Trump’s day one vow can alter energy rules but not market forces

By Jennifer A. Dlouhy on 11/22/2016

WASHINGTON, D.C. (Bloomberg) -- President-elect Donald Trump can deliver on his promise to remove restrictions on U.S. energy production hours after taking office, even though it will take more than the stroke of a pen to rewrite the shifting economic landscape for coal, oil and gas.

Trump made the pledge—absent specifics—in a video posted on Monday. "I’ve asked my transition team to develop a list of executive actions we can take on day one to restore our laws and bring back our jobs," he said. “I will cancel job-killing restrictions on the production of American energy."

The incoming president has a short list of actions he can take on his own—and experts say even those won’t generate immediate results. Among the easiest tasks: Lifting a moratorium on selling new federal coal leases and tossing out Obama-era guidance discouraging mountaintop removal mining in Appalachian states.

"It’s an easy thing to lift, but it doesn’t change the market on day one," said Kevin Book, managing director of the Washington-based research firm ClearView Energy Partners LLC. It would take time for lease sales, and opening up more coal resources may be exactly the wrong prescription for western miners already awash in a supply glut.

"He can’t change the market—but he can make the market feel better for some companies in it," Book said.

New Regulations

Trump also can order federal agencies to stop writing new regulations and pull back those that haven’t yet taken effect, including potential leak detection requirements for existing oil wells. Trump can rescind government guidance encouraging regulators to factor climate change into their decision making. And he can instruct the Interior Department to swiftly sell new drilling rights and permit projects on federal land.

Oil and gas companies that could benefit from relaxing rules governing drilling and production on federal land include Anadarko Petroleum Corp., Occidental Petroleum Corp. and Continental Resources Inc.

Many of those actions would have symbolic value, even if they don’t immediately translate into changes on the ground, said Bloomberg Intelligence analyst Rob Barnett.

"I wouldn’t put too much stock in much that happens day one for any administration. It’s like steering a big boat, it takes a long time for everything to react," Barnett said. "Even if day one, the Bureau of Land Management is open for business again—we’re going to lease coal—it’s not as if suddenly reversing the policy changes how companies behave."

"At the end of the day, it’s going to be hard to reboot jobs or bring back jobs in the coal sector," Barnett said.

Natural Gas

Those mining jobs have dwindled as cheaper natural gas and air pollution restrictions encourage utilities to retire coal-fired power plants. Mining companies weren’t clamoring for new federal coal leases even before Obama’s Interior Department paused those sales in January.

One policy change could swiftly improve the economics for miners in West Virginia and other Appalachian states. If Trump rescinds Obama’s mountaintop mining waste guidance on day one, he would materially improve the margins of companies extracting high-value metallurgical coal used in steel production, Book said. "Some of the most valuable coal in America could be mined more cheaply," Book said. "Getting more central App high-heat coal out of the ground and into the world market is money for Appalachia."

Trump also could relax the frequency of safety inspections at coal mines, stepped up under Obama.

Higher Production

Although there are limits to what Trump can do unilaterally—without relying on help from Congress or wading through a years-long process of formally withdrawing and relaxing existing regulations—he can kick start much of that work on Jan. 20. For instance, he can rescind a plan for selling new offshore oil and gas rights from 2017 to 2022, even though it is expected to take a year or two to replace it with a program that puts more U.S. waters on the auction block. The president-elect also can direct agencies to begin rewriting mandates governing oil and gas development and encourage them to relax enforcement of existing rules in the meantime.

"There’s no question that lifting the regulations will get more production," Book said. "This is a stable regime government-wise, with relatively low government take, a rich resource base, existing infrastructure, free access to capital and private ownership. There are few better places to produce energy in the world than the United States right now, and so removing restrictions should increase the amount of energy."

Oil industry leaders are clamoring for the changes.

Kyle Isakower, V.P. for regulatory and economic policy at the American Petroleum Institute, said lawmakers and the president should prioritize work against an "avalanche of regulations or other policy-setting activities that could discourage production."

"There is an opportunity for Republicans and Democrats in Congress to work toward pro-development policies that provide economic growth, job creation and energy security," Isakower said by email.

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