U.S. energy production is indeed expected to rise, but most of the growth will come from natural gas rather than oil.
Article written by: Amrita Sen
Source: Jinshi
Energy markets generally believe that US President-elect Trump will succeed in lowering oil prices, perhaps even more successfully than Biden, who made a bold statement during his campaign that he would slash US gasoline prices once in office.
Brent crude has been hovering around $70 for the past few months. OPEC+ agreed at its last meeting to put production increases on hold, eliminating much of the supply glut expected in 2025. Meanwhile, Trump is likely to take a tough stance on Iran, which could lead to a drop in the country's oil supply. According to our data, despite sanctions, Iran's crude oil and condensate exports were as high as 1.8 million barrels per day during the Biden administration, compared to just 400,000 barrels per day during the Trump administration.
The Trump team seems to believe that releasing U.S. oil production could mitigate the impact of Iranian oil losses on oil prices. The problem is that he cannot achieve both low oil prices and record domestic oil and gas production simultaneously, as U.S. shale oil producers require higher prices than eight years ago to justify investments in oil production increases. The growth in U.S. energy production is becoming increasingly reliant on natural gas. The country's energy output will continue to grow strongly, but its impact on oil prices may not be as significant as before.
As claimed by Scott Bessent, the Treasury Secretary nominee put forward by Trump, the U.S. government cannot practically increase crude oil production by nearly 3 million barrels per day over the next four years; this is not a regulatory issue, but a resource issue. The currently undeveloped crude oil reserves simply cannot support such high production levels. We expect that during the same period, U.S. crude oil production can only increase by 400,000 barrels per day, a 3% increase from current levels.
The White House has only a few chips to incentivize faster production growth. It could open up more federal lands. However, the inventory of unleased onshore federal lands is limited, and offshore drilling may take ten years to extract the first barrel of oil. Theoretically, reforms to the permitting process for new energy projects could expedite drilling on leased federal lands, but due to legal, environmental, and tribal considerations, even if the Republicans control Congress, such reforms may be difficult to implement.
Streamlining the approval process for natural gas pipelines could lead to an increase in production in Pennsylvania. Ending the Biden administration's suspension of liquefied natural gas (LNG) export permit issuance may increase U.S. natural gas international sales by the end of the 2020s.
Subsidies may be politically unpopular, but perhaps some tax adjustments could encourage U.S. producers to a certain extent. However, producers have already signaled limited growth in production. Chevron is the largest producer with the fastest growth in the Permian Basin in recent years; the company has cut its planned investment spending in the region for 2025 and expects oil production growth will not accelerate. Instead, the growth rate will slow to single digits. Most of Chevron's growth in the Permian Basin next year will come from blocks in New Mexico, which produce more LNG than oil.
A potential growth area worth noting may be private equity-backed production. Lower interest rates and recent signals from OPEC+ may encourage this expansion. However, publicly traded companies like Chevron still face pressure from investors to limit spending in favor of prioritizing shareholder returns.
In the Permian Basin, as large companies acquire smaller ones and incorporate more exploration prospects into future project reserves, the pace of crude oil development is also slowing. Additionally, as producers shift more towards high-quality blocks, production in secondary shale basins such as North Dakota/Montana's Bakken and Texas's Eagle Ford is expected to decline.
Meanwhile, natural gas and natural gas liquid production will grow faster, as the increase in LNG export facilities under construction boosts demand along the Gulf Coast, raising prices and incentivizing a recovery in natural gas production in the Appalachian region and the Haynesville basin around Louisiana/Texas. We also expect natural gas and natural gas liquid production to grow faster in the Permian Basin and in those aging shale oil wells where production is increasingly concentrated. As these oil wells gradually age, their natural gas output tends to be relatively higher than their oil output.
Therefore, we expect that by 2028, natural gas production will increase by 10 billion cubic feet per day, while natural gas liquid production will increase by 600,000 barrels per day, equivalent to an increase of 2.7 million barrels of oil per day. In other words, the oil production increase of 3 million barrels per day mentioned by Bessent actually refers to an energy equivalent of 3 million barrels per day—most of which is contributed by oil equivalents.