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Commodities

2020 US Elections’ Implications for Energy Policies

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As the US Presidential Election season heats up, climate change and energy policy have leapfrogged to forefront of the debates. The policies of the current Administration or the Democratic Presidential candidates, if fully realized, could have significant implications for the US and global economies, energy and related sectors, plus financial markets. Based on the candidates stated policies to-date, Citi analysts anticipate three possible scenarios following the US election.

 

1. The Status Quo of the Trump Administration: Energy Dominance:

A second Trump term suggests the continuation of the current “Unleashing American Energy Dominance” policy, which may see the least Federal government-led disruptions to energy production, consumption or trade. Global CO2 emissions are likely to continue to rise, and US subnational governments may still pursue anti-climate change policies.

 

2. The Future is Green: Keep it in the Ground:

This scenario calls for the elimination of US fossil fuels use and production and is most extreme scenario relative to the status quo. This may include policies that are highly disruptive to the economy and individual sectors over the short- and long-run. Even a 15-year adoption period points to a stint of negative GDP growth and a challenging transition.

 

3. Middle Ground: A Spectrum of Policies:

Should a Democrat win the election, Citi analysts anticipate a mix of carbon and drilling taxation changes. Increased regulation of methane/flaring/hydrocarbon infrastructure; adoption of new efficiency standards, and greater support for renewables and low-carbon technologies, with potentially less acute short-term economic disruptions and a smoother energy transition, helped by US state and local level policies.

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Bond Ratings

(MLP’s) - Energy Related MLPs May Exhibit High Volatility. While not historically very volatile, in certain market environments Energy Related MLPS may exhibit high volatility.

Changes in Regulatory or Tax Treatment of Energy Related MLPs. If the IRS changes the current tax treatment of the master limited partnerships included in the Basket of Energy Related MLPs thereby subjecting them to higher rates of taxation, or if other regulatory authorities enact regulations which negatively affect the ability of the master limited partnerships to generate income or distribute dividends to holders of common units, the return on the Notes, if any, could be dramatically reduced. Investment in a basket of Energy Related MLPs may expose the investor to concentration risk due to industry, geographical, political, and regulatory concentration.

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(c) Governments, supranational organisations, central banks or other national monetary authorities, and state organisations whose main activity is to invest in financial instruments (such as state pension funds).

CONSUMER BANKING MARKET SPECIFIC DISCLOSURES

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs, and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

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This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors, as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

CSL does not provide discretionary portfolio management services.

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