Experts say domestic oil production will help lower gas prices, but relief won’t come overnight
As the war in Ukraine affects gas prices in the United States, Democrats and Republicans are calling for an increase in domestic energy production. But experts say that won’t be a quick fix.
With gas prices in Texas soaring, Democrats and Republicans are imploring the Biden administration to bolster domestic production to help ease the pain at the pump.
Even an overnight expansion of domestic drilling won’t mean immediate relief for consumers, however, as it could take months – or even years – to see a difference in the cost of fuel from more output in the United States.
“It takes a huge investment to bring the oil out,” said Ed Hirs, an energy fellow at the University of Houston and a professor in the university’s department of economics . “In the United States, we’re the high-cost producer. The whole reason we import oil from Russia is because it's cheaper than drilling and bringing it to market from West Texas.”
In a letter to President Biden Tuesday, U.S. Reps. Henry Cuellar, D-Laredo; Sylvia Garcia, D-Houston; Filemon Vela, D-Brownsville; and Vicente Gonzalez, D-McAllen, said restrictions on domestic production make the country dependent on foreign oil.
“The U.S. is the largest producer of oil and natural gas, and recently became the world’s top exporter of liquefied natural gas,” they wrote. “We have the resources and expertise to strengthen our economy and reduce the world’s reliance on Russian energy. For the first time since 2008, Americans are paying an average of more than $4 per gallon at the pump largely due to our dependence on foreign oil and restrictions on domestic production.”
The price of a gallon of gasoline in Texas was $4.004 Thursday, according to Triple AAA. That’s less than the national average of $4.32 but an increase of 63 cents from just last week. The market was further rattled by Biden’s announcement that the United States would no longer import oil, gas or coal from Russia as its unprovoked war on Ukraine continues.
In a news release Tuesday U.S. Sen. John Cornyn, R-Texas, criticized the Biden administration for considering increasing imports of fuel from Venezuela while not increasing production at home.
“Here's a novel concept perhaps the Administration would consider: Why don't we boost our own production from here in the United States and sell it across the globe?” he said.
But Hirs said that it usually takes at least two years before additional drilling translates to lower prices at the pump if the extraction is performed in a new area. And he added there could be less incentive to increase production domestically if the main goal is to lower prices.
“Why would I want to go drill two thousand more wells if I'm only going to ensure that the price is going to go down?” he said. “They don’t do this for their health. And for some reason the consumer thinks that they owe it to us.”
Depending on depth, the time it takes to go from drilling to producing oil can only take a few months, according to a timeline from financial website Investopedia. But the pre-drilling process, which includes seismological surveys, buying land and getting required permits and providing infrastructure, is more time consuming.
Ken Roberts, the founder and president of WorldCity and former member of the Federal Reserve Trade & Transportation Advisory Board, said the oil ban was largely symbolic as the United States imports less than 4% of its oil from Russia. The more significant factor is gasoline, he said, as 21 % of the United States’ imported fuel in 2021 came from Russia.
But outside of the United States, Russia is a major exporter of oil to the rest of the world, which is what is affecting the global market, including the United States.
“Now Russia is having a very hard time selling their oil because so many restrictions are in place,” he said. “That’s the biggest problem and why oil is up.”
One bright side, Roberts noted, is that despite domestic production being such a partisan issue, the United States has steadily become a global energy powerhouse under both parties and somewhat less reliant on global imports.
“Since 2008, the value of U.S. oil imports has fallen a stunning 62.36%, thanks to an enormous increase in domestic production brought on by fracking, which also, until now, kept prices in check,” he wrote in Forbes. “In dollar terms, U.S. oil imports have fallen $220.48 billion since the record year of 2008.”
Despite that optimism, Hirs, the energy fellow from the University of Houston, said Russian President Vladimir Putin can still rattle the markets even more so than what’s already been done if he decides to cut off exports on his own.
“I think we can expect the price to be significantly higher, certainly over $4 a gallon here in Houston, and we can plan on that being here for the length of the conflict,” Hirs told Houston Public Media. “If this conflict continues with this price impact going forward for any extended period of time, then a global recession is the offing for all of us.”
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