On Friday, President-elect Donald Trump stated that the European Union will either have to buy substantially more American oil and gas or face tariffs on European imports, including automobiles and machinery. The EU is already the biggest market for U.S. oil and gas exports, at least according to government data.
However, at present, the U.S. is working at maximum export capacity. Trump, however, vowed to step up domestic production of oil and gas. "I made it clear to the European Union that they must fill their horrible, deepening deficit with the United States by purchasing large quantities of our great American oil and gas," Trump posted on Truth Social. "Otherwise, it's TARIFFS all the way!!!
The European Commission responded by expressing readiness to engage in discussions with Trump about strengthening the transatlantic relationship, particularly in the energy sector. A spokesperson reiterated the EU's commitment to phasing out energy imports from Russia and diversifying its energy sources.
According to Eurostat data, in the first quarter of 2024, the U.S. supplied 47% of the EU's liquefied natural gas imports and 17% of its oil imports.
Tariff Threats
Trump, who assumes office on January 20, has promised to raise a 10% tax on all imports worldwide and a 60% tax on Chinese goods, which are expected to cause trade disruptions, push up costs, and provoke retaliatory tariffs on exports from the United States.
In 2023, the U.S. ran a $208.7-billion trade deficit in goods with the EU, based on data from the U.S. Census Bureau. Even though the U.S. runs a surplus with the EU in services, Trump has harped on the trade deficit in goods, focusing much of his criticism on the bloc's car exports to the U.S., while few U.S. vehicles are exported to Europe.
He has also threatened to place high tariffs on Mexico, Canada, and China on his first day in office unless these countries take sterner measures to prevent illegal border crossings and the trafficking of fentanyl.
EU's Negotiation Power
According to William Reinsch, a trade expert at the Center for Strategic and International Studies, the EU can negotiate its way out of Trump's tariff threats. "This could be a win-win, telling them to buy something they want and need anyway," Reinsch said. However, most oil refiners and gas companies in Europe are privately owned, giving governments little influence over purchase decisions unless sanctions or tariffs are imposed. Companies buy based on price and efficiency.
Even though the U.S. is already producing and exporting record amounts of oil and gas, it would need a tremendous investment, most particularly in LNG export terminals to further increase exports. In fact, Reinsch noted that although there is an urgent demand for U.S. oil and gas in Europe to replace Russian energy, long-term demand still hangs in the balance with Europe turning towards renewable sources of energy. Companies might be less likely to invest in producing more if they believe that demand only lasts a little while.
EU Imports from the U.S.
In 2022, after the EU imposed sanctions on Russia and aimed to minimize dependence on Russian energy in reaction to Russia's invasion of Ukraine, the EU imported nearly two times more U.S. oil and gas than previously. The U.S. has become the world's biggest oil-producing nation, producing more than 20 million barrels per day since then and accounting for nearly 20% of worldwide consumption.
Currently, U.S. crude exports to Europe average about 2 million barrels per day, and the rest are shipped to Asia. Major importers of U.S. crude in Europe are the Netherlands, Spain, France, Germany, Italy, Denmark, and Sweden. However, according to Richard Price, an oil market analyst at Energy Aspects, Europe is already importing almost at its maximum capacity of U.S. crude, with not much scope for increasing imports in the near future. Price also cautioned that refinery shutdowns in Europe in 2025 would further constrain the ability to import more.
The United States is also the world's largest gas producer and consumer, with daily production above 103 billion cubic feet. The U.S. government projects LNG exports to average 12 billion cubic feet per day in 2024, with Europe accounting for most of these exports, especially to the UK, France, Spain, and Germany.
U.S. gas production should increase, though it would take time before 2030 to make a drastic increase. LNG exports are also likely to rise if there are more approved export terminals by the U.S. government. On the other hand, the EU imported around 2 billion cubic feet of Russian LNG per day in 2024. It might consider replacing that supply with imports from other sources, which is the analysis of LNG analyst Alex Froley.
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