U.S. President Donald Trump has expressed his intention to increase oil and gas drilling to lower energy prices, which is expected to create a mixed impact for domestic corporations by sector. While oil refineries and petrochemical corporations are likely to benefit, forecasts suggest that automobile manufacturers producing electric vehicles and secondary battery companies will be negatively impacted.
On Jan. 20, Donald Trump was inaugurated as the 47th President of the United States. In his inaugural address, he said, "The recent inflation crisis was caused by rising energy prices. I will declare a national energy emergency." He added, "We will utilize the oil and gas we have in abundance on this planet," stating, "Through this, we will lower energy prices and export American energy to the world." He also noted, "We will become a wealthy nation again through the liquid gold beneath our feet." He emphasized several times his intent to expand oil and gas drilling.
◇ Petrochemicals to benefit from falling oil prices… Refineries expect improved refining margins
If the U.S. increases its oil production, the petrochemical sector is expected to benefit. Domestic petrochemical companies have struggled with poor performance in recent years due to China's aggressive supply of cheap products. If the U.S. raises oil supply and prices stabilize downward for an extended period, it is expected that these companies will regain price competitiveness.
Hana Financial Investment noted in a recent report that "China has taken advantage of the Russia-Ukraine war to acquire oil from Russia at very low prices," adding, "As a result, Korean refineries and petrochemical firms have been in a structure where their cost competitiveness has inevitably weakened for the past three years." The industry anticipates that as the U.S. increases oil production and export sanctions on Russia are eased, domestic petrochemical companies' performance will return to an improving trend.
If U.S. oil production rises and prices fall, refining margins for refineries are also expected to improve due to increased demand. Refining margin is a key indicator of a refinery's profitability, representing the price of petroleum products like gasoline minus the costs of crude oil imports and transportation expenses. If oil prices stabilize downward and demand for petroleum products increases, refining margins will improve, leading to better performance for refineries.
The shipbuilding industry is also expected to benefit from the energy policies of Trump's second administration. The intent of President Trump to increase gas drilling and expand energy exports is likely to drive demand for liquefied natural gas (LNG) carriers.
According to the Korea Institute for Industrial Economics and Trade, Korea currently maintains the world's number one position in LNG carrier orders, although the gap with China is rapidly narrowing. Since President Trump has clearly stated his intent to counter China in most industrial sectors, it is highly likely that demand for carrying vessels resulting from the expansion of U.S. LNG exports will be concentrated on Korea.
◇ "Electric vehicle advantages diminished" Automakers and battery manufacturers in distress… Renewable energy also hit
Automakers like Hyundai and Kia have found that policy adjustments are inevitable due to Trump’s second administration's energy policies. If the expansion of oil drilling leads to long-term stabilization of lower oil prices, demand for internal combustion engine vehicles like gasoline cars is expected to increase.
Hyundai Motor Group has consistently expanded its electric vehicle lineup over the past few years. It invested $7.6 billion (approximately 11 trillion won) to build 'Meta Plant America,' an electric vehicle dedicated production facility in Georgia, anticipating subsidies under the Inflation Reduction Act (IRA) from the Biden administration. The IRA is a law that provides subsidies for batteries produced in the U.S. and electric vehicles equipped with them.
An industry source said, "President Trump is considering the option of either abolishing or significantly revising the IRA, and if oil prices continue to be weak for an extended period, demand for electric vehicles will inevitably decrease," adding, "This will be detrimental to corporations that have boosted their proportion of eco-friendly vehicles, including electric cars."
For the same reason, secondary battery manufacturers are also expected to face difficulties. Companies like LG Energy Solution and Samsung SDI had plans to build factories in the U.S. and Canada to supply batteries to local automakers, but demand is anticipated to decrease significantly.
Renewable energy corporations dealing with solar, wind, and hydrogen are also likely to be impacted. President Trump has indicated his intent to expand oil and gas drilling while also declaring a withdrawal from the Paris Climate Agreement. The Paris Climate Agreement is an international agreement aimed at addressing global warming. The energy sector observes that President Trump's actions reveal a commitment to eliminate restrictions on the use of fossil fuels like oil and gas, indicating that demand for renewable energy could also plummet.