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White House, Republicans and oil industry spin domestic oil production facts

With the U.S. blocking new purchases of Russian oil, the White House, Republicans and the oil industry are engaged in a disagreement over whether the administration has hampered domestic oil production on federal land or whether the industry is holding back. Both sides are spinning the facts.

The competing claims have erupted after nearly two years of rising gas prices and as the Russian invasion of Ukraine spotlighted the Russian oil the U.S. has imported for years. In 2021, Russia accounted for 7.9% of total U.S. petroleum imports. 

U.S. domestic production is still recovering from the economic impact of the COVID-19 pandemic, which caused the price of oil to plummet in early 2020, followed by a reduction in capital expenditures in the industry. Experts say there’s no short-term fix for increasing production or bringing down gas prices, despite political arguments that suggest otherwise.

In announcing the ban on new imports of Russian oil, liquefied natural gas and coal on March 8, President Joe Biden called on U.S. companies to produce more. The U.S. oil and gas industry has “9,000 permits” on federal land, he said, that “they could be drilling right now” to increase production and lower prices.

There were 9,173 approved and available permits for federal land by the end of 2021, but that’s not unusual, nor is it a quick process to start production on them.

The industry has said the Biden administration is “misusing the facts,” by ignoring the still-lengthy process to drill on those permits, and, along with some Republican lawmakers, has countered that the Biden administration’s policies have hurt production, pointing to a pause in new leasing of federal land and water (which was then blocked by the courts) and the cancellation of the Keystone XL pipeline. On CNN’s “State of the Union” on March 13, Republican Sen. Rob Portman charged that such actions are “leading to less North American energy production.”

“Both sides have some truth and some misstatements or exaggerations,” Samantha Gross, director of the Energy Security and Climate Initiative and a fellow in foreign policy at the Brookings Institution, told us in an email. “I’m disappointed to see both sides arguing about this. US oil and gas can be helpful, but not instantly, and Biden’s slowing of federal leasing is a SMALL issue for producers, and has made no difference at all in what is being produced today.”

Keystone XL would have delivered Canadian oil, ultimately to Gulf Coast refineries, and “wouldn’t have been online by now under any circumstances,” Tom Kloza, the global head of energy analysis and a co-founder of the Oil Price Information Service, told us last month.

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The recent price of oil, meanwhile, “doesn’t really have much to do with US crude production,” Kloza told us in an email. When he sent us that message on March 15, crude oil prices had dropped from the previous week because “the market overestimated how much Russian crude was impeded, and it underestimated the zero tolerance policy of the Chinese for COVID outbreaks.” New lockdowns in China due to an omicron variant surge could reduce global demand for fuel, as the country is the largest importer of oil in the world. 

Domestic supply

On March 8, Biden said: “First, it’s simply not true that my administration or policies are holding back domestic energy production,” and went on to talk about federal property. “In the United States, 90% of onshore oil production takes place on land that isn’t owned by the federal government,” he said. The other 10% is on federal land — where those 9,000 permits are.

“They have 9,000 permits to drill now,” Biden said of the oil and gas industry. “They could be drilling right now, yesterday, last week, last year. They have 9,000 to drill onshore that are already approved. … They are not using them for production now. That’s their decision. These are the facts. We should be honest about the facts.”

Those permits include those approved under both Trump and Biden, but some liberal groups also have been critical of the pace at which the Biden administration has approved drilling permits.

The same day, when asked what the administration could do to protect Americans from higher prices, White House Press Secretary Jen Psaki said the industry “could do more,” also pointing to these approved, but unused, permits. “So, it’s really up to the oil companies to determine whether they are going to — as well as Wall Street — whether they’re going to reinvest these war profits from high prices back into the economy, raise production, and lower prices to American consumers. And that pressure should be on them,” she said.

Gross said there wasn’t anything unusual about companies having “a backlog of leased land,” and it would take time for a company to get other needed permits and even do “exploratory work” to see where drilling would make sense. “New production takes time. For in-fill shale oil or gas wells in areas that are already being developed, you might get some new drilling and production in a matter of months. Any new leases would take years to produce. This won’t be quick.”

That was partly the argument from the American Petroleum Institute, an industry trade association. Mike Sommers, API’s CEO, told Bloomberg News this month: “Just because you have a lease doesn’t mean there’s actually oil and gas in that lease, and there has to be a lot of development that occurs between the leasing and then ultimately permitting for that acreage to be productive.” Sommers said the administration was “purposefully misusing the facts here to advantage their position.”

The economic downturn due to the COVID-19 pandemic is “the main culprit for why we have a supply crunch,” Abhi Rajendran, head of global oil/downstream markets, North America Energy Research at Energy Intelligence, told us in an interview.

The price collapse in early 2020 led to “a massive reduction” in capital expenditures, with companies going into a “fetal position” to “weather the downturn,” he said, and there has been only “a very modest recovery” since in terms of capital spending. It dropped about 25% from 2019 to 2020, and went up by only 3% to 4% in 2021, compared with 2020, he said.

It will take time for supply to increase, he said, due to the pandemic’s impact on “the whole ecosystem”: labor, oilfield service supply, equipment supply issues. And in the meantime, demand is back up to pre-pandemic levels.

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U.S. crude oil production dropped 8% from 2019 to 2020, and another 1.1% in 2021, according to the Energy Information Administration.

The White House also has pointed to oil companies wanting to return cash to investors. “The phenomenon that we’re actually seeing is much more about firms wanting to return cash to investors than about a lack of opportunity,” Psaki said.

Rajendran said the relationship between companies and investors is a factor and a key one to watch. The supply crunch has been “exacerbated” by investors “shifting their preference, away from growth” to “much more restrained spending.” They have pushed companies to prioritize cash flow generation. “This was actually a dynamic that was already kind of taking off, you know, pre-COVID. It really kind of kicked into gear over the last couple of years,” he told us.

The 9,000 permits, however, “in the grand context of things … are not really going to do much to sort of stimulate near-term supply,” he said. And they aren’t going to affect prices “anytime in the short term.”

Gross said the political arguments are “just a lot of finger pointing when the truth is that there’s not much Biden can do to make the situation better in the short term, nor have his policies to date made things worse.”

Rajendran agreed that the Biden administration “has very little … direct responsibility for where we are from a supply standpoint.”

But he said the “growing focus on the energy transition” to clean energy “has probably taken away focus from … making sure we have kind of enough supply of oil, gas and things that most of the economy still runs on.” He called it an “over-pivot” from the industry, “including investors,” who miscalculated the domestic supply needed to get through this decade. “Energy security and affordability have been somewhat compromised because of an over-pivot,” he said.

“It’s not the fault of the Biden administration or anyone in particular,” Rajendran said. “I would just say it’s the fault of the movement in general.”

Rajendran said he expects there to be “almost no impact this year” on domestic supply, because of the constraints he talked about and a time lag to grow supply. But his organization does expect 300,000 barrels a day of more supply over the next two to three years and up to 600,000 barrels a day more in three to five years.

The U.S. averaged 11.6 million barrels a day of crude oil production in December 2021.

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U.S. crude oil production dropped 8% from 2019 to 2020, and another 1.1% in 2021.

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