U.S. oil production recently hit a new record high. Chances are you’ll never hear President Biden talk about it.
National oil production has reached 13.2 million barrels per day, slightly higher than the previous record of 13.1 million barrels set in 2020, just before the bird flu pandemic. It’s set to rise again in 2024. You may think you’ve heard wrong. So, to reiterate: yes, the U.S. is producing more oil under President Biden than under President Trump.
This should not have happened. Biden campaigned for the White House on a promise to “end fossil fuels.” One of his first acts as president was to cancel the permit for the Keystone XL pipeline, which would have brought Canadian oil to refineries on the U.S. Gulf Coast. Mr. Biden is an advocate of renewable energy, as demonstrated by his approval last year of the largest green energy incentive package in U.S. history.
So Mr. Biden would suddenly look like a fossil fuel advocate if he bragged about the record levels of oil production achieved under his watch. It would also annoy the liberal Democrats who pushed for the “Green New Deal”, which would have gone much further than Biden did to force the US economy off fossil fuels. The best Biden can do is probably to remind Americans that energy prices are falling, while continuing to promote his green energy agenda, which may not be very convincing to the moderate voters who will probably determine whether Biden wins a second presidential term next year.
However, Mr. Biden has clearly understood the importance of fossil fuels to his standing with voters and to his political future. Joe Biden’s popularity rating plummeted when inflation began to rise at the end of 2021 and 2022. The peak of inflation was a low point for Biden. Overall inflation reached 9% in June 2022, the same month that U.S. gasoline prices hit $5 a gallon, an all-time record. Since then, prices at the pump have fallen, but Joe Biden’s popularity rating has never recovered.
Biden spent much of his presidency trying to manage gasoline prices. His administration sold 180 million gallons of oil from the country’s strategic reserve to increase global supply and reduce prices. The reserve thus reached its lowest level since 1984. He and his representatives tried to force U.S. drillers to produce more, but private-sector energy companies don’t answer to the president. They answer to investors and shareholders eager to guarantee their profits rather than invest more in production, at the risk of oversupply.
Mr. Biden has also tried to encourage foreign drillers, such as Saudi Arabia, to produce more oil, but with little success. The Saudis and the other members of the Organization of the Petroleum Exporting Countries (OPEC) have reduced their production, rather than increasing it. In October, the Biden administration even eased sanctions against dictatorial Venezuela, in the hope of extracting a few more barrels from this oil-rich country, even though its energy infrastructure is in ruins.
The market is realizing what Mr. Biden could not. American drillers are producing more energy because they can make more money. Oil prices collapsed during the COVID pandemic, going negative for a brief period because there was more oil in storage than anyone knew what to do with. Since then, however, they have recovered and are now in the range of $75 to $95 a barrel. US drilling companies can make substantial profits at these levels. OPEC’s production cuts actually benefit US energy companies by keeping prices high enough to make drilling more profitable.
Another happy fact that Mr. Biden will probably never mention: the U.S. is the world’s largest oil producer. This has been the case since 2018, thanks to the new horizontal fracturing technology that has recently made large quantities of energy accessible, much of it in Texas. With OPEC countries producing less, US barrels are becoming more important to the global market.
Is the boom in US oil production bad news for efforts to wean the world off fossil fuels and combat global warming?
There are two ways of looking at this. Some environmentalists want to speed up the transition to renewables by imposing cuts in fossil fuel supplies, so that renewables are the only option for some consumers. This is unwise, as there is a good chance that prices will rise for end-users if renewables are not competitive with fossil fuels, which is not the case in many places, particularly in regions where wind and solar power are not yet connected to the grid.
Mr. Biden has discovered the political danger of imposing limits on fossil fuels. The cancellation of the Keystone XL pipeline in 2021 had no effect on oil or gas prices, since the pipeline wasn’t even built and no oil was flowing through it. But Biden took a public stand against fossil fuels, and when gasoline prices skyrocketed in 2022, consumers blamed him. Biden had it coming.
A better approach to accelerating the transition to green energy is to do everything possible to bring more renewables to market, so that increased production helps lower costs and makes renewables competitive with fossil fuels. This is exactly what Joe Biden’s green energy incentives are doing, effectively reducing the break-even point for green energy production and attracting more investors into the sector to increase supply.
To some extent, this is already working. Mr. Biden’s green energy incentives are generating far more investment than the drafters of the legislation had estimated in 2022. The Department of Energy recently predicted a drop in U.S. oil consumption in 2024, in part because so many electric vehicles are already on the road.
But there are gaps too. Electric vehicle sales seem to be levelling off, for example, perhaps revealing a ceiling for the share of car buyers willing to accept the higher prices and practical limitations of electric vehicles.
Conclusion? Green energy adoption will continue, but fossil fuel abundance will be necessary for the rest of Mr. Biden’s political career, and well beyond, whether he wants to admit it or not.