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Trump’s Energy Policies: Major Changes Loom for the Oil & Gas Market – Who Wins and Who Loses?

Emilia Wright | November 29, 2024

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Trump’s Energy Policies Poised To Reshape Oil & Gas Market: Winners And Losers Revealed

The incoming Donald Trump administration’s ambitious energy plans are set to create seismic shifts in the U.S. oil and gas market. With a projected production boost of 3 million barrels per oil equivalent per day (mboe/d), the introduction of a potential 25% tariff on Canadian oil and gas imports, and accelerated approval processes for liquefied natural gas (LNG) exports, the consequences will be felt across the board. Goldman Sachs recently analyzed these prospects and detailed possible outcomes for various market players in a note to clients. Let’s delve deeper into the realism of these goals, their broader implications, and who stands to gain or lose in this evolving landscape.

Can the U.S. Really Pump an Extra 3M Barrels a Day?

Trump’s ambitious target of increasing U.S. energy production by 3 mboe/d from 2025 to 2028 is certainly daunting, but analysts at Goldman Sachs consider it “achievable” by 2028. The conditions for such an increase hinge significantly on including natural gas and natural gas liquids (NGLs) in the production numbers. According to analyst Callum Bruce, CFA, U.S. energy production saw an annual growth rate of 1.8 mboe/d between 2018 and 2023, more than doubling the 0.75 mboe/d required to reach Trump’s target. Goldman also forecasts growth of 2.0 mboe/d for the years 2025 and 2026, potentially achieving two-thirds of the target in the first two years of a second Trump term.

“Rising LNG demand, capital discipline, and energy prices are key drivers behind this growth,” Bruce noted. However, it is crucial to remember that significant policy changes are not expected to have immediate effects on production rates.

What a 25% Tariff on Canadian Oil Could Mean

The prospect of a 25% tariff on Canadian oil imports has certainly piqued interest. Canada represents the largest source of crude oil for the U.S., exporting 4.0 million barrels per day (mb/d), which accounts for approximately 25% of aggregate U.S. refinery inputs. Key refiners dependent on this supply include Marathon Petroleum Corporation (MPC), Phillips 66 (PSX), and Exxon Mobil Corp (XOM).

According to Goldman’s analysis, the initial impact of such a tariff would be an increase in gas prices at U.S. pumps, effectively weighing down on consumers. Over time, however, the financial strain could shift the burden onto Canadian producers, who might be compelled to offer deep discounts to sustain oil exports to the U.S.

For instance, with Western Canadian Select (WCS) crude priced just under $60 per barrel, the implementation of a 25% tariff could add roughly $15 per barrel in costs, putting pressure on Canadian producers to competitively price their oil.

Tariffs on Canadian Gas: Who Pays?

The situation is slightly different regarding a potential 25% tariff on Canadian natural gas. Canadian gas, which averages 5-6 billion cubic feet per day (Bcf/d) in exports to the U.S., represents about 5% of total U.S. supply. A tariff here would likely hurt Canadian producers directly in the short term due to oversupply and depressed prices. Goldman projects that approximately 200 million cubic feet per day would be reduced in U.S. imports due to this tariff.

However, tighter U.S. gas supply balances from 2026 onwards, due to higher LNG exports, could enable some costs to be passed onto American consumers. “Canadian gas producers would likely bear the bulk of the burden until U.S. balances tighten from 2026,” Bruce stated.

LNG Exports: Speeding Up Approvals Won’t Move the Needle (Yet)

Goldman’s report views accelerated approvals from the U.S. Department of Energy (DoE) for LNG projects with skepticism, projecting that they will not significantly alter global or domestic gas balances before 2027. “DoE approval is necessary, but not sufficient, for new LNG projects to move forward,” Bruce commented. The hurdles remain in long-term capacity contracts and the lengthy construction processes necessary for new operations. Nonetheless, U.S. LNG exports are still expected to surge, more than doubling by 2030 and potentially capturing a larger global market share that could rise from 22% to 31%.

Bottom Line: Winners and Losers

Goldman Sachs’s analysis paints a clear picture: while the anticipated energy boom could substantially lift U.S. production, the immediate consequences of tariffs and policy modifications could reverberate through different market segments in unpredictable ways. The fundamental implications for various stakeholders are clear:

  • U.S. Consumers: Expected to face higher gas prices in the short term due to Canadian tariffs.
  • Canadian Producers: Likely to experience pressure from declining prices for both oil and natural gas.
  • U.S. Producers: Position themselves favorably to benefit from increased domestic production targets and rising LNG exports.
  • Midwest Refiners: May encounter margin pressures but could negotiate deeper discounts on Canadian crude to offset additional costs.

As the Trump administration formalizes its energy policies, investors and market participants must remain vigilant, as today’s strategies could pave the way for tomorrow’s uncertainties.