Tariffs And Turmoil: Oil Industry Faces The Downside Of Its Alliance With Trump

HOUSTON — The economic turbulence from President Donald Trump’s whipsawing trade wars is starting to test the patience of the oil and gas sector — and threatening to undermine the explosive energy growth he promised during his campaign.

Oil and gas executives poured tens of millions into Trump’s campaign coffers to help him enact the “energy dominance” policies he promised would drive down costs for American consumers and spur rapid increases in the United States’ already record-high fuel production.

But the trade fights Trump has triggered, including tariffs on steel, aluminum and crude imports, are set to drive up costs for oil and gas companies long before they feel any benefits of his “drill, baby, drill” push. That sentiment filtered through attendees at CERAWeek, one of the world’s most prestigious energy conferences — particularly among companies seeking to boost their shipments of U.S. liquefied natural gas, or LNG.

Trump administration officials “love to talk about their support for the U.S. LNG industry,” said one natural gas company executive, who was granted anonymity because he wasn’t authorized to speak to reporters. “But the actions the administration makes are mixed. Certain things are harder.”

An executive at another gas company was more explicit about how his colleagues were taking news that Trump was raising the price of steel, a major cost for new LNG projects.

“The industry is pissed,” said the person, who was also not authorized to talk to the media.

Michael Smith, chief executive of the gas export company Freeport LNG, said even the word “tariff,” widely used in his business as a synonym for normal fees, was enough to spook people.

“I said ‘tariff’ a couple of times on Monday and people looked like deer in the headlights,” Smith said. “‘Oh my God, no.’”

Not everyone, though, was so critical. Permitting costs and legal fees have climbed so dramatically in the United States that some companies said they would gladly accept the tariffs if they got relief from those costs, said Alan Armstrong, chief executive of pipeline owner Williams Companies.

“We’ll gladly pay a 25 percent tariff if we can get our permitting in order,” Armstrong said from the stage, adding later that his company buys most of its steel from Europe.

On Tuesday alone, Trump announced he was doubling his tariffs to 50 percent on steel and aluminum imports from Canada, only to reverse course after Ontario Premier Doug Ford dropped his plan to impose a surcharge on electricity shipments to the United States. Trump's 25 percent tariffs, however, began on Wednesday.

That’s expected to drive up costs for pipelines — a hike that comes even as Energy Department Deputy Under Secretary for Infrastructure Steve Winberg was pitching investors at an event hosted by the Japanese government in Houston on investing in the proposed Alaska LNG project. That project, which includes an 800-mile pipeline, has languished for years as potential investors balked at its $44 billion price tag.

Executives at the conference in Houston mostly refrained from publicly criticizing Trump’s policies directly. But behind the scenes, some expressed bewilderment as to how long Trump would pursue a trade war in which they were fast becoming collateral damage.

Some executives who had lived through the first Trump administration were more sanguine, saying that they had always expected his trade policy to run afoul of his intentions to boost U.S. energy production.

Executives said they were relieved in November that Trump had defeated former Vice President Kamala Harris, who had been expected to keep in place Biden-era policies they say hemmed in their access to public land for drilling.

But events since then have unnerved them.

Those included comments that Trump Energy Secretary Chris Wright — a former fracking company CEO -- made days before the conference, saying the White House wouldn’t mind seeing oil prices fall to $50 a barrel. That would represent about a 25 percent decline from current price for U.S. oil of $68 to a level that would erase profits for many producers.

“Above $70 and above, you’ll see production continue to climb here in the U.S.,” said Fred Forthuber, president of the Occidental Petroleum subsidiary Oxy Energy Services. “But if it goes lower, if it gets below $60, you’ll see unconventional shale and the smaller players will not grow as much, there will be curtailment. If it goes lower than that, again, you’ll see even less activity.”

For now, they mostly worry that Trump's promised extension of his multitrillion-dollar 2017 tax cuts, his regulatory rollbacks and his expansion of industry's access to federal land and waters will come only after tariffs and foreign tensions have taken big bites out of their bottom lines.

The tariffs on China, Mexico and Canada could reduce U.S. gross domestic product growth by up to 1.5 percent and cost U.S. consumers up to $2,000 per person, Ed Morse, adviser at global commodities trading firm Hartree Partners and a long-time industry analyst, said on stage. The impact could spiral overseas as countries apply their own retaliatory tariffs against U.S. exports, added Morse, who said he was “bearish” on future oil prices.

“It’s certainly the case that we’ve had a significantly more volatile market than anybody had anticipated and that volatility certainly affected investment decisions,” Morse said. “If you look at volatility risks in the market, [oil is] at the top of all commodities. The uncertainty certainly comes from tariffs in part.”

The on-again, off-again nature of Trump’s tariff pronouncements was making it more difficult for oil trading companies to do basic calculations on oil prices and how trade flows could change, said Frederic Lasserre, head of research and analysis at global commodities trading firm Gunvor.

“The issue today is we don’t know which tariff we should factor into the price” formula, Lasserre said during one session. “It’s quite difficult to understand exactly the logic...The concern we have today is we struggle to understand exactly the impacts in terms of global growth. Global trade growth will be impacted for sure.”

The trade war will cut into GDP growth in China, which will in turn cut into global oil demand and send the average oil price down to $65 per barrel for 2026, Lasserre added.

Trump has sought to play down the economic turbulence, which has sent the stock markets into a tailspin in reaction to his policy moves — insisting he was laying the groundwork for long-term prosperity.

"Markets are going to go up and they're going to go down but, you know what, we have to rebuild our country,” Trump said Tuesday.

Chevron Chief Executive Mike Wirth said he appreciated Trump’s executive orders that “send a signal” to increase domestic energy production. But he also wanted to see Congress take action on permitting reform and general deregulation, saying otherwise Trump’s policies could lead to more whipsawing once a new administration came to power.

“We need to see some of this stuff being put into legislation so that it’s more durable and not at risk of being swung back in the other direction from a future administration with a different point of view,” he told the conference.

Chevron has already taken a hit under the Trump administration, which revoked its permit to sell some 300,000 barrels of crude oil per day from its concession in Venezuela. That permission was yanked because the White House said the regime of President Nicolas Maduro had not lived up to its promise to hold free elections — or to accept undocumented immigrants sent by the United States.

Others at the conference also expressed concern that Trump’s tariffs, which for now have focused on America's nearest neighbors and its biggest competitor, could sweep even farther around the globe.

Takehiko Matsuo, vice minister for international affairs at the Ministry of Economy, Trade and Industry in Japan — a major energy importer and important customer for U.S. oil and natural gas — summed up the feeling of many at the conference.

“We hope that additional tariffs will not be passed,” he said.

David Goldwyn, head of the international energy consulting firm Goldwyn Global Strategies and a former State Department official in the Obama administration, said the industry was unhappy with the volatility from Trump’s tariffs “and because he’s antagonizing their major markets.”

Along with Trump's rhetoric and trade policy targeting Canada and Mexico, “everyone is waiting for their markets in Europe and Japan and Korea to be next. Everything is kind of frozen,” he said.

Executives who took the stage at the conference tried to focus on the policies they favored, such as the administration’s paring back of climate and renewable energy policies enacted during the Biden administration, and refocusing on selling more oil and gas — but not about the selloff in stocks and heightened tariffs.

In the convention center hallways at banquet tables, however, the latest financial news was a frequent topic.

“Just watching our 401(k)s go up in flames,” one executive joked with a journalist arriving to a meeting.

Overall, oil and gas officials say the verdict on the new Trump administration is still out. Trump has been in place for less than two months and many industry people hope the tariffs put in place will soon disappear. And companies such as Exxon Mobil, Chevron and other big players know their stocks may fall sharply only to rise again just as quickly.

Their deeper concern is that the administration has no clear exit strategy for its tariffs, and that it will issue trade directives with no plan further out than days or weeks, said Georges Tijbosch, chief executive at MiQ, a company that monitors the methane pollution from oil and gas infrastructure.

“It’s chaos — chaos on top of chaos,” Tijbosch said from the conference sidelines. While stocks slumping to levels where they were a year ago didn’t overly alarm him, the general sense that the government hadn’t communicated a clear plan brought to mind the mood in the United Kingdom’s experience with Brexit, when it pulled out of the European Union, Tijbosch said.