Swiftly increasing domestic oil and gas production may prove more difficult than anticipated for President-elect Donald Trump, as oil executives have cast doubt on his “Drill, Baby, Drill” agenda.
Throughout his campaign and transition into office, Trump has vowed to expand oil and gas drilling within the United States. It is a sharp shift away from renewable alternatives, such as solar and wind, that have been the focus of the Biden administration.
In order to put his plan in action, Trump is expected to issue a number of day one, or week one, orders to roll back climate rules and laws implemented by his predecessor, namely by undoing pollution rules for power plants, expediting liquid natural gas permit approvals, and cutting federal funding for offshore wind development.
While environmentalists and climate activists have expressed concerns over the emphasis and support on fossil fuels in Trump’s energy agenda, he may also be facing pushback from within the oil industry itself.
On Tuesday, Exxon Mobil’s Upstream Company President Liam Mallon said the global oil and gas giant is not expecting many producers to immediately fall in line with the incoming president’s goals for boosting output.
“We’re not going to see anybody in ‘drill, baby, drill’ mode,” Mallon said during the Energy Intelligence Forum in London, according to Reuters.
Mallon said output growth would be limited by investors’ desire to maintain capital discipline.
“A radical change [in production] is unlikely because the vast majority, if not everybody, is focused on the economics of what they’re doing,” he said.
That’s not to say Exxon doesn’t expect to see any growth. In May, the company completed a deal to purchase Pioneer Natural Resources, a smaller rival oil and gas company that operates in the Permian Basin, for around $60 billion. At the time, Exxon said the acquisition would allow the company to more than double its production from the Permian Basin — likely beyond 2 million barrels every day.
While eased permitting regulations would allow for a short-term boost in production, Mallon said, growth at that rate won’t continue over time.
“We see growth beyond the 2 million, probably for a couple of years, but not at that continuous same rate … certainly up to 2030, we see it growing,” the executive said.
The U.S. is currently the leading producer of oil worldwide, producing more than 13.4 million barrels a day. At the current rate, that is only expected to increase to around 13.6 million barrels per day by the end of next year, according to the Energy Information Administration.
With the cost of international and U.S. crude benchmarks staying in the high $60s and low $70s range, a dramatic increase in production could depress prices even further, sending averages to below $60. While this would lower prices for consumers, it would lower profits for producers. As a result, some experts have suggested more supply in the market would lead companies or producing blocs such as OPEC+ to cut production once again.
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“If the Trump administration opens up federal leases for oil and gas, Federal lands would get 25% per barrel of revenues. You will have a lot of trouble finding an oil company that can make money at $52.50 per barrel with what they have left from a $70 barrel,” Smead Capital CEO Cold Smead told CNBC earlier this month. “The only thing that will cause drill baby drill to happen is higher oil prices based on these margins.”
With 55 days remaining until Trump takes office again, the president-elect’s transition team has already begun drafting his day one energy agenda. He is expected to keep his campaign promises regarding support for the oil and gas industry.