What will the Donald mean for energy?
Trump's energy policy is long on ambition, short on detail. The market and technology will remain the biggest drivers anyway
President-elect Donald Trump has promised to "drain the swamp" in Washington DC, sue a bunch of his critics, build relations with Russia and a wall on the Mexican border, and turf out millions of undocumented immigrants. He's minded to start a trade war with China. It could be a bumpy few years for the US and the world.
Many American oilmen cheered the Donald's victory - especially those who share his scepticism about climate change. But the contours of his energy policy are still uncertain. In spite of round the clock campaigning for nearly two years, including speeches at two separate oil and gas conferences, he never fleshed out much of an agenda. In the weeks after his election, his transition team as done a little better, offering some themes.
Trump will take charge with a tailwind behind him. Thanks to surging domestic output, net crude imports have fallen by a quarter during Barack Obama's tenure, to around 7.3m barrels a day. In gas, the US will become a net exporter as soon as 2017. Trump will also inherit a shale industry that is on the mend, ready to profit from Opec's efforts to lift prices.
On the supply side, Trump hopes to unleash new oil and gas production by cutting regulations and opening new areas to drilling-an old Republican cry "drill baby drill" come true.
But he will find that there isn't much regulation to cut beyond the margins. Most drilling rules and permitting issues are handled at the state and local level. Even so, his view of methane emissions from wellheads and pipelines might enthuse some drillers.
Trump will have much more leeway to open new drilling areas. His initial focus will be huge areas of federal onshore lands in the western states.
But the US isn't short of promising acreage, especially in shale, so it's not obvious that unleashing more federal territory will trigger a land rush, at least in the short term. The industry likes the idea, though. Expect Trump also to allow drilling in eastern offshore areas and the Arctic.
Trump says looser rules - a "bonfire of regulations" - will generate new wealth. But like his predecessors, he'll find he can fluff the industry from the White House all he likes, but markets, prices and technology will drive energy supply. Oil output fell every year of George W Bush's time in office, when both the presidency and vice presidency were held by former oil executives, before soaring under Obama. Neither administration can take the blame or credit. The oil price can-and it will-keep its sway over US drilling activity. Still, break-even prices might, in theory, fall if red tape is peeled off.
Pipeline builders will find a welcoming environment in Trump's Washington. They've struggled to get projects past strong opposition from green groups. But Trump's transition team swears to "streamline the permitting process for all energy projects". The president-elect's planned infrastructure spending spree should also be positive for the sector.
First on the agenda will be Keystone XL (KXL). Trump wants TransCanada to reapply for a permit to build the pipeline from Canada's oil sands to the US Gulf. Early in his campaign, he vaguely demanded the US get a better deal in exchange for greenlighting the project. In practice that might mean KXL reserves capacity for US producers. Within hours of the election, TransCanada said it might restart the permitting process.
Yet since Obama spurned KXL, TransCanada has shifted its focus to another big Canadian project, Energy East. Canada's government has also approved another pipeline to the west coast; and the US is hardly desperate for more foreign oil anyway. Approving the KXL would, though, firmly show that a much more oil-friendly man was in the Oval Office. Strong support from the Trump administration could also clear the way for more than a dozen major gas pipeline projects to link the Marcellus shale with New England markets.
Trump's highest-profile energy pledge was to revive America's coal industry. It is also his most likely to fail. The industry blames Obama for its decline, but the market and technology are its true enemies. So long as gas supplies remain abundant and prices low, utilities will keep building cheaper and more flexible gas-fired power plants and run them more often. According to ratings agency S&P, another 100 gigawatts of gas-fired capacity is under development. It could take special alchemy to save the industry from market forces.
Climate policy is truly up in the air. "This very expensive GLOBAL WARMING bullshit has got to stop," Trump tweeted in 2014. Whether he ditches the conspiracy theories once in office will be known soon enough. But his transition pledges to "scrap the $5 trillion Obama-Clinton Climate Action Plan and the Clean Power Plan and prevent these unilateral plans from increasing monthly electric bills by double-digits without any measurable effect on Earth's climate".
Easier said than done. The Clean Power Plan, which aims to cut CO2 emissions from the power sector by around a third over the next fifteen years, was the most consequential carbon-fighting measure enacted under Obama. It sets emission-reduction targets for each state and leaves it up to them to meet those goals.
The Plan is established federal law, which means it can't be dismissed easily. Experts say Trump has a couple of different paths to derail the whole thing. He can refuse to defend it in court and hope it is struck down, or the Environmental Protection Agency (EPA) could overturn it. The path of least resistance would be to simply defang the law and not enforce it, though that would leave it in place for a future government to reinforce.
Internationally, Trump's wrecking ball could do more damage. He has promised to pull the US out of the UN's Paris Agreement. Here, he could flip the US' position from that of a leader on global climate action to that of antagonist or simply truant.
Legally, no country can pull out of the agreement without four years' notice-but there's nothing to stop the new administration simply ignoring the commitment. The pressure to go along with the Paris accord will be immense, and Trump might find that it's in the US' interest to remain a part of the global climate talks.
It is plausible the US' carbon emissions will be lower at the end of Trump's first term than at the beginning. Although federal policy support for renewables is likely to weaken, tax credits for green energy will remain in place for the next four years thanks to the omnibus spending deal last year that opened up US oil exports. Earlier this year the Energy Information Administration found that even without the Clean Power Plan, US energy-related emissions would dip slightly over the next few years and flatten out after 2020.
Really, really great
In any case, wealthy states like California and New York are pushing their own aggressive climate plans, including carbon cap-and-trade markets. Their emissions should keep falling. Even in the Midwest and Texas, wind and solar have become thriving businesses, creating new wealth and jobs. Local Republicans won't want to reverse that. Despite many bankruptcies, Trump has been a successful businessman and trumpets his skills as a deal-maker-and renewables are now good business.
Much of corporate America-from Walmart to Apple to GE-now includes some emissions reduction in its decision making and supply chains.
Even ExxonMobil put out a statement the day after the election praising the Paris Agreement, a signal that the US's biggest oil producer doesn't think the climate-change problem will slip away. International companies like these see Trump's climate scepticism as a blip, not a change of course.
Trump's foreign policy will unquestionably affect global energy markets. The president-elect's admiration for Vladimir Putin and will to strengthen ties with Moscow might signal the beginning of the end of sanctions on Russia. The embargo includes restrictions on exporting specialist deep-water and fracking equipment to the country. Lifting it would also unfreeze investment opportunities, such as ExxonMobil's Arctic campaign with Rosneft and Shell's West Siberia shale venture with Gazprom. Oilfield-services companies like Halliburton and Schlumberger would be free to do more specialist drilling work in Russia. In theory, Russian oil output might rise-though the recent deal with Opec to cut supply is a near-term headwind.
Then there's Iran. Trump wants to scrap the nuclear deal. That would probably bring his most significant impact on global oil. Cancelling Obama's executive orders on Iran would not destroy the entire deal, which was between Iran and six countries. But the US was the most important of the P5+1 group and the member with most sway. Inevitably, a unilateral move against Iran would be negative for the country's oil sector, threatening its production recovery and long-term output plans. That's bullish for prices. Ominously, Trump's choice for defence secretary, General James "Mad Dog" Mattis, has been an outspoken critic of Obama's Middle East policy, referring to Iran as "the single most enduring threat to stability and peace in the Middle East".
Not so bullish are the new president's ideas on trade. Trump has suggested that the US ban oil imports from Saudi Arabia, for example. It won't happen. Big refiners would kick up a fuss, for one thing. And the US would have to get heavy grades from countries like Venezuela and Iraq.
But Trump has more worrying macroeconomic plans, such as wrecking Nafta or pulling out of the WTO, scrapping the putative Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership. If this sounds the gun on new trade wars-Trump has also threatened to impose punishing tariffs on China-or a pulling away from globalisation, world economic growth would suffer. That would hurt oil demand.
Trump's domestic plans to spend heavily on infrastructure while cutting taxes have spooked investors worried about the impact on debt and inflation. A bull run in bond markets seems to have ended and yields have risen sharply.
The reaction of the Federal Reserve will weigh on oil.
Rapid tightening to see off inflation would hurt demand in emerging markets, lift the dollar and, in turn, soften dollar-denominated commodities.
Energy companies will have to worry about deteriorating relations with Mexico. Efforts in Mexico to create more pipeline links with US gas suppliers keen to export to their southern neighbour face problems, potentially, if Trump builds his wall.
The overarching uncertainty is about how Trump will actually govern. Will he be the reactionary populist he was on the campaign trail? Or will he temper the buffoonery and govern as a more mainstream figure, hewing closer to the status quo?
The make-up of his cabinet will be important for the energy business. Trump has reportedly considered Rex Tillerson, ExxonMobil's boss, and his predecessor, Lee Raymond, for cabinet-perhaps as Secretary of State. Harold Hamm, boss of Continental Resources and one of the fracking pioneers, is a contender for energy secretary-and is already shaping Trump's energy strategy. As booster-in-chief of a rampant and unfettered oil and gas sector, those candidates would be hard to beat.
Handing the State Department to Rudy Giuliani or John Bolton would cause panic, especially in the Middle East. Mitt Romney, another contender to be the US' chief diplomat, would be more welcome. The appointment will be a crucial signal about Trump's international strategy. His campaign yawed between isolationism and appropriating neo-imperialist fantasies like Iraqi oil as spoils of war.
Further down the chain, the EPA can expect to have its teeth removed. To the fury of greens, Trump has appointed Myron Bell, another climate sceptic, to oversee the agency's transition.
Trump thinks many of the EPA's rules are a "disgrace", though his transition website assures that "America's environmental agenda will be guided by true specialists in conservation, not those with radical political agendas".
No president gets everything. Republican control of Capitol Hill could make it easier for Trump-if the party that was so embarrassed by him learns to love him. Nothing is certain: much of the policy sits in a black box in a tower in Manhattan.
The US has got energy right lately: startling supply-side growth in everything from oil to gas to renewables, rising security, cheap gasoline and falling emissions. Trump might wonder if he needs to meddle much.