The Promise and the Reality: Trump’s Impact on the Oil and Gas Industry
During the 2024 election, President Trump’s pledge to simplify oil and gas drilling excited industry executives, who hoped his policies would cut costs and boost profits. However, those optimism is fading fast. The tariffs imposed by Trump, particularly on steel and aluminum, have caused a rise in the prices of essential materials like steel pipes, which are critical for drilling. While this hasn’t yet led to significant changes in U.S. drilling activity or production forecasts, companies are adjusting their budgets to account for higher material costs. Decisions made now about which wells to drill will have long-term effects on future production.
The oil and gas industry is also grappling with another challenge: a tariff on Canadian oil, which some refineries depend on to produce gasoline, diesel, and other fuels. At the same time, consumers are growing anxious about the economy, and the price of oil has dropped roughly 10% since Trump took office, hovering around $70 a barrel. Lower oil prices typically lead to reduced drilling activity. These factors are complicating Trump’s goal of boosting U.S. oil and natural gas production, which is already near record levels.
The Economics of Drilling: A Delicate Balance
Lori Blong, the mayor of Midland, Texas, the heart of the most productive U.S. oil basin, summed up the situation: "Our ability to ‘drill, baby, drill’ is directly tied to the economics of the well. We can’t drill ourselves into a bind." The planned 25% tariff on imported steel, set to take effect in March, has significant implications for U.S. oil and gas producers. Steel pipes used to line wells can account for up to 10% of the total cost of a well. The price of steel pipes was already rising before Trump’s announcement and has continued to climb since.
Elevation Resources, a private oil and gas producer in West Texas, is among the companies feeling the pinch. By late February, the company was expecting to pay about 30% more for steel pipes due to limited availability of cheaper options. Steve Pruett, Elevation’s CEO, said, "When Trump announced the tariffs, a switch flipped on availability and pricing." While this hasn’t yet altered Elevation’s drilling plans for the year, Pruett acknowledged, "If you have a fixed budget and the wells cost more, you’re going to drill fewer wells."
Tariffs and Their Uneven Impact on the Industry
The U.S. is also set to impose tariffs on energy imports from Canada and Mexico, starting in mid-March. These tariffs could affect oil refineries and potentially lead to higher prices at the pump. Initially scheduled to take effect in early February, Trump delayed them for a month. The White House has not commented on the issue, but Trump has downplayed concerns about the economic risks of tariffs, arguing that the benefits outweigh the costs.
The full impact of Trump’s policies will only become clearer over time. While material costs are rising, other factors, such as increased efficiency in drilling and fracking, have offset some of the challenges. Overall, drilling and fracking rates have declined as companies adjust to changing economics. Oil prices could also fluctuate due to geopolitical developments, such as a potential peace deal between Russia and Ukraine, which Trump is advocating for.
Mixed Signals: Trump’s Policies and the Oil Industry
Despite the challenges posed by tariffs, the Trump administration has taken steps to support the oil and gas industry. In February, the Army Corps of Engineers moved to accelerate permitting for oil and gas projects. The Energy Department also approved a proposed natural-gas export facility on the Gulf Coast, which had been waiting for approval for years. However, President Biden paused gas export permitting in January 2024, a move that pleased environmental groups but concerned oil and gas companies.
Natural gas prices have been higher than last year, partly due to colder weather, which has boosted demand for heating. This has given some executives optimism about the profitability of natural gas production. Still, the overall mood in the industry is one of uncertainty. Taylor Potts, a sales manager for B&L Pipeco Services in West Texas, which supplies steel pipes to oil and gas companies, said, "You don’t know if next week all bets are off."
The Human Side: How Tariffs Are Affecting Real People and Businesses
The early effects of tariff-related price increases are being felt unevenly across the industry. Liberty Energy, which fracks wells for major U.S. oil companies, has not yet seen tariffs impact its customers’ production plans, according to CEO Ron Gusek. Fracking involves using high-pressure injections of sand, water, and chemicals to unlock oil and natural gas. However, Gusek predicts that if costs rise further, oil and gas producers are more likely to reduce drilling and fracking activity than to spend more. "They will ultimately spend the same amount of dollars," he said. "It may end up that they accomplish less work as a result."
Large producers like Devon Energy, based in Oklahoma City, expect the impact of tariffs on their capital programs to be minimal—less than 2%, according to CFO Jeff Ritenour. However, smaller companies and those with tighter margins may feel the pinch more acutely. The unpredictability of Trump’s policies adds to the uncertainty, making it difficult for businesses to plan for the future.
Looking Ahead: The Future of the Oil and Gas Industry
Despite the challenges, there are signs of optimism in the industry. In January, Mark Waters’s oil field supply company in West Texas had its best month in eight years, with revenue approaching $1.3 million, up over 40% from January 2024. Waters, who describes himself as "a big Trump supporter," plans to expand his staff. However, he expressed some anxiety about the future. "We have thrived under Democrats," Waters said. "You think it would be the opposite because Republicans are so pro-energy. But it’s never really worked out that way in my career."
As the industry navigates the uncertainties of Trump’s policies, one thing is clear: the interplay between tariffs, oil prices, and broader economic conditions will shape the future of U.S. oil and gas production. While the administration has taken steps to support the industry, the unpredictability of Trump’s actions leaves many executives wondering what’s next. As Potts put it, "What do you react to? Which direction do you go? That’s part of the dilemma."