Prospects for a near-term surge in U.S. oil production are unlikely regardless of whether President Donald Trump wins a second term or fo...
Prospects for a near-term surge in U.S. oil production are unlikely regardless of whether President Donald Trump wins a second term or former Vice President Joe Biden captures the White House in the November 3 election.
Investor apathy, hesitant capital markets and crushing debt challenged the industry before the coronavirus pandemic smashed demand and crushed crude prices this year.
Still, a Biden victory would likely present additional policy obstacles for the shale sector and shift investor sentiment further away from fossil fuels. That could result in a loss of as much as 800,000 barrels a day to 1 million barrels a day in American oil production by 2025 under Biden compared to Trump.
By contrast, U.S. production’s current gradual recovery from its April-May pandemic low point would likely continue under a Trump second term.
The nonpartisan U.S. Energy Information Administration (EIA) expects domestic crude production to average 11.5 million barrels a day in 2020 and 11.1 million barrels a day in 2021.
After that, it’s anyone’s guess where production goes, but most experts see oil prices gradually recovering next year into the low $50s. Several analysts even see a supply crunch developing sometime over the next five years due to recent underinvestment by the industry in upstream projects.
A combination of higher prices and having a pro-industry supporter like Trump in the White House for another four years could rev up the great shale machine once again. I could see domestic output recovering to 12.5 million barrels a day by 2025 — just short of its 2019 peak of 13 million barrels a day.
The same cannot be said of shale’s future under a Biden-Harris administration. While higher prices would induce more drilling activity under Democrats, new climate regulations and other fossil fuel restrictions would undoubtedly increase producers’ costs.
In today’s highly competitive global oil market, every penny counts. A Biden presidency would likely cap U.S. output in the 11 million barrels a day to 11.5 million barrels a day range. That is why the potential for a Biden presidency unnerves many oil executives. A renewed emphasis on climate change policy would accelerate the U.S. upstream’s descent as investors shift toward lower-carbon alternative energy resources in response to government policies.
While Biden does not support the aspirational Green New Deal proposed by more radical Democrats, nor does he intend to ban all fracking — although it remains difficult to pin down the Vice President’s position on the issue — he would be under intense pressure from within his own party to reduce use of fossil fuels.
Gone would be Trump’s efforts to cut regulations on methane emissions and streamline permitting for oil and gas pipelines and other infrastructure, including terminals and oil and gas export facilities.
A presidential emphasis on cutting greenhouse gas emissions would exacerbate investor angst toward shale as Biden would put America back into the Paris Climate Accord. Biden’s proposed ban on new drilling on federal lands also would put some of the Permian Basin’s best acreage off-limits and hamstring producers like EOG Resources.
According to Interior Department data, the U.S. produced nearly 3 million barrels a day of crude oil from federal lands and waters in 2019, along with 13.2 billion cubic feet per day of natural gas. That amounts to roughly a quarter of total domestic oil output and more than an eighth of total gas production. A federal ban on new permits would push those numbers toward zero within a matter of years.
In terms of foreign policy, a Biden policy could uncork roughly 3 million barrels a day of production that has been offline due to President Trump’s sanctions on Iran and Venezuela. It’s unclear how vigorously Biden might ease sanctions on the two OPEC members, but it’s doubtful he would maintain the same hard line against Tehran. After all, the Obama administration struck the international nuclear deal with Iran that Trump spiked. Biden still believes that providing sanction relief to Iran is the best way to achieve stability in the Middle East.
Whatever official foreign policies might emerge under Biden, you can bet Caracas and Tehran will feel more emboldened to increase their oil and gas exports. At a minimum, sanctions enforcement would ease under Biden, allowing the two OPEC members to add barrels to the market, putting downward pressure on oil prices.
We also shouldn’t overlook how much influence President Trump has exerted on OPEC decisions. He was instrumental in getting Saudi Arabia and Russia to end their disastrous price war and make unprecedented supply cuts to stabilize oil markets.
A climate-focused, pro-Iran Biden presidency won’t have the same clout with Saudi-led OPEC.
Iran remains Saudi Arabia’s arch-enemy in the region, and Riyadh won’t be happy to see the shackles removed from its rival. The U.S.-Saudi relations were at their worst during the Obama administration, and U.S. oil producers would lose a vital ally if Biden emerges victorious on November 3.