Notwithstanding some recent declines, domestic crude oil prices in the U.S. are about 45% higher than when President Biden was inaugurated. Global crude oil prices are about 48% higher. U.S. gasoline prices are about a dollar higher per gallon. Indeed, between the inauguration and June 2022, gasoline prices more than doubled. These prices began to increase almost monotonically long before the Russian invasion of Ukraine on Feb. 24, 2022.
It is the hostility of the Biden administration toward domestic fossil-fuel production that is the actual source of these price dynamics. That stance portends less future domestic production, and less global production due to higher costs. (The very fact that the fossil fuel industry prefers to expand production in the U.S. rather than elsewhere demonstrates a belief that the incremental costs of the former are lower.)
The most recent manifestation of that hostility is the new five-year plan for leasing in federal waters on the Outer Continental Shelf, for the 2023-2028 period. Consider this explicit parameter in the plan (emphasis added):
… this Proposed Program includes, for further analysis and public comment, a range of potential OCS oil and gas lease sales from zero lease sales anywhere on the OCS to up to ten potential sales in the Gulf of Mexico Region Program Area 1 (i.e., up to two annual sales) and one potential lease sale in the northern portion of the Cook Inlet Program Area offshore south-central Alaska.
Accordingly, zero leasing is an explicit possibility. Consider the reality that the time lag between acquisition of a lease and actual production is between seven and ten years, needed for preliminary geologic investigation, three-dimensional seismic analysis, scheduling of a drilling rig and completion of an exploratory well, drilling and testing of additional exploratory and boundary definition wells, and the installation of ancillary facilities. Oh, and there also is the permitting process; a lease is not a permit, and the process is not simple and brief.
The explicit possibility of zero leasing is deeply problematic in terms of advance planning for the fossil producers. They cannot bid on proposed lease sites without advance analysis, which is very far from cheap, and the possibility of zero lease sales makes any such expenditures highly risky. Can anyone be surprised that this possibility will reduce both the number of sites of interest and the dollar magnitude of the bids?
It is instructive to compare the federal OCS lease numbers for the first two years of all administrations going back to the Kennedy years. The Biden administration has made two lease offerings; the average since the Kennedy administration is five. The number of tracts leased, respectively: 307 and 733. Millions of acres leased, respectively: 1.7 and 3.8.
Fossil fuels are one important form of national wealth; artificial constraints on producing it make that wealth smaller, an outcome that imposes real costs upon actual people. Competitive market forces drive the allocation of that wealth among landowners, producers, workers, and myriad other individuals and groups contributing to the production of fossil fuels from the federal OCS. The Biden hostility to fossil production and the unsubtle effort to suppress leasing will impose losses upon the taxpayers who are the ultimate beneficiaries (“owners”) of lease payments and royalties derived from fossil production from the OCS.
The Biden administration is desperate to pretend that none of these adverse outcomes — less national wealth and higher energy costs — are the result of its policies. Instead, the excuses began almost immediately. It was Vladimir Putin’s fault, despite the fact that prices already had increased by about half before the Ukraine invasion. The fossil producers are engaged in “price gouging” and “profiteering,” an argument rather silly in that the international market for crude oil and refined products is largely competitive; such purported profiteering in one market can be predicted to induce an increase in gasoline exports to that market by exporters attempting to capture such high prices for themselves.
Then there is the argument that oil producers are allowing “9,000” approved leases on federal land to go unused. Because there are about 37,500 leases in effect, a 76% utilization rate would be a historic high. Many leases are mired in litigation by environmental groups aligned politically with the administration. Horizontal drilling means that individual leases are not usable without a geographic leasehold that is complete, and the Biden hostility to leasing exacerbates this problem.
The latest OCS proposed leasing program is perverse: It will contribute to higher energy costs, smaller economic returns for taxpayers and the economy as a whole, and it will yield no environmental benefits. Indeed, to the extent that overseas production of fossil fuels replaces forgone domestic production, global environmental quality will decline because U.S. environmental standards are the best in the world. The proposed OCS leasing program is woefully deficient, as it is all cost and no benefit. It should be readdressed and restructured completely.