Trump's tax and spending bill aims to unleash US energy dominance, but policy alone cannot change market fundamentals
President Donald Trump has passed his "big, beautiful bill" that aims to unlock vast domestic oil and gas drilling opportunities while rolling back much of the Joe Biden-era climate agenda. But what should in theory be a boon to the US' shale sector comes as producers are scaling back their drilling plans in 2025 given the economic fallout from Trump's import tariffs and heightened policy uncertainty, calling into question the future of shale-derived LPG production growth.
The bill will benefit US upstream producers through tax cuts, lower royalty rates on new federal leases, expanded leasing and subsidies for carbon capture used for enhanced oil recovery. A tax credit for electric vehicles has also been revoked. The bill will "usher in a new era of energy dominance", American Petroleum Institute president Mike Sommers says. The goal is to unleash US energy dominance by flooding the market with new US fossil fuel supply in the coming years.
Yet a recent survey from the Federal Reserve Bank of Dallas suggests that US shale producers — which have been the source of the country's explosion in natural gas liquids (NGL) supply over the past 20 years and will be behind anticipated growth in the next 10 — are tapering their drilling programmes. Lower crude prices, higher supply chain costs from import tariffs on steel and policy uncertainty are dampening appetite in the sector, according to the survey of US oil and gas executives.
This comes as the Opec+ group agrees to speed up plans to increase crude production by 548,000 b/d in August relative to July, following 411,000 b/d hikes in the preceding three months — at four times the pace of its previous plan to unwind 2.2mn b/d of voluntary cuts between April 2025 and September 2026. This should further weigh on crude prices that have dipped back below $70/bl since the Israel-Iran ceasefire last month and potentially eat into US market share.
Without robust drilling activity in the Permian basin in Texas and New Mexico, as well as in the Eagle Ford and Bakken shales, future US LPG production and export growth is less certain. The bill theoretically addresses some of these concerns, even driving the expansion at a faster rate in the right circumstances. But policy alone cannot change market fundamentals. And while shale executives have publicly backed Trump's bill, many in the survey reveal that they feel betrayed by his administration. His steel tariffs have increased the cost of drilling and completing a well by as much as 6pc. And the White House claiming it is targeting a crude price of $50/bl is unnerving as it would make production uneconomical.
If the near-term market pressures prevail, US LPG supply growth could slow or stall altogether. A contraction is unlikely — any decline in shale gas production will incentivise the ramping up of operations at wells rich in NGLs if shortfalls emerged. A stagnation would tighten the global LPG market, which has baked in expected US supply growth. US midstream operators that have invested billions in LPG and ethane export infrastructure and are looking to invest more might look to downgrade future projects. Importers that rely on US LPG and ethane and have projects of their own that will consume future yields may postpone or scrap these plans. The very large gas carrier (VLGC) shipping market could also face oversupply as more new vessels arrive that are intended to carry extra US supply.
Paradoxical effects
The LPG industry for now must grapple with the paradox of a US administration that is targeting fossil fuel abundance and tearing up climate legislation while presiding over an upstream sector becoming increasingly cautious from the uncertainty the administration is creating. Trump's goal of energy dominance could end up being more a political slogan than economic reality. And the once-assured growth in US LPG supply is looking less certain than it did a few years ago.
