"Energy Emergency/Drill Baby Drill" Just Talk, No Substance
Rystad Energy analysts assess likely impacts of Trump’s ‘energy blitz’
Jan. 23, 2025
On his first day in office, President Donald Trump declared a “National Energy Emergency” in order to use executive action to boost domestic production.
Recently, Rystad Energy shared its analysis of what this means for the oil and gas industries, from various senior analysis leaders at its consulting firm.
Growth vs investor returns
Matthew Bernstein, VP, Upstream Research, said:
“Despite President Trump’s intentions, a significant uptick in US oil production is highly unlikely. The “drill, baby, drill” mantra overestimates the industry’s willingness to prioritize growth over investor returns in light of Tier 1 inventory depletion in core oil basins after 2030.
Trump hopes that speeding up permitting on federal land will help incentivize operators to extract more oil and gas, and while this is positive news for the industry, it’s unlikely to have a major impact on Lower 48 growth.
Quicker permit approvals on federal land in New Mexico will further propel development in one of the most commercial portions of the shale patch, but speed of permit approvals has not been a material roadblock drilling in the area over the past four years.
In fact, in the fourth quarter of 2024, the third highest ever number of permits were issued on land with federal mineral rights, and production reached all-time highs.”
Offshore impact
Gulf of America?
The Associated Press weighs in: "President Donald Trump has signed an executive order to rename the Gulf of Mexico to the Gulf of America. The body of water has shared borders between the US and Mexico. Trump’s order only carries authority within the United States. Mexico, as well as other countries and international bodies, do not have to recognize the name change. The Gulf of Mexico has carried that name for more than 400 years. The Associated Press will refer to it by its original name while acknowledging the new name Trump has chosen."
Thomas Liles, VP, Upstream Research, said:
“Looking offshore, the geographies that the Biden administration had restricted in early January are mostly areas with very little industry interest. Areas that could potentially be more compelling for exploration – notably, the Eastern Gulf of Mexico Planning Area – were already subject to a leasing moratorium through mid-2032, which Trump had previously signed in 2020. It is unclear how the new Executive Orders will ultimately affect these areas given the high likelihood of legal challenges.
The more impactful potential developments around offshore leasing could occur at the legislative level as Republican lawmakers attempt to shepherd one or more reconciliation bills through Congress, with big implications for energy permitting, immigration, security spending, and an extension of the 2017 Trump tax cuts.
In any case, we can expect to see language around minimum leasing requirements in the Central and Western Gulf of Mexico planning areas that would go above and beyond BOEM’s current five-year lease sale plans.”
LNG and gas markets
Amber McCullagh, SVP, Oil and Gas Research, said:
“Former President Biden’s pause on approving non-FTA [free trade agreement] export licenses for proposed LNG terminals drew sharp industry criticism and halted momentum on several projects that had previously been close to taking final investment decision.
Trump ordered that non-FTA approvals resume, but we see this move as reshuffling which pre-FID projects are most likely to be sanctioned but not significantly changing the level of FIDs.
US LNG projects compete in a global market, and each additional FID draws on additional, higher-cost supplies, eroding their economic competitiveness.
To-date, LNG projects draw hardest on feedgas from the Haynesville shale, where remaining Tier 1 inventory is limited and increasingly consolidated among the largest operators.
Appalachia features the most untapped gas reserves, but moving these molecules to the coast is prohibitively expensive.
Trump is likely to push for permitting reforms, but such changes would require an act of Congress, which saw some bipartisan interest in the last session.
The outlook for gas-fired generation already had improved in recent years, as rising electrification of transportation and heat combined with rising data-center demand to accelerate electric loads and the need for dispatchable generation.
Trump signaled he would block new offshore wind leases, but these are unlikely to meaningfully impact the US [power] generation mix.
Removing subsidies for wind and solar generation would have a more significant impact, but such a move would also require Congressional approval, and Republicans’ margins are very small in the House of Representatives.
Nonetheless, with momentum in gas-fired generation already in place, rising domestic fossil fuel demand is likely.”
Views: 160
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant
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I expect the price for oil and gas to go up, not down for the reasons stated in the article.
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Permalink Reply by Skip Peel - Mineral Consultant
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Lower Interest Rates Could Help Sector Finances But Unlikely to Boost Output, Spending
Thursday, 01/23/2025
Excerpt, link to full article: https://rbnenergy.com/opportunities-lower-interest-rates-could-help...
The Federal Reserve cut interest rates three times last year, brightening the prospects for continued economic growth and increases in energy demand, and additional rate cuts could be coming in 2025. But what do lower borrowing costs really mean for E&Ps, midstream companies, refiners and others in the energy industry? In today’s RBN blog, we will examine the impact of lower interest rates on energy companies and whether they might affect plans to boost output and build new infrastructure.
We aren’t suggesting that the fairly limited interest rate reductions of 2024 will spur oil and gas companies to quickly dust off shelved projects. But if interest rates do move lower in 2025, the cumulative effect could open up more affordable borrowing options, potentially boosting industry spending. What might lower interest rates mean for the major sectors — upstream, midstream and downstream?
Just a few years ago, the upstream energy sector — namely oil and gas producers — was far more reliant on borrowing and debt than it is today. As we’ve discussed in many blogs during the COVID and post-pandemic eras, most recently in Writing’s on the Wall, most upstream companies have become intensely disciplined regarding their finances in recent years, so they aren’t likely to seek debt funding to outspend cash flow (see Dance With The One That Brought You). Generally speaking, they are now laser-focused on maximizing free cash flow, using that cash to fund their capital spending, pay down debt and return cash to shareholders via dividends and share buybacks. To expand production, oil explorers could opt to take on new loans or refinance existing loans that free up credit for fresh projects. For instance, major onshore and offshore E&P Murphy Oil was one of the first to refinance debt when the Fed slashed rates in September. E&Ps, like most companies, maintain some levels of short-, medium- and long-term debt — and surely may benefit from lower rates as their debt is refinanced — but leverage is modest.
We should also mention the frenzy of M&A activity over the last couple of years in the Permian Basin and elsewhere. As we’ve discussed in several blogs (see We Could Be So Good Together, Shake It Off Go Your Own Way and, most recently, U Can’t Touch This), there are several drivers behind the long list of E&P acquisitions, including the pursuit of greater scale, improved efficiency and higher shareholder returns. Buyers in the recent wave of industry consolidation have used debt to fund some acquisitions but the goal is primarily to increase cash flow to restore debt ratios to pre-purchase levels as soon as possible, not necessarily to finance new production or expand infrastructure. Also, note that post-merger investment levels are sometimes lower than the combined pre-acquisition spending of the two companies. As we noted in Something Good Coming, Expand Energy, which was formed by the October 2024 merger of Chesapeake Energy and Southwestern Energy, sees its 2025 capex falling by 10% to $2.7 billion, although it also expects natural gas production to climb.
To sum up, while a lower-interest-rate environment would help companies in the oil and gas industry to expand their businesses — such as we’re already seeing with midstream gas processing plants, LNG export facilities and natural gas pipelines in the Permian and Louisiana — upstream companies rely more on free cash flow than debt to finance their capital spending, midstreamers are increasingly focused on debt reduction and refiners may not be expanding as much. (Power developers are a different story.) But all that is not to say lower borrowing costs won’t help energy-industry players — they will, if only in reducing their refinancing costs. And lower interest rates also support economic growth and the view that inflation is under control — all good news for the industry.
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Permalink Reply by Skip Peel - Mineral Consultant
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President Donald Trump's push to boost oil and natural gas drilling in Alaska and the Arctic is unlikely to spark a rush of activity due to the high-risk nature of investment in the region, analysts said. American Petroleum Institute Senior Vice President of Policy Dustin Meyer explained that the lack of long-term regulatory certainty could deter companies from committing to new projects. Nevertheless, "[t]he administration deserves a lot of credit for at least doing everything that they can do to send the signal that these areas are going to be open for development," Meyer added.
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Permalink Reply by Skip Peel - Mineral Consultant
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President Donald Trump has pledged to ensure reliable liquefied natural gas supplies to Europe and brushed off concerns about potential hikes in domestic gas prices. However, ExxonMobil Europe President Philippe Ducom cautioned that Europe's reluctance to sign long-term contracts and limited US LNG capacity until 2026 may jeopardize supply security and exacerbate energy costs for vulnerable industries.
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