As the Trump administration comes to an end, the time has come to study the impact of its energy policy.
The most common shorthand for that policy has been “energy dominance.” In administration rhetoric, energy dominance referred to the increase in American oil and gas production, growing exports and diminishing imports, and a full embrace of expanding the nation’s fossil fuel industry despite a persistent international supply glut, low prices, rising competition from renewable energy, and the imminent threat of climate change.
The administration’s policies focused exclusively on increasing production, with little thought to whether such growth was sustainable or in the national interest. Rather than embrace a future as a nascent petro-state, the United States should pivot away from dependence on oil and natural gas and speed up its investment in renewable energy.
“Drill Baby, Drill”
Did the United States achieve energy dominance under the Trump Administration?
From the point of view of export figures, the United States will exit the Trump era a more prodigious oil producer than when it entered.
The term itself requires clarification. In January 2017 when Donald Trump took office, total U.S. crude oil production was 8.8 million barrels per day (bpd). It reached a peak three years later in February 2020, exceeding 12.7 million bpd and setting a new production record, before the coronavirus and global economic slowdown caused a crash in output. Production fell to 10.4 million bpd in October 2020, but is estimated to recover in the new year. From the point of view of export figures, the United States will exit the Trump era a more prodigious oil producer than when it entered.
How much of that is due to Trump administration policies is open for debate. The federal government slashed regulations on methane emissions and opened up vast swathes of federal land to drilling. President Trump, himself a strong advocate for increasing U.S. oil and gas production, surrounded himself with advisors of similar mind. From a rhetorical point of view, the Trump administration aggressively supported the shale revolution.
But the foundations of that revolution were laid long before Trump took office. The technology involved in horizontal drilling and hydraulic fracturing were developed in the twentieth century. Investment in unconventional petroleum surged in 2000-2008 when a crude shortage and a global surge in demand sent prices sky high. Under President Barack Obama, the federal government oversaw a dramatic increase in domestic oil and gas drilling, ended the ban on oil exports, and approved permits for a wide array of pipelines and export terminals. In an unguarded moment, Obama boasted that his administration deserved credit for saving the oil and gas industry.
Energy Dominance
Donald Trump entered office determined to surpass his predecessor. Oil executives were optimistic that the good times would keep coming, despite the fact that the industry was still recovering from the price collapse of 2014-2015, when the new U.S. output had contributed to a flooded market.
The administration called its policy energy dominance. In time, members of Trump’s government began boasting that the United States was about to achieve energy independence, despite the fact that the nation continued to import millions of barrels of oil.
As ever, the dream of energy independence was a chimaera.
As ever, the dream of energy independence was a chimaera. There was only so much the federal government could do to boost the industry. Trump focused on cutting regulations, removing laws that demanded transparency in oil investment, and opening up federal land and offshore areas for drilling.
In reality, the shale revolution was fueled both by new technology and investment from Wall Street. The success of American drillers was certainly impressive, but it stood upon a mountain of corporate loans that depended on shale achieving greater profitability in the long term. That depended on higher oil prices, which remained frustratingly depressed throughout 2017 and 2018. There was little the president could do about oil prices.
American drillers caught a lot of breaks in the Trump era. First came the assist from OPEC, which agreed to production cuts with Russia that brought millions of barrels off the market. This boosted prices and gave U.S. producers more room to expand. Geopolitical crises took even more oil off the market, as Venezuela, Libya, and Nigeria all suffered drops in production. Trump’s decision to withdraw from the Iran nuclear deal and impose new sanctions on Tehran brought Iranian exports to almost nothing, further boosting prices and aiding American drillers.
Still, the foundation of the shale revolution was visibly cracked. By 2019, the industry was on the hook for $71 billion in Wall Street loans. Banks were beginning to wonder when—or if—their investments in shale would ever pay off. Late in the year, analysts began wondering the same thing. The industry entered 2020 with Wall Street baying at the door. Then came catastrophe.
The COVID Crisis
In February 2020, news of a rapidly spreading disease in China caused oil futures to fall as estimates of Chinese oil imports were revised downward. The pandemic spread rapidly and governments mitigated the risks by shutting down their economies. The EIA estimated that global demand would fall by more than 9 million bpd in 2020. As the global economy went into hibernation, Saudi Arabia and Russia broke their oil alliance and declared a price war, sending oil prices cratering.
For a moment, American oil was worth less than nothing.
The results were dramatic. On April 20, oil at the Cushing, Oklahoma trading hub went unpurchased, sending West Texas Index futures into negative territory for the first time in history. For a moment, American oil was worth less than nothing. While prices swiftly recovered, the demand shock of COVID, combined with the Saudi-Russia price war, sent tremors through the U.S. oil and gas sector. Thousands lost their jobs as dozens of firms went bankrupt or cancelled major projects in the worst oil and gas bust since the mid-1980s.
As the Trump administration struggled in its response to the pandemic, the president looked to oil for salvation. In April, Trump stepped in to help mediate a truce to the Saudi-Russia price war. A new OPEC+ agreement included a fresh round of production cuts as Riyadh and Moscow buried the hatchet. The President’s supporters hailed the agreement as a victory for Trump, despite the fact that it promised higher gasoline prices for American consumers and did little to aid beleaguered U.S. oil and gas companies.
While conservatives dismissed talk of a federal bailout for oil and gas companies, the Trump administration supported sending fiscal aid to the drillers. The CARES Act passed on March 27 distributed relief funds equaling $3 to $7 billion to more than seven thousand oil and gas companies, according to the Sierra Club.
Buttressed by federal largesse, many American drillers were saved from bankruptcy, though the loans did little to staunch the job losses. Between March and August 2020, the industry shed more than 100,000 jobs. Investment in shale fell by a half. The EIA predicts production will fall in 201 and then rebound in 2022, though that is contingent on a favorable economic forecast linked to a successful rollout of the coronavirus vaccine.
Energy Dominated?
Even if the industry recovers, the shock of 2020 will be hard to shake off. Investment will likely never again reach its 2017-2018 heights. Renewable energy companies are now attracting more attention and investment while energy giants like ExxonMobil struggle. Several of the majors have already declared shifts to “net zero” emissions and publicly acknowledged the reality of peak oil demand by 2030.
Several of the majors have already declared shifts to “net zero” emissions.
Trump enjoyed support from the oil and gas industry until the very end. But his administration’s report card on energy is decidedly mixed. The Trump administration boosted production but was blinded by impressive statistics and missed the very real problems undermining the shale revolution, which promoted runaway success with short-term debt. More importantly, the administration ignored the need to transition away from fossil fuels and embrace cleaner, more sustainable energy options.
The incoming administration of Joe Biden has made energy a top priority. There could be trillions of federal dollars flowing into the energy sector over the next four years. Most of it will benefit renewable energy, upgrades to the electricity grid, electric vehicles, and improvements to the energy grid. There is certainly a place for oil and gas in that plan, but the emphasis now is on a transition away from fossil fuels toward a diverse energy base.
As with much of the Trump administration’s policies, energy dominance will go down as a brash, ill-informed, and misguided effort to put America first. Thankfully, the new administration is ready to take U.S. energy policy in a new direction.
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