With voting underway in today’s U.S. presidential and congressional races, analysts at commodity research and pricing benchmark provider S&P Global Platts say the outlook for U.S. energy products and policy is full of uncertainties regardless of who wins.
Released earlier today, S&P Global Platts U.S. Election Analysis found that re-election of President Donald Trump would likely bring continued easing of regulatory constraints on the oil and natural gas industries. Victory for Democratic challenger Joe Biden would elicit more regulation, but also encourage growth in renewable energy forms.
“However, in the short term it will be the likelihood of stronger economic growth and a more positive outlook on global trade under a Biden administration that could lend support to energy prices,” their analysts write. “But under such a scenario, offsets could include the potential return to the negotiating table on the Iranian nuclear deal and growing humanitarian issues in Venezuela, with any early return of oil supply from either country weighing heavily on energy prices.”
Also surprisingly, they write, an election win by either candidate points to large rollback of agriculture sector subsidies.
Transactions vs. Trade Relationships
S&P Global Platts is forecasting that a second Trump term would mean a continuation of the 45th president’s “one-off transactional diplomacy, treating allies and adversaries no differently,” while a Biden Administration would look to heal relationships and strengthen trade partnerships.
They note that significant progress has been made in the Phase 1 U.S.-China trade deal, despite unmet 2020 commitments (with the exception of some increases in agriculture purchases). Purchase shortfalls are expected to be rolled over into the 2021 commitments, which S&P Global Platts expects will support energy and agricultural commodities.
A second Trump term will likely be supportive of traditional U.S. energy industry players, encouraging exports and loosening regulatory constraints, while Biden will seek to resume Obama-era policies, with tighter regulations on pipeline, flaring and fracking, especially on federal lands.
“Under Biden we expect faster economic growth, higher employment, acceleration of inflation, a weaker dollar, and smaller deficit supported by the assumption of a greater degree of stimulus to support growth, less restrictive assumptions on immigration, stronger healthcare programs, and support for a higher minimum wage.
“Tax policies and perceived subsidies to the energy industry could come under renewed scrutiny under Biden. Provisions such as the master limited partnership structure, depletion allowance, intangible drilling costs, and section 199 domestic manufacturing deduction could be reduced. In a weak price environment for oil, gas, and coal commodities, these measures would likely further hamper recovery for the energy industry,” they write.
Return to Paris Agreement? Not so fast
Renewable energy, not surprisingly, will find a more receptive audience under a Biden Presidency, which could lead to U.S. “re-engagement” with Paris Climate Agreement commitments, and accelerated investment in solar, wind and storage technologies. However, even if Biden wins, any large-scale U.S. climate initiatives will depend on the post-election makeup of the U.S. Senate, and could lose out to other, non-energy policy imperatives.
Under a second Trump term, S&P Global Platts projects, U.S. LNG and crude oil exports will be pushed as a trade balancing mechanism in Asia and Europe. A return of Iranian barrels to the global energy supply is “not out of the realm of possibility,” they write, but “risks of missteps and tensions in the Middle East are heightened.” In the petrochemical market, a Trump victory could elicit new trade tensions with key Asian demand countries (specifically China), which in turn could impact trade activity in ethane, LPG, ethylene and polyethylene.
Domestically, a Trump win means subsidies and tax changes will be used to promote further development of fossil fuels, and any remaining federal incentives to promote renewables will be cut back or eliminated.
By contrast, S&P Global Platts anticipates a more multilateral approach to trade under a Biden Administration. Near-term focus will likely favor alliance repair, and winning support from traditional allies for foreign policy initiatives vis-a-vis actors like Iran, Venezuela, China and Russia. While a return of Iranian barrels to global supply is more likely under a Biden Presidency, they say this is unlikely to happen meaningfully before 2022.
California litmus test
Under Biden, a tighter overall regulatory focus will favor oil and gas majors over independents, due to the additional costs involved in limiting flaring and venting from field and pipeline operations. Energy policy will shift in favor of renewables and battery storage (over fossil fuels) in power generation.
Additionally, they find, a Biden Presidency would probably work to reverse Trump Administration rollbacks of Obama-era regulations, using the Congressional Review Act to do so quickly. They predict that the EPA under a Biden Administration would approve California’s pending waiver under the Federal Clean Air Act, allowing that state seek stricter clean air standards, and that this could provide a template for other states wishing to pursue tighter emission control policies.
