Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 3, 2022
Ukraine war is still raging and there is no sign when it may end. Global energy prices are rising impacting every economy. The US is very vulnerable, because Biden administration is already challenged by high inflation caused by COVID-19 pandemic. The Ukraine war drives up the global energy prices, then hiking local gasoline prices around the US will drive down Biden’s approval rating at the critical mid-term election season.
The US is the largest energy producer in the world, especially in terms of crude oil and natural gas. But it is also world’s second largest energy consumer in the world behind China. Specifically, high gasoline price is the key indicator for high inflation in the US. Crude oil price is a very important driving force of local gasoline price, but it is not the only factor. Gasoline is a refined product from crude oil, and it is distributed around the country. In the US, it is further complicated by that each region, say California, has unique specification of gasoline because of local environmental regulations. Normally, without any major global events, Californians pay highest price at the pump around the US. In the Bay area, local pump charges more than US$5 per gallon already.
There are two ironies:
- With all the severe economic sanctions that US and allies levied against Russia after the Ukraine war broke out, Biden is reluctant to sanction Russia energy business. A major reason, of course is Europe heavily dependent on Russia oil and gas.
- But the US also imports about 3% of the total US oil consumption. It is a very small amount, but it is crucial for US refineries benefits. US refineries needs Russia oil for blending purposes. Biden is under pressure to ban Russia crude imports to the US. For the US, it is a matter of oil industry’s balance sheets. But for Europe, it is a much more serious choice of keeping people warm in the winter and keeping the economy alive.
- The US still faces the major political challenge because of Republican and Democratic ideology. Basically, Democratic favors green energy and environmental protections. On the other hand, Republicans favor free enterprises with less government regulations. Without any global energy crisis such as induced by the Ukraine war, these party lines usually compete, debate and if no comprise is possible then just wait for the next congress. Now facing a global energy crisis, US domestic debates are not productive and only endanger US economy.
Craig Harris USA TODAY March 3, 2022
Russia doesn’t export much oil to the United States, but it’s just enough that the threat of banning its crude from American shores is driving gas prices and leaving some regions – notably the West Coast – facing the prospect of less crude to process at refineries and making costs even higher at the pump, experts say.
University of Houston Professor Ramanan Krishnamoorti said while Russia is a “smaller player” in the overall crude import market of 3% in the United States, it plays a big role on both coasts. And, shutting down imports to the U.S. would hurt the global economy, said one key oil trade association.
Russia produces “heavier, sour crude,” that U.S. refineries transform into gasoline, diesel and jet fuel, and that type of oil is needed especially along the West Coast and Northeast because of geographic challenges of delivering the refined gas products to those places,” Krishnamoorti said.
The professor said the U.S. depends on Russia to provide a “balanced portfolio for refineries,” and that has increased in recent years with continued U.S. economic sanctions on another big oil producer, Venezuela, that were imposed during the Obama and Trump administrations.
Krishnamoorti also said the Biden administration could quickly lower gas prices by repealing a 1920 law that requires that all vessels carrying goods between two U.S. points be American-built, -owned, -crewed and -flagged. He said that would allow foreign ships to move American oil, and he said the president and lawmakers could lower gas taxes to help Americans. The law, called the Jones Act, makes it two to three times more expensive to ship oil by sea in the United States, according to the American Fuel & Petrochemical Manufacturers.
The dependence on Russia’s crude has translated into the highest average gas prices in Arizona, California, Oregon, Nevada and Washington, according to AAA.
The national average was $3.65, while California, which has the country’s highest tax on gasoline, had an average price of $4.86 for regular unleaded. Southern states had the lowest average prices, with Arkansas having the lowest at $3.27 a gallon.
The Hill Russia inflames political war over gas prices, oil drilling
GOP lawmakers are using rising gasoline prices and Russia’s invasion of Ukraine to attack President Biden’s energy policies, arguing that the administration has failed to improve U.S. energy independence.
Experts say many of their claims are misleading, noting that administration actions have had little impact at the pump and don’t have much bearing on the conflict abroad.
Nevertheless, the Republicans’ rhetoric is a likely preview of their midterm argument: that electing Republicans will lead to better U.S. energy policies and lower prices.
In recent days, Republicans have gone on the attack — flaming Biden over his decision to nix the Keystone XL pipeline and pause or delay oil and gas leasing.
Those joining in on the criticism include House Minority Leader Kevin McCarthy (R-Calif.) and Sens. Ted Cruz (R-Texas) and James Lankford (R-Okla.), who have particularly discussed Biden’s move to nix a border crossing permit for the pipeline.
But, when Biden revoked the permit, the pipeline was only about 8 percent complete, and the company behind it said in 2020 that it didn’t expect the vessel to deliver energy until 2023.
And experts note that the global nature of energy markets raise serious questions about the merits of the critique.
“There is little evidence to back up the argument that Keystone XL would have averted some of this price spike. The Keystone pipeline capacity is less than one-tenth of Russian oil exports,” James Glynn, a senior research scholar at Columbia University’s Center on Global Energy Policy, told The Hill in an email.
“Even if Keystone XL was filled with fully additional Canadian export capacity, which would have been an unlikely scenario, it would not balance the global oil markets where the price of oil is set through a global arbitrage of the last marginal available barrel,” Glynn added.
Canada is the largest U.S. source of foreign oil.
Republicans have more broadly tried to paint Biden’s climate goals as anti-energy, with the point even coming up during their response to his State of the Union address.
Iowa Gov. Kim Reynolds (R) accused Biden of “waiving sanctions on Russian pipelines while limiting oil production here at home,” a reference to the administration’s May waiver of sanctions for the Nord Stream 2 natural gas pipeline.
The GOP has also criticized a 2021 pause on new leasing for oil drilling. Purchasing a drilling lease is one of several steps that companies have to take in order to drill on publicly owned land or in publicly owned water.
While that pause was ended after a court ruling against it, the department recently announced delays in both new leasing and permitting in response to a separate court ruling.
“People will cite the ban of new drilling on federal lands, but there’s plenty of acreage to exploit…in the meantime,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service.
The Biden administration has also been approving permits to drill at a rate comparable to the Trump administration.
According to a December analysis from the group Public Citizen, the Biden administration approved an average of 333 land drilling permits per month, higher than the Trump-era averages in 2017, 2018 and 2019.
Still, the GOP political attacks could resonate with voters weary after months of high prices at the pump.
Gas prices averaged about $3.73 cents per gallon on Thursday.
“It’s potentially a potent issue for Republicans because it speaks to two moments that we’re at right now: one is inflation and rising gas prices and two is Russia and Ukraine which is also going to lead to higher gas prices,” said Republican strategist Doug Heye.
He added that this messaging will continue into the midterms.
“With Keystone, you’ll hear about how it was one of the very first decisions that Biden made and you’ll even hear Republicans occasionally…highlight that those were union jobs,” Heye said.
And he noted that while that pipeline may not have been slated to be operational yet, its cancellation is part of a pattern of Democratic opposition to expanded oil.
“The argument that Democrats always make is…it’s just going to take so long,” he said. “If we had been able to move in [the Arctic National Wildlife Refuge] in 2003 like Republicans wanted to…that oil would be online right now.”
But the analysts note that U.S. oil producers have taken a limited approach to drilling, and that Biden can’t simply force them to do more.
“You can’t blame Joe Biden for the restraint of U.S. producers,” said Antoine Halff, adjunct senior research scholar at Columbia University’s Center on Global Energy Policy.
“They follow economic incentives and they follow demands from their investors,” added Halff, the former the chief oil analyst at the International Energy Agency.
And while high oil prices — which were at about $110 per barrel on Thursday — are generally favorable for producers since they can make more money per barrel that they sell, Kloza noted that they may be wary given recent instability in the market. Prices crashed in 2020 amid coronavirus lockdowns.
“The price of oil is volatile,” Kloza said, adding that there was some “unwillingness” from banks to finance oil because of this. But, he predicted that going forward, private companies are likely to pursue more short-term drilling given the higher price of oil.
And while Republicans have leaned in on oil and gas, Democrats have likewise been vocally pushing their own energy priorities: clean energy and efficiency measures.
“If we make our vehicles more efficient, if we make our homes more efficient — that reduces the need for oil and gas regardless of the source,” Rep. Sean Casten (D-Ill.) told The Hill this week.