Unpacking Three New Washington Energy Policy Missteps

Authored by Kevin O’Scannlain via RealClear Energy,

If the last two years have taught us anything, it is the importance of planning ahead and encouraging new investments in energy – whether it’s oil and natural gas, solar and wind, or a mixture of all of the above. With global populations expected to rise from nearly 8 billion today to almost 10 billion in 2050, energy demands are only projected to grow and policymakers ought to be ready to utilize American abundance.

(AP Photo/Susan Walsh)

Further complicating the real-world picture: Putin’s unjust war that has led to Russian oil and natural gas supplies going offline; global supply chain and labor challenges lingering from Covid-19; and chronic underinvestment in energy infrastructure many say is encouraged by hostile Biden administration policies.

Government trackers recorded gasoline prices heading down ahead of the holiday weekend, but they still remain high. In this low-supply/high-cost environment, it is dispiriting to see Washington policymakers – from federal agencies to Congress to the White House – ask for increased energy production while making moves to undermine our industry. One Forbes writer called the White House’s posture “confused.”

More here:

We so often see the President saying one thing in public as his appointees in the federal bureaucracy are doing the opposite. … Mr. Biden has frequently called for the domestic industry to produce more oil and gas, refine more gasoline and ramp up exports of liquefied natural gas to Europe, while his agencies continue to hold up permitting, issue restrictive new regulations, and issue rulings that directly inhibit companies’ ability to get their business done.

Despite the Fourth of July holiday, the administration worked overtime last weekend, sending mixed messages or considering new policies that won’t help. Here they are, along with how to fix each one.

Mistake #1: Delaying and Minimizing a New 5-Year Offshore Oil and Natural Gas Leasing Program 

Past 5:00 p.m. on the Friday evening of a holiday weekend, the administration’s long-awaited draft plan for a 5-year program for development along the Outer Continental Shelf finally was released to the public. Incredibly, the plan contemplates holding zero to 10 auctions in the Gulf of Mexico over the next five years, plus the possibility of one in Alaska’s Cook Inlet. Leaving open the possibility of no offshore lease sales puts U.S. producers at a disadvantage on the global stage, puts our economic and national security at risk (look no further than Europe), and could put upward pressure on prices due to lack of supply. 

Solution #1: The Department of the Interior (DOI) should lift developmental restrictions on federal lands and waters. They should scrap any talk of conducting zero lease sales deep into the 2020s. They should issue a robust 5-year programfor the Outer Continental Shelf (OCS) and hold mandated quarterly onshore lease sales with equitable terms. Additionally, DOI should reinstate canceled sales and valid leases on federal lands and waters. 

There is an environmental argument for production, too. Even DOI states that “global emissions are only incrementally higher with new leasing compared to no new sales,” according to Axios – and a previous 2016 government analysis suggested U.S. greenhouse gas emissions could actually increase slightly in the absence of new OCS leasing.

Mistake #2: Considering New Obstacles to Drilling in America’s Most Productive Oil-Producing Region

The Environmental Protection Agency (EPA) last week announced it may soon rule that parts of the Permian Basin – which accounts for 44 percent of total U.S. daily oil production – are in “non-attainment” status under the agency’s ozone regulations. 

Solution #2: Given the obstacles to global supply we’ve already discussed above, President Biden should simply issue an order instructing EPA to stand down. Through methane-reduction efforts like The Environmental Partnership and others, oil and natural gas industry is already making headway to advance a lower-carbon future. 

Instead of unproductive and burdensome regulatory ideas like this one, Congress and the administration should expand and extend Section 45Q tax credits for carbon capture, utilization, and storage development and create a new tax credit for hydrogen produced from all sources.

Mistake #3: Asking Gasoline Station Owners to Adjust to Market Forces Outside Their Control

On Saturday, President Biden used his online bully pulpit to tweet the following: “My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now.” While the sentiments may come from a good place, the understanding of the market fundamentals is off-base.

Solution #3: More American oil production is the answer – and federal policies that support it are necessary. Look no further than API’s new 10-in-22 plan. 

Finally, when it comes to retail fuel sales, less than 1 percent of all convenience stores that sell gasoline are owned by major oil companies. Virtually all gasoline stations are independently owned – not owned by major oil companies – and of those, about 60 percent are owned by individuals. 

Retail stations set prices to be competitive in their local market. They must factor the need to pay for the next delivery of gasoline (i.e., replacement costs) into the price they set. If supply is seen as dropping relative to demand, this can place upward pressure on price and can be factored into the retailer’s pricing decision. While gasoline prices have historically been close to prices paid at the distribution terminal supplied by refiners, the price at the pump also reflects local market conditions.

Local conditions and competition can be key contributing forces to timing price changes, and attempting to use federal pressure to alter local market outcomes is a fundamental misunderstanding of them.

Bottom line: As energy demand outpaces supply, geopolitical tensions continue to rise, and supply chain issues continue to plague U.S. producers, policymakers should do everything they can to encourage and incentivize all energy development – not restrict access to American oil and natural gas.

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Kevin O’Scannlain is API’s vice president of Upstream Policy. Before coming to API, Kevin served in the White House as Special Assistant to the President in two different roles, and as Deputy Solicitor for Energy & Minerals at the U.S. Department of the Interior. Prior to that, he was an attorney for Chevron, DLA Piper LLP, and the U.S. Senate. O’Scannlain is a graduate of the College of the Holy Cross and Notre Dame Law School.