U.S. President Donald Trump appears to be moving fast to make America an aggressively protectionist country.
Trump's protectionist trade agenda is likely to have far-reaching repercussions, including significant impacts on commodity markets. He has also signaled his intention to promote the development of domestic energy resources like shale gas and oil to make the U.S. less dependent on energy imports. His energy policy will be aimed primarily at creating jobs and raising wages.
One way for the Trump administration to increase energy production in the U.S. is by expanding access to resources on lands owned by the federal government. The government owns 20% of U.S. land, according to Daniel Walter, a researcher at Mitsubishi Research Institute. If there had not been restrictions on oil development on federal lands, U.S. oil production in 2015 could have been 14% larger than it actually was, Walter said.
One energy policy action the Trump administration is likely to take is to give the green light to the construction of the Keystone XL pipeline, according to Eli Owaki, an economist at Nomura Securities. Former President Barack Obama rejected the project in 2015.
The pipeline would bring 830,000 barrels of crude a day, extracted from oil sands in Canada, to U.S. refineries in the Gulf of Mexico. The amount would be equivalent to 10% of total U.S. oil imports.
Oil sands are a mixture of sand, water, clay and bitumen, or asphalt, which is highly heavy and viscous oil. The U.S. currently imports such heavy oil from the Middle East, but it would be cheaper to import oil sands from Canada, according to Tatsufumi Okoshi, a senior economist at Nomura.
Oil-producing countries in the Middle East are wary of the Trump administration's energy policy. They fear that increased U.S. imports of Canadian crude oil would lead to weaker demand for their oil and a fresh decline in crude prices. Trump is seeking to reduce crude imports from the Middle East to zero, Walter said.
Despite expectations that Trump will approve construction of the Keystone pipeline, however, Canada is also worried about Trump's energy policy, which is likely to ramp up oil production in the U.S. The Obama administration was cautious about permitting oil drilling in U.S. waters in the Arctic Ocean and the Gulf of Mexico, because of environmental concerns. But the Trump administration will be far more willing to promote offshore oil and gas drilling projects.
If many such projects are approved, U.S. oil output will start growing significantly. In a publication in December, the Canadian government warned that the U.S., once its best customer, has turned into its biggest competitor.
In November, the Canadian government approved a plan to expand the Trans Mountain Pipeline system, which connects Edmonton with the U.S., up to Vancouver. The expansion project, which will increase the system's capacity from 300,000 barrels a day to 890,000, is designed to make Canada ready to meet growing demand for crude oil in Asia. The move clearly is part of Canada's efforts to prepare itself for the prospect that the U.S. will become its major rival as an oil exporter.
Increase in production may lead to lower crude prices from 2018
Trump's energy policy agenda seems to spell a medium- to long-term increase in the global oil supply. An oil price above $60 a barrel will boost shale oil development and deep-water oil drilling, putting strong downward pressure on oil prices from 2018-2019, predicted Nomura's Owaki.
Trump's America could emerge as an even bigger oil producer and contribute to intensifying price competition among oil exporting countries. - Nikkei