Why the Gulf should not worry about higher oil and gas exports in Trump era

Data centres consume 1.5 per cent of global electricity. The International Energy Agency thinks the worldwide electricity consumption of data centres will more than double by 2030, because of the rising use of AI. AFPShow less

“There’s about a billion people that live a lifestyle remotely recognisable to you and I … There’s seven billion people that want to live a lifestyle like that. The only way from here to there is just massively more energy,” said US Energy Secretary Chris Wright, during his visit last week to the UAE.

“Larger energy, more affordable energy … stable and lower-priced energy, that’s good for America and good for the world,” Mr Wright advocated.

More abundant and cheaper oil and gas would be helpful for energy consumers, particularly following the gas price shock and inflation of 2022. Massively expanded energy needs for the developing world, and for emerging uses such as artificial intelligence (AI) seem to cry out for such an increase.

The International Energy Agency (IEA) thinks that the worldwide electricity consumption of data centres will more than double by 2030, because of the rising use of AI. Data centres consume 1.5 per cent of global electricity. The IEA thinks that about 80 per cent of this electricity increase will come in the US and China.

This forecast may be an underestimate. The US may use as much as 12 per cent of its electricity for data centres as soon as 2028, a near-tripling from today’s share. New AI methods and more efficient chips may cut energy use, although it’s more likely they will accelerate it, by making AI cheaper and therefore widening its use.

Impressive though this increase is, most of the gain in electricity use will come from other sectors – industry, electric vehicles and air-conditioning. The people of newly industrialising countries across South and South-East Asia, and after them, Africa, will aspire to the energy-intensive lifestyles, Mr Wright mentioned.

So how is Mr Wright going about achieving his objectives and those of his boss, US President Donald Trump? Will he succeed? And should the Gulf be worried about more competition and lower oil and gas prices?

US Energy Secretary discusses oil prices and AI co-operation with the UAE

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The US oil and gas industry hated the regulations of former president Joe Biden, Mr Trump’s predecessor in the White House. The new administration has moved rapidly to ease rules on leaks of the powerful greenhouse gas methane, pollution from coal power plants, leasing of coal-mining areas, and to end Mr Biden’s moratorium on approval of new liquefied natural gas (LNG) export plants.

It has sought to revive the long-stalled plant to sell LNG from Alaska. As part of its Hobbesian trade war against all, it has encouraged former allies in Europe and east Asia to increase their purchases of American oil and gas to remedy the purported bilateral trade deficits.

However, this policy suffers from so many contradictions, that it cannot possibly work.

First, the administration has moved against solar, wind and nuclear power in the US. The latest, most dramatic move, is Interior Secretary Doug Burgum’s order to Norwegian company Equinor to halt construction of the Empire Wind I offshore project in New York state. This was fully permitted and approved. Equinor had already spent $2 billion on it. No one will invest in major energy projects in the US under this kind of uncertainty.

This means traditional fuels have to carry all the burden. There will be less US gas to export as more is needed at home, and it will be more costly. The industry cannot even make turbines fast enough for all the proposed gas power plants to supply AI.

Coal in the US is on life-support. From providing half the country’s electricity in 2000, it now supplies 15 per cent. Companies do not want to build new coal power stations, and could not even if they wanted to.

Second is the impact of the tariff war. This pushes up costs for domestic energy suppliers who need steel and aluminium for their projects – particularly oil and gas drilling, pipelines, electricity cables, wind farms, nuclear plants, and LNG plants.

Trump doubles down on tariffs

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Third is the domestic market dynamics. No president can command an increase in US oil or gas production, though several have tried. Actual production depends on the interplay of technology, prices, costs, investment appetite and industry structure.

Today, only technology is on the side of US shale. Oil prices have dropped while costs are rising. Companies want to return money to shareholders rather than investing in the breakneck growth of earlier years. The shale industry has consolidated around a few giant companies such as ExxonMobil, Chevron, Occidental and EQT, who invest cautiously.

Shares of Liberty Energy, the fracking company previously led by Mr Wright, have lost 40 per cent of their value this year. Oil services companies are the first in line to suffer when oil prices and activity levels drop.

And fourth is the reality of the international market.

The US exported $320 billion of energy products last year, helping to keep its $1.2 trillion trade gap in goods from being even wider. Mr Trump said: “We can knock off $350 billion in one week” by exporting more energy.

LNG exports will double by the end of the decade. But there is no way the US can double the rest of its already huge energy exports. Counter-tariffs by China mean that huge market is now closed off to US oil and gas exports. Europe might buy more, but its hydrocarbon use is declining, and it does not want to be overdependent on Washington any more than on Moscow.

A slower global economy, and countries hit by US tariffs, will find their energy imports dropping rather than rising. And even if the US shale industry can crank out more oil, higher exports will bring lower prices.

So, the Gulf has plenty of things to worry about from Mr Trump’s policies, but much higher US oil and gas exports are not one of them. Opec+ can even use lower prices to its advantage, to recapture market share. Flexibility and resilience in the face of gross uncertainty will be the winning combination to win the world’s new energy consumers.