‘Drill Baby Drill’ Not Feasible in the Near Term and Chris Wright as Energy Secretary

     Trump's use of the old ‘drill baby drill’ mantra is a nice political slogan, but the reality is that increasing drilling will not be easy and will likely not happen in the near term. There are factors that support increased oil & gas demand. AI, data centers, and cryptocurrencies (an egregious waste of energy IMO) are increasing demand for natural gas, and that will continue. New LNG export facilities set to come online in 2025 will also increase natural gas demand. Oil demand is also at a record high globally, even though the IEA expects it to peak by 2030. It will likely plateau rather than peak. If and when it begins to drop, it could be many years off. These factors will help drilling pick up a little bit in the next couple of years.

     Natural gas is constrained by pipeline capacity so offtake from LNG and facilities like new gas power plants and data centers will be needed. Natural gas is also constrained by low pricing. I am thankful for that low pricing since it helps keep my electricity costs down. When I was working in the oil & gas industry as I did for 32 years, I was often hopeful for higher prices to keep working but now that I am out and currently unemployed, I am more concerned with low costs. It is the same for oil prices. If international oil prices are lower it will be more likely that gasoline prices will be lower, saving me much-needed money.

     Even Trump’s billionaire cheerleader (he has a lot of those) Harold Hamm says it won’t do much in the near term. Most of the country’s tight oil production comes from the Permian Basin which is currently producing around 5.5 million barrels per day. Some commentators have noted that it takes about 5000 wells per year just to keep that rate of production in the Permian. There are still lots of reserves remaining in the Permian and new deeper targets like the Barnett and Woodford are being drilled by Hamm’s company, Continental, among others. But soon enough, the core of the core areas will be drilled up and costs to produce will likely increase when that happens. Hamm notes that people want to see 3 to 4 MMbbls per day increase from the Permian but that is not likely achievable due to geological constraints. 1.5-2MMbbls per day increases are possible and more realistic. Permian production rose by that much on Biden’s watch from 2021- 2024, although the increase was just less than 1 MM bbls/day if you take it from pre-COVID production.

     Even David Blackmon at Forbes, a detractor and skeptic of the green energy push, says we should temper expectations for a drilling boom in the next couple of years. While Blackmon firmly believes that energy policies affect production, he also acknowledges that market realities do so first and foremost. Blackmon explains:

“In fact, when I asked Tim Stewart, President of the DC-based US Oil & Gas Association, if he thought a second Trump presidency would put the industry into another boom, his answer was succint: “The market will take care of the rate of E&P activity.” Exactly. The market will dictate, and the markets have been dictating for four years now that companies focus on cost control, efficiency, and rates of return on capital.

 

Drilling Federal Lands

     One area in which the new Trump administration can have a big effect is drilling on public lands. Lease sales that have been unnecessarily hampered by Biden administration policies will be unleashed and new drilling will occur. This includes Gulf of Mexico leases and some important leases in Alaska, but it will take years to develop these. The faster development will likely take place in the West, in and near the Rockies, where there is a lot of federal land. However, those areas can be pipeline-constrained and some like Colorado have stringent state environmental requirements.

 

 

Chris Wright as Energy Secretary

     Harold Hamm recommended Chris Wright and Doug Burgum to be Trump’s energy leaders. I think he will probably do fine there and especially advocate for oil & gas as he has done. It remains to be seen what he will do with other forms of energy. I highlighted his company Liberty Oilfield Services’ electric frac pump for E-fracs in my 2022 book Natural Gas and Decarbonization. Thus, I would say he is on board with decreasing emissions in the oil & gas industry. I also think he is knowledge of energy and energy issues is very good. 

     While Wright has criticized climate activists and said there is no climate crisis, I do not think his positions on these issues are extreme. While he says there is no climate crisis, I would only say the evidence is inconclusive on whether climate change should be considered a crisis or not. It certainly may become one if some predicted impacts begin to occur, but I would probably agree that at present there is no crisis. It is certainly not an extreme position to deny that there is a climate crisis.

     While Wright has no experience in government, he has plenty as a business leader. He started his career in nuclear, solar, and geothermal and he is currently excited about the potential of next-generation geothermal. According to an AP article:

“Wright says on LinkedIn that he is “all-in on energy,″ from starting his career in nuclear, solar and geothermal energy to his current efforts in oil and gas and “next-generation” geothermal. “I don’t care where energy comes (from), as long as it is secure, reliable, affordable and betters human lives,″ he wrote.

     Wright also controversially stated that there is no energy transition, mainly due to the high costs of non-fossil fuels relative to fossil fuels. He has a point, but I think he is wrong there. I believe that eventually the costs and performance of clean energy will be able to compete with fossil fuels, probably some time in the 2030s as more improvements are made and fossil fuels become more depleted. Most of the U.S. shale basins that have driven the U.S. to be the biggest producer of both oil and natural gas are considered to be in a mature phase where it will take more and more wells (better to say more lateral footage than wells since wells have been getting longer so that lateral footage is a more accurate metric) to hold the same production. That has not happened yet as production per rig continues to hold steady.  

     Wright testified against the SEC in hearings about its climate disclosure requirements. I am ambivalent about that. I think companies should tabulate their Scope 1,2, and 3 emissions as most do and disclose their greenhouse gas emissions and liabilities, but I probably don’t agree with the Biden administration’s way of going about it. I am not sure since I have not read the rules. However, after reading Wright’s written statement to the SEC, I am more in line with his views on this issue. He argues that it is unprecedented for the SEC to regulate greenhouse gas emissions and that doing so will allow activists to have more control over what fossil fuel companies do, which is a bad idea.

“On its surface, the Climate Rule purports to merely protect investors from financial risks. But its consequences and true purpose run much deeper. The true effect of requiring the disclosure of greenhouse gas (GHG) emissions, “physical risks,” and speculative “transition risks” is to manipulate the capital-market system to achieve energy and climate policy goals. The activists who call for these disclosures have made clear why they want them: to drive “aggressive reductions” in GHG emissions.12 Through broad disclosure regimes, climate activists hope to open the door to public shaming, further regulation, and aggressive enforcement through actions by the SEC, other agencies, state and local officials, and through private lawsuits.13 Further, because there is great uncertainty in determining the short and long-term risks from climate change, such disclosures would expose issuers and investors to greater litigation risk.” 

     Wright’s company, Liberty Energy, has invested in geothermal startups including Fervo Energy, in Oklo’s small modular nuclear developments. In nuclear fusion start-up Excimer, and in Natron’s sodium-ion battery technology. While he has agreed that he prefers no government subsidies I am pretty sure those companies and many others in the clean tech field are still highly dependent on those subsidies. They will likely go bankrupt without them, taking industry investments with them as well as public (taxpayer) investments. Thus, I see de-subsidization as a non-starter in general. There may be a few areas where subsidies can be scaled down, but not eliminated. The companies mentioned above are all beneficiaries of government subsidies.

     Wright has advocated for fossil fuel development to bring people out of poverty in developing countries and has been passionate about it. I agree with him about this as well.

      Robert Bryce recently wrote a piece about Wright's nomination. He noted that while other cabinet positions were often filed with insiders, energy secretaries were nearly always outsiders. Bryce calls Wright an energy humanist, an energy realist, and one of the most qualified people ever nominated to run the department. Forbes writer Christopher Helman called him an energy pragmatist.

According to Liberty Energy's ESG-themed report 'Bettering Human Lives' Wright started a foundation aimed at expanding propane cook stoves in developing countries. Incidentally, the U.S had a program doing the same thing that was started by Hillary Clinton when she was Secretary of State and the last I read about it was during Trump's first term when he discontinued the program. 

References:

‘Drill, Baby, Drill’ Is A Political Slogan, Not A Business Plan. David Blackmon. Forbes. November 11, 2024.  ‘Drill, Baby, Drill’ Is A Political Slogan, Not A Business Plan

Harold Hamm: ‘Drill, Baby, Drill’ Faces Geology Barriers, Even Under Trump, Chris Mathews. Hart Energy. November 18, 2024. Harold Hamm: ‘Drill, Baby, Drill’ Faces Geology Barriers, Even Under Trump | Hart Energy

Liberty Energy’s Chris Wright is Harold Hamm's Top Choice for Energy Secretary. Nissa Darbonne. Gart Energy. November 15, 2024. Liberty Energy’s Chris Wright is Harold Hamm's Top Choice for Energy Secretary | Hart Energy

What to know about Chris Wright, Trump's choice to run the Energy Department. Matthew Daly. AP. November 18, 2024. What to know about Chris Wright, Trump's choice to run the Energy Department

WRITTEN STATEMENT OF CHRIS WRIGHT, FOUNDER, CHAIRMAN & CEO LIBERTY ENERGY INC. Beyond Scope: How the SEC’s Climate Rule Threatens American Markets Hearing Before the House Committee on Financial Services, April 10, 2024. HHRG-118-BA00-Wstate-WrightC-20240410.pdf

Chris Wright (energy executive). Wikipedia. Chris Wright (energy executive) - Wikipedia

Fracker Chris Wright, Trump’s Energy Pick, Isn’t A Climate Denier–He’s A Pragmatist. Christopher Helman. Forbes. November 19, 2024. Fracker Chris Wright, Trump’s Energy Pick, Isn’t A Climate Denier–He’s A Pragmatist

Chris Wright, An Unapologetic Energy Humanist, Will Be The Next Secretary Of Energy. Rober Bryce. Substack. November 16, 2024. Chris Wright, An Energy Humanist, Will Be Energy Secretary