President Trump’s promise during last year’s election to make it far easier to drill for oil and gas thrilled energy executives who believed his policies would lower their costs and help them make a lot more money. Those hopes are now fading. Thanks to Mr. Trump’s tariffs, the oil and gas industry is contending with rising prices for essentials like steel pipes used to line new wells.
This situation has not yet translated to meaningful changes in U.S. drilling activity or production expectations, but companies are beginning to revise budgets to reflect higher material costs. Decisions made today about which wells to drill will affect production many months from now.
Oil refiners are bracing for tariffs on Canadian oil, which some need to produce gasoline, diesel, and other fuels. Consumers are growing jittery about the economy, and the price of oil has fallen by about 10 percent since just before Mr. Trump took office, now hovering around $70 per barrel. This declining price often leads oil companies to drill less.
“Our ability to ‘drill, baby, drill’ is directly tied to the economics of the well,” said Lori Blong, the mayor of Midland, Texas, at the heart of the most prolific U.S. oil basin. “We can’t drill ourselves to the bind.”
A planned 25 percent tariff on imported steel, effective March 12, is consequential for U.S. oil and gas producers whose wells often extend miles underground. Steel pipes used to line these holes can constitute up to 10 percent of total well costs. Mr. Trump announced these tariffs on steel and aluminum earlier this year, and the price of steel pipes was already rising before this announcement, climbing significantly since.
According to Argus Media, the price for steel pipe used for wells was 10 percent higher on average this February than it was last October. The cost of the tubing used to transport oil and gas has also risen. Both products remain cheaper than they were post-pandemic when supply-chain disruptions skyrocketed prices across the economy.
Elevation Resources, a private West Texas oil and gas producer, is facing significant cost increases; they expect to pay around 30 percent more for the pipe required to line wells due to the unavailability of cheaper options. “When Trump announced the tariffs, a switch flipped on availability and pricing,” said Steve Pruett, Elevation's chief executive. Although Elevation has not revised its drilling plans for this year, Pruett acknowledged, “It’s a zero-sum game; if you have a fixed budget and the wells cost more, then you’re going to drill fewer wells.”
The United States is also scheduled to impose tariffs on energy imports from Canada and Mexico, which threatens oil refiners and could lead to rising prices at the pump. These levies were originally slated for early February but were postponed by Mr. Trump for one month.
Despite the looming economic risks, Mr. Trump has downplayed concerns, saying the benefits “will all be worth the price.” His presidency is still young, and the full effects of these policies remain to be seen.
Material costs are just one aspect of oil company profitability. Rates for drilling and fracking have decreased as companies have become increasingly efficient. Geopolitical developments, including peace negotiations with Russia and Ukraine (which Mr. Trump actively promotes), could influence oil prices significantly.
Some may argue Trump’s administration has already aided the oil and gas sector: the Army Corps of Engineers has expedited permitting for oil and gas projects, and the Energy Department recently approved a long-awaited natural gas export facility on the Gulf Coast. Conversely, President Biden paused gas export permits earlier this year, which disappointed numerous companies within the industry.
Natural gas prices have also risen significantly since this time last year, partly due to extreme winter weather, leading many executives to hope for increased profitability in fuel production. Despite optimism, industry leaders face uncertainty as they struggle to predict Mr. Trump’s forthcoming strategies and initiatives. “What do you react to? Which direction do you go? That’s part of the dilemma,” commented Taylor Potts, sales manager for B&L Pipeco Services, which supplies steel pipes for the oil and gas industry. “You don’t know if next week all bets are off.”
The initial effects of tariff-induced price hikes are not being felt uniformly across the board. Liberty Energy, which fracks wells for various large U.S. oil companies, has yet to see tariffs affect its clients’ production strategies, said CEO Ron Gusek. “My guess is you’ll hear different stories depending on the operator's scale,” he noted.
Gusek explained if tariffs lead to higher costs, producers are more likely to curb drilling and fracking efforts rather than invest more finances. “They will effectively spend the same dollar amount. It may result in them accomplishing less work,” he said, highlighting it is also due to investors pushing for more conservative operational approaches.
After announcing the tariffs, Devon Energy’s CFO estimated only about “2 percent” impact on their overall spending this year. “We feel pretty good it’s going to have minor impact on us at this time,” he said recently.
Further complicateness emerges as Mr. Trump announced additional tariffs on goods from China, adding another layer of unpredictability for the industry. January showed promising signs with oil field supply company Mark Waters reporting strong business growth—revenue reaching approximately $1.3 million, up more than 40 percent from January 2024. Waters, identifying as “a big Trump supporter,” expressed some worries about the future, stating, “We have thrived under Democrats. You think it would be the opposite because Republicans are pro-energy. But it’s never worked out this way during my career.”
While the impact of Trump’s tariffs on the oil industry may take time to materialize fully, the initial signs have raised concerns among executives. With uncertainties looming over material costs, production, and profitability, industry leaders are bracing for what could be significant consequences of these aggressive trade measures.