“We Can’t Just Drill Our Way to Lower Gas Prices”, Biden Edition

Guest “Remember this?” by David Middleton

Obama: Nation can’t drill its way out of soaring gas prices
BY ANDREW RESTUCCIA – 05/06/11

President Obama called for the elimination of billions of dollars in oil industry tax breaks Friday, while stressing that the United States can’t drill its way out of high gas prices.

“We can’t just drill our way out of the problem,” Obama said during an energy policy speech in Indiana Friday. “If we’re serious about addressing our energy problems, we’re going to have to do more than drill.”

[…]

The Hill, May 2011

Let’s drill our way forward to 2018

Obama Was Wrong on Oil. We Did “Drill Our Way Out of the Problem.”

Nicolas Loris, Sep 14th, 2018

When gas prices topped $4 per gallon in May 2011, President Barack Obama said, “We can’t just drill our way out of the problem.”

Throughout his presidency, Obama stated some version of that sentiment every time he wanted to push to subsidize alternative energy sources.

More than seven years later, human ingenuity, technological innovation, and the power of the free market have proven him wrong. To the benefit of American families across the country, the United States is now the largest global producer of crude oil.

[…]

The dramatic increase in supply shows drilling is not just a “bumper sticker” slogan, as Obama called it in his weekly address in February 2012, but a path to energy independence, prosperity, and jobs.

Domestic extraction has lowered gas prices for millions of drivers and saved them hundreds of dollars a year at the pump. A number of factors contribute to the price of gasoline, but crude oil is the largest.

[…]

Nick is an economist who focused on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.

The Heritage Foundation

“Throughout his presidency, Obama stated some version of that sentiment every time he wanted to push to subsidize alternative energy sources.”

Keep the quote above in mind when you read the following excerpt:

Biden Nat’l Economic Council Head Deese: ‘No Amount of Domestic Production We Can Do to Reduce’ Gas Prices

by TRENT BAKER 9 Mar 2022

White House National Economic Council director Brian Deese on Wednesday addressed the notion of increasing the use of domestic energy to stem the rising gas prices.

Deese argued on CNBC’s “Squawk on the Street” that “no amount of domestic production we can do to reduce” global prices. He suggested the only way to fix prices would be “shifting to cleaner sources of energy.”

[…]

“The medium and long term, I think … the path and the trajectory is clear — there is no amount of domestic production that we can do when we’re dealing with a volatile global commodity, where the price is set globally, there’s no amount of domestic production we can do to reduce or eliminate our vulnerability as a country to that volatility,” he continued. “The only way to do that is to reduce the energy intensity of the economy overall, which means shifting to cleaner sources of energy.”

Breitbart

[T]he only way to fix prices would be “shifting to cleaner sources of energy.”

Sound familiar?

The math isn’t linear and the relationships are somewhat convoluted, but the law of supply and demand is the driving process. US crude oil production is a very large factor in this “volatile global commodity.”

More drilling —> More crude oil production —> Over-supply relative to demand —> Lower gas prices

• US Rotary Rig Count
• US Crude Oil Production
• US Gasoline Prices

The increase in drilling activity from 2009-2014 during the shale boom led to an over supply of crude oil relative to demand. The same process played out from 2016-2020 and a new cycle is already underway.

Note that with each cycle, the total number of rigs has fallen. Increasing production with less rigs is driven by drilling productivity improvements. Since 2014, the average initial production rate for Permian Basin wells has increased from 200 bbl/d to 1,200 bbl/d.

More US crude oil production led to an over-supply relative to demand and falling gasoline prices.

Granted, the 2014 and 2020 price collapses involved more than just US production. 2014 was triggered by OPEC flooding the market with oil. However, they did that because US oil production had surged and they were losing market share. 2020 was a combination of OPEC+ again flooding the market with oil because US production was surging, coupled with the shamdemic-driven drop in demand.

There’s another interesting and very linear relationship. The rig rate goes up and down with gasoline prices (which have a linear correlation with crude oil prices).

While there are lag times between drilling, production and prices. The rig rate responds very quickly to price changes. Retail gasoline prices rise almost simultaneously with rising crude oil prices. There is a lag between falling crude oil prices and falling retail gasoline prices. However, the relationship is linear.

It is true that increased domestic production can’t fix this problem quickly, nothing short of OPEC+ flooding the market or another shamdemic could do that. However, it absolutely is a long term solution. That said, there’s another key point to address.

“The medium and long term, I think … the path and the trajectory is clear — there is no amount of domestic production that we can do when we’re dealing with a volatile global commodity, where the price is set globally, there’s no amount of domestic production we can do to reduce or eliminate our vulnerability as a country to that volatility,” he continued.

White House National Economic Council director Brian Deese

It is true that we can’t eliminate the volatility of a globally traded commodity. However, we absolutely can drastically reduce “our vulnerability as a country to that volatility” through North American energy independence. This would involve increasing our domestic production and increasing our imports from Canada and, hopefully someday, Mexico. We start with finishing the Keystone XL pipeline, opening up ANWR and other areas in Alaska that are off limits or restricted, fully resuming Federal lease sales and opening up the offshore areas that are currently closed to exploration. The less oil we import from nations outside of North America, the less exposed we are to global volatility.

The US is already energy independent in natural gas. The US produces more natural gas than it consumes. We are a net exporter of natural gas. In January 2022, the US actually became the global leader in LNG exports.

Europe, on the other hand, consumes far more natural gas than they produce.

The US exports LNG, Europe consumes LNG. Global LNG prices are far more volatile than US natural gas prices:

Our excess natural gas production and LNG exports have actually led to lower prices here relative to most of the rest of the world.

The relationships between production, consumption, net imports and prices aren’t particularly difficult to comprehend. While many other variables come into play, natural gas prices have had a negative correlation with the volume of gas we export since 2007, our peak year of natural gas imports.

While natural gas isn’t nearly as fungible as oil, the same principle would generally hold true if all of our imported oil came from North America. Nearly 60% of our imported oil already does come from North America.

North American oil independence would require us to replace the roughly 3.4 million bbl/d that we currently import from outside of North America.

We would already have 500,000 to 900,000 bbl/d of that total had Obama and Brandon not blocked the construction of the Keystone XL pipeline. A year before Brandon shut it down (again), Trans Canada had already secured commitments of 500,000 bbl/d.

Mar 10, 2022
Why Biden’s Killing Of Keystone XL Was An Energy Security Blunder

David Blackmon Senior Contributor
Energy

Watching the Biden administration go hat-in-hand to ask for more oil production from the despotic regime of Nicolas Maduro in Venezuela reminded me of the reason why the Keystone XL Pipeline was such a key system for U.S. energy security. According to the U.S. State Department in 2014, America’s energy system had a need for more heavy crude from Canada to replace declining volumes from Mexico and – you guessed it – Venezuela.

“Gulf Coast refiners’ traditional sources of heavy crudes, particularly Mexico and Venezuela, are declining and are expected to continue to decline. This results in a situation where the refiners have significant incentive to obtain heavy crude from the oil sands. Both the EIA’s 2013 AEO (EIA 2013a) and EnSys WORLD model indicate that this demand for heavy crude in the Gulf Coast refineries is likely to persist.” [emphasis added]

[…]

In a recent exchange with Peter Doocy of Fox News, White House spokesperson Jen Psaki offered this disingenuous statement about Keystone XL: “If we’re trying to bring about more supply that does not address any problem,” Psaki said. “The pipeline is just a delivery mechanism – it’s not an oil field, so it does not provide more supply into the system.”

This is, of course, a lot of stuff and nonsense, as the late James J. Kilpatrick would have said. It is completely fair to note that, had President Biden not cancelled the cross-border permit for Keystone XL on his first day in office, that pipeline system would likely be in service today, and would be bringing as much as 900,000 barrels of crude oil into the U.S. system. That’s more than enough to offset volumes of crude coming into the U.S. from Russia, and to eliminate a need to offset those now-banned Russian volumes by begging for more such heavy crude from Venezuela.

[…]

Forbes

Jen, you ignorant…

Psaki said. “The pipeline is just a delivery mechanism – it’s not an oil field, so it does not provide more supply into the system.”

Is she really that stupid?

Meanwhile, as discussed above, U.S. demand for imported crude is expected to grow heavier. Declining supplies from Mexico and Venezuela were partially offset by greater imports from Canada as well as small volumes from Colombia and Brazil, which are heavy crude producers where oil production has been growing.

Final Supplemental Environmental Impact Statement, Keystone XL Project

The Keystone XL pipeline would be providing 500,000 to 900,000 bbl/d of Canadian oil into the system. The additional Canadian oil would be replacing declining heavy oil imports from Venezuela and Mexico and meeting the growing demand from US refiners. Some of the relatively small volume of crude oil we were importing from Russia was replacing Venezuelan oil.

Canada can increase oil exports to U.S., but won’t be enough to fill Russia gap: experts
By Amanda Stephenson The Canadian Press
Posted March 8, 2022

[…]

In Houston, Texas, where he was attending the international energy conference CERAWeek, Alberta premier Jason Kenney said he was spreading the message that his oil-producing province is ready and willing to help the U.S. fulfil its need for energy.

“Instead of replacing conflict oil from Russia with conflict oil from Saudi, Iran and Venezuela, work with us,” Kenney said on Twitter on Tuesday. “Alberta is the solution.”

In recent days, Kenney has also called on Biden to reinstate the approval of the Keystone XL pipeline expansion, which Biden cancelled shortly after his inauguration, in order to increase Canadian oil exports to south of the border.

[…]

Tristan Goodman, president of industry group the Explorers and Producers Association of Canada, said this country has the ability to immediately increase that number, either through existing pipeline networks or crude-by-rail shipments.

“There’s an immediate ability to add some degree of production, and I do mean immediate — weeks to months. It will be a small amount, but it will be noticeable,” Goodman said.

However, Goodman said due to under-investment in pipeline infrastructure and the Canadian energy sector as a whole in recent years, the most Canada could expect to supply would be a maximum of 400,000 barrels per day, “if we’re lucky.”

[…]

Global News

Despite the cancellation of Keystone XL, Canadian operators were already gearing up to increase production in 2022.

In addition to Brandon’s Keystone XL energy blunder, he cancelled the ANWR Area 1002 leases that were awarded at the end of the Trump administration. The EIA estimated that, assuming significant discoveries were made, ANWR would be producing about 500,000 bbl/d from 2033 to 2050. The Trans Alaska Pipeline currently has about 1.5 million bbl/d of excess capacity. Other offshore and onshore areas controlled by the Federal government, could bring North Slope production up to about 3 million bbl/d from the current 500,000 bbl/d. It would take a decade or more to do this, if the areas were opened up. However, industry can’t get there unless they’re allowed to start.

BOEM estimates that the Atlantic OCS area has a most likely potential of 4.7 billion bbl. Canadian Atlantic offshore operators are currently producing over 230,000 bbl/d from plays that run right up to the boundary between US and Canadian waters. This area has been closed off to exploration since the early 1980’s. The industry hasn’t even been allowed to acquire modern 3d seismic surveys in the area.

• Keystone XL: 500,000 to 900,000 bbl/d
• Alaska North Slope: 500,000 to 2,500,000 bbl/d
• Atlantic OCS: 250,000 bbl/d

That’s enough production to replace 1.25 to 3.65 million bbl/d of oil that we currently import from outside North America. It would also add to the global supply balance.

Until we start seriously drilling, we won’t know if ANWR and the Atlantic OCS yield giant oil fields, marginal production or nothing but dusters. Even if successful, it would take at least a decade to bring meaningful production online. However, if we never start, we will never know.