When Trump lost the 2020 election, U.S. oil production was around 13 million barrels per day and the price was around $41 per barrel. Immediately following Biden's win, prices ramped up rapidly, reaching $59 per barrel by his inauguration. Therefore, it would be tempting to claim that Biden is solely responsible for the high oil, and therefore gasoline, prices. Of course, it is more complex than that. Below is a graph of U.S. oil production and it contains three features that need explaining.
U.S. oil production fell year by year up to about 2008. This was primarily because recoverable oil reserves was falling. This led to the Peak Oil theory which began with M. King Hubberts 1956 paper. It did drive the consensus on oil futures and the belief that, even in the mid range, there was a critical need to find alternative fuels.
Then, in the late 20th Century, technologies emerged that allowed the oil industry to enhance oil production. By 2008, the implementation of enhanced recovery technologies caused U.S. oil production to increase and it continued to increase, with a few reversals to all time highs.
As background, on average, an oil well will give up about 1/3 of its contents with ease. Another 1/3 is available, but not easily and not cheaply. The last 1/3 is, at present, is not recoverable. Because, over time, the middle 1/3 is becoming cheaper to extract, especially when enhanced by fracking of previously uneconomic reserves, the U.S. nearly doubled its recoverable reserves and quickly became one of the largest oil producers in the world. By 2019, production had increased so much that the U.S. had become a net exporter.
However, by April of 2020, oil prices had fallen to under $21 per barrel. That was insufficient to make much of the increased production from enhanced recovery technologies profitable. Consequently, the oil companies turned off the spigot on much of it. By August of 2020, prices had rebounded to nearly $41. However, production had fallen from around 13 million barrels per day to around 9.5 million barrels per day.
Under normal circumstances, the run-up of prices would cause production to rebound. However, simultaneously, Biden had quite publicly announced a war on fossil fuels. Once in office, he undertook a reinstitution of oil exploration and development regulations. So, of course, the price of oil continued to increase. In April of 2022 it fell by $10 per barrel. That was the same point in time that the Biden Administration announced that it would release one million barrels per day from the Strategic Oil Reserve. Simultaneously, the higher prices did cause a rebound in production to about 11.5 million barrels per day. So, the effective supply, with the Strategic Oil Reserve included, was back up to 12.5 million barrels per day or just 500K barrels per day less than the peak levels. also, with the end of the Pandemic, oil demand increased so that the shortfall was an additional 1.0 million barrels per day. The problem is that high oil prices drove gasoline and natural gas prices to a level that made them a political liability. Consequently, the release of 1 million barrels per day ends at the midterm elections. It's purpose is political, not economic and the price decrease won't last.
Thoughtful Rightish media have charged that the Left has a political agenda to drive up oil prices to make 'renewable energy' more attractive. Some on the Left have been saying this quiet part out loud. This is not really controversial. The fact is that eventually, renewable energy sources will become less expensive and fossil fuels will become more expensive and, at some point, fuel switching will become substantial. However, naturally, that is two to three decades in the future. The Left is trying to accelerate that natural process and make it happen now. They put forth several completely spurious arguments in support of their agenda.
Of course, the primary one is that of global climate change. It is true that fossil fuels are increasing atmospheric CO2 at the rate of about 0.45% per year. Also, while there is still significant uncertainty in the critical parameter of Equilibrium Climate Sensitivity, there is no doubt that this is increasing global temperatures. However, it is not clear whether, on balance, this is a good thing or a bad thing. I discuss this in greater detail in my article, ‘Issue 11.1: Intentionally Recreating the Early Eocene Climatic Optimum’.
A more subtle argument is that in order to allow all of the world’s population to enjoy the economic bounty that Western countries currently enjoy would require at least 300 million barrels per day of oil production. This level of demand would simply outstrip any plausible increase in the supply. So, relying on fossil fuels going forward is tantamount to committing much of the world to relative poverty, essentially, forever. Or at least until a different source of bountiful and inexpensive energy can be found. It is a good argument in the sense that it probably is impossible to create the standards of living of the advanced countries relying primarily upon fossil fuels. This is obvious, because the Paris climate accord, while expecting China and India to lower its energy use as a percent of GDP, is allowing their use to grow. In other words, when it comes to the climate or economic development of the 3rd world, economic development wins. However, as stated before, oil and gas probably only has 20 to 30 years before it becomes too expensive to compete with other energy sources. It is unlikely that the 3rd world can be brought to advanced nation economic levels in less time.
As an aside, one of my very intelligent readers argued that the U.S. will not experience a 'divorce' because, "If they include Texas and Oklahoma, then there is some argument for the backing of an oil industry economy, but I don’t think the oil companies want to straddle such a chasm" I appreciate commentary, however, there is a fundamental misunderstanding of how the O&G industry operates and where their interests lie. The government is throttling O&G supplies by regulating exploration and development to some degree everywhere, but dramatically, since 1995, in the Eastern Gulf of Mexico. The large oil companies are not totally against the policy because it tends to keep oil prices high. However, there are independent oil companies that would benefit from a loosening of oil restrictions. With independence, Texas, Louisiana, Mississippi, Alabama and Florida will all substantially benefit from gaining control of the oil economy.
Because the Left wants to quickly convert to 'renewables', which will require a rapid increase in electric generation from sources other than fossil fuels, a broad spectrum of political agendas will need to be pursued. As we see below, almost none of current world transportation energy consumption is electricity.
In the rush to electrify the West, very poor technological choices are being made. A good example is putting 500kg or more of lithium ion batteries in the cars. Although they are projected to have a 20 year lifespan, if most vehicles are electric, the consumption of batteries will explode. A much better technology is induction charging from the roadway. This can reduce the battery requirements by at least 95%. So, we can conclude that in addition to the absence of a credible source of electricity of electric cars, the proper technology is not yet developed.
For most of the world, fossil fuels are likely to be the best alternative for at least 20 years, and perhaps longer. When it is replaced, it will be with enhanced geothermal and ocean energy systems that are currently impractical because they are in their technological infancy. As the title says, Energy is not in crisis. Fossil fuels will be replaced long before they are depleted. However, there are political agendas that the left considers to be more urgent. There really needs to be a rise in compensating political agendas that place renewable energy technologies in their proper time frame.
An excellent article, Michael. Very good analysis of the many factors at play.
And thanks for your good point on the proximity of the southern states to GoM oil. I’d thought of the northern states shale fracking.