Gas prices are so high – What’s reasons behind it?

WASHINGTON, D.C. – Gas prices are not rising as a result of the cancellation of the Keystone Pipeline or the suspension of oil extraction permits by the Biden administration. The real causes are a little more complicated.

Last year, when the United States and most of the rest of the world were shut down due to the pandemic, transportation and travel plummeted, as did demand for gasoline and gas. As gas prices plummeted, oil companies drastically reduced production.

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The United States cut production by a million barrels per day, while OPEC Plus countries cut output by 10 million barrels per day.

Then, as the pandemic subsided and people who had been saving their money for a long time were eager to travel, demand skyrocketed. However, resuming manufacturing and supply takes time.

As a result, crude oil, which had plunged to $30 per barrel during the pandemic, soared to $80.
Oil prices continued to rise in the run-up to Russia’s invasion of Ukraine in 2022, due to concerns that Russia, as one of the world’s top oil producers, would disrupt the market. And they’ve remained high as a result of international sanctions imposed in response to the invasion.

Some Republicans also blame President Biden for the rise in gas costs, blaming him for cancelling the Keystone XL pipeline extension and halting new licences for oil and gas exploitation on public land. However, neither of these factors has a direct impact on the current rise in gas prices.

The Keystone Pipeline and oil prices

The Keystone Pipeline extension would have brought more Canadian oil to refineries on Texas’ Gulf Coast, where it would be processed and shipped in large quantities. The pipeline extension, however, was never built; the project’s parent firm terminated it after President Biden cancelled its permits in one of his first acts as president.

The pipeline was not slated to begin service until 2023, according to TC Energy’s official announcement from 2020, so even if Biden had not stopped it, it would not have been in play this year.

Oil extraction permits

image source: unsplash

While President Biden did put a halt to new oil extraction permits on public property, he still managed to grant more permits than President Trump had done a year into his presidency.

In one piece from Public Citizen, titled “Biden’s Oil Letdown: Despite commitment to stop drilling on public lands, Trump-era drilling boom continues under Biden,” progressive organisations chastised him for it.

“Even in the midst of the pandemic, American corporations pumped more oil during my first year in office than they did during my predecessor’s first year in office,” Biden has stated.

During Trump’s final months in office, production also dropped, but this was due to the epidemic.
Output increased after President Biden took office, and the trend in domestic oil production has continued to rise since then.

While the Biden administration has put a halt to new permit approvals, it also notes that there are 9,000 approved permits that have gone unused, totaling 23 million acres of approved leases.

Jennifer Granholm, Biden’s secretary of energy, told the oil gas and oil lobby in December, “Please take advantage of your available leases. Hire workers and increase your rig count.”

Why are permits going unused?

Granholm highlighted one of the major hurdles in fresh drilling in the same December video call: “There are struggles surrounding financing.”

And it’s here that the Biden administration’s push for renewable energy – as well as the president’s own comments – may be making it more difficult for oil companies to get the investors they need for new drilling operations on all that already-approved property.

Biden committed to minimise dependency on fossil fuels during his campaign. Such an approach would finally free the United States from the trap of relying on global villains – and supporting their regimes – while also contributing to the climate disaster.

In the meanwhile, it may give oil drilling investors pause, resulting in some acreage that has been permitted for extraction lying dormant.

How can we lower oil prices?

Politicians are now considering a variety of options to mitigate the impact of rising prices, ranging from temporary gas tax holidays to prohibiting domestic oil from being exported so that it can be used in the United States.

After all, the United States is the world’s largest producer of oil, but doing so would hurt other countries that rely on it, potentially driving up global prices even higher – and making other countries even more reliant on Russia.

Before the invasion, the president ruled out an export prohibition, but afterward, he blocked oil imports from Russia.

According to President Biden, this means that the US will no longer fund Putin’s war by purchasing Russian oil, but it also means that our gas prices will rise even more.
“We import around 200,000 barrels of Russian oil per day, which we could easily replace by producing 200,000 barrels per day of our own oil,” noted Senator Marco Rubio (R-Fla.).

Exxon plans to boost production by 100,000 barrels in western Texas and New Mexico to achieve this goal. Chevron expects to expand production by 60,000 barrels per day, with strategic reserve releases factored in as well.

The United States is working to replace Russian oil, but it will take time and prices will continue to climb. As a result, the Biden administration looked for ways to substitute the oil we’re barring from Putin with oil from Venezuela or Iran.

The ultimate truth is that it’s a lot more complicated than politicians’ sound bites and tweets make it appear.

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