‘Yuge’ Mostly Positive Changes for Oil, Gas, With Trump’s Win in the US

Commentary, Energy

Ian Madsen,  November 22, 2016

Last week brought a huge change as Donald Trump–the consummate outsider–was elected President of the United States.  More importantly, both houses will be controlled by Republicans even though some of them have said they don’t like Donald Trump.  Nevertheless, his agenda is likely to be implemented.

Trade and international relations will be a major issue because Mr. Trump has said that he wants to change the North American Free Trade Agreement (NAFTA), which, of course, will be very important for Canadian businesses that trade with Americans.

The most important policy, however, will be Donald Trump’s plan for oil and gas.

The President-elect, and the Republicans have four concerns that will have major implications for Canadian energy producers, particularly those in Western Canada.

The first is that the Keystone XL pipeline, linking Alberta to North Dakota and thence to markets in the Chicago area, which will have a strong likelihood of being approved after been turned down for spurious ‘climate change’ reasons by the Obama administration.  This will be of immense benefit to the Alberta and Saskatchewan heavy oil and bitumen producers, and, to a lesser extent, to the producers of oil from the Bakken formation in southern Saskatchewan and in neighbouring North Dakota and Montana.

Unfortunately, there is a little Bakken production in southwestern Manitoba so there is not likely to be any job spin-off in the key-stone province.

Nevertheless, a more favourable policy-environment for pipeline approval will put pressure on Canadian regulators to relax the many onerous restrictions they have placed on new pipelines, let alone stopping new and expanded pipelines, such as the Kinder Morgan line.

Another major development is that Republicans are opposed to a national carbon tax, or even a ‘cap-and-trade’ scheme, that would make oil and gas production more expensive.  The new administration will take office in January, and it will quickly move to temper–or eliminate–environmental regulations that greatly restrict methane (natural gas) emission from production and transmission facilities. Simply, the restrictive policies of the Obama administration have increased costs for producers and pipeline companies.  The changes that Donald Trump has in mind will make the US energy industry more competitive.

The President-elect is also in favour of having a more liberal process for oil and gas drilling on federal lands and in offshore waters.  Recent US policy has seriously constrained horizontal drilling and hydraulic fracturing (fracking) on both federal land and off-shore reserves.  If Trump carries through with his election promises, the existing regulations will be scaled back to the best-practices for both environmental and safety concerns, which will unlock huge new reserves of oil and gas.

This development will not be wholly positive for Canada because increased US production will increase competition for Canadian producers and perhaps even lower oil and gas prices in North America. Of course, consumers will like this outcome even if Canadian producers will not benefit; they will pay less to heat their homes and drive their cars.

The final and long term development is that a major tax reform in the US would greatly lower corporate marginal income tax rates while eliminating many deductions and loopholes.  This change will obviously help US companies, lowering costs and thus fostering more investment in oil and gas.  Such a policy in the US will, of course, put pressure on the federal and provincial governments in Canada to lower taxes to remain competitive thus providing a substantial boost to Canadian businesses.

So, while not all of Mr. Trump’s proposals will be positive for Canada, his energy and tax plans will be beneficial.  In fact, Western Canadians will soon welcome the leadership of Donald Trump because he will pass legislation that will lead to greater prosperity.

Ian Madsen, Senior Policy Analyst