When U.S. President Donald Trump came into office in January, he promised to back greater oil and gas production, doubling down on his “drill, baby, drill” catch phrase. He rapidly introduced executive orders aimed at encouraging new oil and gas exploration across the country while reining in the renewable energy industry. However, since these early promises, Trump appears to be increasingly alienating the oil and gas industry as companies battle low oil prices, the uncertainty of a trade war, and several other challenges.
In March, President Trump told Congress, “We have more liquid gold under our feet than any nation on Earth, and by far, and now I fully authorize the most talented team ever assembled to go and get it.” It has long been evident that Trump supports fossil fuel development, and this made it clearer still. However, despite the president’s best efforts to encourage investment in new projects and the sharp expansion of oil and gas production, oil and gas companies seem unwilling to play ball.
The supposed saviour of oil and gas has failed to deliver, with oil drillers’ stocks plummeting, alongside oil prices, since Trump took office. U.S. oil and gas firms lost over $280 billion in stock-market value between 2nd April, when Trump announced sweeping global tariffs, and 28th April. This includes some of the country’s biggest players, with Exxon and Chevron shares declining by 11 percent and 18 percent, respectively.
The sharp tumble in crude prices, from over $80 a barrel in January to around $60 in May, has made companies less certain of their production strategies, worried that investment in higher output will not pay off. A survey compiled by The Wall Street Journal, with responses from Goldman Sachs, JPMorgan, and Morgan Stanley, suggested that crude prices are expected to average $64.60 a barrel this year. Meanwhile, Rystad Energy estimates that the breakeven price for most U.S. producers is over $62 a barrel, and a Federal Reserve Bank of Dallas survey of executives from 81 companies suggests this figure may be closer to $65 per barrel.
President Trump’s trade war is adding to the uncertainty in the oil and gas sector, as well as many others. In April, Trump introduced tariffs on the import of goods from more than 180 countries. Trump has been back and forth on tariffs, introducing them and then announcing a pause to discuss trade with various countries. However, this uncertainty has led to greater economic uncertainty and hostility from countries rapidly racing to find alternative trade partners and introduce reciprocal tariffs.
Jim Burkhard, the head of oil market research at S&P Global Commodity Insights, suggested that the back-and-forth decision making is hitting the oil and gas industry hard. Despite lower-than-expected tariffs being introduced on several countries, Trump’s lack of predictability is making investors wary. Burkhard said, “There’s a pause — the uncertainty has not gone away… Confidence about the future is weaker now than it was a month ago and prices are lower.” He added, “Can the U.S. negotiate with 70 countries all at once? I don’t think the chaos is over.”
Some parts of the industry will suffer more than others under Trump’s trade war. Shale companies, for example, could see the price of new wells increase by 10 percent due to Trump’s steel tariffs.
In late April, the gas industry called out the Trump administration over new rules it had introduced to encourage domestic shipbuilding to counter China’s maritime might. At least 1 percent of natural gas shipped overseas must be carried on U.S.-built tankers starting in 2029. However, the U.S. does not currently build any of the specialised ships required to transport gas. This led the American Petroleum Institute to write to the White House to say that the industry could not comply with the rule, urging officials to reconsider it.
During times of economic uncertainty, oil and gas companies often reduce their capital spending as a protective measure. This means that Trump’s “drill, baby, drill” mentality is not having the desired effect. There is a widespread loss of confidence not in the sector, according to several energy players, not only due to tariffs, but also due to the lack of continuity in the energy sector. Earlier in the year, several oil and gas CEOs called on President Trump to maintain the country’s energy policy to ensure greater sectoral stability. This included upholding policies related to renewable energy and the Inflation Reduction Act, as well as oil and gas output.
Despite the Trump administration’s best efforts to encourage oil and gas companies to invest in new exploration activities and boost output, the economic uncertainty, driven by Trump’s trade war and several other new policies, is having the opposite effect. While companies wait to see what level of tariffs will be introduced on various countries, many are reining in their spending to mitigate risk. Instead of listening to the needs of oil and gas executives, Trump seems to have alienated both fossil fuel and renewable energy companies, which is expected to drive down sectoral investment, at least in the mid-term.
By Felicity Bradstock for Oilprice.com