“GOP nominee’s anti-inflation pitch focuses on lower costs for gas and electricity, areas where a president has limited control…

“Ukraine's vast natural gas storage facilities can still offer Europe a lifeline this winter even as Russian bombs target the sites, the head of the country's national energy company told POLITICO.

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Trump Wants to ‘Drill, Baby, Drill,’ but Can He Cut Energy Prices?

The Wall Street Journal article by David Uberti and Jennifer Hiller, dated September 4, 2024.

Donald Trump says he can rapidly cut Americans’ energy costs by 50% or more, a welcome prospect for inflation-weary voters. It is easier said than done.

The Republican presidential nominee says he will rely on a favorite campaign slogan to accomplish the feat: Drill, baby, drill. Trump says faster permitting, weaker environmental regulations and other measures will unleash more production of oil and natural gas and push down prices at the pump and on electricity bills. 

But many drillers don’t share Trump’s gusto for more drilling. They are more focused on returning cash to shareholders than on growing production.

Meanwhile, energy prices are shaped by complex global and regional markets that don’t respond quickly to executive orders. Electricity costs in the country’s disjointed power system can swing based on events such as nearby weather patterns driving demand and far-off wars constricting fuel supplies.

“It’s mostly just bluster, because the president doesn’t have any direct control,” said Michael Webber, a professor of energy resources at the University of Texas at Austin.

Middling oil prices and historically low natural-gas prices this year have given producers little incentive to ramp up. Photo: Nate Smallwood for WSJ

The reasons for Trump’s pitch are clear. Soaring costs for gasoline, power and heating fuel busted Americans’ budgets and helped inflation skyrocket to 40-year highs. Even as price pressures relented in recent months, helped in part by fading gasoline costs, the price hike for electricity nationally have outpaced the rate of overall consumer price increases.

“The effects of President Trump’s plan will be seen immediately—energy prices will plummet in anticipation of new supply, which will in turn reduce the prices of all consumer goods,” a campaign spokeswoman said. 

Drill, baby, drill

For many of the biggest shale drillers, “Drill, baby, drill” has become an anachronism.

The companies that turned the U.S. into an oil-and-gas juggernaut are increasingly cautious, thanks to an uncertain outlook for the global economy and painful memories of past busts. Wall Street has pushed producers toward maximizing profits, not growth, siphoning cash out of oil fields and into returns. Middling oil prices and historically low natural-gas prices this year have given producers little incentive to ramp up. 

“There is nothing that you could wave your magic wand at from a political perspective and get that kind of an increase in production,” said Adam Rozencwajg, managing partner at the natural-resource investment firm Goehring & Rozencwajg…

President Biden learned how difficult it can be to cajole America’s frackers. Producers drastically cut production after the onset of the Covid-19 pandemic gutted global demand. But fuel prices soared when economies reopened, and production levels didn’t bounce back. After promising to move the country away from fossil fuels, Biden implored drillers to ramp up, with limited success.

The 2022 energy shock from Russia’s war on Ukraine further highlighted the White House’s limited sway over global markets.

Trump has warned that Vice President Kamala Harris would curb oil and gas production. The Democratic nominee previously backed a fracking ban on federal lands but said in a CNN interview in August, “As president, I will not ban fracking.”

Oil-and-gas producers have successfully bolstered their stock prices by funneling more cash into dividends and share buybacks—not new drilling. Photo: Justin Hamel for WSJ

A spokeswoman for Harris said she would continue implementing Democrats’ 2022 climate law, the Inflation Reduction Act, but offered no new proposals for cutting Americans’ energy bills. 

Following price crashes in 2016 and 2020, oil-and-gas producers have successfully bolstered their stock prices by funneling more cash into dividends and share buybacks—not new drilling. 

At least 63% of the industry’s cash outflows went toward capital expenditures in each of the eight quarters before the bottom of the 2016 collapse, according to an Evaluate Energy analysis of 46 publicly listed producers. Over the past eight quarters, that figure topped out at 49%.

U.S. oil production eventually reached record levels under President Biden, surpassing 13 million barrels a day this year. But production levels are increasing at a slower rate, and most oil executives say rapid growth is over.

Electric woes

Around 13% of U.S. households are behind on their energy bills, according to the National Energy Assistance Directors Association, which comprises state officials that administer federal energy aid to low-income Americans. The group estimates that 3.8 million families will have their electric or gas service disconnected this year, up from 3.5 million last year. 

While making homes more efficient and resilient to weather could bring down household costs in the future, there are no quick fixes, said Mark Wolfe, executive director of the organization.

Fuel prices soared when economies reopened following Covid-19 lockdowns. Photo: Eric Thayer/Bloomberg News

Trump has said he would ease Biden-era rules on fossil-fuel-fired power plants but has provided few details on his plans for power prices.

The president has little influence on electricity costs, which are sensitive to the price of natural gas and regional differences in power generation. 

Though natural-gas prices have remained low—and wind and solar power are expanding—consumers also pay delivery charges that cover the cost of moving electrons across America’s aging system of wires and poles. Those charges are likely to increase to pay for long-overdue upgrades.

In many states, demand for electricity is rising because of new data centers, manufacturing growth and a move to electric vehicles and building heat. New power generation is needed, and utilities and grid operators are seeking to keep older, reliable generation available, too.

“By the time it’s said and done, you get the bill at the end of the month, and it’s going up,” said Vince Duane, principal at Copper Monarch and former general counsel at PJM Interconnection, the country’s largest power grid operator.

Long-term impact

Many of Trump’s energy proposals are on the wish list of the oil-and-gas industry, and his agenda has helped attract millions in donations from oil tycoons. Trump has promised to make deep cuts at environmental agencies and issue faster permits and leases for drilling on federal lands, along with streamlined approvals for pipelines. 

If he is elected, do you think the former president will make good on his promise of more drilling? Join the conversation below.

That push for immediacy would contend with yearslong timelines for major projects, but a Trump administration could shape the long-term outlook for fossil fuels, say analysts. One area where presidents can make a direct—but not immediate—impact is through tax incentives and setting efficiency standards for cars or appliances such as dishwashers, which could lower energy costs.

Trump has said he might cut subsidies for electric vehicles and loosen emissions standards for cars. That could grow future oil demand, though critics say it would lead to an increase in greenhouse-gas emissions.