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Trump's America

A new president brought change on the regulatory front while tight oil rose again

Any discussion of North American energy in 2017 has to start with the unlikely ascendance of reality-TV star Donald Trump to the US presidency.

Trump wasn't the oil and gas industry's preferred candidate, but in the new president it had a friend, if often fickle, once again in the White House. Trump moved swiftly to remake the American energy regulatory landscape, largely by trying to demolish Barack Obama's energy and climate legacy.

Trump approved the high-profile Keystone XL and Dakota Access pipelines. His Environmental Protection Agency gutted a raft of anti-pollution regulations, including around methane emissions from oil and gas sites.

The regulatory assault was capped by a move to rescind the Clean Power Plan, which sought to cut US power-system emissions by a third. Trump also took his carbon fight global, starting a four-year process to pull the America out of the Paris climate deal. The legal fights ahead over these moves will keep the lawyers fat and happy, but it remains to be seen how much will stick.

Markets were largely unperturbed. The larger forces shaping America's electric revolution—cheap natural gas, falling renewables costs and ageing, uncompetitive coal infrastructure—forged ahead. Gas maintained its edge over coal as the top source of power generation for the second year in a row, while installed capacity for wind and solar jumped another 7%, to make up nearly a tenth of US power generation. Another dozen coal plants closed.

On the oil front, America's shale industry roared back to life, led by the Permian. The West Texas tight oil play added nearly 0.6m barrels a day from the start of 2017 to the end of the year as investment poured back in, growing by more than a quarter to 2.7m b/d, according to Energy Information Administration (EIA) data. In total, US crude output expanded 0.92m b/d over the course of the year—bringing it nearly back to pre-crash growth—to around 9.7m b/d

But the narrative around future oil growth took a decidedly bearish turn as the year wore on. First came reports from some of the Permian's top producers that their wells were pumping more gas, and less oil, than they had expected.

Then came a broadside attack on the EIA's forecasts from Harold Hamm, the billionaire owner of Continental Resources. The EIA, Hamm claimed, was overstating production growth, and thus suppressing prices, because it had missed signs of newfound capital discipline among producers. Signs of that capital discipline were difficult to find in corporate capex plans, and Hamm had an obvious self-interest in talking up the market. Yet the shift in narrative juiced the oil price and planted a seed of doubt about tight oil's vaunted resilience to low prices in investors' minds.

In Alberta, a string of multi-billion dollar deals saw a dramatic upheaval in the oil sands' corporate landscape. International oil companies exited Canada. Into their place stepped a crop of stalwart domestic producers. Suncor, Canadian Natural Resources, Cenovus and (ExxonMobil-controlled) Imperial Oil all bulked up, and together now hold the reins of more than 70% of Canada's oil production. Some oil sands expansion projects, launched when oil prices were higher, promised to keep Canadian output rising.

Canada's pipeline politics snaked and turned. TransCanada started the hard work of winning shippers back to the Keystone XL project, which many had left for dead. It faced a more uncertain future given the dimmed outlook for oil sands growth. Keystone XL's revival, combined with the slower growth outlook, killed off another TransCanada proposal: Energy East, which would have ferried 1.1m b/d from Alberta to Canada's East Coast. Kinder Morgan got the ok from prime minister Justin Trudeau in late 2016 for its $7.8bn Trans Mountain pipeline expansion from 300,000 b/d to 0.89m b/d, but the project made little headway in 2017.

The US and Canada's fortunes diverged on the liquefied natural gas front. In the US, exports of the superchilled gas ramped up as Cheniere Energy expanded capacity at its Sabine Pass plant on the Gulf Coast. Canada's west coast LNG-export ambitions were thwarted, for now anyway, by the downturn in the global gas market. Petronas scrapped its $29bn Pacific Northwest LNG project.

Disaster also struck America's oil heartland when Hurricane Harvey slammed into the Gulf Coast. The storm ravaged Houston and much of South Texas, knocking out a quarter of the nation's refining capacity and a large chunk of output. The storm's effects were felt throughout international markets, highlighting what a vital hub the Gulf Coast has become to the global oil and gas trade.

This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here

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