The Policy in Focus series highlights a new policy driven investment theme (legislation or regulation) our team is monitoring. You can subscribe to the Weekly Market Recap to receive this report each week and visit www.EventSharesFunds.com for our investment solutions.
Background: Fossil Fuel & Energy Infrastructure
• The Trump administration has aggressively pushed to deregulate energy infrastructure, including natural gas pipelines, oil drilling, and gas shipping terminals. For example, one aspect of the administration's overall plan would shorten the time a state has to issue water permits, which are needed for construction of interstate natural gas pipelines under Section 401 of the federal Clean Water Act.
• Increasing pipeline capacity and energy transportation networks may lead to increased exports of crude and/or natural gas. The U.S. currently has a lack of infrastructure to manage energy transportation, especially in the Permian Basin where drilling activity is strongest.
• The Trump administration has also pushed to redefine "navigable water" under the Waters of the United States rule. The Obama administration had pushed for a wide definition, which the energy sector claimed brought every puddle of water under federal jurisdiction. If the Trump administration is successful in changing the definition of navigable water, the energy sector may be able to expand infrastructure more quickly and less expensively.
• The Trump administration continues to encourage development of the U.S. coal industry, by relaxing emission standards for utility owned coal power plants and pushing for exports of U.S. coal.
Our Take & Timing: The Opportunity
President Trump campaigned on building energy infrastructure and expanding the U.S. pipeline network. However, the Trump administration has not experienced much success in rolling out new energy infrastructure. We attribute this to broad energy changes away from fossil fuels to cleaner, more renewable energy sources. While the Trump administration has pushed aggressively to save the coal industry, we note that even the president can't stop changing industry dynamics.
However, the broad environmental deregulation push will benefit liquefied natural gas and oil pipeline development. As the U.S. extracts increasing amounts of oil, the country's infrastructure will have to be built out. In our view, the administration's regulatory actions (e.g. limiting the amount of waterways under federal jurisdiction in the Clean Water Act and opening up federal lands to energy infrastructure) will play a role in that build out.
LEARN MORE: This research is a byproduct of our active ETF.
Charts: Trading Range & Relative Performance
Impacted Companies: Stocks to Watch
- Liquefied Natural Gas Terminals: Cheniere Energy (LNG)
- Energy Infrastructure Builders: Quanta Services (PWR), Fluor (FLR), Halliburton (HAL)
- Utilities: NextEra Energy (NEE), Duke Energy (DUK), Exelon (EXC), American Electric Power (AEP), Ameren (AEE), PG&E (PCG), Edison (EIX), Southern Company (SO), Dominion Energy (D), Consolidated Edison (ED)
- EventShares manages a portfolio of our best ideas.
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