What will Trump's plans mean for oil and gas?
With Donald Trump as president-elect of the United States much is up in the air for the oil and gas industries. A new report by GlobalData outlines the major uncertainty the 45th president could have on the energy sector, as the report’s author Will Scargill explains.
Donald Trump’s victory in the American election has come as a shock to many, and the vagueness of his energy policies has left many in the dark. Throughout the election campaign he made grand claims regarding oil and gas, not least that he would create $50 trillion through coal, oil and gas.
But what will Trump actually do? The US has seen its first decisive move towards renewable and sustainable energy sources under the Obama administration, gradually abandoning polluting sources such as oil and gas in favour of wind and solar. This is a move Trump has repeated promised to revert, bringing jobs and opportunities instead to the struggling oil and gas sectors by pulling out of the Paris Climate Agreement, cutting environmental spending and easing regulations.
Plans to sell off federal lands to increase fracking and drilling are central to Trumps statements, creating investment opportunities. Trump hopes to create a wider energy market, but many have questioned the feasibility of his statements. In a recent report, GlobalData’s Senior Oil and Gas Analyst Will Scargill set out some of the key areas to watch when Trump takes over in January.
Molly Lempriere: Trump has promised to sell off federal lands for oil and gas production, but resource ownership rights in the US are complex. So which federal lands are most likely to be up for sale?
Will Scargill: The key federal jurisdiction is the Outer Continental Shelf. State jurisdiction goes up to 9 nautical miles from Texas and the Gulf Coast of Florida and then 3 nautical miles from Louisiana and most other states. Further out from the shore all the oil and gas resources are under federal jurisdiction and regulated by the Bureau of Ocean Energy Management, under the Department of the Interior. Of this there are four main areas which the Trump administration could be looking to lease for oil and gas activities.
You've got the Gulf of Mexico which obviously has been the bulwark of US offshore production for years. Then you've got the Pacific which has some legacy production, roughly 20 thousand barrels a day of oil is produced from the pacific OCS at the moment. But they haven't had any lease sales since the 1980's particularly in that in the Pacific because the key areas off California, Santa Barbara and areas like that there's a lot of environmental concern about offshore drilling. Thirdly you've got Alaska which has a little bit of production in offshore federal areas, but most of the production falls within state boundaries. Finally the Atlantic Outer Continental Shelf area which includes areas off Georgia, North Carolina, South Carolina and Virginia.
ML: Why has there not been open leasing of federal lands for oil and gas before? Do these lands present great opportunities?
WS: There has been leasing, but it’s been focussed on the Gulf of Mexico in recent years. The government prepares a five year leasing plan for sales of acreage to oil and gas companies. The 2017-2022 sale program is in progress at the moment, and in the initial proposals that we were given at the start of last year there was actually one Atlantic OCS sale planned for the early 2020s. The Atlantic is quite a frontier area, there's no real activity around there and it was unusual for such a sale to be planned. I believe there was gubernatorial support in the coastal states for the sale, but also significant opposition from the coastal communities due to environmental concerns. Those concerns and pressure from other environmental groups lead the Obama administration to remove that lease sale from their 2017-2022 program. So that may be an area where the new administration may look to open up to leasing.
Similarly Alaska may be a possible area to watch, although there is perhaps less appetite for arctic drilling in the current price environment, and the 2017-2022 does envisage any lease sales until the 2020's. But there has been pressure from a key Alaska senator, Lisa Murkowski who has proposed that they should have at least one Alaska lease sale every year. So that may be another area where there's further opportunities opening up.
There are also some areas under moratorium in Alaska, and another area under moratorium is in the eastern Gulf of Mexico, the area adjacent to the Florida coast. So there are a few areas around the Outer Continental Shelf where the new administration could look to open up new areas for oil and gas exploration.
Although everything at the moment is still uncertain. You really have to qualify everything, particularly in more frontier areas with the consideration of whether there is actually appetite for putting exploration budgets into these areas.
ML: You mentioned failure of plans due to environmental concerns and, throughout Trumps campaign he seemingly waged a war against environmental regulations in the US. How strict are they?
WS: I'd suggest that environmental regulations are probably the key target and another indicator is the adviser that he's had during the campaign, Harold Hamm. He is a key shale player, so primarily I think you're looking at onshore unconventional regulations that are going to be affecting the oil and gas industry. If you look at those it really is a big patchwork of regulations, you've got federal regulations from the EPA but the EPA's jurisdiction is limited to certain areas such as water disposal and some air emissions limits. Then the federal drilling regulations are more limited to federal land onshore, and as I've mentioned that's a more limited area.
But then a lot of the regulatory burden, a lot of the regulatory issues that companies have had to deal with has come from state and local regulations. Whether these are state-wide fracking ban initiatives, county level initiatives, or regulations to set particular standards. These increase the cost of doing business by increasing compliance costs but to quantify that is quite difficult.
ML: Is it the sheer complexity of the regulations that make it so expensive, if they had a more streamline system would that be more workable?
WS: I'm not sure you can necessarily say that, I think the key point about the complexity is that it affects how much effect any new administration can make on the business environment.
ML: What sort of change in the economy could these policies effect? What should we be looking for going forwards?
WS: I think that's really hard to say given that there's a lot of uncertainty over how his policies will develop when the administration takes office.
But a key point that people will be looking for will be, whatever side you're on, whether you're looking from an oil industry point of view or whether it’s from an environmentalist of other perspectives, everyone's looking to see how policy materialises and for those key indicators such as who goes into his cabinet and what he does over his first 100 days.