US President Donald Trump, on the very first day of assuming office, laid out a sweeping plan to maximise oil and gas production, including declaring a national energy emergency to speed the permitting of projects, rolling back environmental protections, suspending new federal offshore wind leasing proposals pending an environmental and economic review, and withdrawing the US from the Paris climate pact. He also signed an executive order reversing efforts by former President Joe Biden to restrict oil and gas drilling in the Arctic and large areas of the US coastline. This is a dramatic U-turn in Washington's energy policy after former President Joe Biden during his four years in office encouraged a transition away from fossil fuels to clean energy in the world's largest economy.
President Trump said in his inaugural address, "America will be a manufacturing nation
once again, and we have something that no other manufacturing nation will ever have — the largest amount of oil and gas of any country on earth — and we are going to use it. We will bring prices down, fill our strategic reserves up again right to the top, and export American energy all over the world."
Crude oil is produced in 32 states in the US and its coastal waters. Texas is by far the largest oil-producing state in the country. In 2023, it produced a total of over 2 billion barrels. Its $172-billion energy sector employed more than 9 lakh energy workers as of 2022. President Trump has already started pushing for an increase in oil and gas production to lower energy costs and drive prices down.
Is it all as simple as it sounds?
Price Is King
The biggest incentive for oil and gas firms to either stimulate oil production or curtail it is usually price. In general, high oil prices push oil companies to produce more, while low prices lead them to pull back. The government has limited power to affect the price of oil as it is controlled by market dynamics. Higher prices may lead to more production, but they also upset consumers who will be forced to pay more at the pump, which will make not only gas but other commodities costlier. In recent years, oil companies have resisted the temptation to significantly invest in expanding drilling when prices rise, embracing instead the ability to sell their oil for a high price. Not all oil reserves can be exploited profitably. Instead of drilling at new locations, many oil companies have focused on extracting every dollar from existing wells.
What could be a solution then?
India Is An Attractive Destination
The answer may lie in the export of products such as Liquefied Natural Gas (LNG). President Trump understands this well, and has thus lifted the previous administration's freeze on export permits. The decision could lead to almost 100 million metric tonnes per annum (MTPA) of additional LNG being exported by 2031 by projects that are significantly advanced, further cementing the US as the world's largest exporter of the fuel.
US Senator Ted Cruz has also already introduced legislation to repeal the Biden administration's Natural Gas Tax in the Inflation Reduction Act. Rolling it back it is an important step towards ensuring affordable, reliable energy for all.
According to Shell's LNG Outlook 2024, global demand for LNG is expected to increase by more than 50% by 2040. This will be driven largely by the move away from higher-emission fossil fuels, a shift underway in a large country such as India and further along in other emerging markets.
In 2020, China was the United States' largest oil export destination, while India stood fifth. A year later, the roles had reversed, with India taking the top spot and China going down to fifth. Various factors were responsible, including China imposing tariffs on US imports, the American ban on investments in Chinese energy firms, and the growing demand for LNG in India. A long-term contract worth $10 billion was signed between India and two LNG export terminals in Texas and Louisiana. There are more in the works, with Corpus Christi and Freeport in Texas, along with other Gulf Coast towns.
Why A Complete Repeal Is Not Feasible
In an executive order last week, Trump suspended funding disbursements under the Inflation Reduction Act (IRA), a step part of a sweeping set of directives to begin setting the new administration's energy agenda. While it is not uncommon for new governments to pause funding for evaluation, federal agencies have 90 days to submit their review and spending recommendations to the Office of Management and Budget and the National Economic Council. The IRA contains key tax subsidies that foster energy production from renewable sources such as solar, hydrogen, wind and others. It also bolsters manufacturers in the supply chain with incentives and investments. Renewable energy manufacturers are eligible for two federal tax credits under the IRA. In addition, the IRA provides support for emerging capabilities, like carbon capture and technologies that facilitate the production, storage and utilisation of hydrogen energy.
While the disbursements may be suspended, it is not prudent to repeal the law in its entirety for several reasons, including the fact that Red states, such as Texas, greatly benefit from it. In general, many renewable energy projects are in rural areas, which usually send Republicans to Congress. For example, Texas has 689 firms engaged in solar manufacturing and distribution, with a $45.2 billion investment as of September 2024, according to the Solar Energy Industries Association report. Thus, there must be a balance against the need to avoid rolling back the considerable stimulus the IRA provided to the economy.
There is considerable foreign investment in the renewable energy sector in the US. Recently, an India-based solar panel maker established its first American solar module manufacturing and integrated US-made solar cell facility in Texas. The firm is planning to invest $1 billion in the state over the next four years and create over 1,500 jobs when at full capacity. There are several local firms engaged in the supply chain and manufacturing of components needed for renewable energy production on the Gulf Coast. Most of these firms rely on a few benefits provided by the IRA to be sustainable and profitable in the short term. Repealing it will discourage these firms, which have already invested or were planning to invest in renewables manufacturing.
A Need To Co-Exist
Electricity demand continues to soar in America. The accelerated pace of modernisation in all sectors, from technology to transportation to heavy industry, needs electricity as a source of power. Crypto miners and data centres, are all heavy power consumers, as is generative AI technology, which demands immense computational power and energy, often ten times more than standard operations.
Given renewable energy sources are cost-competitive vis a vis fossil fuels, local utility providers may increasingly rely on them to meet the increasing demand. Another factor is that the prices of renewable energy are much less volatile than those of fossil fuels, like natural gas.
All in all, even with the shift in the US political climate, companies, and tech companies especially, can't completely abandon their commitment to all their stakeholders—employees, customers, and shareholders in the US and abroad—to make their operations sustainable. Currently, 38 states have regulations requiring utilities to obtain a certain percentage of their electricity from renewable sources. It is also important to note that companies are increasingly becoming direct purchasers of power from suppliers, bypassing intermediaries such as utility companies. This trend will support the demand for clean energy providers.
Bottom Line: FDI Is Key
There is a huge potential for foreign direct investment in renewable energy manufacturing in the US, as well as for the export of oil and gas to fast-growing countries such as India. It won't be surprising if President Trump, being the business-savvy leader he is with his "America First" and “Make in America” vision, strikes a balance for the co-existence of both fossil fuels as well as renewable energy production.
(The author is CEO and founder of ǪuantAi, an investor in Private Equity and an advisory board member of several technology and non-profit firms in the US)
