09 Nov Evaluating My Trump Predictions from 2016
Now that the Trump White House is fading quickly into history, it’s time to reprise my original post from 4 years ago about the Trump administration’s impacts on energy, and gauge the accuracy of my forecasting.
A word of warning: For those readers thinking this post is about digital innovation in oil and gas, I am afraid you will be disappointed.
If you’d care to read the original post, you can find it here.
Or here => https://geoffreycann.com/trump-impact-canadian-oil-gas/
I noted at the time that the media didn’t take Trump that seriously but does take him literally. The US independent press reports Trump verbatim without challenge, and for four years, they have dutifully reported his exaggerations and misdirections as if they are fact.
Meanwhile, his followers take him very seriously but rarely that literally, selectively judging him on his actions.
The question I asked four years ago was this: which of the Trump administration’s energy policies should Canada take seriously, which ones literally, and what should we all have anticipated?
Back then, the Republican Party position on energy matters wasn’t entirely clear as Trump assumed the reins of US policy, but it became more clear over time.
Trump on the Climate File
On climate policy, the Obama administration was following a broadly green agenda, and Trump’s position was less clear, other than rolling everything back a decade.
Trump has steadily maintained that climate change is a hoax perpetrated by the Chinese (fun fact: the original climate change agenda was launched by the first Bush administration). Trump vowed to undo many of Obama’s policy choices that were aimed at climate remediation, and to dismantle or overhaul the EPA. His targets included EPA rules related to methane emissions and CO2 regulation, US commitments to the Paris Climate Accord, the Clean Power Plan which requires coal power plants to reduce emissions, anti coal mining rules, standards for automotive fuel consumption, and many others.
In this regard, he largely carried out his commitments, to the consternation of the rest of the world.
My forecast was that the US coal industry would see its regulatory burden reduced (which translates into some cost relief) helping coal producers recover from recent price pressures. However, the gas industry success in exploiting shale resources and unlocking enormous volumes of gas simply pushed the coal industry to the wall and now into terminal decline.
I argued that US LNG exports would be maintained. The build out from 2016 has largely been completed, and its success has triggered many more export project announcements. Many global markets still see natural gas as a partial solution to their own coal emissions challenges. US gas will continue to find alternative markets, coal-fired power plants will continue to convert to either gas fuel or renewables, for economic reasons, or from pressure from shareholders and capital markets.
I forecasted that the US would approve infrastructure projects for energy (pipelines, terminals, petrochemicals), given the petroleum bounty from shale, and that the environmental lobby (largely based in liberal coastal areas), would not get much attention. Decide for yourself, but anecdotally, I can’t recall much activity by Greenpeace, Tides America or other major environmentalists in the US of late. Of course, we had the rise of Greta Thunberg during the Donald’s time, but that wasn’t forecastable.
Trump and Energy Development
Trump has long voiced deep opposition to continued US reliance on imported oil from nations hostile to the US or who are benefiting from US military support without commensurate compensation, a position he has held throughout his tenure. I noted in my post that, contrary to public perception, the US government does not directly control crude oil imports—purchase decisions are made by oil companies. The US does set trade policies that can make sourcing from some nations more difficult, through mechanisms like sanctions on Venezuela and Iran. But if Americans want to buy Russian crude, they can.
It is still very challenging to block crude imports because of how the market is structured (US coastal refineries purchase tidal crude, for example). Even at the end of the Trump era, the US still imports 9+ million barrels of oil every day.
The Trump Administration has also advocated for less regulation over energy markets. I have no quarrel with this — subsidies on energy interfere with markets and distort investments, but the reality is that renewables are now the cheapest form of energy anywhere, in every market. Betting against technologies that are benefitting from Moore’s Law of exponential change is a fools bet, and Trump took the bet with fossil fuels. Other nations (all of the EU, China, Korea, Japan) are now betting on renewables, batteries and electrification.
The effects can be seen in market index data. In November of 2016, the US coal index (an S&P index of listed US coal companies) was 48, climbed to a peak of 75 in two years, but has collapsed to just 5 today. Exxon has fallen out of the Dow Jones 30. The S&P US oil index was 581 in November of 2016, and is just 242 today. In comparison, the S&P 500 Fossil Fuel Free index was 1845 in November 2016 and is 2841 today.
For energy investors, US energy policy does not look like a win. Worse for the future, the country has surrendered leadership in new energy to its great rival, China.
Trump and Energy-related Trade
On energy trade, the Trump administration has been pro trade as a consequence of being pro development.
The US administration sought better trading terms, reflecting Trump’s world view that the nation is saddled with too many poor trade deals. Trump committed to repealing or renegotiating NAFTA (which happened) and approve the Keystone Pipeline project with different commercial considerations, which didn’t.
Trump’s officials consistently targeted China as a currency manipulator, unfair trader, commodity dumper, and global health pariah, although his retaliatory tactic of choice (hitting imports with tariffs), is fatally flawed. Promises by China to buy more American goods haven’t panned out — the trade deficit with China has narrowed but is still very large.
During his campaigning in 2016, Trump accused some Middle Eastern nations (Saudi Arabia in particular) of artificially inflating oil prices, while the US government has from time to time entertained accusations that OPEC dumps oil. For the past 4 years, it has proven very hard to pin down the US position on global oil trade. At times the Administration wants OPEC to open the taps to lower prices, and other times to throttle volumes to boost prices.
During the 2016 election, Trump proposed creation of an America desk in the Department of Commerce whose role would be to protect the interests of American workers and companies in the US. This doesn’t appear to have been implemented, but the US Department of Commerce has been very active on a number of files (TikTok, aluminum imports, steel imports, cyber security).
The Pace of Trump’s Administrative Take-over
I noted that the change in government in the US also entails the rotation of several thousand Republican appointees into a dozen key agencies that will be instrumental in effecting the Trump agenda. Key department heads that have a role to play in energy include Department of State (for cross border energy trade), Bureau of Land Management (for land access), Department of the Interior (for resource development), the EPA (for regulations of emissions, water use, ozone), FERC (for infrastructure approvals), the Department of Energy (for investment planning), the Supreme Court (for adjudicating in a conservative fashion).
It took a very long time for the Trump administration to get key leaders and administrators to the 4000+ appointed positions across government. It is the job of these appointed positions, and the dozens of small unreported and routine decisions they execute, to deliver the agenda. WIth only a four year term, many of these appointees will have had a scant three years or less to learn the job and make an impact.
Outlook for Canada
I had forecasted the following:
Oil sands were likely to benefit
Inaccurate. I suspected the US could not grow its shale resource much further, and would maintain reliance on Canadian oil, a friendly supplier from the north. Instead, US domestic supply has surged, from 12.7 million barrels per day (mbpd) to 17 mbpd between 2016 and 2019. Canadian production of oil has also grown, from 4.6 mbpd to 5.6 mbpd. Reliance on the US market for growth has proven to be a less than stellar bet.
Meanwhile, the collapse in capital market support for oil and gas, and low commodity prices have caused a wave of consolidation in the industry. Shell sold out to CNRL, Suncor upped its stake in Syncrude, Cenovus bought out ConocoPhillips and Husky. The only US investment of consequence in the oil sands now is Exxon who own just 30% of Kearl.
Pipelines would be built
Inaccurate. I forecasted that transport services, and in particular the cross border pipelines, would face a more receptive pro-business federal administration. The painful progress of Keystone XL shows that there is still plenty of opposition to pipeline projects.
The Midstream would be a growth sector
Accurate, but probably for the wrong reasons. The growth in volumes in the US necessarily triggered expansion of the midstream sector to process all that product. Both Enbridge and TC Energy have likely benefited because of their major acquisitions in the US in mid 2016 (Spectra and CPG Pipelines, respectively).
Canadian LNG would falter
Accurate. I forecasted that Canadian LNG investments, particularly those that competed directly with US projects for capital in the same portfolio, would likely face an uphill battle to get to sanction. Since 2016, only the Shell project has advanced.
Canadian services would benefit
Probably correct, but uneven. I thought Canadian services would benefit from the growth in the US market. It’s difficult to detect this in the data because of the collapse in oil prices in February along side the pandemic, but certainly any Canadian company that had exposure to the great basins in Texas are likely to have done well.
Renewables would slow
Inaccurate. I forecasted that renewables could see unfavorable tax and policy changes, but frankly, the cost profile of these technologies is now so powerful that policy and tax rules factor less and less into investment decisions.
I give myself a C grade in how I thought the Trump team would impact the Canadian industry. But then again, you should treat my work as you would anything you read on the internet.
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