Drill, baby, drill? Former big oil exec says that’s exactly what the industry

This story was first published in Capital & Main

Marianne Kah spent 25 years as chief economist at ConocoPhillips, where she developed market forecasts and led scenario planning at the multinational giant. Today she is an adjunct senior research scholar and advisory board member at the Center on Global Energy Policy at Columbia University, and calls Santa Fe home.

In a recent discussion with Capital & Main, Kah took a 30,000-foot view of the fossil fuel landscape with a focus on New Mexico, the nation’s No. 2 oil-producing state. She talked about the upcoming presidential election, President Biden’s energy actions, Vice President Harris’ policy shifts and former President Trump’s “Drill, Baby, Drill” energy policy. She also talked about the renewable fuels landscape and the need for wealthy countries to step up their spending on climate change adaptation.

This interview has been edited for brevity and clarity.

CAPITAL & MAIN: Let’s talk about the rhetoric around oil and gas policy compared to what is actually happening, and maybe some prognostications about the future. Where is the industry headed?

MARIANNE KAH: People are accusing the Biden administration of reducing oil production from what it would have been. And, of course, there was that lease ban on federal lands, which had a direct impact on New Mexico. But I would argue that everyone in the industry saw it coming, and everyone stocked up on leases.

Now, had that ban lasted longer, it eventually would have had an impact, particularly since the only area that’s growing in the United States is the Permian Basin and the growth area really is in the New Mexico side. So that would have had an impact, but it didn’t last long enough to have an impact given that people stocked up.

You could also argue that the Strategic Petroleum Reserve was drawn down to keep oil prices lower than they would have been otherwise. And then you could also argue that the Biden administration has [implemented] a carbon emissions tax. Those are rules on methane emissions that the bigger guys were probably already complying with but the smaller companies — and there’s a lot of small companies in New Mexico — would have trouble meeting.

But to me, you add all that up, and it’s not that much. I think the oil industry is producing whatever it would have done, even if Trump was president. And the reason is I think that oil companies have been focused on capital discipline, share buybacks and consolidating.

Remember, the industry is focusing on consolidation, and that’s what they’re doing now, and there was substantial growth in U.S. production this year.
 
CAPITAL & MAIN: Particularly in New Mexico. The rate of acceleration appears to be flattening, but production growth continues.

KAH: You’ve already drilled up the best acreage. And when companies consolidate, they high grade their portfolio so they spend less money or invest less money than the old two companies would have spent.

I don’t think productivity has come to an end. I think we will see, through artificial intelligence, more productivity improvements. But those are going to be slower.

CAPITAL & MAIN: In the Permian Basin, producers currently don’t know what to do with the natural gas they are producing.

KAH: That’s right, because it’s associated gas. And if you don’t have anything to do with that gas it eventually will choke off your oil production.

The one area, though, I think that the Biden administration has had an impact is on natural gas. This liquefied natural gas [export] permit pause, I think, is problematic. It’s trapping gas in the U.S. Gas prices are going to be much lower because there’s no market for the gas. And this is like a medium-term impact, though. It’s not going to happen in the next year. And Canada and Mexico are taking market share that the U.S. might have gotten.

CAPITAL & MAIN: The reason for the administration’s pause on liquefied natural gas export terminals was based at least in part on studies showing that the process leaks an awful lot of methane. Are you expecting companies to dramatically reduce methane emissions in the process?

KAH: I think they will. A market has to develop for low-carbon natural gas because if there isn’t a premium for it, it will be hard for companies to have the money to invest to do it. But I think that is underway, and I think we will see that.

Also, it’s hard to believe that liquefied natural gas exports have more methane emissions than coal. Methane is a far more powerful greenhouse gas in the short term than carbon dioxide. But in the long term, it disappears faster. So when people look at the methane intensity or comparing coal emissions to gas, they’re not really comparing apples to…