Is This the End of the World As We Know It?

 

[This article was published in the March/April edition of The Maritime Executive, before the White House scaled back tariffs on China.]

At the turn of the century, Robert Mabro, energy economist and founder of the Oxford Institute for Energy Studies, wrote, "Is our world subject to sudden and radical transformations? Are there discontinuities that change, in a significant way, the course of historical developments? Or, on the contrary, should we agree with the lament of Ecclesiastes: 'There is nothing new under the sun'?"

While his questions were in the Forward to a book on oil economics and were meant to apply to the industry's challenges in 2000, the questions are legitimate for framing a broader discussion of economics, energy and geopolitics.

Given the turmoil engulfing the world following the election of Donald Trump to the U.S. presidency and his activist governing style, Mabro's questions are appropriate. We wonder which answer Mabro would think most suitable.

DISRUPTOR

Trump has been a disruptor since he descended the Trump Tower escalator in 2015 and announced his candidacy for the U.S. presidency. A real estate developer and television personality, he was an atypical candidate. Since his declaration, nothing has been the same politically in the U.S. or worldwide.

During his 2024 campaign, Trump set forth an ambitious agenda of actions that stirred the emotions of many Americans and led to his reelection in a surprising outcome. He won every battleground state, scored record support among minorities and moved 90 percent of the 3,100 counties in the country to the political right.

Something was going on.

Trump's agenda for change was laid out in long, rambling campaign speeches, so few people should have been surprised by what his Administration is doing. As a lame-duck President, he knows he has, at best, two years to complete his task given Republican control of both houses of Congress until the 2026 election.

Therein lies the motivation to "flood the zone" via Executive Orders, appointing like-minded cabinet officers and instituting activist policies to fulfill his agenda. At the core of Trump's actions is his willingness to ask, "Why are we doing this?" It's no longer acceptable to answer, "because it's always been done that way."

Understanding how successful real estate developers operate helps to understand some of Trump's seemingly outlandish ideas. They create visions of the future and then work to make them happen. This often means taking controversial positions and pushing what seem unrealistic ideas.

His Gaza proposal is such an example. Dismissed by the media, Trump challenged Gaza's neighbors to resolve the 80-year-old refugee issue they have shunned or he would solve it by removing the one million refugees to camps the U.S. would construct and then turning the land into a glitzy Las Vagas of the Middle East.

The outrage was intense. However, in response, the 57-member Organization of Islamic Cooperation adopted a $53 billion counter-proposal suggesting that the people best able to deal with it are meeting Trump's challenge.

Another untraditional approach to international relationships is Trump's willingness to aggressively use tariffs against friends and foes to secure better trade terms for the country. No one is happy with his plan. Compared to the economic brushfire of his anti-China tariffs during his first Administration, an all-out global trade war risks more significant financial harm.

It will likely spike inflation, potentially pushing the economy into recession. In response, the OECD lowered its global GDP growth projections to 3.1 percent for 2025 and three percent next year. Those projections are down by 0.2 and 0.3 percent, respectively. The agency also increased its inflation projections by a third of a percentage point for both years.

Are there routes to revised trade relationships that avoid an all-out trade war? Economists are pessimistic such a scenario exists without a return to the status quo. Therefore, they warn about disastrous outcomes – weak economic growth, increased inflation, higher interest rates and rising unemployment. Such an outlook has stock markets fading, consumer optimism sliding and expectations rising for higher living costs and interest rates. This is not a good outlook for energy demand.

"DRILL, BABY, DRILL"

At the same time, Trump has called for enhancing America's energy self-sufficiency by encouraging a "Drill, baby, drill" mantra for the domestic oil and gas business. He has suspended the prior Administration's push for offshore wind, wants to cut renewable energy subsidies and reversed Biden's pause on new LNG export terminals.

The problem with Trump's mantra is he has also signaled to OPEC that he wants it to help lower global oil prices. That news, coupled with the belief in slowing economic growth, has pushed crude oil prices below $70 a barrel – testing the resolve of domestic producers.

The 2000s shale oil miracle reversed the nation's long-term production decline and sent it to record output. U.S. oil production peaked in 1970 after growing by 55 times from 1900 (earliest data available). Once production peaked, it began sliding, falling nearly in half by 2008. However, when horizontal drilling and hydraulic fracturing were applied to shale oil formations, production rose two and a half times in 16 years. In 2024, crude oil output averaged 13.2 million barrels daily, making the U.S. the world's largest producer.

Drilling and unlocking shale oil is expensive. However, tapping these formations is easier since they are blanket subsurface layers in significant basins around the nation. This makes drilling and production more manageable and less risky than traditional exploration. Therefore, shale production can be highly responsive to market price signals. However, it also makes it susceptible to falling oil prices. This prospect worries domestic oil producers about how much drilling they should undertake if oil prices slide into the low $60s-a-barrel range.

Their concern is amplified by Trump's appeal to OPEC to boost production and help lower oil prices. He sees lower oil prices helping consumers at the gas pump and with home heating expenses. Lower oil prices mean less-costly diesel and jet fuel, reducing the cost of living for Americans and others worldwide.

Another energy issue weighing on commodity prices is the resolution of the Russia-Ukraine war. In preliminary peace talks, new sanctions against Russia and its allies, China and Iran, are being proposed if a final resolution isn't found. The sanctions would be levied not only on the energy output of the countries but also against the ghost fleet of tankers hauling their oil and gas to customers.

With a lack of clarity on the outcome of the peace talks, producers worry about prices in the event of more or less crude oil reaching the market. Many producers assume that Trump will negotiate the war's end and that more oil will push prices down.

Trump's push for greater U.S. energy security reflects his administration's goal to reduce the industry's red tape, making securing permits to drill, produce and transport hydrocarbon energy easier. A less restrained energy industry can be more responsive to market dynamics. The Secretary of the Interior has proposed resurrecting the construction of new natural gas pipelines from the Marcellus Formation in Pennsylvania to New England, helping lower that region's energy costs.

ALL OF THE ABOVE

How do we answer Mabro's questions? In our view, all of them are true. How can that be? The idea that there is nothing new under the sun is correct because we cannot repeal the laws of physics that govern energy. Likewise, we have a two-century-long history of transitioning from less to more dense energy fuels. That transition has lowered costs and improved living standards and people's longevity.

In the name of clean energy, we're reversing that transition and using less-dense energy sources dependent on a fickle Mother Nature. Such discontinuities and radical changes to our history of progress will retard it. At the same time, billions of people in the Southern Hemisphere want to enjoy higher living standards, which require massive increases in power consumption.

Despite claims about the apocalypse of climate change unless we cease using hydrocarbon energy, the world's atmosphere is cleaner. The economic gains fossil energy has delivered allowed society to improve living standards, clean the environment and better adapt to weather conditions.

The affordable, clean and reliable energy trifecta must be upheld for the betterment of humanity. This favors the increased use of fossil fuels.