An oil industry between two fires

Politicking between two US presidential candidates has never been so colourful. As the election approaches and the polls swing back and forth, neither Trump nor Clinton have offered the oil industry what it needs

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Just one week before election day and the outcome is still too close to call.

At the time of writing, the polls were divided, but ABC's latest survey sees Trump pipping it.

Whether it is Clinton or Trump who manages to triumph through the scandals - allegations of sexual misconduct for one and an impending FBI investigation for the other - the next US president will inherit an energy sector at a crossroads. The new leader of the free world will also face several important decisions on matters ranging from carbon emissions reduction policies to drilling regulations and taxes.

President Obama's successor must achieve a delicate balancing act of cutting carbon emissions while bolstering US oil, which has been stretched for years by a refining system under pressure and bulging stocks. When the country's 40-year old oil export ban was finally lifted at the end of last year, US crude faced entry into a global oil market oversupplied by around 1.5m barrels a day.

The result was that at the beginning of January 2016 West Texas Intermediate - the US benchmark -plunged to a 12-year low of under $30 per barrel.

What the US oil industry needs now is strong policy leadership and government support to get back on its feet.

From Trump it doesn't look like it will get clear policies, from Clinton it will lack support because of her focus on promoting renewables.

Many analysts are reluctant to hazard a guess of what a Trump win would mean for the industry. While the sector has overwhelmingly supported the Republican Party in the run-up to recent elections, Trump's energy policies have been vague: overarching pledges to "declare American energy dominance" while being independent "of any need to import energy from the Opec cartel or any nations hostile to our interests" leave it unclear as to what his plans for enhancing US energy security really are.

Eliminating Opec supplies from the US crude oil mix would require replacing over 30% of the country's imports, according to the Energy Information Administration (EIA). If we add Mexico - which accounts for 8% of US oil imports - Trump has a big job on his hands in reshaping the country's energy economy.

He has resurrected Sarah Palin's old mantra of "drill, baby drill", calling for a drastic reduction in regulations on leasing federal lands to bolster crude output.

Light, tight oil output in the US' seven most prolific regions is still falling. The EIA expects production to be just 4.429m b/d in November, down from almost 5.1m b/d a year earlier. Total US crude output is down over 0.73m b/d from a peak of 9.42m b/d in April last year. This has pushed hundreds of upstream producers and oilfield service and pipeline companies either deeply into debt or facing bankruptcy. But the shale industry is primed for growth and Opec might just help it out with a freeze in Vienna.

Trump also calls for a reversal of the moratorium on new leases for coal mined from federal lands - introduced by President Obama at the beginning of this year - while at the same time encouraging "American energy resources that will both reduce emissions but also reduce the price of energy".

His vision of boosting US coal output is not just incompatible with reducing carbon emissions, it also demonstrates a lack of understanding of the US power generating sector. Last year gas overtook coal as the country's top fuel for power generation .

Since then gas demand in the country's power generating sector has soared, helping to draw down bulging stocks.

Chris Maine, an oil analyst at Citibank, said a Trump win would likely boost US crude production by relaxing regulation and tax liabilities, but it may not help the country's ability to trade crude internationally by increasing geopolitical risk.

"Under Trump we would see US oil production grow quicker and coal output would rise too," says Maine. "But he's talked about banning potentially 1m b/d of Saudi crude imports. This could increase US transport costs despite higher domestic production. It (rising crude production) would also depend on access to asset financing."

A Democrat win wouldn't be distinctively helpful to the oil and gas industry either.

Clinton has been a very public opponent of the Keystone XL pipeline and as this year's election has approached she's become more of a cautious opponent of fracking. At a presidential debate in March she said she wouldn't support fracking in any state opposed to it, if it contaminates water or if chemicals used are not disclosed.

"So by the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place," she said.

What Clinton's anti-fracking rhetoric will mean for the oil industry, when the process accounts for around half of US domestic oil output , is unclear.

"It's not great (for the oil industry) but this rhetoric was used throughout the whole of the last administration as well," Maine said. "It will probably be more negative for the coal industry."

Clinton's energy policies advocate tougher environmental protection, increasing uptake of renewables and prioritising a greater push to decarbonise the country's power sector.

She wants to slash carbon dioxide emissions by 30%, from 2005 levels, within the next decade. That's more ambitious than pledges made at the Paris climate talks last December to cut them by 26%.

As a supporter of Obama's Clean Power Plan - which aims to enforce emissions cuts and facilitate a switch from coal-fired power generation to renewables - Clinton would likely back a carbon tax as well if it was implemented.

The disparity between Clinton and Trump's energy policies are reminiscent of the verbal sparring between Barack Obama and John McCain in the run up to the 2008 election. At the time, Obama dismissed McCain's policies as gimmicks, saying they would "only increase our oil addiction for another four years".

Obama was referring to McCain's proposals to award a $300m prize for development of a battery package for powering electric cars, while temporarily suspending federal taxes for gasoline over the peak summer driving season to reduce prices consumers were paying at the pump.

McCain also pledged to offer tax breaks to big oil. Similarly, Trump champions the protection of existing oil companies' finances saying the Environmental Protection Agency "is so restrictive that they are putting our energy companies out of business".

Meanwhile Clinton, much like Obama, sees promoting clean energy as the route to boosting the sector's economic output and increasing the number of jobs.

Clinton upholds Obama's environmental manta, pledging to turn the US into "the clean-energy superpower of the 21st century". If she wins, the oil industry will be hoping the coal sector will bear the brunt of any tightening of environmental regulations and that her anti-fracking rhetoric will remain just that.

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