Those efforts have reversed the Biden administration’s go-slow approach to oil drilling, reducing—though not completely eliminating—the backlog of requests for onshore and offshore drilling permits that accumulated during Biden’s presidency.
Delays in permit approvals increase project costs, risk, and uncertainty. Delays can increase the chances that a project ultimately is downsized—as happened with ConocoPhillips’ Willow project in Alaska—or canceled altogether. Longer timelines increase financing and carrying costs, because capital is tied up without generating revenue, and developers must pay interest on the debt while waiting for approvals. Delays also lead to higher project costs, eroding project economics and sometimes preventing the project from turning a profit.
Investment follows economics, not politics
Unlike in some countries, such as with Saudi Arabia’s Aramco, Norway’s Equinor, or China’s CHN Energy, the US does not have a national oil or gas company. All of the major energy producers in the US are privately owned and answer to shareholders, not the government.
Executive orders or political slogans may set a tone or direction, but they cannot override the fundamental requirement for profitability. Investments can’t be mandated by presidential decree: Projects must make economic sense. Without that, whether due to low prices, high costs, uncertain demand, or changing regulations, companies will not proceed.
Even if federal policies open new areas for drilling or relieve some regulatory restrictions, companies will invest only if they see a clear path to profit over the long term.
With most energy investments costing large amounts of money over many years, the industry likely wants a sense of policy stability from the Trump administration. That could include lowering barriers to profitable investments by accelerating the approval process for supporting infrastructure, such as transmission power lines, pipelines, storage capacity, and other logistics, rather than relying on sweeping announcements that lack market traction.
Skip York, Nonresident Fellow in Energy and Global Oil, Baker Institute for Public Policy, Rice University. This article is republished from The Conversation under a Creative Commons license. Read the original article.
