Trump's "Energy Card": Fill the SPR, lift the LNG export ban, and export American energy to the world

Trump stated in his inauguration speech: "We will lower prices." During the campaign, he repeatedly promised to reduce energy prices by 50%.

However, analysts believe this is an unattainable goal. For example, in 2020, the global pandemic led to a sharp decline in energy demand, causing oil prices to plummet, and the average energy cost for Americans fell by 19%, which required a global, market-shocking disaster.

Policy changes can affect oil and electricity prices, and a slight decrease in costs is certainly possible. But it is not simple.

Trump advocates increasing oil and natural gas supply through increased drilling, which is indeed a factor affecting oil prices. However, the oil industry has a well-known "boom and bust cycle," where falling prices lead to reduced drilling activity, which in turn drives up oil prices.

Moreover, a drop in oil prices to rock bottom will also harm the profits of oil producers who verbally support Trump.

Can Trump fulfill these promises, and what are the policy challenges behind them?

Trump's Energy "Three Axes"

During the inauguration ceremony, Trump promised to revitalize the U.S. energy industry, lower energy prices, and pledged to "fill the U.S. Strategic Petroleum Reserve (SPR) to the 'highest level'," while also "lifting approval restrictions on U.S. liquefied natural gas (LNG) exports." He stated that the U.S. not only aims to lower energy costs but also to "export American energy to the global market."

Trump's energy policy has multiple objectives: first, to lower energy prices to alleviate the inflation crisis and enhance the competitiveness of U.S. manufacturing. Second, to increase domestic energy production, reduce dependence on foreign energy, and achieve energy independence. Third, to lift restrictions on LNG exports, expand energy exports, enhance U.S. influence in the global energy market, and improve the trade deficit. Fourth, to fill the strategic petroleum reserve and, at the appropriate time, release or trade it to gain price difference profits and enhance fiscal revenue.

Increasing the Strategic Petroleum Reserve (SPR)

Recently, the crude oil market welcomed two pieces of good news. On one hand, the Biden administration intensified sanctions against Russian oil exporters and tankers before the end of its term, leading to a daily supply reduction of up to 1.5 million barrels from Russia, pushing oil prices to a five-month high. On the other hand, Trump promised in his inauguration speech to "replenish the U.S. Strategic Petroleum Reserve (SPR) to the highest level," stating, "Lower prices, refill our strategic reserves, and export American energy to the world," which could significantly boost U.S. crude oil demand.

Currently, the SPR holds 394.4 million barrels, the lowest level since the 1980s, far below its maximum capacity of 700 million barrels, primarily because the Biden administration has depleted about half of the reserves in response to rising oil prices after the Russia-Ukraine conflict. By the end of 2023, the Biden administration had sold about half of the strategic petroleum reserve, including 180 million barrels of crude oil to the global market, in an attempt to lower gasoline prices after the 2022 Russia-Ukraine conflict.

However, filling the Strategic Petroleum Reserve is no easy task. Biden attempted to slowly replenish this emergency reserve, established after the Arab oil embargo in the 1970s, but after purchasing about 60 million barrels of crude oil, he had to pause further purchases due to depleted funds. To continue buying crude oil, Congress needs to pass a bill to allocate funds for the Department of Energy's oil account. Once such a bill is passed, oil traders may act ahead of the U.S. government, driving up crude oil prices.

Lifting Liquefied Natural Gas (LNG) Export Restrictions

Previously, in January 2024, then-President Biden suspended the approval process for LNG export licenses. Research released by the Biden administration last month indicated that increasing LNG exports would lead to higher domestic natural gas prices and an increase in global greenhouse gas emissions. These findings could pose potential obstacles for the Department of Energy to quickly approve new export licenses.

Biden's suspension decision disrupted the multi-billion dollar export project plans of several energy companies, including: Venture Global LNG, Energy Transfer LP, Commonwealth LNG.

Trump had promised to lift the suspension immediately during his campaign. His latest executive order requires the Department of Energy to consider the following factors when approving new export licenses: economic benefits, job opportunities, and the impact on the security of allies and partners.

As a major LNG importing country and a customer of U.S. LNG, Japan has expressed concern over this measure. Japan's Minister of Economy, Trade and Industry, Yasutoshi Nishimura, stated at a regular press conference that Japan is a major liquefied natural gas importer and has purchased LNG from the U.S., and will monitor the implementation of this measure. We recognize that this measure may affect the tight supply-demand structure of the global LNG market, and we expect it to increase supply and help stabilize the market, believing that it will enhance the predictability of Japan's LNG procurement