When investing in U.S. energy equities, it's important to keep in mind that the Trump administration has a very different attitude toward energy production than the Obama administration. President Trump plans to speak about the U.S. energy industry on Thursday, and investors should listen.
In the United States, the executive branch, which is run by the President, has broad reach over energy regulations. The President also has the power to provide financial assistance to energy businesses through loan guarantees, grants, and direct government purchases. When the Executive Branch favors a certain energy business or industry, many consider that a sign of good investment. When he disfavors it, many consider it a negative sign.
Much of U.S. energy is produced on land owned by the federal government. Hydraulic fracturing, coal mining, offshore drilling, wind turbines, and solar panel farms are often found on government land and development cannot happen without government permits, giving the President great discretion over what is given the opportunity to succeed. Moreover, at least four major government agencies spend significant resources setting and enforcing policies directly related to energy production and use. All of these agencies are controlled by the President.
Under President Obama, the government set a priority to provide financial assistance for research, development, and growth in primarily new businesses offering clean and renewable energy. The Obama administration provided loan guarantees and grants to solar panel companies and electric car companies. The administration exempted wind power and solar power firms from laws and regulations that would have punished them severely for the death of thousands of migratory and endangered birds. And the previous administration hurt carbon energy producers—their competitors—when they delayed and denied permits for carbon energy firms. Coal power plants, for example were almost regulated entirely out of business. For investors in the U.S., green and renewable energy firms were appealing during the Obama administration.
President Trump, on the other hand, has spoken about promoting energy exports and increasing fossil fuel production in the U.S. He has promised to expedite the approval process for new oil and gas pipelines, and he set the stage for approval of the Keystone XL pipeline (NYSE:TRP) almost immediately upon entering office.
Here are some of the issues investors should look for when President Trump speaks about energy on Thursday:
- Will he speak about increasing permits for oil exploration and drilling on federal lands? This is an important point, especially for mid-size and smaller shale producers.
- Will he speak about expediting opportunities for offshore oil and gas drilling? Firms have been waiting to tap into this promising resource, especially off the coast of the Southeastern U.S.
- Will he speak about relaxing regulations that were based on the Clean Power Plan? If he does, it would help the coal mining businesses and coal fired power plants compete in a market flooded by cheap natural gas. For the last several years, coal has been pushed out of the market by competition from natural gas and by government regulations.
What will he say about his goal for the U.S. to be a net energy exporter? He could provide a boost to the value of ports, shipping businesses, and natural gas liquefaction plants.