Yesterday President Biden announced several initiatives, targeted at reducing gas prices and increasing U. S. energy independence. After laying the blame for high gas prices on Russian President Putin’s invasion of Ukraine, President Biden announced:
Right now, the oil and gas industry is sitting on nearly 9,000 unused but approved permits for production on federal lands. There are more than a [12] million unused acres they have a right to — to pump on.
Families can’t afford that companies sit on these — their hands.
So, to help execute this first part of my plan, I’m calling for a “use it or lose it†policy.
Congress should make companies pay fees on wells on federal leases they haven’t used in years and acres of public land they’re hoarding without production.
Companies that are already producing from these wells won’t be affected. But those sitting on unused leases and idle wells will either have to start producing or pay the price for their inaction.
Look, the action I’m calling for will make a real difference over time. But the truth is it takes months, not days, for companies to increase production.
That’s why the next part of my plan is so important.
Today, I’m authorizing the release of 1 million barrels per day for the next six months — over 180 million barrels — for the Strategic — from the — from the Strategic Petroleum Reserve.
while in the long term he’s doubling down on his intention of reducing Americans’ use of oil for power and transportation:
The second part is about declaring real American energy independence in the long term so that we never have to deal with this problem again.
Ultimately, we and the whole world need to reduce our dependence on fossil fuels altogether. We need to choose long-term security over energy and climate vulnerability. We need to double down on our commitment to clean energy and tackling the climate crisis with our partners and allies around the world.
Obama advisor David Axelrod is quoted in the Daily Mail as saying that Americans’ don’t buy the framing “Putin’s price hike”:
Obama adviser David Axelrod said Friday that American’s ‘don’t believe’ the White House’s branding of high prices at the pump as ‘Putin’s price hike.’
‘[Biden] was saying, you know, everything is Putin’s price hikes. Inflation is Putin’s fault. People don’t believe that either,’ Axelrod said on his podcast with GOP consultant Mike Murphy and former Obama press secretary Robert Gibbs, Hacks on Tap.
‘They know that we had inflation before this. They know that gas prices were high before this so they haven’t dialed this in quite right. You can’t blame everything in the economy on Putin,’ he said.
The editors of the Wall Street Journal scoff at the use of the strategic petroleum reserve, characterizing it is the “strategic political petroleum reserve”:
His latest gambit on Thursday was to say he’ll release 180 million barrels from the national Strategic Petroleum Reserve in the next six months. This would be the biggest release in history and reduce the reserve to its lowest level since 1984. But the oil will need to be replaced, which will push up future demand.
This is one reason markets responded with a yawn. Crude prices fell a mere 4.9%. Markets don’t respond only to short-term demand and supply fluctuations. They also take into account long-term expectations and policy signals. And the Administration continues to signal that its goal is to bankrupt oil and gas producers. But before shooting them, Mr. Biden wants their political help.
which you will notice echoes a point I’ve made here. Well, of course it’s political. Everything a president does is political. I sincerely hope that the president’s actions result in a decrease in the price of gas at the pump. It’s one of the strongest leading indicators of recession in the U. S. There are reasons to believe it will. The amount released is something like 5% of U. S. use. That should be enough to move the needle a little. I hope the president also takes steps to ensure that the strategic petroleum reserve is not needed for, erm, strategic reasons before oil prices come down. Otherwise his actions could result in our being at a strategic liability.
However, the policies taken together seem to me to be an excellent example of dysergy—when the whole is less than the sum of the parts. They look to me to be at cross-purposes. “Use it or lose it” will discourage companies from taking out oil leases on public lands which will reduce production in the long term. It might increase production in the short term but that finding new oil isn’t like turning a spigot. It takes time and investment and a belief that once the investment has been made that those investing will be able to profit by it. And the president’s repeated commitment to ending our use of oil discourages investment.
The wisdom of the use of the SPR really depends on whether shale can increase production by more than one million barrels by November.
I’m guessing no and that it will be irrelevant to the mid-terms.
Not even thinking about the political ramifications. (Through 6 months just gets to election day).
The problem is if shale doesn’t increase production by a million barrels by November; then the market would be faced with a loss of supply of a million barrels — and the risk of serious recession in 2023/2024.
If I were to use the SPR, I would have structured it as a release of up to 1 million barrels a day, so domestic production + SPR release as measured by the energy department was 800K barrels above the benchmark on March 31.
I do not know much about federal lease law. Private contracts modeled after the “Producers 88” form provide for a two stage lease. First, there is about a three year period for the oil company to explore the presence of productive minerals. The landowner gets rent during this period, frequently paid-up front at signing. Afterwards, when the well is producing, the landowner gets paid a royalty based upon the amount of production, and once production stops, the lease stops.
There are probably a lot of variations, but the main point is that oil leases aren’t assume to result installation of a well, other than one or more exploratory wells. They will be looking for the location where they think they can get the best outcome. I just wonder if what is being asked makes business sense to producers. And what should we expect if the producers don’t start producing and the leases are put back on the market? Other producers will lease?
I would think it would reduce the value of future leases.
Both republicans and democrats have used the SPC to soften the blow of increasing gas prices. However, such a gesture has done little but virtue-signal that helpful intentions are being dutifully employed. Punishing oil companies for “sitting†on unused land is also hypocritical, as it’s the government’s regulatory behavior which has discouraged drilling on this land. If the Biden Administration were truly interested in rectifying the high price of fuel, it would reverse earlier policies that have caused our problems in the first place!