Increased oil supplies will moderate prices. But renewable energy will now have to compete with fossil fuel industry
By Richa Mishra
ticking to his narrative of “Drill, Baby, Drill”, on January 20 Donald Trump, after taking office as the American President for the second time, declared National Energy Emergency.
The objective of Executive Order is to ensure US’ energy security, which Trump claims are currently not being met.
Affordable energy
“We need a reliable, diversified, and affordable supply of energy to drive our Nation’s manufacturing, transportation, agriculture, and defense industries, and to sustain the basics of modern life and military preparedness. Caused by the harmful and shortsighted policies of the previous administration, our Nation’s inadequate energy supply and infrastructure causes and makes worse the high energy prices that devastate Americans, particularly those living on low- and fixed-incomes,” it read.
“An affordable and reliable domestic supply of energy is a fundamental requirement for the national and economic security of any nation,” it said. This was what even India has been working towards, but with limited resources and dynamic consumption.
For India, Trump’s Executive Order has its positives and downsides. The positive side it will drive new investments in oil and gas exploration sector and oil prices will moderate. Also the removal of pause on LNG export will impact the dynamics of gas market. The worrisome part is the further strengthening of dollar, as oil trade is predominantly dollar denominated.
With the Union Budget around the corner, it would be interesting to see its peg on the average oil price. According to industry, currently, New Delhi will be comfortable with an average of $70 a barrel. If it falls further, then it would be Trump’s gift to consumers like India. However, the government will need to be flexible enough to protect itself from spike in prices. As on January 24, the Indian crude oil basket (price on which the Indian refiners source their crude) stood at is $81.18 a bbl. In December 2024 the Indian basket averaged $73.34 a bbl.
But will Trump’s moves see the revival of shale industry?
According to Ehsan Ul-Haq, an Independent Energy Analyst, “I don’t think, it will change much. US shale oil production is only rising in the Permian region, as other plays are now mature. However, there will be some increase in the Gulf of Mexico.”
“You can emphasise ‘drill, baby, drill’ slogan but oil companies in the US are now interested in capital discipline. An increase of 300,000 to 400,000 bpd is possible this year but a slogan alone does not help boost production,” he said adding that President Trump wants to bring down prices but if he imposes 25 per cent tariff on Canadian and Mexican oil, this becomes impossible.
“Similarly, more sanctions against Iran and Venezuela mean higher prices. This could reduce supplies, but we still don’t know, how effective his sanctions against Tehran and Caracas will be. I don’t think President Trump wants to hinder projects within the US. But sanctions against Iran and Venezuela could limit supplies and indirectly boost crude oil prices. But this also depends on the effectiveness of sanctions.”
On any further sanctions on Russia, “It could force Indian refiners to look for alternatives from the Middle East in the next few months, as Gulf crudes are similar to Russian oil. In the medium to long run, Russian and Indian refiners could find ways to import despite sanctions as in the past. In the short run, it means higher costs and lower refinery margins. This comes at a time when global demand is not strong.”
Umud Shokri, Energy Strategist and senior visiting fellow at George Mason University is of the view that Trump’s National Energy Emergency is set to significantly reshape the US energy market. “A key objective is to accelerate domestic oil and gas production, potentially leading to a substantial increase in supply. The declaration allows for expedited approvals of energy infrastructure projects, including pipelines and power plants, aimed at boosting production and distribution capacity.”
“Additionally, the removal of a pause on liquefied natural gas (LNG) export reviews is expected to enhance the US’s role in global energy markets by increasing natural gas exports. However, this emphasis on fossil fuels may divert investments and resources away from renewable energy sectors, potentially slowing progress in clean energy development and innovation,” he said.
While the declared goal of these policies is to reduce energy costs for American consumers, the actual impact on energy prices could be complex, Shokri pointed out.
“Increased fossil fuel production may lead to market oversupply, which could temporarily lower prices… However, such oversupply could also result in price volatility, complicating long-term market stability,” he said.
“Moreover, the prioritization of fossil fuels and the rollback of climate-focused regulations might undermine the long-term competitiveness of renewable energy industries. While the policies may temporarily benefit consumers and producers in the fossil fuel sector, they introduce significant uncertainty for other energy stakeholders,” he added.
Trump’s energy policies will have mixed implications for oil prices, shaped by a combination of domestic and global factors.
LNG boost
According to Shokri, India’s LNG market is poised for significant growth, with imports playing a pivotal role in meeting the country’s rising energy demands.
The market is projected to expand from $8.9 billion in 2024 to $27.36 billion by 2030, growing at a CAGR of 13.2 per cent. “The United States has emerged as a key player in India’s LNG imports.”
GAIL has secured approval to import 3.5 million tonne of LNG annually from the US for 20 years. In June 2024, the US surpassed Qatar as India’s largest LNG supplier, delivering a record 851,000 tonne in 12 cargoes. Moreover, India was the top destination for the US LNG cargoes in May 2024, receiving 45.3 Bcf of LNG.
“While India’s LNG imports are sensitive to global prices, the country’s strategic diversification and long-term agreements position it to leverage the US supplies and address its growing energy needs. Despite challenges, the Indian LNG market is set to thrive, driven by infrastructure expansion, government initiatives, and increasing contributions from US suppliers,” he added.
For India’s energy space — fossil fuel in particular — Trump’s return seems to be a positive. But a lot will depend on the strategies adopted by the companies in this business and how India turns it into an advantage.
Already steps are being taken to strengthen the upstream sector of the oil and gas industry, while giving renewable a push. Now, there are hurdles— mostly political in nature — deterring a smooth ride as RE will have to be compete with fossil fuels to decide investment directions for the corporates.
