The Trump Energy Plan: A Sea Change in U.S. Energy Policy

It has been a year now since we all awoke on Nov. 9, 2016, to the reality that, against all odds and all predictions by the polls and political “experts,” Donald J. Trump had somehow defeated Hillary Clinton in the race to become the 45th President of the United States. It was a stunning outcome to a seemingly endless campaign, one that had turned into the most vicious and personal presidential contest in modern times.

The oil and gas industry had not supported Trump’s candidacy during the Republican Party’s primary and nominating process, when most contributions from industry executives and company employee PACs flowed to more conventional politicians like Wisconsin Gov. Scott Walker, former Florida Gov. Jeb Bush, and Sens. Ted Cruz of Texas and Marco Rubio of Florida. The same held true in the general election, during which the vast majority of contributions from industry executives flowed to Clinton.

Despite that slight, Trump made the promotion of policies that support a healthy oil and gas industry a centerpiece of his campaign strategy from beginning to end. During his speeches, the primary and general election debates, and the hundreds of rallies he conducted before crowds of thousands of supporters, candidate Trump talked about issues all too familiar to those in and around the nation’s oil patches: the Keystone XL and Dakota Access pipelines, EPA’s Waters of the United States regulatory scheme, the Clean Power Plan and the Bureau of Land Management’s (BLM) hydraulic fracturing rule.

At a September 2016 rally in Pittsburgh, Trump made a speech that was very typical to what he said throughout his campaign: “I am going to lift the restrictions on American energy and allow this wealth to pour into our communities — including right here in Pennsylvania. The shale energy revolution will unleash massive wealth for American workers and families.”

It was an extraordinary thing. No candidate in modern times from any political party had worked so hard to make energy in general, and the oil and gas industry specifically, such a major part of his or her campaign’s messaging. When seeking support from the oil and gas industry and many others, though, Trump turned off many people with his rhetoric and antics on other matters. His unpredictability made millions of Americans simply uncomfortable with the idea of having this person occupying the highest office in the land. This factor remains true a full year after his election.

Another problem that impacted Trump’s ability to obtain support from industry leaders is the simple fact that Americans have become conditioned to not expect political candidates to keep the promises they make out on the campaign trail. There is a very good reason for this: Very few politicians really mean most of what they say during their campaigns — they rarely have any intention of following through on the great majority of things they promise once they have been safely elected to office.

Most Americans saw no reason to think that Trump would be any different. With the advantage of hindsight, this assumption seems very naive given that Trump showed that he is completely different from ordinary politicians in pretty much every other way possible — for better or worse — as he campaigned across the country.

So it was that, as Election Day dawned on Nov. 8, 2016, most everyone associated with the oil and gas industry — indeed, most Americans in general — went to the polls believing that, no matter which candidate they intended to vote for, they would wake up the following day knowing that Hillary Clinton had been elected to the presidency.

For those who deal with efforts to influence or comply with regulatory or legislative policy matters, this was not exactly an appealing thought. Clinton had campaigned on the promise that, if elected, her first term in office would effectively be a third term for Barack Obama, whose energy and environmental policies she promised to continue and expand upon. At more than one event during her campaign, she promised audiences that, in her administration, she would work to make sure that it would become almost impossible to conduct hydraulic fracturing operations. During a March 2016 debate with Bernie Sanders, she stated, “By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place.”

The Obama administration’s EPA and Department of the Interior (DOI) had spent eight years producing layer upon layer of new regulations directed at the industry, and its agencies had worked intently to find ways to extend their reach further and further over time. This process had sped up to a fever pitch during the final two Obama years, as regulators worked overtime to produce as much new regulation as possible just in case a Republican were to win the 2016 election.

Thus, those in the industry who worked in policy-related areas of the business went into Election Day with a very long laundry list of proposed and pending new regulations on their plates. Many companies were uncertain how their people would manage to absorb the requirements of this regulatory onslaught and find ways to comply with it all.

Few — even those executives who had supported Clinton’s candidacy — truly looked forward to the prospect of a continuation down this regulatory path for another four or eight years. But many had decided to contribute to the Clinton campaign more as a defensive measure than anything else, in the hopes that their campaign support would at least help to ensure that they and their companies might at least have opportunities to meet with the new political appointees at the various agencies that would assuredly be looking to further regulate them in a Clinton administration.

Such was the mindset, the overall prevailing mood of those in the oil and gas industry, as the polls closed on the evening of Nov. 8. In just a handful of hours, that prevailing mood would undergo a radical shift, as the late-night results coming in from traditionally “blue” states like Michigan, Pennsylvania and, most surprising of all, Wisconsin made it clear that there would be no third term for the Obama administration. The Trump era had dawned, and a sea change in federal energy and environmental policy was about to begin.

Hitting the Ground Running

Throughout November and December and into January, President-elect Trump continued to frequently talk about energy issues and his intentions to follow through on the promises he had made once he took the oath of office and began managing his administration. Many in the industry remained skeptical, but that mood began to shift as Congress convened a week prior to the inauguration and immediately took up a series of joint resolutions that would repeal some of the massive regulations that were put into place during the final months of the Obama administration under the rarely used Congressional Review Act (CRA).

The CRA is a relatively new law, enacted in 1996 by a Republican-dominated Congress and signed into law by President Bill Clinton, a Democrat. The purpose of the law was to allow a newly elected Congress to mitigate the impacts of exactly the sort of rush-to-regulate activity that took place during the final months of the Obama era. However, during its 20-year life prior to 2017, the CRA had only been used to successfully reverse a regulation of a prior administration a single time, when the 2001 Congress used it to reverse an obscure, but no doubt important at the time, regulatory action of the outgoing Clinton administration.

Even though the process was difficult and seemed unlikely to yield much fruit, GOP leadership in the 2017 Congress were determined to give it the old college try. Where the oil and gas industry was concerned, the House of Representatives ultimately passed resolutions that would have repealed several Obama-era regulations that the industry had opposed, including:

• a regulation finalized by the Office of Natural Resources Revenue (ONRR) that would have dramatically increased royalties owed by the industry on oil and gas produced from federal lands;

• a BLM regulation governing venting and flaring of natural gas on federal lands; and

• an EPA regulation governing methane emissions from upstream oil and gas facilities.

While none of these resolutions would ultimately pass the Senate — which notoriously moves much more slowly than the House, and where the Republican majority is much smaller — the fact that Congress was even taking up this kind of legislation related to oil and gas injected a dose of much-needed optimism into an industry that had grown all too used to receiving nothing but bad news from the nation’s capital.

It deserves to be remembered that the resolution related to the EPA methane regulation failed by just two votes in the Senate. The other two resolutions were never taken up by the Senate as they were delayed so long that the administration decided to deal with them in other ways.

Before the CRA process ran its course, Congress had passed — and President Trump had signed — 14 joint resolutions that reversed Obama-era regulatory actions, several of which had an impact on the oil and gas industry. Thus, early congressional efforts in the new Trump era produced some results and began the initial trickle in what was about to become a massive sea change in both the tone and direction of federal regulation of the oil and gas industry.

The Trump administration dealt with the ONRR royalty regulation administratively; and after a court challenge, this bad regulation finally died a quiet death in September. The DOI is still engaged in a process that would dramatically rewrite the BLM venting and flaring rule, and is being challenged every step of the way by anti-development groups. Parts of the EPA methane regulation have gone into effect, but the EPA continues to find ways to mitigate the rule’s negative impacts. Thus, President Trump, even in the face of adverse outcomes in Congress and legal challenges from multiple plaintiffs, has found creative ways to keep the promises he made during his campaign.

Executive Action

Following his inauguration in January, the new President wasted little time making a splash in energy policy, as just four days into his term in office he issued an executive order related to the embattled Dakota Access Pipeline (DAPL) project in North Dakota and the northern leg of the Keystone XL Pipeline that had been held up for years by President Obama.

The President’s order on Keystone XL invited the operator, TransCanada, to reapply for its cross-border permit and directed the U.S. Department of State to “take all actions necessary and appropriate to facilitate its expeditious review.” The order further gave the Department of State 60 days from receipt of TransCanada’s new application to issue a final decision.

After suffering through six years of delays, it no doubt seemed like a breath of fresh air to TransCanada’s executives. Indeed, the company confirmed later that same day that it had already begun preparing its new permit application in advance of the President’s order. That application was submitted several days later, and the Department of State approved it in late March. While some conflict groups are continuing to challenge the pipeline, there is no doubt that the 2016 election completely changed the equation related to this controversial pipeline project.

Given that DAPL was at a different point in the process than Keystone XL, the executive order related to it had to be drawn under different terms. In December 2016, President Obama ordered the U.S. Army Corps of Engineers to perform an Environmental Impact Statement related to the project, ostensibly designed to explore alternative routes that would placate the then ongoing protests conducted by the Standing Rock Sioux Tribe and a raft of outside protest groups latched on to the cause during the summer of 2016. In reality, this was basically President Obama’s means of avoiding having to make a final decision on the project, punting it to the Trump administration.

The President’s order on DAPL was directed not to Energy Transfer Partners, the builder of the pipeline, but to the Army, ordering the Corps of Engineers to “take all actions necessary and appropriate” to conduct this review and approve the pipeline “in an expedited manner, to the extent permitted by law and as warranted.” Within a few weeks, the Army responded affirmatively, withdrawing its requirement for the conduct of a full Environmental Impact Study and issuing the final easement necessary to move forward with completion of the final segment of the line.

That all took place by mid-February, and the completion of the final segment of the pipeline — after being held up for half a year by the Obama administration in support of protest action — took less than a month. Line-fill oil began flowing through DAPL a week after a U.S. Court of Appeals rejected an appeal by the Standing Rock Sioux and Cheyenne River Sioux tribes on March 18, and the pipeline was able to move into full operation mode a couple of months later.

The Standing Rock Sioux Tribe has continued to fight DAPL in the federal courts, but its challenges have thus far been rejected. The pipeline has also been the target of attacks by eco-terrorists, several of whom have been arrested and charged by law enforcement officials.

In the end, though, this pipeline will continue to operate, an outcome that likely would not have happened under a Clinton presidency.

Clean Power Plan Order

On March 27, President Trump issued an executive order instructing the EPA to begin the process of rescinding major parts of the Obama-era Clean Power Plan, which was a centerpiece of the Obama administration’s efforts to ensure the U.S. would be able to meet carbon emissions targets under the Paris Climate Accord (more on that later). Although the press portrayed this move as a way for Trump to keep his oft-stated campaign promise to save the coal industry, they missed the fact that the order contained almost as many benefits for the oil and gas industry as it did for the coal industry. Provisions beneficial to oil and gas included:

• the rescission of the Obama administration’s “social cost of carbon” construct, which focused on carbon’s costs but not its gigantic benefits to U.S. society;

• the elimination of the Council on Environmental Quality’s guidance that all federal agencies consider climate change in every new regulatory or permitting action;

• the instruction to all relevant agencies to ‟review all existing regulations, orders, guidance documents, policies, and any other similar agency actions (collectively, agency actions) that potentially burden the development or use of domestically produced energy resources, with particular attention to oil, natural gas, coal, and nuclear energy resources”; and

• the instruction to the Secretary of the Interior to perform a review of regulations issued late in the Obama administration and make recommendations to “suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules,” an instruction that ultimately resulted in efforts by the DOI to rescind the BLM rules on venting and flaring and hydraulic fracturing.

Thus, the March 27 order related to the Clean Power Plan represented a 180-degree reversal from the regulatory direction taken by the Obama administration, not just toward the coal industry, but the oil and gas industry as well. As a direct result of this order, the DOI rescinded the BLM hydraulic fracturing rule; and, after various court challenges, the rule was finally taken off the books in late September.

The BLM venting and flaring rule remains a source of conflict, as a federal appeals court ordered parts of it to go into effect on Oct. 4, despite objections filed by the BLM. But on Oct. 9, the BLM announced its intention to rescind the other provisions of the rule and begin the process of rewriting them.

EPA Administrator Scott Pruitt acted on the President’s executive order in early October when he announced that his agency was rescinding the Clean Power Plan entirely and would begin the administrative process to replace it with new regulations. Many observers reacted to this action as if it would become the salvation of the nation’s coal industry, but, yet again, they were incorrect. The economic decisions to retire the older, less efficient fleet of coal-fired power plants in the U.S. were made by power providers years ago and are inevitable.

Texas power provider Luminant clearly illustrated this market-based reality when, just three days before Pruitt made his announcement, it announced it would be closing its huge Monticello coal-fired plant in East Texas in early 2018. The Energy Information Administration (EIA) reports that power providers retired about 14 gigawatt hours of coal-fired capacity in 2015 alone, and the agency only expects the pace of such retirements to accelerate in the coming years. The vast majority will be replaced by combined-cycle natural gas plants, with the remaining needs being filled mainly by wind and solar.

The Trump Plan for American Energy Dominance

One of the themes Trump focused on during the campaign, which he continued to come back to after assuming office, was his intention to pursue policies that would promote U.S. energy dominance. Not energy independence or energy security, both themes adopted by past presidential campaigns and administrations, but energy dominance.

Most Americans remained confused over what this term actually means, even after the President attempted to articulate it in a speech he made in late June during what the administration was calling “Energy Week.”

In all fairness, it does take some explaining. When President Trump talks about his goal of energy dominance, he’s referring to a plan that envisions policies encouraging four major elements:

• taking full advantage of America’s abundance of oil, natural gas and coal;

• increasing exports of all three of these fossil fuels and their related products;

• relying more on imports of oil from Canada, Mexico and other Western Hemisphere nations, and less on imports from the Middle East and North Africa; and

• leveraging oil, natural gas and coal to enhance U.S. bargaining positions in the country’s foreign policy initiatives.

As if on cue, the President engaged in a bit of energy leveraging during his discussions with Indian Prime Minister Narendra Modi, folding India’s growing reliance on U.S. LNG imports into his request to lessen the rapidly growing nation’s import tariffs on U.S. goods. We have since seen the President and Secretary of State Rex Tillerson leverage energy into negotiations with China, Pakistan and Russia.

There have been other clear results in the intervening months as well. In early October, the EIA announced that — thanks in part to expedited permitting at the Department of Commerce — U.S. producers were exporting almost 2 million barrels of domestically produced crude oil per day, more than several OPEC nations manage to do. In September, Dominion announced that its Cove Point LNG export facility would be coming online during the fourth quarter of 2017, months earlier than had been expected. The administration’s efforts to streamline permitting and other approval processes have also helped to ensure that several more LNG export facilities will come online during 2018.

We should expect to see the President rely more and more on this sort of leverage as U.S. exports of oil, LNG and coal continue to rapidly grow in the coming years. This, more than anything else, is what the President means when he talks about energy dominance.

Critics point to the reality that the U.S. currently imports about half of its daily crude oil needs, but this misses the point. This is not a discussion about energy independence — the President clearly understands that the U.S. will always be a net importer of crude oil.

One main point of the energy dominance discussion is to change that import mix so that the U.S. is mainly importing from friendly governments in more stable parts of the world, rather than from often hostile governments in the Middle East and North Africa, both of which are extremely unstable. Achieving this goal will lessen the incentives for the U.S. to constantly intervene in conflicts and civil wars in those unstable regions; it will also provide the President and his Department of State with greater leverage in the complex and often seemingly intractable negotiations with the region’s governments.

The President’s willingness and active plan to leverage U.S. energy abundance in his foreign policy and international negotiations stand in stark contrast to his predecessor. President Obama seemingly regarded this country’s fossil fuels as more of a nuisance than tools to be used to enhance the nation’s negotiating positions or improve national security.

A Return to Normal Order in the Regulatory Process

One of the great frustrations among U.S. regulated industries during the Obama years was the unwillingness of federal agencies to engage in “normal order” in the regulatory process.

The federal regulatory process is governed by the Administrative Procedures Act (APA), which requires agencies to first post proposed regulations in the Federal Register, and then run them through a public consultation process before finalizing them.

The point of this regimented process is to solicit input from the regulated industry and other interested parties, and seriously consider and factor such input into the development of the final regulations. After all, the real experts are mainly employed within the industry — it only makes sense for regulators to consult with these experts as they attempt to develop new regulations.

When a new proposed regulation is large and/or highly complex in nature, this consultation process could go through several iterations and consume many months or even years before a final version is issued. The whole point of the process is to develop regulations that actually take into account the realities of the impacted businesses and avoid unintended consequences.

In administrations previous to the Obama years, most agencies actively requested input from the regulated industry and other parties even before developing a proposed rule, in a sincere effort to get it right early on and avoid unnecessary controversy. I was heavily engaged in this realm on behalf of the oil and gas industry during the Clinton administration and can attest to the fact that the DOI and other federal departments during those years went out of their way to consult with regulated industries at length before even beginning to draft proposed rules. The same was true during the George W. Bush administration.

But that changed immediately in January 2009. Suddenly, the regulatory process became strictly adversarial, at least toward regulated industries, as partisan ideologues began to take office at the various regulatory agencies. Within a few months of the Obama administration’s assumption of power, a growing flood of new proposed regulations began to appear in the Federal Register; industries were given little prior notice, or none at all. Timelines for the filing of public comments were consistently minimal, and requests for extensions of time routinely denied.

Where in past administrations the regulated industries were routinely allowed to meet informally with regulators to discuss the potential impacts of their planned regulations, the only opportunity for offering verbal input during the Obama years came in all-too-rare formal public hearings. This was an administration in a hurry to get a lot done, policies they knew would not be popular with the industries they planned to regulate. The prospect of four or maybe even eight more years of this rush to regulate with little regard for the consequences was not appealing to those who dealt with new regulations.

Thus, when 2017 dawned, one of the great hopes among these folks was that, if nothing else, perhaps the Trump administration would at least mark a return to the prior, normal order. That is exactly what has happened. Of course, it helps that the Trump administration has been more focused on finding ways to do away with existing regulations than on writing new ones during its first year. But there is no question that the normal order has made a comeback. While this new reality creates great concerns within the anti-fossil fuel community, which had become very accustomed to having little objection, it is a great relief to the regulated industries, and probably to most of the regulators as well.

A Sea Change in Every Way

Donald Trump is a very flawed President. He is unpredictable and not especially eloquent. He often lacks a keen grasp of the policies he is promoting, probably tweets too much, sometimes has only a passing acquaintance with the truth and frequently goes out of his way to offend both adversaries and friends alike. Trump is a hard man to unreservedly admire and can be a very hard President for many to support.

Trump’s oversize ego and mercurial personality has encouraged a sense of barely controlled chaos among observers of his administration, but this has not really been the case. For example, he has filled his cabinet with strong people. Where the oil and gas industry is concerned, his appointees Secretary of State Rex Tillerson, Secretary of the Interior Ryan Zinke, EPA Administrator Scott Pruitt and Secretary of Energy Rick Perry have been especially relevant. These cabinet officials have played major roles in fleshing out the President’s energy and environmental strategies.

Zinke and Pruitt both hit the ground running in their respective departments and have worked on plans to dramatically reorganize and downsize them, to make them more suited to their scaled-back and re-prioritized missions in this administration. They are both highly organized, goal-oriented individuals who are very suited to direct major change and instill the radical cultural shift for their agencies envisioned by the President.

Of course, with major change comes major pushback from the old guard, and both Pruitt and Zinke have experienced this significantly. Pruitt became so frustrated with leaks of not just documents but of his spoken words that he felt the need to have a soundproof room installed in his office suite at the EPA headquarters. Pruitt and his staff have also received numerous threats on their lives, as NBC reported in October that law enforcement had formally investigated at least 70 threats this year, a 50 percent increase over 2016. Zinke told an interviewer in late September that he estimated that one-third of the staff at the Department of the Interior’s headquarters in Washington were disloyal to the administration, an estimate that could be an understatement. Even so, the pace of change at both departments has been impressive.

With the President’s outsize personality and constant conflicts with a variety of individuals dominating every day’s news cycle, most of the change in direction, policy and outcomes has gone unnoticed by the dominant news media. With a more traditional politician in the White House, announcements like the rescission of the Clean Power Plan or the BLM’s hydraulic fracturing rule would have been major news for days. With Trump dominating the headlines, these policy moves were just blips on the screen. Even President Trump’s decision to cancel U.S. participation in the Paris Climate Accord had a news cycle that lasted no more than 24 hours before it was relegated to the back pages of the nation’s newspapers.

One can debate whether this dynamic has been strategic or pure happenstance, but one cannot debate that it has been effective. In less than a full year after assuming office, the Trump administration has reversed a major portion of the Obama energy and environmental policy legacy, and the mainstream news media that normally amplifies the messaging of anti-fossil fuel groups has barely had time to notice.

The administration’s plans to redirect and reorganize the various federal regulatory agencies affecting energy have only begun to be implemented. Their objective to push as much regulatory authority as is reasonable to the states is still in the planning stages. As these and other initiatives are set in motion in the coming months, the changes will become even more noticeable and institutionalized.

Donald Trump is an unconventional President in pretty much every way. Quite unconventionally for the office, he’s worked hard to keep the promises he made on the campaign trail. That’s very rare in a President; and where energy and environmental policy is concerned, it is making a huge difference. You might even say it’s a sea change.

 

About the author: David Blackmon is Associate Editor for Oil and Gas for SHALE Magazine. He previously spent 37 years in the oil and natural gas industry in a variety of roles, the last 22 years engaged in public policy issues at the state and national levels. Contact David Blackmon at david@shalemag.com.

 

Photo courtesy of pixabay, mikeledray/bigstock.com

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