A look at President Trump’s energy policy in his second term. Trump has declared a national energy emergency and is planning to increase domestic oil and natural gas production at the expense of clean energy initiatives. What will be the effect on the oil and natural gas industries?
US President Donald Trump has been in office for only two months, yet his policies are already having significant political and economic consequences on the world stage. This article examines Trump’s energy policy and the implications for the oil and natural gas industries.
Drill, baby, drill!
During the 2024 presidential election campaign, Donald Trump promised voters he would cut energy prices in half within 12 months of becoming president by increasing domestic oil production. Trump declared that he would “drill, baby, drill”, a mantra he has repeated since becoming president.
Behind this catchy phrase lies an energy policy which promises to be radically different from that of the Biden administration. The aim of this energy policy is to dramatically increase the domestic production of oil and natural gas in order to lower energy prices for US consumers and increase US energy exports.
Trump has already taken concrete steps to reshape US energy policy, starting with the issuance of presidential executive orders.
Executive orders
On his first day in office, President Trump signed into law six executive orders aimed at increasing the production of oil and liquified natural gas (fossil fuels). These included the withdrawal of the US from the Paris Agreement on climate change, the lifting of restrictions on oil and natural gas production in Alaska and removing incentives for clean energy production, such as solar and wind power.
This is a dramatic change in energy policy from the Biden administration, which strongly supported clean energy projects and reducing the dependence on fossil fuels and minimizing climate change.
National energy emergency
Perhaps the most dramatic executive order was Trump’s declaration of a “national energy emergency”, a first for any US president. This order allows Trump to use executive powers to fast-track the production and distribution of energy in order to improve national security and lower energy prices.
Trump has repeatedly stated that he will increase drilling for oil and natural gas in the US and his energy policy is expected to remove environmental regulations, allow for more oil and gas leasing on federal lands and encourage oil and gas companies to increase their production.
Will Trump’s energy policy be successful?
There are significant considerations to keep in mind which makes Trump’s energy policy questionable. One could argue that there is currently no national energy emergency, as the US is energy secure. The US has steadily increased its oil exports and became a net exporter of petroleum in 2020 for the first time since at least 19491. The US does not face a fuel shortage, and is a net exporter of both oil and natural gas.
Trump has said that the removal of regulations will make it easier for companies to increase their oil production. However, domestic oil production depends largely on the price of oil rather than the removal of regulations. Many oil companies are already producing at record levels and may not want to increase production even if they have the ability to do so, since increased supply will result in lower oil prices.
Under the Biden administration, US oil and gas production hit record highs, while at the same time the government declared clean energy and the reduction of US greenhouse gas admissions as key goals. Trump not only wants to ramp up oil and natural gas production but has demonstrated that environmental concerns and climate change will be low priorities in his energy policy.
Liquefied natural gas (LNG)
If the US increases its oil production, as President Trump appears determined to achieve, this will also result in an increase in natural gas output through associated production, as natural gas is a byproduct of the oil extraction process. Trump’s energy policy aims to increase the production of natural gas, which will lower its price and increase the exports of US natural gas. Natural gas is cooled into a liquid form to facilitate storage and transport over long distances. This product is called liquefied natural gas (LNG).
The Biden administration suspended new permits for exporting LNG pending a review. Trump has cancelled the suspension, which will allow for the increase of LNG production and the increase of US exports of LNG to Europe. China had been buying about 6% of US LNG exports but has suspended its LNG purchases due to the trade war between the two countries.
Alaska liquefied natural gas project
A massive project that the Trump administration is actively pursuing is the construction of a $44 billion 1,300-km pipeline to ship LNG from Alaska to Japan, South Korea and Taiwan. The Biden administration approved LNG exports from Alaska, but the project failed to move forward due to a lack of investors.
Trump has been leaning hard on Japan and South Korea to participate in the Alaska LNG project, signaling that the US could slap tariffs on these countries if they fail to agree. Will the ambitious Alaska LNG project get off the ground?
In order for the ambitious project to succeed, Japan will have to participate, as it is the world’s second-largest buyer of LNG and is a key trading hub into the Pacific Rim. Japan’s response so far has been lukewarm. The project faces significant financial and logistical challenges, but if successful, Alaska could be shipping liquified natural gas to the Pacific Rim by 2030.
Trade tensions with Canada
The Trump administration has imposed wide-ranging tariffs on Canada, which has retaliated with counter-tariffs against its southern neighbor. The escalation in trade tensions between these close allies has threatened to balloon into a full-scale trade war.
The Trump administration’s tariff policy has been erratic and unpredictable, creating huge uncertainty in the financial markets and for US trading partners. In the case of Canada, the US has imposed, suspended and reimposed tariffs in the space of just two months.
Oil tariffs on Canada
On February 1, 2025, Trump imposed a 25% tariff on all Canadian products, with a 10% tariff on Canadian energy exports to the US. The US suspended these tariffs just two days later but reimposed 25% tariffs on steel and aluminum imports from Canada. Trump has suspended until April 2 the tariffs on Canadian oil and natural gas.
Canada is the largest source of US oil imports and provides about 60% of total US crude imports. Almost 100% of US LNG imports come from Canada. Clearly, Canada is a major energy supplier for the US, and tariffs on Canadian oil and gas will hurt American consumers in the pocketbook and derail Trump’s promise to cut energy costs. It will be interesting to see whether the Trump administration reimposes the energy tariffs on Canada next month, or will the parties reach an agreement and de-escalate trade tensions.
Footnotes:
1 https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php
This article and its contents are intended for educational purposes only and should not be considered trading advice. Forex trading is high risk. Losses may exceed deposits.
