Mainstream experts in energy policy and finance reacted skeptically to the White House’s carefully orchestrated energy policy hootenanny this week, as President Donald Trump and his Cabinet declared what he called “a golden age of American energy dominance.”
Several analysts said the phrase betrayed an insubstantial and simplistic way of looking at the complex issues of energy markets, technology trends, climate risks and regulatory trade-offs that make up the nation’s energy policy landscape.
It does little more than put old rhetorical wine in new bottles, they said.
“Like its forerunner, energy ‘independence,’ the notion of American energy ‘dominance’ is unrealistic, given the outsize role global markets play compared to U.S. policy, and it unwisely distracts from the goals that should be shaping U.S. energy policy,” wrote Daniel Raimi, a senior fellow at Resources for the Future and a lecturer at the University of Michigan’s Ford School of Public Policy.
“There is no Roger Federer of energy,” Raimi wrote on the blog The Conversation.
For all the Trump team’s talk of increased production of fossil fuels, the energy discussion has given short shrift to two realities:
- One is that by pushing coal, oil and natural gas, the administration is locking in a future of greenhouse gas emissions with all the attendant risks while the rest of the world is determined to sharply rein in emissions.
- The second is that market forces, encouraged by past policies, some of which Trump would reverse, are causing a boom in renewable energy and energy efficiency with economic consequences that are just as significant as anything happening in the price-depressed world of carbon fuels.
Even those who work for clients who share Trump’s enthusiasm for growth in fossil fuel production said it began before his watch.
“Like the property entrepreneur he is, he’s taken over the building that Obama built and is saying, ‘Look at the great job I did’,” said oil industry economist Philip Verleger, referring to the administration’s touting of the surge in U.S. oil and gas exports.
President Barack Obama signed the law Congress passed in December 2015 to rescind the U.S. ban on oil exports that had been in place since the oil crises of the 1970s. Obama also cleared the way for natural gas pipeline expansion and construction of multi-billion-dollar export terminals in Louisiana and Maryland to send U.S. shale gas around the world.
Riding Obama’s Energy Wave
Well before Trump took office in January, government energy forecasters were projecting that the U.S.—already the world’s leading producer of crude oil and natural gas—was on track to become a net energy exporter for the first time in nearly 70 years.
Oil production is headed for a record 10 million barrels a day by next year, and the natural gas industry is set to erase last year’s slight dip in production and rally to a 5 percent gain in 2018, the U.S. Energy Information Administration said in its final forecast of the Obama administration.
That did not stop Trump, at a meeting Wednesday on energy with state, local, and tribal leaders, from boasting that he would be “unlocking vast treasures of energy reserves” on their lands, as well as federal lands.
“For too long the federal government has put up restrictions and regulations that have put this energy wealth out of reach. It’s just totally out of reach. It’s been really restricted. The development itself has been restricted. And vast amounts of deposits of coal and other resources have in a way have been taken out of your hands,” Trump said.
Energy Secretary Rick Perry said in a briefing at the White House on Tuesday: “We’re ending the bureaucratic blockade that has hindered American energy creation.”
That’s hard to square with the data, though. The production boom that began years ago added 300,000 new energy industry jobs in the United States last year, according to the White House’s own fact sheet. It says 198,000 new energy jobs are expected this year.
Industry Advances, Not Policy, Boosting Energy
More than any government policy, the industry’s own technological advances have been propelling the U.S. role in the global energy market, most analysts agree.
Fitch Ratings, for example, allowed in a report last week that regulatory changes “should modestly benefit the cost structure of parts of the U.S. exploration and production industry.”
But more significantly, the Fitch analysts said that the “marked” increase in spending and production that they see this year in the industry is due to the way the oil and gas industry has been able to squeeze more production out of fracked wells at lower cost. By drilling longer horizontal wells and adding more sand to increase the fissures in the shale rock, operators have been able to produce profitably even at a time when oil prices are low.
“It is a positive for the industry to be supported and to get regulatory relief,” said Mark Sadeghian, senior director of corporate finance for Fitch. “Having said that, the technology component—the efficiency gains we’re seeing—is the bigger driver.”
For his part, Verleger, who served as an energy economist in both the Ford and Carter administrations and now runs his own consulting business, dismisses the importance of Trump policies in boosting the industry’s fortunes—like eliminating methane rules, which the White House fact sheet said would have added $11,400 to the cost of a hydraulically fractured well.
“The fugitive methane rules were important for the environment, but I don’t think that there is very much oil and natural gas that is going to be produced without them that wasn’t going to be produced otherwise,” he said. “I know the [American Petroleum Institute] and the industry love to bellyache about the regulations, but I think in general the industry could have met them very easily.”
As for the Trump administration’s plans to open more federal lands to drilling, the Wilderness Society notes that only 12.8 million acres, or 47 percent, of the public lands held by the oil and gas industry, are under production—with almost 6,000 approved drilling permits not in use. As long as oil prices remain relatively low, and production is thriving on private land in the Permian basin in Texas, most analysts believe there will not be a drilling push on federal land.
That doesn’t mean there isn’t symbolic importance to opening up federal lands, which is why opposition is so dug in. “The so-called ‘energy dominance’ the Trump administration is touting just means that they believe there is no more important use for our shared public lands than fossil fuel development,” the Wilderness Society said in a memo.
Energy industry analyst Kevin Book, co-founder of Clearview Energy Partners in Washington, D.C., thinks Trump is indeed trying to set a new goal or target for U.S. policy, but it is one for which government has only a limited ability to be a driving force.
“Dominance has an awful lot to do with geology and not so very much to do with government,” Book said. “If you’re a low-cost producer, you have a chance to dominate the market. Now regulation, or the lack thereof, can lower costs, but only within ranges imposed by nature.”
Book, who published an essay at the Center for Strategic and International Studies website dissecting the idea of energy dominance, calls the theme a rebranding of what the administration has been doing anyway.
“It sure looks from the outside like they’re putting a wrapper around the policies they’ve been promulgating since they took office,” he said. “That’s not uncommon. Sometimes the actions precede the buzzwords. Sometimes the buzzwords precede the actions.”
Climate Policy Pull-Back Creates Uncertainty
Trump’s dominance drive carries risks, particularly its effort to back away from climate policy while the rest of the world moves forward.
Verleger said he thought that uncertainty about U.S. vulnerability to trade sanctions over its lack of climate policy would offset any boost in investor confidence that the White House might be hoping to stir.
And Fitch analysts believe U.S. withdrawal from the Paris climate agreement is creating offsetting risks for the industry which are difficult to quantify, including the risk that opposition becomes more entrenched at the state and local levels even as it eases at the federal level.
“The response from mayors and governors around the country to the Paris Agreement exit underscores there is substantial political support for emissions regulation on both the state and local level,” the analysts said in their commentary.
By repackaging Trump’s well-known policies as an “energy dominance” agenda, the White House is mostly underscoring a message to his political base, and possibly to industry investors.
Trump, with his vision of untold riches close at hand, does not intend to let concerns about climate change—even about the eventual stranding of high-carbon assets—get in the way of his dream of a fossil-fueled American economy.