President Biden must blame the bureaucracy for high gas prices

Several factors are contributing to rising gasoline prices, but the greed of oil barons is one unlikely explanation no matter what President Joe Biden says. Not that energy companies don’t want to make money; on the contrary, we rely on their self-interest to drive innovation and competition that fuel our tanks. But it’s not as if they’ve become more greedy in recent months. What is actually there What has changed is that the world has become more chaotic, even when over-regulation and the ideological crusade against oil discourage investment and make it harder for supply to catch up.

IN letter to seven oil companies this week, which alternates between begging and swearing, Biden complained that “since the beginning of this year, gasoline prices have risen by more than $ 1.70 a gallon.” After first blaming Russian President Vladimir Putin’s invasion of Ukraine and the resulting economic sanctions, the president cited “historically high profit margins for refining oil into gasoline, diesel and other refined products,” which he called “unacceptable.”

“Of course, the lack of refining capacity is a global challenge and a global concern,” Biden added. “Please provide the Secretary with an explanation for any reduction in your refining capacity after 2020 and any ideas that would address the problems with immediate stocks, cost and refining capacity in the coming months.

In response, the American Petroleum Institute, a trade association, said a 10-point plan it was published only the day before and waved back: “While members of your administration recently discussed the need for additional supplies to resolve the energy crisis, your administration has curtailed oil and gas development, canceled energy infrastructure projects, imposed regulatory uncertainty and proposed new tax increases on US oil and gas producers. competing globally. “

The lame effect of regulatory burdens and taxes is not a new discovery.

“My business contacts regularly complain about the fog of uncertainty emanating from Washington,” said Richard W. Fisher, then president of the Federal Reserve Bank of Dallas. celebrated at a conference in 2013. “They consistently point to fiscal and regulatory uncertainty as a major obstacle to capital investment and wage increases.

The specific effects of bureaucracy on refining capacity are also not a new concern.

“The refining industry is one of the most strictly regulated in the country and has been struggling for years to maintain minimum profit margins,” said the Institute for Energy Research. warned 10 years ago. “In the face of even more regulations from the Environmental Protection Agency (EPA), which impose regulations on carbon emissions, as well as propose overly strict regulations on ozone and other regulations, there are likely to be more closures.

A huge part of regulatory uncertainty is the impetus for ending carbon dependence in the future. The European Union plans to ban the sale of vehicles with internal combustion engines by 2035, many U.S. governments last year called on the federal government to do the sameand the Biden administration is committed to a clean energy policyincluding acquisition of zero-emission vehicles only by 2035. Stopping the sale of traditional cars and trucks will significantly reduce the demand for gasoline.

Last year, everyone, including oil companies, struggled to recover from the economic woes of the blockade and suspended travel. But “New Mexico operators say federal regulatory uncertainty under President Joe Biden, plus the prospect of new, unfavorable regulations pursued by lawmakers in Santa Fe, is slowing New Mexico’s recovery from Perm even further.” According to to Albuquerque Magazine.

These fears are bleeding in the financial sector, where Movement for the Environment, Society and Governance (ESG). brings a quasi-religious zeal to investment. ESG activists explicitly discourages traditional energy production in the oil industry which they consider unacceptably polluting. Corporate executives are not stupid; see the inscriptions on the wall.

“US oil companies increase production even at the slightest hint of higher prices,” CNN reported last November such as gasoline prices duck long before Russian troops have crossed the border into Ukraine. “The rise of the ESG movement is forcing fossil fuel companies to rethink their future. Pressure from socially conscious investors reached a crescendo earlier this year, when activist investors won seats on the board of ExxonMobil (XOM), America’s largest oil company. This vote came as a shock. industry because it was the first proxy campaign in a large American company in which the arguments for change were built around the abolition of fossil fuels. “

“At the same time, governments around the world are setting ambitious targets for reducing emissions,” CNN added. “The oil industry has pointed to how this regulatory uncertainty is hampering its ability to invest in future projects.”

In April, the Dutch-based LyondellBasell announced it would close its Houston, Texas refinery by December 31, 2023. “Our exit from the refining business improves the company’s decarbonisation goals,” interim CEO Ken Lane commented at the time.

Last week, Reuters reported that the LyondellBasell refinery could close even earlier and added“At least five oil refineries were also closed during the pandemic, leaving the United States structurally short of capacity for the first time in decades.

Is the uncertain regulatory and political environment the full explanation for rising gasoline prices? No, it is not. The Russian invasion of Ukraine and subsequent economic sanctions have made the rise in prices from just painful to agonizing. Pandemic blockages have disrupted supply chains and distorted demand in unpredictable ways. And “there is no doubt that tariffs contribute to higher prices throughout the economy.” The reasonis Eric Bohm emphasized.

But, as CNN recently pointed out, oil companies have reacted like other businesses to rising prices by increasing supply. Burying their industry in bureaucracy and stifling access to capital is a very effective signal to rethink their entire business strategy. Oil industry insiders can enjoy profits from existing capacity, but are unlikely to invest in facilities to meet gasoline demand and offset rising prices until they are sure their industry will be allowed a future.

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