Broadest of thoughts on Crude & Natural Gas
In response to Roger Pielke Jr.'s argument in a recent post that “Joe Biden Is the ‘Drill, Baby, Drill’ President.” { I can't comment as I can't afford so many subscriptions}
The increase in fossil energy production (crude oil or natural gas) on federal lands during the Biden administration is somewhat paradoxical. Although President Biden campaigned to reduce reliance on fossil fuels and implement policies to address climate change, fossil energy production, especially oil and gas, has increased. This rise can be attributed to factors that include the following:
Leasing Surge Before 2021
1. Leasing and Acreage from 2019-2020: During the Trump administration, there was a surge in leasing and leasing acreage activity on federal lands. This period saw many leases awarded, and oil and gas companies moved forward with exploration and development plans. Because the oil and gas industry has long lead times, decisions made in 2019-2020 are still impacting production levels today.
2. Delayed Impacts: The production we see today is often the result of leases issued and drilled during this earlier period. Acquiring leases takes time from exploration, permitting, and production, so there’s a lag between lease approvals and when production comes online. In other words, the increase in output during the Biden administration is due to the increased surge in federal land leases during the previous administration.
Declining Leasing 2021-2023
1. Policy Changes: During the Biden administration, leasing activity on federal lands dropped significantly, in part due to temporary pauses, legal challenges, and new policies focused on reducing fossil fuel dependence. New leasing during this period fell dramatically compared to the previous years.
2. Climate Focus: The administration also sought to limit new leases, review royalty rates, and implement stricter environmental reviews, which slowed down new developments.
Potential Future Impact on Production and Costs with Federal Land Leases
1. Production Decline Likely: If leasing and development remain lower under current policies, the long-term production on federal lands will likely decrease as the wells and infrastructure established from earlier leases eventually decline. Production will start to decrease without new investments in federal land lease opportunities.
2. Costs to Consumers: Reduced production could lead to higher consumer energy prices, depending on global supply-demand dynamics and other geopolitical factors. If federal land production declines significantly while international demand remains high or increases, it could push prices upward. However, this may be offset if other countries or the private sector (e.g., state or private lands) ramp up production.
This was a one-sided of a view of fossil fuel production…
So, additionally, my overall crude and natural gas production thoughts
Did you know that peak production is when the extraction of a resource reaches its highest possible rate before beginning to decline? In the United States, the concept of "peak" production has been reshaped by technological advancements, market conditions, and government policies, particularly in extracting crude oil and natural gas.
Let's take a backward look at U.S. crude oil production to understand this. In the 1970s, the U.S. hit its peak oil production, reaching around 9.6 million barrels per day (bpd). However, introducing hydraulic fracturing (fracking) and horizontal drilling in the early 2000s led to a revolution in oil production, particularly in shale formations like the Permian Basin. This resulted in a new peak in U.S. oil production in 2019, exceeding the peak of the 1970s and reaching around 12.3 million bpd.
As for the current status, U.S. oil production decreased during the COVID-19 pandemic but has rebounded. 2023 production, including federal land leases, was expected to approach or exceed 12.5 million bpd. Whether this represents the ultimate peak remains uncertain, as future production will depend on factors such as global demand, energy transition policies, and technological advances in drilling and recovery.
U.S. natural gas production has continuously grown, primarily due to the shale revolution, which boosted oil output. As of 2023, U.S. natural gas production was at record highs, exceeding 100 billion cubic feet per day (bcf/d). Unlike oil, there is less immediate concern about an impending peak in natural gas production due to the vast reserves in shale formations and the increasing role of natural gas as a transition fuel in the energy mix.
Technological innovation, energy transition, and policy and regulation influence future peaks. Advances in drilling and extraction technologies could delay potential peaks by making previously uneconomical reserves more accessible. The shift towards cleaner energy and the influence of climate policies and environmental regulations could significantly affect future oil and gas production, affecting prices that will be passed down to the consumer. Exciting stuff, right?