The surprise victory of Donald Trump in the U.S presidential election might add to the woes of the already beleaguered energy sector.
The billionaire real estate developer, who never held elected office before, proposed a few changes for the oil and gas sector. According to Trump, the nation needs to augment crude production in order to reduce its dependence on imports. However, increasing crude output in an already oversupplied market would actually be a recipe for disaster.
Trump’s Proposal for Energy Sector
The 45th President of the U.S had announced his intention to support to increase the production of oil and natural gas during his campaign. Let’s take a look at some of the other proposals tabled by Trump.
No Restrictions on Exploration and Production of Oil & Gas:
Trump had announced his plans to lift restrictions on the exploration and production of crude and natural gas, upon election, to boost production. In the U.S., activities of all energy players are strictly regulated both at federal and state levels. If an upstream energy player intends to engage in exploration and production activities, it should get a development permit, a drilling permit as well as an operating permit. This apart, the firm has to undergo a public review. Failure to comply with these regulations might result in penalties – both legal and financial – not to mention delays.
On the other hand, companies from the gas drilling industry need to abide by the Clean Air Act that targets reduction in greenhouse gas emissions while drilling. (For details please read: How does government regulation impact the oil & gas drilling sector?)
More Federal Acres for Oil & Gas Drilling:
Trump also promised to integrate more federal acres of land for oil and gas drilling operations. More land for drilling purposes will significantly improve the oil and gas production.
Support Keystone XL Pipeline Development:
Trump also proposed the extension of the Keystone XL pipeline to carry oil from Alberta, Canada to the U.S refineries. The initial phase of the pipeline project was finished in 2011. The proposed extension of the pipeline line will add another 1100 miles to the over 2100 miles it already covers.
However, the proposed extension development has not been supported by environmental groups and politicians. This is because bitumen that might be transported by the pipeline system along with crude to the U.S might emit greenhouse gas.
Impact on Oil Price
It is a well-documented fact that oil price primarily determines the fate of energy players. Since mid-2014, the energy sector has been witnessing persistent oil prices weakness due to supply glut. In such a scenario, Trump’s proposals undoubtedly raise concern as increased production will worsen the situation. This will not only impact the commodity price but will also raise environmental risks by increasing greenhouse gas emissions.
This is definitely unfavorable for most energy players. This is because lesser the price of oil, lower will be the revenues for upstream energy players after selling the commodity. The upstream businesses of oil integrated majors like Chevron Corp. (CVX - Free Report) , Exxon Mobil Corp. (XOM - Free Report) , BP plc (BP - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) are likely to be the worst hit.
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