Energy and commodity analysts weigh impacts of new US administration

In the wake of President-Elect Donald Trump’s victory in the US elections, energy and commodity prices have a somewhat different outlook than with a continuing Democratic administration.

During his campaign, Trump promised to revitalise the US oil and gas industries and dampen the impact of current President Biden’s Inflation Reduction Act, which was targeted at growing US renewables.

In a speech on September 5th, he said; “I will immediately issue a National Emergency Declaration to achieve a massive increase in domestic energy supply. With these sweeping authorities, we will blast through every bureaucratic hurdle to issue rapid approvals for new drilling, new pipelines, new refineries, and new power plants and reactors.”^[1]

At the same time, Trump has referred to the combined legislation of the Chips Act, the Bipartisan Infrastructure Law and the Inflation Reduction Act, which were all aimed in part at ameliorating the climate crisis and building a renewables manufacturing industry in the US, as the “green new scam”.^[2] He has promised to roll back these changes, saying that the spending is wasteful.

Potential outcomes

It’s not going to be easy to repeal this legislation, even with Republican control of both houses, because the changes have already led to new factories and new jobs across the country, often in Republican-leaning regions. However, even mild cutbacks to the tax credits in the IRA, for example, could spur greater demand for oil and gas. Energy prices in this scenario will depend on how much and how quickly US oil and gas supplies can be ramped up to meet this demand.

Trump is also expected to remove the temporary pause on new LNG in the US, which will add to the varying outlook for the global market. Existing US and Middle Eastern projects coming online in the next few years are likely to see global LNG prices fall. But after 2030, demand will have outgrown supply once more, particularly if renewables haven’t expanded enough, and the US will be competing to fill this gap. The weight of the economy

However, growth in energy demand is also dependent on the global economy, and analysts are concerned that a US protectionist stance could slow world economic growth. A policy publication from the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science claimed that Trump’s proposed tariffs could reduce gross domestic product (GDP) in the US by -0.64%, in China by -0.68%, and by -0.11% in the EU.^[3]

The report added that; “Retaliatory measures by China or the EU would likely worsen economic outcomes for all parties involved, potentially sparking a damaging trade war.”

The Wharton school at the University of Pennsylvania has also warned that a trade war “could reduce GDP by as much as 5% over the next two decades”.^[4]

However, other economists have suggested that this level of concern is excessive. Marieke Blom, Chief Economist and Global Head of Research at ING said: “Economists’ forecasts sometimes sound worse to the average consumer than they probably are. For example, Wharton’s estimated 5% GDP hit would occur over two decades; that hardly constitutes a crisis. Similarly, the IMF’s 1.6% GDP decrease over two years is substantial but not enough to constitute a meaningful recession in itself.”^[5]

If tariffs do weigh on the economy, that could have any number of ripple effects, including slowing investment into the energy transition, dampening growing demand for energy supplies and impacting inflation.

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