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Page added on April 17, 2016
Are You Ready for $5 Gas?
In a version of “hit ’em while they’re down,’ the Obama administration has unleashed a slew of new regulations targeting U.S. oil and gas production. These include costly methane emission rules on all new and existing wells, reversals of promised offshore acreage leasing, a de facto freeze of leasing on federal lands, and burdensome EPA restrictions of fracking. Then there is Obama’s recent budget proposal of a $10-per-barrel surtax on top of the high taxes and royalties already paid by oil companies. Just as low oil prices are driving hundreds of oil companies out of business, Obama is piling on in an apparent effort to drive even more into bankruptcy.
Restrictions on drilling don’t hurt consumers so much when the world is awash in oil, as it has been since 2014. The problem is that prices don’t remain low for long. Low prices result in reduced investment, which results in less production. And less production results in higher prices. As every economist knows, commodities are cyclical businesses. A wise national energy policy would anticipate volatility by promoting lower production costs in both good times and bad, thereby reducing future price shocks. Obama’s energy policy has pursued the opposite path.
Oil prices appear to be at an inflection point, and the administration hasn’t a clue as to how to respond. With cuts in non-OPEC production of 730,000 barrels per day in 2016, according to an OPEC report issued Wednesday, global surplus production is expected to end within two months. After that, stockpiles may begin to decline, unless global demand continues to lag, as it has of late. On the demand side, the OPEC report simply states that “there is great uncertainty.” Obama’s response to this uncertainty – as to the clear evidence of declining production outside OPEC – is politics as usual. When production is high, he attacks fossil fuels. When production is low, he continues to attack them.
The most significant data in the OPEC report point to an increasing pace of decline in non-OPEC production. A 15% decline from recent highs, in and of itself, might not be that worrisome. But a 15% decline that becomes 20% and then 25% by the end of the year, as is possible, would most likely affect global oil prices and perhaps threaten the global economy. With so many regions already facing uncertainly, a global recession could easily unsettle world politics. It is in our interest to stabilize energy prices, but the administration seems intent on driving them up.
No one can predict the future of the oil market, of course. Exogenous factors, including the potential collapse of a proposed OPEC production freeze or a global economic slowdown, not to mention the outbreak of war or regime change, could influence prices one way or the other. With hundreds of producers, an uncertain global economy, and political instability, predicting oil prices is a risky bet. The re-entry of Iran as a major producer is another factor in the mix.
Nonetheless, it is possible to extrapolate from known facts and to make conservative predictions. Non-OPEC production is falling. If an agreement can be ironed out at the forthcoming Doha meeting of OPEC producers or at a subsequent meeting, OPEC production might be frozen at current levels. The U.S. Energy Information Administration has lowered its forecast for U.S. production for 2017 to 8 million barrels per day – down from 9.4 million bpd for 2015. Despite having the world’s largest proven oil reserves, Venezuela has seen its production continue to decline since 2005. The International Energy Agency recently downgraded projections for Brazil’s production in 2016. Mexico, another major producer, has seen its production “steadily decreased since 2005,” according to the IEA.
The idea that U.S. production cuts, resulting partly from government policy, have no effect on global prices is mistaken. Given the effect of maturing fields and declines resulting from mismanagement in Latin America and elsewhere, there may not be enough slack to make up for falling U.S. production.
Obama’s assault on the U.S. oil industry has also contributed to job losses and losses to U.S. GDP. Just as his all-out war on coal has cost 31,000 good-paying jobs and $30 billion in market losses, at the end of 2015, job losses in oil and gas were estimated to be “250,000 and counting.” Not all of these could have been prevented by government policy, but many of them could. If Obama had taken the opposite tack – backing “all of the above,” as he promised to do – the oil and gas industry would have held up better, and Americans would be spared future price increases to some degree. Lowering regulation and opening up leasing on federal lands would have lowered the cost of production for U.S. companies. As it is, Obama has allowed Middle East producers to undercut U.S. producers and gain market share, resulting in fewer jobs for American workers and more U.S. dependence on foreign producers.
Looking ahead, oil price forecasts for 2020 range from $68.50 (IMF) to $74.10 (World Bank). With WTI crude now going for just above $40 a barrel, those forecasts suggest a 75% increase above current prices and a 150% increase over recent lows. No one is suggesting that U.S. energy policy can control global oil prices, but it can lower U.S. production costs, make U.S. producers more competitive, and increase global supplies, thereby moderating price spikes.
Obama understands none of this because he sees the world through eco-colored glasses. There is no evidence that Hillary Clinton would be at all different. She too supports the total ban on fracking in New York State and elsewhere.
Killing the fossil fuel industry in the U.S. has been the unspoken agenda of the Obama administration for the past seven years. It is also the agenda of environmental groups such as the Sierra Club, whose executive director (Michael Brune) recently said that the club’s goal is “to phase out coal as quickly as possible” and also to “use as little natural gas as we can in doing so.” As for oil, environmentalists seem even more opposed to its use than natural gas, despite the fact that both are the only efficient and dependable sources of fuel available at affordable prices.
Another voice in the anti-carbon crusade is U.N. Secretary General Ban Ki-moon (whose term, thankfully, expires in December). In an interview with Kimberley Strassel of the Wall Street Journal, the secretary general was quoted as saying that climate change “should not be a subject of political debate” in the U.S. He followed up by saying that if the U.S. Congress refuses to pass legislation supporting the Paris climate accord of 2016, President Obama “may not have to do all this legally[.] … He also has executive power.” Is Ban Ki-moon saying that the American people have no right to debate climate change and that the president should circumvent Congress to force his views on the people? That is what I hear him saying, and what many in the environmental movement appear to support.
Now that the president and his environmental allies have partially succeeded in hampering oil production, the effects of that policy can be seen. Oil prices are rising, and gasoline prices are rising with them. Most Americans aren’t happy about that, and, hopefully, they will make their displeasure known in the 2016 election. The choice between Hillary Clinton and a conservative opponent would give voters a chance to make their wishes known.
As for Hillary Clinton, her intentions are painfully obvious. She has spoken of seizing the profits of oil companies and investing them in green energy schemes like Solyndra and SunEdison. Without profits, energy companies would have nothing to invest in new production. As existing wells became depleted, production would fall, ultimately to zero
That, of course, is precisely what the environmental left wants. But it is not the future that most Americans would hope for.
It is not too late to reverse policy, though the chance of this administration doing so is zero. A new administration, with a conservative in the White House, could unravel the punishing regulations imposed on the oil and gas (and coal) industries and thereby assure a long-term supply of cheap and efficient energy. That supply would help to assure long-term economic growth and prosperity – and increased income equality – for all Americans.
30 Comments on "Are You Ready for $5 Gas?"
onlooker on Sun, 17th Apr 2016 7:44 am
“could unravel the punishing regulations imposed on the oil and gas (and coal) industries and thereby assure a long-term supply of cheap and efficient energy. That supply would help to assure long-term economic growth and prosperity – and increased income equality – for all Americans.” Notice the reference to Coal. Notice also the word used “long term”. Finally, notice increased income equality. Yeah and in just the recent past when the economy was doing relatively well as was the Oil/Gas industry did not equality materialize? NO. Quite the opposite. Just another establishment article putting out spurious assertions.
joe on Sun, 17th Apr 2016 7:56 am
Regs wont make a difference. We already baked in climate change, so a President of a oilistan like America helping other oilistans by playing bad cop because he helped unleash 3mln barrels of Iranian oil should not come as a suprise. All we have seen in the last almost decade is the inevitable up and down motions of a bumpy plateau that may take decades to sort itself out.
Kenz300 on Sun, 17th Apr 2016 8:06 am
New Documents Show Oil Industry Even More Evil Than We Thought
http://www.huffingtonpost.com/entry/oil-cover-up-climate_us_570e98bbe4b0ffa5937df6ce
Climate Change is real….. we will all be impacted by it.
Oil Giants Spend $115 Million A Year To Oppose Climate Policy
http://www.huffingtonpost.com/entry/oil-companies-climate-policy_us_570bb841e4b0142232496d97
The Kochs Are Plotting A Multimillion-Dollar Assault On Electric Vehicles
http://www.huffingtonpost.com/entry/koch-electric-vehicles_us_56c4d63ce4b0b40245c8cbf6
Inside the Koch Brothers’ Toxic Empire | Rolling Stone
http://www.rollingstone.com/politics/news/inside-the-koch-brothers-toxic-empire-20140924?page=2
Makati1 on Sun, 17th Apr 2016 8:18 am
More bullshit.
sidzepp on Sun, 17th Apr 2016 8:19 am
25 years ago I wrote a detailed letter to my Congressman proposing a $5 a gallon tax on gasoline. It would have gone to that over ten years in time. The idea is that the money used could be used for public transportation and energy research. One of the aids sent me a nice letter back saying there was plenty of oil in the ground and along the Atlantic Coast. Every time the idea was suggested over the years it has been laughed at. What the hell, the vast majority of people don’t give a shit, so why should I anymore.
Gamma999 on Sun, 17th Apr 2016 8:31 am
Proving once again the business motto: F U America.
We’ll kill you all before we do a Damn Thing about Global Warming.
The Cancer and Pollution industry should pay higher taxes. That’s Logic.
onlooker on Sun, 17th Apr 2016 8:36 am
But hey look at the bright side, we may keep the economy going for a few more years. Then all hell breaks loose.
Gamma999 on Sun, 17th Apr 2016 8:37 am
“Obama’s assault on the U.S. oil industry”
You know you’re a dumbass when you IGNORE the Saudi Push for marketshare and blame “Obama”.
This is a clear indication mgmt is too stupid to be in management.
Proving the Right Wing Incompetence Principle.
The More Right Wing the Worse Your Business will do. Shortsighted, opinionated, unable to learn or change, to blame the wrong “causes” in the cause-effect scenario’s of business, means your right wing business will fail sooner and bigger then a left wing business.
Trump, carly fiorina, being the perfect examples.
And Exxon’s Tillerson not far behind.
Another example is Green Peace Predicting the Growth of Solar BETTER than the oil industry. After all, who has more at stake, and has more experts at it’s disposal. Exxon.
And yet, Green Peace produces better research.
Gamma999 on Sun, 17th Apr 2016 8:52 am
Like there’s no actual reason the EPA is cracking down on methane, a potent green-house gas.
Who has the money to convert to Wind and Solar Power? The OIL Industry. Who needs to preserve their corporate balance sheets? The OIL Industry.
Who has chosen to LIE to Shareholders and Do Nothing, the Oil Industry.
I shed no tears for corporations run on a POLITICAL basis instead of an Economic basis.
https://www.sciencenews.org/article/epa-boosts-estimate-us-methane-emissions?tgt=nr
Gamma999 on Sun, 17th Apr 2016 8:57 am
Let me clarify.
If you’re not running your business for the Long-Term benefit of shareholders, you’re incompetent.
Shareholders expect a long time horizon for the corporate lifetime, or they’d sell their stock.
If your managing for your own personal short term benefit, that’s the definition of CROOK.
paulo1 on Sun, 17th Apr 2016 9:20 am
Gas is $1.019/litre where I live and we sell 60% of what we produce to US.
Basically, $5.00/gallon.
You’ll get used to it. Life is good. The world keeps turning and will do so after it reaches $10.00/gal and the SUVs and mini-vans get parked.
Dooma on Sun, 17th Apr 2016 9:34 am
If this person thinks that your country should just keep on fracking to preserve a lifestyle that is effecting the whole planet, then he is a rolled-gold moron.
HE is no different to the loggers and fishermen who cry foul when people try to preserve what little remaining biodiversity we have left-which happens to not be a great deal.
We simply cannot keep thinking that we can rape the planet and expect the future generations to live on technology
Anonymous on Sun, 17th Apr 2016 10:12 am
Ooo, look, ‘obama’ and ‘OPEC’ are to blame for america’s woes. What a minute, when did Plant start writing for americant stinker?
david on Sun, 17th Apr 2016 11:11 am
ISOLATE….in 100 years we’ll be bussing around like the Jetsons anyway…GET THIS NATION AND ECONOMY WORKING AGAIN….legalize marijuana and it must be gov. run; paying it’s workers a wage that supports the AMERICAN DREAM and you will be able to pay down and OFF our national debt as the GOVERNMENT is not here to make $$$; it’s here to fix our problems by using these profits (every penny) to benefit the AMERICAN PEOPLE and generations to come.
shortonoil on Sun, 17th Apr 2016 11:18 am
“The problem is that prices don’t remain low for long.”
Another author who does not understand that depletion is at work in the fossil fuel industry, and will continue to get worse as time passes. There is nothing that any government can do to change its course, one way or another. Prices will continue to fall over the long run, and producers will continue to shut down operations, and lay off personnel. Everyone will get their wish except for the 99.9% of people who depend on it for their survival. Ignorance is bliss until it isn’t!
penury on Sun, 17th Apr 2016 12:50 pm
The problem is that it is not a problem, it is a predicament. Problems have solutions. If it is true that fracking and methane and co2 are killing the planet, and that stopping the use of fossil fuels will destroy the population, and/or continued use will destroy the population of all species what do you theorize will be the opinion of the majority of human apes?
Douglas Muschett on Sun, 17th Apr 2016 12:59 pm
It’s about time…past time… that there are serious rules to limit methane emissions from oil and gas wells. If these wells are truly going to replace coal as a touted environmentally-clean fuel, then a full accounting of the methane emissions is required, along with a large reduction in methane emissions (since methane emissions are so many times more potent than CO2 as a greenhouse gas).
peakyeast on Sun, 17th Apr 2016 1:10 pm
Legalizing THC in the US seems to be a great method of reducing significant riots and protests during the great power down.
Maybe the U.S. “police” wont need all their sci-fi military grade weapons and riot control equipment as much as thought.
travlinfoo on Sun, 17th Apr 2016 1:19 pm
If they are going to tax it than do as Norway has done and set up a sovereign wealth fund for the citizens.
geopressure on Sun, 17th Apr 2016 2:31 pm
Gamma999; “You know you’re a dumbass when you IGNORE the Saudi Push for marketshare and blame “Obama”.”
—
Only weak-minded people who are easily influenced by the media believe that the Saudi’s have been making a push for marketshare…
William J. Whitsitt on Sun, 17th Apr 2016 3:07 pm
The Oil investors have unlawfully fixed supply and controlled prices by unlawful price fixing LONG ENOUGH!!! The Common Law and Constitution and GOD’s Law now stand in their way to STOP and Seize this unlawful acts of GREED by Wall Street investors. Babylon the great has fallen says the Lord GOD almighty to thee traders of Greed of Babylon. This time Trillion dollar suits At-Law at the Common Law will come to stop you.
William J. Whitsitt on Sun, 17th Apr 2016 3:13 pm
Let this message go forth GREED will come to an END now and Babylon the great will fall. Investors of Greed WE THE PEOPLE are coming after you to take back what you stolen by greed from us. WE thus bind you up demonic greed by Name above every other name.
geopressure on Sun, 17th Apr 2016 3:55 pm
William;
With respect, it does not appear that you are well informed…
The market has been manipulated, but not by oil companies or OPEC trying to limit supply, but by the US Government trying (& succeeding) to flood supply…
geopressure on Sun, 17th Apr 2016 3:56 pm
Saddly, 99.99% of Americans are as misinformed as Mr. Whitsitt is…
Boat on Sun, 17th Apr 2016 4:22 pm
geo,
Your more conspiracy oriented than most. Lol, another crazy.
geopressure on Sun, 17th Apr 2016 4:41 pm
It’s a fact, Boat… one would think that on a website like this, posters would be more informed…
QUESTION: Why do you think that all foreigners are of the opinion that the U.S. goes around the world, raping 3rd world countries so that they can have cheap oil???
ANSWER: because that is exactly what we have done for the last 3-4 decades…
—
Countries who let themselves be raped by the US were considered friends… Countries who resisted were branded “Communists”, Venezuela is a good example…
Boat on Sun, 17th Apr 2016 4:53 pm
Good grief, Venezuela is a oil supplier to the US. Those oil countries can get anyone to develop their fields. If they chose a US company it was because they liked the company and the deal offered. Your brainless conspiracy theories are silly.
jeff simoneaux on Sun, 17th Apr 2016 5:56 pm
For once I like nearly all the comments made on here, can we be experiencing a knowledge sea-change?
JS
Makati1 on Mon, 18th Apr 2016 10:25 am
$5 gas? Bring it on! $50 gas? Go for it!
The sooner the whole system goes down, the better for the planet.
Mark McDonald on Mon, 18th Apr 2016 2:27 pm
Obama is an idiot. He should move to Syria at the end of his term and perhaps he can dissuade ISIS (or ISIL as he likes to call them) from kidnapping women and selling them into slavery, decapitating reporters, and sending suicide bombers to blow up innocent civilians.