Power Play: How the 2024 Election Will Impact America’s Energy Policy?
The outcome of the next US election may have a big impact on energy policy, especially for the oil and gas industry. Morgan Stanley strategists talked about the possible developments under a hypothetical second term for former President Trump in a letter to clients on Monday.
Morgan Stanley points out that even while the president has limited jurisdiction when it comes to energy policy, some measures could nevertheless have a significant influence, especially in the long run.
Energy policy has emerged as a major campaign subject for Trump, according to strategists, who have connected domestic energy output to more general economic results like consumer pricing and inflation. Trump has constantly maintained that a rise in domestic energy output might result in lower consumer costs, establishing energy policy as a vital tool in the fight against inflation.
The regulatory environment will likely undergo one of the biggest changes during a Trump presidency. According to the study, deregulation could be something that Trump pursues, especially in sectors that support the production of oil and gas.
Rolling back Biden-era policies on climate-related emissions targets (like the methane charge or removing the President’s delay on gas export permits) or shortening the environmental assessment period required for project approvals’ are some possible solutions, strategists suggested.
With pledges to “end market-distorting restrictions on oil, natural gas, and coal” and to “increase energy production across the board,” the GOP platform endorses this strategy.
Morgan Stanley warns that there is little chance that these policy adjustments will cause production levels to change right away.
The process of actually bringing about changes in production lags behind the execution of policies, especially when it comes to leasing federal lands for the development of oil and gas.
The strategists observed that there is a delay in the implementation of policies and a corresponding shift in production levels.
For example, because policy changes are usually suggested for future leases rather than existing ones, there may be a ten-year lag between policy changes and production consequences when it comes to leasing changes on federal land.
The research also emphasises the conflict between concurrently cutting prices and raising oil production. Despite Trump’s support, it may be difficult to dramatically increase American oil output without lowering prices.
Increasing output much would probably require drilling more expensive wells, which might put strain on profitability if oil prices drop, experts noted.
Moreover, under a second Trump administration, it would be challenging to accelerate further as U.S. oil production is already at an all-time high and still rising.
The effectiveness of Trump’s proposed energy policy may be constrained by these competing objectives, as Morgan Stanley notes that “the economics of raising production substantially while lowering prices are challenging.”
Global oil markets may be impacted by the foreign policies of a second Trump administration on the international front.
The message suggests that the “maximum pressure” campaign on Iran would resume. This might result in a large decrease in Iranian oil shipments and possibly raise the price of oil globally.
Trump’s views on import duties, especially those pertaining to Chinese imports, may have an impact on demand for commodities globally and on commerce, which may have wider ramifications for energy prices.
Inflation Reduction Act (IRA) subsidies for electric cars (EVs) may also have an effect.
According to commentators, Trump’s opposition to EV subsidies has increased the likelihood that, should the Republicans win, their administration will undo the IRA’s electric car credit.
“In our opinion, this would have just a minor short-term effect on domestic oil demand. That being said, this might grow in significance in the future.
Moreover, the possible effect on natural gas is significant. According to the analysis, interstate pipeline building could become easier if the Republicans win control of Congress, potentially opening up access to inexpensive gas supplies from areas like the Marcellus Shale. Nonetheless, the analysis upholds that the overall effect on petrol costs in the United States would probably be restricted.
Morgan Stanley delves into the consequences for the United States power industry, specifically concerning the costs of natural gas. According to the paper, electricity costs may be directly impacted by any notable fluctuations in natural gas prices, particularly in areas where gas-fired power plants are the predominant source of electricity.
EBITDA for power stocks and rising electricity prices should be supported by rising petrol costs, according to the note.
Strategists, however, also alert investors to potential negative risks, such as the possibility of LNG cargo cancellations or a decline in the market for US gas exports, which could put pressure on pricing and, consequently, industry profits.
