Executive viewpoint: Unknowns remain in oil, gas, chemicals after U.S. presidential election

GREG MATLOCK, TAX LEADER, EY AMERICAS OIL & GAS AND EY AMERICAS METALS & MINING  

The return of Donald Trump to the U.S. presidency is expected to usher in a friendlier regulatory environment for oil, gas and chemicals companies. Emblematic of the change in approaches to the sector is the awaited “unfreezing” of the Energy Department (DOE) approval process for new LNG facilities. Trump, both as a candidate and during his prior term, has favored fossil fuels, especially higher production and export of oil, natural gas and coal — seeing them as symbols of American economic might. That said, there are potential complications as well, particularly around foreign, trade and environmental policy.   

Ultimately, there are both challenges and opportunities that oil, gas and chemicals companies should keep in mind, as they strategically plan for 2025 and beyond. Overall, however, there is a clear potential for growth and stimulus for oil and gas companies—from the potential lowering of tax burden, easing of environmental regulations, and probable decreased or accelerated permitting times, not only for oil and gas drilling operations, but also for infrastructure projects. In addition to support for new oil and gas pipelines, permitting reform could provide a better policy and regulatory basis to allow the development of more extensive pipeline networks necessary to scale both carbon capture and hydrogen projects.  

Tax policy outlook and implications. Oil, gas and chemicals companies should also benefit from Trump’s likely tax priorities, especially the looming expiration of the 2017 Tax Cut and Jobs Act (TCJA). Republican control of government allows Congress to pursue budget reconciliation, whereby tax measures need only a simple majority vote and are not subject to Senate cloture rules requiring 60 votes, which should ease the path to passage. However, the Republicans’ thin majority in the House may eventually temper expectations. There remains a significant portion of House Republicans signaling concern about the federal budget deficit implications of further tax cuts, so a tax package may need to reduce the level of tax cuts, raise additional revenue or reduce spending to firm up support.   

A potential lowering of the corporate tax rate, however, from 21% to 15% for so-far-unspecified domestic products or domestic manufacturing activity could encourage oil, gas and chemical investments but would put even more pressure on the budgetary impact of the bill. Other tax-specific issues that could be at play include returning the calculation of Section 163(j) interest deductibility provisions to EBITDA (instead of EBIT), expanding research and development (R&D) provisions to provide for expensing, and making 100% expensing for certain investments and capital expenditures permanent. Provisions that accelerate cost recovery and lower after-tax burdens may result in increased investment activity.  

Although TCJA provisions do not expire until the end of 2025, the positions of the Congressional party leaders will be revealed early in the year. Republican policymakers will want to move as quickly as possible (ideally the first 100 days) on tax cuts, to create as much distance with a required vote to temporarily suspend the debt ceiling, which technically expires on Jan. 1 but is unlikely to get a vote until summer of 2025. An early decision will be required on the revenue target for the budget reconciliation process (the amount by which the debt changes over 10 years). Negotiations around that target number will signal the level of concern among Republicans about the rising deficit and historical federal debt vis a vis the importance of new or extensions of tax cuts.  

Separately, the incoming administration is likely to focus on the Inflation Reduction Act (IRA). While some of the measure’s energy tax credits could come under fire, a complete repeal seems unlikely. That said, scaling back, phasing out or downshifting for certain incentives (such as electric vehicle (EV)-related provisions) may be possible. Other incentives, however, have more bipartisan support and are expected to continue, for example, carbon capture and blue hydrogen projects. Likewise, provisions that support U.S. manufacturing (such as the manufacturing production tax credit) are likely to remain in place.   

Foreign trade outlook and implications. There are also risks to oil, gas and chemicals companies, primarily from the consequences of more general foreign, trade and environmental actions from the second Trump administration. Trump’s initial term in office was marked by challenges to the status quo in diplomatic and trade relations. U.S. liquefied natural gas (LNG) sales even became a key bargaining chip with some trade partners. In 2025, the industry faces two key risks. 

First is the foreign policy front. Trump presided over the September 2020 “Abraham Accords,” establishing the first diplomatic relations between Israel and the UAE and Bahrain. This pact challenged the notion that normalization of Israeli relations with the Arab world would only come after resolution of the Palestinian situation. Indeed, Trump earlier in his presidency formally recognized Jerusalem, including the contested parts of East Jerusalem, as the capital of Israel and relocated the U.S embassy there.  

But the current extent of hostilities between Israel, Iran and Iranian-backed Hamas in Gaza and Hezbollah in Lebanon, plus Trump’s full-throated support of Israeli Prime Minister Netanyahu’s war objectives, will limit his administration’s previous voice in Arab capitals. While hawkish rhetoric from Washington may affect oil market sentiment and price volatility, there may also be cooler reception to U.S. companies—particularly in the oilfield services (OFS) and petrochemicals space–in these countries. 

More broadly, Trump’s likely continuation of confrontational trade policies runs the risk of disrupting key supply chains. During the 2024 campaign, Trump talked about imposing additional 10% or 20% tariffs on all imports, regardless of the country of origin, and even-higher tariffs on certain countries. Across-the-board tariffs would strain global supply chains, including increasing the cost of imported components and machinery that is integral to the production, refining and transport of oil and gas. Further, our trading partners would likely respond with retaliatory tariffs on U.S. exports and possibly hinder global market access for American oil and gas producers.   

Environmental outlook and implications. In his first term as president, Trump withdrew the United States from the Paris Agreement. Whether or not he reprises this action, his administration is likely to slow, scrap or scale back many of the environmental regulations for oil and gas. In this regard, his potential actions would be supported by recent Supreme Court rulings requiring Executive Branch agencies to cite clear legislative authority to write rules and regulations. The Trump administration can be expected to adhere to a very strict interpretation of the rulings.  

There are limits to how far regulations can be rolled back or ignored, however. Not only will decisions be subject to court challenges, but in a recent court decision that vacated a permit issued by the Federal Energy Regulatory Commission (FERC) for LNG developers, the courts seemingly based this decision on the lack of a FERC rule on an environmental impact study required by legislation. The case is under appeal but underscores the rising judicial role in regulatory decision-making for the industry. But given the tight GOP margins in the House and Senate, the prospects for establishing clearer legislative guidelines for the industry are nil.   

There are major downsides to this for the industry. The first is that competing international regulations on the reporting and even the mitigation of greenhouse gas (GHG) emissions continues unabated. Additionally, decarbonization is essential to the viability and resilience of the industry in the long term, and the U.S. slowing any GHG mitigation measures in the short term simply delays an inevitable need for companies to respond to maintain a competitive advantage.  

The incoming Trump administration’s vocal denial of climate change, whether or not he formally withdraws from Paris again, will complicate any efforts toward the standardization of not only climate reporting guidelines, but also progress on key issues, such as the establishment of international carbon trading, that could prove to be a boon to the U.S. oil, gas and chemicals sector, owing not only to an advantaged position of domestic resources in terms of carbon intensity of production and refining, but also the prospects of creating additional carbon credits to trade with advanced support for carbon capture, utilization and storage (CCUS) projects advanced by the sector. Ultimately, the already steep cost of decarbonization increases, as global climate policies lack harmonization while the global market continues to demand it. 

Editor’s note: Also contributing to this analysis are David Kirsch, Managing Director, Energy, at EY; and Ryan Abraham, Principal, EY Washington Council.