America's new reality: High gas prices
Jeremey Young '24
Death, taxes, and gas prices; the bane of every American’s existence. Gas is up there as the most politicized product in the American marketplace; prices range heavily by state and just about everyone needs gas. Even though Joe Biden has made it clear that he is not a friend to the U.S. oil and gas industry, it isn’t his fault that gas prices are the way they are now. As much as people will always have something to say about gas prices, they are at record level highs and continue to skyrocket. So why is this? While we like to complain about gas and the prices we pay for it, most people have no idea where the gas they put into their cars comes from or why they pay what they do for the gas they get. Russia’s invasion of Ukraine might seem like the obvious reason, but there is much more at play to keep prices high.
The main reason for the prices of oil going up so high is because of Russia’s invasion of Ukraine, but prices had been on the incline even before then. U.S. oil production is only a fraction of what it was before the pandemic, producing 126 million barrels of total oil monthly compared with its peak at 169 million from late 2019 to early 2020, according to the Texas Railroad Commision. The current level of U.S. crude oil production is 11,600 barrels per day, which is down from its peak at 13,100 in February 2020 but up from the lowest point at 9,700 in August 2020, according to MacroTrends. And with around 35% of U.S. electricity being generated by natural gas, it looks like the U.S. will be heavily reliant on natural gas for years to come.
Russia is the third largest producer of oil in the world. Most of this oil is going to European countries, who, though transitioning towards cleaner energy, still rely on Russia for their oil supply. The disruption of supply has had a large impact on both European and worldwides markets. Prices continued to rise when the Biden administration banned all imports of Russian oil.
The other factor contributing to the raise in gas prices is oil and gas companies' fears of overproducing. Overproduction of oil means less profit for the large oil companies. This was the case from 2015-2019 when oil became more accessible and more of the oil being produced was from America. What many people forget is that the price of gas has actually been rising since the beginning of Covid, but has just surged recently. In turn, oil companies profits have fallen dramatically as the flood in production dropped the price of a barrel from $95 in 2011-2014 down to $53 in 2015-2019. The real blow was in 2020 when the price of a barrel dropped to a staggering $39, according to the U.S. Energy Information Administration. This was in correlation with what Americans were paying at the pumps, as the prices there continued to drop. While it might seem nice to pay so little for gas, this actually had a drastic effect on the oil industry. According to Haynes Boone, a Texas law firm, “In the same period, 330 oilfield services and midstream companies have filed for bankruptcy, bringing the combined North American industry total to more than 600 industry bankruptcies involving over $321 billion in secured and unsecured debt.” The oil and gas industry has shifted focus from looking short term, to looking farther down the road at a time when the world is making a serious effort to wean off of natural gas and switch to renewable energy.
There have been some proposed solutions to bring the prices of gas back down to earth. In response, many states such as Connecticut, Georgia, Maryland, and New York have all waived the gas tax, with more in consideration such as West Virginia, Ohio, and New Jersey. Democrats proposed a nationwide gas tax cut, but this is unlikely to happen. There are many concerns with doing this. According to Jay Zagorsky, Senior Lecturer in Markets, Public Policy and Law at Boston University told the Conversation, “As an economist who has studied gasoline prices, I doubt that waiving gas taxes will meaningfully lower prices at the pump. Russia’s invasion of Ukraine boosted gasoline prices dramatically, and politicians feel a need to show voters they are doing something. Cutting gas taxes makes great political theater, but as a few numbers show, it is an ineffective policy.”
The other option, proposed by Republicans, was to reopen the Keystone XL Pipeline. The XL pipeline has been a highly politicized issue as it has gone back and forth between different presidencies. Republicans Dan Crenshaw and Kristi Noemi have voiced support for reopening the pipeline as it would help to eliminate the United State’s dependency on Russian oil. The problem is that while the 830,000 barrels the XL would have produced per day might sound like a lot, that would increase the global oil production by less than 1%. According to Gregory Nemet, professor of public affairs at the University of Wisconsin-Madison's Wisconsin Energy Institute talking to CBS News, “I can see why people make that connection," Nemet said, "But in terms of gasoline prices and global oil prices, it's just something it's better to just ignore because it would have no impact." Overall, both reopening the XL pipeline and eliminating the gas tax might seem like good solutions, they both are more of politicians' way to show that they are doing something to try and address the situation.
Gas prices are very geopolitically driven; with Russia’s invasion of Ukraine, which doesn’t seem like it will end anytime soon, this paired with oil and gas companies trying to regroup after years of tough losses, and it seems like prices are not going back to the level they were at prior to the pandemic. The good news is that prices have already started to gradually fall. While they peaked at a record $4.33 average in the U.S. on March 11, they have since dropped to $4.101 according to AAA. Prices are now more stable but are now much higher than they once were and will probably stay this way. This may be the new norm for gas in the U.S., at least for the recent future as the country looks for other sources of renewable energy.