What will the biggest energy market trends be during the Trump administration? During today's OnPoint, Paul McConnell, research director for global trends at Wood Mackenzie, explains how the coal, oil and gas markets will fare under President Trump. He also discusses expectations for how the global business community will move on emissions reductions and energy investments.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Paul McConnell, research director for global trends at Wood Mackenzie. Paul, thanks for joining me.
Paul McConnell: Thank you for having me.
Monica Trauzzi: So, Paul, the energy space is facing some big changes under the Trump administration. We are beginning to learn a bit more about what types of policies we might see from this White House on energy and environment issues. What do you believe will be the biggest energy market trends that emerge over the next couple of years under the Trump administration?
Paul McConnell: Well, our feeling is really that the Trump administration has promised quite a lot in the energy space, but its room to deliver that might actually be quite constrained by just realities on the ground. I mean, a case in point might be the coal industry. A lot of promises to revive coal, but really coal's been under pressure from unconventional gas, slowed demand growth in electricity and also the rise of renewables, all of which are operating on a commercial basis that the government has very little to do with.
Monica Trauzzi: So we've heard Trump talk a lot about clean coal. If the sort of mechanics of that can get into place, do you think we could see a resurgence in coal?
Paul McConnell: We don't expect to see a resurgence in coal over the long term. I think really what the Trump administration could do is perhaps slow the decline rate, make the operating environment a little bit more comfortable for coal producers, but it seems to us that a revival in coal demand, a resurgence in coal in the U.S., is probably a little bit difficult to hope for, I would think.
Monica Trauzzi: And do you think that that then would be a solid economic move for the United States on the whole if the Trump administration were to alleviate some pressure that currently exists on the industry?
Paul McConnell: Well, it's quite clear that the coal industry globally is changing pretty fast. You know, we had China really for a long time as the — was one of the biggest single point sources of demand anywhere in the world. Now, the way the Chinese economy is changing means the coal demand there we think has probably peaked and will also enter a decline over the long term. So that source of demand growth globally has disappeared, leaving really India and Southeast Asia as the only regions where we continue to see growth in coal over the long term.
Monica Trauzzi: Let's talk oil. There are reports this week that U.S. shale oil production is on the rise. What do you anticipate on U.S. oil exports, and how do you think OPEC will be navigating?
Paul McConnell: Well, our thoughts at the moment are OPEC will roll over their production cut agreement again when they meet in a few months' time. So at the next six-monthly meeting. That means the cuts will be, you know, in place for another six months, and that should be supportive of prices and should help the supply-demand rebalancing happen more quickly. Now, in terms of U.S. oil, we think that, generally speaking, $55 a barrel is the magic number for shale oil production here in the States, and should we see prices stay at around that level for — you know, for a few months, then shale will continue to rebound.
Monica Trauzzi: Keystone XL and Dakota Access have both gotten green lights from this administration. What does that mean for infrastructure for future pipeline projects?
Paul McConnell: Well, generally we've been very convinced that the Trump administration would be positive for energy infrastructure so, you know, I mean, those two pipelines are a case in point. Blockages that were existing under the previous administration have been got rid of quite quickly and we probably expect to see similar things with other infrastructure projects in the near future.
Monica Trauzzi: The Trump administration definitely is expected to be more favorable toward fossils. Will gas production, though, see an uptick?
Paul McConnell: Natural gas production. Yeah, we think natural gas production, again, is subject to pressures which really have much more to do with economics than anything else, and you know, there's demand for gas. That's been the key driver and we'll continue to see production meet that demand.
Monica Trauzzi: So the Trump administration has a very different view on climate than the previous administration and the Obama folks, but companies around the world, regardless of that, have been shifting to sort of more efficient, cleaner business strategies. What pressure do you think the business community will put on the Trump administration and how might that impact what we see in terms of policy coming out of the White House?
Paul McConnell: Well, we already appear to see some softening in the rhetoric around climate from the Trump administration. You know, there were some very, very bold statements around the science behind climate change prior to the election. Now we see stories saying that some of the ambitions to walk away from Paris might not come through so quickly. Now, we were of the opinion that the U.S. was not — did not have enough policies in place when it signed the Paris Agreement to deliver those kind of emissions cuts. So more would have had to be done. Now, whether or not the Trump administration walks away from Paris, it looks unlikely that the U.S. will meet its commitments. From sort of another country perspective or international perspective, I think there is still a broad agreement or broad acceptance that a decarbonizing strategy is the way to go, and certainly from a corporate perspective, companies recognize the demand growth in the future may not be as strong as it has been in the past, and looking at a lower carbon future is certainly something — is a risk that can't be avoided.
Monica Trauzzi: So do you think we could see the Trump administration come more in line with what the global business community is doing?
Paul McConnell: Well, I think what the global business community is doing is almost exclusive of the policy side of things, right. So I think 15, 20 years ago, you had policy trying to drive certain outcomes. Now it's the business community, the economics, the technology which are driving those outcomes, and governments may follow behind. It may be that the Trump administration sort of follows quite a long way behind, but I don't think they'll be the only one to be left behind by what's happening in the energy space.
Monica Trauzzi: So on the whole, will the U.S. economy do well under this administration, and what are sort of the key factors and drivers that you consider to answer that question?
Paul McConnell: Well, I'm not an economist, so I can't give you a forecast on economic growth, but certainly from an energy point of view, we think this administration will be a net positive for the fossil fuel industry, but having said that, there are trends in the energy space around the ... cost of renewables and lower demand growth that mean the energy picture will get cleaner, regardless of what the administration wants or what the administration is trying to promote. So I think it's a question of cleaner energy no longer being a barrier to growth, and certainly emissions over the last 20 years have fallen pretty significantly relative to where they were in the past, and that hasn't been a barrier to growth, so we'll see.
Monica Trauzzi: All right, we'll end it right there. Thank you so much for coming on the show.
Paul McConnell: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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