The Sad Truth: America Has No Energy Policy
The Biden administration, like all political enterprises, loves to take credit but is loath to confess mistakes. Biden is currently looking for someone, anyone, to take the fall far escalating gasoline prices. A favorite scapegoat is the oil and gas industry.
According to many Democrats, the industry is a blight on humanity that must be canceled. High oil prices fit the DNC playbook, so be prepared to view morose montages displaying diabolical men drilling dirty oil wells. In an odd turn of events, these diabolical oil executives are being scolded because they aren't drilling oil wells as quickly as President Biden would like. Some Democrats accuse executives in the oil industry of being unpatriotic in light of the Russo-Ukrainian war (read: Putin's price hike). Industry executives would respond more favorably to a coherent energy policy than harassment by politicians.
Government policies related to the COVID pandemic reduced demand for oil, so the industry stopped drilling activities. As the pandemic abated, and the economy improved, the Biden administration took office intent on canceling the oil industry. As demand for oil increased, the industry wasn't inclined to invest in drilling. Oil companies enjoyed higher prices after a difficult year, while lenders and investors, burned by the 2020 bust, resisted financing new ventures. The industry was content to earn money on existing production and hesitant to invest capital in the unfriendly environment the Biden administration had created.
The Biden administration only recently began permitting oil and gas leases. When asked if the Biden's people would support increased oil production, the White House response was that "there are 9,000 oil leases the oil industry isn't tapping into currently."
The White House talking heads would have you believe that oil leases are like juice boxes. You just push a straw through a predesigned hole and suck the contents out.
It's likely that geologic testing has been done on many of the leases and it's been determined there are no producible volumes of oil under them. Other leases are remote from existing wells, requiring many miles of new roads and other infrastructure before an exploratory well can be drilled. If an exploratory well produces adequate volumes, planning is completed, and money is raised to drill wells on adjoining sites, assuring that the new field is managed profitably.
Most wells produce oil, natural gas, and water. The oil and water flow into tanks. Both can be moved by truck, the oil moved to market and the water properly disposed of. Natural gas can be moved only through a pipeline. Millions of dollars may be spent on drilling, geologic logs, completion (fracking), roads, casing, cement, tubing, sucker rods, wellheads, tanks, heater treaters, etc., but no product can be delivered because the gas can't be moved without a pipeline. In the past, gas was often flared so the oil could be produced and sold immediately. This is now illegal because natural gas is too valuable to flare.
On his first day in office, President Biden canceled the Keystone XL Pipeline (KXL). Government officials and the media blithely state that the pipeline would not reduce gasoline prices because it doesn't add oil supply to global markets. Like most propaganda, there is some truth in these misleading statements, but the cancelation of the KXL created uncertainty and confusion in North American oil markets.
Pipelines are the safest, most effective method of transporting oil and gas. Pipelines are the only secure method of transporting natural gas. There have been tragic accidents when oil is transported by rail. It costs $5–10 a barrel less to transport oil in a pipeline. The only good reason rail would be chosen to transport oil is because a pipeline doesn't exist.
The KXL received a Presidential Permit in 2008. Refiners planned accordingly. Motiva, a joint venture between Saudi Aramco and Royal Dutch Shell, operates a large refinery in Port Arthur, Texas. In 2008, Motiva began a $10-billion expansion to refine the heavy crude the KXL would deliver. President Obama canceled the KXL in 2015 "because it would not serve the interest of the United States." In 2020, President Trump approved the pipeline, setting the stage for Biden to cancel it again.
If the original plan to build the KXL in 2008 had been followed, Canadian heavy crude would be refined on the Gulf Coast today. Motiva's investment is an example of government policies that hamstring the oil and gas industry, causing the cost of gasoline and other refined products to rise. A business cannot effectively plan future investments in an environment so unpredictable.
The Biden administration's understanding of the oil industry is limited to knowledge related to sliding a credit card into a gasoline pump. The government would like to tell the oil industry how to manage and operate its businesses. To some extent, they do with policies and regulations. If the industry followed the direction of the government, gasoline would be selling for $25/gallon instead of $5, if at all.
The government has set a new trap for the industry and consumers. The Biden administration has established a Task Force with the European Union with goals to deliver 15 billion cubic meters (BCM) of liquefied natural gas (LNG) to Europe in 2022 and 50 BCM thereafter until 2030. They also committed to reducing the demand for natural gas.
While Democrat senators harangue oil executives about "ripping off the American people," the Biden administration has launched a Task Force intent on delivering huge amounts of American LNG to Europe that can't be delivered without the support of the industry the senators are haranguing. To add injury to insult, the White House fact sheet states that the government is committed to reducing demand for the LNG production it would like the industry to ramp up to support. The fact sheet looks more like a script for a woke sitcom than the goals of two governments.
If the E.U. accepts the offer, it will likely create problems for American consumers. There is no reason to believe the oil and gas industry is sitting on large volumes of natural gas it can quickly liquefy and transport to Europe. Natural gas prices are already rising. The commitment to deliver LNG to the E.U. will likely cause consumer prices to rise further.
Biden has painted himself into a corner. During his presidential campaign, he said he would eliminate oil. He is working hard to fulfill his promise. Unfortunately for the president and the Democrat party, the interests and security of the American people are entwined with the industry. The country needs more oil and gas to balance supply/demand realities.
The government must establish an energy policy that will transcend administrative changes at the White House and the factional objectives that accompany them. The interests and security of the American people don't change because a new president sits in the Oval Office. The government must establish a reasonable energy policy that provides energy security for the American people.