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America can’t solve its gas price problem (or its Russia problem) with drilling

The four myths Republicans have been spreading about oil and gas prices, explained.

Sen. Rob Portman speaks during a news conference with Senate Republicans about the Russian invasion of Ukraine at the US Capitol on March 2. The group of GOP senators — from left, Pat Toomey, Lindsey Graham, Dan Sullivan, James Lankford, and James Risch — urged the US to halt Russian oil imports and boost energy production domestically.
Drew Angerer/Getty Images

Editor’s note: On March 8, 2022, President Joe Biden announced a ban on Russian oil imports, as oil and gas prices have surged.

Republicans and conservative commentators have had a field day using Russia’s invasion of Ukraine as an opportunity to bemoan US energy policy and champion fossil fuel reserves. They’ve pointed fingers at the Biden administration, environmentalists, and even Swedish teenager Greta Thunberg, alleging that climate priorities are what have kept America from its “energy independence.” If only oil and gas companies were allowed to drill or frack more, we’d have a quick fix to rising energy prices in the US and Europe and to Putin’s influence, they’ve said.

There are many problems with these claims, and the stakes of this conversation are very high: The way western Europe and the US respond to this crisis could determine the course on climate change and energy costs in the long run.

Let’s walk through the myths currently circulating and how to avoid falling for them.

Myth No. 1: Biden killed oil production

Republicans on the Senate Natural Resources Committee recently sent a letter to Biden claiming that he has shut down leasing for oil and gas and is holding back more production. “There has not been one lease sale on federal lands since you imposed a ban in violation of federal law,” the letter said. “No other major oil-producing nation shuts off its own reserves to production.” Sen. Joe Manchin echoed the myth at a recent hearing: “The time for leasing pauses has come & gone.”

Biden has done nothing to halt oil leasing. In fact, the Biden administration has outpaced Trump in issuing drilling permits on public lands and water in its first year, according to federal data analyzed by the Center for Biological Diversity. His administration set a record for the largest offshore lease sale ever in the Gulf of Mexico last year, before a federal court blocked the lease sale for not considering climate impacts.

There was a temporary pause on new federal leases in the first few months of Biden’s administration when he placed a moratorium on them while the administration reviewed how to better integrate climate costs in lease sales. Meanwhile, the president has done nothing to prevent the vast amount of gas production that occurs on private lands or halt existing oil leases on federal lands. The moratorium is now irrelevant, anyway, because a Louisiana federal judge ruled against it last June. (There’s a second, temporary pause on new lease sales because another court invalidated the administration’s use of a social cost of carbon.) The US also became the world’s largest exporter of liquified natural gas (LNG) for the first time in 2021.

Clark Williams-Derry, an energy analyst with the Institute for Energy Economics and Financial Analysis, offered a reality check to those complaining that climate regulations have changed the fate of oil and gas. “The idea that the tiny marginal changes in US policy have anything to do with the big shifts we’ve seen in prices is just preposterous,” he told Vox. The marginal Biden measures — like reversing Trump-era environmental rollbacks — haven’t made any kind of dent in the global oil market.

Myth No. 2: The oil and gas industry can quickly ramp up production to make a dent in prices

According to an op-ed in the Hill from Rep. Gus Bilirakis (R-FL), increasing oil and gas production is as easy as “flipping the switch.”

The White House would probably be pulling those levers if it could because Biden advisers have said they’d like to see more production. “Prices are quite high, the price signal is strong,” White House National Economic Council Deputy Director Bharat Ramamurti said in an interview. “If folks want to produce more, they can and they should.”

But oil companies have made it clear in earnings calls with shareholders that they don’t plan to produce much more, anyway. Remember that just two years ago the industry was in a complete free fall when demand crashed because of the pandemic. Banks sought government bailouts for oil investments that went under, and oil prices actually hit negative levels as producers grew desperate for oil to be taken off their hands.

Oil and gas prices have climbed in the US because demand during the pandemic has bounced back faster than supply, and with instability caused by factors that include Russia’s war in Ukraine. In the past decade, Americans have gotten used to cheap fuel, but crude oil is now well over $100 a barrel, as of March 8.

It’s possible prices will still climb, but at least in recent weeks, that hadn’t changed companies’ calculations on production levels. “Whether it’s $150 oil, $200 oil, or $100 oil, we’re not going to change our growth plans,’’ Pioneer CEO Scott Sheffield told Bloomberg Television in February. “If the president wants us to grow, I just don’t think the industry can grow anyway.’’ The largest US fracking companies reiterated in earnings calls in February that they intend to keep output roughly flat, according to reporting from the Wall Street Journal.

In other words, now that companies are making handsome profits, they’re using that extra cash to reward investors and pay down debts, not invest in new production.

Myth No. 3: LNG exports will fix Europe’s problems and help US gas prices

Lawmakers and pundits have offered an overly simplified solution that the US can just make up that difference in exports. Columnist Karl Smith at Bloomberg Opinion argued, “Fracking may be America’s most powerful weapon against Russian aggression.”

But LNG exports don’t solve Europe’s or America’s energy challenges. In some ways, they exacerbate them.

To export gas to Europe, a facility first needs to convert it to liquified natural gas, which cools and pressurizes the methane so it can be shipped across continents. On the other end of the ocean, another facility must turn it back into gas for shipment via pipeline.

That’s a lot of infrastructure, which is impossible to scale up in enough time to make an impact on current prices. There’s one new LNG terminal that opened this year in Louisiana. On the European side, the LNG terminals are already at capacity. This isn’t going to help make up Russia’s supply of 40 percent of Europe’s gas either.

So it’s not particularly helpful or possible to boost exports to Europe, but it also wouldn’t help prices in the US.

Williams-Derry says that US exports of liquified natural gas have been the primary reason for climbing prices. In 2016, the US completed its first LNG export terminal in decades, which the gas industry hoped would alleviate a glut of natural gas that was keeping US gas prices too low for the industry’s liking.

“The reason we’re experiencing higher natural gas prices right now is we’re exporting more,” Williams-Derry said last week. “It’s not that we’re consuming more. It’s not that we’re producing less. It’s that we’re exporting.” The chart shows how LNG exports have grown since 2016.

Gas exports have been since the expansion of liquified natural gas terminals in the US since 2016. The move was intended to boost profits, and now is responsible for rising methane gas prices.
IEEFA

There’s a reason the fossil fuel industry has been pushing so aggressively for new infrastructure. Jack Fusco, president and CEO of the largest LNG company in the US, Cheniere, welcomed the instability because of how it would boost the industry’s profits. In recent comments highlighted by Kate Aronoff at the New Republic, Fusco said, “But if anything, these high prices, the volatility, drive even more energy security and long-term contracting.”

Fusco’s argument underscores the real reason the industry is drumming the message about energy security. The more government investment in new infrastructure, the more multi-year contracts the industry can get, and the better the prospects are in the long term. Exports aren’t the simple fix for the US or Europe, but they are the best thing that can happen to the oil industry in the long run.

Myth No. 4: We can ignore climate concerns because boosting gas will counter dependence on Russia

In an op-ed for Fortune, American Petroleum Institute CEO Mike Sommers suggested the oil industry is ramping up production for patriotic reasons: “U.S. natural gas producers and exporters have mobilized to help ease Europe’s ongoing energy crisis,” he wrote, adding “as in World War II and other crises, America has Europe’s back.”

None of the suggestions Sommers suggest, like boosting LNG capacity, actually help in the immediate crisis. Sommers says himself this is a lesson for the long run.

In the long run, investing in fossil fuel infrastructure can seriously backfire by raising energy costs for Europeans and increasing reliance on Russian gas. LNG will always be the more expensive option because of its processing and transport. “By locking yourself into a gas-powered future, you’re locking in higher costs for the long haul,” Williams-Derry said. “There’s not a good alternative to Russian gas if you want to have inexpensive gas in Europe.”

“If you’re going to double down on gas, essentially, you’re doubling down on Russia,” Williams-Derry added.

Skyrocketing energy prices during periods of global instability is nothing new, but countries have still not learned that “part of what we’re seeing here is the cost of reliance on fossil fuels,” said Sam Ori, executive director of the Energy Policy Institute at the University of Chicago.

Clean energy isn’t a panacea either. “Once you’re in the [energy] crisis, it’s too late,” Ori noted. But Ori noted that the world will have to make choices anyway of how to respond to Russia. Countries will invest in new energy infrastructure. They will have to make a choice what kind of energy future to support. And there’s a real opportunity to break the cycle of instability.

But the US risks learning the wrong lessons. Sen. Manchin, who has voiced support for historic funding for climate and clean energy investments but blocked the passage of the original Build Back Better bill, has rallied for an all-of-the-above energy approach that boosts fossil fuels. “To continue to ask other countries to do what we can do for ourselves in a cleaner way is hypocritical,” Manchin said in a recent statement. Lobbyists from the US Chamber of Commerce and American Petroleum Institute are beating the same drum.

The biggest risk is if the US and Europe respond to this crisis by over-investing in the future of fossil fuels. Actions like building LNG terminals and approving new leasing don’t help in the short term when people are struggling to pay high bills. It doesn’t achieve energy independence. But it would lock the world onto a dangerous path for climate change.

Correction, March 7, 2022, 11:45 am: A previous version of this article incorrectly stated that a US oil export ban lifted in 2015 affected gas exports.