In my last post — President Trump’s ‘Xanatos Gambit’ Trade Policy — I spoke to how President Trump has set up his political strategy on trade policy to make any outcome on the USMCA Trade agreement that he negotiated to replace the NAFTA agreement would be to his advantage over House Democrats and the “purchased by the multi-national corporation China Lobby” GOP Senators. In this post I am going to lay out President Trump’s “Global Energy Dominance” export policy’s “Xanatos Gambit” strategy tree vis-à-vis the 2020 presidential elections.
To start with, I’m going to refer you back to this passage from my last post on how the Trump Administration is “gaming” economic growth measurements:
This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:
GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT – IMPORTS – EXTERNAL INVESTMENT
The American economy just grew 3.2% in the 1st quarter of 2019. It would have grown another 0.3% but for the 30-odd day federal government shut down. The “markets” were expecting 2.5% GDP growth. The huge half-percent GDP “miss” boiled down to:
1. The USA exported more.
2. The USA imported less and
3. There was more external foreign investment than expected.
All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.
The Trump Administration upon coming into office in January 2017 had a huge windfall of energy projects that the Obama Administration had held up approval of in the Federal Energy Regulatory Commission. This windfall neither began nor ended with the Keystone XL oil pipeline. There was a whole cornucopia of oil and natural gas energy infrastructure projects that Democratic Party interests, only some of them environmental, that the Obama Administration was using the FERC to sit on for a whole lot of reasons that I refer to as “The Economic Cold Civil War.”
While the media was spending a great deal of time talking about things like the Congressional votes to open the Arctic Wildlife Refuge in the early days of the Trump Administration’s energy policy implementation. President Trump spent a great deal of his early political capital on getting his earliest political appointments through the Senate to the FERC to get those projects turned loose as a part of President Trump’s “Global Energy Dominance” export policy. The first fruit of this export infrastructure energy policy focus started paying off with the Louisiana Offshore Oil Port (LOOP) coming on-line in 2018. See this Apr 16, 2019 article by Julianne Geiger at Oilprice.com:
The United States nearly doubled its oil exports in 2018, the Energy Information Administration reporting on Monday, from 1.2 million barrels per day in 2017.
The 2.0 million barrels of oil per day exported in 2018 was in line with increased oil production, which averaged 10.9 million barrels per day last year, and was made possible by changes to the Louisiana Offshore Oil Port (LOOP) which allowed it to load VLCCs (Trent Note: Very Large Crude Carriers) .
The changes to LOOP and to the sheer volume of exports were not the only changes for the US crude oil industry. The destination of this oil shifted in 2018 as well, and even shifted within the year as the trade row between China and the United States took hold.
Overall, Canada remained the largest buyer of US oil in 2018, at 19% of all oil exports, according to EIA data. During the first half of 2018, the largest buyer of US crude oil was China, averaging 376,000 barrels per day. Due to the trade row, however, US oil exports to China fell to an average of just 83,000 barrels per day in the second half, after seeing zero exports to China in the months of August, September, and October.**
[**Please note above the nice thing about energy exports is how futile a energy user embargo is against it. China’s economic embargo of US crude products only hurt itself.]
The impact of the Trump Administration’s energy export policies from those early days of his administration in terms of liquefied natural gas (LNG) export facilities are now impacting the American economy. A large part of the extra 0.7% GDP growth achieved over the 2.5% Wall Street forecasts in the first quarter of 2019 came from the Corpus Christ 1 and Sabine 5 LNG export facilities coming on-line in late 2018 and making their first full export capacity quarter in Jan – Mar 2019. The Cameroon 1 and Elba Island 1-6 LNG export facilities were also scheduled to come on-line in Late Feb-Early March 2019, and were very likely large contributors to LNG export surge.
This is how CNBC described 2019’s 1st quarter:
Robust demand for Texas oil and gas in the first two months of 2019 pushed the state’s export activity into high gear, strongly outpacing the national rate and contrasting with a slight decline by California.
Texas represented nearly 20% of all U.S. exports in the January-February period while California accounted for roughly an 11% share.
California has seen its share of total U.S. exports fall in recent years while Texas has been growing its share due mainly to the new oil boom.
And this is only the beginning for the US economy in 2019. See the following text and LNG export facility graphic from a Dec 10, 2018 report by the US Federal government’s Energy Information Administration:
U.S. LNG exports continue to increase with the growing export capacity. EIA’s latest Short-Term Energy Outlook forecasts U.S. LNG exports to average 2.9 Bcf/d in 2018 and 5.2 Bcf/d in 2019 as the new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity. The latest information on the status of U.S. liquefaction facilities, including expected online dates and capacities, is available in EIA’s database of U.S. LNG export facilities.
Given the above information, barring a war or serious election year intervention to kill the economy by the Federal Reserve, the cascade of LNG export infrastructure coming on-line in the 2nd and 4th quarters of 2019 will mean something on the order of a full percentage increase in GDP growth (in a range of 4.0% to 4.5%) in Jan – Mar 2020 over Jan – Mar 2019. That is what going from 3.6 billion cubic feet per day (Bcf/d) of natural gas export capacity to to 8.9 Bcf/d in Dec 2019 does for you.
This extra 1% GDP will be happening just in time for the Iowa caucuses and New Hampshire primary.
The Obama Administration, the FERC and The “Economic Cold Civil War”
Returning to a point I brought up earlier, the Obama Administration’s “Economic Cold Civil War” against US energy infrastructure. There is a lot going on here beyond narrow Democratic interest groups against the Keystone XL oil pipeline for environmental and who owns the railways exporting oil from North Dakota reasons.
Bluntly: money is power.
The rapid economic development of cheap natural gas energy and it’s associated transportation infrastructure means huge industrial development close to those supplies for America’s working classes in Red States. This means jobs, money and most importantly family development for people in states who are still majority white.
A huge but generally not discussed fact of politics is the biggest solid block of Democratic voters are single white females (SWF). The biggest conversion factor turning SWF into dependable GOP voters is getting married and having children. When there are good times for working class men. They look like good marriage prospects for working class SWF, and children producing marriage formation proceeds apace.
Here is a California versus Texas snap shot of what that cheap natural gas energy driven economic development means from CNBC:
The thing that should stand out for you on that chart is how Texas is now dominating California across the board. Excluding the three of eleven energy industry driven measurements in that bar graph. Texas beats California five to three and in all the energy intensive capital goods manufacturing sectors.
This across the board non-energy related industrial dominance reflects the cheaper energy prices in Texas. Those cheaper prices in their turn reflect energy infrastructure investment inside Texas that was outside the control of the Obama controlled FERC, due to political deals related to setting up the national power grid in the late 1930’s and early 1940’s as well as the two Texas to East Coast “Big and Little Inch” pipelines.
Thanks to the legacy of those political deals, many oil and natural gas infrastructure developments distributing energy inside Texas are outside the reach of the FERC and are the province of the elective Texas Railroad Commission. Suffice it to say that energy companies in Texas have controlled the political system in both parties (until very recently) to make the Texas Railroad Commission very friendly to energy infrastructure development.
The frac’ing revolution in Texas oil & natural gas was resulting in boom times for the white working class right before the 2020 census. This was something the Obama Administration was seeing in 2013 to 2016 and did it’s best in the FERC to slow this down both inside Texas — via the EPA’s frac’ing plus carbon emission regulations and proposed Interior Department wetlands regulatory takings of private lands — and outside Texas via the FERC.
Take a good look at this EIA map of the geographic locations LNG export facilities approved by the Trump Administration:
There are very sound political/economic/historical reasons that these LNG export facilities are located where they are…and some outside Texas geological ones. See this 2011 EIA map of shale deposits in the USA:
There are good reasons that the Obama Administration and one-party Democrat state governments (Illinois,
California and New York) have tried as hard as they could to strangle frac’ing.
The 2016 elections showed again that Democrats are very sparse on the ground in rural and exurban areas beyond University towns (and so are the pollsters working for Democrats ). That means rapid economic development and population growth in such areas is ignored until a lost Presidential election. It happened to Democrats in Ohio 2004. See this 2004 article:
Who Lost Ohio? – The New York Times
And it happened again in 2016 for Trump. Frac’ing plays in Eastern Ohio and Western Pennsylvania are huge un-examined nuts and bolts poli-sci reasons why both states went Trump in 2016.
The Macro-Economics of the Trump Administration’s “America First” Economic Policies
Adding transportation infrastructure in manufacturing productivity revolution is a license to print money. The larger your efficient transportation network in a productivity revolution, the faster & larger your economy grows from the effects of economic specialization in a larger market.
Any evaluation of Keynesian economics that does not take into account the special economic conditions of hugely increased productivity from electrification is utter horse hockey. That especially includes economic multipliers from government spending.
And note, in terms of transportation infrastructure, the USA has been spending infrastructure money to remove heavy freight transportation infrastructure at an accelerating rate. The total rail line track mileage has been diving for decades, most especially in urban areas. In Texas I have seen major double track rail lines moving mile long double-decker container trains eight times a day in Houston eaten for a four lane expansion of Katy freeway. In Dallas, the city fathers are spending lots of Obama infrastructure cash to turn rail lines into BIKE PATHS!
Both are perfect examples of why the economic multipliers for government infrastructure spending have gone negative in America.
That is one of the reasons why economic downturns for the last 30 years are so tightly correlated with falling gasoline usage. When people and trucks are not driving, it is a straight line signal of reduced economic activity, because rails and water traffic are incapable of providing alternate distribution to where people live..Any evaluation of Keynesian economics that does not take into account the special economic conditions of hugely increased productivity from electrification is utter horse shit. That especially includes economic multipliers from government spending..
I’ve lived a lot of my youth on a lot of small town located US Army bases, which were essentially all built or upgraded in WW2. They all have an “infrastructure look” due to railway infrastructure, even after the rail lines are dug up for the scrap value of the steel rails.
The Dakotas and the Northern Appalachians are now both major frac’ing plays where small towns are reviving.
All these various places needed was someone to sit on the EPA and FERC as President Trump is doing now. And the industrial revolution that cheap natural gas and 3D printing is bringing will follow the remaining rail and river barge infrastructure to these places.