Is more U.S. production of oil the cure to pain at the pump?

As fighting grips oil overseas, an argument over fossil fuel rages in the United States

The debate over the need for more domestic crude oil production to ease the pain at the gas pumps has become a near daily discussion at the White House as President Joe Biden comes under increasing criticism over his U.S. energy policies.

On one hand, environmental advocates and critics of “Big Oil” point to thousands of languishing leases, unused permits and soaring profits as proof the industry is taking advantage of the high prices. They argue the extreme cost per gallon of gas is a prime example of why clean energy is the answer and should be more aggressively pursued.

“The United States — and the world — cannot drill its way out of oil price volatility or into real energy independence,” said Jenny Rowland-Shea, deputy director for Public Lands at the Center for American Progress. “Now is the time for us to reduce our dependence on fossil fuels. Investing now in clean energy will help the country gain true energy security, lower energy prices, and improve our health and well-being.”

Driller Cache Edrington watches the drill from inside a housing on a rig near Roosevelt on Sunday, March 13, 2022. | Scott G Winterton, Deseret News

A bitter fight

White House Press Secretary Jen Psaki has repeatedly emphasized there are 9,000 untapped leases held by industry in defense of the continued prohibition against new lease-sales on federal lands, which has delivered a big hit to Western states like Utah and led to lawsuits against the Biden administration.

But Psaki’s critics say those unused leases are like buying a house that lacks a door to enter.

Earlier this month, Utah Gov. Spencer Cox joined two dozen other GOP governors imploring Biden to stop the ban and this week. Utah’s governor again emphasized in a letter he sent to Biden that the administration’s policies are hurting energy independence.

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The Center for American Progress retorts that new production won’t bring down prices or increase supply in the short term and it would be an environmental folly to use the new ban on Russian oil imports as an excuse to resume construction of the XL Keystone pipeline, which Biden ended on his first day in office.

The terms “leases” and “permits” have been tossed around interchangeably by both Biden officials and in the media, but they are actually quite different.

A lease is acquired from the federal government, such as the Bureau of Land Management, in an online auction in which oil and gas companies make a bid. A lease is not permission to drill.

A permit is acquired after an environmental review process and if the industry has high confidence there is a recoverable resource. A permit must be obtained to sink each well, which costs millions of dollars.

Having a permit does not mean the oil and gas industry has the necessary infrastructure, like pipelines and roads, to deliver the oil to market.

Complex regulatory systems

All those moving parts are what Kathleen Sgamma, president of the Western Energy Alliance, says are components in an extremely hostile regulatory environment by the Biden administration that includes the ban on quarterly oil gas lease sales and the push to “de-capitalize” the industry, which serves as a disincentive for any new investment or additional production.

“Activist investors, encouraged by an administration using its regulatory powers, have worked to de-bank and de-capitalize the oil and natural gas industry. Many companies, particularly the small independents who drill the majority of federal wells, are having a hard time acquiring the capital necessary to develop,” she said.

The Western Energy Alliance represents hundreds of those smaller, independent producers in Utah and the West and is among 41 trade associations that also urged a Senate committee to refrain from acting on the nomination of Sarah Bloom Raskin as vice chairwoman for supervision at the Federal Reserve.

“She is a strong advocate for debanking the very industry that powers America,” the letter of opposition reads.

Sgamma pointed out that despite statements in court documents by the federal government that quarterly oil and gas lease sales would resume on public lands, they have not under the Biden administration. Oil and gas production on federal lands in Utah and elsewhere in the West makes up about 10% of the country’s production.

According to data from the Energy Information Administration, U.S. oil, gasoline and distillate inventories all saw declines in the last week, with oil inventories falling nearly 2 million barrels. Gasoline inventories fell 1.4 million barrels, while distillate inventories plummeted 5.2 million barrels. Domestic oil production was unchanged at 11.6 million barrels per day

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Sgamma said, too, that the Federal Energy Regulatory Commission recently updated its guidance related to interstate natural gas pipeline projects, imposing additional regulatory constraints.

“I am saying (Biden) could use his bully pulpit to say his administration was going to back off these regulations and that would make it so we could produce easier, with more certainty and that would bring prices down faster.”

Jesse Keel uses high-pressure water to clean rig parts on an oil rig near Roosevelt on Sunday, March 13, 2022. | Scott G Winterton, Deseret News

More clean energy, not oil?

In a piece put out by the Center for Western Priorities, the advocacy organization stressed that the high prices at the pump underscore the need for an urgent transition to clean energy.

“But energy independence won’t be found at the bottom of a well. We can never be energy independent while we rely on a fuel source that is both controlled by the global market and highly susceptible to international conflict and manipulation by autocratic regimes.”

The United States became a net total energy exporter in 2019, according to the Energy Information Administration, for the first time since 1952 and maintained that position in 2020 even though both total energy production and consumption were lower in 2020 than in 2019. 

Critics of oil and gas, however, say those unused leases and idled permits are examples of why “opening” up more domestic production is not the solution to the problem of high energy prices.

Sgamma responded by saying it is true that not every lease will be developed because not every parcel of leased land contains a recoverable resource, and assuming Psaki’s contention that there are 9,000 unused leases is correct, that still equates to a utilization rate of 76%, which Sgamma stressed is a historic high.

She also said leases remain undeveloped if they are contested with litigation. Her group is defending more than 2,200 leases which can’t be developed while they work their way through the court system.

There are 4,621 permits awaiting approval by the federal government — mostly in the West — and 9,173 permits that have been approved but are waiting on development, Sgamma said.

Those permits, she said, can be held up for a number of reasons, including delays in granting right of way approvals for pipelines, roads or the installation of natural gas gathering systems.

“With pressure not to flare from regulators and investors, most companies cannot drill before gathering lines are in place,” she said.

Workers operate a central manifold at a oil fracking site near Roosevelt on Sunday, March 13, 2022. | Scott G Winterton, Deseret News
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Biden has pointed to the Russian war in Ukraine as a culprit behind high gas prices, but prices had already increased by 30% before the Russian invasion began. The increase is tied up in a 40-year high in inflation and an industry that has been constrained like many others by supply chain issues and a shortage of labor.

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Rikki Hrenko-Browning, president of the Utah Petroleum Association, echoed Sgamma’s contentions.

“In Utah, while we have significant untapped reserves, we also have significant federal acreage. The current administration’s energy policy has resulted in reduced new leases, delays in permitting new wells and delays in extending leases,” she said. “All of these factors make increasing production quickly more challenging. If the United States is serious about quickly increasing production to reduce oil prices and the resulting pain at the pump (which we should be and have the ability to do) this administration would need to expedite permitting decisions and leases and otherwise change their stance on the U.S. oil and gas industry.”

The Center for Western Priorities said such a position just prolongs a dependency that needs to be weaned from domestic energy policy.

“Increasing leasing and permitting rates even beyond their current historically high levels won’t change that, but it will lock the United States into fossil fuel dependence for decades to come,” it said in its blog.

An oil rig drills a well near Roosevelt on Sunday, March 13, 2022. | Scott G Winterton, Deseret News