Trump’s Energy Markets Landscape

Summary

• U.S. President Donald Trump began his first days in office with issuing executive orders to “boost” U.S. oil and gas production and the threat of tariffs, while revoking steps taken under the prior administration to advance the energy transition.
• The U.S. has withdrawn from the Paris climate agreement, suspended new federal offshore wind leasing, and lifted a moratorium on license approvals for new LNG projects.
• Trump’s tariff threats on Canada, Mexico and China could disrupt energy flows, raise consumer prices and ultimately destroy consumption, which fits into our bearish crude oil
• Oil prices declined post-inauguration, with Brent crude prices back below $80/bbl as of January 21 as Russian sanctions take a Demand is buoyed in the short term for fuel oil and diesel for heating due to the cold winter, but supply remains abundant.
• The EU on the other hand faces the challenge of increasing U.S. energy imports without significant market intervention or risking price spikes. While higher US LNG exports are a bearish sign for European markets, the devil is in the The Trump promise to boost LNG exports had no imminent impact on European and Asian gas markets, which are still being supported by expectations of tight supply in 2025. Given quicker than anticipated storage withdrawals this winter, we are raising our TTF gas price forecast to €42/MWh in 2025.

US Energy Policy & Tariff Threats

On his inauguration day on 20 January, US President Donald Trump issued a slew of executive orders aimed at lifting US oil and gas production, while again revoking steps taken to advance the energy transition. He declared a national energy emergency, allowing him to reduce environmental restrictions while facilitating the permitting of new transmission and pipeline infrastructure. All under the slogan of “Drill, baby, drill”. We have already explored in several pieces why this catchphrase does very little unless the US government decided to subsidize drilling or begin drilling themselves as economics still dictate the future growth of the country’s fossil fuels production. In 2024, US oil production rose by the end of the year to a new record high of 13.4mn b/d, while gas production fell slightly year-over-year to 103Bcf/d. Historically weak Henry Hub gas prices during the spring of 2024 suppressed U.S. gas production through the latter half of the year. Only a steady increase in prices this year will incentivize higher output. But this literally means higher energy costs for consumers, which Trump seeks to lower!

The President again withdrew from the Paris climate agreement, suspended new federal offshore wind leasing, and “eliminated” the aspirational 50% target of electric vehicle sales share in 2030. With many of these executive orders largely expected, we already explored what those could mean for the energy transition. Instead, he resumed processing export permit applications for new liquefied natural gas projects, which were halted under Biden and aims to refill the country’s strategic oil reserves (bullish for oil, again, contrasted with “Drill, Baby, Drill”). The resumption of granting export licences for US LNG plants has no imminent impact on global gas markets as it only addresses projects after 2030 at the earliest. Of course this can help Trump in locking in demand from European and Asian buyers for the next wave of US LNG projects.

All of these acts were much anticipated while Donald Trump did not clarify policy issues with an actual impact on energy markets – namely tariffs and sanctions.

We hold that the impact of sanctions on Russian oil and gas imposed under the Biden administration are largely overblown and we are yet to see Trump’s handling of these sanctions. Imposing additional sanctions on Iran’s and Venezuela’s oil sector will lead to supply curtailments that can also be managed with 2.1mm b/d of spare oil capacity currently being withheld by OPEC+.

But one of the most immediate yet undefined policies to be enacted by Donald Trump are tariffs, which promise to derail energy flows, raise consumer prices and create a flurry of unhappy trading partners. Raising tariffs on Canadian imports, including about 4.4mm b/d of crude oil exports, will raise prices for US Midwest and Gulf Coast refiners dependent on the heavy, sour crude from Canada. The immediate impact of this? Higher gasoline prices for a huge swath of midcontinent US consumers. Tariffs on Canada and Mexico could be implemented as early as 1 February, according to the latest tariff update, while a 10% tariff on Chinese imports is also back on the table. A 25% tariff on Canadian crude imports would literally destroy an enormous part of the U.S. agricultural and construction economy, as the midcontinental region is a key user of diesel for distribution, logistics, and of course all that heavy machinery. Higher localized crack spreads, especially for diesel are expected, and this will be heavily inflationary. This is yet another support for our ongoing, multiyear thesis that even as crude demand flattens and declines, diesel prices (and cracks) will remain elevated comparatively.

Raising tariffs on Chinese imports will likely be met by retaliatory measures, as we have outlined in an earlier piece, which could be a resumption of a US LNG import ban. While that does sound “bearish” for European buyers as it frees up much needed US LNG volumes, Chinese buyers could equally start to snap up more Russian and Qatari cargoes. This would result in a rebalancing of LNG flows but would also raise the price for European buyers as they could lose some of the cheaper Russian cargoes. European and other Asian markets are equally exposed to potential trade tariffs but are unlikely to retaliate with own bans on energy imports. Policymakers in South Korea, Taiwan and Vietnam have already expressed interest in purchasing more US energy, so has the European Union. But the bloc has very little momentum to actually lift US LNG imports without raising domestic gas prices in the short-term or hurting its own climate ambitions in the long-term. US LNG export capacity is already being maximized, with utilization just around 100%. The completions of Plaquemines and Corpus Christi can add some supply on the margins (both terminals signed long-term purchase agreements for cargoes well ahead of completion), but overall there is little free-floating spare capacity that can be sent to Europe – and other markets – without forcing a shift in flows. This means that in the short- term, the US cannot both force Europe and Asian buyers to buy more US LNG. Trump’s plans can only involve future LNG supply.

As we noted in the past, the EU cannot directly force buyers with long-term contracts to switch from Russian to US suppliers, unless they can claim force majeure under policy measures such as sanctions. Spanish energy firm Naturgy still has a 20-year LNG offtake deal for 3bcm/year from Russia’s Yamal LNG plant. The agreement is in place until 2038. At the same time, buyers will be drawn to the cheapest source of supply, which still is Russian gas and LNG. Despite intensifying discussions about banning Russian gas imports, Russian LNG still accounted for the second largest source of LNG to Europe after the US in January. Sanctioning Russian gas will be costly for Europe, which is why the bloc has shied away from doing so to this day.

The EU could set up a strategic LNG reserve, filled with US gas, by either expanding LNG infrastructure or using Ukrainian storage sites. Although storing gas in liquid form would allow for longer storage periods, while storing gas in its gaseous form is less efficient. Assuming Donald Trump wants to see US gas make up a higher share of imports for longer this does not seem to be an option. This leaves the promise of tying more of the now-to-be-permitted future US LNG projects to European offtakers. While probably the least radical option, it does not solve Europe’s current dependence on Russian gas as these US projects will not be ready before at least 2030. Will Trump contend with offtake contracts coming into force long after his presidency has ended? We don’t think so. This brings us back to Russian LNG sanctions imposed on terminals that also impact European supply. Donald Trump just on Wednesday said he was ready to impose more sanctions on Russia if President Putin did not want to negotiate on Ukraine.

It is clear that there is a lot of political willingness in the EU to increase US gas imports at the expense of Russian hydrocarbons. What is not clear is how the EU intends to do so without intervening in markets or risking another gas price spike. It is equally not clear how Trump intends to force US suppliers to send more gas to Europe but also Asia at a time of tight supply. A clear recipe for volatility.

Until this conundrum is solved, European gas markets will face a tight supply outlook in 2025, with prices expected to rise above last year’s levels. European storage sites have now been depleted below 60% of capacity as of 21 January, and with the current temperature forecast still showing no sign of warmer weather returning soon, withdrawals will continue, albeit at a slower rate than to date. Besides colder temperatures this winter compared to the winter of 2023/2024, gas demand from the power sector has also been much higher as wind power output has taken a hit of around 10GW during the same period. Weather-induced higher demand alongside the loss of Russian pipeline gas via Ukraine resulted in quicker storage withdrawals than originally anticipated. This is why we are raising our TTF gas forecast for 2025 to €42/MWh from our prior forecast of €37.50/MWh. Balances now point to storages being filled to between 30-35% at the end of March, with around 40bcm left in tanks. To refill sites to 90% by November, storage holders in the EU now need to import around 20-25bcm more this summer than last year. And there is more. Indonesia – the sixth largest global LNG supplier – on 22 January indicated a potential supply reduction in 2025 as it struggles to meet domestic demand. It is too early to tell how much volume will be impacted, but if current reports are accurate, this could lead to a reduction of around 4mn t/yr of LNG. We still forecast a small LNG supply surplus in 2025 thanks to additions in the US and Canada, but given the higher demand forecasts from Europe, the surplus will only be around 8-10 million tons.