Beware the call of false oil prophets.
They’re out there, of that you can be sure, but their intentions are born out of misconceptions that swirl around the idea of U.S. energy dominance. So we can’t really blame anyone for thinking otherwise.
The latest example we can see today can be found in a former darling of the U.S. oil industry — Alaska.
Unfortunately, I don’t think things are going to work out the way President Trump hopes they will.
Over the last few months, we’ve talked about the hard impact that cheap oil prices will have on our domestic crude production in the short term. As you are already well aware, the bulk of growth in recent years has been centered around the Permian Basin.
More importantly, it has become clear that any growth is in jeopardy when crude is around $60 per barrel.
Remember, some of the biggest drillers in West Texas have come clean about running out of Tier 1 inventory, which is not to mention that the Dallas Fed’s energy survey last March showed that companies are just barely breaking even at current prices.
In other words, don’t expect drilling activity to pick up until we see oil rally higher.
But this doesn’t jive with President Trump’s plan for energy dominance, does it? Cheap prices or more supply — you just can’t have it both ways.
This is the sentiment that brings out new (yet old) oil prophets.
And there’s no better talking point than Alaska.
Again, we can’t blame anyone for this.
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After all, Alaska holds the fourth-largest oil reserves in the U.S., with 3.4 billion barrels buried far below ground; the Frontier State was the second-largest oil-producing state for decades.
Big Oil truly did have a monopoly on Alaska’s North Slope, where virtually all of the state’s output can be found. In fact, the Prudhoe Bay field was the 18th-largest oil field ever discovered.
Unfortunately, Alaska’s oil industry became a sensational disappointment. If you want to see how badly things can go for oil production, look no further than the 79% production decline that has taken place since output peaked in 1988:
Now, President Trump is throwing up a Hail Mary to revive the state’s dying production.
In Alaska, the fight over oil drilling has always centered around Alaska’s Arctic National Wildlife Refuge (ANWR), where billions of barrels of oil sit untapped.
The Trump administration is trying to change that, which is why three of his Cabinet members are heading to Alaska to push for more drilling.
However, we’re talking about more than just ANWR, dear reader.
President Trump’s Interior Department recently proposed a reversal to a previous rule that would put another 23 million acres into play for oil and gas development. This time, it’ll come from Alaska’s National Petroleum Reserve (NPR-A).
Under the Biden administration, those 23 million acres were closed off to new oil and gas leasing.
On paper, it sounds like a flood of oil is coming, doesn’t it?
I’m not convinced. For all the rhetoric over reinvigorating Alaska’s long-dying oil industry, we’ll run into the exact same problem that is subduing growth in areas like the Permian — oil prices just won’t support that kind of development.
This is one instance I hope I’m wrong.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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