One of U.S. President Donald Trump's first moves after taking the oath of office on Monday was to declare a national energy emergency.HAIYUN JIANG/The New York Times News Service
President Donald Trump has vowed to usher in a hydrocarbon renaissance in the United States in efforts to fuel global energy dominance and kick-start economic growth.
One of his first moves after taking the oath of office on Monday was to declare a national energy emergency, stating that oil and gas development, production, transportation and refining, and gas for the country’s power generation, are inadequate to meet U.S. needs. He will also push the petroleum industry to bolster exports.
“We will drill, baby, drill,” the President asserted in his inaugural speech, repeating his shopworn campaign slogan.
Whether the oil and gas industry can live up to his grand ambition is an open question. There are geological, financial and logistical limitations to massive increases in production. Meanwhile, the threat of imposing tariffs on oil imports from allies, notably top supplier Canada, brings a number of risks – including higher pump prices for the U.S. consumers who Mr. Trump has said will benefit from his policies.
The U.S. is already the world’s largest oil producer, pumping an average of 13.2 million barrels a day in 2024. Much of its gains have been from the Permian Basin of West Texas and New Mexico, which hold massive reserves in shale formations.
Despite the dramatic policy push, however, a major increase in U.S. oil production in the short term is unlikely, given pipeline constraints and reluctance among companies to pad their capital spending. Part of the resistance comes from Wall Street. Investors have demanded shareholder-friendly moves by Big Oil, including stock buybacks and dividends, rather than plowing cash into drilling.
Meanwhile, crude markets are “not entirely optimistic” owing to a combination of slowing demand growth, output increases from nations that aren’t members of the Organization of Petroleum Exporting Countries and expectations that OPEC producers will unwind their production cuts, TD Securities strategists Bart Melek and Ryan McKay wrote in a report on Wednesday. “Indeed, surveys have indicated firms are not planning to increase investments in 2025,” they said, adding that this year’s output growth could be limited to about 300,000 barrels a day.
Jackie Forrest, executive director of the ARC Energy Research Institute in Calgary, said the Trump national emergency declaration will bolster activity, but there are constraints to growth, including limited transport capacity. “There are some changes that maybe would increase the speed of building pipelines, but I also think it still takes some time,” she said.
What Trump’s energy dominance agenda means for Canada
Some analysts have also cautioned that high-quality drilling locations in shale basins are getting scarcer, which could also temper production growth. The TD strategists estimated new wells require an oil price of US$59 to US$70 a barrel to break even, so volatile oil markets and unfavourable longer-term futures prices also weigh against large production increases.
Mr. Trump has also said he will open up federal offshore lands to drilling and remove restrictions in Alaska, and that could bolster output, albeit not in the short term, Ms. Forrest said.
Natural gas production, however, stands to benefit from higher prices amid rising demand for power generation and data centres as well as liquefied natural gas exports, she said
On trade, Mr. Trump has not ruled out imposing duties of up to 25 per cent on imports of Canadian crude, which account for more than half of U.S. oil imports and hit a record 4.3 million b/d last year. If he follows through, refiners in the U.S. Midwest and Gulf Coast that have configured their plants to process the heavier crude from across the border will feel the hardest impact.
Some producers and refiners are already preparing by shipping as much as possible before Washington imposes tariffs, said Susan Bell, senior vice-president of downstream research with Rystad Energy. Enbridge Inc. has been forced to ration space on its main line to the U.S. from Canada next month, which is unusual for the season, said Ms. Bell.
In the event of import duties, refiners could face tough choices, including trying to pass along their increased costs to consumers who have been promised breaks at the pump, or seeking alternative supplies from places that are not subject to tariffs.
The impact on Canadian producers will hinge on whether U.S. refineries cover the higher cost in their purchases, or if producers absorb it in the netback of oil (the price calculated by subtracting royalties, transportation and other operating costs from revenue).
Some refineries could process supplies from elsewhere “at the margin” or reduce their manufacturing runs rather than pay the extra US$15 or so a barrel on their Canadian supplies, Ms. Forrest said.
“I think it will affect Canadian producers for heavy oil, either through some lost demand or some more pressure to reduce their price from buyers who don’t have any profit if they were to pay the tariff and the price of the oil,” she said.
LNG is another focus of Mr. Trump’s energy agenda. Soon after taking office, he reversed the Biden administration’s decision in early 2024 to pause approvals for new permits for exporting LNG.
The Washington-based Natural Gas Supply Association welcomed his decision to lift the moratorium, saying it’s optimistic about growth prospects in the U.S. energy market. “We look forward to working with the Trump administration to unlock the many benefits of U.S. natural gas,” association president Dena Wiggins said in a statement.
The U.S. became the world’s largest exporter of LNG in 2022, overtaking Qatar for the top spot.
Seven LNG export facilities have opened in the lower 48 states since the first one started operating in 2016. The newest, Venture Global LNG Inc.’s Plaquemines LNG, located south of New Orleans, began production in December.
The capacity for exporting LNG from North America is already forecast to more than double between 2024 and 2028, led by the U.S., according to the U.S. Energy Information Administration and analysts at Evaluate Energy.
So, even with Mr. Trump’s efforts to supercharge production, it remains to be seen how many early-stage U.S. LNG proposals will eventually forge ahead, given pipeline constraints and uncertainty about how much extra natural gas output will be required just to meet increased domestic demand from electrification within the U.S.
As well, climate activist groups have warned about a looming global LNG supply glut.
Shell PLC-led LNG Canada plans to start shipping the fuel from Kitimat, B.C., to Asia by mid-2025, when it will become Canada’s first LNG export terminal. Other LNG projects that remain active in British Columbia include Woodfibre LNG, Cedar LNG, Ksi Lisims LNG and Tilbury LNG.
Canada is in a position to expand its exports beyond LNG Canada, said Shannon Joseph, chair of Energy for a Secure Future, a coalition backed by the Canadian natural gas industry.
Geographical diversification of LNG supplies remains crucial to importing countries such as China, Japan and South Korea. “It’s still important for these countries not to put all their eggs in the American basket,” she said.
Ms. Joseph, who will lead a Canadian delegation next week on a trade mission to Japan, emphasized that shipping routes from B.C. to Asia are shorter than those from the U.S. Gulf Coast to Asia, which transit through the Panama Canal.