Beyond Drill Baby, Drill--Addressing the Future of Tariffs, Embargoes Under Trump 47

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--In August, the city of Milwaukee resounded with cries of "drill baby, drill," and Donald Trump led the Republican convention's cheering section. Now successful in regaining the presidency, Trump has promised to unbind oil and gas from four years of heightened regulation under the Biden administration.

On November 12, members of the Argus Media team on a webinar addressed areas Trump has promised to change, and how and if those changes could impact oil and gas.

Cheaper Gasoline in Every Tank
Trump has promised to halve energy costs within a year of taking office, but such a task will be well-nigh impossible--and bad for the oil industry if accomplished--said Chris Knight, who covers domestic policy for Argus.

That promise hinges more on boosting production than on reducing demand, Knight said.

In fact, said Knight, "That's going to be challenging because the U.S. is already at high levels (of production)." He added, "There have been some restraints but, overall, the industry has been able to continue to expand production."

The tools at hand for the returning president will be to restore a higher level of leasing on federal lands, which was greatly reduced by the Biden administration. But Knight pointed out that restoring leasing takes time to maneuver through the process, and any production gained from leasing would be years in the future due to long development times, especially for offshore projects. And leasing in yet-untapped Alaska National Wildlife Reserve areas could take 10 years to begin producing.

Reducing regulations is another tool, and while the scope of regulations did increase under Biden, some of those regulations have not taken effect yet. "So lifting those regulations doesn't suddenly cause oil and gas companies to start drilling" when the regulations have not actually stopped them, Knight said.

Euphoria Triumphs
But Trump's best energy card may be what Knight called "producer sentiment." Under Biden, he said, producers feared investing billions of dollars in projects that might be regulated or legislated out of existence. With Trump and possibly at least two years of Republican rule in Congress, it could be champagne time instead.

Knight said that eliminating the Green New Deal--something that was a theory and never ever actually legislated--and reducing payoffs in the Inflation Reduction Act (IRA) are also on Trump's radar. However, since 18 Republicans voted in favor of the IRA and have constituents benefitting from energy transition jobs as a result, Knight said the IRA is more likely to be trimmed down than eliminated.

Electric vehicle (EV) tax credits may be particularly hard to eliminate due to the fact that the best-known EV maker--Elon Musk--is likely to get an administration post, Knight pointed out. Indeed, Trump has tapped Musk and Vivek Ramaswamy to lead a Department of Government Efficiency.

Foreign Policy and Energy
Haik Gugarats, editor at large for Argus, began with the war in Ukraine and the effects of its resulting sanctions on Russian oil and gas. Three main things have happened, he said: Russia has gotten better at bypassing the sanctions, Europe has paid more for oil and gas, and refineries in China have benefitted from the bypassing of sanctions.

Trump, having promised to end the war, but with few details on how, could end the need for sanctions, if successful. However, the next every-six-month renewal date for those sanctions comes on January 31, just 11 days into his new administration.

"Energy prices are significantly higher in Europe" since the sanctions, said Gugarats, so it would appear that they would be ready for a resolution. In case of a resolution, U.S. liquefied natural gas (LNG) exporters could be challenged, because that sector "has been a big winner" due to the sanctions.

But, as Industrial Info's Geoffrey S. Lakings notes, it may be difficult for Europe to trust Russia again, preferring instead to remain with the more reliable U.S. supply.

Also, Trump's promised sanctions on China could affect U.S. crude oil exports. During the previous Trump administration, the tariff wars led to China stopping all crude oil imports from the U.S. in retaliation.

From Industrial Info's perspective, Lakings added, China is already closing refineries in anticipation of importing less crude from anywhere.

Sanctions against Iran, on the other hand, have been more successful except with China. Gugarats noted that refineries in China have actually benefited from the sanctions because the smuggled crude is cheaper than the open market variety; "there are a number of refiners in China who are quite happy to take this Iranian crude." So Iranian export volumes have not been affected, only the price.

Therefore, "China's crude cost advantage from being able to access sanctioned crude is running at about $3 a barrel."

Embargoes on Venezuelan crude are also on the bubble, and with Venezuelan President Nicolás Maduro's term ending in January, the embargo could be subject to removal as well, releasing more supply into the marketplace.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).