see an example of a seismic shift
The way lobbyists, hard-core activists, and politicians portray it, this is a black and white issue: fossil fuels v. renewable energy. This is generally where the argument gets uber heated and people on both sides get really ticked off. This is also where, as in most arguments, everyone develops tunnel vision and stops listening.
We can avoid the drama if, from the jump, all sides understand that a successful outcome depends on cooperation, collaboration, and a little bit of patience. Plus, everyone should keep in mind that even the most aggressive carbon action plans call for zero emissions by 2050. That’s twenty-five years from now, so obviously this is a process.
Here’s the thing: fossil fuels and renewable energy sources are not mutually exclusive, at least at this point in the process. Picture a large brass scale like the scales of justice. The left side of the scale represents fossil fuels, and the right side represents renewable energy. Currently, the scale is tipped toward fossil fuels because renewable sources don’t provide enough energy. But, as we begin to implement an intelligent energy shift, the scales will slowly begin to balance, then begin tipping toward renewable energy.
Given how big-time screwed we were on this even a decade ago, it’s remarkable we can even contemplate a big shift. Ever since George H.W. Bush’s 1990 Gulf War – and even before – people both inside and outside of America have accused the United States government of fighting wars over nothing more than oil. So, did these “blood for oil” believers have a point?
They probably did on some level but, back then, the question was largely irrelevant. Like it or not, we had forced ourselves into a position where we had to ensure stability in the Persian Gulf. Let the Sunni and Shia civil war in Iraq escalate into a regional war? No chance. Kiss up to the Saudis? Had to. Be new best friends with Angola’s insanely corrupt leaders? You better believe it. For decades, energy drove our foreign policy agenda because, until fairly recently, foreign nations were in absolute control of our energy survival. The undisputed truth was that U.S. supply did not meet U.S. demand. It wasn’t even close. So, we were basically stuck.
Fast-forward to today. Pretty much everything about our energy supply situation has dramatically changed. The International Energy Agency’s 2018 World Energy Outlook revealed that we had become the world’s largest oil and gas producer. The U.S. Energy Information Administration reported it this way: “In February 2018, U.S. crude oil production exceeded that of Saudi Arabia for the first time in more than two decades. In June and August, the United States surpassed Russia in crude oil production for the first time since February 1999.” American crude oil production more than doubled between 2011 and 2022, peaking in 2019 at an average of 12.3 million barrels/day.
Wow! That sounds great, right? What a turnaround! Not so fast. Our energy self-sufficiency came at a huge cost. In truth, it was only achievable because we tapped into fields like the Permian Basin, which is in western Texas and southeastern New Mexico and provides almost 40 percent of all American oil production… and we were only able to access fields like the Permian Basin because of the F Word: Fracking. Fracking is a process that shoots water mixed with chemicals and sand into shale rock to break it up. This releases oil and natural gas that would otherwise be trapped in tight formations.
In addition to accessing a ton of oil, the combination of fracking and directional drilling has made domestic natural gas cheap and plentiful. On one hand, this is good news because natural gas releases only half as much greenhouse gas as coal when combusted, so it can help balance the scales by replacing oil as a transportation fuel. On the other hand, natural gas is still a fossil fuel.
One of the major concerns regarding fracking, among many, is the associated contaminated water issues, which include the removal of the polluted water that is created by the fracking process as well as the protection of nearby groundwater and aquifers. Another issue is the enormous amount of water it takes to frack, a reality that has significantly taxed our already depleted aquifers. Since 2011, fracking has consumed almost 1.5 trillion gallons of water.
This is an incredibly serious issue. An exhaustive investigation by The New York Times shows that – thanks largely to industrial farming and the need for drinking water – “America’s life-giving resource (water) is being exhausted in much of the country, and in many cases it won’t come back. Huge industrial farms and sprawling cities are draining aquifers that could take centuries or millenniums to replenish themselves if they recover at all.”
After analyzing tens of thousands of groundwater monitoring wells, The Times found that almost half the sites have “declined significantly” over the past 40 years. Four of every 10 sites hit historic lows in the past decade, with 2022 being the worst year yet. Already, the major aquifer beneath Kansas can no longer support industrial-scale agriculture, causing corn yields to “plummet,” and Arkansas is using more than twice as much water from its main agricultural aquifer as rainfall and other sources are putting back in. Arizona had to halt any new home construction that relies on aquifers in Phoenix and drinking water on Long Island is now threatened. “In other areas, including parts of Utah, California and Texas, so much water is being pumped up that it is causing roads to buckle, foundations to crack and fissures to open in the earth.”
The earth literally breaking apart is clearly bad, but over-pumping can also release the cancer-causing heavy metal arsenic into the water supply. Uh oh.
So, here is where the debate ratchets up a notch. In the continued quest for American “energy dominance,” as they put it, the first Trump administration wildly slashed energy restrictions and regulations, and heavily promoted drilling and mining on our public lands – including opening nine million acres of federal lands in Wyoming and across the West, opening the Arctic National Wildlife Refuge to oil and gas exploration, and allowing new offshore oil and gas drilling in a large part of our coastal waters (including off California – which had been off-limits for decades – and along the Eastern Seaboard).
The Trump administration also authorized the largest rollback of federal land protections in U.S. history by significantly reducing the size of two national monuments in Utah: Bears Ears National Monument by 85 percent and the size of the Grand Staircase-Escalante by around half. Together, this is around two million acres.
We take issue with some of these actions, and that is reflected in 1787’s Plan of Action. That said, let’s put a pin in bad policy decisions and environmental irresponsibility for a minute. The most problematic part of the first Trump administration’s actions was that they perpetuated the crisis that the American energy industry was already in. What Donald Trump tried to sell as American “energy dominance” was really nothing more than feverish drilling that led to a massive glut in the global energy markets. It is this reality – along with far less access to unrestricted private equity cash, geologic limits, maturing fields, declining wells, power grid constraints, and increasingly difficult wastewater disposal – that makes the timing perfect for our big energy policy shift.
In many ways, the American energy industry is a victim of its own success. Simply put, the breakneck energy production in the United States not only outpaced our own energy needs; it outpaced the entire world’s. This was true before the pandemic but made far worse because of it. At one point in April 2020, oil prices went negative, which means that traders were actually paying buyers to take their oil (one terrifying side effect of trading oil is that when your futures contract expires, you have to take physical possession of it… and if there is no storage capacity, as was the case in April 2020, the oil barrels will get dumped on your doorstep).
Unfortunately, some energy companies forgot the basics of Economics 101, which tells us that too much output (production/supply) pushes prices down (consumption/ demand). This is no secret, it’s just math. But they just want to drill, baby, drill…right this second. With little regard for tomorrow. Just churn and burn until the next bust.
But this time felt different. The international law firm Haynes and Boone found that, from 2015 to 2021, there were “274 oil and gas producer bankruptcies. In the same period, 330 oilfield services and midstream companies filed for bankruptcy, bringing the combined North American industry total to more than 600 industry bankruptcies involving over $321 billion in secured and unsecured debt.”
In February 2020, the credit ratings company Moody’s reported that oil and gas producers faced $86 billion of maturing debt in the following four years, unfortunately at a time when credit windows were closing due to low commodity prices. Shale gas producers were in the most trouble because of continued overproduction, low natural gas prices, and investor risk aversion toward the exploration and production (E&P) sector. One month after Moody’s report – on March 9, 2020 – the price of oil dropped 25 percent, the largest one day drop in almost thirty years. This caused the Dow Jones Industrial Average to experience its worst single-day point drop in U.S. market history, followed by another record drop three days later and yet another one four days after that.
Many people assumed this collapse was because of fears of a recession or the coronavirus pandemic lockdowns, but those factors were only part of the story. In truth, Russia and Saudi Arabia got into a pissing match over the price of oil. Four years earlier, faced with an oil boom in the United States, Russia agreed to join the Organization of the Petroleum Exporting Countries (OPEC) in their quest to manage the price of oil by at times limiting production. They cleverly named this alliance OPEC Plus.
This relationship worked for a while, but when demand for oil drastically decreased because of the pandemic, Russia and Saudi Arabia couldn’t agree on which country would reduce its production and by how much (Come on, seriously. Who couldn’t see this coming a mile away?) So, predictably, Saudi Arabia announced price discounts on their oil without first notifying Russia. Then, the kingdom followed that unexpected move up with announcing an increase in their production, again with no warning. In retaliation, Russia did the same, which caused oil supply to overwhelm the market and the price of oil to tumble. These countries are not new to this. In the 1980s, Saudi Arabia increased its oil production from two million to ten million barrels a day, which led to the collapse of oil prices and, ultimately, the end of the Soviet Union itself.
This is a marginally interesting story, but the reason I tell it is not because Saudi Arabia and Russia acted exactly how we assumed they would. Rather, we tell it because March 9, 2020 finally exposed the long-term unsustainability of the shale business model and revealed the house of cards America’s energy industry had become.
The predicament of the big guys tells part of the story. At the time, ExxonMobil had lost 60 percent of its value since 2013 and was sent packing from the Dow Jones Industrial Average, ending a ninety-year relationship with the exchange. The once hugely profitable and highly valued energy company was replaced with a software company.
But the real mess centered around shale oil where, again, getting to the goods requires fracking. In 2022, two-thirds of all U.S. oil required fracking, compared to below 7 percent just twenty years before. Still keeping a pin in the environmental issues for the moment, there are three major problems with fracking, economically speaking: First, fracking is expensive…really expensive. In fact, on average, fracking doesn’t hit the green until oil prices reach $50 a barrel – which is obviously a huge problem when oil prices average $28 per barrel for an entire quarter, like they did in the second quarter of 2020. < Note: Break-even oil prices can vary widely depending on the location, the type of deposit, and even the operator. >
Second, the rate of production of “tight” wells, or those that must be fracked, declines sharply. When we say sharply, we're talking like up to 70 percent by the end of the first year. That’s about TEN TIMES the decline rate of conventionally drilled wells.
Third, thanks to the first two issues, most companies that rely on shale gas seldom make a profit (although, naturally, that doesn’t extend to bonuses for the executives). Because of the steep decline curve, shale-focused energy companies are forced to keep chasing the next expensive well… meaning they burn tons and tons of cash.
Given all of this, you might be asking yourself: So then, how were these companies able to keep fracking for so long? Well, for over a decade, these companies had tons of help keeping the shale charade going, mainly from private equity investments. In fact, the private equity industry invested at least $1.1 trillion (of its $7.4 trillion in assets) into the energy sector between 2010 and 2021. Around 80 percent of these investments involved oil, natural gas and coal.
But those days are over. During and after the pandemic, money started to dry up quickly as private equity firms, tired of chasing their tails, hightailed it out of the shale game. In July 2020, The Wall Street Journal reported that “holdings of oil-and-gas stocks by active money managers are at a 15-year low.” Three years later, that trend was continuing. In the second quarter of 2023, private equity firms EnCap Investments and NGP Energy Capital sold off six energy portfolio companies between them, bringing the total amount of private equity-owned assets sold in the first half of 2023 to $14 billion. There were only ten new E&P firm investments, compared to at least 100 per year over the prior ten years.
In 2020, the Net Zero Asset Managers Initiative – a group of global asset managers – committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with net zero emissions by 2050 or sooner. At the time, there were over 315 signatories that together had $64 trillion in assets under management. Barclays, Morgan Stanley, and JPMorgan Chase also announced plans to reduce emissions from loans and other deals they structure.
In 2020, BlackRock – a multinational investment management corporation based in New York City that has over $11.5 trillion assets under management – announced a huge transition in their investment strategy: “Because sustainable investment options have the potential to offer clients better outcomes, we are making sustainability integral to the way BlackRock manages risk, constructs portfolios, designs products, and engages with companies. We believe that sustainability should be our new standard for investing.”
< In January 2025, BlackRock pulled out of the Net Zero Asset Managers initiative, saying, “Our memberships in some of these organizations have caused confusion regarding BlackRock’s practices and subjected us to legal inquiries from various public officials.” I’m going to choose to take this statement on face value for two reasons: 1) BlackRock still has the industry’s “broadest range of sustainable solutions,” and 2) Because we can’t bear to think that Larry Fink doesn’t have the balls to stand up to Donald Trump… but, whatever. >
The fact that these asset managers made commitments like this was a cataclysmic development. These are the money guys. In truth, the fact they did this – even if they are publicly downplaying it now that Donald Trump is back in office – was then, and still is now, way more of a game changer than anything any government or international body could ever even hope to achieve.
Here's the brutal truth: Because the fracking industry was artificially propped up by outside money for so long, many energy companies failed to make the hard but responsible business decisions necessary to survive long-term. We know how much these companies want to believe this is just another bust that will surely turn into yet another boom in no time. We beg them to fight this instinct.
Average annual Brent crude oil prices – the world’s leading price benchmark for Atlantic basin crude – rebounded to an average of $70.86/barrel in 2021 and $100.93/barrel in 2022. We get that many of your profits in 2022 were super impressive (and, as a result, addicting). But believing $100.93/barrel is the new normal instead of a situational high is delusional because prices were high in 2022 due to energy supply shortages in Europe and concerns over the Russia-Ukraine war. Even with international turmoil, U.S. natural gas prices hit a 22-month low in June 2023, after reaching their highest level since 2008 just nine months before (the Brent crude oil spot price is expected to average around $70/barrel in 2025, down from $81/barrel in 2024).
The bottom line is this: The economics of fracking is risky enough when the market is high, but when prices fall it causes big time trouble. Ultimately, this creates a self-fulfilling prophecy for cash-strapped companies already operating on a shoestring: prices fall, leading to less revenue, leading to a slashing of capital expenditures, leading to stalled production, etc. etc. etc. When you add into the mix inflation, geologic limits, maturing fields, declining wells, and the pressure to shift to renewable sources – which despite what it may look like today, isn’t going away – you have a recipe for disaster.
It seems like many energy companies have learned the hard lessons. Even though Donald Trump is in the White House again, many oil and gas companies have said they will not participate in the “drill, baby, drill” hysteria that he clearly wants (keep in mind they were already going pretty hard as, ironically, oil and gas production rose to record levels under President Biden).
Don’t get us wrong, these guys are stoked about new pipelines, natural-gas export terminals, faster permitting, weaker environmental regulations and his animosity toward renewable energy, but many have made clear that they will not drill unless energy prices rise. This, of course, doesn’t jive with the president’s plan to stunt inflation by reducing the cost of energy.
Another new problem is revised demand. The U.S. energy industry had been gearing up for the massive amount of energy it was expected to take to power the emerging AI generation. In the first days of his second presidency, Donald Trump even said plants would have to be built right next to AI facilities. There were even conversations about refurbishing an old nuclear plant in Pennsylvania to help with the load. But then, in January 2025, America was blindsided by the Chinese scrappy startup DeepSeek’s latest AI model. Although the tech itself was comparable to models recently released by U.S. companies, it was built with less computing power and less money…. and, in the blink of an eye, DeepSeek-R1 challenged not only the assumption that the United States was the dominant, undisputed force in AI, but the amount of energy it would take to power it.