U.S. President-elect Donald Trump has promised to make America “great again”. One of the industries that will experience this greatness is the global energy sector.
Many of Trump’s views on oil, gas, coal and clean energy – or, at any rate, those views enunciated during his presidential campaign – are very different from what’s in place now. And if his plans are implemented, they’ll change a lot of things.
The biggest winners will be oil and gas
“America First” is how Trump describes his energy policy. He wants the U.S. to be completely energy independent. That means using more of the country’s own natural resources instead of relying on imports from overseas trading partners such as OPEC – which supplied 31 percent of all U.S. oil imports in 2015.
Trump repeatedly talked up oil, natural gas and coal on the campaign trail. Trump said he wants to “unleash America’s $50 trillion in untapped shale, oil, and natural gas reserves” – partly to bring about the 400,000 new jobs that he thinks the sector could create. To do this, Trump said he’d remove regulations that inhibit energy production – like allowing companies to operate on federal lands.
And judging by his campaign’s economic advisory team, which included owners of some of the biggest oil fracking companies in the U.S., such promises may become reality. For instance, there is a strong chance that Trump will choose Harold Hamm as his Energy Secretary. Hamm is the CEO of fracking giant Continental Resources.
With fracking seemingly backed by Trump, the natural gas industry could be the biggest single energy winner, as we recently outlined. It’s a cheap and fairly clean form of energy. And much of it is produced from the U.S.’s own deposits.
But higher levels of U.S. oil and gas production, when the world market is already oversupplied, will hurt prices. Oil prices, for example, are already less than half of what they were in early 2014. Extra U.S. supply will only add more downward pressure.
U.S. coal’s prospects will continue to darken
Arguably, Trump has talked up coal more than any other fuel. He has promised to save the coal industry through deregulation and by ending the Obama government’s moratorium on new mining on federal lands.
Coal prices have recovered somewhat this year. But this is mainly due to lower production and supply in the U.S. and China, rather than increased demand. One reason for lower U.S. production is the numerous U.S. coal company bankruptcies – and thus reduced supply.
Although Trump says he wants to rejuvenate the U.S. coal industry, he may not be able to do much. The market forces of supply and demand ultimately determine global energy prices, including that of coal. According to the International Energy Agency, China’s declining coal consumption will continue to reduce demand for U.S. coal exports, which fell by 23 percent last year and another 32 percent during the first 6 months of 2016.
And with demand shifting away from coal and towards natural gas for the country’s power generation, Trump will have very few policy instruments at hand to reverse the U.S. coal industry’s decline. And if he is able to save coal jobs, this may translate into higher employment… and thus higher coal production. Any additional supply would hurt coal prices.
Renewables will continue to shine – regardless of Trump
If Trump enacts his stated policies, the biggest loser could be clean energy. After all, he has been very clear about his thoughts on climate change.
He has called global warming a hoax. President-elect Trump has promised to cancel the Paris climate agreement – which aims to boost the world’s response to climate change through a number of joint targets to fight global warming. And Trump wants to end U.S. funding of UN climate programmes.
Additionally, his support for fossil fuels may weaken demand for renewable energy.
Trump’s position has some worried that the Paris climate agreement could become badly damaged. It could be similar to the failure of the Kyoto climate treaty after the previous Republican U.S. president, George W. Bush, abandoned it in 2001.
It’s unlikely that the world – including Asia – will take Trump’s intended moves lying down this time, though. And the difference could well come down to China.
Back in the Kyoto days, China gave very little support to climate talks and agreements. But today, China is a substantially bigger global economic force. It’s also very polluted, which is a serious political crisis for its government.
The government is now among the world’s biggest renewable energy supporters and is working at combating global warming. In 2014, Presidents Xi Jinping and Barack Obama implemented the U.S.-China joint climate accord to reduce carbon emissions by 2030. Then in September this year, the two countries formally committed to the Paris climate agreement.
And last year saw China as the world’s biggest investor in renewable energy.
At the recent UN Global Warming summit, China made clear that if the U.S. pulls out of the Paris agreement, China is going to continue to work towards a greener economy. This is good news for the world’s solar, hydro and wind companies.
What’s more, the U.S. is experiencing a boom in the clean energy sector that has little to do with the climate change debate. As we recently noted, renewables are increasingly cost competitive with fossil fuels across many markets.
And if Trump wants to limit wind and solar, he will have a fight within his own Republican party. It was a Republican Congress that passed legislation to implement tax credits for wind and solar power last December. And the 5 U.S. states with the highest proportion of power generated by wind energy all have Republican governors.
Over 200,000 Americans are employed in the solar industry – double the 2010 figure. The U.S. Bureau of Labor recently projected that the country’s fastest growing occupation (in relative terms) between 2014 and 2024 will be “wind turbine technician.” Although the absolute number of new jobs is low, the anticipated growth and overall trend is still notable.
Once he’s president, Trump may soften his stance on renewable energy and climate agreements. But even if he doesn’t, the boom in renewables will carry on regardless.
To profit from Trump’s plans to expand U.S. natural gas production, the First Trust ISE-Revere Natural Gas Index ETF (New York Stock Exchange; ticker FCG) is an option. It focuses on companies that generate most of their revenue from natural gas exploration and production.
And to invest in the growing renewable energy sector, the PowerShares Global Clean Energy Portfolio ETF (NYSE; ticker: PBD) offers an easy, globally well-diversified way to gain exposure.
For the complete picture on how Trump will impact markets – in particular Asia’s – make sure to read our latest report on how “Asia is Trumped!” You can download your copy here.