Dear President Trump,
I voted for you and I’m voting for you again. I like what you’re doing with our country. I like too that you like me. I say that because I’m a fracker and you seem to like frackers. We like you too. Because of our solid relationship, I feel I can be impertinent, even obnoxious, and suggest that you take a few moments out of your extremely tight schedule and entirely remake the oil world at your earliest possible convenience.
Please keep applying all your efforts to the Coronavirus. Don’t stop any of your momentum there. The oil and gas industry can wait. We’re used to supply and demand-side disruptions. We’ve grown accustomed to working without a net. In fact, it’s no secret that we are masters of pandemics—at creating our own that is. But once you are ready for us, we will be unconditionally ready for you.
The demand side destruction now taking place is huge, bigger I think than what most analysts are forecasting; maybe something as high as 20 to 25 million barrels of oil a day in a previously balanced 100 million a day market. The supply-side destruction about to take place is going to add to the problem, but it will be small relative to the demand side. The Saudi’s are thumping their chests but the truth is they can only add a few million barrels of oil per day. Under normal circumstances, that’s a market changer. But these days, when compared to the demand destruction, it’s only a drop in the bucket. Collectively, though, we are in for a real stomping. Inventories are going to spill over into unheard of prices. We’re going to wish for those halcyon days of $25 oil. It’s coming. There’s no stopping it, and with it will come the unraveling of one of the centerpieces of your platform, sir, an energy-independent America. Many in your administration will ask you to appeal to the reasonable side of the Saudi’s. They will tell you to make a deal, give something away, turn your head. Please don’t. If you must, sneak off for a well-deserved round of golf when them Ivy Leaguers who have been writing US policy for the last few centuries start lining up with advice. They will be in smart suits carrying satchels filled with mission statements on how to preserve our relationship with the Middle East. Let’s duck those meetings.
Related: What Happens If U.S. Shale Goes Bust? Rather, obnoxiously, I would suggest, you give some consideration to the possibility that there is no reasonable side to the Saudi’s—not as it would pertain to our interests. There’s no talking to the Russians either, but their excess capacity is measly when put up against the Saudi’s, so why bother? Backchannel negotiations aren’t going to do much either. You’ll just be breathing life into dead and outdated ideas, like the foreign policy of countless administrations before yours. Instead, why don’t you reinvent American’s energy policy and its relationship with all of the oil-exporting countries? I ask you to do something completely different because you are completely different. You do the unthought of. I like that about you. A lot of people do.
As a fellow free-market advocate, what I’m suggesting may sound treasonous, but only because it is. What I’m saying is you need to fix the price of oil, maybe basin by basin, or one price for all. Set it at $62/bbl if one price for all. All imported oil would be subject to a tariff. This includes all the Sulphur-rich, low-quality oil the Saudi’s are sending into their state-owned Motiva refinery in Port Arthur, Texas, along with all the other heavy crudes shipped into our ports. Of course, they’re going to cry and moan, but so do my kids when I tell them no more TV.
Now, this is putting a simpleton’s spin on it, but no bailout money would be required for the US oil and gas sector, plus you’d be sitting on those tariff dollars. Use them as you see fit, but I would argue against stuffing oil tariffs into a general fund. My treasonous thinking has you allocating some of it to wind and solar development. I would also push some into nuclear and would rewrite the rules there so plants can be built quickly, efficiently and safely. Oil and gas alone cannot meet all of our needs, not with decline curves and high-graded shale getting in the way, not to mention the time to bring on new offshore development. So, include renewables.
Odd things may happen to your presidency when embracing all forms of energy. You may find some of the green energy crowd coming along with you. But you won’t get them all; not the militants anyways. They tend to be a strong-willed, loud-mouthed bunch not fond of compromise. Nevertheless, with such an all-encompassing, all of the above approach—heavy on natural gas—and light on stupidity (think farting cows)—you just might win over enough of them to win over the House.
To clean up our air, I would also create tax incentives for refiners along the Gulf Coast to retool for lighter grades of shale oil. It’s cleaner and it’s right there, not half a world away. That way, we won’t have to overlook the heavy Venezuelan crudes shipped to Citgo’s three Gulf Coast refineries. Citgo is owned by Venezuela. Their refineries would have to retool as well (hello, EPA!) and start running lighter, cleaner crudes. Venezuela doesn’t have lighter cleaner crudes, but we do.
Think of it, you’d be able to kiss off the dictators long on self-interest and short on tolerable human rights records. I don’t know about you, but it sounds like fun to me.
As to what to do with the Saudi’s, I would say be their friends, but with limits (see Khashoggi). Don’t expect much in return for your friendship. It will be lopsided as some friendships can be. As to geopolitics and a presence in the Middle East; you can have that. We just won’t need their oil. The Russians don’t either, so that makes us kind of even with them, doesn’t it? And all those policy folks, screaming about diplomacy and normalizing relationships, remind them of Russia’s seventeen years in Afghanistan until we took our turn. Where did that get them? Remind them too of the decades we’ve toiled in the Persian Gulf. Where did that get us?
I can answer that.
The Saudi’s are now, in the midst of the Coronavirus pandemic, opening up their spigots as a direct strike at American’s energy independence. But they always do that, regardless of how many of our troops have been killed and maimed defending order in their area of the world. Billions and billions and billions of dollars have been spent too, dollars they do not payback. It really is time to go. It’s over. They’ve moved on. So should we. Think of it like a divorce. You have the moral high ground so no one can blame you.
Another thing. Turning our back on MBS’s misdeeds just doesn’t cut it anymore. Who’s going to be his next Jamal Khashoggi, when does he next fill up the Riyadh Ritz Carlton, who is the next cousin to be detained as he consolidates power? You are the friends you keep, sir. This is a simple and homey kind of thing to say—which makes it true. So, let’s dump this guy. But be nice about it. After all, we still want him to buy our stuff, but not with the currency we just handed to him.
If the Coronavirus has taught us anything, it’s that supply chains essential to life in America should not be outsourced. Move energy and pharmaceuticals and all other essentials back home. We’re safer that way. You’ll be creating homegrown jobs and we won’t have to kiss anyone’s backside. No longer is there any need for that. We have it all; shale, wind, solar, nuclear and enormous offshore potential.
One last point worth mentioning is that energy independence was about to fall apart anyway. The present structure of shale wasn’t working—“present” meaning two months ago. Producers can’t generate free cash flow, pay off ridiculously (and irresponsibly) large amounts of debt, and grow reserves at the same time, at least not if they want to stay listed on the NYSE. The industry was already struggling at $55 oil and $1.80 gas. Everyone was hedging every time there was a little bounce. Service companies in the shale sector were being squeezed into unprofitability. Leave natural gas alone for now but fix the cost of oil. If too much is produced, it can be sold and exported at whatever the going rate is.
Should there be naysayers, those that say this is nothing more than a bailout request, I say so what. It is and it isn’t. Prices will be low, but that will fix things and then there will be another mad rush to produce because prices will be high. Trust me. It happens every time. Boom and bust. Go to an energy conference and you will find all the producers talking about their humongous acreage position, and all the frackers talking about their humongous horsepower. Margins and profits won’t come up. Trust me. We can’t help ourselves.
In closing, Mr. President, we finally need to go it alone. Shale has proven that we can. No wars, no backroom deals, no dictators. Remaking the oil world could be an absolute boon for the US economy, a cleaner environment and a guarantee at the energy independence you have touted. It’s time to adjust to the new world order and you are the only president I have known that would have the cajones to do it.
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