NEW YORK, Nov 19 (Reuters Breakingviews) - Want to know
how much oil the United States could produce? Don’t
look at the occupant of the White House for direction.
Over the past five decades, it has not mattered.
President-elect Donald Trump may want oil companies to
“drill, baby, drill" but more important factors like
price and capital returns demanded by investors are
signaling restraint.
The idea that policy has little effect on production is
counterintuitive. Yet U.S. output of the black stuff
declined steadily under Ronald Reagan, Bill Clinton and
former oil executive George W. Bush. In contrast, it
rose steadily while Barack Obama, Trump, and Joe Biden
occupied the Oval Office. The U.S. now pumps out over
13 million barrels per day, more than any other
country, ever.
Neither the Democratic or Republican parties appear
interested in restraining production over the near
term. Higher economic growth, low gas prices and
campaign donations from the energy industry help win
elections. Technology also matters. The rise of
hydraulic fracturing some 20 years ago, where drillers
inject water, sand and chemicals into shale rock
formations at high pressure, opened huge potential
fields first in natural gas and then in oil. About two-
thirds of U.S. crude now comes from so-called fracking,
according to government figures.
While Trump says he will open up leasing and drilling
on federal land, it’s not obvious the government is
currently hindering production. About 70% of U.S. crude
is produced on privately-held land. For example, the
Permian Basin produces over 6 million barrels per day,
with over two-thirds coming from Texas. There’s
virtually no federally-owned land in this part of the
Lone Star state, so easier leasing would not juice
output. In New Mexico, where production has grown
rapidly, drilling on federal land has already risen
sharply over the last two administrations, points out
energy data tracker EnerWrap.
More importantly, the financial rationale for expanding
production is weak. The International Energy Agency
this month said, opens new tab it thinks the world will
produce 1 million barrels of surplus oil a day next
year. The Organization of the Petroleum Exporting
Countries is sitting on record spare capacity, as
supply rises and renewable energy technologies eat into
demand.
Trump’s administration could slow this shift by
repealing U.S. clean energy subsidies. But electric
vehicles keep falling in price, spurring adoption.
Besides, phasing out federal support for renewable
energy may face opposition in Congress as it benefits
Republican strongholds.
Big oil companies already face pressure from investors
to return capital if expected returns from increased
production are poor. The five biggest Western firms,
for example, together paid out a record $111 billion in
dividends and share buybacks last year. When Trump
turns the U.S. oil spigot, he may be met with little
more than a trickle.
U.S. crude oil output is expected to average a record
13.2 million barrels per day in 2024, according to the
Energy Information Administration’s short-term outlook
released on Nov. 13. That is the most oil produced by
any country, ever. The Federal agency expects
production in 2025 to rise to 13.5 million barrels per
day.
President-elect Donald Trump has said he would increase
production. The Republican party’s platform for the
2024 election said, “Under President Trump, the U.S.
became the Number One Producer of Oil and Natural Gas
in the World — and we will soon be again by lifting
restrictions on American Energy Production and
terminating the Socialist Green New Deal.”
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