With the world still up in arms over Donald Trump winning the United States election, more than ever, it’s time to understand where are the next, great energy investments under an entirely different energy philosophy. US Presidents make a difference, and with a stroke of a pen, President-elect Trump could usher in a new era of for fossil fuels while making it more difficult for renewable energy to thrive.
Forecasting what Trump will and won’t do is going to make energy investing tougher than ever. One day he’s against climate change, the next he isn’t. The same goes for his views on the Paris Climate agreement. The policies that he has committed to however, will certainly hinder or grow energy investments in the coming years.
EPA restrictions on coal will be rolled back and could even be sacked altogether, along with the emission-restrictive Clean Power Plan. It is not a question of if, but rather when these Obama-era regulations will be negated, with solar and wind power sure to have a harder time returning a profit if lucrative subsidies and tax breaks are scaled back or done away with altogether. This could then usher in an era where China, India, Europe and other developed and developing nations no longer pursue the green century that is currently envisioned by various world governments and leading environmental organizations.
President Obama led the world in promoting alternative energy sources such as wind and solar, and while both have grown, neither is ready to make the leap away from taxpayer largess to support their industries. Lucrative financial incentives are the linchpin for renewables to continue their growth, and without Trump wholeheartedly supporting continued tax dollars going their way, it is difficult to see a future where renewables grow at a sustainable rate, compared to oil and natural gas.
If Trump puts pro-fossil fuel, anti-climate change officials in charge of the EPA, and U.S. Department of Interior, which seems likely, then the remainder of this decade could unleash levels of oil and gas exploration and investment in areas such as Mexico that have never before been seen. If America is optimistic, then the world will probably follow. And that bodes well for fossil fuel investments.
Renewables will keep “chugging,” along, but why move up a steep hill when you can race towards the world’s greatest way to create wealth – fossil fuel exploration. The much-touted electric car revolution isn’t happening anytime soon, due to numerous issues. One of the biggest of these being the current glut of oil making gasoline cheaper than it has been in years. Cheaper gasoline means larger vehicles, and the EIA sees continued growth for fuel consumption. Peak oil demand will not happen, if anything, we’ll see growth for decades to come. And though President Obama has blocked Artic and Atlantic drilling, along with limiting methane emissions, the Trump administration will more than likely overturn these rulings.
While Trump’s approach to energy is vexing and now possibly misleading with his new interpretation of climate change, it still doesn’t change the fact that he will usher in one of the most deregulated eras for U.S. oil and gas in decades. Wind and solar, like electric vehicles, don’t have a chance at real growth unless government subsidies worldwide continue; even Tesla has real issues with profitability if you take away their emission credits.
Further, no one truly knows what will happen if the Trump administration halts or severely curtails research and development for wind and solar. The questionable long-term viability for wind, solar, and biofuels without solid taxpayer and governmental assistance may mean that renewables will have a tough time building investor confidence.
If China continues their push for renewables, and will open up their markets – which is a big if – then Chinese firms leading this area is certainly something to consider. The fallow farm grounds of North Carolina for solar is another region of the world to search for investments in renewables with a solid track record; and Texas is still a proven winner in the U.S. for wind power generation and investments. Other places across the world, and the U.S., for renewable energy investments should be cautiously studied at this time. The 440 MW Ivanpah Solar Power Facility in the California desert is an example of the importance of understanding the cost of renewable energy before outlaying billions of dollars.
There are still factors against renewables fizzling out in the U.S. and around the world. It can’t be stated enough that, according to the IEA, oil demand will continue to grow, in spite of the Paris Climate Agreement. China, India and the Europeans continue to use carbon-based energy, and though they have attempted, and are attempting, renewables on a large-scale, this energy solution can’t run on its own without fossil fuels backing it up.
New U.S. shale discoveries recently announced by the United States Geological Survey (USGS) as the largest technically recoverable oil discovery it has ever assessed – the Wolfcamp Shale in the Midland portion of the Texas Permian Basin – has an estimated 20 billion barrels of oil. And every week seems to bring more new discoveries of oil and natural gas worldwide. With infrastructure in place for fossil fuels, and barrels of oil never reaching $100 a barrel again unless a natural disaster or a worldwide war occurs, fossil fuels remain the future. Renewables will grow, but not at the rate investors and stockholders expect on a quarterly basis.
The final reason to cautiously invest in renewables is the game changing impact that U.S. LNG exports are having on worldwide markets. Having the world’s largest and most dynamic economy go from being a net importer to a net exporter of natural gas will cause reverberations that still aren’t properly understood. What should be understood is that smart investors will be looking to find a key foothold in this expanding market.
Donald Trump’s election will affect all sectors of the global economy, but nothing like the oil and gas sector. Depending on how it’s measured, the United States has the world’s largest reserves of oil and natural gas, only rivaled by Saudi Arabia, Russia and Venezuela. And while all three countries desperately want to continue exploration, neither country can match the U.S. in terms of technology, drilling expertise, and infrastructure to bring their reserves to the market.
Moreover, the U.S. shale revolution has changed oil and gas exploration in the U.S., and now that technology can be exported around the world under a friendly Trump administration. Yes, renewables will grow, but like the electric vehicle, when you are starting at a small percentage of the overall global energy portfolio currently being used, any amount of new installations shows monstrous growth. Don’t let emotion over a zero-carbon future cloud statistical analysis and your overall portfolio by choosing a windmill over the Permian basin, or the opportunity to grab shares of Saudi Aramco when they go public.
Depending on how you analyze the science – climate change and clean energy are important, but future, immature energy innovations will take budgetary hits under the new administration stifling renewables growth and investor returns. The devil is in the details for how U.S. energy will shake markets, but as an investor you want unparalleled returns on your investments; and in the near future that is going to be in the oil and gas worldwide markets.
By Todd Royal for Oilprice.com
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