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This article is written based on public information and is only for information exchange purposes. It does not constitute any investment advice

The meaning of things lies outside of things. The repeated wavering between the parties on new energy policies reflects the depth of the US electric vehicle market, not the electric vehicles themselves.

To understand the secret behind this, let’s start with the recent event that has attracted global attention.

01

The Trump deal

Election years are always exciting: after the epic assassination and Biden's withdrawal from the election, Trump's chances of winning this time have greatly increased.

In Bloomberg's Real Clear Politics odds, Trump's "escapade" added more support to his chances of winning, which once climbed to 71%, while all possible candidates of the Democratic Party combined did not exceed 30%.

In addition to the sharp rise of Sichuan University Zhisheng, which is full of memes, Trump's policy agenda has been repeatedly studied by keen investors, hoping to plan related industries in advance and reap early bird dividends. The capital market has also switched its investment strategy around the "Trump deal", shifting from the energy, technology, and industrial sector stocks that led the rise during the Biden era to the steel, defense, and construction industries.

This kind of advance ambush is not exclusive to Trump.

You should know that during Biden's tenure, a total of $1.2 trillion in fiscal spending was passed through the Infrastructure Act, the Chip Act, and the Inflation Reduction Act. The strong demand has driven a surge in the new energy industries in China and the United States: in the two years from 2020 to 2021, Longi Green Energy's stock price rose from 12 yuan to 71 yuan, CATL's stock price rose from 58 yuan to 375 yuan, and Tesla's stock price rose from 28 US dollars to 414 US dollars.

In this Trump's platform, he advocates reversing various restrictions on oil production, accelerating the production of shale oil in the United States, lowering oil prices and easing inflation: If oil prices fall under Trump's policies, these oil and gas companies, which have just had a few years of good times, will have to face the difficult long period of low oil prices before 2020 again.

The market started trading two scenarios:

First, the US increased production and oil prices fell. Second, after the fiscal stimulus faded, the US economy fell into recession. This Trump deal began to spread among A-share oil and gas companies with extremely scarce liquidity:

Companies such as China National Offshore Oil Corporation, which were already highly crowded, fell nearly 15% in half a month.

The public opinion implied by this deal is that Trump and Biden have diametrically opposed energy concepts: the former supports oil, while the latter firmly opposes shale mining.

But this is not actually the way to look at this issue.

02

"Deep Cabinet"Biden of Oil and Gas

Is Biden pro-oil or anti-oil? Let’s look at the data.

The U.S. Energy Information Administration predicts that domestic oil production will reach a record 12.9 million barrels per day by the end of 2024.

The E&E News data analysis also shows that the U.S. Bureau of Land Management approved more oil and gas leases on federal lands in the first two years and seven months of Biden's presidency than it did during the same period early in former President Trump's administration.

What about the energy transition that was promised during the presidential debate? What about the ban on new public land leases?

The devil is in the details:

The month he took office, Biden issued an executive order suspending new oil and gas drilling permits and requiring stricter environmental reviews. In April 2021, the administration set a goal of reducing greenhouse gas emissions by 50% to 52% below 2005 levels.

That summer, the administration rescinded a key permit for the Keystone XL oil pipeline and blocked a permit for drilling in Alaska’s Arctic National Wildlife Refuge.

But in this large number of operations that are more image than substance, one detail that has been overlooked is that in 2021, a large amount of capacity in existing oil and gas land leases in the United States has been idle, and no drilling has been carried out after the land leases were completed. Most oil and gas companies are able to support production increases simply by continuing to develop existing blocks.

Furthermore, a large number of oil and gas land lease contracts are based on private land. In 2021, when oil prices were low, there were very few companies that dared to add new federal land leases.

In the next four years, the sharp rise in crude oil prices, especially US gasoline prices, was largely related to the supply disruptions caused by the Russia-Ukraine war, the US economic stimulus policy of nearly US$2 trillion, and the long-term contraction of capital expenditures in the US refining industry, resulting in supply and demand imbalance.

In the past four years, almost every American oil and gas company has made a lot of money. However, whether it is a listed oil and gas company or a private oil and gas company, after earning cash flow, they use it for dividends and repurchases, repaying debts or privatization, or carrying out some carbon reduction image projects. Large capital expenditures are almost extinct.

This is also the core reason behind the surge in gasoline prices in 2022 and Biden's high-profile accusations that big oil and gas companies are not taking positive action:

Biden is very upset. Judging from his policies, he is already the most supportive president of the oil industry in American history:

In the first three years of the Biden administration, the 10 largest publicly traded U.S. oil companies by market value had combined net income of $313 billion, nearly three times as much as during the same period under Trump. In 2023, U.S. oil and gas production hit a record high.

If "energy independence" means exporting more than imports, the United States has exported more crude oil and petroleum products than it imported for 22 consecutive months, which is much longer than the situation during Trump's administration.

Biden has issued more drilling permits during his term than the Trump administration did during the same period, including millions of acres of lease sales, including 958,000 acres in Alaska and 73.4 million acres in the Gulf of Mexico.

In the first 1,000 days of his inauguration, Biden issued more public permits for drilling than Trump did.

Brandon Rottinghaus, a political science professor at the University of Houston, said voters tend to view Democrats as strong on renewable and alternative energy sources but weak on fossil fuels. They also tend to view Republicans as supportive of the oil and gas industry but opposed to greener energy sources.

Beyond that, Rottinghaus said voters tend not to get into policy details and are likely to blame the president if gas prices go up — even if that’s beyond his control and drilling levels are up.

In the Reuters report, the editor-in-chief who supports carbon reduction sarcastically titled it "Biden's Oil Boom", which somewhat shows this policy inconsistency.

03

A good son of the Pennsylvania Rust Belt

In the 2020 Democratic primary, Biden unexpectedly defeated minorities such as Kamala Harris with his image as an old white man and moderate. One of the important reasons was his Pennsylvania background:

He was born in Scranton, Pennsylvania, which is the second largest shale gas producer in the United States after Texas and one of the few swing states that determines who will enter the White House. The votes of this state are enough to change the entire presidential election.

Relying on nearly 50 years of Senate maneuvering and care for his hometown district, Biden successfully regained Pennsylvania: you know, four years ago, Trump won a landslide victory in the state in 2016, and this time, Biden regained Pennsylvania with an extremely narrow advantage.

Pennsylvanians and other middle states believe in Biden because the past 50 years of experience have proven that Biden will never be driven by extreme ideology in the economy:

The government gets a percentage of the proceeds from drilling for oil on public lands. Local governments usually get half of the proceeds, and during Biden's tenure, lease sales in the Gulf of Mexico in Texas generated 200 transactions at the same time, totaling $64 million. This is the highest amount the government has received from lease sales in Mexico since 2014.

Faced with the oil finances that make money very quickly, everyone from the federal government to the states said no but their bodies were honest: After the recent announcement of the sale of leases in the Gulf of Mexico, the Biden administration also announced some major conservation measures that will allow nonprofit organizations to lease federal lands to maintain their natural state.

The attitude is clear: if you want to protect the natural environment, please pay the same amount of money to rent it for protection.

The reality is that, whether for the federal government, states, or ordinary people in the United States, empty wallets and soaring gasoline prices are far more damaging than the climate warming that is far away.

Everyone is playing the game of talking is one thing and doing is another, and for veteran Senator Biden, playing this game is really familiar: first come to power on the basis of carbon reduction, and then use practical policies to feed back the old folks in the Rust Belt, and each side knows each other's routines well.

04

Trump's Unpredictability

In contrast, Trump quietly didn’t even list energy as a top 5 issue in this campaign, and here’s why:

First of all, for Trump today, there is not much policy space to support American oil more than Biden: whether it is the Keystone pipeline connecting Canada and Texas, or the development of oil fields in the Alaskan Wilderness Reserve, these have been proven many times to be issues with more political implications rather than economic factors. Today, when Permian shale oil is sweeping the world, it is difficult for Trump to pass any package to boost oil and gas production.

In other words, the core concern of the slow production growth of U.S. oil and gas companies today is actually the uncertainty about debt repayment, inflation, and the rate of return on capital expenditures, which is a purely economic consideration.

Secondly, from a global perspective, US oil companies have been conquering the world non-stop over the past four years: in the past three years, OPEC's coordinated production cuts have been offset by the repeated increases in US shale oil production, and the effectiveness of OPEC's measures to increase oil prices through oil and gas trusts in Middle Eastern countries has been declining year by year.

In the past four years, through the geopolitical alignment after the Russia-Ukraine war, the United States has completely excluded oil and gas competitors such as Russia from the export market and has become a stable net exporter of oil and gas. After Trump came to power, further economic sanctions on Iran and Venezuela will only further deteriorate oil supply and help further increase the total US oil and gas revenue.

In this case, a drop in oil prices is not in the interests of the United States. It will reduce the revenue of oil and gas companies and governments at all levels, and it will be more difficult to maintain this export pillar of the United States. Therefore, as the initiator of the America First route, it is actually difficult to predict the policies and effects of Trump after he takes office.

“It’s hard to know what Trump’s position is: You never know if it’s going to change from day to day," said Mary Landrieu, a former Democratic U.S. senator who is now a lobbyist for oil and gas clients. “The industry is caught between Trump and Biden.”

05

Most people are behind the times.

An undeniable fact is that in the past 16 years, the United States has experienced four presidents, and the U.S. oil production has increased every four years. Every president, no matter how he expressed support for climate change before taking office, ultimately attributed the achievements of the U.S. fossil energy industry to himself.

From one aspect, this proves that the influence of the shale technology revolution is far greater than that of any one in power. The shale revolution has taken place for nearly 17 years, but today its influence is still not recognized by everyone.

The excessive interpretation of Trump’s oil and gas policy is proof of this backward cognition.

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