Inconsistencies in Trump’s Fossil Fuel Strategy

During his campaign, President elect Donald Trump developed an energy agenda that focused on expanding production of fossil fuels.  He has presented ideas to open up federal lands to energy production, relaxing or ending regulations pertaining to energy production and pollution, and facilitating and increasing energy-related infrastructure investments.

However, oil and gas production in the United States is already at all-time highs.  Domestic natural gas production has never been higher, and domestic oil production hasn’t been this high since the 1970’s.

And while production is up, prices are down. In fact, production oversupply has caused a price collapse for natural gas and oil, the latter driven by OPEC.  (The November 30 OPEC meeting could result in production cuts that will raise prices that could re-start domestic oil production.)

In absence of drastically increased demand, further expansion of domestic oil and gas production will only serve to drive down prices further.  This would benefit Americans and businesses by lowering energy costs, but it would hurt already struggling oil and gas companies, perhaps driving increased bankruptcies and industry consolidation. (The implications of the current oil and gas debt crisis are looming and greater price volatility is predicted.)

It is not clear that this (lower prices and industry distress) is Trump’s intent.  So let’s talk about an increase in demand that will create new markets for this new U.S. gas and oil supply.

Trump has talked about increasing investments in energy infrastructure, like pipelines and LNG terminals, which could enable supply to further penetrate domestic markets and access lucrative foreign markets. 

Siting interstate pipelines has become increasingly difficult, in light of local and general public opposition. Under a Trump presidency, most believe building pipelines will get easier.  However, he has also promoted the principle of strong state’s rights (i.e. provide maximum flexibility to the states).  Strong state rights over pipeline siting are generally seen as a barrier to interstate pipeline development, while strong federal powers via eminent domain facilitate pipeline development. For now, the messages of strong states rights and a easing pipeline buildouts are seemingly inconsistent, or at least at odds with one another.

For export markets, facilitating development of LNG export facilities and infrastructure would enable gas supply to reach markets that command higher prices.  However, Trump has also promoted the idea of trade reform that functionally would limit rather than liberalize trade.  This could result in retaliation from other countries, including fees on U.S. exports that would make U.S. products (like oil and gas) less attractive. Disruption of pipeline exports to Mexico would be an immediate concern for the gas industry. At this early stage, there seems to be some tension between these energy and trade priorities.

Trump has also promised to end the “war on coal.” Relaxing regulations over air quality, climate change, and coal exploration and production could incrementally improve coal economics, increasing demand and lowering supply costs.  He has also talked about facilitating coal exports.

However, low cost natural gas is the primary driver of coal’s downturn and increasing gas production will only hurt coal more.  That is unless Trump pursues re-regulation of the power sector to protect coal-fired generation, a move that would be against his pro-markets, de-regulation, and state’s rights stances.  Again, there appears to be some dissonance.

And as with oil and gas, it is unclear how his trade platform will impact coal export possibilities.

Of course, the one thing Trump could do that would create new opportunities for coal and gas (and renewables), would be to oppose (e.g. through FERC) state efforts to keep economically at-risk nuclear generation from premature retirement.  Trump has said very little about his thoughts on nuclear power, though his efforts to move away from pursuing climate change solutions may reduce opportunities for this sector.

The phrase “it’s too early to tell” continues to ring true. Trump’s energy agenda will be refined, and as with all politicians, not all campaign promises will be pursued.  It will be important to keep these market fundamentals in mind to avoid unintended consequences.

Oil and gas production and price data for the two graphs in this blog were taken from the U.S. EIA.

Christina Simeone

Kleinman Center Senior Fellow

Christina Simeone is a senior fellow at the Kleinman Center for Energy Policy and a doctoral student in advanced energy systems at the Colorado School of Mines and the National Renewable Energy Laboratory, a joint program.