Trump's Energy Dominance Mantra Is About Flogging Energy
(Bloomberg Gadfly) -- I'll confess, I am perplexed by the "Energy Dominance" slogan the White House has adopted. It isn't entirely clear to me who or what is being dominated and whether that's even a desirable thing.
But this week -- "Energy Week" -- offered some clarity. It appears to mean: Export more fossil fuels.
That was my big takeaway from President Donald Trump's speech on Thursday afternoon.
Energy independence -- the old Washington mantra -- is all about not having to rely on others. And indeed, America's continuing obsession with lines at gasoline stations more than 40 years ago cropped up again in the president's remarks. But as I wrote here, U.S. reliance on foreign energy, especially from outside North America, is already pretty thin.
Energy dominance has more to do with this:
We will be dominant. We will export American energy all over the world. All around the globe.
U.S. energy exports, barring coal (more on that below), have been rising for almost a decade:
To keep that trend going, the president touted some specific approvals of oil and liquefied natural gas export projects, while reiterating plans to open up more federal areas to drilling and mining.
An interesting adjunct was this:
The Department of the Treasury will address barriers to the financing of highly efficient overseas coal energy plants. Ukraine already tells us they need millions and millions of metric tons right now. They are many other places that need it, too. We will sell it to them and everyone else – all over the globe.
The president's desire to revive the U.S. coal-mining business is well-established. What is also well-established is that coal's particulate pollutants and carbon content, as well as the more competitive pricing of foreign coal, natural gas and renewable power, make that a tough promise on which to deliver.
Domestic coal suffered another blow on the same day the president was speaking, as Southern Co. suspended work on a high-profile, but deeply troubled, "clean coal" power plant in Mississippi. After spending $7.5 billion, Southern will now just run it on natural gas -- effectively leaving the utility with a gas-fired power plant that, kilowatt for kilowatt, cost about 12 times as much as a regular one.
Which makes exports a somewhat more realistic lifeline:
But only somewhat.
Wood Mackenzie just released new long-term projections showing global demand for thermal coal staying pretty flat from here on. India is central to any hope of a global increase in coal demand over the next few decades. And even there, recent solar-power deals suggest miners shouldn't take its appetite for granted.
One thing the U.S. has no problem exporting, however, is capital. So the president's suggestion that his administration might do more to steer financing toward the development of coal plants overseas represents a new approach to reviving domestic miners via encouraging foreign demand.
How well this would work in practice remains to be seen. Long-term pressure on coal demand means financing of any stripe for such power plants in Ukraine or even less-fractious places will be risky and high-cost. Meanwhile, as Kevin Book at ClearView Energy Partners points out, even if plants get built, they may take their coal from cheaper sources such as Australia.
One aspect of this export-led approach that can't have gone entirely unnoticed among some of the president's supporters is that encouraging ever more supply and availability of fossil fuels is ultimately deflationary. For U.S. exploration and production companies, that isn't the best of all possible worlds, but it does have some side benefits.
For one thing, they get more export options to diversify away from a flat domestic energy market.
It also, to some degree, puts pressure on competing renewable energy sources in overseas markets where governments have, at least nominally, shrugged off President Trump's withdrawal from the Paris Agreement. Cheaper supply of fossil fuels makes it harder, especially for emerging economies, to justify breaking their habit. This would fit with the administration's broader antipathy toward renewable energy.
And on that front, it is worth keeping an eye on a trade complaint filed by a bankrupt solar-panel manufacturer seeking stiff tariffs on cheap foreign panels to the U.S.
Imposing these would run counter to the administration's touted focus on jobs. Only 15 percent of the roughly 270,000 people employed in the U.S. solar-power industry work in manufacturing, according to The Solar Foundation's data. The vast majority of jobs relate to installation and project development, which would be hurt if the cost of equipment shot up and pushed down domestic sales.
That doesn't rule it out, though: The specter of a potential trade war reappeared on Friday, this time over steel.
Now that could be really deflationary for energy, albeit mostly by hurting demand for exports of any type. Domination wouldn't deliver quite such a thrill at that point.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.