Biden’s Climate Contradiction: OPEC, US Drilling, And Rising Gas Prices

As cognitive dissonance goes, this is a classic. President Biden’s explicit policy goal is to reduce U.S. oil and gas production, limiting the global supply of fossil fuels in the name of fighting climate change.

Yet his Administration is now imploring the OPEC oil cartel to pump more oil so U.S. gasoline prices don’t rise more than they already have on Mr. Biden’s watch.

Oil prices climbed to a six-year high on Tuesday after the Organization of the Petroleum Exporting Countries and Russia failed to agree on increasing production quotas.

Last spring OPEC slashed production quotas after crude prices plunged to $20 per barrel amid economic lockdowns and a price war between Saudi Arabia and Russia.

But energy demand has snapped back in much of the world as Covid-19 vaccines roll out, governments ease lockdowns, and freight shipments surge.

U.S. petroleum consumption is now roughly where it was at this time in 2019. OPEC estimates that oil demand in industrialized countries will increase by 2.7 million barrels a day this year.

In early June OPEC modestly raised production quotas, but demand is still rebounding faster than supply. The upshot is that crude prices are averaging around $74 a barrel, up 45% or so this year.

OPEC countries naturally want to take advantage of the pandemic recovery to boost production and generate more petrodollars to fund their governments.

But a squabble between Saudi Arabia and the United Arab Emirates over quotas is blocking an agreement, sending U.S. gasoline prices to a near seven-year high. Enter the Biden Administration.

A White House spokesperson on Monday said it is urging OPEC and its allies to quickly come up with a compromise “that will allow proposed production increases to move forward.”

The Ad­min­is­tra­tion is wor­ried that higher gas prices could un­der­mine Mr. Biden’s cli­mate agenda and spend­ing plans. Re­pub­licans have been link­ing his veto of the Key­stone XL pipe­line with higher gas prices.

The two aren’t di­rectly re­lated. But no Key­stone does mean that more crude from Canada and the north­ern Bakken Shale will have to move by rail to U.S. re­fin­ers.

This is con­tribut­ing to higher freight de­mand and prices, as well as supply-chain bot­tle­necks, all of which are adding to in­flation­ary pressure.

Consumers feel the pain at the pump and on their util­ity bills as nat­ural gas and propane prices have also surged. Ris­ing en­ergy costs are also feed­ing into the higher price of goods more broadly.

Mr. Biden knows surging prices for gas and other goods hurt mid­dle-class Amer­icans and could un­der­mine his Pres­i­dency. This is one rea­son he refused a proposal to pay for the Sen­ate’s bi­par­ti­san in­frastructure deal by in­creas­ing the gas tax.

But note the irony that Mr. Biden is now urg­ing OPEC to open its taps even while his Ad­min­is­tra­tion is pur­su­ing poli­cies with the goal of shut­ting down U.S. oil and nat­ural gas pro­duction.

His Ad­min­is­tra­tion has sought to halt new leases on fed­eral land, sus­pended leases in Alaska’s Arc­tic National Wildlife Refuge, and is ex­pand­ing en­dan­gered species protections to limit oil pro­duc­tion on pri­vate land, among other poli­cies de­signed to pun­ish fos­sil fu­els.

But re­duc­ing U.S. produc­tion means re­duced global sup­ply even as de­mand surges. This means more pric­ing lever­age for OPEC and Rus­sia—and for Iran if Mr. Biden lets Tehran es­cape sanc­tions on its oil ex­ports as part of a renewed nuclear deal.

So Rus­sia and Iran will ben­e­fit from Mr. Biden’s fos­sil-fuel dis­ar­ma­ment while Amer­i-cans pay more for en­ergy.

The way out of such con­tra­dic­tions would be to let U.S. pro­duc­ers re­spond to higher prices with­out new po­lit­i­cal ob­sta­cles. He can tell the cli­mate lobby it beats po­lit­i­cal de­feat.

h/t GWPF

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