Are deep reservoirs the next frontier in the US shale revolution?

Hello and welcome to Energy Source, coming to you from New York.

Oil prices jumped on Wednesday after Donald Trump said Washington’s ceasefire with Tehran was “over” and the US announced it had launched another round of military strikes against Iran.

The renewed tensions between Washington and Tehran on Wednesday pushed Brent crude up 6.6 per cent in after-hours trading to $79.06. Earlier in the day, the international benchmark traded above $80, its highest level in more than two weeks.

Fuel prices are also under pressure in Russia, my FT colleagues report. Moscow banned exports of diesel after Ukrainian drone attacks on its refineries caused the worst fuel crisis since the collapse of the Soviet Union.

In today’s Energy Source, we look at an exclusive report from the energy investor group Kimmeridge on the promise of deeper reservoirs in US shale basins. We also examine how the end of tax credits for solar and wind industries will affect the build-out of renewables in the US.

Lastly, this week’s Data Drill explains how the coming El Niño could deal a blow to countries reliant on hydroelectric power.

Thanks for reading, Alexandra

Are deep reservoirs the next frontier in the US shale revolution?

The next frontier of US shale will be in deep reservoirs as the cost of drilling these wells has fallen significantly over the past 15 years, according to a new report from US energy investment group Kimmeridge shared exclusively with Energy Source.

Deeper wells had long been seen as uneconomic because of the difficulty and cost of drilling and completing wells at higher temperatures and pressures. But technological advancements have reduced both technical and cost challenges, making them increasingly competitive with shallower wells.

“In the next decade you will see three or four new concepts emerge that are deep, high-pressure, high-temperature reservoirs that are super-competitive from an economic case to some of the best shale wells in the US,” said Kimmeridge managing partner Ben Dell.

Analysts have warned that US shale production growth has diminished as operators have already developed the best spots. Less productive wells cost more to drill but the possibility of utilising new technology to drill deeper could be a boon for the industry.

Kimmeridge has utilised offshore drilling techniques in its deeper wells that have driven down the cost curve. Kimmeridge estimates that the cost to drill a deep well has fallen from about $3.50 per thousand cubic feet equivalent to roughly $0.95 today.

Dell said he expects deep high-pressure wells to account for roughly a quarter of new developments within five years. He also anticipates drilling costs will fall another 20 to 30 per cent over that period, making deeper wells more economic than shallower prospects.

“We see a lot of cost savings that can be created in the deep,” Dell said.

Cheaper wells could help the industry weather a potentially oversupplied market that analysts expect in the coming years. Lower commodity prices can put pressure on producers, making reductions in drilling costs increasingly important.

Will the renewables industry survive without tax credits?

US energy secretary Chris Wright last week celebrated the end of federal subsidies for the solar and wind industry and said he expects electricity prices to fall in the absence of tax credits.

“I’m thrilled to report that after about 35 years . . . we will end subsidies for wind and solar,” he said in a statement. “They drive up the system costs and increase Americans’ electricity prices. Enough of raising electricity prices. We’re going to drive them down.”

Despite the end of federal tax credits, analysts and industry insiders still expect renewable energy sources to be cheaper and faster to deploy to the grid than fossil-fuel resources.

Developers rushed to start construction on new solar and wind projects before July 4 2026 in order to maintain eligibility for the investment tax credit if they are completed within four years, a process known as “safe harbouring”. As a result, solar is expected to continue to be the leading energy source through 2030.

Crux, a clean energy finance market platform, estimates that 47GW of solar and 23GW of wind generation were safe-harboured by the end of 2025. 

Analysts say that the robust pipeline of wind and solar projects will boost the number of renewables added to the grid. Consultancy Rystad Energy said the US is on track to deploy 49GW of utility-scale solar this year, up from 37.9GW last year. That figure is forecast to jump to a record 63.7GW by 2028. Onshore wind is expected to add 8.4GW this year, up from 6.3GW last year.

“The renewables industry will survive without tax credits,” said Geoff Hebertson, lead renewables analyst at Rystad.

Utility-scale solar is still the fastest and cheapest technology to deploy to the grid that desperately needs new sources of generation. Gas turbines continue to face supply-chain constraints that have extended the timeline for new plants to come online.

“There is this need for energy now,” said Sylvia Leyva Martinez, director of North America utility-scale solar at Wood Mackenzie. “Solar is the easiest and most economic source [to meet that] demand.”

The cost of solar has fallen in recent years and is far less expensive than fossil fuel generation even without tax credits. By 2030, Rystad estimates that the levelised cost of electricity for unsubsidised solar power plants in the US to be between $70 and $80 per megawatt hour, compared to an estimated $100 to $120 per megawatt hour for a new gas plant.

Despite the influx of projects, analysts expect some may be abandoned since the industry is still navigating ongoing permitting challenges, long lead times for transformers and interconnection delays.

Larger developers are expected to benefit from the lack of tax credits. 

NextEra Energy, one of the biggest utility-scale solar developers, said on a call with investors in April that it had purchased solar panels and other equipment through 2029.

“I just can’t imagine there’s any company in America better positioned to seize upon the demand that we are going to see over the next three to four years and beyond for renewables and storage, particularly given how long it’s taking to build gas-fired generation in this country,” said NextEra chief executive John Ketchum at the time.

Martin Pochtaruk, chief executive of Heliene, a Canadian solar-panel maker, said he does not expect a material change in his business in the US as a result of the expiration of tax credits, adding that his order book is as strong as it was a year ago. Although he still expects strong demand for his products in the US, he believes bigger developers may overtake smaller players since they have more access to capital in an environment where building a solar plant will be more expensive.

“The larger companies that have the wallets to be able to safe harbour have done that and have enough runway for the next three and a half to four years, while the smaller ones had to sell their projects to larger ones because they didn’t have the pockets to invest in the safe harbouring,” Pochtaruk said. (Alexandra White)

Data Drill

The coming El Niño could bring an energy shock and impact countries reliant on hydroelectric power.

The El Niño weather cycle, which typically occurs every two to seven years, can result in intensive droughts in some parts of the world. This usually means crop failures and higher food prices, but for some exposed countries, it can spell an energy crisis, too.

“El Niño conditions are already under way and are forecast to strengthen rapidly into a strong event,” the World Meteorological Organization said in a statement on Friday.

An Energy Source analysis of electricity generation during the last El Niño in 2023-2024 found that Colombia, India, Vietnam and Costa Rica all experienced significant declines in hydroelectric generation. 

For countries such as Colombia and Costa Rica, which respectively generated 81 per cent and 76 per cent of their electricity from hydropower in 2025, this could trigger an electricity crisis at a time when energy prices are high and water reservoirs are low.

During the last El Niño, Colombia’s average electricity prices surged by 37 per cent in 2024, and it cut electricity exports to Ecuador, which later experienced significant daily blackouts for three months. Costa Rica also had national blackouts, with its authorities attributing the cause to El Niño.

Countries are also increasingly vulnerable as warmer temperatures from El Niño will put pressure on the grid. In the past two months, India and Vietnam both experienced their highest peak electricity demands on record. They generate 9 per cent and 34 per cent of electricity from hydropower, respectively. In June, India’s year-over-year hydro generation fell by a quarter and Vietnam’s nearly a third.

In addition to grid strain and price jumps, El Niño could increase demand for “dirty” energy sources such as coal and liquefied natural gas to meet generation shortfalls. A combined loss in hydro and demand for cooling could cause a generation gap of 18 terawatt hours in India, the Centre for Research on Energy and Clean Air reported on Monday. Meeting this shortfall with a likely mix of coal would release an additional 17mn tonnes of CO₂ into the atmosphere, the equivalent of about 4mn cars on the road for a year. (Nolan Shaffer)

Job moves

• Canadian Solar has named Dylan Marx as head of recurrent energy.

• Seascape Energy Asia has appointed Geraldine Murphy as interim non-executive chair.

• KP Energy has named Sunil Kumar Maheshwari as vice-chair.

Power Points

• German nuclear fusion start-up Proxima Fusion has been backed by Google and British billionaire Alex Gerko’s XTX Markets in its latest funding round.

• China has purchased more oil from Middle Eastern producers as prices fall and after Saudi Aramco offered deep discounts on its crude.

• UAE’s state energy company Adnoc agreed to a $1bn deal to buy Shell’s fuel supply business in South Africa.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Rachel Millard, Malcolm Moore, Ryohtaroh Satoh and Stephanie Findlay with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.