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Outlook 2017: Trump Inauguration to Bring Major U.S. Oil Policy Changes

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Outlook 2017: Trump Inauguration to Bring Major U.S. Oil Policy Changes

An unprecedented presidential election, court battles over hydraulic fracturing and oil pipelines, Arctic drilling plans and additional Renewable Fuel Standard drama rounded out the top five U.S. oil policy stories of 2016.

But rather than just serving to fill out a year-end list, the biggest policy events of this year are likely to shape the policy path of the next, perhaps more than ever before.

Here's a look at the top five stories of 2016 and how they will affect 2017:

Trump Election

On November 8, businessman and reality television star Donald Trump was elected president, an unexpected result that may prove to be the start of the most significant shift in the direction of oil policy in decades.

Trump, who made promises on the campaign trail to boost U.S. oil and gas output and roll back regulations unfriendly to industry, is expected to be a stark policy departure from President Barack Obama, who spent much of his political capital over the past four years pushing efforts to combat climate change.

Whether Trump is successful in repealing those efforts, such as new rules on methane emissions, remains unclear at the moment, as does whether the White House can even play a role in how much oil producers actually drill.

But Trump's picks so far to fill out his cabinet, including ExxonMobil CEO Rex Tillerson to serve as secretary of state, show that the Trump White House will likely take a much more industry-friendly path.

Pipeline Permitting

Trump has promised to quickly approve Energy Transfer Partners' Dakota Access Pipeline for Bakken crude and TransCanada's Keystone XL pipeline for Canadian diluted bitumen.

To move Dakota Access, he can appoint a new head of the Army Corps of Engineers to replace Jo-Ellen Darcy, who called December 4 for a new environmental review of the project, withholding the final federal approval the pipeline needed.

The application remains open because Darcy's order did not officially deny the needed easement to build on Army Corps of Engineers land in North Dakota.

Reviving the dormant Keystone XL project would depend on TransCanada's interest in refiling its application based on the current demand outlook for Alberta's oil sands.

New environmental reviews could take some time, but it would likely easily receive a permit to cross the U.S.-Canada border with former ExxonMobil CEO Rex Tillerson leading the State Department.

Trump could accelerate other energy infrastructure projects like LNG export terminals and natural gas pipelines by pushing agencies to make quicker comments and decisions.

He will be able to appoint two or three commissioners to the Federal Energy Regulatory Commission, including its next chairman.

Offshore Plan

On November 18, the Obama administration finalized the legal schedule for all offshore oil and gas lease sales between 2017 and 2022.

The plan offers 11 potential lease sales in four planning areas, including 10 in the Gulf of Mexico and one off the coast of Alaska in the Cook Inlet.

But the plan also excluded sales planned for the Beaufort and Chukchi seas and an earlier version of the plan removed a lease sale planned for the Atlantic Ocean.

On December 20, Obama went even further, designating the majority of federal waters offshore Alaska and portions of the Atlantic permanently off limits to oil and gas drilling.

The move, paired with an announcement that Canada would block oil and gas development from their Arctic waters for at least five years, was hailed by environmentalists and criticized by industry, setting up a likely court battle that could play out for years.

President-elect Trump has said he wants to expand the amount of drilling on federal lands and waters, likely including lease sales for both the Arctic and Atlantic. But redoing the offshore lease plan could take as long as three years and the expected legal fight to undo Obama's prohibitions on drilling in U.S. Arctic and Atlantic waters could take even longer.

This means that the Trump administration would not likely be able to hold a sale outside the Gulf of Mexico or Cook Inlet much before 2020.

Court Battles

On June 21, U.S. District Court of Wyoming Judge Scott Skavdahl overturned Obama administration rules over fracking on federal and Indian lands, ruling they exceeded the Interior Department's statutory authority.

The 10th U.S. Circuit Court of Appeals in Denver will hear the Obama administration's appeal of that decision January 17, with Trump expected to be inaugurated three days later.

The timing complicates federal regulation of oil production and sets up a 2017 that likely will be filled with an incoming administration abandoning appeals or defenses of rules being challenged by industry groups and states, such as lawsuits against the Department of the Interior's and Environmental Protection Agency's methane rules. But environmental groups will likely pick up these cases, meaning the legal challenges will probably not go away, but the sides could switch.

Biofuel Mandate

On November 23, EPA said it will require refiners and blenders to mix 19.28 billion gallons of renewable fuel into the U.S. transportation fuel supply in 2017, 480 million gallons more than it proposed in May.

But the next administration's support for biofuels remains to be seen, after Trump sent mixed messages during the campaign and appointed Oklahoma Attorney General Scott Pruitt to lead the agency. Pruitt has sued EPA over various regulations and called the Renewable Fuel Standard "unworkable."

Iowa Governor Terry Branstad said Trump assured him personally he would support ethanol, and farm-state lawmakers in Congress are sure to stand in the way of any attempts to weaken the program.

But Pruitt could decide to reverse EPA's proposal in November to deny requests to shift the RFS' point of obligation from refiners and importers to the wholesale rack. In November, he will be able to set blending levels for 2018.

In Congress, it remains uncertain if the $1/gal biodiesel tax credit will be retroactively extended after it expires December 31.

Biodiesel producers are lobbying lawmakers to shift the incentive to domestic producers from blenders in response to rising biodiesel imports from Argentina and other countries.