We Need More U.S. Oil, Not an Import-More-Oil Strategy

Mark Green
Posted August 11, 2021

The White House has big problems with its continued calls for more crude oil production from OPEC – even as it is discouraging U.S. production.

Rising domestic gasoline prices are a political problem for President Biden. Look at the tail end of the chart below from the U.S. Energy Information Administration (EIA), showing monthly gasoline prices from September 2012 through July of this year:

The administration’s political dilemma is that since April 2020, when EIA reported the per-gallon cost of gasoline was $1.938, prices rose to $3.231 last month. The safe assumption is that most Americans have noticed the 66.7% increase at the pump.

The White House response last month was to plead with OPEC to produce more crude oil – and that’s because the cost of crude oil is the No. 1 factor in the retail cost of gasoline. More supply puts downward pressure on crude costs that affect retail prices.

On Wednesday, President Biden doubled down on the approach, saying the administration wants OPEC to reverse production cuts made during the pandemic to lower prices for consumers. White House officials said the same thing earlier this week – that the administration wants more OPEC oil added to the global supply. “Competitive energy markets will ensure reliable and stable energy supplies, and OPEC+ must do more to support the recovery,” National Security Advisor Jake Sullivan said in a statement. A senior White House official told CNBC:

“The president recognizes that gas prices can put a pinch on the family budget. He’d like his administration to use whatever tools that it has to help address the cost of gas, to help bring those prices down.”

Therein lies a big energy policy problem. U.S. Sen. John Cornyn of Texas called the White House request to OPEC, while the administration is impeding domestic production, “pathetic and embarrassing.” A Saudi oil official expressed puzzlement to the Wall Street Journal: “Isn’t [Biden] about climate change and the impact of oil on the environment? How come now they are asking for more?”

It is a puzzle. The administration continues hoping that OPEC will solve oil supply/demand imbalance instead of looking at how its policies are hampering domestic supply, captured in this tweet by API President and CEO Mike Sommers:

Basically, the White House is begging OPEC to produce more oil even as it perpetuates an indefinite pause on new oil and natural gas leases on federal lands and waters – which includes the vast resources held on the U.S. outer continental shelf – suggests tax hikes for our industry and blocks critical energy infrastructure.

Plain and simple, this is an import-more-foreign-oil strategy that, as Sommers said, weakens America and puts U.S. energy security at risk.

On the leasing pause, it will not take long for the administration’s course to lead to significant setbacks for the U.S., according to an analysis by OnLocation for API:

• Reduced U.S. energy production – A ban on new federal leasing for four years is projected to result in a decline of 1 million barrels of oil equivalent per day (MMBOE/D) in 2025. A ban for eight years is projected to result in a decline of 1.7 MMBOE/D.
• Increased foreign oil imports – Net imports of crude oil are projected to rise by 1 million barrels per day (MMB/D) by 2030, with increased payments to foreign suppliers.
• Lost jobs – Nearly 157,000 American jobs are projected to be eliminated in 2026 under a four-year leasing ban; nearly 340,000 American jobs eliminated in 2030.
• Decreased economic output – GDP cumulative decline is projected to total $400 billion (2018 dollars).
• Increased CO₂ emissions from the power sector – Reductions in natural gas production and available natural gas supply are projected to lead to higher coal-fired electricity generation and associated CO₂ emissions.

API Chief Economist Dean Foreman discussed the difficulties with the administration’s energy policy moves last month. Asked how policy signals affect the demand-supply imbalance we’re now experiencing, as economies all over the world ramp up demand for energy, Foreman said:

“Policy choices have natural consequences. The fundamentals of supply and demand are the primary driving factor of market prices. … When the Biden administration signals that it wants to incentivize a shift away from oil and other fossil fuels, and then it takes actions like we've seen … these add uncertainty about whether long-lived investments in fossil fuels will be worthwhile, which is completely the wrong signal for the industry to be able to meet consumer demand in the immediate and near future.”

It doesn’t have to be this way. The White House should resume new federal leasing, right now, as ordered by a federal court. It should stop talking about measures that would single out the natural gas and oil industry for higher taxes, discouraging new investment and production. It should support safe and responsible infrastructure upgrades and new construction.

The administration should stop looking to foreign suppliers for help and focus on what can be done here at home to increase U.S. energy security and benefit American consumers. Frank Macchiarola, API senior vice president of Policy, Economics and Regulatory Affairs:

“Globally, we are seeing energy demand that has continued to outpace supply, and given these conditions, we should be focused on growing American energy leadership, not returning to the days of relying on OPEC to meet our supply needs. America is a global energy leader, and now is the time to expand the safe and responsible development of our nation’s vast energy resources.”