Challenges for LNG
On November 8, U.S. voters took the world by surprise by electing Donald Trump to be the next U.S. President. As the dust settles, people are trying to sort out what President Trump might mean for U.S. energy policy in general, and more specifically for U.S. LNG exports and the shale gas revolution.
Earlier this year, it was reported that a coal executive asked Mr. Trump whether he would allow more U.S. LNG export terminals to be built to help soak up the natural gas supply glut. In response, Mr. Trump replied, “What’s LNG?”
One can assume Mr. Trump will quickly learn that shale gas has put the U.S. on the path to becoming one of the world’s top three LNG exporters. According to a presentation by Cheniere Energy, who began exporting U.S. LNG earlier this year, by 2025, the U.S. will have 64 MTPA of LNG production capacity under construction. To put this in perspective, the world’s largest LNG producer is the tiny country of Qatar with 77 MTPA of production capacity.
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While U.S. LNG exports have received the most attention, the U.S. has also been exporting record amounts of natural gas to Mexico via pipeline. This may come as a surprise to Mr. Trump and may inform some of his positions on Mexico, especially since Mexico is undertaking a massive energy reform, which is already opening up business opportunities for American firms. Related: Maduro: Venezuela Has The OPEC Deal In The Bag
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While Mr. Trump has yet to release a detailed energy policy or any specifics on what he might do, he made several broad statements during the campaign trail indicating he thinks American businesses are over-regulated and the federal government should back off, especially when it comes to environmental regulations and climate change.
Mr. Trump has also voiced support for more U.S. oil and gas production as a means of enhancing energy security and promoting middle-class jobs and has vowed to “bring back the coal industry,” a promise that could also breathe new life into clean coal technologies.
From what can be gleaned from Mr. Trump’s statements on the campaign trail, the energy industry as a whole stands to benefit from Mr. Trump’s pro-business, anti-regulation stance. While Mr. Trump’s support of coal could pose a challenge for the natural gas industry since both fuels compete for power generation market share, it’s possible for both to win under Mr. Trump.
As LNG exports increase in the coming years and natural gas prices rise, there could be a shift to use more coal for power generation. Whether this would impact any planned coal retirements in the coming years is an open issue, as is Trump’s support for renewables. It is worth noting, however, that renewables often have bi-partisan support and many U.S. states have already adopted renewable portfolio standards. Moreover, even traditional oil and gas producing states support renewables with Texas having the most installed wind capacity of any state. Related: Why Mexico’s Oil Reform Is A Huge Opportunity For Investors
In terms of whether Mr. Trump will allow more LNG export facilities to be built, for now, the current LNG export review process seems to be working and there appears to be no need to either expedite or slow-down the process. However, since there are so many planned LNG export projects waiting for approval, it’s possible the Trump administration will need to revisit the review process depending on how market dynamics evolve in the coming years. It’s also worth noting that there is proposed legislation that would require the Department of Energy (DOE) to approve non-FTA applications within a set time period after the Federal Energy Regulatory Commission (FERC) has approved the LNG export facility.
In the coming weeks, we are likely to get more details about Mr. Trump’s views on energy as he continues to make key cabinet positions, including a new Secretary of Energy. For now, there seems to be renewed optimism on the part of U.S. oil and gas producers that President Trump will be a pro-business leader who will try to roll back many of the Obama administration’s environmental regulations aimed at the oil and gas industry, such as the Clean Power Plan and methane emissions rules. While this won’t help the industry in terms of the price of oil, it will reduce the cost of business and will likely open up more areas in the U.S. to drilling. Whether this will be enough to support the U.S. shale gas revolution and LNG exports remains to be seen.
By Susan Sakmar for Oilprice.com
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