How President Trump Bankrupted the U.S. Fracking Industry and Keystone

Oil Rig SunsetBEVERLY HILLS, CA (robinsrowe.com) 2021/02/01- Somebody online said, hey Robin, “Your blaming Trump for oil prices isn’t true, because the price of oil went up before Biden took office, out of fear of what Biden stated he had planned.”

I hadn’t stated an opinion on that one way or the other. But, because we were discussing the price of oil in 2020, I can understand why a partisan thought I was “blaming” Trump for $55 oil on his last day in office. Not so.

Can we agree Trump was responsible for low oil prices in 2020?

The oil price in 2020 started the year at $50 per barrel. Trump was active in lowering the cost of oil production by dismantling the EPA, a great cost savings to oil producers. An oil subsidy really, because eventually the government will be saddled with the environmental clean-up costs or the People will bear it by getting sick and dying as a consequence of what’s not abated.

After almost a year of $42 oil under Trump in 2020, oil markets may have anticipated President Biden would restore environmental protections. It could be true that before Trump left office, the market had already priced in drilling costs coming back to normal. What’s interesting is what happened before then.

The Negative Price Oil Panic of 2020

Trump’s largess to his oil industry donors, as it was with his coal industry donors, did them no good in the long run.

Break-even price on tight oil (fracking) production is $50 per barrel. At $42, the fracking industry in 2020 was losing $8 per barrel at a rate of 8 million barrels per day. It was also producing too much oil. Stimulating production led to a drop in price.

During the 2020 oil glut panic under Trump, the price of oil briefly went negative, an event the market thought to be impossible. Desperate investors were paying to have oil taken off their hands because they couldn’t afford to store the excess.

Shortsightedly, the oil industry had their politicians rig fuel production costs down to stay cheaper than renewables. A desperation move that’s unsustainable when fossil fuel and nuclear lifetime costs are trending up (it gets harder to extract what’s left) while renewables costs are trending down (due to Moore’s Law).

Today, solar and wind are the cheapest utility power sources by LCOE (lifetime cost). And power companies like it that they know their costs. They don’t need to buy fuel. Are not at the mercy of whatever fossil fuels or nuclear fuels industry prices may exist in an unpredictable market a decade after construction.

By removing safety regulations to artificially lower the price of oil, Trump led the U.S. oil fracking industry into bankruptcy. However, oil prices don’t only effect fracking.

Keystone XL Pipeline Collapse

Exxon Mobil and Keystone pipeline bank Wells Fargo shares plunged by 40% and 45%, more than any other stock market loss incurred by a U.S. firm in 2020.

But, what about the lost USA jobs? Keystone XL pipeline job were always going to be predominantly in Alberta, Canada. It was never 10,000 USA jobs. And, the estimated maximum of 3,500 construction jobs intended for South Dakota were for temporary construction workers, not permanent jobs anyway.

The futile effort by politicians to keep Keystone going was not to save jobs, but to save banks. Wall Street banks led by JPMorgan extended Keystone $1.5B in credit, financed at a time when oil prices were at an all-time high.

With oil at $50/barrel, Keystone becomes a money-losing operation that would go bankrupt. Like the Housing Crisis Bubble, the banks were  under water due to a decline in value of the assets they had written loans against.

Delaying Keystone shutdown in hopes of oil prices rising again was a logical strategy. But, hopeless with a Trump-induced oil production boom underway. Had Trump stopped COVID-19, as Obama did stopping Ebola, oil prices could have risen again. The COVID-19 lockdown cut worldwide oil demand.

The age of Peak Oil was over. Keystone was doomed.

Environmentalists, who resisted Keystone through legal action and with protesters suffering attacks by private security forces using water canons and police dogs, won not by victory in battle, but by delay. Market forces made Keystone a white elephant.

What about the estimated $100M in local South Dakota Keystone construction budget? Construction funds, and not only jobs, went away with the pipeline cancellation by President Biden. South Dakota had much more money than that available in COVID relief funds from Congress that it chose not to spend. Instead of a $100M pipeline, South Dakota could have had construction workers build over $100M worth of COVID hospitals. But did not.

Somebody said about the Keystone XL pipeline shutdown that the Democrats should keep hands off “our land”. Keystone isn’t on our land. A racist effort by the government to steal land, to route a noxious oil pipeline through the land of Indigenous People using eminent domain (confiscation). After neighboring white communities refused to allow such a thing to be built near them.

No one need be upset that the government failed to take land from Indigenous People or that a large part of the fracking industry priced itself out of business.