Theories Unbound: The Energy Sector’s Take on Trump

This week, I kept up my tradition of attending the annual holiday party at the Natural Gas Roundtable, a non-profit group focused on energy policy and whose events typically include the top movers and shakers in the industry.

The subject du jour, of course, was President-elect Trump’s picks of Exxon Mobil CEO Rex Tillerson and former Texas Governor Rick Perry for secretary of state and head of the Department of Energy, respectively.

Naturally, the cocktail hour after the meeting was abuzz with all sorts of theories, conspiracy and otherwise, as to what these selections might mean for the electric utilities, natural gas and oil industries.

Certainly, it’s no secret that Trump intends to boost fossil fuels while rolling back federal environmental regulations.

Even so, there’s been very little detail as to how exactly the President-elect intends to carry out his policies. Because of Trump’s unconventional political campaign and the resulting information vacuum, investors, energy leaders and policymakers have all been closely monitoring his appointments to get a sense of how he intends to govern.

Below, I’ll take you through some of the initial takes they offered at the roundtable, with an eye toward which areas might benefit most from Trump’s presidency.

Deal-Minded Designees

The unanimous verdict is that natural gas has a lot to gain from a Trump administration, particularly liquefied natural gas (LNG) exporters.

Given his background, Tillerson might be an especially deal-minded secretary of state, with Perry in a supporting role courtesy of his close ties to the energy sector from his long tenure as governor of Texas.

Aside from policy support, the global LNG market seems to be perking up, which is an encouraging sign despite the global glut.

At the meeting I attended, experts were hopeful yet cautious, as many noted that the significant LNG export capacity coming on line will only add to the oversupply.

To address the imbalance in supply and demand, they said that LNG needs an OPEC-style market to put pressure on prices, an idea that has been bandied about over the years. Some believe this could be an objective of the new administration.

In addition to demand from Asia, U.S. natural gas could also get a boost from our neighbor to the south. The Mexican energy minister who attended the meeting said his country currently imports more than 40% of its natural gas and intends to increase that to 80%, with more than $16 billion of investment.

Mexico’s electric utilities are increasingly shifting to gas-fueled generation from oil in order to lower electricity prices and cut carbon emissions.

The development of a pipeline to deliver natural gas to Central America is also being discussed.

Despite Trump’s contentious rhetoric, the Mexican minister believes that energy trade won’t be affected, a sentiment shared by most of the U.S. energy executives that were there.

One attendee quipped that with 50 energy interconnections between the U.S. and Mexico, trade can continue because pipelines “run under walls.”

Meanwhile, the issue that many experts believe the new administration should address is the rampant NIMBYism regarding pipelines and other energy infrastructure.

“While the protests have been mainly about oil pipelines, we’re concerned that this will extend to natural gas as time goes by,” said one attendee.

From the perspective of the utilities industry, the buzz from one or two execs I chatted with was that rising demand for natural gas will put renewed pressure on the industry to secure a low-cost supply. So the M&A trend in the utilities sector may be far from over.

We’ll continue to keep investors informed as we learn more of the potential investment implications of Trump’s presidency.

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