Markets, government policies are bigger drivers of demand
Exxon and ConocoPhillips supported the global accord
The biggest winners in President Donald Trump’s decision to walk away from the Paris climate accord are oil, coal and natural gas producers. And even they aren’t popping Champagne corks.
The president, who has called climate change a hoax, cast aside any lingering doubts about his commitment to fossil fuels Thursday when he announced the U.S. would quit the global agreement to cut greenhouse gas emissions.
In theory, that bodes well for miners, oil drillers and gas companies. Yet coal stocks slipped Wednesday after news first leaked out of Trump’s decision. And two of the biggest oil producers, Exxon Mobil Corp. and ConocoPhillips, reiterated support for the accord. That’s because market forces and individual government policies play a far larger role in driving energy demand than the Paris accord. So while quitting may be a boon for fossil fuels, it’s not necessarily moving markets.
“It’s symbolically important,” Anthony Yuen, an analyst at Citigroup Inc., said in an interview. “Numerically, it may not be as much.”
On the flip side, renewable energy companies are the biggest losers in Trump’s decision. The Paris accord is designed to accelerate a transition away from fuels that emit greenhouse causing gases and toward wind, solar and electric vehicles. And indeed, shares of solar companies fell Wednesday after early reports of Trump’s decision, including JinkoSolar Holding Co., the world’s biggest supplier, and Canadian Solar Inc., the biggest North American panel maker.
Analysts, however, predict those losses will be short-lived.
“The impact is going to be irrelevant,” Richard Chatterton, a Bloomberg New Energy Finance analyst, said in an interview. “In terms of renewables, there isn’t going to be a change in the trend.”
The reason boils down to state policies, economics and corporate demand. Even as Washington rolls back efforts to promote renewables, California, New York and other states are forging ahead. And after years of being supported by subsidies, wind and solar prices have plunged so much they can compete with fossil fuels in many areas.
That’s prompting corporations including Amazon.com Inc., Facebook Inc., Anheuser-Busch InBev SA/NV and scores of others to buy renewable power. It’s also leading Consolidated Edison Inc., the Tennessee Valley Authority and other energy giants to forsake coal -burning power plants in favor of wind, solar and cleaner-burning natural gas.
“Our businesses will continue to deliver clean energy solutions that make sense for our customers -- with or without the Paris agreement,” Jessi Strawn, a spokeswoman for the energy unit of Warren Buffett’s Berkshire Hathaway Inc., said in an email Wednesday.
Some analysts see an unequivocal win for fossil fuels. Stephen Schork, president of Schork Group Inc., said investors were discouraged from wagering on hydrocarbons during President Barack Obama’s eight years in office. Now Trump is sending a clear message: place your bets.
“The political winds have done a complete 180,” Schork said in an interview. “Pulling out of this accord will only further the oil and gas markets’ animal spirits.”
“The winners are merchant generators with coal-burning plants,” Kit Konolige, a Bloomberg Intelligence analyst based in New York, said in an email Thursday. “Coal plants now have more flexibility to run longer. Big regulated utility owners like Southern, Duke and Xcel Energy probably won’t see much effect because it doesn’t matter to their earnings whether coal plants run.”
On the other hand, Exxon and ConocoPhillips said the U.S. would be better off retaining a seat at the table, saying that staying in Paris would allow them to influence international efforts to reduce emissions from the oil they sell. Exxon Chief Executive Officer Darren Woods went further, saying at the company’s annual meeting Wednesday that oil demand will grow, with or without the accord.
“Energy needs are a function of population and living standards,” Woods said. “When it comes to policy, the goal should be to reduce emissions at the lowest cost to society.”
‘A Great Pity’
Coal producers were among the few companies that pushed for Trump to walk away from Paris, most notably Robert E. Murray, founder and CEO of coal miner Murray Energy Corp. Yet the industry isn’t united in the effort. Cloud Peak Energy Inc. CEO Colin Marshall said sticking with the accord would give the U.S. “influence” to ensure the future of fossil fuels.
Trump argued that staying in the accord would handicap American businesses, making it difficult for them to compete with overseas rivals. Impax Asset Management Group CEO Ian Simm said the U.S. may wind up losing its competitive edge by dropping out.
The U.S. is a global leader in energy efficient technology. Trump’s rejection of that effort may cause companies to think twice about some of their investments, opening the door for other nations to step in, Simm said in an interview.
“You may well see that the leadership is taken by China and other Asian companies rather than the U.S.,” said Simm, whose company focuses on sustainability and has about $7.8 billion under management. “It would be a great pity for many of the U.S. leaders in that industry.”
— With assistance by Jim Polson, Brian Eckhouse, and Tim Loh