Key Drivers of Change in the Energy Industry

There is a renewed focus on reducing regulatory burdens in the energy sector. This shift is expected to encourage more investment in the oil and natural gas sector by making exploration and production activities less costly and administratively burdensome. Efforts are being made to stimulate domestic energy production, expand energy transmission infrastructure, and streamline environmental permitting. A key focus is achieving greater energy independence for the U.S. This includes efforts to expand offshore drilling, open more federal lands for oil exploration, and reduce regulations that limit fossil fuel extraction. These regulatory changes aim to maximize U.S. oil and natural gas output, potentially keeping oil prices lower.

As of May 2025, several key updates regarding tariffs on energy imports are shaping the industry landscape. The United States continues to implement a 10% tariff on energy-related imports, including oil, natural gas, and electricity. These tariffs, part of broader measures aimed at addressing national security concerns and economic imbalances, target crude oil and refined petroleum products, natural gas (both liquefied and pipeline), and imported electricity generated from foreign power plants. These tariffs are intended to encourage domestic production and reduce dependency on foreign energy sources.

While the tariffs on energy imports are lower compared to the 25% tariffs on other goods from Canada and Mexico, they are expected to impact the cost of energy resources imported into the U.S. Additionally, a universal tariff of 10% on imports from all countries was implemented on April 5, 2025, although energy products are exempt from these tariffs. The U.S.-China trade agreement, effective May 14, 2025, has temporarily suspended 24 percentage points of the 34% reciprocal tariff on Chinese goods, retaining a 10% baseline, with China reciprocating similarly.

Furthermore, Executive Order 14289 was issued to prevent tariff stacking on certain imported articles, including energy products, establishing a clear prioritization framework for overlapping trade measures. Most of these tariffs have been temporarily paused for 90 days starting April 8, except for those involving China. These measures are part of broader trade policy strategies aimed at addressing economic challenges and supporting U.S. manufacturing. The evolving nature of these tariff decisions has created some uncertainty in the markets, impacting businesses and consumers by potentially increasing costs and influencing economic growth.

Increased costs due to taxes and emission reporting will push companies to reallocate capital investments. These might include new investments in carbon capture, utilization, and storage (CCUS). This can also lead to companies not investing in certain projects where the new regulatory has made projects uneconomical. Carbon-related costs will make renewable or clean energy markets more competitive, and consumers may see these costs reflected in their energy bills. Higher taxation on carbon-intensive energy sources and incentives for low-carbon technologies will further drive this shift and where companies invest. Additionally, regulations and incentives are expected to support the development of hydrogen as a clean energy carrier. The production of hydrogen in the oil and gas industry raises questions about royalties and other issues, but the overall push for hydrogen development is clear.

Focusing on integrating advanced technologies like the Internet of Things (IoT), artificial intelligence (AI), machine learning, and cloud computing to optimize production will lead to increased efficiency and cost reduction, helping to lower the breakeven costs of producing wells and increase company profitability. IoT sensors can facilitate real-time data collection and predictive analytics, allowing companies to predict equipment failures before they occur. This enables proactive maintenance and minimizes downtime. AI algorithms can identify patterns, predict future trends, and make data-driven decisions in operations, all contributing to higher profits. The industry will also benefit from more data digitalization and storage in the cloud. This, combined with analytics and AI, will enhance efficiency within the land department, operations, and accounting. Certain tasks will be automated using these technologies, leading to more efficient operations and better communication among departments. However, companies will face challenges such as securing data and ensuring that any proprietary information remains within their “four walls.” Implementing and maintaining these technologies will require hiring new individuals and training current employees to learn new skills.