How Trump Could Change LNG Markets

The surprise victory of Donald Trump in the November 8 U.S. presidential election is still being processed by news outlets and industry analysts worldwide. But while the outlook for oil and gas has widely been positive—Trump has repeatedly vowed to cut environmental regulations, open up federal land for drilling and sign off on pipeline projects—the impact of his presidency on American natural gas, and the LNG industry in particular, is a little harder to gauge.

While many Trump policy proposals remain vague and ill-defined, it seems certain that his administration will encourage increased U.S. natural gas production, both onshore and offshore. A key analyst for GlobalData has predicted Trump will open up new leases for shale and oil drilling in Alaska while also confirming the divisive KeyStone XL pipeline. It seems likely that Trump will confirm the North Dakota Access pipeline, currently held up by strong protests, thus kick-starting production in the Bakken. Trump holds personal investments in Energy Transfers Partners and Phillips 66, both sponsors of the project.

This, together with the greater crude piped in from Alberta, will improve the supply side of crude oil. GlobalData pointed out, however, that the likely emphasis of Trump’s policies on domestic, rather than international considerations could end up complicating the overall impact of these developments. His vow to carry out a trade war with China, as well as his calls for heavy tariffs on imported goods and for US energy independence, could limit US access to export markets and reduce the competitiveness of US energy products.

That’s where things get complicated for LNG. Federal clearance is needed to approve additional LNG export terminals, and an expansion in American LNG export capacity would need at least some cooperation from the federal government. Charif Souki, former head of Cheniere Energy, spoke in Paris last week, saying that President Trump’s protectionist policies won’t get in the way of business. Souki’s Tellurian Investments is planning a new LNG export plant in Louisiana, Driftwood LNG, with construction set to begin in 2018. The plan will have a capacity of 26 million metric tons per year. Related: Expert Commentary: Why OPEC Has To Make A Deal Happen

As of October 2016, the U.S. government has confirmed a number of LNG import and export terminals, mostly in the Gulf of Mexico, while Canada has approved four of its own in British Columbia and Nova Scotia. Should all approved terminals be constructed, total North American LNG export capacity will increase dramatically.

Other oil and gas experts believed the impact of Trump’s policies may be minimal; they noted that rhetoric on the campaign trail wasn’t always a great indicator of actual policy plans. Certainly Trump’s confusion over what LNG is doesn’t generate confidence. But if Trump is serious about putting “America first” and concentrates on domestic demand rather than exports, it could be an obstacle to those like Souki who see a future for the U.S. as a major energy exporter.

Trump’s aggressive stance regarding Mexico, a major partner in the American energy industry, could complicate U.S. natural gas exports south of the border. In 2016 U.S. natural gas imports to Mexico exceeded Mexican domestic production, and this trend will likely continue in years to come. Trump’s vows to build a wall along the Mexican-American border, limit immigration and generally re-evaluate U.S. polices towards Mexico could seriously impede further natural gas exports. Related: Does A Link Remain Between Inflation And Oil Prices?

Others are more confident. A recent contributor to the Houston Chronicle noted that LNG would benefit from the slowly emerging “revolution” in global natural gas prices, which are now more free-flowing and transparent than in the past, when spot prices would vary widely and profits rested on long-term contracts. As global prices fell, U.S. gas production ramped up and opportunities emerged in Europe, which has been dependent on Russian natural gas for years. Even with the increase in the global natural gas trade, LNG represents only about 10 percent of the market, and will likely rise to 15 percent by 2020.

But that optimism could be misplaced. American LNG exports to Europe have yet to materialize, Russian gas remains competitive, and with Trump’s apparently close relationship with Russian president Vladimir Putin acting as a stop to any strategically-focused U.S. energy initiatives, the likelihood of U.S. export ambitions to Europe being realized seems remote. Moreover, heavy investment has created the possibility of an LNG supply glut for the foreseeable future.

On Wednesday the EIA released a report indicating record high levels of natural gas inventories, a sign that supply is out-pacing demand. The IEA, meanwhile, predicts global natural gas demand to outstrip demand for other fossil fuels; while the Trump Administration will have an impact on U.S. energy policy, the IEA doesn’t anticipate the change in U.S. government to alter major shifts in global energy use. “Governments come and go around the world…We will wait for real policies to be announced and put in place,” said the IEA statement.

LNG enthusiasts like Souki and major players like Cheniere, which has invested billions in LNG export terminals, will keep banking on growth in global natural gas demand to keep their businesses afloat. President Trump may embark on isolationist, “America first” energy policies that prove detrimental to energy exports. Then again, he may not. And even if he does, market conditions and global trends could continue shaping the natural gas landscape. The contributions of the new American president and his administration could end up being rather limited.

By Gregory Brew for Oilprice.com

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