By Michael Maher and Anna Mikulska
U.S. energy dominance was an international theme of the Trump administration. It reflected commitment to U.S. energy industry as part of achieving energy independence at home and furthering energy security abroad with U.S. energy exports as leverage to advance broader U.S. foreign policy objectives. The administration saw the traditional sources of energy such as oil, gas, and coal as best vehicles for delivering on that promise.
Have the policies to prop those sectors been successful?
Let’s first get out of the way the one goal that has obviously not been met. Despite President Trump being a strong advocate for coal, the latter did not fare well. Any direct measures to help coal floated by the President were quickly abandoned or directly opposed even by Trump’s own FERC appointees. Indirect ones, such as rolling back of the Clean Power Plan, did not succeed given competition from cheap and abundant natural gas and renewables.
Between 2016 and 2020, coal use in electricity generation – which accounts for virtually all (90%+) of total U.S. coal consumption – fell by approximately 35% (694 vs. 447 million tons) while natural gas use in electricity generation rose nearly 16% (11,328 vs 13,113 million BTUs) (EIA). Wind and solar generation also rose (though even with impressive rate of growth ( 49% and 142%, respectively) it still accounted for only 7% (wind) and 3% (solar) of U.S. net electricity generation in 2019. In effect, many coal companies were forced to seek federal bankruptcy protection, including coal giant Murray Energy as well as Blackjewel Mining, and Cloud Peak Energy.
In contrast – at least, until the COVID-19 pandemic hit – the U.S. oil and gas production boomed as:
· Oil production rose by 38% between 2016-19 [EIA] as oil prices climbed. Oil prices (WTI monthly) rose from a low of $50/barrel early in 2017 to a peak of almost $71/barrel in July 2019, and they hovered mainly in the $50+ range through February 2020. Then the bottom fell out, as the global oversupply, exacerbated by price war by OPEC plus Russia, met the pandemic. The combination of the two forces drove prices below $20 in April 2020.
· Exports of crude oil from the U.S. grew from 0.2 MBD in 2016 to 1.1 MBD in 2019. And combined exports of crude oil and refined products actually exceeded imports October through December 2019 with U.S. becoming a net exporter for the year 2020 for the first time since 1973.
MORE FOR YOU
· U.S. natural gas production increased by over 28% and pipeline/LNG exports doubledbetween 2016-20 the U.S. became a net exporter from 2017-2020 on an annual basis for the first time since the late 1950s.
The growth in the U.S. oil and gas production and exports were spurred by the significant growth in global demand; approximately 11% between 2016-19. In addition, when President Trump entered office in January 2017, the U.S. oil and gas sector was reaping the benefits of policies introduced by the Obama administration. In particular, those policies included: 1) an end to the ban on U.S. crude exports that presented a binding constraint on the U.S. domestic market; 2) a streamlined LNG export project approval process; 3) a relatively hands off policy toward hydraulic fracturing; and (4) an ongoing leasing of federal onshore and offshore lands for oil and gas development.
The Trump administration continued the course as it encouraged LNG export project approvals, eased the bottlenecks in the federal permitting process. It also made leasing on federal lands easier and opened new areas for exploration, including the Atlantic and West Coast offshore areas and Arctic National Wildlife Refuge (ANWR).
That being said, in 2016-2019 almost all of the increase in U.S. oil and gas productionoccurred on non-federal lands and only one of the Trump administration’s permitted LNG projects has moved to the construction phase. Also, bipartisan opposition in Congress could actually lead to repealing of the Tax Act’s ANWR drilling provisions.
Also, the impact of much of the leasing activity has yet to take place. Why? To begin with, the shale boom has occurred mainly on private – not federal – lands. Furthermore, in states like New Mexico where federal lands are significant source of shale production (approx. 50%), additional leases have not been put to use right away; instead, producers have developed stockpiles of leases to mute effects of any potential ban in the future. Lastly, the U.S. shale industry began to struggle even before the COVID-19 pandemic, as prices began to ease and investors became less enthusiastic about potential returns.
And then there is the problem of “ruling by decree,” a practice used increasingly by subsequent U.S. administrations, including the Trump administration, to implement many of President’s policy preferences that do not have sufficient support in Congress. As comparatively easy as it is to issue an executive order (that is, compared to legislative action), it is just as easy to roll that order back. In addition, executive orders often activate litigation. Permitting can generate further delays to implementation.
Take, for example, the final 2020 rollback of U.S. vehicle fuel efficiency standards enacted under President Obama and the executive order that reversed Obama’s veto of the Keystone Pipeline. Permitting delays meant that – in the face of Trump’s electoral loss – President Biden was able to block the pipeline construction by countermanding Trump’s executive order with one of his own. And while President Trump signed an executive order early in 2017 to advance approval of the Dakota Access Pipeline construction, allowing operations to commence in June of 2017, ongoing legal action related to the environmental permitting currently threatens to shut the pipeline down. On the natural gas pipeline side, despite Trump Administration support, New York State refused to approve permits and has blocked construction of the Northeast Supply Enhancement (NESE) pipeline project.
Also, in terms of advancing U.S. interests globally through a policy of “energy dominance,” the success record of the Trump administration is mixed at best.
On one hand, the administration’s sanction policy succeeded in extracting benefits from U.S. shale growth in the foreign policy arena, imposing sanctions on two oil producing nations, Venezuela and Iran, without any major impact on oil prices.
But while another set of sanctions, imposed in December 2019 on a gas pipeline from Russia to Germany (Nord Steam 2), succeeded in slowing down the pipeline’s completion, it had not much of an impact on volumes of U.S. LNG exports to Europe. Instead, lower levels of Russian gas flowing into Europe in the beginning to mid-2020 were an effect of market factors such as: 1) high levels of global LNG supply that entered markets in early 2020; 2) lower demand induced by a warm winter and growing pandemic; and 3) more flexible contract conditions that Russian-only piped gas exporter, Gazprom allowed in recent years. And while U.S. LNG exports to Europe hit record levels at the beginning of 2020, many have were cancelled mid-year unable to compete with other LNG providers on price.
Some of the domestic policy changes under the Trump administration geared towards supporting oil and gas development have actually backfired internationally. For example, rolling back of the methane emissions regulations has recently become an excuse for theFrench government to nix a long-term contract for U.S. LNG. Moreover, even though China’s retaliation in the trade dispute against U.S. natural gas and oil exports has had meager if any effect on total U.S. export volumes, this is thanks to increasingly global and interconnected oil and gas markets, which redirected U.S. supply elsewhere. And, in the long-term, the case provides a precedence for foreign countries using U.S. exports as a ploy in a trade dispute. High level of oil and gas exports have also not been able to prevent the U.S. from losing some of its international influence and statute related to U.S. exit from the Paris agreement, a move that has been widely viewed in a negative light by international community.
That is not to say that the four years under Trump have been inconsequential, for example if we consider the counterfactual scenario of a Clinton administration. The latter would have been likely to follow the path set up by Obama as well, but with modifications toward more regulatory oversight and higher environmental standards that U.S. oil and gas production would need to meet. Also, in the longer-term Trump policies can become important for development of oil and gas industry on federal lands given the grandfathered permits issued between 2017 and early 2021. As pointed out earlier, these actions have not immediately resulted in improving the sectors’ conditions beyond what domestic and international markets would have otherwise allowed. And some could even be seen as putting U.S. oil and gas producers at a disadvantage, again, in a short-term.
In general, however, the industry largely rose and fell based on global economic and energy market conditions rather than new federal energy and environmental policies. Those market conditions turned out to be a hard taskmaster for the industry in 2020, when global oil oversupply teamed up with Covid lockdowns across the globe. As the world economy recovers, we expect prevailing market influences to continue to shape the future of the U.S. oil and gas industry. Even with an aggressive push for renewables and EVs in the U.S. and Europe, U.S. upstream oil and gas fortunes will still be largely driven by the thirst of Asia and the rest of the developing world for additional oil and gas to drive economic development for the next decade or so.
Anna Mikulska is a nonresident fellow for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy & senior fellow at the Kleinman Center for Energy Policy and Foreign Policy Research Institute.