President Donald Trump is visiting Texas this week, to raise money for the Republican Party and discuss the country's energy-dominance agenda with the local oil industry.
Trump's energy agenda was one of the cornerstones of his campaign and, according to observers, secured him many votes from the oil and gas-and coal-industry. Initially defined as an energy security agenda, during Trump's term, it became an energy dominance agenda as the second shale boom pushed U.S. crude oil production to the highest ever, turning the country into the largest producer of the world's most traded commodity.
However, the second shale boom turned out to be a double-edged sword when the oil market swung into an oversupply yet again, with the coronavirus outbreak decimating demand. The federal administration had worked to achieve energy dominance by "cutting regulations, simplifying permitting and encouraging private investment in energy infrastructure," according to a White House statement cited by the AP. This approach was maintained during the crisis, with Washington refusing to mandate production cuts for private producers as OPEC+ had asked.
As President Trump said at the time, the market would take care of itself. Indeed, while no official cuts were made, Washington undertook to shoulder some of the production cut burden OPEC+ had negotiated with Mexico after an agreement of historical proportions was reached among all the big oil producers in the world this spring. And then U.S. producers started cutting back on production simply because oil prices were too low to break even. At one point, WTI and several other U.S. benchmarks swung deep below zero as traders rushed to offload their positions.
Right now, the energy dominance agenda may be a little compromised because of the unprecedented change in demand for oil and gas resulting from the coronavirus pandemic. Indeed, the pandemic will continue to threaten Trump's agenda, according to experts, just as it threatens the global economy, with uncertainty marring any outlook for even the short term.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
Since its inception in 2008, the US shale oil industry has been torn apart by geopolitics and economics. The geopolitics has seen the United States talking of energy dominance and oil self-sufficiency and having a say in the global oil market along with Saudi Arabia and Russia. Such an agenda is dead though the US will still have some influence in the global oil market through the rising volumes of crude oil imports in coming years exactly as China influences global oil demand and prices through its rising crude oil imports.
The US shale industry could have been far less unprofitable if only it put aside dreams of energy dominance and concentrated on profitability. But this was never to be with the industry producing recklessly and excessively to achieve geopolitical gains at the expense of economics.
As a result, US oil production will be struggling this year and the following years to even produce 6-7 million barrels a day (mbd) leading to a rise in US crude oil imports from 9 mbd in 2019 to 12-13 mbd this year and the coming years.
The pandemic has shattered for ever any delusions about US energy dominance and set the scene for the eventual demise of the shale industry.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London