Who’s to blame for high gas prices? Not who you think.
Our collective pocketbooks are feeling the pinch of gasoline prices now well over $4 per gallon. If your car has a 20-gallon tank, that fill-up will cost you upwards of $80! Ouch! What happened? Not surprisingly, the blame game has already started. And also not surprisingly, the finger-pointing is more about politics than reality.
Certain politicians and pundits are eager to convince us that this is all the fault of the Biden administration – it only it had approved the Keystone pipeline and granted new drilling permits on federal land, our problems would be solved. That sounds simple enough. But is it true? Here are two problems with that argument: first, the Keystone pipeline would mainly have sent existing oil production elsewhere, not produced new oil. Second, as the linked CNBC article reports, big oil firms right now aren’t drilling on land where they already have permits! In short, neither of these two proposals would have done anything to stop the jump in our gasoline prices.
So what’s really going on? The reality is that big oil companies have not been investing in new production for a long time. Remember the Trump administration’s huge corporate tax cut in 2017 – the one that Trump promised would lead to a major increase in corporate investment? It sure didn’t turn out that way in the oil industry. In fact, this year the seven largest oil companies will spend a near record $90 billion on… stock buybacks and increased dividend payments. That’s where Trump’s big tax cut went - into the pockets of large shareholders. And what about new production? When prices were at record lows, oil companies stopped investing. As the CEO of Hess Oil was quoted in the linked Bloomberg article, “We’ve had five years of under-investment and we’re paying for it now.”
The result? Put together the industry’s failure to maintain long-term investment in production, the disruption in oil caused by the Ukraine invasion, and the global economy’s rapid recovery from the covid recession and you have a recipe for what we are seeing today – massive gas price hikes.
And here’s the other problem – in the short term, there is nothing much anyone can do about it. Sure, the administration’s decision to release oil from the strategic reserve has helped meet demand in the US. However, the price of oil is not an American price, it is a global price (oil companies, after all, are businesses that sell wherever the price is the highest). So as long as global production is too low to satisfy global demand, our prices are going up. Remember that when certain politicians talk about “energy independence”. As far as oil and gas are concerned, independence is a pipe dream.
What can we do? First of all, we should call out Big Oil and Wall Street investors for spending money on shareholders rather than production. Indeed, we should be asking ourselves if those big Trump corporate tax cuts did any good at all!
Secondly, we can free ourselves from the prison of global oil prices by… accelerating our adoption of renewable energy and electric vehicles. If you already have an EV, you are feeling pretty good right now. Imagine then if, in 10 years-time, half of America’s cars were powered by electricity produced from renewables? In that world, we wouldn’t care at all about what the Russians, the Saudis, the Iranians, and the Venezuelans were doing with their oil production. Because we truly would be energy independent. So the next time you talk to politicians, ask them what they are doing to give America real energy independence.
For more on how even oil industry chiefs are demanding that Wall Street stop holding back investments in oil production, read this (Bloomberg, Matt Levine newsletter, March 8, 2022). For more on the ridiculous notion that Keystone would reduce gas prices, read this (CNBC, March 2, 2022
