Action Plan and the Waters of the US rule," the statement said. "Lifting these restrictions will greatly help American workers, increasing wages by more than $30 billion over the next seven years." The policy statement also said the administration will "embrace the shale oil and gas revolution to bring jobs and prosperity to millions of Americans."

"We must take advantage of the estimated $50 trillion in untapped shale, oil, and natural gas reserves, especially those on federal lands that the American people own," it said.

In another policy statement on "bringing back jobs and growth" released Friday, the Trump White House said the president has proposed a moratorium on new regulations and is ordering the federal agency and department heads to identify "job-killing regulations" for repeal.

In the run-up to the inauguration, oil and gas sector interests were reading positive signs in Trump's picks for key cabinet posts who were thought to be friendly to the sector, as well as from the statements coming out of the administration in waiting.


Energy market observers were anticipating an administration warm to the oil and natural gas industry and likely to ease environmental rules that entangle production and lift land-use restrictions on drilling. The sector also looked forward to more full-throated support for LNG exports, a key growth area for the gas sector, and anticipated rising pressure to speed reviews of midstream transportation to ease constraints in getting gas and oil to market.

"One of the most critical issues going forward is going to be how serious the incoming administration is about a regulatory rollback," said Barry Worthington, executive director of the United States Energy Association.

Worthington expected executive orders during Trump's first week of office, including a freeze on pending rules, along with action to block the Obama administration's Clean Power Plan, which was meant to scale back power plant CO2 emissions. Others executive orders could be rolled out in the weeks ahead, he said.

The overall picture for the power sector was less certain, Worthington said, given that the campaign focused very little on electricity. But, he predicted the espousal of a more fuel-neutral, market-oriented approach could mean "loosening up" of subsidies for renewables.


INDUSTRY 'VERY OPTIMISTIC RIGHT NOW'


Kyle Cooper, consultant at ION Energy, said the energy markets are anticipating that restrictions on physical production will be eased, with less onerous EPA regulation generally promoting added production.

What remains to be seen is how quickly and aggressively the administration will be able make that shift, Cooper said.

Changes in Dodd-Frank Act regulations could also help liquidity in energy futures markets further out along the curve, he said, by potentially bringing back counterparties that have shied away from the markets to avoid restrictions.

Michael Llanos, S&P Global Ratings midstream energy team's associate director, said a key question is how much will be done to speed oil and gas pipeline development, as well to loosen environmental regulations on refining. Gas pipelines are needed to alleviate bottlenecking, especially in the Northeast, he said. Also key to watch is renewable identification numbers rules affecting refineries, a regulation that Trump regulatory advisor Carl Icahn, is expected to target.

"My sense is that the oil and gas industry is very optimistic right now," said Merrill Matthews, with the Institute for Policy Innovation. Matthews predicted Energy Secretary nominee Rick Perry would try to expedite applications for LNG export.

In his confirmation hearing Thursday, Perry backed increasing the capacity for US LNG exports as long as other federal agencies do not constrain domestic supply.

"The demand is going to be there," Perry said. "If we produce it in America, it makes abundant good sense to me for us to sell it to the world. Trump "truly is an all-of-the-above supporter of American energy" who wants to "support, develop and promote that energy resource, liquefied natural gas being one of those."

While the Obama administration lent some support to LNG interests, the sector is hoping for more enthusiastic backing.

"The Obama administration went about as far as they could go, given the constraints of who they were and who elected them," said one industry advocate. "What happens if instead of partial support we have enthusiastic support, an administration that is behind developing the industry? We're hopeful this administration will be in with both feet."


LIKELY CONFIRMATIONS FOR ZINKE, PERRY


One looming question, several analysts said, is what ramification immigration policy, and a broader tug of war with Mexico, will have on burgeoning energy trade, with the potential for Mexican officials to wrap the issue into their larger negotiations.

In his inauguration speech, Trump sounded themes of protection, saying, "From this day forward, a new vision will govern our land. From this moment on, it's going to be America first. Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families."

He added, "Protection will lead to great prosperity and strength."

Of the major nominees to positions affecting the energy sector, both Representative Ryan Zinke, Republican-Montana, tapped for the Department of Interior, and former Texas Governor Perry, named to head the Department of Energy, had fairly cordial Senate hearings, with little sign of a major fight ahead.

Zinke said he would review Obama's decision to block oil and natural gas drilling in most US Arctic waters and suggested a reversal of recent national monument designations may be in the works. He also appeared to toe a bipartisan line, saying he was for land conservation and environmental protections on energy development.

Perry also worked in his hearing to ease some doubts about his stance, telling lawmakers that he now regrets saying in 2011 that he wanted to eliminate DOE.

The greater battle was reserved for Trump's pick for the Environmental Protection Agency, Oklahoma Attorney General Scott Pruitt. Environmentalists have targeted Pruitt for opposition, unnerved by his career in litigating against key EPA regulations, including the CPP, and his confirmation hearing January 18 took a more partisan tone.

Senator Bernie Sanders, Democrat-Virginia, aired fears that Pruitt's nomination was designed to protect the fossil fuel industry, not the environment, while Pruitt spoke frequently about his intent to respect the rule of law and seek to return more power to states. But Democrats will need to turn some Republicans over to their cause if they wish to garner the 51 votes needed to stop Pruitt's nomination.

As Trump seeks to fulfill campaign promises of adding jobs, several observers pointed to a nexus with energy development, one of few areas of the economy where employment could see a quick boost, with jobs in production, midstream infrastructure development, and building out of LNG terminals.


FOREIGN POLICY TOOL


Worthington predicted that energy, including LNG, is likely to play more heavily as a foreign policy tool, with a president and a likely secretary of state, former ExxonMobil CEO Rex Tillerson, experienced at negotiating with foreign governments.

Among key leadership posts still to be determined are the commissioners at FERC, where over a short time Trump will have the opportunity to replace all five slots.

On electricity matters, a reconstituted FERC could lean more toward allowing states to make a decision, at times when there is a call between relying on states in power markets and asserting federal jurisdiction, Worthington said.

Chris Muir, a utilities analyst with CFRA, noted that the Trump election victory delivered an initial bump in stock prices for the utility space. If the CPP is reversed, lower electricity rates could mean increased throughput on electric utility systems, he said.

Trump's "all of the above" approach is expected to entail an easing of pressure on coal, with some support for coal exports, although market challenges from cheaper gas continue to drive coal plant retirements.

Resistance from the environmental movement also isn't going away anytime soon. Activists organized by Beyond Extreme Energy rallied against "Trump's FERC" in Washington Thursday, and their promises of disruption prompted the agency to close its open meeting off from general public attendance Thursday. The meeting was instead made available to the public through the agency's webcast, and reporters were allowed to attend. FERC Chairman Norman Bay said the commission was concerned about handling dozens of protesters expected to enter the meeting room to cause disruptions.

--Maya Weber, maya.weber@spglobal.com


 

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