Will Trump's Order Boost U.S. Oil and Gas?

By MarEx 2017-03-28 19:27:07

U.S. President Donald Trump signed an “energy independence” executive order rolling back much of the Obama administration's policy efforts to combat climate change on Tuesday.

"I am taking historic steps to lift restrictions on American energy, to reverse government intrusion and to cancel job-killing regulations," said Trump. 

The signing of the order drew swift backlash from a coalition of 23 states and local governments, reports Reuters, as well as environmental groups, which called the decree a threat to public health and vowed to fight it in court.

Trump and several members of his administration have voiced doubts about climate change. Trump promised during his campaign to pull the U.S. out of the Paris climate accord, but the executive order does not address the issue.

The order's main target is former President Barack Obama's Clean Power Plan, which required states to slash carbon emissions from power plants. It also reverses a ban on coal leasing on federal lands, undoes rules to curb methane emissions from oil and gas production and reduces the weight of climate change and carbon emissions in policy and infrastructure permitting decisions.

Oil and gas trade group API has welcomed the order saying it is an important step forward in restoring common sense regulations that are needed to advance the U.S. energy renaissance. 

“Today’s action by President Trump is an important step toward increasing American competitiveness and recognizing that our industry is part of the solution to advancing U.S. economic and national security goals,” said CEO Jack Gerard. “Smart, common sense and science-based guidance and regulations will help our nation’s energy renaissance continue to provide benefits for American consumers, workers and the environment.

However, energy analyst Platts says analysts believe the impact on oil and gas supply will be minimal. “The order calls for a review of U.S. limits on fracking on federal lands and methane emissions from oil and gas operations, but those rules were already being undone through court cases and by actions still moving through Congress. 

“Obama-era regulations were always seen as having a marginal impact on oil and gas production as evidenced by the dramatic increase in supply which occurred during Obama's second White House term.”

Platts says the new order does not repeal the Clean Power Plan. This cannot legally be undone by executive order. The order is likely the first step in a years-long process which will require a lengthy rulemaking process and will likely face legal challenges from environmentalists and others. 

Richard Revesz, director of the Institute for Policy Integrity at NYU School of Law, said the issue may not be resolved before the 2020 presidential election.

Vice President Mike Pence said that Tuesday's order effectively ends the "war on coal," but analysts say the order will do little to bring back the industry, says Platts. Competition from natural gas and other regulations have forced about 60 GW of older, less-efficient coal-fired power plants to close and low gas prices are expected to continue in the future.

Amory B. Lovins, Chief Scientist of Rocky Mountain Institute, wrote in an editorial for Forbes saying the “energy independence” meme is reminiscent of when previous presidents touted nuclear power would replace foreign oil even though less than one percent of U.S. electricity is made from oil and less than one percent of U.S. oil makes electricity. “Today's suggested linkage is at least equally illogical,” he says.

Lovins cites the U.S. Energy Information Administration's March edition of its Monthly Energy Review. In 2016, the U.S. imported 0.223 q [quadrillion BTU] of coal, 3.076 q of natural gas, 17.449 q of crude oil, and 4.274 q of petroleum products. But the U.S. simultaneously exported respectively 1.51, 2.335, 1.089, and 8.771 q. 

“Thus the U.S. was a net exporter of both coal and petroleum products (the forms in which oil is actually used, such as gasoline and diesel); a net importer of natural gas by a mere 0.741 q or 2.6 percent of consumption (tipping to a net exporter in the next year or two as LNG exports expand); and a net importer of 16.36 q of crude oil.”

In 2016, 45 percent of U.S. electricity was produced from resources that are entirely domestic (6.5 percent from hydropower, 8.4 percent from other renewables) or in surplus and being net-exported (30.4 percent from coal), says Lovins. Another 33.8 percent was made from natural gas, and a further 19.7 percent came from uranium. This uranium is largely imported from a glutted world market and easily stockpiled, he said.

“Has whoever titled the Executive Order "Energy Independence" invented a time machine, new arithmetic, or just a new application of smoke and mirrors?” asks Lovins.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.