By Arab News
By John Defterios*
During the Trump era, oil was king. US production surged to a record 13 million barrels a day and the president wore it like a badge of honor. Whenever the opportunity presented itself, he never hesitated to bang home the message to his base in America’s heartland.
“We sparked a revolution in domestic energy production. The US is now the No.1 producer of oil and natural gas anywhere on planet earth,” he declared at a campaign rally in Yuma, Arizona.
This played well in the oil and gas states in America’s southwest, up to the Rockies and as far afield as Pennsylvania. According to the American Petroleum Institute, it is an industry supporting nearly 10 million jobs.
“That fitted in with this administration’s world view. They were inclined to reduce regulations on the oil industry, partly to allow it to produce more but also to gather political support from it,” said Robin Mills, CEO of Qamar Energy.
The US produced so much oil and gas, Trump was out to challenge Russia and Saudi Arabia overseas, especially when it came to LNG being exported from huge energy terminals in Sabine Pass and Corpus Christi Texas. But clearly, oil and gas were being used for a geopolitical advantage, beyond the obvious benefit of being less dependent on imports.
“The export of oil and gas has been seen as a tool, a geopolitical tool, even a weapon, this concept of energy dominance,” said Mills.
That strategy of growth at all costs came crashing down when the coronavirus pandemic triggered an oil bust. In a year that we all would rather forget, oil demand dropped by nearly a third last April, cutting the legs from underneath highly leveraged shale producers who expanded with the generous support of Wall Street, which bought into the Trump narrative.
As a result, after three downward cycles in the past five years, nearly 500 producers went bust under a mountain of debt totaling $292 billion, according to Haynes and Boone, a law firm specialized in energy bankruptcies.
The US energy sector is facing a perfect storm. Wildfires up and down the West Coast and hurricanes hitting the Gulf of Mexico raised awareness about the impact of climate change, and the contrast between Donald Trump and Joe Biden highlighted the stark differences when it applies to the mix of US energy.
“When Donald Trump thinks about climate change, he thinks it’s a hoax. When I think about it, I think jobs. Good paying union jobs to put Americans to work, building a stronger, more climate resilient nation,” said Biden in a policy address on the energy transition.
The former vice president has pledged not to shutter US shale, but the winds of change would blow in the direction of renewable energy. A Biden presidency would accelerate the energy transition away from fossil fuels by pledging $2 trillion to speed up innovation and investment, but at the same time he was careful to tack away from labelling it a “green new deal” to avoid being too accommodating to the left wing of his party.
Adnan Amin, the former director general of the International Renewable Energy Agency (IRENA) in Abu Dhabi, said that it is a fine line for Biden to walk — to embrace renewable energy but at the same time recognize that oil and gas cannot be abandoned.
“I’ve talked to him personally on a number of occasions about renewables. I know that he has a passion for this new technology and the potential that it has and the potential it has to create jobs and wealth in the US,” Amin said.
That is the prevailing view today of the global investment community as equity funding proceeds the hard investment into renewable technologies. Eyebrows were certainly raised in the last month as clean energy producer Next Era topped the market capitalization of once fabled oil and gas giant ExxonMobil.
US oil producers are watching how events will unfold in the Middle East as well. A Biden administration may re-engage with Iran, provide limited sanctions relief and allow its crude back on the market, which could drive down prices and in turn hurt US shale producers.
While Trump was proud to pull out of the 2015 Paris climate accord that set global policy targets for greenhouse gas emissions and cap global warming at 1.5 degrees Celsius, Biden has pledged to put America back onto the world stage.
“I think that is a very important signal when we’re facing potentially catastrophic changes related to climate in the near future and that United States leadership in technology, in a political sense, in bringing other countries along,” Amin said.
The US leadership battle clearly defined their policy differences, the next phase will alter what the nation’s energy priorities will look like.
• John Defterios is CNN Business emerging markets editor and anchor based in Abu Dhabi. Twitter: @JDefteriosCNN