Natasha Kaneva, head of commodities at JP Morgan, said US output of oil and gas over the next four years will be determined by the price signal and would have been much the same whoever had won the election. “We are agnostic to who sits in the White House,” she said.
Loading
She forecasts that excess global supply will push Brent crude below $US60 in 2026. US production will stall this year and next. “It’s not the lack of oil in the ground, it’s the reality of low oil prices,” she said.
Trump’s deregulation drive may cut the cost of extraction slightly, but that alone will not unleash a drilling frenzy, and nor will auctioning off the Alaska wildlife reserves. Nobody bid for the leases last time he tried.
“I don’t think we’re going to see anybody in the drill, baby, drill mode,” said Exxon’s head of upstream oil and gas Liam Mallon recently. “The vast majority, if not everybody, is primarily focused on the economics of what they’re doing.”
The US Energy Information Agency (EIA) said shale output peaked in November 2023 and fell last year for the first time since the fracking revolution began. “Producers have massively scaled back activity, focusing instead on returning value to shareholders as tier-1 acreage is exhausted,” said Westbeck Capital.
“Wells are getting worse,” said Enverus Intelligence. There is rising reliance on secondary “child” wells, and on tier-2 areas with half the yield. The Swiss-cheese effect of hundreds of thousands of bores close together has weakened the pressure needed to extract the oil. Productivity in the Permian Basin is sliding steadily.
“The great drama of American shale may now be nearing its final act. The Permian shale oil basin is very close to peaking out. When it does, everything changes for the US and the world,” said Adam Rozencwajg, from commodity specialists Goehring & Rozencwajg.
‘From China’s perspective, this is just fabulous. For the next four years, the US is giving up on the greatest economic battle of our time.’
Clean tech expert Kingsmill Bond
He said AI and new techniques can perform marvels but “enthusiasm for growth cannot override the fundamental constraints of geology”.
The detail is revealing. The EIA says output from the Appalachian Utica basin crashed 33 per cent last year because gas prices fell so low – ie, the market was saturated – making it uncompetitive to drill in the deep Utica layers from 5000 to 11,000 feet.
There is another twist to this story. Power prices have been low (ignoring the northern hemisphere winter spike) because Americans have been installing solar panels and erecting arrays at such a pace that it is depressing the average electricity price and eating away at marginal demand for gas in power plants.
Some 80 new gas-fired plants are planned in the US by 2030 to meet the needs of big tech, but they face stiff competition. Solar costs have collapsed to US9¢ a watt. Battery storage costs are plummeting. The two together are already unbeatable on price wherever there is good sun.
Trump thinks the world will buy his oil, and above all his gas as LNG terminal capacity doubles by 2028. Who, exactly, does he mean?
Europe is decarbonising fast. China is trying to break its dependence on LNG for fear the US Navy’s 5th and 7th Fleets will block the Strait of Malacca – Xi Jinping’s strategic nightmare. China is rolling out 1200 gigawatts of renewable capacity at breakneck speed, buttressed by home-mined coal.
China has been the world’s biggest oil importer by far. But hybrids and EVs now account for more than half of new car sales, and heavy lorries are next. The National Petroleum Corporation says the country’s oil demand will roll over next year.
The International Energy Agency – in the crosshairs of the Trump White House – estimates that global oil demand will fall from 103 million barrels a day to 93 million in 2030, and 82 million in 2035, under its mid-forecast. It predicts a global glut of LNG by the end of the decade. It argues that the cost of imported LNG in most of the developing world is roughly double the cost of rival green energy.
Why would any of these countries wish to lock themselves into long-term dependency on American oil and gas – haemorrhaging hard currency for year after year – when Chinese contractors are swarming their capitals offering to build (and finance) cheap solar-based grid systems, and when Chinese carmakers are starting to offer EVs in their markets at prices that starkly undercut petrol and diesel cars?
Trump has wasted no time dismantling the “green new scam”, signing a flurry of executive orders to gut the Inflation Reduction Act and – legally or not – halt some $US300 billion ($484 billion) of approved funding for green energy projects.
This amounts to a unilateral withdrawal from the global green-tech race just as the US is finally catching up again. It ignores warnings in the Pentagon’s National Defence Industrial Strategy that the spin-offs from emerging technologies such as autonomous driving will be a critical part of US economic deterrence.
Loading
“From China’s perspective, this is just fabulous,” said Kingsmill Bond, author of several reports on China’s clean tech ambitions. “For the next four years, the US is giving up on the greatest economic battle of our time.”
It was said at the Paris Olympics that the US team had the world’s best sprinters and the only way they could lose the 4 x 100 metres relay was to fluff the baton pass. They fluffed it.
The other way to lose a race is not to run at all.
