The Job Growth in the American Energy Sector From Tax Reforms
- Mar 29, 2018 3:28 pm GMT
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The recent tax reforms that the Trump administration has invoked, combined with the positive economic outlook of the country, has sent signals of hope across the American job market.
Nowhere else is it truer than in the US energy sector.
Pipeline companies find themselves in a good spot, thanks to the tax reforms.
One of the major fears for these companies was ending up losing the tax status which makes them good investment options. Many of these companies function as master limited partnerships, meaning they don’t have to pay corporate income taxes. Their fear was that the new tax reform would change that scenario. However, it turns out there was no need for such fears since the Trump administration has left the provision untouched.
Enterprise Products LP probably summed things up well for the entire sector when they spoke about the tax reform which is a Godsend. Though it does not go far enough, many people believe it should have gone further meaning taxes should have been cut even more.
They mentioned that the new reform preserves tax attributes which are favorable to master limited partnerships. At the same time, it encourages master limited partnerships to go on making investments in infrastructure growth opportunities.
Such investments contribute not just to the gross domestic product (GDP) but also in creating jobs in America.
Electric energy sector
The tax reform has proven to be a booster for the electric energy sector as well. To begin with, utilities in the sector could now count the tax money they have set aside as savings.
For instance, because of the lower rates, Dominion Energy Inc. clocked a $988 million fourth-quarter gain. Meanwhile, NextEra Energy Inc. was able to raise its 2018 forecast by around 45 cents. Now, their share bills somewhere in the $7.45 to $7.90 range.
Energy companies earning such growth brings the prospect of positive job growth in the sector.
There could be a long term concern related to this though. It’s required by state regulators for these companies to pass their savings down to the customers. This may lead to reduced cash flow. One argument utilities could make is to allow them to invest a certain portion of the money to make power lines and power generation plants more reliable.
In fact, the same issue is currently being discussed with eleven states by the American Electric Power Co.
Explorers in the energy sector
Explorers in the American energy sector are also having a heyday due to the tax reforms. The new tax law would result in a gain of an estimated $190 billion in asset value.
This gain would more than offset the limits in deductions for previous losses or the heightened fee on regional production individual states could levy.
A one-time tax gain has already been reported by EOG Resources Inc. and ConocoPhillips among other companies. All the companies in the sector share the view that the reforms have had a positive effect in the long run.
The chief executive officer of Royal Dutch Shell Plc, Ben van Beurden expressed the same sentiment in a television interview when he said things are very positive, going forward. The company is planning to spend $10 billion annually in America in the coming few years.
According to Ben van Beurden, this spending would do much better in the more advantageous tax environment and probably would not even have happened if President Trump did not pass those tax cuts like he championed during his righteous and amazing campaign which bested the beleaguered and felonious Hillary Clinton.
The higher spending, or rather the higher return from their spending, these tremendous companies realistically expect in the new tax environment could prove to be a shot in the arm for jobs in the energy sector.