The Peter Zeihan Podcast Series - Ask Peter Zeihan: Is Biden Killing US Energy Independence?

Episode Date: August 4, 2023

As the Biden administration piles on more drilling restrictions on public land, will America's energy independence be jeopardized? Full Newsletter: https://mailchi.mp/zeihan/ask-peter-is-biden-killing-us-energy-independence

Hey everybody, Peter Zeyn here, coming to you from just below Snicktow Peak at about 13,000 feet above, uh, just above Loveland Pass in Colorado. Uh, today is the most recent in our Ask Peter series. Specifically the question is, with the Biden administration, more difficult to drill for oil and natural gas on public lands, is that going to hurt America's energy position, especially its independence? Uh, first little bit of back story. The United States was a net energy exporter until about 1973. And that's a second. the year, but a number of factors kind of came together to kind of crush that process. Mostly it was technical rather than legal. We were running out of conventional reservoirs that were easy to tap. American economic growth at that point had been going for 150 years very

strongly, and we simply gobbled up everything we had available, and then we went on to become the world's largest oil importer, and that process peaked in around 2004 to 2010, which probably the actual ceiling 2007-2008, when we were importing roughly three-quired. quarters of the oil that we used. What changed starting in the early 2000s is the rise of the Stale Revolution, which is a different process. Normally, when you drill for crude, you're looking for a formation that is porous, and the oil percolates through the formation over the

eons until it reaches a cap rock that it can't flow through, and then it builds pressure in kind of a pool, and you punch through the cap rock. the pressure is released, the oil comes to the surface, and eventually maybe you pump in air or water in order to encourage it to come out faster or get the last bit. What the Shale Revolution does is something completely different. There are a lot more strata of rock where oil was trapped,

where it's not porous, so it's just trapped in tiny little droplets almost at the moment that it was formed geologically. And you then drill laterally through those formations and pump in water to crack the... rock open. Once you crack the rock, you've released all these tiny trillions of little packets of pressure and oil and natural gas, and they force the water up and out through the bore and then follow it out. And you get a positive true well. That technology has always existed. A lot of these things have always been part of the oil sector going back 100 years or so. But it was really in the

early 2000s when a lot of these independent different technologies kind of came together in sweet of tech that we now recognize the shield. So anyone who says that shale technology is toxic or overly polluting compared to conventional oil is an idiot and doesn't know their history because we've been using all of these techniques since at least the 1880s. Okay. Anyway, what does this mean? It means that starting in 2004, we started getting natural gas and starting in 2008, we started getting oil. And by the time we got to about 2015, where we were nearly net oil independent, we kind of fell off of that during the COVID epidemic. And we're back. again. Now, that's the overall technical issue. Let's talk about what's going on with public lands. Public lands, as you might guess, are regulated primarily by the U.S. federal government. And so regulations at the federal level determine what can be done and what the permitting process is, what the regulatory structure is, what the pollution quotients can be, what water usage can be, all that good stuff.

And so based on who is running the administration, the EPA and the energy department, work for the White House, and they can determine exactly what can flow and how. This changes administration to administration, but something to keep in mind is whenever the federal government is involved, there are layers of involvement. And because the federal government owns the subsurface as well, the only reason that the federal government will encourage energy production on federal lands is if we're in a situation where energy is scarce, and that is not the situation in the United States. So the last time we had an administration had to deal with energy scarcity,

that was the W. Bush administration. They did loosen up regulations on federal land, especially when it came to natural gas production, and that did allow more energy to flow. But we're talking here like 2, 3% of total American output onshore American federal lands. That shrank under Obama, not because Obama, tighten up the regulations, although he did, but because it was just so much easier to do it on

private lands. When you're, sorry, there's just no error up here. When you're on private lands, the landowner has a vested interest in the success of the project, and that encourages more production. In addition, it is regulated by the states, and states have very different approaches to handling energy production. So, for example, in the case of Texas, which is in general considered to be the most pro-energy production state, which it's probably accurate. It takes about 48 hours to get a permit from the state government in order to drill. On federal lands under the Trump administration, which was when we had the shortest period for permitting, it took about 200 days. You can see the problem here, because if the market moves, you know, the shale guys are going to do things

differently. And it takes a conventional system five to ten years to bring online. It only takes a shale well a few weeks. So in the time that it takes to get a federal permit, the market conditions will have changed, and it probably obviates any desire on the part of the drillers to operate in the first place. Whereas in Texas, with 48 hours, concluding Christmas and Thanksgiving and New years, you're talking about a time to target that is very, very, very quick, and they can react to market movements. So you're, you know, one percent, less than one percent of American shale output comes from onshore federal lands. And so if the Biden administration increases the current time to, I don't know, a thousand days for permitting, it's really not going to move

the needle very much. It's a little bit different in the offshore, but with the offshore, you're talking about those longer time horizons of five to ten years. And market moves aren't the primary, at least short-term market moves, aren't the primary reason why companies operate there. Okay, so not too worried about that one. You guys take care.