Trump’s return threatens U.S. renewables and bolsters fossil fuels, testing oil and gas majors amid an unstoppable global transition.
Key takeaways
The incoming administration could disrupt oil and gas majors' low-carbon expansion plans in the U.S, especially in offshore wind and hydrogen, while emboldening the renewed focus on oil and gas.
This uncertainty should not deter ambition - shifting political and economic conditions are a constant in the energy sector, and write-offs are part of doing business.
The global energy transition is well underway, driven by progress in the EU and China. A U.S. retreat could create opportunities for other nations and companies to lead.
Author: Rohan Bowater, Lead Analyst for Oil & Gas and Co-founder at Accela Research, specialising in climate transition analysis.
Fossil fuel push
“Drill, baby, drill” was Donald Trump’s energy policy catchcry as he marched to victory in November’s election. The President-elect takes office on January 20 with a promise to “unleash” domestic fossil fuel production even though oil extraction in the United States has been at near-record levels. Trump has said he would reverse his predecessor’s recent ban on new offshore oil and gas drilling along most of his country's vast coastline. The new administration could also restart federal permits for giant liquefied natural gas export terminals. Even before Trump's victory, there was a renewed focus on oil and gas among majors. In 3Q24, TotalEnergies raised its growth forecast from 13% to 20% between FY23 and FY30, while BP reversed its planned production cuts, following similar moves seen previously by Shell, Equinor, and Eni. Australian major Woodside completed the acquisition of Louisiana LNG, adding 13.8 Mtpa of permitted equity share capacity after sell-downs - placing it on par with European peers. U.S. LNG exports are increasingly seen by majors like Shell, TotalEnergies, and Woodside as essential to meeting Asia's growing energy demand.The conclusion of Trump’s second term will coincide with the approach of 2030 emissions targets, putting these ambitions at risk for majors. Accela’s analysis shows that increasing gas’s portfolio share by 10% by FY30 would only reduce net carbon intensity by 2-4%, locking in emissions reductions at a limited level for decades. By contrast, the same increase in renewables would achieve a far greater reduction of ~12-14%.The threat to U.S renewables
The U.S. wind market, the second-biggest in the world after China, could also face disruption. Trump has said wind-generated power “was the most expensive energy there is. It's many, many times more expensive than clean natural gas so we're going to try and have a policy where no windmills are being built.” America accounts for 15% of global energy demand and 14% of CO2 emissions, making its leadership in the energy transition critical. But Trump’s second term begins at a time when renewable energy is booming in the United States because of investment driven by the Inflation Reduction Act (IRA), passed under Joe Biden's presidency in 2022. It guaranteed billions of dollars of solar and wind subsidies to accelerate America’s move to a green energy economy. Billions were also allocated to encourage clean hydrogen production and there were new incentives for biodiesel and other renewable fuels. However, the President-elect has pledged to take an axe to the act, including its 10-year renewable tax credits, deriding the landmark reforms as too expensive. Without IRA support, Accela’s analysis indicates that the economic viability of renewables, specifically offshore wind and hydrogen, could become untenable for investment decisions, creating a chilling effect on clean energy momentum in the U.S. Already, there is a sense of precariousness.TotalEnergies, with 5.9 GW of offshore wind operational and 8 GW in the pipeline, has paused a project near the New York-New Jersey coastline because of political uncertainties, highlighting the risks to future U.S. developments. Notably, North America accounts for over 40% of the French company’s offshore wind capacity under construction or in development. TotalEnergies is not the only company that could be affected. Norway’s Equinor faces exposure with 5.3 GW of offshore wind projects in planning, including Empire Wind Phase 2. Empire Wind Phase 1 (816 MW), under construction, required a pricing renegotiation to $155/MWh from $118/MWh, following a $300 million impairment. These projects, 46% of Equinor’s global offshore wind pipeline, will likely rely on IRA support to progress. Similarly, hydrogen projects in development such as Exxon’s Baytown in Texas and Woodside’s H2OK in Oklahoma are explicitly relying on IRA credits to be economically viable.The transition moves forward
While companies are increasing their oil and gas production and scaling back renewables, the global transition forges ahead. The European Union and China, for instance, increased renewable generation by 11% and 9% respectively in 2023, driving technological advancements and cost reductions. In the same year, capital costs for offshore wind dropped by 9% in the EU and 16% in China.Short term shifts in the political and economic environment are par for the course in the energy sector. And write-offs, as we might see in the wind sector, are an accepted part of business as companies hunt for value. The Trump presidency might provide support to the majors prioritising short-term shareholder returns through distributions funded by oil and gas projects and capex cuts. But over the medium-to-long term, this approach isn't sustainable. Sooner or later, the companies will need to decarbonise their business models in order to stay relevant.Those who double down on their retreat from the transition and the emissions targets they have set face risks of many types: regulatory, technological, economic and reputational. It is the countries and companies that maintain a long-term vision that will reap the benefits of the low-carbon future. Those that don't will be left stranded.