Why Trump's oil boom is bad news for the UK

0:03The United States has become the world's biggest producer of crude oil. Not that we can rely on them to plug the gap caused by the Iran war. And this is why.

0:16I'm Sam Coates from Sky News. And I'm Anne McElvoy from Politico. Downing Street drama, leadership battles and policy U-turns. We're on it before it breaks. We take you straight into the rooms where the real political conversations are happening. Smart Insight, clear analysis in your feeds by 7.45am. So you start your morning fully brief for the day ahead in British politics. Hit follow and listen to Politics at Sam & Anne's wherever you get your podcasts.

0:47Hi everyone, Neil here. And over the past couple of years, our economics editor Ed Conway has been taking a look at the materials, the stuff that keeps the world ticking over. And given what's going on in the Gulf, he's turned his attention to crude, specifically the oil rush currently taking place in Texas.

1:05Ed Conway:Stretching off into the horizon, an unending vista of drills and oil wells, pools of fracking water, storage tanks, the hallmarks of a mammoth energy boom. And it's all down to fracking. That's the type of oil extraction that traditionally we in the UK have been pretty sniffy about. The United States has a rather different attitude. If you look at just total crude oil and other oil products production in America, it's gone from being dependent on the rest of the world to being self-sufficient. But what about the rest of us? No matter what the Americans, or indeed the Iranians, say, oil is not getting through the Strait of Hormuz.

1:42There is a massive shortfall. But that doesn't mean the US is able or willing to plug the gap. I sat down with Ed on his return from Texas, And I started by asking him to remind us just how fracking works.

1:55Ed Conway:Yeah, it's not a swear word, although I'm sure it can be used like that. For a lot of people, it is kind of a swear word because I think a lot of people are a bit suspicious about it. But basically, fracking is, I want to say new, but it's not new. It's a new-ish way of getting oil and gas out of the ground. And basically, the traditional way that you get oil and gas out of the ground is you're kind of drilling down into what are known as oil or gas reservoirs. And that's basically where oil and gas is kind of collected over millions, hundreds of millions of years. Fossilised remains, isn't it?

2:22Ed Conway:It's fossilised remains of algae and sea creatures, basically, that have been compressed by the heat and the pressure under the ground for millions of years and gradually get turned into these hydrocarbons. And then over time, they filter down into what are known as oil and gas reservoirs. And what are oil and gas reservoirs? Well, the North Sea has a lot of oil and gas reservoirs in it. The Middle East, famously, inside the Strait of Hormuz, that's where a lot of the oil and gas is. where it's gradually seeped and collected. Fracking is a slightly new way of doing it. Rather than just drilling in, sending a pipe down, a little straw down underground and sucking it all up, you are basically going into different types of rock formations.

3:00Ed Conway:It involves a lot more work. The word fracking comes from hydraulic fracturing. What that basically means is you send a drill down and then you're sending down lots of water and sand, so it's known as frack sand, to agitate it and to draw all of that oil and gas out. So it's a very different way of doing it to the way that is traditionally done. But this is the way they do it in America. Because of the discussion that's taken place here in the UK around fracking, it really hasn't taken off. It was all to do with the shale gas. I actually hadn't realised fracking is a means by which you get oil out of the ground as well.

3:33Ed Conway:So originally a lot of the focus was on gas because America had this kind of strategy of getting more gas production. Every oil well in the world has gas in it. Every gas field in the world has oil in it. Typically, one place might be slightly more oil-focused, another place might be slightly more gas-focused, but they're always there together, intermingled. And that's partly just a consequence. Think about it. You've got ancient sea creatures. They're crushed and they're basically transformed over time into these hydrocarbons. And some of it tends to come out as gas. Some of it tends to come out as oil.

4:02Ed Conway:And you have both together. Back to the reason we don't do it much in Europe. When people were starting to do this, drilling hydraulically through the ground, fracturing, sending down that water, sending down the sand. There were two things that sometimes went wrong. One of them was that it could get into the water system. So you had certain in Pennsylvania and a few other places, there were water wells that were corrupted by this and basically ruined. And the second reason is that when you're doing that, sending all that water down and agitating the oil and gas and trying to get it out, it can literally create earthquakes.

4:35Ed Conway:So that's a pretty scary combination. But it's worth saying, like, you shouldn't be ruining the water because you're going far down deeper. And you shouldn't, if you're doing it in a controlled way, be getting many earthquakes. But this kind of thing has meant that here in Europe, we're very sceptical about it. But in America, totally different picture, totally different story. I mean, there's still people who do not think this is a great thing. And of course, also, it's fossil fuels. So let's not forget that it is kind of carbon intensive. But still, like I say, this is such a massive economic story that has completely changed the balance.

5:05And what better place to kind of see the impact that this change in oil and gas extraction than Texas, where, as I understand it, there's quite a bit of fracking

5:14Ed Conway:going on. Yeah. So Texas, where we went, there's a particular kind of geological formation known as the Permian Basin. There's this big area that stretches across basically a lot of West Texas and some of New Mexico. And within there, you have lots of these rocks, shale rock underground, which you can go into and you can frack. They've been getting oil out of the ground there for a long time. Texas has always been a big oil place for a long time, but this has completely changed the game. It's another oil boom, really. It's a massive oil boom. America has gone from being dependent on oil imports for all of the cars, the planes, everything else, the refineries it's got going there, to being basically self-sufficient, which is all about fracking.

5:53Ed Conway:It's all about fracking. In that process, they have created, I don't know, getting on for an extra 10 million barrels of oil a day, which is kind of another Saudi Arabia. And it really only started in earnest in kind of 2008 when there was other stuff going on. And it's been relatively gradual. But in the course of the last few years, we have literally added another Saudi Arabia to total global oil production, thanks to fracking. Like I say, this is massive, both geopolitically for America, because it doesn't have to rely as much as it did before on other countries around the world. And it's massive just for the world economy.

6:28Give us an idea then of what this looks like. The US, the next Saudi Arabia or the new Saudi Arabia, I mean, that's quite something.

6:34Ed Conway:If you take the plane into Midland, Texas, and basically half of America's oil production is happening there, and if you fly into Midland, Texas and just look out at the scenery as you land, what you see is concrete pad after concrete pad after concrete pad stretching off as far as the eye can see, so way off beyond the horizon. I think it's thousands of square miles, all covered in basically oil drilling wells. Here's a kind of statistic that kind of underlines it. There are 14 ,000 branches of McDonald's. I think it's about 14 ,000, 15 ,000 branches of McDonald's in America. There's about 150 ,000 filling stations, petrol stations.

7:11Ed Conway:There are 1.8 million drills like oil wells in America just spread out. Most of them are in the Permian Basin in Texas. So the site of this, it's staggering. And it's the surface manifestation of fracking. This is fracking. And the reason, as I say, that this is relevant is we're at this point right now where we're all facing this enormous energy shock. And people are kind of wondering to themselves, okay, how is it different this time around? Well, one of the differences is that back in the 1970s, America was very dependent on the Middle East, just kind of directly dependent. This time, it's not.

7:48Ed Conway:It's not. Donald Trump keeps banging on about it, doesn't he? No, yeah, exactly. He's saying, you know, buy our kerosene, buy our oil. Well, the reason that he's able to say that is because of fracking. And fracking, like I say, it has completely changed the game. America was dependent. It was a massive energy importer before. Now it is a massive, one of the biggest, if not, I know I think it is the single biggest energy exporter right now, at least certainly when it comes to crude oil and oil products. But are you saying then the majority of this fracking has come along in the recent past? Yeah, this is new.

8:17Ed Conway:This is since 2008, really. the world has changed, completely changed. And we don't talk about it much in Europe because I think if people have an association of fracking, it's, oh, this is this horrible thing that creates earthquakes in America. Are they still doing it? Yeah, we're not doing it here. And part of the reason I think it's striking when you take a plane or a chopper and look at this vista, this unending vista of concrete pad, concrete pad, concrete pad, is to think to yourself, okay, that might work in a kind of rural part of Texas where the population is quite low. Because all this used to be agricultural land.

8:50Ed Conway:Yeah, this was kind of ranching land, basically. This is cowboy territory, and everyone has the hats, has the Stetsons. And yet, if you think about that across Europe, maybe that's part of the constraint here in Europe. You know, would we go fracking? Well, if you have to do that amount of, it might be temporary, but it is destruction or certainly leaving pockmarks across the landscape, then would that work in Europe where we have a much more dense population? Maybe not. But even so, it is just extraordinary. The scale of it, the fact that it is generating so much income for this part of America that used to be quite poor and is now much better off.

9:24Ed Conway:So this is, it's big.

9:46into the rooms where the real political conversations are happening. Smart Insight, clear analysis in your feeds by 7.45am. So you start your morning fully brief for the day ahead in British politics. Hit follow and listen to politics at Sam and Anne's wherever you get your podcasts.

10:10Given that the United States has so much oil, I mean, presumably, given there's a shortfall elsewhere, the world is now asking, well, can we get our hands in some of this?

10:19Ed Conway:Yeah. And that's part of the reason we went there. We went to Midland, but we also went to Houston, which is one of the main oil export terminals. And right now, as we speak, there is this armada, it's been described as, of very large crew carriers, those super big oil tankers heading for America. They were previously, many of them going towards the Strait of Humus. Now, they are going across the Atlantic. They've turned left and they're going across the Atlantic. They're going to America to fill up in America. And so it is creating this enormous economic boom for the US, at least parts of the US.

10:50Ed Conway:But there is a kind of sting to the tail, which is that a lot of people are hoping that America can fill that gap. It doesn't sound like an unreasonable hope, given what you've been saying. That is the big story right now. It's actually a very simple economic story. You can't really say it enough, which is that we just have a gap between what we need in oil production, in oil consumption, and what we actually have. and that gap is just the stuff we can't get out of Saudi Arabia and Kuwait and other places like that. And America can go some way towards filling that gap, but it's not able to fill it entirely.

11:20Ed Conway:And the reason for this is kind of, it's interesting. Actually, they could produce more oil than they are at the moment. So even the best case scenario, they're going to be able to fill a bit of that gap, but not all of it. But still, every little helps at this stage. But part of the reason that they're not going fully gangbusters right now, technical term, gangbusters. They're not going fully gangbusters. It's two things. First of all, it takes a lot of work to do these drilling rigs. To do fracking is just harder than doing normal oil production. You're not just turning on a tap. It's not a spigot that suddenly goes on and more oil comes out.

11:53Ed Conway:You need to actually drill more. You need to send more sand down, more water down. And that takes work and it takes people... It's a lot more complicated. I mean, comparing to where we get a lot of our oil from the Middle East, you just drill down, oil comes up. So it takes longer to increase production. It takes longer and it costs more. So the cost of your average barrel of oil in America is kind of, you know, they talk about break-even costs. For a lot of people, it's kind of$50 a barrel, whereas in Saudi and other places, it's kind of$20 a barrel. So it costs more money. And therefore, they need to be assured that the oil price right now, obviously, is way above that, and they're coining it for every bit of oil they get out.

12:27Ed Conway:But if you're thinking, you know, if you're one of these people, and there are lots of them, one of the interesting things about Texas oil is it's condensing a bit. There's still lots of tiny little operators across the state and across the country. They're all thinking to themselves, okay, well, it's going to cost me X million dollars or X hundred million dollars to get that drilling rig. What if the oil price goes down in six months' time? Because it's going to take me six months to actually get that stuff in place. By the time it gets in place, then suddenly I'm losing money rather than making money.

12:56Ed Conway:One constraint is they're just worried that the oil price isn't going to stay high. That's relevant here because like I say, it's not a tap. And the second thing is that, and this comes back to something we talked about before. So when you're producing oil, you're always producing gas as well. Some gas is coming off at the same time. When you're producing gas, some oil is coming off at the same time. Is that why you see the flare sometimes in the top of these wells? That's the critical thing. That's why you see the flare. And often what they're doing when they're flaring gas is that's the gas that doesn't really have anywhere to go at the moment because they don't have storage for it or they don't have pipelines for it or they don't have a kind of processing facility where they can turn that gas into different products.

13:28Ed Conway:Wasted profit. It's wasted profits. And right now, there are pipelines to get a lot of oil out of the Permian. There aren't enough pipelines to get the gas out. So you've got the oil that's coming out. And they're like, okay, well, I want to produce more barrels of oil. Obviously, I do. The price is over$100 a barrel. But that means also some gas is going to be coming out. And right now, there's nowhere for that gas to go. And so you have this extraordinary moment right now. It's kind of mind-blowing to us here in Europe that we don't have enough gas and the price of gas is pretty high here because there's not the gas coming from Qatar and all these other places.

14:01Ed Conway:In America, they are producing so much gas that the price has literally, and this is in Texas specifically, that the price has recently gone negative. What does that mean? Which means you are having to pay. I'm the gas producer. I'm paying you to take it off me. I'm like, take it off me. I will give you$10 a barrel, a thermo, whatever it is. Right now, that is the case in America. That's because they haven't got enough pipelines going into this area, the Permian Basin, to get it out. They're building them, So that's what we were seeing with the helicopter, is seeing new pipelines going in and seeing the construction happening.

14:34Ed Conway:But that takes time. So at this very moment that we need more American oil, we're not able to get as much as we need right now because they don't have enough pipelines to get the gas out. And if they are going to get the oil out without getting the gas out, putting the gas into a pipeline, they've basically got to burn it. And so that's not good for the environment. It's not good for profits. It's not good for anyone. And these are the quandaries we're faced with right now as we deal with this energy crisis. So long story short, if we want the United States to plug the gap, you know, created by the Strait of Hormuz, it's not going to happen.

15:03Not anytime soon.

15:04Ed Conway:No, no, it'll happen to some extent, but they are not riding to the rescue as much as we would like them to. And there are some interesting kind of chewy reasons for that. But it makes the next few months and few years even more uncomfortable because it's not obvious where the cavalry, if indeed there is cavalry, where it's coming from. What then can we learn from what the United States is doing right now here in the UK? I mean, as you say, environmental concerns have basically stopped fracking in this country, but it doesn't come without an environmental cost. No, and I think there are environmental concerns about this.

15:38Ed Conway:And the environmental concerns are not just about the obvious, the stuff that people were previously scared about. It's not just about infiltration of the water system. And it's not just about earthquakes. Those things, it's worth just saying. They haven't happened at the rate that people were feared back in the day, because that was when things went wrong. But they can happen. But it's also the way that it changes the landscape. But if you look at this vista, this extraordinary vista, where every few hundred metres, you see another concrete pad, another one of these nodding donkeys, it is a big change to the landscape.

16:09Ed Conway:Would we want to do that across parts of Cumbria and the Lake District? That's, for me, the bigger question. I think there's technical issues, which is that it does so happen that America has a geology that makes it quite attractive for fracking. Whereas, as I understand, it's tougher in the UK and Europe. We do have fracking resources. We've got shale gas in particular, lots of it, trillions of cubic metres of it under the ground, particularly in the north of England. But the decision has been that we're not going to get that out of the ground. To be honest with you, I think we're going to have those debates again, because clearly right now we're thinking about energy security.

16:43Ed Conway:We're thinking where things come from. And part of the reason I went out there to Texas was to be like, okay, well, let's just strip away all of the nonsense. What does this actually look like in practice? And it's there on the surface. But under the surface, this is such an economic kind of tailwind. It's such an economic windfall that America has benefited from. And we in Europe do not have that right now because we're not fracking. China, though, they are doing a lot more fracking in China. And actually, China might benefit from this the most in the coming years. But there are profits to be made and there are greater profits to be made.

17:16And in the United States at the moment, drill, baby, drill, you've got a president who's very much in favour. So I am wondering, you know, we are currently reliant on oil that comes from the Middle East. At some point in the future, might we just be reliant on oil coming from the United States? We already are.

17:32Ed Conway:We already are. That has happened. That ship has sailed. I mean, Europe has gone from being much more reliant on Russian and to some extent Middle Eastern oil to be much more reliant on the US. We are totally dependent on America for oil and for liquefied natural gas as well. To the extent that it's a strategy, it's not really a strategy. We're dependent on America and Asia has become dependent on Qatar and the Middle East. And that's just the logic of this world where they have lots and we don't have much and we need it. if we're going to eat, if we're going to survive, if we're going to heat our homes, if we're going to have power, we need that gas right now.

18:08Ed Conway:And some of that oil as well. If you're going to fly, you need kerosene. And that kerosene comes from oil. So all of this stuff is, I think, we are still going to be talking about this in months to come, because Europe has taken a strategic decision where we're not going to do fracking and we're going to limit the amount of oil that we're getting out of the ground. Whereas in America, as you say, it's drill, baby, drill. Okay, so what then was the biggest takeaway from your trip to Texas, apart from, I assume, a 10-gallon Stetson that you bought at the airport on the way home? I don't think I'm eligible, yeah.