Trump’s “energy revolution” to destabilize energy markets

Oil&Gas Materials 30 June 2017 11:18 (UTC +04:00)
US President Donald Trump's ambitions to achieve “energy revolution” will destabilize energy markets.
Trump’s “energy revolution” to destabilize energy markets

Baku, Azerbaijan, June 30

By Leman Zeynalova – Trend:

US President Donald Trump's ambitions to achieve “energy revolution” will destabilize energy markets, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and SVP MEA-Risk, told Trend June 30.

He was commenting on the statement made by Trump that the US is on the cusp of a new energy revolution.

“First of all, we need to understand it is not an energy revolution, at the same time it is almost no change to former president Obama's plan and strategy. Until now, the differences are minimal in reality, only the tone is more aggressive,” noted Widdershoven.

He pointed out that an energy revolution as presented at present is nothing else than all other presidents have been trying to reach, an energy independent US, with now also with emphasis on energy exports.

The costs and constraints of this policy are already showing, as US will need to compete with others, and is going to put pressure on allies and other producers, resulting in a further destabilization of energy markets and geopolitics, the expert believes.

“First of all, if put in place, additional volumes will be pushed on the global markets, at a time that there is a fight ongoing between demand and supply, with low oil and gas prices,” said Widdershoven. “At the same time, the real question is how is the US going to do this, as taking a real commercial business point of view, production costs of the US oil and gas, shale and offshore, are higher than most other regions in the world. It will mean that the US is pushing for additional volumes, which in reality are not commercially attractive at current price levels. Investments will be low, as the internal rate of return (IRR) is also low.”

This policy of Trump will further destabilize the market, which not only will hit price levels for OPEC and Russian producers but at the same time put US producers under extreme pressure, the expert believes.

“Most shale oil/gas will not be feasible under $40-45 per barrel. Nice strategy, but reality is different,” he said. “The targets set by Trump are unrealistic. Oil exports to Mexico is plain irrelevant, as it is cheaper to produce in Mexico (if investments are there) than to export US oil-gas to one of the world's oil countries with a high potential. Exporting gas (LNG) to others also will have a negative effect, not only for traditional LNG exporters but also for the commercials of US companies, prices will be lower, and so investment returns also.”

The expert noted that to keep production in US also higher, new technologies and large scale investments are needed, something Trump currently had cut budgets for.

“Trump’s ambitions will be hitting a brick wall, as price/investments and demand will not be sufficient to take US volumes also. With lower prices or geopolitical issues, Washington will see that it is working against itself,” said Widdershoven.

Earlier, Trump hailed an energy revolution marked by surging US exports of oil and natural gas.

Trump cited a series of steps the administration has taken to boost energy production and remove government regulations that he argues prevent the United States from achieving “energy dominance” in the global market.

“Together, we are going to start a new energy revolution — one that celebrates American production on American soil,” Trump said in a statement, adding that the US is on the brink of becoming a net exporter of oil, gas and other energy resources.


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