The Ignominious Death of Drill, Baby, Drill

U.S. economic and foreign policy is now based on Trump’s crude delusions

On Friday Donald Trump met with top energy executives to discuss his plans for Venezuela. According to Politico,

The White House at the last minute shifted the meeting from a closed-door session in the Cabinet Room to a live-televised spectacle in the East Room.

The idea, presumably, was to show a chorus of business leaders praising Trump and begging for a chance to participate in his excellent adventure. But that’s not what happened. In fact, the meeting was basically a debacle. None of the oil executives were willing to make specific commitments to invest in Venezuela, although some of them talked about possible increases in Venezuelan production. Trump spent a substantial part of the meeting talking about his ballroom project, standing at the window and staring at it. He continued to talk about his glorious ballroom even after returning to his seat.

That said, most of the executives were careful to sound positive. Who wants to incur Trump’s wrath? But Darren Woods, the CEO of ExxonMobil, blurted out the awkward truth — namely that Venezuela is “uninvestable” under current conditions.

On Sunday evening Trump responded by saying that he was “inclined” to block ExxonMobil from investing in Venezuela. “I didn’t like their response.” What’s next? Will the Justice Department find some excuse to open a criminal investigation into Wood, the way it has against Jerome Powell?

But back to Venezuela. It’s amazing, if you think about it: Trump launched a war for oil without talking to the oil companies first.

On the day before, the Bureau of Land Management auctioned off more than 20,000 acres of public land in Colorado for oil and gas drilling. Or I should say, tried to auction the land off — because there were no bids, despite the fact that the land was offered at very low prices.

In yesterday’s primer I declared that Trump returned to the White House with only one big economic policy idea, tariffs. On second thought, however, I should have said that he had two ideas: tariffs and drill, baby, drill. During the 2024 campaign, he promised to cut energy prices in half. In his 2025 inaugural address he declared a national energy emergency. In effect, he promised that he would unleash America’s energy wealth by ridding the country of woke environmental regulations:

We will be a rich nation again, and it is that liquid gold under our feet that will help to do it.

Trump clearly pictures America in 2025 as being like East Texas in the early 20^th century — a place where all you have to do is drill a hole in the ground, and oil gushes out. At the top of this post is a picture of the famous Spindletop gusher of 1901, which started the Texas oil boom.

But it doesn’t work like that anymore. After decades of oil extraction, gushers are a thing of the past. Today, most of the oil extracted by the U.S. petroleum industry is shale oil. To extract that oil sedimentary rocks must be fractured with pressurized liquids — “fracking.” Now, there are many environmental issues associated with fracking. But even if you ignore those concerns, drilling a new well isn’t worth doing unless the price of oil is sufficiently high.

As I pointed out a few days ago, the breakeven price for drilling in America’s major shale areas — the price at which drilling a new well is just worth doing — is around $62 a barrel. And current oil prices are slightly below that. So it makes perfect economic sense that oil companies aren’t interested in bidding on public land in Colorado. It’s simply not an investment worth making.

So if oil companies are unwilling to invest in drilling in Colorado, why would they want to sink money into Venezuela? Venezuela’s huge official oil reserves mostly consist of heavy crude, which is highly viscous. Berkeley’s David Levine says that it has roughly the consistency of cold peanut butter. This oil doesn’t come gushing out when you drill a well. Extracting it often requires injecting steam to get it hot enough to flow. Thus just getting the oil out of the ground is expensive.

And Venezuela’s oil infrastructure — the pipelines, tanker facilities, etc. that get oil to market — is decrepit. Experts estimate that just rehabilitating this infrastructure, which would allow a modest rise in Venezuelan production, would cost between $10 billion and $20 billion. Getting production back up to 1990s levels would require $100 billion or more.

Then there is the security situation in Venezuela. The day after Trump’s meeting with oil executives, the U.S. embassy issued an alert:

The alert warned that

There are reports of groups of armed militias, known as colectivos, setting up roadblocks and searching vehicles for evidence of U.S. citizenship or support for the United States.

and that the risks to Americans include

wrongful detention, torture in detention, terrorism, kidnapping, arbitrary enforcement of local laws, crime, civil unrest, and poor health infrastructure.

Sounds like a great place to make multi-billion-dollar investments.

In other words, “drill, baby, drill” is dead, at home and abroad. It was killed not by woke environmentalists but by profit-and-loss arithmetic. Trump may continue to promise huge production increases and sharply lower prices. Oil industry executives will humor him and pretend to go along. But it’s obvious now (and always was) that Trump’s energy dreams rested on crude delusions.

MUSICAL CODA