Trump plan to boost oil, coal could send prices lower

AFP , Tuesday 15 Nov 2016

Donald Trump
President-elect Donald Trump smiles as he arrives to speak at an election night rally, in New York (Photo: AP)

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 oil-rich 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."

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.

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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