INSIGHT: New US administration pivots to fossil fuels

HOUSTON (ICIS)–The new administration of US President Donald Trump has pivoted wholeheartedly to fossil fuels, with the energy secretary warning on Monday the dangers of focusing solely on climate change while emphasizing the world’s continued reliance on oil and natural gas for producing energy.

“There is no physical way that wind, solar and batteries can replace natural gas,” said Chris Wright, US secretary of energy. He made his comments during the CERAWeek by S&P Global energy conference.

At the start of his speech, Wright stressed the ways that fossil fuels dominate the energy industry. Moreover, Wright argued that the world will need more fossil fuels because of rising demand for energy from artificial intelligence (AI) and from consumers in the developing world, who want to adopt middle-class lifestyles.

BREAK FROM BIDEN
Wright and Trump mark a sharp break from the previous administration of Joe Biden, which was marked by antipathy towards fossil fuels and incoherence.

While Biden was adopting restrictive policies, his energy secretary urged oil producers to make more crude.

Such energy contractions are so far lacking in Trump’s administration. Wright repeated the president’s sentiments and went as far as to pull out a marker and sign an order during a press briefing, something the president has done during the first weeks of his administration.

CLIMATE CHANGE TAKES BACK SEAT
Wright said consumers became collateral damage when the previous administration focused on climate change at the expense of promoting reliable and affordable sources of energy.

“We will end the quasi-religious policies on climate change that imposed endless sacrifice on citizens,” he said.

“The Trump administration will treat climate change for what it is,” Wright said. It is a global side effect for creating a modern world and the benefits that come with it, and dealing with it is a tradeoff, he said. “Everything in life involves tradeoffs.”

That said, Wright said he is a climate realist and not a denialist. He highlighted nuclear fission and fusion, both emission-free sources of power. He mentioned advances in geothermal energy and noted the growth in solar power.

The administration’s policies towards wind energy reflect cost and outrage from people who live near the projects, he said.

Wright said the administration does not oppose electric vehicles (EVs), but only the policies that restrict consumer choice and lavish incentives to wealthy people who do not need them.

“We need thoughtful, rational policies on energy and honest assessments on climate change,” he said.

SENTIMENT WILL NOT DIRECTLY BOOST OIL OUTPUT
Wright’s comments went over well with the energy conference, with the audience burst in spontaneous applause. While the US energy industry will welcome a cooperative administration, sentiment alone will not have large or immediate effect on energy production.

US oil and gas production grew despite the antipathy and incoherence of the Biden administration because much of it has taken place on the private lands of the Permian basin. Private land is free from federal restrictions and moratoria on leases.

Oil and gas producers will gauge demand growth and costs before they increase output.

Wright acknowledged that energy companies rely on market signals, and not government decree, to make investment decisions. But the administration can play a role by adopting policies that encourage investment and make it easier for companies to obtain the permits needed to build infrastructure and large-scale projects.

TARIFFS VERSUS ENERGY
One contradiction in the administration is its embrace of fossil fuels and tariffs as a central tool in economic and industrial policy.

If the US adopts tariffs, they will increase costs of steel and aluminium, key raw materials for oil and gas production.

They would also increase costs of imported grades of heavy oil.

US refineries are built to process heavier grades of crude. If faced with tariffs, US refiners could pay the tax or find alternative suppliers that could still cost more.

Otherwise, refiners would need to underutilize their plants or invest in costly retrofits that would allow them to process larger amounts of domestically produced lighter grades of oil.

Wright said the US is still in the early stages of its tariff proposals, but vigorous dialogue about their effect on the economy is taking place behind closed doors.

Oil and natural gas are important for the chemical industry because they are the predominant source of feedstock and energy. Chemical prices tend to rise and fall with those for gas.

In the US, feedstock costs tend to rise and fall with those for natural gas because ethylene plants predominantly rely on ethane as a raw material.

CERAWeek by S&P Global runs through Friday.

Insight article by Al Greenwood

Thumbnail shows an oil pump jack. Image by Shutterstock.