Why It’s So Fracking Hard To Make Big Oil Drill

“Drill, baby, drill” became a Republican slogan in 2008 when US oil production slumped to 5mn barrels a day – half as much as in 1970. Michael Steele coined it, Sarah Palin embraced it, but voters didn’t buy it until Trump used his megaphone eight years later. By then US was well on its way to becoming the largest oil and gas producer – daily oil production touched 9.6mn barrels in April 2015 – thanks to progress in ‘fracking’, a process that involves fracturing shale rocks to extract oil and gas. In 2025, US expects average daily oil production of 13.7mn barrels, another world record. But Trump wants to “frack, frack, frack”, and drill even more. He says it’s important to reduce energy prices and slash inflation. Hopes are up, crowds have cheered, and he’s won the vote, yet “drill, baby, drill” might not happen the way he sold it.Will US produce a lot more oil?That’s unlikely for several reasons – geology for one. Most US oil comes from fracking, but unlike conventional wells that increase yield gradually and then run at their peak for years or even decades, yield from shale peaks in the first few years and then dips. Experts say US firms increased yields rapidly from 2016 onwards by identifying the best fracking sites. Almost all the rich sites in North Dakota’s Bakken Formation have been tapped. The Permian Basin in Texas and New Mexico will also peak by 2030. So, the era of easy productivity gains might be over.Then there’s the matter of US oil firms not drilling as much as they used to. The number of active drilling rigs has halved to around 600 since Trump’s first term. So, how are yields rising? The US Energy Information Administration says it’s due to “more advanced drilling and completing techniques...and enhanced fracturing designs”. Because new wells are more than offsetting the declining yields of older wells, a drilling spree is unlikely. Also, pumping out more crude is pointless if you can’t process it. Until a decade ago, US was heavily dependent on imports. So its refineries are designed for a mix of domestic and imported crude, which have markedly different properties. Infrastructure along the Gulf Coast, for instance, is primarily tuned to process imported oil. If you pump more shale oil, where will you refine it? Modifying or building new refineries is a costly long-term project, so is the construction of new pipelines to carry oil from fields to refineries.Will global oil prices fall?They could, but do US firms want them to? Extracting oil from shale is a costly process. Norwegian energy research firm Rystad estimates that US shale oil currently has a breakeven price of $45 per barrel, as against $27 for oil from onshore wells in West Asia. If US produces too much, as it did in 2016, oil prices could crash, making fracking unviable.Besides, US prices can’t fall in isolation as oil is a global commodity. If America overproduces, other producer countries will slash output to shore up prices. Saudi Arabia, for example, has long aimed for a $100 per barrel rate to fund its transformation. It won’t watch helplessly if oil prices slump. In April 2020, Trump himself had called up Putin and Saudi king Salman to slash oil production at the start of the pandemic. What does US Big Oil want?Petroleum industry requires investments of billions of dollars at every stage from drilling to refining. But at the moment America does not have an appetite for big oil and gas investments. Producers and investors had burnt their fingers in the 2016 global glut when prices crashed to around $26 a barrel. Now with Europe weaning itself off oil and gas, and Chinese demand having peaked in 2023, oil firms are focusing on managing costs and maximising returns to investors. At the same time, the fracking industry has consolidated and Big Oil – ExxonMobil and Chevron, for example – won’t be swayed by political calls to drill more. Last Nov, Exxon CEO Darren Woods told CNBC, “I’m not sure how ‘drill, baby, drill’ translates into policy...I don’t think there’s anybody out there that’s developing a business strategy to respond to a political agenda.” What is Trump’s real plan?Trump knows this well. The oil and gas lobby didn’t contribute $75mn to his campaign for nothing. Is ‘drill, baby, drill’ empty rhetoric then? No, he’s creating friendlier conditions for the industry so that it can plan future investments. For example, he’ll allow more drilling on federal lands and offshore – currently, only 24% of wells are on federal land. Removing incentives for electric vehicles also signals support for the oil industry – guzzle, baby, guzzle. Trump has already scrapped Biden’s decision to not grant new licences for LNG export, greenlighting new investments in pipelines and terminals. A thriving oil industry will create jobs, guarantee US energy security, rid the country of its West Asian baggage, and enhance diplomatic leverage.