Why “Drill, Baby, Drill” May Face Uphill Battles in North America
The election of Donald Trump and renewed enthusiasm for oil exploration have ignited hopes for a surge in drilling activity. However, the realities of current oil market conditions and systemic challenges suggest that such ambitions might be overly optimistic. Here, we examine key obstacles in both the U.S. and Canada.
Economic and Market Challenges in the U.S.
While calls to ramp up oil production echo loudly, the U.S. market faces significant constraints. Oil prices remain subdued, and OPEC has cut demand forecasts four times this year. Oversupply concerns are expected to persist into 2025, likely depressing prices further. Analysts predict this will deter new drilling activity as companies prioritize shareholder returns over aggressive expansion.
Even Darren Woods, CEO of ExxonMobil, has recently emphasized a cautious approach, stating that future drilling decisions will depend heavily on market conditions, which remain volatile. With shale basins maturing and production costs rising, U.S. producers are focusing on efficiency rather than expansion.
Moreover, regulatory hurdles and local opposition complicate the approval of new drilling projects. Keystone XL, often touted as a potential catalyst for U.S. oil growth, although more politically feasible with the new administration remains economically challenging, having been canceled under the Biden administration with no realistic path to revival.
Canadian Perspective: Optimism Meets Reality
In Canada, the completion of the Trans Mountain Expansion (TMX) in 2024 has added substantial pipeline capacity, leading some to predict a surge in oil production. The Canadian Association of Energy Contractors (CAOEC) projects drilling activity to reach a 10-year high by 2025, driven partly by TMX.
However, this optimism comes with caveats. Canadian producers face stiff competition from the U.S. and Saudi Arabia, whose lower-cost production could further erode global oil prices. Additionally, stringent environmental policies, such as emissions caps and anti-greenwashing legislation, introduce uncertainty, making capital investments in exploration less appealing. CAOEC has noted these policies could dampen the sector's competitiveness despite the increased pipeline capacity.
Furthermore, while CAOEC forecasts 6,604 wells drilled in 2025—a 7% increase from 2024—these figures remain well below the 7,864 wells that were drilled in 2014. Rising labor and material costs, coupled with geopolitical risks like potential U.S. tariffs on Canadian exports, could further constrain growth in 2025.
Future Oil Prices and Oversupply
Both U.S. and Canadian producers face the challenge of navigating a market characterized by potential oversupply. OPEC has repeatedly revised demand forecasts downward due to slowing global economic growth. This trend, combined with increasing supplies from non-OPEC countries, suggests that oil prices could stay low, discouraging new exploration projects.
While TMX and LNG Canada represent critical infrastructure developments, they are unlikely to single-handedly reverse the cautious investment climate. Producers are expected to continue favoring disciplined growth over speculative drilling.
In conclusion, despite enthusiasm in some quarters, the realities of market conditions, regulatory hurdles, and shifting industry priorities make a significant resurgence in drilling activity unlikely in both the U.S. and Canada. The industry's focus for 2025 and beyond likely remains on financial sustainability and adapting to a future of potentially prolonged low oil prices.
