‘Drill, baby, drill’: America’s fossil fuel boom risks bust in Europe

From Texas to Pennsylvania, there’s something more valuable than gold under the ground — and climate-anxious Democrats are too afraid to touch it.

So goes Donald Trump’s typically hyperbolic argument on new oil and gas ventures, which Republicans trumpeted this week as they formally tapped the ex-president as their 2024 White House candidate.

There’s a major problem, though: The vast fossil fuel reserves aren’t the energy El Dorado the Republican contender’s economic plans depend on. Even under Joe Biden, America may have already overcommitted.

Just a year ago, it didn’t necessarily seem that way. The U.S. had been handed a major new market in Europe as it swapped Russian gas for American supplies. Some Europeans even began worrying they were trading an over-reliance on Russia for over-reliance on America, with costly implications.

Now, though, Europe is preparing to kick its gas habit altogether as it seeks to slash planet-warming emissions. Gas demand is dropping, companies aren’t signing long-term gas contracts and renewable energy is growing. Meanwhile, politicians are increasingly pushing to be in control of their own energy supplies.

Still, Trump is bellowing “drill, baby, drill” on the campaign trail and the sentiment was front and center at this week’s Republican National Convention, where the party’s platform promises to “unleash Energy Production.”

“The biggest producers are states like Texas, Pennsylvania and Louisiana — and at least some of them are important swing states,” said Kunro Irié, a visiting fellow at the Center for Strategic and International Studies in Washington.

Trump’s plan centers on a bet that the U.S. can cash in on foreign demand if it rips up green legislation, massively expands offshore drilling and ends a Joe Biden-imposed moratorium on new liquid natural gas (LNG) export permits.

Even if Biden wins and maintains the moratorium, U.S. oil and gas production has already reached all-time highs and is hiring 10 percent more staff. And in the coming years, LNG exports will still spike, even if no new permits are awarded. 

But a cliff edge may be looming.

Turning green

Russia’s move to slash gas supplies to Europe after its invasion of Ukraine didn’t just spark a frantic search for alternative providers. It also forced the European Union to drastically drive down its fuel use. Since 2022, the bloc has slashed demand by 18-20 percent each year. 

Some countries, such as Finland, Denmark and Lithuania, have virtually halved their demand, meaning they need far less gas than at any time in recent history, according to a report from the Institute for Energy Economics and Financial Analysis. And despite funding challenges and uneven implementation, the bloc has seen renewable power skyrocket as part of a plan to be carbon neutral by 2050.

“We expect that demand for natural gas is going to continue declining at pace,” said Georg Zachmann, a senior fellow at economics think tank Bruegel. “Given we have these climate commitments, the expectation is that demand will be lower by 2030, even lower by 2040, with the effect that there is no long-term gas demand in Europe.”

Several EU countries have ambitions to phase out fossil gas over the next decade, ahead of a 2050 climate neutrality target.

Buyer’s market

Pledging Europe will take “its energy destiny back into its own hands,” European Commission President Ursula von der Leyen in April said that despite the shrinking demand, officials were still trying to negotiate the best deals in the meantime.

“A large wave of new LNG export projects are coming to market in the second half of the decade, mostly from the U.S. and from Qatar,” she said. “These projects are going to increase global supply of LNG by 50 percent. As a result, we’re moving from a world of shortfalls of gas to the opposite, a world where we could soon see an abundance. This could bring significantly lower gas prices.”

That rise in capacity could spell trouble for those looking to sell gas to a shrinking pool of interested European customers. For years, American analysts have questioned why the EU was refusing to strike long-term contracts with U.S. suppliers to replace lost Russian supplies. Now, it looks like that might have been a prudent move.

“I don’t think it’s a coincidence they haven’t struck these contracts at all,” said Tom Marzec-Manser, a gas markets expert at commodities giant ICIS, arguing the Europeans may well be betting on prices continuing to come down and demand continuing to shrink. “Without a doubt, Europe won’t be the biggest customer for LNG over a 15-20 year period.” 

According to Marzec-Manser, Trump ending the Biden administration’s LNG export permitting pause would mean little because “these projects won’t come online for years and their gas almost certainly won’t ever end up in Europe.”

Go East

While Democrats and Republicans fight over whether the fossil fuel industry should continue to expand, U.S. companies are already planning a pivot away from Europe.

Cheniere was the leading American supplier of LNG to Europe in 2022 and 2023. Its executive vice president and chief commercial officer, Anatol Feygin, told POLITICO that the rise in sales across the Atlantic was “not master puppeteered by the U.S government or Cheniere. It is the invisible hand of the market that sends the price signal.”

According to him, “We have about three dozen long-term customers. Roughly half are entities that are based in Europe. But very few of those are in essence wired to go from Point A to Point B.” 

Now, he said, “Asia is going to be the driver of gas and LNG demand,” not Europe.

U.S. companies are already planning a pivot away from Europe. | Focke Strangmann/EFE via EPA

That flexibility has until now actually played in America’s favor, according to Michael Lewis, CEO of Uniper, Germany’s largest gas importer. 

“When it comes to LNG supplies, Germany has limited options. This is because most of the exporting countries only want to sign long-term contracts for about 15 or 20 years. This does not fit with the German strategy of decarbonization,” he said. “The U.S.A. are among the very few suppliers ready to sell on a mid-term basis, as well.”

That may have given U.S. firms a lion’s share of the market, but it’s a market that could disappear very quickly, leaving American firms with a hole to plug in their budgets. While extra American production will be helpful if Europe has unexpected power demands or an extremely cold winter, said Jason Bordoff, founding director of the Center on Global Energy Policy at Columbia University, the direction of travel is away from the West and toward the East.

“As renewables grow and maybe as Europe starts to find alternative sources of energy, you can see more of those supplies, say, going to Asia.” But, with shipping costs making up a large share of the overall price of LNG, it remains to be seen whether the U.S. can pivot its logistics from East to West while maintaining competitiveness.

Europe’s Rust Belt

One downside accompanying Europe’s gas demand reduction, and the associated price rises, has been a dramatic downturn for energy-intensive industries.

According to a report from Bordoff’s Center on Global Energy Policy in March, the EU’s gas demand “declined by about 11 percentage points between January and December 2022, and remained depressed throughout 2023, ending the year approximately 13 percentage points below January 2022 levels.”

The worst affected have been sectors like manufacturing and chemicals, which have seen production decreases and layoffs.

David Goldwyn, a former official in the State Department and Energy Department during Barack Obama’s presidency and chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, said the picture could change.

“There is a lot of upside for industrial revival in Europe, which would be more gas,” he said.

However, according to Zachmann, the European energy analyst, the decision lies not with Trump and Biden, but in what kind of Europe will emerge from the energy crisis.

“Lots of heavy industries have had a hard time in recent years,” Zachmann said. “But, there is growing pressure to create skilled service jobs in their place. Ultimately, if Europe doesn’t produce that much natural gas of its own, and has to bring it in from across the Atlantic, there may come a point that it doesn’t feel very wise to set up gas-intensive industries like fertilizer manufacturing here anyway.”

Gabriel Gavin reported from London. Ben Lefebvre reported from Washington. Daniel Wetzel contributed reporting from Berlin.