Earlier this week, President Biden announced that the U.S. would ban all imports of Russian oil in response to Russia's invasion of Ukraine. While many struggle to understand Putin’s rationale for the invasion, Biden’s unwillingness to increase domestic energy production, while instead courting enemies of democracy such as Iran and Venezuela, is equally confounding.
Instead of reaching out to the American energy industry to quickly reach production levels necessary for energy independence, Biden has relentlessly attacked and browbeaten the industry. His disregard of commodity-based economies aside, his besmirching of an entire industry reveals a divergence of values that should not be ignored. Truth and reason on one side and obfuscation and deception on the other. His assertions that the high prices Americans have been experiencing since he took office are the result of industry greed and Putin’s 12 days of tyranny in Ukraine defy reality and are untrue.
Working in the oil and gas sector requires a corporate and personal constitution not needed in most industries. Commodity-based industries are cyclical and intrinsically more volatile than traditional consumer markets. Spot prices reflect the price of a commodity more or less in real time while the futures are exchange-traded derivatives contracts that lock in future delivery of a commodity or security at a price set today. The suggestion by Biden that greed drives that process impugns not only the energy sector, but any commodity-based industry, including agriculture and mining. His assertion oversimplifies a complicated relationship between these commodity-based sectors with manufacturing, transportation, and an array of consumer services that together represent the U.S. economy.
Who's your whipping boy?
But to the degree obfuscation and deception does exists in the energy sector, it doesn’t emanate from producers. Rather, it is governments that seek to manipulate and unfairly benefit from energy policies.
Consider what happened leading up to the recent Olympics. In order to clear the filthy skies of Beijing ahead of the Olympics, President Xi and his CCP cronies ordered smelters to shutter. While clearing the skies for a couple weeks to avoid international scorn, the mandate more significantly created a regional drop in demand for the coking coal. If smelters can’t smelt, then they obviously don’t need coking coal. This drove down coking coal prices by about thirty percent in the Chinese market, affecting producers around the world.
Closer to home, the Biden administration now seeks to forcibly move Americans into electrical vehicles, foist wind farms and solar panels into a field near you, while lying about the ability for those "renewables" to produce enough energy to fuel the economy. Simultaneously, his policies have sought to reduce the domestic supply of oil and gas so as to bring those prices into parity with the higher-priced alternative sources. Given that neither wind nor solar can or will ever come close to supplying the energy needs for a modern economy, this is a recipe for civilizational suicide.
Biden began his effort on his very first day in office by dismantling energy distribution networks like the Keystone XL pipeline. Already well under construction, he unilaterally canceled the project via executive order. His department of Interior and Energy are currently slow-walking permits for a slew of liquid natural gas (LNG) terminals that could be producing the natural gas Germany now so desperately needs to free itself from Russia’s grasp. Further, his agencies have increased the complexity of regulations so as to increase the cost to oil and gas producers, making many projects too expensive to complete. And perhaps most insidiously, he has urged institutional investors to not invest in oil and gas projects, limiting the amount of capital the industry can access. Together, these efforts constitute a policy that is intended to detrimentally impact supply, resulting in higher prices for everything.
Nice work, champ.
When President Biden took office, the U.S. was producing more energy than it needed, making it a net exporter. The price for a gallon of unleaded gas in the U.S. was about $2.19, depending on where one lived. As of this writing, the average is nearing $4.35, and continues rising. The previous administration understood that energy independence was an important and necessary element of American national-security strategy, and sought to create a situation in which the consumer benefited from lower prices—as the energy sector, which benefits from price stability.
The success of this strategy stemmed from a combination of a dedicated and skilled work force, technical innovation, regulations focused on safety, stable production costs, an abundance of investment capital, and market dynamics that supported global demand. Thanks to shale oil production, by the end of 2019, the U.S. was producing 1.5 million barrels per day more than what is being produced in the U.S. today.
While there have been multiple price peaks since 1979, including in 2008, and steep dips, including in 2016 and 2020, for the past two decades the average price for a barrel of oil has been $69.73. The industry has become comfortable with prices around $70-$80 per barrel (BBL) because it established guard rails of a sort, inside of which producers could reliably focus on production volume, not just price. This $70-$80 per barrel price point offers a good balance between low retail prices for consumers and the ability for producers to effectively manage their oil and gas assets while realizing sufficient revenue.
From the minute a well is producing, volume declines. Aware of the decline curve, producers must analyze the market in order to balance the price for which they'll sell a barrel of oil or metric ton of gas, against the cost and time it takes to acquire and permit the assets, complete the technical analyses of the assets, raise the necessary capital, allocate the requisite labor and equipment, and transport the oil and/or gas to market. That process, and the intellect, aptitude, and timing it takes to be successful in the effort, is nothing short of amazing. Until Biden took office, it was a process that had allowed Americans economic security, food security and national security. His policies have deliberately jeopardized that for all Americans.
And then what happens? Biden—who flies around the world on Air Force One and travels with a vast, gasoline-powered motorcade wherever he goes—blames Putin and the war in the Ukraine for the high prices you're currently paying, and accuses the oil and gas sector of greed.