ABU DHABI, United Arab Emirates—Before all of the votes were in, Eric Cantor, the former Republican majority leader and vice-chairman and managing partner at Moelis & Co., sat beaming Nov. 6 at the ADIPEC Exhibition & Conference.

Cantor said a second Trump administration is a key to making U.S. energy investable again.

Cantor, speaking at about 12:45 a.m. CST as Pennsylvania’s electoral college votes were still being tallied, said Trump looked likely to become the next president. About four hours later, The Associated Press called the race for Trump.

A second administration will bode well for oil, gas and LNG and bad for electric vehicle (EV) subsidies and, possibly, the Inflation Reduction Act (IRA), Cantor said.

“I think what we have to do is we have to take away the disincentives right now that exists in terms of investing in conventional energy,” Cantor said. “And I do think a Trump administration will satisfy that in the United States.”

Cantor said all things energy will be examined under a second Trump administration. That includes excising provisions in the IRA, such as carbon tax credits, which global energy executives have roundly applauded as a model piece of legislation at ADIPEC this week. 

Trump offers energy producers a much less burdensome and ideological regulatory environment that is more growth oriented, Cantor said.

“First off, we'll see the lifting of the LNG pause that the Biden administration had imposed, and that'll be a signal to investors that we can sort of count on a government in Washington that's not going to impede the continued development and export of LNG as a necessary component of the energy mix,” Cantor said.

In a later session at ADIPEC, Robert McNally, founder and president of the Rapidan Energy Group and a former energy adviser to President George W. Bush, said Trump’s election is unlikely to add production—market fundamentals and investment factors make that happen, not the president.

But as Biden showed, “a president has the power to hurt production, and the main way a president can do that is through export restrictions,” he said.

Trump’s victory removes the threat of export restrictions, although McNally added “there may be an issue of whether we curtail our LNG exports to China, for example.”

IRA, EV subsidies DOA?

McNally said he expects to see sweeping changes to climate policy, including leaving the Paris Agreement and possibly the United Nations Framework Convention on Climate Change, known as COP.  

“There's a small number of Republicans, members of the House particularly, who feel that we should be fully engaged on climate, but just in a more pre-market way,” McNally said. “But they're a minority and they really have no influence in the Trump administration.”

Cantor said climate funding is likely to be addressed next year as part of budgetary talks.

“There's [an] imperative to try and address the exploration of many of the tax rates that were part of President Trump's tax package back in 2017 and as they affect working families.”

Baked into that will be the funding of the government and the growing national debt. Cantor said that would lead to EV credits falling under the axe.

“There'll be a real push to try and look for how do you pay for all this? And one of the natural sort of go-to’s in terms of pay-for’s is going to be the electric vehicle industry,” he said. “And I think there's going to be a strong signal to investors and the players in the EV world that the subsidies that are in place now probably, I would guess, not [be] going to go forward.”

McNally also pointed to Trump’s interest in prioritizing domestic production of fossil fuels while ending EV subsidies and mandates.

“President Trump, he sees it not only as a waste of money, but as a way to basically subsidize China[’s] takeover of [the] auto sector. He sees it as a national security issue,” he said.

Cantor said renewables in general have been heavily subsidized, largely due to the IRA. Incentives in the bill have led to billions of dollars in announced solar, wind and carbon capture and sequestration projects.

“The taxpayers are contributing to the development of [the] renewables industry,” he said. “I think that everything will be on the table in this fiscal discussion next year and there will be a lot of individuals who will want to say, ‘we can just get rid of these subsidies.’”

However, members of Congress may take a different tack when it comes to the IRA.

“A lot of the renewables projects mean jobs to members of Congress in the House and the Senate. So, I wouldn't say all of them go by the wayside, but I'll go back to what I said before… I think the EV component in particular, given how political that has become, will very likely not go forward.”

International outlook

A looming concern for energy producers is Trump’s tariff policies. Biden has imposed tariffs on China’s solar panels, which Trump will either keep or enhance, Cantor said. Additional tariffs, if enacted, “certainly that's going to be inflationary.”

Trump would posit that countries exporting into the U.S. will pay the tariffs, but in the end “you're going to have some impact on prices and consumer prices in the U.S.”

“So it does worry me, but again, I think he is proposing the tariffs, number one to try and level the playing field to say, ‘Listen, we've got to go in and have some reciprocity as far as trade is concerned.’”

Partly, Trump may be posturing to some extent to get reciprocity from trading partners and renegotiate a better situation.

How that would ultimately affect interest rates is unclear.

“I do think that the bond markets are thinking that there's going to be inflationary policies coming out of Washington, which obviously can impact growth, can impact the M&A market. I’m at Moelis and that's what we do. So we're all watching it very closely.”

Asked whether anything in Trump’s economic plans worried him, Cantor said his concern was “where we are right now in the United States with the complete animosity towards fossil fuels, even natural gas,” he said.

Cantor instead said that what worries him is the pause imposed on LNG exports, especially given the “reliance Europe has and the need for LNG given what's going on in Russia and Ukraine.”

Trump has said he could end the Russia-Ukraine war in one day.

Cantor said that a lot is said during campaigns and Trump’s aim is to end conflicts so that the world can go back to “doing business and to growing together.”

“And I do believe that there'll be real progress and there'll be some type of cessation, I believe, of activity in the Russian-Ukraine situation,” he said.

McNally said his firm’s sense is that the war will end in the same fashion as the Korean War, with an armistice along prevailing battle lines. However, he doesn’t think the two sides are close to coming to terms.

“There's a sense that Trump is going to come in and basically force Ukraine to accept the deal on Putin's terms,” he said. “I think that's wrong.”

Trump will take a similar approach to Iran and Russia, working to gain leverage.

President Trump and his advisers consider the maximum pressure campaign against Iran as a huge success that drove Iran's exports down to about a 1 MMbbl/d.

Trump may threaten to increase arms supplies to Ukraine along with additional sanctions.

“Our sense is Ukrainians aren't ready to stop fighting,” McNally said. “Even if Trump cut them off, they wouldn't stop fighting.”

Comments