Trump’s Oil and Gas Math Fails to Add Up

There is a certain mental model of the US energy system that envisions a giant valve hidden beneath the Resolute Desk. The notion that the president can smoothly dial energy flows and prices up and down is of course absurd — and seemingly a belief within the incoming Trump administration.

We’ve been treated to a couple of jarring statements on energy from the president-elect and his appointees this week. The first was a proposed “plan” from Donald Trump’s pick to lead Treasury, Scott Bessent, for 3% economic growth, a 3% federal deficit and an extra 3 million barrels of oil equivalent of production a day. The second was Trump’s Monday night threat to slap 25% tariffs on “ALL products” imported from Canada and Mexico.

Bessent’s 3 million barrels “equivalent” means he is including natural gas in that figure. The industry’s rule of thumb is that 6,000 cubic feet of gas holds the equivalent energy of 1 barrel of crude oil. On that basis, such growth is expected already. The International Energy Agency projects US oil production rising by more than 1 million barrels a day through 2028 (when Trump’s administration would end). Meanwhile, the US has about 12.6 billion cubic feet of liquefied natural gas export capacity under construction, equivalent to another 2.1 million barrels a day, which suggests the industry expects new production to feed it.

Bessent surely means another 3 million beyond that — if not, why mention it? That looks very unlikely and here is why:

You’ll notice sizable production gains in the first three administrations of the shale era. But you’ll also notice that energy investors only got paid during the current administration of President Joe Biden. There are long explanations for what happened (see  and ) but the basic thing is that oil and gas producers figured out that if you prioritize profits over sheer output, you might have some money left over for shareholders. Unlike, say, Saudi Arabian Oil Co., which is effectively an arm of the government with a veneer of privatization, the US oil industry is made up of competing commercial enterprises that respond to prices rather than mandates. There is a reason why Exxon Mobil Corp.’s head of upstream told a conference audience on Tuesday that “drill, baby, drill” isn’t happening.

Beneath the headline numbers, oil production has reached an all-time record under Biden. But that is still less than half a million barrels a day higher than the peak under Trump and was spurred by the recovery from the pandemic and war in Ukraine. Today’s market is far less accommodating, with Chinese demand notably soft, US demand weakening structurally and OPEC+ holding off more than 6 million barrels a day of  to support prices. Given all this, and industry discipline, even opening more federal lands — a minority of US production anyway — isn’t likely to raise output much more than was expected already. Barring, that is, another spike in prices — which would undercut Trump’s pledge to reduce Americans’ energy costs.

Gas looks similar. LNG exports have become increasingly important as the marginal source of demand growth for US producers, and Trump is certain to lift the “pause” on export licenses implemented by Biden earlier this year. But that always looked like a  and was widely expected to be reversed after the election, regardless of who won. Meanwhile, Trump’s predilection for tariffs has knock-on effects, as seen in his first term when duties on steel raised costs for LNG developers and China halted imports of US LNG for much of 2019.

And tariffs are back on the agenda with Trump’s threat to America’s neighbors, with immediate, and negative, implications for US energy if implemented. Canada accounts for 61% of US crude oil imports, averaging more than 4 million barrels a day, with Mexico accounting for another 9%.

Your first reaction to that chart may well be: Isn’t the US oil-independent? Indeed it is, but on a . Unlike the Oval Office Valve model, the real world oil market optimizes flows based on economics. So while the US does ultimately export more oil than it imports these days, its refiners still buy more than 6.6 million barrels a day of crude from foreign suppliers because that yields the best margins. Canadian oil is ideal in several respects: It is produced close by in a stable US ally and much of it consists of heavier grades that are particularly suited to US refineries’ processing capabilities. Mexican oil is also generally of heavier grade and close to the refining centers of the Gulf Coast.

Adding 25% to the price of current Western Canadian Select crude oil would feed through to higher fuel prices, with the impact quickly hitting much of the Midwest. Seems bad. If the idea is that surging US production — notwithstanding all the reasons why Bessent’s plan wouldn’t work out — would displace Canadian barrels, refiners are awash already in shale’s lighter grades of crude oil. They want the heavy barrels. Relatedly, if this were the aim, then why is Trump also reportedly thinking of trying to revive the Keystone XL pipeline?

Besides simultaneously hurting US oil refiners and drivers, putting tariffs on Canadian and Mexican oil undermines US energy security. Republicans bemoan the 180 million barrels of oil that Biden sprung from the Strategic Petroleum Reserve to deal with the impact of Russia’s invasion of Ukraine. So why would it make sense to put constraints on the oil trade with our two nearest neighbors who supply the US with that much every 39 days?

The short answer is that it doesn’t. Bessent’s three-themed soundbite and Trump’s tariff tantrum (hardly his first) are perhaps just another round of political peacocking or negotiating tactics. We will find that out soon enough. What won’t change is that, on their face, they betray a lack of understanding about energy markets, the US position within them and the linkages with other policy objectives. There is a persistent disconnect between Trump’s vision of surging US production, low energy prices and disdain for trade. This is oil and gas math that will never add up.