High prices at the pump more nuanced than GOP candidates claim

Political attacks in face of foreign war require closer examination

Bob Wooley
bwooley@coloradocommunitymedia.com
Posted 3/3/22

In the wake of Russia’s invasion of Ukraine, U.S. Rep. Ed Perlmutter released a statement — typical for members of congress. But because Perlmutter has chosen not to run for another term, legislative decisions surrounding America’s response to a protracted war in Europe could fall to his successor. 

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High prices at the pump more nuanced than GOP candidates claim

Political attacks in face of foreign war require closer examination

Posted

In the wake of Russia’s invasion of Ukraine, U.S. Rep. Ed Perlmutter released a statement — typical for members of congress. But because Perlmutter has chosen not to run for another term, legislative decisions surrounding America’s response to a protracted war in Europe could fall to his successor. 

That being the case, instead of just publishing Perlmutter’s statement, the newspaper requested similar statements on the Russian invasion  from multiple candidates running for the newly drawn CO-07 congressional seat. In their replies, some candidates quickly segued from war in Europe to more pointed political attacks — also typical. 

The overriding theme of laying blame on a seated president is to be expected, no matter which party is in power — especially this close to midterm elections. However, one point, echoed by several candidates, centered on U.S. energy production and independence. 

Candidates Erik Aadland, Laurel Imer and Tim Reichert, vying for the Republican spot on the ballot, all referred to lack of drilling and oil production in the U.S. in their response.  Two of the candidates called for an opening of the Keystone XL Pipeline, to bring back energy independence while all three linked lack of production to economic woes facing Americans. It shouldn’t go without mentioning that Keystone would have moved Canadian tar sands crude from Alberta, Canada to oil refineries in the Gulf of Mexico, with no guarantee after a 2015 lifting of a ban on crude exports, that the oil wouldn’t ultimately end up in the global market. It also should be noted, and of interest to at least two CO-07 candidates, that Keystone was officially canceled by developer TC Energy Corp. in June 2021.

So, what are the numbers? Is it true the Biden administration has shut down U.S. oil and gas production? 

How it works

Unlike national oil companies found in Saudi Arabia (Saudi Aramco), Mexico (Pemex) , China (the China National Petroleum Corporation, CNPC) and Venezuela (Petroleos de Venezuela S.A., PdVSA), American oil companies are privately owned. Those private companies (and large corporations) drill for oil and natural gas on a combination of private and Federal land. Major U.S. oil companies like Chevron and ExxonMobil supply oil to the global oil market. They are investor owned, with a primary focus on increasing value for shareholders. In other words, higher prices per barrel is the goal.

According to the U.S. Energy Information Administration, after more than 20 years of decline, U.S. crude oil production started picking up in 2009, increasing nearly every year through 2019. U.S. crude oil production dropped by 8% in 2020. Total energy production was down by about 5% in 2021, but was still about 3% higher than consumption. 

Why the decline?

A Nov. 23, 2021 Reuters article states that far from trying to halt production, the Biden administration was asking energy companies to increase production to stabilize prices.

“U.S. Energy Secretary Jennifer Granholm urged U.S. energy companies to increase oil supply amid 'enormous profits' as President Joe Biden seeks to bring down the price of gasoline for American families,” the article said.

According to Granholm, although the oil and gas industry had leases on 23 million acres of public and offshore lands, thousands of permits to drill were not being used. Information from the Bureau of Land Management (BLM) suggests the industry may be holding on to nearly 10,000 leases not being used. At the same time, oil company profits were up to pre-pandemic levels, with the industry making enormous profits. 

In fact, in 2021, crude oil prices shot to the highest prices in seven years and retail gas prices rose more than 60% from 2020 to 2021. 

Why the sharp rise?

Demand for fossil fuels plummeted during the pandemic, and producers slashed production. When restrictions eased, demand skyrocketed, but according to Granholm, producers didn’t rehire workers who’d been laid-off during the pandemic and didn’t bring rigs back online when they could have. 

"We want to encourage them to increase supply. We want supply to be increased both inside the United States and around the world so that we can reduce the pressures at the pump," Granholm said.

So, supply and demand created the rapid price increases in the price of crude. 

And who doesn’t love to make a profit?

Chevron.com lists the oil behemoth’s 2021 profits at $15.6 billion, with $11.6 billion in dividends and share repurchases, a fact confirmed in the Wall Street Journal (WSJ) article “Chevron Rakes in $15.6 Billion in Annual Profits as Oil Prices Climb.” Similarly, the WSJ article, “Exxon, Chevron Hit Gushers of Cash as Big Oil Companies Lure Back Investors,” tells of  large Western oil companies posting their most profitable years since the pandemic as oil prices rise, attracting investors who had fled.”

So, now what?

On March, 1, U.S. oil prices surged to $106 per barrel — a 7-year high, due to the war in Ukraine and Russia, the world’s second largest oil producer, potentially being cut off from global markets. In response, the International Energy Agency has agreed to release 60 million barrels of oil from global reserves in an attempt to ease pain at the pump. Meanwhile, gas prices are predicted to go as high as $4 per gallon if the crisis isn’t resolved soon.

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