What will Trump do to energy prices? Probably anything but what we expect
The world is still adjusting to having a former over-the-top game show host in the world’s most powerful seat. It has been a bit of shock therapy as Trump has kicked almost every nation in the crotch by way of introduction, although his manic policy implementations show the same tornadic planning style that his campaign did. Shoot first aim later is an understatement. The repercussions of this are serious, if poorly understood, for both US citizens as well as the rest of the world. This is extremely true when it comes to our lifestyle’s lifeblood, reasonably priced energy.
For many consumers, the cost of energy is a non-trivial issue. Gasoline costs are most obviously on the radar, with power costs an indirect second (which may take top spot as technologies unfold). Predicting where they are headed is of course impossible, although normally a new US government administration would provide some clues as to their intents through policy statements, ideological slants, etc. With The Donald, we have none of those guideposts.
He has thrown out a few indicators, the most notable being from his website where he outlines an energy policy that promises to lower the cost of energy for the American consumer. He also mentions making the US self sufficient in energy. It should come as no surprise that the two are mutually exclusive goals, or at the very least incompatible.
Lowering the cost of energy, or gasoline prices at any rate, means lowering the price of oil, which means increasing supply so much that it exceeds demand. That’s why oil prices fell so hard in late 2014 – high oil prices led to increased production (companies cashing in to sell all they could), which exceeded demand, so oil prices fell. Hard. Gasoline prices followed suit, and crowds thundered back towards large trucks and SUVs.
To keep gasoline prices low as Trump would like means supply has to exceed demand. But that is a cycle that can’t be achieved, because high oil prices were required to raise production in the first place.
Trump recognizes this, sort of, saying that he will open up federal lands for petroleum exploration. That will help somewhat, but the fact remains that high oil prices are required to keep production high. New frontier areas would be a decade from producing meaningful supplies.
A nail gets driven into this logical conundrum if one stirs in the desire to be self sufficient in energy. That means eliminating the 4-5 million barrels per day the US imports. Doing that would do two things: turn all that oil back onto the world market, cratering global prices, and creating a shortfall within the US, creating high oil prices (within the US). To quote the Dude from The Big Lebowski, that would not stand. There is no way that US oil production could increase by 4-5 million barrels per day without substantially higher prices.
There are other examples, but taking Trump’s energy plan literally leads to the inevitable conclusion that it includes goals that contradict each other. It is possible that the natural gas market might cooperate with his “plans”, because the US is very nearly self sufficient in natural gas, and could achieve that status with only marginally higher prices. The electricity market is another matter entirely, and will depend on Trump’s environmental agenda (if there is such a thing). Those are analyses for another day.
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