House Republicans demanded this week that President Joe Biden "unleash American energy dominance." While it's unclear what exactly that means from a policy standpoint, the facts show that the problem with high gas prices comes not from government, or Russian sanctions, but from oil companies who aren't using what they have and they're prioritizing stock buybacks while scoring record profits.
House Republicans are united in demanding that President Biden unleash American energy dominance.pic.twitter.com/HhQbmch8qw— House Republicans (@House Republicans) 1646756008
The 2021 report from the U.S. Energy Information Administration showed that the oil that the United States gets from Russia was a small fraction (3.3 percent) of the entirety of the U.S. imports, totaling 72.6 million barrels. During the 2020 pandemic, due to lower demand, that import was even smaller, at 1.3 percent, which makes up 27.7 million barrels of crude oil.
Already Biden has agreed to release 60 million barrels of oil from strategic petroleum reserves after releasing 30 million in 2021. So, if the United States has already offset the Russian import, why do gas prices continue to climb?
"Commodities have been weaponized for a long, long time . . . it’s always a question of when does a state pull the trigger,” Frank Fannon, former assistant US secretary of state for energy resources told the Financial Times.
In a briefing last week, press secretary Jen Psaki explained that of the drilling leases the government approved for oil companies, they're not using 9,000 of them. She argued that if conservatives claim more American oil is needed, they should "ask the oil companies" why they're not drilling or supplying what they have.
CNN Business reporter Chris Isidore explained there are reasons for that. First, like the rest of the world, oil companies are coming out of the pandemic when they slashed their workforce by significant amounts at a time when demand for petroleum was lower because people weren't driving as much. They need skilled workers to do the job.
Robert McNally, president of consulting firm Rapidan Energy Group claimed, "It's not like they're available at a premium price. They're just not available."
Fortune reported in Oct. 2020 that 107,000 oil energy jobs were cut that year. Some of them did it while still scoring bailouts by the government, The Guardian explained. That adds to 2019 Whiting Petroleum, which cut its job force by one-third, reported the Denver Post. Chesapeake Energy cut about 400 employees in 2018 and Halliburton cut 8 percent of its North American workforce. Both companies focus predominantly on natural gas. Meanwhile, the low petroleum prices also resulted in bankruptcies across the industry.
An International Monetary Fund (IMF) study showed that in 2017, the United States contributed $649 billion in subsidies to oil companies. That doesn't include tax benefits. By the time the pandemic rolled around, the companies were able to collect even more help.
It's clear things are changing post-pandemic, but the oil companies still feel the panic, McNally told CNN. The problem with the claim, however, is that oil and gas companies are still making record profits and doing extensive stock buybacks. In 2021 alone, oil companies saw their profits soar to $174 billion, The Guardian reported. In 2018, the net income for 43 U.S. oil producers was $28 billion. In 2019, GlobalData said that the oil and gas sector saw the largest profit growth among the top 10 business sectors.
"They're more confident we don't have to worry about a bust, [but] they're not uncorking the champagne," he said. "2020 is still fresh in their minds....They're still scarred."
Then there's the stock problem. According to the CNN report, no one wants to buy any because their yield has lagged behind the rest of the market for two years.
"Oil and gas companies do not want to drill more," said Raymond James analyst Pavel Molchanov. "They are under pressure from the financial community to pay more dividends, to do more share buybacks instead of the proverbial 'drill baby drill,' which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed."
Yet the GOP is still pushing that same "just drill more" philosophy. Even if oil and gas companies begin drilling on the 9,000 leases today, it wouldn't hit the market for six months to a year, the report explained. The idea of building new pipelines, drilling on public lands or exploring the Grand Canyon for oil wouldn't make a difference in the market for three years or more.
Exxon CEO Darren Woods made it clear that drilling isn't their company's focus this year, despite the demand.
"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," he said.
Yet, when asked about drilling on the land they already have leases for, the American Petroleum Institute complained the real reason gas prices were so high is that Biden likes green energy.
"It's really a distraction from the fact that this administration has paused leasing on federal lands, something that we're concerned about and something that we think needs to continue right away," said American Exploration & Production Council (AXPC) CEO Anne Bradbury. She went on to say that oil companies are getting more oil out of public lands than at any time in the past 20 years. She conveniently left out that drilling on public lands wasn't happening very much 20 years ago because it was incredibly unpopular, and thus lawmakers opposed it. Also, Biden was told he can't pause the leases by a federal court.
Former President Barack Obama even moved in 2014 to block fracking on public lands, but Trump repealed that when he took office in 2017. Biden tried to go back to reinstating the ban, but the effort was thwarted by a federal judge who said he couldn't stop it. The aftermath shows that he has issued more leases on public land than even Trump did. Just 7 percent of the U.S. oil comes from public lands.
As the Financial Times explained, these concerns come as "the seven supermajors — including BP, Shell, ExxonMobil and Chevron — are poised to return $38bn to shareholders through buyback programs this year, according to data from Bernstein Research. Investment bank RBC Capital Markets put the total figure higher, at $41bn."
The head of the US’s biggest shale oil operator, Scott Sheffield, CEO of Pioneer Natural Resources, told FT in another report that "America’s shale oil patch — hampered by supply chain constraints and demands from Wall Street that operators use their oil price windfall to pay dividends rather than drill more wells — would take many months to sharply boost output."
So, when Republicans demand more drilling, Psaki is correct, it isn't entirely a Russia problem. It's that the oil companies are prioritizing other things over production.
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