Energized

Along with the economy and immigration, the energy future was a significant decision point in the November election. With votes counted and winners declared in the legislative and executive branches, and the judicial safely conservative for at least two years (the next congressional election cycle), is it now full speed ahead for oil and gas, and the beginning of hard times for renewable energy?

Some lessening of both drilling restrictions and renewable investments are likely, but what exactly will that look like? Here are some thoughts, starting with Adam Ferrari, CEO of Phoenix Capital Group, which focuses on both investing and operating in the oil and gas industry. From there we hear from Nichelle McLemore, U.S. oil and gas leader for research firm Deloitte.

Promises, Promises

Adam Ferrari

Most campaign promises are based on hyperbole, and both sides evidenced that last November. Even after four years of a Democrat presidency, the nation—including the Permian Basin—is producing record amounts of oil and natural gas, and prices have come down somewhat since the aftermath of the Pandemic. Trump’s declarations of being able to halve prices of both oil and electricity while unleashing drilling restraints would seem to be mutually exclusive.

Said Ferrari: “It’s unlikely that oil prices will fall to half of what they are today due to the cost of production. If prices went down by 50 percent tomorrow, then people would stop selling oil and drilling new wells.” He said he tells everyone, “It doesn’t matter who gets elected, they still need oil the next day.”

He believes the current price ($65-$70 at this writing) is perfect for everyone. “We can make money, and gas isn’t too expensive for consumers.” In an era of fluctuating prices that have plagued the market off and on since 2009, stability itself can be comforting.

Affecting oil prices vs. electricity prices are separate things, he pointed out. Oil is subject to supply/demand dynamics in the marketplace, while electricity rates can be influenced by fuel prices but are largely regulated, and there are some things Ferrari sees that a Trump administration could improve on, compared to the current situation.

That would start with removing subsidies for generally unreliable renewable energy. As a case in point, he noted that Florida, which uses mostly natural gas for power generation, has electricity prices about half those for California’s heavily renewable-based grid.

A reduced regulatory burden would also help the oil and gas side with less red tape and lower administrative and compliance costs, he said.

Ferrari is particularly excited about the nomination of Liberty’s Chris Wright for energy secretary, whom he knows personally. “For at least a decade, he has advocated for low-priced energy, observing that it raises people out of poverty, which is factually true,” citing research from the American Council for an Energy Efficient Economy.

Political Power to Change

Having support across all branches of government helps, but it may not always be necessary. Ferrari says that several recent presidents, including Biden, have liberally used executive orders to speed change, and that Trump could follow suit.

The conservative Supreme Court has already handcuffed regulators somewhat in overturning the Chevron Doctrine. From that, “Agencies can’t just do whatever they want because they think they’re the experts,” Ferrari said.

Changes in Attitudes

Investors who sank dollars into green projects co-funded by government grants may now be facing the loss of both their work and their investments if the Trump administration removes that funding. Opined Ferrari, “This situation illustrates the importance of avoiding government intervention. The market wasn’t willing to invest in renewable energy, and the government forced the issue and changed investors’ minds. Capital that should never have been allocated to massive wind farms ends up getting allocated there, and now you’re stuck with them.”

On the other hand, oil and gas don’t require massive subsidies to work, he said, and he is expecting some real change. “I think President Trump will do what he said he would. I predict he will slow the momentum toward renewable energy.” He also sees Congress possibly revoking parts of the Inflation Reduction Act (IRA), which offered billions in green energy subsidies.

Some pundits have posited that even certain Republicans may balk at revoking green subsidies because their constituents (read: voters) have reaped jobs. Ferrari maintains that any benefits are short-lived—lasting mostly during the construction phase—and the pain, including high energy prices, remains long after the thrill of having a short-term job is gone.

We Won’t Always Have Paris

Worldwide reaction to Trump withdrawing the United States (again) from the Paris accords will likely be limited to “tweets and grandstanding” because “Everyone needs America for consumption,” Ferrari said.

As the world’s population continues its strong growth, energy needs will continue to outstrip any supply available from just renewables, he feels. “For instance, ExxonMobil has pointed out that, while wind and solar may continue to grow, we still need 100 million barrels of oil every day for the next 25 years.” For Ferrari, this growth means any thought of reaching Net Zero by 2050 is impossible, which also reveals that “the Paris accords are superfluous and irrelevant.”

Bad News for Renewables

“Trump is very pro-oil, and he’s not a fan of renewable energy,” said Ferrari, adding, “He thinks wind farms are inefficient and destroy real estate value.” Trump has also expressed concerns about wildlife impacts.

Nuclear energy, while seemingly more palatable, is very expensive to start up. Theoretically, Ferrari opined, nuclear should be the cheapest energy source to produce, but its extensive regulations raise the cost of construction and, of course, any nuclear accident would be extremely dangerous. “That’s why I don’t think new nuclear plants will be built.”

Deloitte: The Fundamental Things Apply

Nichelle McLemore

For Deloitte’s McLemore, even with geopolitics such as Russia/Ukraine, Syria, and 72 elections worldwide in which leading parties either lost outright or saw much of their support base eroded, “There’s still a bit of stability pointing to a lot of the same dynamics that we’ve seen. What we’re hearing from our clients is a continued focus on the market fundamentals and, essentially, capital discipline.” Investors are looking at technology and “a very forward focus.”

Indeed, McLemore pointed out that 2024 oil prices stayed generally between $74-$90/bbl, which is “the most stable pricing in the last 25 years.” Oil was more stable than many other commodities, she said.

Many are predicting fairly flat pricing around the early December levels of $72/bbl, she said, which could lead to some increased production through greater efficiencies. Some have noted that the last time “drill baby, drill” was implemented, between 2010 and 2019, it led to a production glut and many business failures.

As a result of lessons learned, “The industry knows it has to go with capital discipline,” so “The market’s not going to get ahead of itself.”

Echoing Ferrari’s belief that the industry is bigger than any single president, and that production actually grew during the previous administration, McLemore said, “I don’t want to comment specifically on anyone’s administration, but [oil] is a commodity, [and] it’s just the global demand [that] required that the United States and other producers continue to produce, and I think that’s why we saw the production increases that we saw during the last four years.”

LNG in the Fast Lane

Acknowledging that the incoming administration has been vocal about ending the moratorium on approving new LNG export facilities, McLemore said, “Certainly we expect both the DOE [Department of Energy] and the FERC [Federal Energy Regulatory Commission] would stop the pause on LNG permitting.” By speeding the process, it would expedite new LNG plant construction. Deloitte expects oil industry support across the executive and legislative branches.

Greater export capacity will likely combine with already skyrocketing power demands from data centers to create new markets for natural gas in the near future. And since “the incoming administration has said that they’re in favor of crypto and technology,” that could put further upward pressure on natural gas demand and prices, she said.

A December Reuters story quoted insider sources as saying Trump is considered to be a “layup” to undo the Biden administration’s moratorium on vetting and approving new LNG export facilities.

Reports of ESG’s Death May Be Greatly Exaggerated

Even with power changes at the top, McLemore says the ground-level focus will not leave clean energy completely behind. “Our outlook would say that companies are continuing to focus on digital technologies, on reducing emissions, on commercializing low-carbon solutions and upholding their renewable energy commitments.”

And there, as for oil and gas, it’s still about profitability. When ideology and profitability collide, the latter is generally going to emerge on top.

Chill, Baby, Chill for Now?

Since the first year of a new administration mostly operates on the budget passed by the previous one, it may be months before a whole lot actually happens. “There’s a problem of latency,” said McLemore. “When you stack all of the policy ideas together, there’s definitely a lot of ‘Wait and see,’” she said.

Paul Wiseman is a longtime freelance writer in the energy industry.