by Bob Shively, Enerdynamics President and Lead Facilitator

President Obama took office eight years ago determined to address the United States’ emission of greenhouse gases (GHG). The President was unsuccessful in getting Congress to take much action other than extending renewable production tax credits. And when Obama attempted to use regulation instead of Congressional action to address greenhouse gases, the EPA’s Clean Power Plan (CPP) became tied up in court.

But interestingly, market forces aided by actions of federal agencies have surprisingly helped reduce greenhouse gas emissions. The U.S. Department of Energy (DOE) recently reported that U.S. energy-related greenhouse gases for the first six months of 2016 are the lowest since 1991. Federal policies fostered by the DOE, Defense Department, FERC, and other agencies helped stimulate growth of green technologies including renewables, storage, and smart grids. Increases in energy efficiency kept electric loads from growing even as the economy rebounded. The Obama administration also supported natural gas development — U.S. natural gas production grew by 33% since Obama took office, and U.S. exports of natural gas grew by 117%. So now as we transition to the Trump administration, what changes can we expect?

It’s hard to predict as there seems to be a significant gulf between Trump’s campaign statements and his statements as president-elect. But looking at what we know, it appears that while regulatory direction and other policies will change, the ultimate market direction will surprisingly be no different than under Obama. This means we can anticipate more growth of natural gas and renewables, ongoing decline in coal, and more reduction in U.S. greenhouse gas emissions.

This week, let’s look at how a new administration may impact the natural gas and coal industries. Next week we’ll conclude with a look at the renewables, energy efficiency, and electric transmission/distribution sectors.

Natural gas

Possible Trump policies impacting the gas business:

• Ease in restrictions concerning drilling on federal lands
• Reduction of federal environmental regulations of gas production
• Strong federal support for hydraulic fracturing
• Quickened approvals on new pipeline projects
• Support for growth in gas exports
• Support for growth of U.S.-based manufacturing
• Support for coal

Possible impacts on market:

• Costs of production may slightly decline due to cheaper land availability and less money spent on environmental protection.
• But, given that we are already in a supply glut, this may not change dynamics much as producers don’t have the market for any new supplies they could theoretically access.
• New pipeline projects could help move gas from regions with excess supply to markets, but currently the barriers to new pipeline development generally are either economic or due to local opposition, so this may not have much impact.
• In theory, growth in gas exports and growth in U.S. manufacturing could boost demand for natural gas and thus help support price. Petrochemical development in the Northeast could help boost demand there. As for exports, there is already a global glut of LNG supply, so in the short term it appears that exports to Mexico are the primary growth engine. Trump has talked extensively about the negative aspects of trade with Mexico, which may impede this scenario.
• If coal makes a comeback, it will primarily reduce gas-fired electric generation.  We don’t believe this will occur much (see coal section of this article), but if it does, it will offset any demand growth from manufacturing.

Net impacts on natural gas:

Not a significant change; perhaps lower overall natural gas prices and slightly more demand.

Coal

Possible Trump policies impacting the coal business:

• Ease in restrictions on coal development on federal lands
• Ease in environmental rules (or maybe ease in enforcement of current rules) on coal-fired generation
• Maybe other federal policies concerning tax benefits or subsidies to try to maintain employment in coal industry
• Desire to foster coal exports

Possible impacts on markets:

• Trump policies may extend the life of some coal-fired power plants that are currently marginal since plant owners may not be required to install emissions technologies. But many of these units have been retired already or are uneconomic compared to alternatives.
• And, given that it appears that Trump’s policies may reduce natural gas prices, coal will be less competitive vis-à-vis gas.
• Paradoxically for units owned by utilities, older depreciated assets that do not require new capital investment become less attractive since capital investment is what generates utilities’ earnings. In some cases, this may reduce a utility’s interest in keeping older units open.
• Possible ongoing growth in renewables mixed with low gas prices will reduce potential revenue for coal units in competitive markets.
• Exports could grow, but federal policy is not likely the issue currently limiting exports. Most incremental global demand for coal is from Asia, whereas current U.S. export capability is on the East Coast. Recent attempts to expand port facilities in Washington and Northern California to foster coal shipping have met extreme local opposition that the federal government may be unable to overcome.

Net impacts on coal:

Not much impact, although the life of certain marginal electric generation units may be extended.

As mentioned, next week we’ll examine how renewables, energy efficiency, and electric transmission/distribution may be impacted.