Opinion Despite Donald Trump’s loud claims, why ‘baby may not drill’

The third is the rub. For here, the outcome depends on a variable outside the control of the companies: The prices of oil and gas. Companies will produce only if they can sell the output at a price that covers their cost of exploration, reservoir appraisal, development infrastructure and production, and meets their threshold criterion of profitability, which varies from field to field. The impact of the presidential directive should be considered against the backdrop of these fundamentals.

The majority of the low-cost hydrocarbon-bearing acreage in the US has already been drilled. A survey carried out by the Kansas City Federal Reserve has estimated that the threshold price for attracting new investment in exploration in the US is now USD 84/bbl (barrel). The market price of the US benchmark crude (West Texas Intermediate) at the time of writing is USD 75/bbl. The survey, therefore, implies that at current prices, companies would prefer to monetise their discovered reserves rather than look for additional stock. Were Trump to open up federal lands for exploration, there would be few takers, and definitively none if he achieved his objective of bringing prices down to below USD 50 a barrel. The investment would be unprofitable. (I do wonder if the President didn’t appreciate the inherent contradiction between his exhortation to drill and his push to reduce prices.)

This economic block is compounded by an operational reality. Petroleum companies usually take more than four years to move from exploration success to the creation of development infrastructure to the commencement of production. The length of this process depends on permitting procedures, field location (offshore/onshore; plains/hilly; remote/well-connected) and geology, but even under the most favourable of combinations, these companies would be hard pressed to monetise their investments during the tenure of a presidential term. This point will explain (in part at least) why companies may not respond to President Trump’s decision to lift the ban on drilling in environmentally sensitive areas like the Arctic seas. The decision is controversial and the succeeding administration will most likely reverse it. Investments made would then be impaired. The evangelicals in the corporate community know the biblical forewarning: “The Lord giveth and the Lord taketh away.”

Finally, it’s worth noting that the private sector has already tapped “the liquid gold under its feet” and enriched itself and “the Nation”. Two decades ago, America was one of the largest importers of crude oil. It imported 10.1 million barrels a day (mbd) in 2005. Its foreign policy pivoted around oil supply security. Today, it is the biggest producer in the world, averaging 13.4 mbd (compared to Saudi Arabia’s 10.5 mbd) in 2024. And a major exporter. This remarkable turnaround is the result of a combination of geology (shale rock), technology (hydraulic fracturing and horizontal drilling), low costs and relatively high prices. Were these market conditions to repeat themselves, the industry would unhesitatingly embark on another drilling binge. It would not wait on a presidential proclamation.

As regards the green agenda, America’s withdrawal from the Paris Agreement does cast a cloud over sustainability. It will choke the flow of American funds for climate change. This is, however, a rerun of an earlier play. And like last time, its impact will be managed. There will be a flurry of litigation, but more importantly, the scepticism of one person, however powerful, will not halt climate activists. Given the recurring evidence of the dire consequences of global warming, it might even embolden the global community to bridge its differences and accelerate the transition to net zero.

In a similar vein, Trump’s revocation of the EV mandate will have minimal impact on the EV transition. On the face of it, the revocation goes against the business interests of “co-president” Elon Musk. But as that cannot be, one must presume it is because Tesla is no longer eligible for tax credits and subsidies.The revocation may level the playing field between electric and internal-combustion vehicles in the US to the financial disadvantage of the smaller EV original equipment manufacturers, but it won’t deter the Chinese EV juggernaut from charging ahead; nor will it halt the transition.

One should be wary of dismissing a US presidential proclamation as “sound and fury signifying nothing”. But set against the above backdrop, I do wonder whether President Trump did not intend his “tale” to be so interpreted.

The writer is Chairman and Distinguished Fellow, Centre for Social and Economic Progress