The energy sector is a dynamic landscape where economic viability, technological advances, and environmental considerations continually reshape resource utilization. President Trump’s push to put a finger on the scale to benefit fossil fuels might provide a short-term lift for oil companies but will likely lead to unintended consequences and may further benefit renewables over fossil fuels.
Finding out what changes are planned gives us knowledge and thus, powerful leverage in dealing with the current market uncertainty.
The global energy market is not static. Oil, though dense and portable, faces competition from many alternatives, including bioplastics, plant oils, algae, geothermal energy, biofuels, wind, and solar power. The Trump administration's “drill, baby, drill” rhetoric may not create a lasting boom without the support of substantial economic and technological advances. Simply relaxing environmental regulations and opening federal lands for prospecting will not create nor sustain a boom.
We should use our oil, and gas, reserves wisely. We continue to use oil for many things that aren’t its highest and best value. Using our reserves wisely makes economic sense and may give future generations something to work with.
It's the Economy...
Oil's economic future hinges on extraction costs and potential profits, which have been declining for decades. Historically, oil-producing nations limited supply to boost prices, but oil, like other commodities, operates within a supply-demand framework. We’ve overly focused on supply and ignored the nuances of demand. Analyzing demand is complex due to human unpredictability, pushing us to seek more supply, believing it will lower prices. However, discovering new oil supply is expensive and doesn’t necessarily resolve pricing issues.
Supply-side economics suggests that more supply at lower costs, coupled with reduced government barriers, will stimulate the economy. Yet, finding lower-cost resources is increasingly rare and relies heavily on technological advancements. The shale boom, enabled by hydraulic fracturing, unlocked previously inaccessible reserves of oil. It also released natural gas in such quantities that it reduced coal's dominance as a power generation fuel from 60% of every megawatt generated by coal in 2009 to just 19% today. Despite political intervention efforts to support coal, lower-cost natural gas has made coal less economically viable. This highlights the limits of supply-side efforts in sustaining fossil fuel industries.
Trump’s plans suggest increased oil demand through lowered vehicle efficiency standards and reduced subsidies for electric vehicles (EVs). However, these measures cling to a dated perspective on fossil fuels. Advancing energy-efficient technologies and oil alternatives like EVs can lead to significant cost savings and reduced reliance on imported oil, offering substantial growth opportunities. EV charging alone should inject $25 billion to $30 billion annually in US power sales.
What Energy Emergency?
We solved most of the energy independence thing years ago with the shale boom and the US has been a net oil exporter since the late 2010’s. Since 2021, US domestic oil production accounts for about 75% of our 20 million barrels of daily oil consumption. Plus, we’ve significantly reduced our reliance on middle eastern oil since 2020. Now only about 12% of imports come from the middle east with the bulk of our imports from Canada and Mexico.
Trump’s plan to bolster the high voltage interstate electricity transmission infrastructure builds on Biden-Era investments in this sector. It is sure to benefit interstate transmission and alleviate congestion, but it will benefit renewables more than fossil fuels, by bringing cheaper renewable sourced power to consumers. This at a time when utility consumers are seeing their power bills go up by 10% to 30%.
Workin' for Deman(d)
Energy-efficient practices and alternative sources lower production costs, increasing profitability and competitiveness. Reduced energy expenditures translate into lower costs of goods and services, benefiting consumers and promoting financial growth. Diversifying energy sources and reducing oil dependence enhance price stability. Renewable sources, less prone to price volatility than oil, provide a more predictable energy market.
Renewable energy and biofuels emit fewer pollutants than fossil fuels, mitigating climate change and improving air quality, especially for marginalized communities. Prioritizing renewable energy preserves natural resources for future generations and promotes sustainable resource use. Advances in battery technology, smart grids, and energy storage drive efficient and sustainable energy systems.
'Show me the Money'
The renewable energy sector offers substantial job creation opportunities across manufacturing, installation, maintenance, and innovation. Diversifying our energy mix strengthens resilience against market fluctuations, ensuring a reliable energy supply. According to Deloitte, a financial consultancy, since the passage of the Inflation Reduction Act (IRA), companies have announced over $91 billion in investments in renewable energy projects.
The immediate benefits of energy reduction and oil alternatives are profound, encompassing economic savings, environmental protection, technological advancements, social improvements, and enhanced energy security. The real opportunities lie in embracing energy-efficient technologies and renewable alternatives, not clinging to a bygone era. Strategic investments in renewables ensure price stability, environmental protection, job creation, and economic growth, positioning US companies competitively in the evolving global energy landscape and promoting a sustainable future.
Energy Business Strategy Ltd provides advisory services to help clients navigate and thrive in the ever-evolving energy sector. Our focus on strategic themes that shape the industry enables us to deliver unparalleled insights and guidance. At Energy Business Strategy Ltd, we position our clients competitively in the global energy landscape, enabling them to seize new opportunities and secure a sustainable future.
