An America First Energy Plan

By John Auers and Elizabeth Hilbourn

Last Friday, many (just how many is certainly a point of contention) people watched, either in person or remotely, Donald J. Trump’s inauguration as the 45^th President of the United States. Shortly after, the White House posted the new administration’s “America First Energy Plan” on its website.  This is not the first we have seen of this plan, as it was originally unveiled on May 26, 2016, by The Donald when campaigning in North Dakota.  At the time he called North Dakota a state at the forefront of a new energy revolution and highlighted how American energy would be a key component in “making America great again.”

Key highlights from the plan include:

• Eliminating “harmful and unnecessary policies such as the Climate Action Plan and the Waters of the US rule,“ which would increase American wages by more than $30 billion over the next seven years, according to the administration;
• Embracing U.S. shale and gas and taking advantage of “the estimated $50 trillion in untapped shale, oil, and natural gas reserves”;
• Having a commitment to clean coal technology;
• Eliminating U.S. dependence on “the OPEC cartel and any nations hostile to our interests”; and
• Protecting our environment.

In today’s blog, we discuss aspects of the plan, including specific steps the Trump Administration is taking or can be expected to implement with his Energy Plan.

Pending Regulation Freeze

One of President Trump’s first actions as POTUS was ordering a mandatory freeze on a wide range of pending Obama administration rules. Chief of Staff Reince Priebus called for most pending rules to be halted “in order to ensure that the President’s appointees or designees have the opportunity to review any new or pending regulations.” The order calls for all regulations that have been sent to the Office of Federal Register (but not published) to be immediately withdrawn. For regulations that have been published in the Federal Register, but have not yet taken effect, the order calls for their postponement for at least 60 days.  The following transportation-related regulations could be affected:

1. Proposed Renewables Enhancement and Growth Support (REGS) Rule. Currently, the comments must be received on or before February 16, 2017;
2. Proposed denial of moving the point of obligation. Currently, the comments must be received on or before February 22, 2017;
3. It could halt a final rule from DOT’s Pipeline and Hazardous Materials Safety Administration that boosts pipeline safety by improving notification-response time after a spill. The rule was issued January 19, 2017, entitled, “Operator Qualification, Cost Recovery, Accident and Incident Notification, and Other Pipeline Safety Changes”; and
4. A PHMSA proposed regulation to shore up restrictions on shipments of crude oil by rail could be affected.

NAFTA Renegotiation

President Trump also announced, to no one’s surprise, that he plans to renegotiate the North American Free Trade Agreement (NAFTA).  NAFTA was entered into force in January 1994 and provided for the elimination of most tariffs on products traded among Canada, Mexico and the U.S.  Regional trade has more than tripled and cross-border investment between the three countries has also grown tremendously since NAFTA was enacted.  Oil, both crude and refined products, has been an important part of this growth, including Canada and Mexico who are both major importers and exporters to/from the U.S.  The media is already reporting that a top adviser to President Trump will be meeting with advisers to Canadian Prime Minister Justin Trudeau this week and meetings are being scheduled with leaders of Mexico as well.

As with any such renegotiations, the devil is in the details and it will be important to monitor developments as they come.  What gives us confidence that outcomes will be reasonable are the presence of key Cabinet appointees such as Rex Tillerson and Rick Perry, who certainly understand the importance of free and open markets to the petroleum industry. And with President Trump issuing an Executive Order withdrawing from the Trans Pacific Partnership (TPP) on Monday and planning several other moves related to trade policy, implications will no doubt extend beyond our relations with Canada and Mexico.

Canadian Heavy Oil

Any serious plan to eliminate all oil imports from OPEC nations within the next four years (achievability highly doubtful), would necessarily need to include Canadian heavy oil.  The figures below show crude oil imports in 2006 and 2016, respectively.  The amount of crude oil imported reduced from 2006 to 2016 from 10.0 to 7.8 million barrels per day.  As can be seen by the figures, the U.S. still has a large dependence on OPEC crude oil at 40% of imported crude oil.

TransCanada Corporation’s proposed Keystone XL pipeline is anticipated to be reviewed by the Trump Administration.  Candidate Trump said he would approve the project, but would insist on a “better deal” for Americans. The first two phases have the capacity to deliver up to 590 MBPD to Midwest refineries and phase three 700 MBPD to Texas refineries.  President Trump would first need to remove regulatory roadblocks for approving trans-border pipeline projects.  Former President Lyndon B. Johnson assigned the State Department responsibility for determining whether proposed cross-border energy projects serve the national interest.

Climate Action Plan

President Barack Obama’s Climate Action Plan proposed a reduction in carbon dioxide emissions. It included preserving forests, encouraging the use of alternate fuels, and increased study of climate change. The plan was first established in 2008 and updated every two years since.  The Climate Action Plan was what the U.S. brought to the Paris climate conference in December 2015.  Before and during the Paris conference, countries submitted comprehensive national climate action plans (INDCs).  His first day in office, President Trump eliminated the Climate Action Plan stating it as harmful and unnecessary.

Waters of the U.S. Rule

The Waters of the United States rule is largely a technical document, defining which rivers, streams, lakes and marshes fall under the jurisdiction of the Environmental Protection Agency and the Army Corps of Engineers.  The rule became effective on August 28, 2015. “This rule will provide the clarity and certainty businesses and industry need about which waters are protected by the Clean Water Act, and it will ensure polluters who knowingly threaten our waters can be held accountable,” Obama said in a statement after the EPA released a final version of the regulation; however, opponents of the rule believe it as an attempt to expand federal authority as a power play that will crush jobs.

Renewable Energy

During the Republican primary, Donald Trump spoke in favor of the Renewable Fuel Standard (RFS) Program.  Ethanol, to some extent, supports Trumps, “Buy American” philosophy.  EPA administrator nominee Scott Pruitt appeared before the U.S. Senate at his confirmation hearing last week.  The first week in January, Iowa and Nebraska senators met with Scott Pruitt.  Scott Pruitt has assured people that he will promote renewable fuels.

Turner, Mason & Company is continually monitoring developments in the global petroleum markets and assessing how they will impact the industry. Considering the uniqueness of the new Administration and the importance it has placed on energy, following these developments over the next few weeks and months will be as important as it ever was.  We utilize this analysis to assist both individual clients and also to develop reports and studies, which we provide on a multi-client basis.  Crude oil balances will be discussed and analyzed in greater detail in the upcoming release of our Crude and Refined Products Outlook.  This biannual publication evaluates the latest trends and drivers in the petroleum industry, and it will be published in February.  For more information on this and other TM&C products, call Shanda Thomas at 214-754-0898 or visit our website at turnermason.com.