How Biden Controls Gas Prices
--
In case you haven’t been on social media — or anywhere in public — lately, you might not know that gas prices have risen over the last few weeks.
There are a variety of reasons for this increase, but there’s been a prevailing factor cited in certain political and media circles that cannot be ignored— Joe Biden.
According to the Fox News/Newsmax/Breitbart crowd, Biden has a far greater influence over fuel prices than any of the other things that affect it.
The problem is, presidents do not control gas prices.
Now before you stop reading, let me challenge you here — if you’re interested in the facts and data on the matter and actually want accurate information on the subject instead of just rhetoric and talking points, stay with me until the end.
Society is not well served by willful ignorance, however blissful it may be for its adherents.
To start, I am not an expert on energy economics.
However, there are plenty of people out there who are, and this article contains facts and data from them.
To keep it simple, I’ll break it down to a couple of key points:
• The halting of the Keystone XL pipeline project
• Domestic oil production/energy independence
The Keystone XL Pipeline Project
When Biden took office in January 2021, one of his initial executive actions was to halt construction on the Keystone XL Pipeline (which has been engaged in legal battles for over a decade now) by revoking the March 2019 permit issued for it.
On March 17, 2021, Texas Attorney General Ken Paxton (who is currently up for reelection despite the fact that he’s been under indictment since six months after taking office in 2015 in addition to a whistleblower complaint citing “improper influence, abuse of office, bribery and other crimes” in October 2020) filed suit against Biden for this move.
Since then, the Fox News and further right-leaning crowds have mentioned the Keystone XL project as a factor in our current fuel prices, arguing that if Biden opened the construction of it back up our gas prices would go down.
The problem is, the Keystone Pipeline has been operational since 2013. It imports tar sand oil (which is the dirtiest form of crude oil) from Alberta, Canada to Gulf Coast refineries in Texas prior to two-thirds of it being exported internationally.
The Keystone XL project, as shown on the map above, would have simply been a shortcut off of the current route.
The protests surrounding its construction have centered on the protection of indigenous lands and the environmental and health concerns that come along with transporting tar sands oil, including “nausea, headaches, skin rashes, memory loss, joint pain, exhaustion, and respiratory problems,” which have forced several families to leave the area where extraction took place.
In addition, a community 124 miles downstream from the excavation area experienced a 30 percent increase in cancer rates over what would be expected in addition to an exceedingly high number of cases of rare cancers in the town of 1,100 residents.
Scientific studies have linked elevated levels of these specific cancers to exposure to certain constituents in petroleum products and the chemicals produced in petroleum manufacturing.
Another study found that the level of air pollution in Alberta’s tar sands operations were comparable to that of a major city and could “affect regional weather patterns and increase the risk of lung and heart disease.”
Indigenous groups in South Dakota actively protested the pipeline’s expansion as well.
“Pipelines like this don’t build up the economy at all. They only make a few people rich, create very few, temporary jobs and contribute to climate change, which is a problem not only for the Indigenous Peoples of this region but for humanity as a whole. We don’t want to see that happen.”
— Nick Tilsen, President, NDN Collective & Citizen of the Oglala Lakota Nation
Members of the Sioux Nation in Montana have cited the need to protect their people’s water supply from contamination by oil.
Farmers in South Dakota and Nebraska have also organized against the pipeline’s expansion across their lands because they also want to protect their groundwater source — the Ogallala Aquifer, which lies below the surface of eight states including Nebraska and is used for irrigation of farmland as well as for public water supply — and their farm and ranch land from the erosion and pollution caused by the pipeline’s construction and operation.
One such farmer, Art Tanderup of Neligh, Nebraska, refused to sell the rights for construction across his farmland when approached by TransCanada, the company who owns the Keystone Pipeline. Although many of his neighbors had signed with TransCanada, the Tanderups rejected the $20,000 offer in favor of taking their chances with a possible eminent domain case by a foreign entity.
“For people who talk about the jobs, they don’t talk about the landowners out here and how it impacts their lives and the jobs that we do raising clean food and fiber for this country.”
— Art Tanderup, Nebraska Farmer
The Tanderups grow corn, soybeans, and rye on land that Art’s family has owned since the early 1900s.
For their part, a Nebraska court ruled it unconstitutional for a private foreign company to take individual’s property via eminent domain.
Notably, less than 8% of the Keystone XL had been completed by the end of 2020–7.8% by the time Biden revoked the permit in January 2021.
The U.S. Supreme Court decided in July 2020 to uphold a lower court ruling (by U.S. District Judge Brian Morris in Montana) to halt its construction, saying that issuing the construction permit was “allowing companies to skirt responsibility for damage done to water bodies.”
Therefore, construction had already been terminated on the project for over six months prior to Biden’s inauguration.
Furthermore, Forbes and Consumer Watchdog both point out that the cancellation of the expansion of the Keystone Pipeline has had either a very limited effect on U.S. fuel pries or would increase prices in the Midwest in the long run.
Either way, the oil transported through the pipeline wouldn’t have been a direct contribution to the U.S. market, and as such, would have had a negligible effect on fuel prices in the U.S. And although reports of job losses related to the project numbered anywhere from 11,000 to 83,000, its owners gave a significantly more conservative estimate of 1,000, the majority which would have been temporary, lasting four to eight months.
The State Department forecasted that no more than 50 jobs, some of which could be located in Canada, would be required to maintain the pipeline. Thirty-five of them would be permanent, while 15 would be temporary contractors.
— Austin American Statesman
Ultimately, the owner of the project, TC Energy Corp, officially cancelled its expansion in June 2021.
Domestic Oil Production & Energy Independence
Another factor often mentioned in discussions of the current gas prices is the idea of domestic oil production and energy independence.
According to many on the right, the U.S. reached oil independence under Trump. However, it isn’t that simple.
What people might be referring to here is the fact that the U.S. became a net energy exporter in 2020, meaning that we exported about 8.51 million barrels per day and imported about 7.86 MMb/d of petroleum that year.
In addition, our production outpaced our consumption at that point, with about 18.40 million barrels per day production and consumption at about 18.12 MMb/d.
However, there are a couple of things to point out here, both of which are observable on the chart above.
First, it is clear that there was a notable spike in U.S. petroleum production beginning in 2009, the first year of the Obama administration. For the next eight years, that number steadily rose.
Other than a slight and momentary dip in 2016, that trend in production continued to its peak at 19.27 million barrels per day in 2019.
Therefore, contrary to the popular narrative on the right, the Obama administration contributed tremendously to achieving net oil production by 2020.
Secondly, there is an obvious dip in both production and consumption in 2020. Predictably, this correlates with the onset of the pandemic and the resulting stay-at-home orders put in place in the spring of 2020.
These factors are important because they have had a lasting impact on fuel prices through today.
To start, let’s go back to April 2020.
On April 2, 2020, “Trump told Saudi Crown Prince Mohammed bin Salman that unless the Organization of the Petroleum Exporting Countries (OPEC) started cutting oil production, he would be powerless to stop lawmakers from passing legislation to withdraw U.S. troops from the kingdom.”
At that point, retail fuel prices had dropped from an average of $2.60/gallon in 2019 to $2.00/gallon by the last week of March 2020. According to Reuters:
Trump initially welcomed lower oil prices, saying cheap gasoline prices were akin to a tax cut for drivers.
That changed after Saudi Arabia announced in mid-March it would pump a record 12.3 million bpd — unleashing the price war with Russia. The explosion of supply came as governments worldwide issued stay-home orders — crushing fuel demand — and made clear that U.S. oil companies would be hit hard in the crude price collapse. Senators from U.S. oil states were infuriated.
On March 16, Kevin Cramer (R-ND) was among 13 Republican senators who sent a letter to Crown Prince Mohammed reminding him of Saudi Arabia’s strategic reliance on Washington. The group also urged Commerce Secretary Wilbur Ross to investigate whether Saudi Arabia and Russia were breaking international trade laws by flooding the U.S. market with oil.
On March 18, the senators — a group that included Sullivan of Alaska and Ted Cruz of Texas — held a rare call with Princess Reema bint Bandar bin Sultan, the Saudi ambassador to the United States. Cramer called the conversations “brutal” as each senator detailed the damage to their states’ oil industries.
Trump ultimately convinced Saudi Arabia to cut production, a move that was said “could eventually boost prices…as governments worldwide start to open their economies and fuel demand rises with increased travel.”
As the COVID cases in the U.S. continue to drop and the last of restrictions are being lifted, that prediction is ringing true. Demand has increased in the absence of a corresponding increase in demand and fuel prices have risen in a real-world example of the concept of supply and demand that we learned in elementary school.
The very thing that the right is currently praising Trump for — low fuel prices — were precisely what led Trump to intervene in international commodity markets and act on the oil and industry’s behalf, not out of what was best for an American public that was in the midst of reeling from the pandemic.
Accordingly, the argument that fuel prices would be lower at this point in time if Trump were president is, going by easily observable past history, unrealistic at best.
In addition to a reduction in international production, U.S. fuel production has also come to a standstill — and not due to any restrictions from the Biden administration.
On the contrary, under the current administration permits for domestic drilling permits have increased.
The Biden administration approved 3,557 permits for oil and gas drilling on public lands last year, outpacing the Trump administration’s first-year total of 2,658.
In fact, according to the latest data set from the Bureau of Land Management, there were 9,173 approved (but unused) permits to drill as of December 31, 2021.
— Newsweek
This begs the question of why these oil companies are not increasing production considering that they have the green light for drilling.
The CEOs of fracking and drilling companies have made it exceedingly clear that they will not increase production — and therefore supply — because they are making windfall profits at the current prices.
According to Scott Sheffield, CEO of Pioneer Natural Resources — the largest shale oil operator in the United States — the industry would not increase production this year due to “demands from Wall Street that operators use their oil price windfall to pay dividends.”
Current domestic production of oil remains well below existing capacity. Prior to the pandemic, the United States was producing about 13 million barrels per day. It is currently producing about 11.6 million barrels. Any effort to accelerate production “would require investors’ blessing.”
— Wall Street Journal
In other words, shareholders prefer to keep the supply constrained and prices high.
Exxon CEO Darren Woods echoed this sentiment in January, saying:
“One of the primary objectives we’ve had in looking at the portfolio is less about volume and volume targets and more about the quality and profitability of the barrels that we’re producing.
“That’s been the focus. And as we move forward, we’ll continue — you’ll continue to see the quality of the barrels or profitability of the barrels increase.”
— The Intercept
The current situation has also brought renewed attention to the allocation of resources to oil subsidies over the last few decades over renewable energies.
According to the International Energy Agency, global subsidies for the oil industry totaled $440 billion in 2021.
They note that the fall in fossil fuel prices and overall energy use brought the value of fossil fuel consumption subsidies down to a record low of about $180 billion, down 40% from 2019 levels.
However, by 2021 “subsidies stormed back in 2021 to $440 billion — almost back to 2018 levels — as energy prices and use rebounded, and as policy makers were hesitant to continue reforming subsidy schemes during such an uncertain economic recovery.”
Now let’s look at things President Biden actually does control.
In 2021, 80 million acres in the Gulf of Mexico were put up for sale by the Biden administration following a decision by a Louisiana judge that struck down the moratorium on drilling on federal lands issued by executive order shortly after Biden took office.
Although only 1.7 million of those acres had been sold, it would have been the largest sale of offshore oil and gas leases in U.S. history.
However, in January a federal judge for the United States District Court for the District of Columbia ruled that “the Biden administration did not sufficiently take climate change into account when it auctioned the leases late last year.”
Biden has also released record amounts of oil from the U.S. strategic reserve, the only other thing he actually controls in addition to drilling on federal reserves. Still, these things have had a minimal impact on the current situation.
In the meantime, Exxon Mobil and Chevron are boosting oil production in West Texas and New Mexico, but they’ve warned consumers that meeting the demand will take time.
Compounding the issue, sanctions on Russian oil in response to Putin’s invasion of Ukraine, despite having widespread bipartisan support, are expected to further raise prices.
Carlos Pascual, the former U.S. ambassador to Ukraine under former President George W. Bush who is now senior vice president for global energy at IHS Markit, said the worsening human toll of Russia’s invasion in Ukraine that was driving the international effort to punish Moscow was only in its early stages.
— Politico
“The global impacts on markets will continue,” he told an audience. “I don’t think it’s going to be over in a few months — potentially years.”
