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Celebrating likely over for Dakota Access Pipeline protesters as Trump pledges to sweep away hurdles in U.S. oil's way

Trump's laissez-faire attitude to environmental concerns and his America-first mantra likely turn global oil order on its head

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The Red Warrior Society has left the camp and only a few of the hardiest protesters are still braving the near-Arctic North Dakota weather after months of demonstrations.

[np_storybar title=”Obama had a pen, ‘Trump has an eraser’: New ‘America First Energy Plan’ lists early energy changes” link=”http://financialpost.com/news/energy/obama-had-a-pen-trump-has-an-eraser-new-america-first-energy-plan-lists-early-energy-changes”]

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Soon after Trump took the oath of office, an ‘America First Energy Plan’ was posted on the White House website that enshrined many of his campaign pledges as formal policy goals.

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But for the Native American Sioux tribe and their supporters, the battle to prevent the completion of the US$3.8 billion Dakota Access Pipeline that will funnel shale oil under Lake Oahe will go on – and they have pledged to take it national.

The Standing Rock Sioux tribe argue the pipeline threatens drinking water and cultural sites. But theirs is a fight that many think will be unwinnable with Donald Trump in the White House.

President Trump’s determination to steamroller such opposition and his choice of key lieutenants is likely to open the taps of America’s oil to the world, cutting its cost and the price of a trip to the petrol pumps.

Brent crude oil has recovered to above US$55 per barrel, almost double what it was this time last year, and higher prices are spurring growing shale oil output. The potential for further spiralling production in the U.S. is likely to be supported by fossil fuel-friendly policies at home and a protectionist mindset on the international stage.

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A gush of oil from the United States on to the global market could deepen a glut that has already forced the biggest exporters to cut supply.

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For the protesters in North Dakota, the outlook is grim. A December ruling by the U.S. Department of the Army that the oil pipeline under Lake Oahe couldn’t be built seems very likely to be overturned as Trump has indicated that he will give it the go-ahead.

Once operational, the 1,172-mile pipeline will transport nearly half a million barrels per day (bpd) of oil from the shale oil wells in Bakken to an oil hub in Illinois.

“The pipeline will lower the cost of delivering crude from Bakken on to the world market,” said Alan Gelder, an analyst at Wood Mackenzie.

It is also likely to lower the price at the pump for American voters, a factor which Trump and his team are surely taking into account. It is possible that not just U.S. shale oil will be pouring into the global market under a Trump administration. He has said he would approve the 830,000 bpd Keystone XL pipeline from Alberta in Canada to the U.S. Midwest.

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fp0124_pipeline_protest_c_mfThe pipeline, which the Obama administration rejected over environmental concerns, will make it far cheaper to get Canadian oil to international markets, with the trains currently needed to shift the oil across the continent retired to the sidings.

“It’s an open question as to whether the Keystone pipeline gets built, but there’s now a much higher likelihood that it will,” says Seth Kleinman, head of energy strategy at Citigroup. “If it does, it wouldn’t be a game changer in itself, but a rapid build out in pipeline infrastructure would reduce costs of getting U.S. shale oil to a refinery or exports markets, giving shale producers a helping hand.”

OPEC, the cartel of oil exporting countries, along with Russia and other producers, pledged in December to cut oil output by nearly 1.8 million bpd to bring supply back in line with consumption.

The deal, the first since 2008, prompted a bounce in prices. The dramatic recovery in prices since last January is set to lead to an increase in shale oil production in February after three consecutive months of decline, the U.S. Energy Information Administration said this week.

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“The net increase in U.S. shale oil production — which has headed downwards in a pretty straight line since March 2015 — is now likely going to head upwards in a fairly straight line instead,” said Bjarne Schieldrop, chief commodity analyst at SEB in Oslo.

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Doubts are mounting about whether the global oil supply will really be limited. Previously the Saudis, who had resisted calls for an OPEC deal, kept pumping at almost full-tilt to maintain their market share. A sharp rise in production from the U.S. could force them to do so again.

Amos Hochstein, an official from the U.S. Department of State told Gulf News this week that shale production had recovered to 8.7 million bpd and would surge back to 9.5 million bpd next year, close to the highs of two years ago. This is because prices are now well beyond the level at which it becomes profitable to extract shale oil. Trump’s policies are set to make it even cheaper to get the oil from the well to the global market, further incentivizing shale producers.

“He’s made it pretty clear that he’s pro-oil and in favour of deregulation,” said Carsten Fritsch, oil analyst at Commerzbank in Frankfurt. “This will contribute to higher oil production in the United States.”

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Fritsch noted that Trump had pledged to reverse policies introduced by the Obama administration designed to tackle climate change.

Projects that had been delayed by environmental concerns — such as the pipeline under Lake Oahe — will probably now be actively promoted by Trump’s administration. His team may also rip up other regulations which the domestic oil industry sees as limiting their ability to refine oil at full tilt.

Longer term, a more relaxed approach to the environment could mean a return to deep water exploration and production close to the U.S. coast, potentially yielding millions of barrels of oil.

Drilling is banned in 94 per cent of U.S. Federal waters, and at the end of 2015 Barack Obama tried to put a permanent block on drilling in the Arctic and most of the Atlantic coast.

The main industry body, the American Petroleum Institute, argued this month these restrictions and many others should be lifted to boost economic growth and provide jobs. They will see the appointment of Scott Pruitt, former attorney general of Oklahoma, and a strong supporter of the oil industry as Trump’s choice as head of the Environmental Protection Agency, as more evidence they are likely to get their way.

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Refiners have also lobbied Trump’s team to abolish the system of Renewable Identification Numbers, or RINs, which force refineries to buy credits to meet biofuel blending standards. Bloomberg reported in November that Trump’s campaign had published a factsheet calling for the elimination of the system of trading these credits, before backtracking.

It’s not just Trump’s laissez-faire approach to regulation that’s likely to keep oil prices in check. His fierce defence of the U.S. economy from competition by the outside world has provoked fears on the global stage that he will erect barriers to defend the domestic economy. The burgeoning shale oil industry would be a prime candidate for protection. “An import tax on crude would provide a big stimulus to increase the production of crude in the United States,” Gelder, at Wood Mackenzie, said.

Spencer Platt / Getty Images
Spencer Platt / Getty Images

Kleinman at Citi said that such a move could give U.S. crude a $5-$10 premium compared with Brent crude.

If Brent crude becomes cheaper than U.S. oil, it would make life even tougher for producers whose oil is relatively expensive to extract.

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North Sea crude, already seen as vulnerable to a low oil price, would struggle to compete if U.S. buyers evaporated while African producers such as Angola, Libya and Nigeria, whose struggling economies are heavily reliant on oil exports, could also see revenues tumble.

And if Trump’s policies provoked a trade war, that would also batter oil as well as all other major industrial commodities, as it would hit the world economy and shrink demand, Kleinman at Citigroup says.

The very real potential for a dramatic souring of the relationship between Iran and the United States could lead to a deal to lift oil-export sanctions being torn up, as Trump has threatened. That would send oil prices soaring.

However, the hiring as secretary of state of Rex Tillerson, the former chairman and chief executive of U.S. oil giant Exxon, indicates that the administration may take a more pragmatic diplomatic approach than some of Trump’s more vitriolic comments would suggest.

“It would do serious damage if he tears up the Iran nuclear agreement, and it’s possible he would do that,” Professor Paul Stevens, fellow at Chatham House said. “But he may have Rex Tillerson whispering in his ear about potential business opportunities in Iran which could appeal to Trump given his background.”

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Gelder at Wood Mackenzie agrees that having a canny operator with decades of experience dealing with difficult regimes around the world will put the U.S. in a strong position.

“Greater access to resources, less stringent regulation and improved infrastructure should increase U.S. production and so swing the near/medium term balance of power away from Russia and OPEC towards the U.S.”

Drivers around the United States are likely to benefit from a lower price at the pump, but not all Americans are looking forward to a return to an era of cheaper gasoline.

“This is a really scary time for Indian Country,” Allison Renville, an activist from the Lakota nation told NBC News.

“To have such an avid supporter of the oil industry who has consistently stated his support for extractive industry projects on Native lands named to the position as chairman is akin to stepping on our sovereignty.”

The Sunday Telegraph

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