Maguire: Trump's oil and gas export boom could be a bust due to the trade spat with Europe.

Donald Trump's second term as president will make it easier for oil and gas producers to increase production and exploration in the United States. The biggest challenge may be finding local markets that are profitable for their products.

The new administration is expected to streamline the permit process for fossil fuel extraction and distribution, which should lead to an increase in U.S. natural gas and oil production. These are already at record levels.

This bodes well not only for the firms exporting liquefied gas, crude oil or refined fuels but also for those who export them. It will encourage the growth of U.S. exports.

Energy exporters are also at risk of being caught up in a trade war if Trump's plan of imposing steep tariffs on an array of imported goods causes retaliatory reactions in consumer markets.

EUROPEAN TARGET

The incoming administration is likely to target European nations with tariffs due to the U.S.'s long-standing trade deficit with Europe, which amounts to around $240 billion per year. This is a major irritation for Trump's allies.

Last month, President-elect Trump warned that Europe will "pay a high price" if it does not buy enough American exports. He also threatened to impose tariffs on all European goods.

According to Kpler's ship tracking data, Europe is the largest market for U.S. crude oil and LNG exports.

Since Russia's invasion in Ukraine 2022, Europe had to import record quantities of fuels and oils from other suppliers. The U.S. was the main beneficiary, shipping out record amounts of these commodities.

According to the U.S. Energy Information Administration (Kpler) and U.S. Energy Information Administration, U.S. exports of LNG will reach over $30 billion in 2023. Two-thirds are destined for Europe.

EIA data shows that the U.S. will export crude oil worth $10 billion in 2023. Just under half of this amount will be sent to Europe.

Big Money

The U.S. oil and LNG shipments have led to a boom in profits for U.S. companies and valuable tax revenues for the U.S. Treasury, which the next administration wants to protect.

The high cost of imported energy has hurt European consumers as well and is speeding up Europe's transition from fossil fuels to renewable energy.

The slowdown of economic activity also affected industrial gas consumption and power consumption. This has led to a drop of more than 20 percent in Europe's imports of LNG in the first 10 month of 2024 compared to the same period in 2023.

Kpler data shows that Europe's crude oil imports from the United States have reached a new record in 2024, but overall crude imports on the continent have decreased by about 1%.

The overall gas consumption remains low, while the supply of crude oil from alternative suppliers is abundant.

IN THE CROSSHAIRS?

European policymakers have already planned responses to Trump's proposed tariffs. They are wary of the potential for a deterioration of economic ties with an important trade partner, while also embroiled in trade disputes with China.

Experts in Brussels, the home of the European Union policy arm, will be looking to avoid any further deterioration in the economy in the region and will most likely want to maintain strong relations with the U.S. throughout Trump's second term.

They will, however, not be afraid to propose tariff measures during negotiations, even if it is just to avoid being slammed by the blanket tariff threats of the U.S.

U.S. energy is likely to be a popular option for retaliatory duties, as Europe can easily source LNG and crude oil from other eager sellers. This will hurt U.S. producers without harming the consumers of Europe.

U.S. RISK

If Europe is somehow cut off in a trade dispute, U.S. exporters of energy products could divert cargoes to another buyer.

In reality, however, losing European buyers could be a serious blow for U.S. companies, particularly LNG exporters.

The U.S. LNG terminals located either on the East Coast of the U.S. or the Gulf Coast are more suited to serve a Pan-Atlantic route rather than a Pacific trade route to Asia.

It is only a fraction the distance to Asia and the time it takes to reach major buyers.

The trip takes about 12 days from Cove Point LNG Terminal in Maryland to Wilhelmshaven, Germany - one of Europe's major LNG import hubs - which is only a third the time it would take to travel to Guangdong, China - the world's biggest LNG buyer.

LNG sellers need to maximize revenue, and longer journeys means longer turnaround times.

While U.S. sellers can maintain their total export volume by redirecting cargoes to Asia if Europe becomes off-limits, they will most likely incur higher shipping costs and take longer to return if they have to go to Asia.

The same would be true for crude sellers if European buyers chose to buy from other suppliers, as oil exporters in the Middle East are already very well-served by global consumers.

The next U.S. administration will likely see an increase in the volume of energy exported by U.S. companies. However, there is a risk that they may face a trade dispute with European buyers who could make it difficult to sell those additional volumes.

(source: Reuters)