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Election of Trump as new president of the United States: what are the effects on the offshore industry?

9 December 2016

On November 8 this year the United States of America elected Donald Trump their 45th president. For months, polls, media and other officials all pointed to Hillary Clinton as the only possible winner of the elections. Right up to the evening of the elections, The New York Times predicted Clinton would win convincingly with an 86% certainty of becoming the new president. However, as everyone knows, things didn’t quite go as planned. Now that the dust has settled somewhat, the question arises as to what the effect of Trump’s appointment as president is in general but also what the effect is on the offshore industry in particular.

 

Oil & gas

During the campaign, Trump repeatedly expressed his desire for the United States to become ‘energy independent’. This means that the United States no longer want to be dependent on others (e.g. the Middle East) when it comes to their energy needs.

Trump is in favor of new exploration and production of, among others, shale gas, but also offshore oil and gas. However, it is unclear as to how exactly he wants to implement this. Fact remains that he wants to ease down on environmental requirements, which will probably lead to boost to drillers.

The current low level of exploration and production activities is not, however, due to Government policy, but to economic conditions: the low oil price. This, once more, points out the influence of OPEC (Organization of the Petroleum Exporting Countries) rather than the influence of Washington’s policy.

The OPEC countries had a meeting at the end of November with the main goal to agree on a previously announced price ceiling. They were able to reach an agreement and oil prices immediately rose. The question is whether the agreement will stand hold and what the long-term effects on the oil price will be. Furthermore, the question is whether Trump’s possible incentives can have such an effect that there will be a significant increase in exploration and production.

 

Wind

Trump has said to be a non-believer when it comes to global warming and thus wishes to break the climate agreement of Paris. This climate agreement proposes to keep global warming below 2 degrees Celsius. Furthermore, emissions of greenhouse gasses and other pollutants are to be reduced to a minimum.

The question is whether Trump is able to annul this agreement in the imminent future, as he can officially only terminate the agreement after four years. Trump, however, is looking for ways to find a way to circumvent this four-year rule.

Recently, Trump fiercely demonstrated against the arrival of a wind farm off the coast of Scotland. Although this protest was likely motivated by the fact that he owns a golf course there, it is clear that Trump is not a supporter of offshore wind energy. He finds wind energy too expensive and wind mills harmful to birds.

Despite the negative rumors, it is expected that the influence of Trump’s appointment on the offshore wind industry in the United States will be limited. True, he is not a supporter of wind energy, but policy on offshore wind is largely locally developed. States that have the possibility to build offshore wind parks are states along the east and west coasts, the so-called democratic states, and policies concerning offshore wind are long term plans which are partly already put into operation.

Furthermore, new developments in Europe show that the cost of offshore wind is currently dropping significantly. Borssele I and II, off the coast of Zeeland, are awarded to Dong Energy. Dong Energy will build the park for an average of € 7.27 cents per kilowatt hour, excluding connection fees for TenneT of € 1.4 cent per kilowatt hour.

In early November, the construction of the Kriegers Flak wind farm off the coast of Denmark was awarded to Vattenfall. Vattenfall is going to build this park for an average of € 4.99 cents per kilowatt hour. This means that the cost for the construction of offshore wind farms has decreased by 30% in six months.

The winner of the tender of Borssele III and IV will be announced in the foreseeable future. The question is at what cost, but it is expected that this will be lower than the winning bid of Borssele I and II.

This trend of decreasing prices will have a stimulating effect on new parks, not only in Europe but also in Asia and North America.

 

Actions, not words

 

The following period will show to what extent Trump can deliver on what he has been saying during his campaign. During the first week after the elections, Trump has expressed himself more moderately on various topics (e.g. Obamacare). The staff he has appointed so far, portrays an image of extremes. On the one hand, he appointed Reince Priebus, Chairman of the Republican Party, chief of staff. Priebus is a respected member of the Republican Party and represents the leaders of that party. On the other hand, Steve Bannon, editor in Chief of Breitbart News, has been appointed as strategist. Bannon represents the anti-establishment-core and can be labeled as far right.

All in all, it can be concluded that central powers can affect the offshore industry, but that there are also other factors which play an important role. This may include decentralized governance, but also economic conditions.

Mirthe Lantman, strategy consultant for JBR