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US Regulatory Tracker: Key policies that may impact energy, metals markets



The Trump administration: A Platts news and analysis feature

Compiled from staff reports by Meghan Gordon

Published online 20 March 2017



A slew of policy proposals under US President Donald Trump could impact the markets S&P Global Platts covers. Below are some key initiatives:



BUDGET CUTS


Trump's fiscal 2018 budget proposed a $54 billion increase in defense spending to be offset by dramatic cuts across the government. The document is the start of negotiations with Congress expected to stretch much of the year.


  • The Environmental Protection Agency would see the largest relative budget cut of 31%, with much of that targeting climate change programs.
  • Department of the Interior funding would be cut 12%, which would be partly paid for by not acquiring new federal lands.
  • Department of Energy funding would be cut 5.6%, with several research and technology loan programs axed.
  • Yucca Mountain: DOE would get $120 million for spent nuclear fuel management, including restarting licensing work on the proposed Nevada repository. More than 70,000 mt of spent fuel is stored across the US.
  • The Army Corp of Engineers, which plays a role in permitting of coal and pipeline projects, would face a 16% funding cut.


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AUTO FUEL ECONOMY RULES


Trump scrapped an Obama-era midterm review of the 2022-2025 auto fuel economy standards and may weaken them after a new review, which is expected to take a year.


  • Gasoline demand: Easing the standards will not lead to significantly higher gasoline demand, and any impact will be diluted by the fact that it takes 10 years or longer to turn over the US fleet of light vehicles.
  • Steel demand: Any boost to steel demand would be muted because many steelmakers already produce high-strength, low-alloy lightweight steel to compete with aluminum.


BIOFUEL MANDATE


Ethanol RINs for 2017 compliance have fallen 19% since word leaked of a deal between the Renewable Fuels Association and White House adviser Carl Icahn to move the Renewable Fuel Standard's point of obligation from refiners and importers to blenders at the wholesale rack. The White House said no plan is in the works, but the sustained RIN weakness reflects widespread expectations of RFS changes ahead.



STRATEGIC PETROLEUM RESERVE


At least 18 sales of a combined 124 million SPR barrels are planned through fiscal 2026.


  • PetroChina in March became the first Chinese company to buy crude from the US SPR, underscoring the country's interest in US exports. It bought 500,000 barrels at $52.36/b, the highest price among all winning bids. Stronger Dubai crude prices as a result of the OPEC cuts have prompted Asian refiners to source medium sour grades from the US Gulf Coast, which has only been possible since export restrictions were lifted in December 2015.
  • So far this year, DOE has sold 16.4 million barrels of crude from the SPR at an average of $52.55/b. The sale that included the PetroChina purchase offered a total of 10 million barrels, which sold for $517 million. Most of those deliveries are expected in May and June.


PIPELINES


  • Dakota Access Pipeline: Oil will likely flow under Lake Oahe in North Dakota this week, with full commercial service to Illinois starting very soon thereafter. An appeals court denied an emergency request by tribes to block the startup. Bakken crude differentials have not reacted sharply to the legal developments, on expectations that Trump's support of the 470,000 b/d project gave it a clear path to completion.
  • Keystone XL: The Department of State has one week to make a decision on TransCanada's new application for a presidential permit under a White House executive memo calling for an expedited 60-day review. The revived project for delivering 830,000 b/d of diluted bitumen from Alberta to the Texas Gulf Coast cleared a hurdle this month when the White House said it would not be required to use US steel. Other challenges to its viability remain, including a US tax proposal discouraging imports like Canadian crude.


FERC'S LACK OF QUORUM


  • Several natural gas pipelines could be delayed by the Federal Energy Regulatory Commission's lack of quorum. While the White House is poised to nominate three new commissioners to the five-seat commission, the confirmation process could stretch into May or June, if not later.
  • NEXUS Gas Transmission pipeline: FERC signed off on several big projects before losing quorum, but the 1.5 Bcf/d line was not one of them and may bump up against springtime tree clearing restrictions to protect birds. The project nevertheless says it can meet its fourth quarter startup target.
  • Other gas pipelines: the 2 Bcf/d Mountain Valley Pipeline, 1.5 Bcf/d Atlantic Coast Pipeline and 1.1 Bcf/d PennEast Pipeline are looking for summer approvals to remain on schedule.
  • Electricity: Key changes to electric market rules are awaiting FERC action. PJM Interconnection's May capacity auction will be the first to phase out the lower-performing base capacity product and will only accept offers from resources expected to be available any time and when needed most.


TAX REFORM


  • GOP plan: House of Representatives Republicans want to cut the corporate tax rate to 20% from 35% and pay for those cuts with a border adjustment that would tax imports but not exports. The plan could raise consumer prices, upend energy and commodity trade flows, and inflate WTI prices by as much as 25% relative to Brent. Economists are still debating how much a stronger dollar would offset those effects.
  • Trump's plan: The president has sent mixed signals about tax reform. He said in February he would propose his own plan within weeks.
  • Outlook: Companies in a range of sectors are lobbying heavily for exemptions and alternative plans. Talks are expected to last much of the year in Congress.


FOREIGN POLICY


  • Iran nuclear deal: Trump has repeatedly criticized the deal, but efforts to weaken it have been delayed by Michael Flynn's resignation as national security adviser and slow State Department staffing. Flynn said Iran was "on notice" after it conducted a ballistic missile test.
  • Imports of Saudi oil: While Trump pledged "independence" from OPEC and suggested a ban on imports of Saudi crude during his campaign, the White House said he and Saudi Deputy Crown Prince Mohammed bin Salman committed during a meeting last week to a path that could boost such imports and investment in the US. They pledged to "continue bilateral consultations in a way that enhances the growth of the global economy and limits supply disruption and market volatility."
  • Russia sanctions: The controversy surrounding Flynn's resignation made it less likely the White House will swiftly move to ease energy-related sanctions against Moscow. Nikki Haley, US ambassador to the United Nations, signaled a tougher stance when she called on Russia in February to de-escalate violence in eastern Ukraine and said US sanctions would remain in place until Russia returns Crimea to Ukraine.
  • Travel ban: A federal court suspended a revised travel ban, which blocked entry for citizens of six majority-Muslim countries. Iraq was taken off the list. Trump has threatened to revive the policy. Jet fuel and shipping markets could be impacted. About a third of European travel agents surveyed expect lower business travel demand to persist for six to 12 months, which could dent jet fuel demand. The orders have also triggered uncertainty over the mobility and rights of shipping crews, with the UK P&I Club recommending companies refrain from making crew changes in the US.


NUCLEAR FEES


Eight bipartisan senators introduced a bill that would cap annual fees the Nuclear Regulatory Commission charges reactor operators and would require the agency to develop a streamlined process for licensing advanced reactors. It would increase accountability in NRC fee-setting and would limit the amount of surplus uranium DOE could release annually into markets.







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