Drill Baby Drill: Why it won't work in Trump's 2nd term
Posted: Tue Nov 26, 2024 10:41 am
Comments below are from Dr. Anas Alhajji 11-26-2024 with my comments in blue.
“Drill Baby Drill” And Shale: Can Trump Deliver?
The oil industry has become more concentrated with a focus on lower costs and higher returns. The number of companies that want to drill and grow reserves and production to be sold to bigger companies has declined significantly. Now the shale industry is in the hands of the oil majors who have a longer time horizon than independent producers. < Plus, the shareholders of large public companies will not tolerate outspending of operating cash flow. They want dividends and stock buybacks.
Current interest rates are way higher than in the past and the investment needed to maintain oil production is way higher. But there is more to the story: most US exports are light sweet crude. The US reached a refining wall in 2016. If US shale production continues to increase, exports will increase proportionally. The global oil market will also reach a refining wall and cannot handle any additional light sweet crude. Demand will limit shale growth, especially with the decline in gasoline demand because of EV penetration.
Any additional production from shale will be exported. US refineries cannot take it. The US imports between 5 and 6 mb/d of mostly medium and heavy sour crude. With such a mismatch in crude quality, the US cannot achieve “energy independence.” Being a net oil exporter does not mean “energy independence.” < This is why Biden stopping the completion of the Keystone XL pipeline was stupid. The U.S. needs Canadian heavy oil and a public company was going to pay for the pipeline. We need common sense in Washington DC. Even if Trump approves completion of the Keystone XL pipeline on Day One, it will take over a year to complete.
Also, US oil wells are getting gassier as we discussed several times in the past. Increasing drilling activities might end up hurting the oil industry without increasing oil production meaningfully, especially since some zones in Federal land are gassier than other areas.
To conclude, Trump cannot repeat the growth in US oil production between 2017 and 2019 in his second term.
“Drill Baby Drill” And Shale: Can Trump Deliver?
The oil industry has become more concentrated with a focus on lower costs and higher returns. The number of companies that want to drill and grow reserves and production to be sold to bigger companies has declined significantly. Now the shale industry is in the hands of the oil majors who have a longer time horizon than independent producers. < Plus, the shareholders of large public companies will not tolerate outspending of operating cash flow. They want dividends and stock buybacks.
Current interest rates are way higher than in the past and the investment needed to maintain oil production is way higher. But there is more to the story: most US exports are light sweet crude. The US reached a refining wall in 2016. If US shale production continues to increase, exports will increase proportionally. The global oil market will also reach a refining wall and cannot handle any additional light sweet crude. Demand will limit shale growth, especially with the decline in gasoline demand because of EV penetration.
Any additional production from shale will be exported. US refineries cannot take it. The US imports between 5 and 6 mb/d of mostly medium and heavy sour crude. With such a mismatch in crude quality, the US cannot achieve “energy independence.” Being a net oil exporter does not mean “energy independence.” < This is why Biden stopping the completion of the Keystone XL pipeline was stupid. The U.S. needs Canadian heavy oil and a public company was going to pay for the pipeline. We need common sense in Washington DC. Even if Trump approves completion of the Keystone XL pipeline on Day One, it will take over a year to complete.
Also, US oil wells are getting gassier as we discussed several times in the past. Increasing drilling activities might end up hurting the oil industry without increasing oil production meaningfully, especially since some zones in Federal land are gassier than other areas.
To conclude, Trump cannot repeat the growth in US oil production between 2017 and 2019 in his second term.