In October 2008, as the economy reeled from the onset of the Great Recession and oil prices soared to $147 per barrel ($211 in today’s money), vice presidential candidate Joe Biden announced in a debate that his party was asked to contrast the Democratic Party’s energy policy with that of the Democratic Party. Republican. “Their only answer is training, training, training,” Biden said. We have to drill, but it will take 10 years for a drop of oil to come out of the wells that will be drilled. ”
The vice president’s opponent, Sarah Palin, pounced. “The chant is ‘Drill, baby, drill.'” And that’s what we’re hearing all over this country…because people are so hungry to tap into domestic energy sources. ”
Biden and Obama won that election, but Biden seriously underestimated American ingenuity. During the Obama administration, drillers increased natural gas production by 45% to 92 billion cubic feet per day (bcfd) and oil production more than doubled to 9 million barrels per day (bpd).
But the frackers were so successful that they created a global oil glut that sent prices down to $28 a barrel in 2016 and bankrupted dozens of companies. The industry rebounded during President Trump’s first term. Management has refocused its focus on expanding profits. Despite industry antipathy toward Joe Biden, U.S. oil production has steadily increased during his presidential term and is now at record levels of 13 million barrels per day of oil and 125 bcfd of natural gas. It has become.
And the world is once again in a glut of oil. Prices are currently hovering around $70 per barrel, and OPEC has held back nearly 5 million barrels per day of untapped production capacity, compared to global consumption of 103 million barrels per day. Meanwhile, Chinese oil companies are predicting a peak in oil demand as the country replaces gas-guzzling cars with electric vehicles. “The fundamental outlook is bearish,” wrote Michael Xue, an oil analyst at Deutsche Bank.
This is why the resurgence of Drill Baby Drill under Trump’s second term will focus on natural gas rather than oil.
Biden is clearly an anti-gas president. The biggest insult was the suspension of new approvals for liquefied natural gas export projects in 2022. In recent years, LNG exports from the United States have increased from zero to 12 billion cubic feet per day, representing about 8% of the total domestic supply. Despite the permit ban, projects already approved and under construction are on track to more than double U.S. exports.
“The expected LNG glut is still coming, but it has been delayed, with peak supply expected in 2026 or 2027,” said Neil Beveridge, an analyst at Bernstein Research. –It will be just in time for President Trump (who is widely expected to be reversed by Biden). Prohibited) Taking credit. Most of the U.S. LNG is going to Europe to replace Russian pipeline gas sales that were halted in the Ukraine war, and to Asia, where much more polluting and carbon-intensive coal is being burned for electricity. Sent to reduce dependence.
Supplying the world with LNG is only half of the “drill, baby, drill” equation. New electricity demand in the United States is expected to surge during the Trump administration, especially due to the rise of artificial intelligence. Consultancy McKinsey estimates that the electricity needed to power AI data centers will increase from 25,000 megawatts today to 83,000 megawatts by 2030. This could involve more than $300 billion in capital investments in power plants, buildings, power lines, and server farms. Data center power demand will increase to about 12% of all U.S. electricity, up from 5% currently.
Drilling for natural gas in the Marcellus Shale in Pennsylvania.
AFP (via Getty Images)
In anticipation of this future power demand, Amazon, Google, Meta, OpenAI, and others have invested billions of dollars in everything from solar and wind power to cutting-edge nuclear and geothermal power. Investors in Oklo, the new publicly traded nuclear startup, include Trump’s next Energy Secretary Chris Wright and OpenAI’s Sam Altman. Oklo says it will work with developer Switch to deploy 12,000 megawatts of new nuclear power by 2044. This is a significant amount, but it won’t happen anytime soon.
Until advanced nuclear power becomes a reality, gas has proven to be the only scalable bridge fuel that can replace coal. Over the past two decades, the United States has reduced coal consumption by 63% from its peak to 400 million tons per year, while natural gas use has increased by more than half to 33 trillion cubic feet per year. As a direct result, U.S. carbon emissions fell by 15% over this period, the most of any developed country. (By the way, China continues to use a record amount of coal, 5 billion tons last year.)
So the tech giants are turning to the gas business. As an example, Meta recently announced plans to build a $10 billion data center and 2,200 megawatt gas-fired power plant in West Richland Parish, Louisiana. Meta’s gas supplier is likely to be Occidental Petroleum, whose stock price has fallen 20% this year to $48. Oxy is one of Berkshire Hathaway’s major holdings. Over the summer, the company added millions more shares of the oil company’s stock at a price of nearly $60 a share.
Chris Dowd, an investment analyst at Third Avenue Management, predicts better times ahead for executives at other gas-focused exploration and production companies. Lately, he says, his team has been “licking” a microcap called SandRidge Energy. Oklahoma City-based SandRidge (market capitalization: $406 million) emerged from bankruptcy several years ago with a portfolio of approximately 450,000 acres of gas fields in and around Oklahoma’s Midcontinent region. The company has virtually no debt. Dowd likes that SandRidge has been “shutting down” some of the wells it has kept in the ground without selling gas for the past year at historically low prices.
Dowd said Sandridge has the potential to increase production by 20% in the short term depending on demand for LNG and AI. The company also has past operating losses of $1.6 billion to shield future profits from federal income taxes.
Biden’s permit “builds up a huge inventory” of new wells that will require drilling and hydraulic fracturing, Dowd said. “Once it works and there’s no start-stop, the car really starts buzzing.” Cotera Energy is also “like a coiled spring,” Dowd said. “If we have ‘drill, baby, drill,’ they can really get into adding productivity.” Kotera (market cap $18 billion) is aggressively buying back its own stock. However, the PER is 15 times, which is more substantial. Dowd prefers Sandridge.
President Trump is likely to authorize the leasing of more federal land for gas drilling. The Biden administration’s Interior Department leased just 161,000 acres of federal land in 2023, compared to an average of 1.2 million acres a year during the Obama and Trump eras. The reason for this is the Bureau of Land Management’s new ” Conservation and Landscape Integrity Regulations.
Of slightly greater concern to the oil lobby are the Biden EPA’s newly finalized rules governing “fugitive emissions” of natural gas from oil wells and pipelines. Operators would have to pay $900 per tonne of emissions, increasing to $1,500 per tonne after a few years. And they must pay to install equipment to monitor and use third parties to verify those emissions. Many gas producers will welcome President Trump’s efforts to loosen or eliminate methane regulations that could cost the nation’s biggest emitters billions of dollars in annual fines.
One of those companies, Houston-based Hilcorp Energy, owned by billionaire Jeffrey Hildebrand, recently entered a consent decree with the EPA over natural gas emissions from the San Juan Basin oil field in the Four Corners region. agreed to a $9 million civil penalty. Hilcorp partnered with Carlyle Group in 2017 to purchase the decades-old San Juan property for $3 billion. This gas field is comprised of 12,000 gas wells spanning 2 million acres and hundreds of miles of gas gathering pipelines, so it emits large amounts of gas. Hilcorp has pledged to reduce emissions by 113,000 tonnes over three years, as well as take 24,000 cars off the road.
Some gas producers are less concerned about such restrictions because they are already working to not only limit leaks, but also capture and permanently sequester carbon emissions. Chris Kalnin, CEO of BKV Energy, which raised $200 million in a 2024 IPO, explained that his company is injecting carbon dioxide underground from its shale fracking operations in North Texas. are. This work is monitored by gas detectors and third-party certified by the American Carbon Registry. The American Carbon Registry will mint non-fungible tokens representing the amount of carbon sequestered by BKV and publish them on the blockchain. In this way, BKV can sell “decarbonized” gas to its customers at a premium of about $5 per 1,000 cubic feet. Or it could turn that gas into low-carbon electricity at a 1,500-megawatt gas-fired power plant BKV acquired in Temple, Texas. “We believe there are multiple ways to win in line with megatrends,” Kalnin says.
“Green is on one side, drill, baby, drill is on the other side, and the silent majority is caught in between,” Kalnin says. BKV ($1.9 billion market cap, $250 million EBITDA) initially built gas positions in Pennsylvania’s Marcellus Shale, but in recent years Kalnin has expanded its assets in the suburban Barnett Shale field, the birthplace of shale gas hydraulic fracturing. We took the unusual policy of purchasing it. In Fort Worth, Texas, Ocelot legend George Mitchell demonstrated the combination of directional drilling and hydraulic fracturing. In 2020, BKV purchased Devon Energy’s fields there for $500 million. In 2022, it acquired ExxonMobil’s Barnett for $750 million. Mr. Kalnin said Exxon has not made meaningful investments in years. “Barnett is alive and well,” he says. And there is still a large amount of fracked shale gas remaining across the country. “They left huge pieces of meat on the bones.”
