Kenneth W. Gatten III: Dr. Oz’s misinformed oil and gas policies

As prices at the gas pump hit record highs, U.S. oil and gas policies are proving to be key issues heading into the November midterm elections. Recently, Republican Senate nominee Mehmet Oz railed against the Biden administration, lamenting that President Biden’s “failed energy policies have crippled us” and calling to “reopen American energy production so our country can return to energy independence.”

Oz’s views echo Republican officials’ criticisms nationally, which hold that the Biden administration has eroded U.S. oil independence of the recent past, created dependence on foreign oil and driven recent price increases by dampening production, denying land leases for drilling and canceling the Keystone XL pipeline.

But these accusations misunderstand America’s oil policy challenges, which are specific and urgent.

First, oil production has already been “reopened” under Biden. According to research conducted by the Center for American Progress (CAP), the U.S is producing oil at 90% of its pre-pandemic, all-time high.

And oil companies can lift more crude any time they desire. As CAP explains, the oil industry already possesses more than 9,000 approved — but unused — drilling permits on federal lands. “Nearly 5,000 of those permits were approved in 2021 alone,” CAP adds, which is “the highest figure since the second Bush administration.”

Currently, however, oil companies are making windfall profits. In 2021, four major oil companies — Shell, Chevron, BP, and ExxonMobil — profited a record-high $75 billion. In the fourth quarter, ExxonMobil profited more than $97 million per day.

According to Bloomberg, “U.S. oil companies generally … prefer to steer cash flows back to investors instead of spending it on new drilling that could flood the world with cheap crude.”

Also, the Biden administration has little influence on leasing decisions for oil companies. According to CAP, only 10 percent of U.S. oil and gas production occurs on federal lands and waters, while the other 90 percent is done on state and private resources.

Some Democrats are now accusing producers of price gouging, which is not new in the past 50-plus years of American history.

The U.S. was last oil independent in about 1950, when it began importing more than one million barrels per day. As Gregory Brew writes for Foreign Policy, the Eisenhower administration then tried to shore up domestic producers in the mid-1950s, levying oil import quotas which had to be rolled back in 1973 to offset the growing deficit between demand and domestic production.

That very October, major U.S. companies lost control of Middle Eastern oil fields, where governments cut production, placed an embargo on the U.S. and raised the price of oil by 400%.

But U.S. oil companies failed to boost production in the wake of this supply shock, exacerbating an international energy crisis. “Oil companies became deeply unpopular and were subjected to extensive congressional investigations,” Brew writes, “where powerful Democrats like Senator Henry M. Jackson accused them of price gouging.” Oil companies enjoyed record profits from higher prices but also lacked the capacity to substantially ramp up production.

The same national security concerns about self-sufficiency in oil that surround current shortages also defined the 1973 crisis. That event and later oil shocks saw policymakers pass measures to expand production capacity. President Jimmy Carter also later pursued a major “decontrol” policy to invest in production infrastructure, “reduce consumption (and) reduce our vulnerability to foreign supplies.”

Today, oil companies no longer face the same constraints on production. But even if they were to lift more oil, it would not help much, anyway — despite many Republicans’ claims to the contrary.

As Martin Tillier writes for Nasdaq, the U.S. does produce enough oil to meet its own needs, lifting 18.4 million barrels per day in 2020 against a daily consumption of 18.12 million barrels. But the U.S. nevertheless imported 7.86 million barrels of oil per day in 2021. This occurred for two reasons, Tillier says: economics and chemistry.

Economically, foreign oil is sometimes cheaper than American oil, which has higher lifting costs due to land use regulations, land lease prices and labor costs. Transporting domestically produced oil between cities can be more expensive than simply importing crude from Europe. And countries like Iran, Russia and Venezuela often undercut U.S. producers by selling their oil at lower costs to advance the geopolitical interests tied to their exports.

Chemically, the U.S. does not produce enough of the crude it refines to be self-sufficient.

As Tillier explains, American oil refineries are largely designed to process oil imported from abroad, which is heavier (requiring different processes to be transformed into things like jet fuel and gasoline) and less sweet (containing less sulfur). The oil America produces is largely lighter and sweeter, rendering it incompatible with many of our existing refineries.

But allowing the Keystone XL pipeline to proceed would not have alleviated the current oil crisis, as Republicans like Oz claim. It only would have added 510,000 barrels per day to U.S. oil imports — demand for which is growing above 7.86 million.

This additional oil would not have made the U.S. oil independent. Nor would it have affected oil prices, which are set by global supply and demand. Europe is experiencing similar oil price hikes.

Oz and his Republican counterparts are right to suggest U.S. dependence on foreign oil is a policy problem. But their partisan barbs misunderstand the actual challenges we face and come up short on devising the specific and urgent solutions we need.

In the short term, Brew notes, the U.S. could limit exports and issue more Jones Act waivers to make it cheaper to transport domestically produced oil to domestic customers. We could also utilize the Defense Production Act and other methods to ease supply chain bottlenecks for equipment and raw materials needed to expand domestic production.

In the long run, Tillier notes, subsidies and incentives already given out to the oil industry could be recalibrated to encourage drilling for the kind of oil our refineries are designed for.

But short-sighted partisanship might continue to stifle these policy changes.

“Politicians, it seems, would rather keep a situation where periodic energy crises give them a cudgel with which to beat an incumbent,” Tillier declares. “Current criticism is of a Democrat by Republicans, but the last time crude was at these levels it was Democrats criticizing George W. Bush, a Republican, for policies and actions that they said forced oil higher back then.”

Kenneth W. Gatten III is a master of public policy student at Penn State specializing in international development policy.