Yves here. It appears there is a teeny bit of good news on the environment front, if you consider “less bad than promised” to be positive. Trump has promised that he would lower US energy prices via much more ambitious shale industry production. The shale industry has other ideas.
By Irina Slav, a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
- Trump will encounter a very different mindset of shale industry executives in 2025 compared to the late 2010s.
- Discipline and a pragmatic approach to balancing production growth with shareholder returns are likely to hold in the industry.
- Large shale companies have curtailed capex and aren’t likely to be incentivized in any way to increase it meaningfully.
The U.S. oil and gas industry finally got what it has wanted since 2020—an American president supportive of the sector and promising to fix the regulatory burdens that have piled up over the past four years.
Although President-elect Trump is chanting “drill, baby, drill,” the priorities of the U.S. oil industry have drastically changed since Trump’s first term.
Trump will encounter a very different mindset of shale industry executives in 2025 compared to the late 2010s when he was last president.
The U.S. shale patch is drilling, but it is drilling because it wants to distribute more of the profits to shareholders. It has made huge progress in capital discipline and efficiency gains and is getting more bang for its buck. Priorities are now returns to investors and financial frames capable of withstanding oil price volatility.
U.S. oil production continues to grow and will grow in the near future. But don’t expect the stellar growth from 2018-2019—when the industry added 1 million barrels per day (bpd) to American crude output every year—just because Trump is president, analysts say.
On the campaign trail in October, the president-elect promised supporters in North Carolina, “I’m going to cut your energy prices in half, 50 percent.”
“I’ll get those guys drilling. They are wild. They are tough and wild. They are crazy. They’ll be drilling so much,” Trump said.
“Those guys” could surely use a boost to the industry, such as a permitting reform to facilitate energy infrastructure development, a lift of President Biden’s pause on LNG export projects permitting, and easier access to financing when U.S. oil and gas isn’t vilified left and right.
But they will surely beg to differ from Trump’s remark at the same North Carolina rally, “If they drill themselves out of business, I don’t give a damn, right?”
Discipline and a pragmatic approach to balancing production growth with shareholder returns are likely to hold in the industry. After the latest wave of mergers and acquisitions, large publicly traded companies hold the majority of U.S. shale production and the remaining commercial resources in the Permian, the biggest shale play where output growth has been most pronounced in recent years. These companies will continue to seek to boost investor returns and will surely want to avoid a repeat of the 2016 and 2020 oil price crashes and losses—through capital discipline and efficiency gains.
Chevron, for example, sees its capex in the Permian probably peaking this year. Chief executive Mike Wirth told the Q3 earnings call, just a few days before the U.S. presidential election, that “I think what you’ll see is this year is probably going to be the peak in Permian CapEx.”
“We’ll begin to attenuate as well and we’ll really open up the free cash flow there,” Wirth said, adding, “But the headline here is continued efficiency and productivity gains, strong free cash flow today, and we’re going to manage it for even stronger free cash flow in the future.”
Not exactly a “drill, baby, drill” plan.
Chevron’s capex is now less than half compared to a decade ago—at about $18 billion, down from $40 billion.
“We’re doing it in a much more capital-efficient manner than we ever have before,” Wirth said.
At Exxon, efficiency gains and advanced technologies have helped the supermajor double its profit per oil equivalent barrel on a constant price basis, from 2019 unit earnings of $5 per oil-equivalent barrel to $10 per barrel year-to-date in 2024, excluding Pioneer, Kathryn Mikells, ExxonMobil’s chief financial officer, said on the earnings call.
Despite the rhetoric and policy platforms, the U.S. tight oil sector “is expected to continue its steady growth, driven more by market forces and company strategy than by government policy,” Matthew Bernstein, Senior Analyst, Upstream Research at Rystad Energy, wrote in an analysis ahead of the U.S. election.
The U.S. industry’s new priorities of returning more cash to shareholders suggest that “even if prices rise, companies are unlikely to significantly increase spending, as production has somewhat decoupled from oil and gas prices,” Bernstein said.
“As a result, the traditional link between high prices and increased drilling activity has been weakened, with companies instead focusing on maintaining capital discipline and maximizing returns.”
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But as recently as in 2023 there was a “drill baby drill” moment in all major plays in the US. Possibly driven by geostrategical needs? And that push resulted in an increase of production which was noticeable but far from spectacular. (The Status of U.S. Oil Production: 2024 Update Everything Shines By Dimming). The last bright spot is New Mexico’s part of the Permian basin expected to peak soon while the Texas part of the play is about it’s peak already. And all those productivity gains mentioned in Slav’s article which are almost certain very good for instant cash floods, might also mean faster well depletion and the need for more drills to compensate for the decline in future years.
So, there is still the possibility of more “drill baby drill” moments but i believe that the industry might not be interested not because “capital restraint” but quite possibly to avoid a sudden production drop in the near future (let’s say 4-5 years), in other words, because geology, but they don’t want to say it loudly.
Cash floods = cash flows. Valencia in my mind i guess.
If the priority is to maximise short term profits, the incentive for frackers is to maximise output from existing wells or plays. One thing I’ve learned over the past few years is not to underestimate the ability of the industry to cut costs and increase output from existing wells – this is one reason why peak oil predictions proved so awry. This of course doesn’t just apply to frack wells. There is constant innovation in the industry to get the last drip of oil out of every established well.
I think a key problem for Trumps ‘drill baby drill’ policy is that KSA and others were badly burned in the past decade by trying to maintain market share. I suspect that in a world where oil demand is likely to peak soon and go into potentially sharp decline (IEA predicts 2030) we are already seeing the focus turning from market share and geopolitical power to just pure profits. I strongly suspect that the recent love in between KSA and Iran is based on a shared desire to keep oil well above $80 a barrel – both badly need this to keep their economies going. So I think any attempts to push down prices by encouraging more production by the US will hit the geopolitical reality that the people in control of the oil are far more interested in high prices than high production.
According to this DNV report fossil fuel emissions (considering here coal, oil and NG) are to peak in 2024. In the case of oil they are citing vehicle electrification and indeed the sales of thermal engine fuelled cars have decreased noticeably in the last years while EVs have been gaining market share specially in China world’s largest market. Such reports might be filled with a few mistaken assumptions but there it is.
The term is Internal Combustion Engine (ICE), I think
You are quite possibly right. Pardon my difficulties or insults to English language.
Stirling engines are also not selling well. :)
With regards to the increase of output per well i recommend going to this video and watch at about minute 13:50-17:50 a question by Hagen on this and the explanation by Mr. Bernan on how it influences current and future production.
“…oil demand is likely to peak soon and go into potentially sharp decline…”
I appreciate the link to the IEA report, but the report pdf is almost 400 pages long. Would you please point to the part of the IEA report that predicts and explains the soon to come “sharp decline in oil demand”? Also, is there somewhere in the report that explores the consequences that might accompany a “sharp decline in oil demand”? As I understand matters the logistics flows of Globalism, transnational shipping, and “just-in-time” inventories might be impacted or add to the causes that lead to the “sharp decline in oil demand”.
There is a summary here. The IEA doesn’t specify what the direct consequences are, beyond identifying an ‘overhang’, by which I assume they mean a lot of excess capacity. In effect, they are warning the industry about over investing, which it seems (from the US evidence), they are heeding.
It should be noted that the IEA has had a history of overestimating oil demand and underestimating the growth of renewables, although some oil writers accuse them of going the opposite way now.
A “sharp decline in oil demand”, without some assumptions of alternative sources of power, seems catastrophic in its implications. Our entire Civilization is built on fossil fuel energy, and if this claim is correct or only partly correct … a “sharp decline in oil demand” would has dire implications apparently of little interest to the IEA.
“…this is one reason why peak oil predictions proved so awry…”
The peak oil concept as I understand M. King Hubbert concept of peak oil made no predictions that can or did go awry. The concept of peak oil, which could also be re-shaped to general concept of peak resource production is a simple combination of the idea that the total amount of a resource is finite, the extraction of a resource using existing technology runs into problems of diminishing returns which exhaust the most easily extracted and refined ores or repositories first. Hubbert’s peak oil predictions are back of the envelope calculations that assume ‘X’ amount of easily extracted petroleum, price driven rate of extraction, and estimate a time when the maximum amount of petroleum is being extracted with declining production from that maximum after reaching a peak.
Did peak oil predictions prove awry? I do not believe they did. They made predictions based on simple assumptions, making no claims for exactness, and fairly nicely predicting when the easy plays in Texas and Oklahoma oil played out. Fracking and other “advanced technologies” introduce new variables to peak oil that — at least to my mind — introduce new “peaks” and peak predictions, but do not invalidate the peak oil concept or demean its ‘predictions’ based as they are on plainly stated assumptions. I envy your faith in “advanced technologies”, but I am more pessimistic about their importance. I view the technological fix to every problem as a deus ex machina that so far has proved as ephemeral as many other nostrums to slow or halt the Collapse of our Civilization.
“interested not because “capital restraint” but quite possibly to avoid a sudden production drop in the near future (let’s say 4-5 years)”. I agree with your point, and the big tell would be if the industry were to refuse to budge even with Trump throwing all sorts of incentives at them.
IMHO, drill, drill baby can help Trump accomplish a couple of things:
1. Rejuvenate America’s industries. If manufacturing is going to make a big return to the States, then I think cheap energy is going to be essential, because labor and other costs in America are very high.
2. Lower inflation, thus allowing the Fed to continue to cut rates.
3. Cut America’s enemies at their knees. By lowering the price of oil, Trump will be hitting the pocketbooks of Iran and Russia, while KSA’s MBS will be forced to eat humble pie and seek a detente with Trump. Heck, the whole thing might be “cheaper” than invading Iran directly.
‘To rejuvenate America’s industries’, perhaps the single biggest help would be to relieve businesses of the heavy burden of providing health insurance for their employees. If DJT were listening, the Sage of Omaha would so advise (I think.) Since a clear majority of Americans want universal medical care, Trump could cement his legacy and kill the D Party for good by establishing such universal, free at point of service, medical coverage. Will he seize this main chance?
You blaspheme! Trump introduce Socialism? Anathema!
Definitely thinking (way) outside the box there, Keith – works for me though! As to Jeremy’s retort, mebbe if he renames it something like “Trumperism” it would cease to be blasphemy? M4A in my lifetime – hoo couldanode?
Sorry, but what exactly do you mean by the acronym M4A? The meanings that come up on a search are completely unrelated to the present discussion. My first response to your comment is to wonder whether you believe Trump has the power to declare the Dogma for his own Church, like Martin Luther? A subsidiary thought, not serious, would make the 2025 wish list from the Heritage Foundation Trump’s equivalent to the Martin Luther’s 95 Theses. I suppose dark comedy is not inappropriate to our times.
What candidate was behind Medicare 4 All again?
I think Michael Hudson would get behind this idea. If I’m not mistaken he believes American healthcare puts our businesses at a serious disadvantage vs. global competitors. The VA program (Vets) provides the model. Those feeding off this trough would snort loudly, to say the least. If nothing else, it would fun to see how much money the other MIC (Medical Industrial Complex) would throw at it to make the idea go away.
The VA is one model. The NHS in England is another one. Medical services cannot be fee for service. Providers cannot be rewarded for production. Otherwise production is incentivised and costs go through the roof. Exactly what we have in the US. No wonder every Indian and African medical graduate wants to come to the the USA. And the health status by any objective international measures just get worse.
No. He will not.
And that’s a prediction.
I assume all this is Trumps intention, but I doubt that the US has the capacity to increase supply to the extent that they could make a big dent on global oil prices. LNG maybe, but even that is quite limited. Even KSA seems to have abandoned attempting to use its surplus to impact on global prices. They are still very important, but the days when the Saudi’s could manipulate world prices with ease seem long gone. They tried very hard to kill fracking by flooding the market, but failed at a huge cost.
Still no big moves to grab some of that “profit” to finance the proper capping of played out wells.
Privatize the profits and socialize the losses. Where have we seen that formulation before?
On a related note, what happens when Bibi gets his war against Iran and the Straits of Hormuz are closed to tankers delivering oil from the Persian Gulf to Asia? Will China sit back and take the massive hit to their economy passively?
If I remember correctly, America still gets a large proportion of its oil from overseas, for economic reasons I guess. Plus, the heavy crude from Venezuela, who has the largest proven oil reserves in the world. Several Gulf Coast refineries “specialized” in processing that heavy crude.
Perhaps those oil companies are stripping out the available profits from American domestic fracking plays while they are still “profitable.”
Financialization strikes again.
The key reason why the US still imports oil while having a surplus is that crude is not necessarily a fungible product when it gets to refineries. So, for example, Venezuelan heavy crudes are imported to blend with very light tight oil (Permian) crudes in order to refine them in refineries built for Gulf or Alaskan crude.
On the subject of Venezuelan crude, while in theory they have massive reserves, in reality it requires enormous capital investment to extract and process such heavy crudes, so its never likely that Venezuela can profit in the way everyone assumes. In many ways, having a relatively small amount of light, sweet crude (such as is found offshore Atlantic South America) is much more of a blessing for a country than a lot of the heavy nasty stuff. This is why so often people go astray when they assume that just because country X has lots of oil (or any other mineral) reserves its potentially rich. What matters is how easy that resource is to extract, process, and transport, not how much the geologists say is underground. This is why regular claims that War X is ‘all about the oil/lithium/rare earths’ etc are so widely off the mark (e.g. Ukraine, Afghanistan, etc).
I’ve also read that there is the issue of geography and logistics. For example, he crude oil and gasoline infrastructure between the West Coast and the rest of the US is limited, which means that much of the crude oil comes in via the ocean rather than from the Permian basin. In addition, many of the refineries in the Midwest still process large amounts of Canadian crude which is closer and often sells at a discount to WTI. The developments and new infrastructure over the past 15 years have made an impact, but it doesn’t mean that the situation has fully change.
Alberta’s tar sands are the world’s second largest peroleum reaserve and anything but easy to extract. It is strip mined or recovered by steam injection. It is nasty, heavy and sour, requiring dilution to ship. The CapEx is on a massive scale. Production is 3.5M barrels, provides 70% of domestic consumption and almost 1m barrels will exported through a new pipeline ram-rodded through First Nation territory by Trudeau. Exploitation of tar sands was a geopolitical decision, not economic. Had tar sands been in a less friendly place, they’d still be in the ground.
Of course, the Canadians are well behaved poodles worthy of investment, unlike those unruly Venezuelans who used to be very well behaved. So the carbon-bomb tar sands will be fully exploited. Like the US, there is serious under-investment in the Canadian electrical grids and the notion of powering everything with renewables is performance greenwashing.
Let it suffice to say if it can be burned, it will be extracted, regardless of which capitalist is at the helm.
“worthy of investment”: Actually the companies exploiting the tar sands are mostly owned by Canadian capital. They provide the synthetic oil to Canadian and US refiners to the tune of ca. 3.5M barrels/day. The Canadian and US export and import figures need to be parsed a little because they both export and import oil from each other due to pipeline capacity and the mix of oil needed by the refineries. So for both countries it’s necessary to look at net exports (ie exports minus imports) to determine how much each truly exports beyond its needs.
“well behaved poodles”: definitely true especially these past 20 years. Before that Canada refused to join the attack on Iraq and Vietnam and controlled oil exports to supply Canada first. Still, several hundred thousand Canadians visit Cuba every year for sun vacations, myself included, much to the chagrin of our US overlords.
Yup, IIUC the exact same dynamic is in play around the Persian Gulf too. Plus there’s also the marginal cost of extraction (which subsidies and/or investors burning cash can mitigate for some time). Saudi Arabia not only still has oodles of oil, it’s still really cheap to drill, and it’s light and sweet.
Iran has oodles of oil too, but it’s heavy and sour, which I think is partly why they make the choice not to prioritize investment as much (sanctions don’t help, but they’re not everything). They’ve made the economic decision to keep exporting their crude and mostly let others invest in refining the stuff. Plus Iran also has ample natural gas, which is arguably the better value nowadays for anything where energy density isn’t a priority (i.e. mobile combustion engines).
Yes, Iranian crude is much lower quality that from the other side of the Gulf. They do burn a lot in some thermal electric plants but I think they were shut down because they were so polluting, but now they are struggling with gas supply. I think its correct to say that they reduced investment in oil (it was never that much anyway, their infrastructure is very outdated) in favour of gas, but they are stuck with geographical constraints in selling it. Sanctions haven’t helped of course, but they really haven’t done a very good job of managing their reserves.
Light crude may be nice for plastic production, kerosene?, gasoline?, but I thought there were some issues in pulling much diesel from the crack without mixing in heavy crude.
There are always some issues with the fractions as there is quite limited play within a refinery to alter the proportions produced (there can be some additional mixing if, for example, you want to produce more aviation fuel from a given mix, but its very limited). There is something of a crunch in diesel supplies in the world market right now – partly I think because Russian crude was a major source of the diesel fraction. I’ve read technical explanations recently for why so many refineries are struggling with diesel, but I can’t quite recall the detailed reasons, its not my area of expertise.
How much of these “oil” reserves in Venezuela are really just heavy tar? Just like the tar up in Alberta?
As Ignacio notes above, the geology and economy of fracking (Wells peak early & only produce for several years before rapidly diminishing returns, plus the expense of the fracking itself, and the decline in “sweet spots”) dictate that the fracking boom is likely to be short-lived.
High prices are needed to justify fracking. Hydrocarbon production in the U.S. reached a World record high last year. Regardless of Trump’s desires it is inevitable that that oil & gas production will soon decline.
Gail Tverberg over at Our Finite World postulates that, as oil becomes more expensive to produce, consumers increasingly will be unable to afford to pay, resulting in a collapse of demand and leaving the industry with stranded oil assets in the ground. The result will be the Jackpot.
LNG export projects will increase the price in the US, not lower.
Is PFAS one of those unnamed proprietary ingredients in fracking drilling solutions? How about Benzene? Asking for a friend.
PFAS can be used as surfactants, an important component of frack fluids – essentially the lube that makes the frack sand enter the rock fractures more efficiently. They are highly toxic and severely restricted from being used anywhere near aquifers in most regulatory contexts I know of, but I don’t know specifically if they are banned in the US. They are restricted under the Stockholm Convention on Persistent Environmental Pollutants (PoPS), but inevitably, the US is almost alone in not signing up to that convention.
Benzene is a natural component of hydrocarbons, and a byproduct of combustion – some is likely to be generated during the extraction process. Some forms of benzene are used in improving the performance of gasoline. I’ve never heard of it being used as an additive in frack solutions, I don’t see what its purpose would be, although there are many forms used in a variety of processes.
I almost broke the rule of not reading before commenting – I did a search for the word “interest” and came up blank. Then I decided to skim, not much of insight, though the idea that a company the size of Exxon managed to double profits per barrel by efficiency on a several year time scale is highly suspicious. To change real efficiency requires vast capex, which actually lowers profits for many many years – too much installed hardware. Now improving profits by financialization (not saying that is how Exxon did it) is quick and doesn’t cost. But would Irina still be writing at oilprice.com if she looked that closely?
My comment was: The Shale explosion was due to primarily zero percent interest rates for a decade (and technological advances) that kept zombie companies alive as the industry lost more money than it made*. That financial environment no longer exists and is beyond Trump-control.
https://oilprice.com/Energy/Energy-General/US-Shale-Has-Lost-300-Billion-In-15-Years.html
I recommend for a better understanding of the trend of production the following article at “our Finite World” thanks John Steinbach for the h/t versus an article that is half filled with Trump-droppings:
https://ourfiniteworld.com/2024/09/11/crude-oil-extraction-may-be-well-past-peak/
conclusion: “We live in interesting times”
There also is interesting information on drilled uncompleted wells allowing capex in years past to appear as profit in later years when prices rise.
This discussion of Trump’s drill-baby-drill demagogic mantra leaves me curious how long it will be before u.s. fracked oil plays out — and what might that imply for future gasoline prices and gasoline availability. I am interested because I believe the time is ripe for finding a place close enough to a relatively large town to reach food markets and medical care but far enough away to avoid the temporary madness of mobs as things start to break down.
Biden is just as much about the oil as Trump. Biden has tried to get American oil companies to drill for more shale oil, and it is no coincidence that the US has become a net exporter of petroleum.
https://economictimes.indiatimes.com/news/international/business/shale-drilling-climbs-most-in-a-month-as-biden-calls-for-more-oil/articleshow/90176130.cms
It would be interesting to read a more balanced view on the kind of relationship Rebublicans and Democrats have with the oil industry. I don’t know for sure, but my impression is that it is pretty similar in both parties. It is quite easy to say that Republicans just want to drill oil and Democrats are more environmentally conscious. But I don’t think the distinction is that clear cut. Elon Musk is arguably Americas leading green industrialist and he is joining Trumps republican cabinet.