To hear the oil and gas industry tell it, Pres. Joe Biden spent the bulk of his first year in office trying to drive the industry out of existence as rapidly as possible. Environmentalists at the same time decry his seeming inability to do anything at all to keep his campaign promises and stem the consumption of fossil fuels.
The US Energy Information Administration (EIA) expects record Permian basin crude output of 4.96 million b/d in December 2021, surpassing the 4.91-million b/d levels reached in March 2020 immediately before production was shut in due to the effects of the COVID-19 pandemic. And EIA expects production to continue to climb into the new year, surpassing 5 million b/d in January 2022.
At the same time, onshore US flaring of natural gas reached 9-year lows in third-quarter 2021, according to Rystad Energy, led by an unexpected reduction in the Permian basin. Permian wellhead flaring peaked in 2019 at more than 600 MMcfd and then plummeted in April-May 2020 as production was shut in. But the most recent levels (below 200 MMcfd) are lower still than the earliest stages of the pandemic, even while crude production is ramping up to record levels.
And relatively inexpensive US natural gas not only has made it the supplier of choice to the rest of the world but helped the bottom lines of Gulf Coast refineries by reducing the cost of hydrogen extraction and improving the economics of processing sour Gulf of Mexico crudes. In late December gas prices in Europe passed $40/MMbtu and prices in Asia were in the mid-high $30s/MMbtu, compared with sub-$4/MMbtu in the US.
Yes, the Biden administration has recommended revisions to the Federal leasing program that will place further limits on the areas available for energy development and also raise costs. And in completing its review of the program, ordered on the first day of Biden’s term, it also explicitly attached these recommendations to both the “climate crisis” and “environmental justice.”
Matching words to actions
Sen. Elizabeth Warren (D-MA) says US oil and gas producers are restraining production to increase profits, share prices, and dividends. This clearly isn’t the case. Politicians and pundits from the other side of the aisle instead attempt to blame the Biden administration for declining production and increasing prices. On-the-ground results, however, render such suggestions hollow.
Look at what’s actually happened. Aside from record production in the country’s largest basin, the Bureau of Land Management (BLM) under the Biden administration has so far approved more permits per month than the previous administration did in any year except for its last, at which point it was attempting to process as many as possible lest it not be returned to office.
What’s more, the current royalty rate has been in place for more than a century. The idea that for some reason it should be immune from examination despite all the advances made by industry in the meantime is absurd.
Relying on the ignorance of the public to attempt to squeeze out incremental bottom-line gains is a bad look, especially when things are going as well as they are. The industry and its lobbyists should instead be taking the opportunity to herald its accomplishments.
Achieving record production while reducing flaring is a big deal. It’s the kind of thing that serves as notice that oil and gas companies can be partners in the energy transition, not simply its targets. Many of them are already behaving accordingly. It’s time to leave the bunker-mentality rhetoric behind as well.