By Jim Geraghty
Thursday, October 06, 2022
Politico reports that Democrats are “seething” about the decision by OPEC+ to cut oil production
by 2 million barrels per day.
Well, fellas, if you don’t want OPEC+ to be in a position
where it can influence U.S. gasoline prices a month before the election, you
need policies that minimize the U.S. market’s dependence upon the global oil
market. This means maximizing U.S. oil production and expanding
U.S. refinery capacity.
It would be a mild exaggeration to declare that the Biden
administration has completely stopped issuing leases for oil and gas drilling
on federal lands and in federal waters, but only a mild one. As the Wall
Street Journal reported last month, “President Biden’s Interior Department
leased 126,228 acres for drilling through Aug. 20, his first 19 months in
office, the analysis found. No other president since Richard Nixon in 1969-70
leased out fewer than 4.4 million acres at this stage in his first term.” It’s
not a complete halt, but it’s very close to one. This means that the U.S. is
almost entirely dependent upon oil production from private lands.
The good news is that there’s still a lot of oil beneath
private lands. As of July, the U.S. was producing 11.8 million barrels per day, an
increase from the 11.1 million barrels per day produced in January 2021, the
month President Biden took office. But before the pandemic hit in early 2020,
the U.S. was producing 12.8 million barrels per day, and it even hit 13 million
barrels per day in November 2019. We have the proven ability to produce about
1.2 million more barrels per day than we are, if we want to do so and our
public policies encourage it. But right now, they do not.
The Biden administration keeps insisting that it’s doing
everything it can to bring gas prices down, including releasing oil from the
Strategic Petroleum Reserve — which is now at its lowest level in 40 years. But what’s in
the SPR is oil, not gasoline, and oil must still be
refined. You can’t just pump the stuff out of the ground and put it in your
car.
U.S.
refineries are running at full capacity, or just short of full capacity.
This is why oil from the Strategic Petroleum Reserve releases got sent to
Europe and Asia, because they had the room and equipment to turn it into
actual usable fuel. The U.S. currently has no more spare ability to turn the
oil from the reserve into stuff that will actually make your car move; yelling
at the oil companies isn’t going to change what is fundamentally an engineering
problem.
This lack of capacity is exacerbated by two policy
choices. First, the U.S. almost never builds new oil refineries on its own soil
anymore. According to the U.S. Energy Information Association, the newest
refinery in the United States is the Targa Resources Corporation’s site in
Channelview, Texas, which began operating in 2019 and processes 35,000 barrels
per day. Before that, the newest refinery with significant downstream unit
capacity was Marathon’s facility in Garyville, La. That facility came online
in 1977.
The second problem is that, in addition to not creating
new capacities, old ones are being taken offline and turned into
biofuel-processing plants — again, in response to the contention of
Democratic policymakers that fossil fuels are obsolete and “alternative fuels”
are the way of the future.
I’ve been beating the drum on this issue all year, but no
one in the administration wants to listen. We’re getting back to pre-pandemic
levels of demand, while our refineries are pumping out about a million fewer
gallons of fuel per day than they did before the pandemic. And it’s going to
get worse. Chemical maker Lyondell Basell Industries announced in April that
the company will permanently close its Houston crude-oil refinery by the end of 2023. That plant refines about 263,000
barrels of gasoline, diesel, and jet fuel per day.
The cost of refining isn’t the biggest factor in the
prices at your local gas station, but it’s a chunk of the cost. As of August,
the cost of crude was 57 percent of the cost of a gallon of regular unleaded
gasoline, and the cost of refining it was 15 percent. Another 15 percent went
to distribution and marketing, and 13 percent of the cost, on average, went to
taxes. For diesel, 45 percent is the cost of crude, 26 percent is the cost of
refining, 17 percent is distribution and marketing, and 12 percent goes to
taxes.
Biden has declared that the profit margins of oil
refiners are “not acceptable.” But refinery capacity is subject to supply
and demand, just like everything else. When there is great demand for refinery
capacity but limited supply, prices go up. If we ever increased the number of
refineries in this country, the cost of turning oil into unleaded gasoline,
diesel fuel, and jet fuel would come down.
In other good news, the U.S. has an estimated 38.2
billion barrels of proven reserves, meaning that if we never imported another
drop, we could operate for 5.2 years at our current level of demand. It’s a bit
tougher to get a sense of what our “normal” gasoline-demand level is since the
pandemic, but the range of consumption in 2022 has been lower than the
range of consumption from 2015 to 2019.
This is where Energy secretary Jennifer Granholm would
wag her finger and assert that it’s your own fault for not buying an electric
vehicle. “People can buy electric vehicles and don’t have to ever worry about
going to fill it up at the gas pump!” she declared
in March. Currently, it’s estimated that around one percent of the 250 million cars, SUVs, and
light-duty trucks on U.S. roads are electric.
The U.S. could be minimally impacted by the decisions of
OPEC+ if we wanted to be. Back in 2018, you saw headlines such as, “How The Fracking Revolution Broke OPEC’s Hold On Oil Prices.”
We choose to be dependent upon the goodwill of oil-rich states such as Saudi Arabia
because genuine energy independence would require us to enact policies that
environmentalists don’t like.
Biden the Pushover
Back in April, Phil Klein observed that President Biden still talks like a
senator — that is, Biden isn’t careful about what he says because his
formidable political experience was as a senator, a position in which
off-the-cuff statements just didn’t matter as much.
Despite being a well-known elected official for decades,
Biden didn’t have a ton of responsibility. He was one of 100 senators and was
rarely the deciding vote.
As vice president, Biden was undoubtedly an important
voice in the room, but no one ever doubted that President Barack Obama had the
final call. Biden infamously argued against the raid that killed Osama bin
Laden. Obama was apparently unimpressed with Biden’s decision-making, warning Democrats behind the scenes as they considered
their options in the 2020 cycle, “Don’t underestimate Joe’s ability to f***
this up.”
The official narrative was that the two men loved each
other like brothers, but the truth was always more complicated. There’s good
reason to think that Obama saw Biden as a somewhat ridiculous but lovable
mascot, a necessary concession to those who would be uncomfortable with the
young African-American president and who needed to see a white, so-called elder
statesman by his side. Obama could have cleared the field for his vice
president in either the 2016 or the 2020 cycle, if he’d felt that was the best
course of action for his party and the country. He clearly chose not to do
that.
Now nearly 80, Biden is in the big chair and making the
decisions himself. Apparently, he is notoriously indecisive, a character trait that very
few people in the mainstream media felt was worth mentioning during the 2020
presidential campaign cycle. Hey, it’s not like the president of the United
States has to make a lot of decisions, right?
We don’t know what happened behind the scenes in Saudi
Arabia when President Biden met with Crown Prince Mohammed bin Salman. He said
he confronted the prince about the killing of Jamal Khashoggi; the Saudi foreign minister said he did not. I think it is
safe to assume that MBS was neither intimidated nor impressed with what he saw
during his in-person meeting with Biden.
Remember, after the fist bump, even Stephen Colbert started joking that Biden looked
like a weak, hapless old man out there.
Biden left Saudi Arabia with a pocketful of Saudi
promises, almost none of which were kept. (As CNBC characterized it, “Weeks later, however, OPEC+ raised oil output by a minuscule 100,000 barrels per day in
what was widely interpreted as an insult to Biden.”) And then yesterday brought the metaphorical middle finger:
an OPEC+ cut in oil production a month before the midterm elections. MBS has
absolutely no fear of crossing Biden.
So . . . what does Vladimir Putin see?
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