25/03/17
Oil industry embraces Trump trade-offs
Washington, 17 March (Argus) — President Donald Trump's key energy advisers
lavished praise and promises of deregulation on US oil and gas executives
attending the CERAWeek by S&P Global conference in Houston last week. But his
domestic and international policies, and failure to explain their desired
outcomes, have created significant uncertainty for investors in the energy
sector and the broader economy. "I'm going to share two words that I don't think
you have heard from a federal official in [former president Joe Biden's]
administration during the last four years, and those two words are ‘Thank you',"
interior secretary Doug Burgum told the conference. Burgum, appointed by Trump
as chairman of a newly formed National Energy Dominance Council, projects that
cutting oil and gas regulations and streamline permitting could trim $6-8/bl
from US oil production costs. Burgum's assessment of the savings that the
regulatory overhaul would yield is a way to reconcile Trump's demands on the
industry to lower oil prices and at the same time push US crude output beyond
what are already record levels. Trump on 12 March celebrated oil prices falling
to $65/bl as another major win — even though Nymex sweet crude futures were
closer to $70/bl that day — and some members of his economic team are eyeing the
$50/bl mark . His energy team says it does not have a specific price target, but
"the actions of this administration are to make it easier to produce more oil
and natural gas" and encourage producers to invest more, energy secretary Chris
Wright told the CERAWeek conference. Oil and gas executives for now appear
grateful to be embraced by the White House, and attribute government
interventions on trade and other fronts to the initial exuberance of a new
administration. Wright's denunciation of what he called Biden's "irrational,
quasi-religious climate policies" was well received and set the tone for the
conference. Even Adnoc chief executive Sultan al-Jaber , who just two years ago
labelled his fellow oil executives' view on climate change as problematic,
recast the problem and pronounced it to be solved. "The world is finally waking
up to the fact that energy is the solution," al-Jaber said. Permitting pay-offs
later... But concerns about new sources of regulatory uncertainty are starting
to mount. Approving specific pipeline and other energy projects by executive
fiat needs to be backed by legislation that makes permitting reform possible,
Chevron chief executive Mike Wirth told the conference. And Trump is making it
increasingly difficult to pass off his tariff policies as a mere negotiating
tactic. His trade actions are proving to be sticky — even the temporary relief
for Canada tariffs has forced market participants to scramble to prove that the
energy trade is covered by the US-Canada-Mexico free trade agreement terms and
is thus tariff-free, Alberta's minister of energy and minerals, Brian Jean,
said. OECD energy watchdog the IEA on 13 March downgraded its global oil demand
growth forecast for 2025, noting a deterioration in macroeconomic conditions
driven by rising trade tensions. The agency envisages a larger supply surplus as
a result — a surplus that could be greater still, depending on Opec+ policy. The
Trump administration casts its declaration of an "energy emergency" as the best
way to address long-standing complaints across the energy industry about the
lengthy permitting process and multiple layers of federal and state-level
oversight. "We will identify where the overlap is, we will identify where the
overreach is... then we're going to help solve the problem and identify what
else we can just get rid of in the federal government," Burgum told the
conference. But he and other administration officials have already indicated
that they expect the main beneficiaries to be the oil, gas and coal industries,
making it easier to expand production, authorise pipelines and approve new coal
and gas-fired power plants, and to even force coal-fired plants that have
already been mothballed to reopen. The Environmental Protection Agency on 12
March said it will revise more than 30 climate regulations that were issued
under Biden, including CO2 limits for power plants and automobiles, national air
quality standards and methane limits for the oil and gas sector. Midstream
company Williams' chief executive, Alan Armstrong, said that the permitting
shortcuts outlined by the Trump administration would more than offset the higher
cost of steel used in pipes as a result of new tariffs . Armstrong, who
estimates permitting costs to be twice as high as the cost of pipeline
materials, said that "we'd be glad to pay the 25pc tariffs as long as we can get
the permits done". He also said he is hopeful that durable legislation relaxing
infrastructure permitting rules will be passed under the new administration. But
industry group American Petroleum Institute president Mike Sommers, while
praising Trump's deregulation agenda, offered a more sober outlook on the
possibility of a long-discussed overhaul of federal permitting through federal
legislation. Congress' failed effort to amend permitting laws last year "should
be the basis upon which all other permitting bills are built", Sommers said.
But, he cautioned, "we all have to be realistic about the partisan make-up of
Congress and the difficulty of getting 60 votes" in the Senate, where the
Republican majority is 53-47. The new gas-fired power plants and nuclear power
investment that Trump wants might prove insufficient for meeting surging US
power demand for artificial intelligence (AI) data centres this decade, US
utility NextEra chief executive John Ketchum said, noting his company's
continued preference for adding renewable generation. "There's a timing
difference… and there's a cost difference" between renewables and other
generation sources, Ketchum said, noting that the cost of new gas-fired
generation has more than tripled since 2022. ...uncertainty now Oil and gas
producers might feel reinvigorated by Trump's promise of deregulation, but
energy traders say that his unpredictable actions on tariffs, foreign affairs
and the economy are creating volatility in futures markets at a time of
increased concern about the stability of investments made in the US. The Chicago
Board Options Exchange's VIX volatility index — which uses options trades to
track the likelihood of major stock market swings — has nearly doubled since
Trump took office and hit a seven-month high last week. The pace and breadth of
Trump's agenda are "surprising even his most ardent supporters" and resulting in
markets having "mixed feelings" over his policies, Futures Industry Association
president Walt Lukken said on 10 March at the International Futures Industry
Conference in Boca Raton, Florida. Lukken cited a recent survey of the industry
group's members, which identified tariffs as the policy that could most
negatively affect markets. Trump's oft-repeated stated desires to annex
Greenland and Canada and his willingness to allow Tesla chief executive Elon
Musk to exert vast power in his administration without a clear
conflict-of-interest policy have helped to further rattle investor confidence,
European exchange Euronext's chief executive, Stephane Boujnah, said. US assets
could start trading at a discount because of concerns over the rule of law and
an "oligarch risk" that more usually exists in emerging markets, he said. "One
of the features of the emerging market is that you invest, you own something,
until the guy with gold who is close to the ruler wants it too," Boujnah said.
By Haik Gugarats, Julian Hast and Chris Knight Send comments and request more
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