Monday, June 6, 2016

Trump's energy policy speech


I haven’t been paying much attention to the statements made by the presumptive Republican nominee, Mr. Donald J. Trump. His bombastic and inflammatory comments early in the campaign had turned me off. On May 26 he gave speech on energy policy at the Williston Basin Petroleum Conference, in Bismarck, North Dakota. A friend sent me a news clip of his speech wondering if his statement about the relative oil reserves of the US and OPEC were correct. Energy happens to be a subject that I am quite familiar with: having worked in the area for thirty years and written a book and blogging on the subject. My immediate response upon hearing him was that he was totally wrong. US oil reserves are only a fifth of those of Saudi Arabia, and even with the recent gush of shale oil, the US reserves remain a tiny fraction.
What puzzled me was why a candidate for the US Presidency would make such an obvious mistake. And so I listened to his statement again; this time very carefully to see if I had missed something—and indeed I had. Here is a link to his full speech.
In a single sentence Trump says that the US has 1.5 times oil than the combined reserves of OPEC. One would think that when he says "US has 1.5 times oil" he is also referring to the oil reserves of the US, otherwise the comparison would not make much sense. But he did not say that US reserves of oil are 1.5 times those of OPEC. He only said that US “has 1.5 times oil…” Such a comparison would be as meaningless as me saying I have more money than Trump has cash in his pockets—a statement while most likely true is totally disingenuous and insincere!
Here are some numbers in cmo units—cmo stands for a cubic mile of oil and is equal to 26.2 billion bbl (barrels) or 3,784 million metric tons of oil equivalent (MTOE). US oil reserves are less than 2.0 cmo; Saudi Arabian reserves are over 10 cmo. The reserves of all OPEC countries add up to 43 cmo. Russian reserves are about 4 cmo. If by “has” Trump is referring to all US resources, including oil shale (not just shale oil, which can be produced by fracking), then yes he may be correct. US has an estimated 70 cmo of oil shale, but for whose recovery we do not have an economic technology. Remember, oil shale is that vast resource that has oil precursors embedded in shale, but the geology has not yet done the job of producing the oil. We have to dig up the rock and heat it to produce the oil or heat it underground to liberate the oil. For a fairer comparison of respective resources we should look at the resource base of OPEC too, which is estimated at about 40 cmo on top of the 43 cmo of reserves.
Trump also makes the audacious claim that the US has more natural gas than Russia, Iran, Qatar, and Saudi Arabia. The natural gas reserves of the US are 2.2 cmo, while those of Russia are 4.0. The combined reserves of Russia, Iran, Qatar, and Saudi Arabia are 23 cmo. Hard as much as I try, I cannot rationalize Trump's statements about natural gas.
A basic premise of Trump’s speech was that the regulations had been curtailing production in the US energy resources. He wants to declare US energy dominance a strategic, economic, and foreign policy goal. He would achieve that goal by getting rid of those onerous restrictions by the EPA and other agencies. He will cancel the Paris Climate Agreement (COP21) and stop all payments of U.S. tax dollars to U.N global warming programs.
His main assumption is that once the regulations are gone, the oil and gas industry could ramp up production and bring wealth to America. This line of reasoning takes no account of the fact that the global market is already oversupplied. Increasing US production will only further depress the prices and make much of the US production uneconomic. When oil prices fell from $100/bbl in 2014 to below $30/bbl in 2015, investments in new drilling ceased, rig counts plunged from 1900 to 400, and many boom towns in North Dakota, Montana, and Texas became emaciated skeletons of their roaring days. This decline was not a self-inflicted wound; it did not occur as a result of EPA-imposed regulations. In order for the US oil to garner a greater share of the global market, it would have to undersell the low priced competition from Saudi Arabia—and there goes the economic incentive for any oil producer in a free economy.
Trump blames regulations like the Clean Power Production as the chief reason coal production and use in the US has dropped sharply—from producing 50% of US electricity to producing only 33%. The Clean Air Act and its amendments dating from the 1970s and 1990s increased the cost of electricity from coal, but they did not remove the dominance of coal in power production. The main reason for the decline has been the availability of cheap natural gas. Cleaner and cheaper natural gas has made coal burning power plants relatively uneconomical. Under Trump’s plan, restrictions on fracking for oil and gas would be lifted and flood the market would be further flooded with cheap gas, which would only hasten the demise of coal. Those coal mining jobs that he talks about cannot be restored as long as there is an abundance of natural gas, unless he artificially raises the price of natural gas. He cannot have both gas and coal industries flourish simultaneously—at least not in a free market democracy.
According to Trump, “President Obama entered the United States into the Paris Climate Accords – unilaterally, and without the permission of Congress. This agreement gives foreign bureaucrats control over how much energy we use right here in America.” To begin with COP21 is an Agreement, not a treaty that would require congressional approval.  Under COP21 foreign bureaucrats do not control how much or how we use energy in America. In fact, the Agreement relies solely on “intended nationally determined contributions (INDC),” which are put forth by the signatory nations themselves.  The problem with COP21 is that the current set of INDCs do not go far enough to meet the reductions required to limit the Earth’s warming to 2°C above the pre-industrialization level.  But then again, Trump does not believe in climate change results from greenhouse gases.
What these considerations show is that Trump lacks the basic understanding of the facts of the global energy market—who has what and how much. He has no appreciation of the interrelatedness of the energy markets. Given the centrality of energy in matters of national security, foreign relations, and trade, I am afraid that should Trump become our next president, we better fasten our seat belts—it’s going to be a very bumpy ride.

5 comments:

  1. Thanks Ripu for penning your thoughts on the energy policy speech delivered by Mr.Trump. It has been a thought provoking one.
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